DR@W Forum is an interdisciplinary discussion series which focuses on theoretical and empirical research about decision making. The usual structure of the forum is a 30 minute introduction of the topic/working paper related to decision research, followed by a discussion. The audience prefers discussing work-in-progress topics as opposed to finished papers. We meet on Thursdays between 2:30 p.m. and 3:45 p.m. in the extension on the third floor of the Library (at the Wolfson Research Exchange Area). Contact John Taylor (John.Taylor[at]wbs.ac.uk) if you would like to receive our announcements and reminders.
- Jun232016DR@W Forum: Peiran Jiao (University of Oxford)
Experience-Based Belief Distortion: When Experience is Information-Free
People overweight experience relative to descriptive and observational information, in games, portfolio choice, etc. However, little is known about how beliefs are biased by experienced payoffs. This paper offers a simple model of experience-based belief distortion, where the decision maker with good (bad) experience misinterprets bad (good) signals, and overestimates future good (bad) states. Two experiments were conducted to test the model predictions. The first experiment asked subjects to predict future prices after viewing some stock price charts, and experienced gain/loss was exogenously assigned. The second experiment further provided information about the outcome-generating processes to allow for Bayesian updating as a benchmark. Subjects who gained reported significantly more optimistic guesses than those who lost after viewing the same sequence; in belief updating, they overweighted new evidence in favor of the signal from which they gained.
- Jun162016DR@W Forum: Mahnaz Nazneen (Department of Economics)
Gender Roles and Bargaining Behaviour: A Lab Experiment in Bangladesh
There is ample evidence of gender differences in bargaining behaviour, observed in the laboratory. One possible explanation of such behaviour is Social Role Theory (SRT) which suggests that, men and women behave differently in social situations and take different roles due to expectations that society puts upon them, that almost all behavioural differences are the result of stereotypes. The aim of the study is to examine if there are gender difference in a bargaining behaviour and if these differences can be explained by SRT in a society where perceptions of gender roles are strongly formed. A standard ultimatum game was used to observe bargaining behaviour among 222 university students in a laboratory experiment in Bangladesh. Subjects were randomly assigned to a control or treatment session; where in the latter, subjects read a small vignette about how preferences of individuals are heterogeneous and depend on a number of factors including gender. The purpose of the vignette is to prime for gender differences in behaviour. The main finding is that both men and women Responders ask for a higher MAO when they are partnered with a female Proposer, in the treatment session, after controlling for personality traits, intelligence and risk preferences. Regardless of their gender, the prime influences behaviour of both men and women in a similar manner and overpowers their initial perception (if any) about gender roles. Also, consistent with the literature, I find no significant difference in the Proposer behaviour. I conclude that there is no gender bias per se. Only when subjects are nudged or provided with additional information, they adjust their belief about the other person’s behaviour and mostly this information or signal comes from the society. So, the findings are consistent with Social Role Theory.
- May262016DR@W Forum: Janina Hoffmann (University of Konstanz)
Capacity restrictions in human judgment
Making accurate judgments such as choosing a job candidate presumes an adequate weighting of more and less important aspects, say the candidate’s skills. People may find out the importance of different cues by testing rules specifying how the cues relate to the criterion. In this talk, I will present evidence from three studies suggesting that this ability to test rules is restricted by working memory capacity. In a large individual difference study, we first investigated how working memory and episodic memory affect judgment accuracy. The ability to solve rule-based tasks was predicted by working memory, whereas episodic memory predicted judgment accuracy in the exemplar-based task. Second, increasing working memory load reduced the prevalence of rule-based strategies and ultimately benefitted judgment accuracy in a task that could not be solved by rules. In a final step, we incorporated the assumption that a capacity limit restricts rule-based learning into a learning model and tested it against two alternative psychological mechanisms: a decay in learning speed and attentional learning. A capacity-restricted learning model best described and predicted the learning curve of the majority of participants. Taken together, these studies suggest that learning to accurately weigh the importance of different aspects is limited by working memory capacity.
- May192016DR@W Forum: Giorgio Coricelli (USC Dornsife)
- May122016DR@W Forum: Graham Loomes (Warwick Business School) and Lukasz Walasek (Department of Psychology)
Intrinsic and Extraneous Noise in Risky Choice Experiments
Graham Loomes (Warwick Business School) and Lukasz Walasek (Department of Psychology)
Participants' responses in decision experiments are 'noisy': when presented with exactly the same choice at different moments within the same experiment, many people are liable to answer differently from one moment to another. Some of this may be due to intrinsic variability in the way people generate their decisions; but the experimental environment may also have an impact - e.g. the complexity of the task, the workload, the (lack of) incentives. Moreover, in principle, extraneous and intrinsic factors may interact, and may operate to different degrees for different individuals, making it harder to identify core preferences. Can we identify/separate/measure such effects? We present some results which may shed light on these issues.
- May052016DR@W Forum: James Goulding (University of Nottingham)
Neo-demographics: New ways of analysing human behaviour from Big DataIn the age of mass digital communications, loyalty cards, social networking and mobile phones that never seem to leave our possession, each of us is leaving an incredible array of data in our wake. When aggregated, these mass datasets have unparalleled potential to reveal insights into individual behavioural patterns, to unearth unexpected groups and communities, and identify trends as they emerge across a population.
The EPSRC Neo-demographics project has brought together a team of computer scientists, mathematicians, business researchers and psychologists to explore that potential via multi-disciplinary methods. In collaboration with multinational industry partners, we are examining the novel behavioural patterns that can be mined from these datasets, and whether such mass analytics can be employed for social good.
In this talk, I will discuss the Neo-demographics project’s progress, presenting 1. some of the novel machine learning techniques that have been developed to analyse human behaviour; 2. applications of our work in East Africa for international development and social policy; and 3. a 3D visualization system via we visualize results, called the ‘PARM’.
- Apr072016DR@W Forum: Anca Hanea (University of Melbourne)
An IDEA of how to get the best out of experts
This talk presents a fairly novel structured expert judgement (SEJ) protocol for quantifying parameter uncertainty using multiple experts. Generally, multiple expert opinions need to be aggregated. The two main flavours of aggregation, behavioural and mathematical, define two main classes of SEJ protocols. A third one, the so-called “mixed” approach combines aspects of both behavioural and mathematical methods. The IDEA protocol proposed here mixes specific elements from the three SEJ classes of approaches mentioned above, such that their disadvantages are minimised and their respective advantages cumulate. The acronym IDEA arises from the combination of the key features of the protocol that distinguish it from other structured elicitation procedures: it encourages experts to Investigate, Discuss, and Estimate, following which judgements are combined using mathematical Aggregation.
The experts give their individual opinions in subsequent rounds of elicitations, in a remote manner. In the first round, the experts are required to answer the questions without engaging in any (virtual) discussion with the other experts. They are then given the opportunity to discuss differences of opinion and reconcile the meaning of questions and context. The debate is remote (using an online platform) rather than face-to-face. This has the advantage of promoting the wisdom of crowds, whilst avoiding the tensions associated with group discussion between dominating personalities. The second estimate is again individual and strictly anonymous. At the end of the second round the output is a set of estimates that should further be mathematically aggregated. Several aggregation rules, many of them performance based, can be used and compared. Experts’ performance may be measured in terms of accuracy, calibration and informativness.
- Mar172016DR@W Forum: Ganna Pogrebna (WMG)
Evaluation Periods and Decision Making in For-Profit versus Non-Profit Domains (with Carlo Perroni and Kimberley Scharf)
Investors who are more willing to accept risks when evaluating their investments less frequently are said to exhibit myopic loss aversion (MLA). Several experimental studies (Gneezy and Potters, 1997; Haigh and List, 2005, Langer and Weber, 2005, etc.) found that, in the “for-profit” domain, subjects bet significantly higher amounts of money on a risky lottery when they observe only a cumulative outcome of several realizations of the lottery (long evaluation period) than when they observe a series of individual realizations of this lottery (short evaluation period). We analyse decision making in the short evaluation period and the long evaluation period in the “non-profit” domain and find the reverse effect: people tend to donate more to charity when the evaluation period is short even if charitable giving involves risk. We provide a theoretical explanation of our findings which does not require an assumption of loss-aversion.
- Mar102016DR@W Forum: Ralph Hertwig (Max Planck Institute for Human Development)
- Mar032016DR@W Forum: John Fox (University of Oxford)
Will AI revolutionise the decision sciences? A medical perspective.
Headlines about medical errors and health service failures appear more and more frequently in the media. The general public and health professionals are now aware that medical practice is facing enormous challenges that affect the quality and safety of our clinical services. This has generated public and political pressure to look for solutions; the press often wants to know who to blame, while the politically minded see the need for greater privatisation, organisational change or bigger budgets. This is a global problem, not just one for the NHS.
As a cognitive scientist I see many of the underlying problems as arising from human cognitive limitations and how we bring our knowledge to bear in our reasoning, decision-making, planning etc. For example, decision-making is pivotal to everything we do individually, in groups and in organisations. Uncertainty and risk make decision making difficult - and uncertainty and risk pervade medicine so medicine is a fascinating model for cognitive research. Indeed there is now much talk about how “cognitive computing” and artificial intelligence will “revolutionise medicine”.
This talk will briefly overview some of my research on human expertise and the use of AI in medicine. I will argue that AI systems based on an understanding of human cognition and decision-making can improve quality, safety and efficiency of patient care, perhaps more than political and managerial interventions can. AI and its subfields, like knowledge engineering and machine learning, are showing us how machines can do human-level tasks well, cope with uncertainty, manage risks better, make more objective, evidence-based choices, plan and act more effectively in complex and rapidly evolving situations, while allowing people to retain control.
Will AI will revolutionise medicine? we don’t know yet. However, I am also interested in the question - whether AI and its subsidiary fields, like knowledge representation and autonomous systems, offer significant new insights into human reasoning and decision-making. The possibility that the decision sciences might themselves be revolutionised by the new wave of AI seems ripe for discussion.
- Feb252016DR@W Forum: Andis Sofianos, Neel Sagar (Department of Economics)
- Feb182016DR@W Forum: Silvia Montagna (Department of Statistics)
- Feb112016DR@W Forum: Sebastian Olschewski (University of Basel)
- Feb042016DR@W Forum: Philipp Külpmann (Department of Economics)
- Jan282016DR@W Forum: Kirill Pogorelskiy (Department of Economics)
- Jan212016DR@W Forum: Sharun Mukand (Department of Economics)
- Dec102015DR@W Forum: Stian Reimers (City University London)
- Dec032015DR@W Forum: Andrea Isoni (Warwick Business School)
- Nov262015DR@W Forum: John Arthur (Department of Statistics)
Managing Appetite for Complexity through Heuristic Software: Risk-Reasoning in Global Supply Chains
In complex, dispersed and dynamic real-world systems, like global supply chain design, human beings reason in sophisticated ways. Ethnographic evidence, however, highlights paradoxes. Critical reasoning components – like the conceptualisation and control of risk to protect the value chain – can prove bafflingly basic and openly illogical.
Psychological drivers, such as over-generalised cognitive heuristics, cultural demand characteristics and low tolerance for complexity, are observable causes. This talk demonstrates heuristic software tools designed to enhance the flow of real world expert knowledge to redress ‘complexity appetite failure’ in supply chain risk reasoning.
- Nov192015DR@W Forum: Constantinos Antoniou (Warwick Business School)
- Nov052015DR@W Forum: Neel Sagar (Department of Economics)
Well-being priorities over the life cycle
Subjective well-being levels over the life cycle have been extensively studied. However, well-being priorities over the life cycle have not. I find there is a U-shape over the life cycle in the importance people place upon long term ‘cognitive' measures of well-being (worthwhileness of life, and overall life satisfaction), whilst this relationship is hump-shaped for short term ‘affective' measures (happiness yesterday, and anxiety). Using a simple model, I show that differences in time horizons and optimisation goals between individuals at different life stages may explain these relationships.
- Oct292015DR@W Forum: TBA
- Oct222015DR@W Forum: Ganna Pogrebna (Warwick Manufacturing Group)
- Oct152015DR@W Forum: Arthur Attema (iBMG)
- Oct082015DR@W Forum: Jean-Marc Tallon (Pantheon-Sorbonne University)
"Robust social decisions" - co-authored with E. Danan, T. Gajdos and B. Hill
We propose and operationalize normative principles to guide social decisions when individuals potentially have imprecise and heterogeneous beliefs, in addition to conflicting tastes or interests. To do so we adapt the standard Pareto principle to those preference comparisons that are robust to belief imprecision and characterize social preferences that respect this robust Pareto principle. We similarly characterize a suitable restriction of this principle. The former principle provides stronger guidance when it can be satisfied; when it cannot, the latter always provides minimal guidance.
- Jun252015DR@W Forum: Daniel Read (Warwick Business School)
"Tests for rational disclosure"
According to the theory of rational disclosure, if there is an information asymmetry between two parties, and the more knowledgeable party can provide that information credibly, unless the information is truly embarrassing, that party should rationally choose to disclose it. Similarly, the party who receives the information should interpret any missing information as indicating something truly embarrassing.
What this means in practice is that if your are filling out your CV and there is one year that you spent doing something slightly shameful, you should nonetheless put it on your CV because otherwise everyone will assume you spent that year in jail (or worse).
I will describe some recent studies, carried out with Sunita Sah, concerning whether people do reveal information as predicted by the theory of rational disclosure, and if they do not whether information consumers interpret that failure as they should. The answer to both questions will turn out to be “No.”
- Jun182015DR@W Forum: Philippe Blanchard (Department of Politics and International Studies)
"How optimal is optimal matching?"
Most of the sequence analysis literature in the social sciences relies on the optimal matching algorithm. Imported and adapted from computer science and genetics in the 1980s, this tool has enabled unique advances in the study of professional careers, life course and spatial trajectories, time use patterns, regime change or electoral behaviours.
Yet its foundations remain surprisingly frail, with heterogeneous justifications and uses. A closer examination reveals a complex and varying combination of theoretical principles, authoritative case studies and powerful statistical procedures. However, the algorithm remains attractive, but unevenly across theoretical expectations, contexts of applications and analytical strategies.
- Jun112015DR@W Forum: Behavioural Science PhD Students
Personality mismatch and the well-being of labour
Unemployment has been shown to have a strong negative impact on an individual's subjective well-being. I hypothesise that even the employed suffer a reduction in well-being, when there is a mismatch between a worker's personality traits and ‘ideal' traits required for their job. I show that worker well-being is substantially lower among individuals whose personalities are poorly matched to the requirements of their job. Furthermore, mismatch is associated with lower well-being even when job satisfaction is accounted for, suggesting that being mismatched in personality may have welfare implications outside the work environment.
Higher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma
Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payoff sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.
- Jun042015DR@W Forum: Ron Harstad (University of Missouri)
"Discerning Efficiency Shortfalls Without Knowing Valuations"
Laboratory experiments employing an induced-values methodology often report on allocative efficiencies observed. That methodology requires experimenters know subjects’ motivations precisely, questionable in laboratory experiments, impossible in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An allocation mechanism’s outcome is defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the mechanism and measures at most a negligible size of remaining mutually beneficial gains. I specify methodological requirements for an appropriate aftermarket. A first demonstration observes significantly larger behavioral inefficiencies in second- than in first-price auctions. A simple field demonstration indicates when a public-good increase can be observed to cover marginal cost to subjects’ mutual benefit, without knowing valuations. A wide variety of empirical economic-policy studies can utilize this methodology to observe comparative evidence of alternative policies’ allocative-efficiency shortfalls.
- Jun042015Twitter for Academics Workshop
Rafael Batista leads this interactive workshop for academic staff and PhD Students. The aim of this workshop is to put Warwick’s Behavioural Science GRP on the grid. Academics active on social media are more accessible to other academics, professionals in the industry, and the general public.
This workshop will be a crash course on Twitter for academics. We’ll run through the basics of a Twitter account and share some good practices on how to engage with others via Twitter. I will also discuss the role of Twitter in the publication lifecycle.
Those who attend will leave with:
a) an active Twitter account
b) some clue of #hashtags, Tweets, and Follows and
c) an understanding of how to “publish” research in 140 characters
This workshop is intended for researchers at all levels of their careers. I hope to keep it short, sweet, and to the point (after all, this is what Twitter is all about).
Register your place on the following link: http://www2.warwick.ac.uk/fac/soc/wbs/subjects/bsci/events/grpevent
- May282015DR@W Forum: Adam Sanborn and James Tripp (Psychology Department)
Adam Sanborn, Associate Professor, Department of Psychology will present Learning quickly, but sampling responses
Many everyday estimation tasks ask about discrete objects (How many paint buckets?) or require discrete responses (How many paint buckets are needed to paint a room?). We use Bayesian decision theory to characterize how people make discrete numerical responses, finding that participants learn quickly and accurately from experience but do not always choose the best response.
James Tripp, Research Fellow, Department of Psychology, will present Sampling strategies: People are correct some of the time.
Do people use the correct strategy when combining probability information? We present an individual-level Bayesian analysis of data from a conjunction and disjunction estimation task (N=105). The correct strategy was used some of the time and many people sample strategies on a trial-by-trial basis.
- May212015DR@W Forum: Simon French (Statistics)
Rescheduling of Simon’s Talk from the Spring Term
“Presenting uncertain geographic information to decision makers with an application to crisis management in COBR."
COBR, the UK's National Crisis Centre (actually an abbreviation of the Cabinet Office's Briefing Room) has to deal with many uncertainties in emergencies. SAGE, the Scientific Advisory Group for Emergencies, are a group of experts charged with explaining the issues and uncertainties to government ministers and senior officials.
In the case of a radiation accident how should they present information to COBR about the possible spread of contamination. It is easy to criticise what they currently do, but very difficult to do any better. The talk will describe the interim results and ideas from a project wrestling with problem.
- May142015DR@W Forum: Judith Klein (Warwick Medical School)
The imbalance in good habits (e.g. exercise) and bad habits (e.g. unhealthy food) is evident in the prevalence of obesity. We propose to monitor urine insulin levels to provide people with weight loss intent with molecular feed-back on their metabolic state.
Our mobile health platform available at https://agper.lnx.warwick.ac.uk/mobileHealth-web/ and as applications for apple and android devices allows users to log five types of events (food, activity, weight, urine, ketostix). Results we have obtained so far when varying meal type and timing suggests the approach may help people make life-style changes and health care professionals to provide feedback to them.
- May072015DR@W Forum: Sudeep Bhatia (Warwick Business School)
"A Model of Associative Judgment"
I present a computational model of associative judgment. The model is trained on the English language Wikipedia corpus, and is able to answer unstructured judgment problems spanning an almost universal domain of knowledge. The model achieves a high accuracy rate across a range of experimenter-generated, participant-generated, and real-world question datasets.
The model also accurately predicts human responses on these datasets. These results suggest that associative judgment provides a powerful account of not only human error, but also human intelligence. In doing so, they illustrate a new approach to constructing and testing models of judgment and decision making.
- Apr302015DR@W Forum: Gidi Nave (Caltech)
Testosterone impairs cognitive reflection in men
Co-authors: Amos Nadler, Colin Camerer
The male sex hormone testosterone (T) is released in the body and the brain in response to external stimuli, influencing diverse social behaviors context sensitively. We investigated the causal effects of T administration on human decision-making using a dual-process framework.
244 males received either T or placebo under a double blind protocol and took the Cognitive Reflection Test (CRT) that assesses one's ability to suppress an intuitive incorrect answer in favor of a deliberative correct answer. T administration significantly impaired subject’s CRT performances. The effects were robust to controlling for math skills, age, mood and the levels of other measured hormones.
- Apr172015Spring Holiday DR@W Talk: Daniel Bartels (University of Chicago)
We are pleased to have Daniel Bartels with us who will be giving a DR@W Talk on this Friday 17th April from 2-3pm in the Wolfson Research Exchange, Seminar room 1.
"Reference Points and Credit Card Statements"
Each month, consumers receive credit card statements that include numeric values, such as minimum payments, that influence their repayment decisions. Through several experiments and examination of a large credit card data set, we find that these values can serve as motivating targets and can be used to increase monthly payments.
Daniel M. Bartels, Abigail B. Sussman - University of Chicago
- Mar262015DR@W Forum: Matthias Sutter (University of Innsbruck)
Forensic economics: How customers’ insurance coverage induces sellers’ fraud in markets for credence goods
In markets for credence goods experts are better informed about the appropriate quality than their customers. Moreover, consumers are often unable to observe the quality they actually received. This leaves scope for misbehavior of the expert.
This paper reports on a natural field experiment in the Austrian market for computer repair services set up to measure the impact of informing the service provider that an insurance company will pay the repair bill on the extent and type of fraud. In the control the average repair price is about 70 € versus about 129 € when the service provider is informed that an insurance will cover the cost.
Decomposing the treatment effect into different types of fraud we find that the difference in repair prices is mainly due to overprovision (replacing more parts than necessary) and to overcharging in the working time dimension (charging for more working time than actually provided).
- Mar192015DR@W Forum: Amrish Patel (University of Gothenburg)
"Causal Overdetermination and Blame"
If two banks short-sell a stock the market crashes. Four banks simultaneously short-sell, each believing that all others will do so too. Who is blame for the crash? Responsibility attribution when there are multiple sufficient causes for an outcome is no doubt a thorny issue.
I motivate why it is important economists grapple with this topic and review insights from cognate disciplines (philosophy, artificial intelligence and cognitive psychology) that may help. Finally, I sketch some very preliminary research ideas to fuel discussion.
- Mar122015Big Data for Behavioural Science: Suzy Moat and Tobias Preis
Join us for the very first in a series of special GRP Behavioural Science Events, exploring each of the themes of the Behavioural Science Global Research Priority.
Our everyday interactions with the Internet, our smartphones and smart cards are generating increasing volumes of data on human behaviour. This session will be chaired by Suzy Moat and Tobias Preis (Data Science Lab, Behavioural Science Group, Warwick Business School) and will explore the possibilities offered by Big Data for Behavioural Science.
There will be an introduction by the chairs and a series of short talks by invited speakers including Professor Andrew Oswald (Department of Economics), Professor Rob Procter (Department of Computer Science) and Professor Neil Stewart (Department of Psychology), followed by a general discussion with the audience and panel.
The event will take place in M2 (WBS Teaching Centre) from 2.15 p.m. – 4 p.m. Tea and coffee will be available from 2 p.m. in the WBS Teaching Centre. All are welcome!
- Mar052015DR@W Forum: Andrew Siu (Department of Economics)
"How Intuitive and Analytic Thinkers Punish Norm Violators out of Anger"
Punishing norm violators can sustain social cooperation. But some violators are left unpunished when punishers must pay to impose penalty. We experimentally examine how two dispositional factors—intuitive and analytic thinking—and anger towards violators affect the way individuals punish at different prices of punishment.
We find that (a) highly intuitive thinkers are more insensitive to price changes than the less intuitive; (b) less analytic thinkers punish more than the highly analytic; (c) highly intuitive, angry people are much more insensitive than less intuitive, angry people; (d) angry people still pay attention to punishment prices.
- Feb262015DR@W Forum: Robb Rutledge (UCL)
"A neural and computational model of momentary subjective well-being"
The subjective well-being or happiness of individuals is an important metric for societies, but we know little about how the cumulative influence of daily life events are aggregated into subjective feelings. Using computational modeling, we show that momentary subjective well-being in a probabilistic reward task is explained not by task earnings, but by the combined influence of recent reward expectations and prediction errors arising from those expectations.
The robustness of this account was evident in a large-scale smartphone-based replication with 18,420 participants.
- Feb192015DR@W Forum: Simon French (Department of Statistics)
“Presenting uncertain geographic information to decision makers with an application to crisis management in COBR."
COBR, the UK's National Crisis Centre (actually an abbreviation of the Cabinet Office's Briefing Room) has to deal with many uncertainties in emergencies. SAGE, the Scientific Advisory Group for Emergencies, are a group of experts charged with explaining the issues and uncertainties to government ministers and senior officials. In the case of a radiation accident how should they present information to COBR about the possible spread of contamination. It is easy to criticise what they currently do, but very difficult to do any better. The talk will describe the interim results and ideas from a project wrestling with problem.
- Feb122015DR@W Forum: Pedro Bordalo (Royal Holloway, University of London)
"Memory, Attention and Choice"
Abstract: We present a theory of consumer choice that combines elements of limited recall and of allocation of attention distorted by salience. The theory helps clarify and organize a variety of evidence dealing with consumer reaction to information, including surprises in quality and prices, unshrouding of hidden attributes such as taxes or maintenance costs, and reminders.
A common feature of the empirical evidence, which our model sheds light on but standard models do not explain, is that consumers under or overreact to information, depending on what draws their attention. We also present a normative analysis of reaction to reminders which adjusts the more standard ``sufficient statistic'' methodology.
- Feb052015DR@W Forum: Victoria Henderson (Department of Statistics)
"Randomized Strategies and Prospect Theory in a Dynamic Context"
We consider CPT agents who face optimal timing decisions in a dynamic setting, e.g. when to stop gambling in a casino or when to liquidate stocks. It is known that probability weighting leads to time inconsistency and a naïve agent may follow a different strategy to that which he initially planned to follow (Barberis (2012)).
However, it also leads to another feature which has not been considered to date - agents may prefer randomised strategies to pure strategies, i.e. CPT agents should spin a coin to help them reach an optimal solution. In the discrete model of Barberis (2012) we show that allowing randomized strategies leads to significant gains in CPT value. In the continuous model of Ebert and Strack (2014) we show their extreme conclusion that naïve CPT agents gamble “until the bitter end’’ is no longer valid if the agent has a coin in his pocket.
- Jan292015DR@W Forum: Ben Newell (University of New South Wales)
"Are risk and delay psychologically equivalent? Evidence from direct comparisons."
We know a lot about people’s time preferences. We also know a lot about people’s risk preferences. We know much less about how risk and delay interact. Consider an individual who is indifferent between receiving $90 in 8 months or receiving $50 now; and similarly indifferent between a 60% chance of receiving $90 or $50 for certain. What would happen if they were asked to choose between receiving $90 in 8 months or a 60% chance of $90 now? Strict psychological equivalence of risk and delay predicts indifference here too.
I will present some recent work in which we have attempted to elicit and model people’s preferences for these kinds of choices in the hope of shedding light on what has been described as the “complex and not easily understood” (Weber & Chapman, 2005, p.104) interaction of risk and delay.
- Jan222015DR@W Forum: Alex Voorhoeve (LSE)
Ambiguity Attitudes, Framing, and Consistency (joint work with Ken Binmore, Arnaldur Stefansson and Lisa Stewart)
We use probability-matching variations on Ellsberg’s single-urn experiment to assess both the sensitivity of ambiguity attitudes to framing and the consistency with which subjects display these attitudes within a single frame. Contrary to most other studies, we find very little change in ambiguity attitudes due to a switch from a gain to a loss frame; we also find that making ambiguity easier to recognize has little effect. Regarding consistency, we find that 28% of subjects are highly inconsistent choosers; roughly the same share are highly consistent. Ambiguity attitudes depend on consistency: ambiguity seeking is much more frequent among inconsistent choosers; consistent choosers are much more likely to be ambiguity neutral.
- Jan152015DR@W Forum: Leif Brandes (Warwick Business School)
The Value of Top-Down Communication for Organizational Performance
We design a laboratory experiment to identify causal performance effects of top-down communication between managers and their subordinates. Our focus lies on communication that resolves uncertainty about the work environment but does not provide task-specific knowledge.
Recent articles in the business press report a lack of such communication in real-world organizations and associate it with reduced organizational performance. Our results confirm this observation. We find that top-down communication is a profitable way for managers to increase employee performance in the presence of uncertainty. Specifically, we show that non-communication is the worst option for managers.
However, 50 percent of our experimental managers use top-down communication too restrictively. Overall, managers forego 30 percent of their potential profits through non-communication. We show that organizations can overcome this problem by adopting automated information procedures, which are equally effective.
- Jan082015DR@W Forum: David Gill (University of Oxford)
Cognitive ability, character skills, and learning to play equilibrium: A level-k analysis
In this paper we investigate how cognitive ability and character skills influence behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions.
We study behavior in a $p$-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction.
To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-$k$ reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cog-nitively able subjects does not respond.
Finally, we compare the influence of cognitive ability to that of character skills, and find that both cognition and personality affect behavior and learning. More agreeable and emotionally stable subjects perform better and learn faster, although the effect of cognitive ability on behavior is stronger than that of character skills.
- Dec042014DR@W Forum: Roee Teper (University of Pittsburgh)
"Learning the Krepsian State: Exploration Through Consumption" (joint work with Evan Piermont and Norio Takeoka)
In this paper, we axiomatize an infinite-horizon subjective state space model. In contrast to many subjective state space models, the resolution of uncertainty regarding the true state is an endogenous process that depends on the decision maker's past consumption. In addition, there need not be full resolution of uncertainty between periods.
When a decision maker consumes outcomes, she learns her relative preference between them; after each consumption history, the decision maker's state space is a refinement of the previous state space. We identify the (set of possible) conditional preferences induced by each series of consumption.
- Nov272014DR@W Forum: Darren Duxbury (Newcastle University)
Perceptions of financial volatility
Stock prices in financial markets rise and fall, sometimes dramatically, thus asset returns exhibit volatility. In finance theory, volatility is synonymous with risk and as such represents the dispersion of asset returns about their central tendency (i.e. mean, μ). The conventional measure of volatility in finance theory, therefore, is the standard deviation, σ, of asset returns.
When individuals make investment decisions, influenced by perceptions of risk and volatility, they commonly do so by examining graphs of historic price sequences rather than returns. It is unclear, therefore, whether standard deviation of return is foremost in their mind when making such decisions. We conduct an experiment to examine the factors that may influence perceptions of financial volatility, including standard deviation along with a range of price-based factors (e.g. number of changes in direction, number of peaks and troughs, number of highs and lows, mean absolute price change etc.). While standard deviation may have a role to play in perception of volatility, we find evidence that other price-based factors play a far greater role, thus calling into question the finance theory perspective.
- Nov202014DR@W Forum: Ladislav Kristoufek (Warwick Business School)
Ladislav Kristoufek (Warwick Business School)
Is suicidal behavior reflected in online activity? Evidence from England and Wales (joint with H. S. Moat and T. Preis, both WBS)
Identifying causes of suicide attempts and committed suicides themselves has long been a worrying concern in psychology and psychiatry as well as in social sciences such as demography, sociology and economics. In recent years, study of online activity of Internet users has proven fruitful in various fields ranging from medicine, ecology and epidemiology to linguistics, politology, sociology and economic, financial and business sciences. We provide a careful study of interconnection between committed suicides and related online searches in England and Wales between 2004 and 2011. Models based on Google data significantly improve the base models for suicides. Further inspection uncovers that the “depression" term is negatively related to suicide occurrences whereas the “suicide" term shows positive relation. Both effects vanish after 3 months. Overall quality of models is higher for men and overall suicides compared to women. Online search activity thus provides a significant addition to suicides modeling.
- Nov132014DR@W Forum: Collin Raymond (University of Oxford)
Collin Raymond (University of Oxford)
A Behavioral Analysis of Stochastic Reference Dependence
We examine the reference-dependent risk preferences of K}oszegi and Rabin (2007), focusing on their choice-acclimating personal equilibria concept. We relate their model to other existing generalizations of expected utility. We demonstrate that linear gain-loss choice-acclimating personal equilibria is equivalent to the intersection of quadratic utility and pessimistic rank-dependent utility. However, it has only a trivial intersection (i.e. expected utility) with other reference dependent preferences. We use these relationships to extend our understanding of K}oszegi and Rabin's model: linking their functional form to behavior; demonstrating new applications; and deriving new tests and looking for support in existing experimental data.
- Nov062014DR@W Forum: Peter Sozou (LSE)
Peter Sozou (London School of Economics)
When common interest and competition collide
Where individuals have a common interest, they may be expected to help each other. In biology, relatives have a common (genetic) interest in each other's reproductive success. In economics, a common interest occurs where payoffs are structured in such a way that.success of one individual (or agent) leads to a positive payoff for another. Conversely, where there is a contest for a limited resource, an individual may benefit from harming its competitors. In this talk, I will consider situations in biology and economics in which individuals with a common interest are in a competitive contest. It is shown that this can lead to outcomes where they tend to help each other, outcomes where they tend to harm each other, and to asymmetric outcomes in which A helps B while at the same time B harms A.
- Oct302014DR@W Forum: Daniel Navarro-Martinez (UPF)
Daniel Navarro-Martinez (UPF)
Uncertainty Regulation Theory: How the feeling of uncertainty shapes decision making
I will present a theory of decision-making behavior based on the idea that when people find themselves in a situation in which they have to make a choice, they experience to some degree a feeling of uncertainty. Regulating that feeling, usually by trying to reduce it, is proposed to be a fundamental motivation in decision-making processes. I will illustrate how such an uncertainty-regulation principle can explain and unify a large number of well-known decision-making phenomena, many of which have been given diverse explanations. The theory does also make unique predictions about how those phenomena are affected by changes in the feeling of uncertainty experienced in decision situations. I will also present some experimental evidence that confirms the predictions of the theory.
- Oct232014DR@W Forum: John Thanassoulis (Warwick Business School)
John Thanassoulis (Warwick Business School)
Government Distortions, Bankers' Pay and Excessive Risk
This paper studies executive risk-taking under optimal pay contracts when firms' debt is accurately priced after executives make their investment decisions. In our model the discipline of debt markets prevents standard risk-shifting concerns. However, the government distortions of debt interest tax deductibility and too-big-to-fail cause bank executives remunerated in equity-linked bonus to choose excessively risky projects. We use the model to evaluate the existing proposals for remuneration regulation to curb excessive risk-taking. Rewarding in debt does not alter the distortions as the expected return on debt is invariant to project risk. Executives' incentives can be corrected by re-basing pay away from return on equity or by deferring pay with a clawback clause. By contrast, bonus caps as a proportion of fixed wages disincentivise project selection effort and can lead to worse outcomes.
- Oct162014DR@W Forum: David Ronayne (Department of Economics)
David Ronayne (Department of Economics)
I offer an account of how individuals evaluate multi-attribute alternatives along with empirical evidence. The model extends and develops the single-attribute decision-by-sampling (DbS) model of Stewart et al. (2006). The multi-attribute DbS model of how individuals assign value to multi-attribute alternatives assumes the following two-stage process: 1) The choice set presented to an individual is used as information to update the individual's belief over the total market offerings of that alternative (or product); 2) an alternative within the choice set is then evaluated by a finite series of dominance comparisons between it, the remaining alternatives in the choice set and others drawn from the posterior. The model captures all three of the most well-evidenced multi-attribute context effects: the attraction, compromise and similarity effects. Explaining all three of these effects within the same framework has been a challenge in the decision-making literature. I show how each of these ``big three'' context effects are produced theoretically by the model. I then provide some experimental evidence that tests the model's predictions.
- Oct092014DR@W Forum: Tim Pleskac (Max Planck Institute for Human Development)
Tim Pleskac (Max Planck Institute for Human Development)
Ecologically rational choice and the structure of the environment
In life risk is reward. This relationship between risk and reward or probabilities and payoffs seems obvious to many. Yet theories of decision making have largely ignored it. We conducted an ecological analysis of life’s gambles. Across all domains, payoffs and probabilities proved intimately tied, with payoff magnitudes signalling their probabilities. In some cases, the relationship is due to economic constraints, but in others it arises even despite economic constraints. We show that people exploit this relationship in the form of a heuristic—the risk–reward heuristic—to infer the probability of a payoff during decisions under uncertainty. We show how the heuristic can explain ambiguity aversion. More broadly, we argue that this ecological relationship can inform our understanding of choice under risk and uncertainty.
- Sep302014DR@W Forum: Peter Wakker (Erasmus University) - *Please note this DR@W Forum is on a Tuesday*
Peter Wakker (Erasmus University)
Prince: An Improved Method for Implementing Real Incentives (joint with Cathleen Johnson, Aurélien Baillon, Han Bleichrodt, Zhihua Li, & Dennie van Dolder)
ABSTRACT. We introduce the prior incentive system (Prince) for measuring preferences. Prince makes the decision relevance and incentive compatibility of experimental choice questions clearer to subjects than was possible before. It combines the efficiency and precision of matching with an improved clarity and validity of choice questions. It helps distinguish between (a) genuine deviations from classical economic theories (such as the endowment effect) and (b) preference anomalies due to fallible measurements (such as preference reversals). Prince avoids (a) The opaqueness of the Becker-DeGroot-Marschak mechanism; (b) violations of isolation of the random incentive system; and (c) strategic behavior for adaptive experiments. Using Prince we shed new light on willingness to accept, subjective probabilities and utilities, and ambiguity attitudes. Not only did we avoid any deception of subjects, but, moreover, every subject could verify so during the experiment.
- Jul292014DR@W Summer Talk: Barry Sopher
Barry Sopher (Department of Economics, Rutgers)
"Intertemporal Planning with Temptation, or Anticipating Your Lazy, Disorganized Self"
We investigate inter-temporal planning problems as a way of gaining understanding of the characteristics of individual decision makers and the choice options presented to them that lead decisions to be optimal or sub-optimal. Key to determining whether a decision is suboptimal is determining whether a decision is objectively a bad decision, but this is not so easy to do as might be thought. A frequent simplifying assumption that is made in studies of this sort is that choice of options that yield lower monetary payments than other available options is suboptimal, but consideration of uncertainty in fulfilling requirements to obtain future payments easily disposes of this notion. For example, if one opts for an option in which one pays zero interest for a year on a purchase, but then fails to pay the item off before high interest charges kick in, this might be considered suboptimal, compared to paying the item off up front, or in some other fashion. But key here is that what makes an action optimal or suboptimal is often contingent on information that is essentially unobservable, specifically, the probability that one will fail to pay the item off in time. In the experiment we will be able to make inferences about whether behaviour was optimal or not, by making inferences about personal characteristics based on the choices one makes, and then observing actual behaviour in executing the chosen option to see if it is consistent with the choice behaviour observed.