Decision processes brown bag, 2003-2004

D P 12-1:20 PM, Monday
Jon M. Huntsman Hall, room 365

The current brown bag schedule has moved.

Jan 26 Jerry Busemeyer (Indiana) A re-examination of preference reversal phenomena from the viewpoint of decision field theory.
Feb 2 Sheena Iyengar (Columbia) How Choices are Demotivating: Evidence from 401(k) Investors and Speed Daters
Feb 9 Kevin McCabe (GMU) The Neuroeconomics of Working for Self and Others
Feb 16 Nick Epley (Harvard) Rebate or Bonus? The Impact of Income Framing on Spending and Saving.
Feb 23 Andrea Gurmankin (Rutgers) Provider-patient risk communication: exploring the gap.
Mar 1 Robyn LeBoeuf (Florida) The Changing Choices of Shifting Selves: Identity Salience and its Impact on Preference.
Mar 15 Cade Massey (Duke) Judgment and Choice in the NFL Draft
Tue
Mar 23
Paul Slovic (Oregon)
Distinguished speaker
4:30-6, JMHH 255
Choices among Gambles: What Have We Learned From Half a Century of Research?
Mar 29 Yaacov Trope (NYU) Inter-temporal Construal and Choice
Apr 5 Peter Ubel (Michigan) Risky feelings: Why 6% doesn't always feel like 6%
Apr 12 Bart Wilson (GMU) Second Chance Offers vs. Sequential Auctions: Theory and Behavior
Apr 19 Nancy Rothbard (Penn) Psychological Lithium: Task Engagement and the Self-Affirmation Motive

Summer 2004 brown bags


Other relevant events on campus

Applied economics workshop

Past years

fall 2003

2002-03

2001-02

2000-01

1999-2000

Spring 1999


Jonathan Baron, web page maintainer

Abstracts

Jerry Busemeyer
A re-examination of preference reversal phenomena from the viewpoint of decision field theory.

Decision theorists use various methods for measuring preferences including choice, certainty equivalents, buying prices, selling prices, and probability equivalents. However, these methods fail to produce consistent preference orderings, and preference reversals have been empirically demonstrated between each pair of measures. Previous attempts to explain these findings have relied on the basic idea that the utility assigned to each prospect is changed by the measurement method - the decision weight, value, or formula for combining weights and values is changed by the measurement method. We present an alternative theory which assumes that the utility of each gamble remains invariant across measurement methods - instead we propose that the dynamic and stochastic processes used to generate a response to each of these tasks are mainly responsible for the inconsistencies. We present a computational model that involves a Markov matching process driven by a stochastic choice process, and we show that this process model provides a simple explanation for all of the main findings, using fewer parameters than earlier theories. Furthermore we compare the computational model with earlier accounts by evaluating in increment in proportion of variance explained by changing from invariant utilities to variable utilities across measurement methods.

Suggested Reading:

Busemeyer, J. R. & Johnson, J. G. (2003) Computational models of decision making. To appear in D. Koehler & N. Harvey (Eds.) Handbook of Judgment and Decision Making.Blackwell Publishing Co.


Shenna Iyengar
How Choices are Demotivating: Evidence from 401(k) Investors and Speed Daters.

Prior research documenting the phenomenon of choice overload suggests that the provision of more rather than fewer choices renders choosers less likely to make a choice. This paper examines whether such a phenomenon generalizes to more consequential decision-making contexts in which choosing not to choose constitutes suboptimal behavior. We analyze archival data from nearly 800,000 individuals' defined contribution decisions (i.e., 401(k)), observing that a greater number of options negatively correlates with individual participation probability. Further analyses of participants' choices suggest that choosers confronted by more rather than fewer options exhibit preferences consistent with loss aversion. Theoretical and practical implications of these findings are discussed.


Kevin McCabe
The Neuroeconomics of Working for Self and Others

Standard principal-agent theory suggests that monetary incentives are necessary to align the goals of participants to allow them to work together to achieve mutual gains. However, in practice, monetary incentives often seem to create more competitive or selfish behavior by participants. This has led to two different philosophies towards compensating employees. One philosophy strongly supports using monetary incentives, but designing them correctly, while the other philosophy supports team building over monetary incentives. We use experiments to study individuals' willingness to benefit others in environments where work produces mutual gains.

In a delayed match to sample task an individual had the opportunity to earn money for correct responses in four conditions. Self is paid, another person, Other, is paid, Both are paid, or Neither is paid. We also vary whether the person is a Stranger or someone they know, i.e., the Friend condition. In the stranger condition, individuals are willing to work as much for strangers as they do for themselves even though they avoid this work in the neither pay condition. However, if the subject must also pay a monetary cost to decide, they stop working for Other even though they continue working for Self. In the Friend condition people work as hard for Friends as they do for, Strangers and Self, when their is no monetary costs, and they continue working for Friends when there is a monetary costs. However, in the presence of monetary costs work for Friend increases as the amount that can be earned for Friend increases.

One interpretation of these results is that our inherent social incentives are to work for others (who were likely over both evolutionary and developmental time to be friends) and that these incentives are designed to maximize the gains from joint effort. However, the introduction of monetary costs creates a more selfish incentive to simply maximize own returns, or to maximize the reciprocal benefits induced by working for friends.


Rebate or Bonus? The Impact of Income Framing on Spending and Saving.
Nicholas Epley

All income increases absolute wealth, but decisions to spend income may be largely based on perceived changes in wealth. Change is computed by comparing a current state with a former state, and decisions are therefore influenced by whatever former state is used. Several experiments in both field and laboratory contexts indicate that people are more likely to spend income described as an increase from the status quo (a "bonus") than identical income described as a return to the status quo (a "rebate"). This occurs in recalled spending, reported spending, and actual spending. These results may have important public policy implications for the use of tax rebates to stimulate economic growth, and interesting theoretical implications for consumption decisions in a wide variety of domains.


Provider-patient risk communication: exploring the gap
Andrea Gurmankin, Rutgers

Provider-patient risk communication is critical to nearly every aspect of disease prevention, screening, diagnosis and treatment. In 3 studies, the risk perception that is derived from a provider risk communication was examined. In the first study, subjects (n=115) completed a questionnaire on the Web for $3. Subjects were presented with hypothetical cancer risk scenarios that included a physician risk communication in a within-subject 4x3 design: 4 cancer types; 3 physician risk communication formats (verbal only, verbal + numeric probability as a percent, and verbal + numeric probability as a fraction). In each scenario, subjects were asked to imagine themselves as the patient described and to state their perceived personal susceptibility to the cancer (i.e., risk perception) on a 0 to 100 scale, their trust in the information from the physician, as well as responses to other measures. Subjects' risk perception was highly variable, spanning nearly the entire probability scale for each scenario. The degree of variation was no different in the verbal than numeric versions. Subjects were more likely to overestimate than underestimate their risk relative to the stated risk in the numeric versions, and overestimation was associated with worry, the belief that the physician minimized the risk so they wouldn't worry, and innumeracy, as well as decisions about testing for the cancer. In addition, subjects were more trusting of the risk information in the numeric versions than in the verbal versions. The main findings in this study were replicated in a second study in which Web subjects (n=217) responded to each of the 4 scenarios but in only one of the three risk communication versions. A third study examined these questions in a real clinical setting: patients receiving a communication about their breast and/or BRCA1/2 mutation risk. Subjects (n=87) in this third study also overestimated their risk relative to the risk estimate that was communicated to them, and overestimation was most consistently associated with breast cancer worry. The results of this research demonstrate a significant gap between the intended message and message received in physician risk communications and explanations for this gap.


The Changing Choices of Shifting Selves: Identity Salience and its Impact on Preference
Robyn LeBoeuf, University of Florida

In several studies, we manipulated the salience of participants' social identities; we then assessed preferences through a variety of consumer and strategic choices. Preferences assimilated to the salient identity, whether that identity stemmed from participants' roles (e.g., student, family member) or cultures (e.g., Chinese, American). In contrast to standard priming effects, the observed preference reversals were moderated by participants' relationships with the evoked identities: no preference assimilation was observed among those who did not hold, or who held but did not identify with, an evoked identity. Because of people's fluctuating conceptions of who they are, preferences remain malleable even when all other aspects of a decision problem are held constant.


Judgment and Choice in the NFL Draft
Cade Massey, Duke University

A question of increasing interest to researchers in a variety of fields is whether biases persist when stakes are high and "professionals" make the judgments and decisions. To investigate this question, we analyze the decision making of National Football League teams during their annual player draft. We conjecture that teams overvalue picking early in the draft because of two biases: they are overconfident in their ability to predict the future performance of players, and they overestimate the likelihood other teams hold similar judgments, i.e., the false-consensus effect. Using data over the past 15 years on draft-day trades, player performance and player compensation, we evaluate the costs and benefits of draft position. Through a variety of analyses, we show that the relationship between draft order and draft costs is much stronger than the relationship between draft order and draft benefits. We conclude that draft order is overvalued in the NFL, consistent with many findings in the psychological literature, and inconsistent with the claim that high stakes and experience are sufficient to overcome judgment and decision biases.


Choices among Gambles: What Have We Learned From Half a Century of Research?
Paul Slovic, Decision Research and University of Oregon

The gamble has been to decision research what the fruit fly has been to biology - a vehicle for examining fundamental processes with presumably important implications outside the laboratory. Judgment and decision researchers have been studying people's preferences among gambles for more than 50 years. I have been fortunate to have had the luxury of participating in this research since 1959. My talk will briefly trace my wanderings in this field, a journey that, through many serendipitous twists, has led to new conceptions of preference and what I hope are useful insights about the interplay of affect, reason, risk, and rationality in life's most important gambles.


Yaacov Trope, NYU
Inter-temporal Construal and Choice

Construal level theory proposes that temporal distance changes people's responses to future events by changing the way people mentally represent those events. The greater the temporal distance, the more likely are events to be represented in terms of a few abstract features that convey the perceived essence of the events (high-level construals), rather than in terms of more concrete and incidental details of the events (low-level construals). The informational and evaluative implications of high-level construals, compared to those of low-level construals, should therefore have more impact on responses to distant future events than near future events. My talk explores the implications of construal level theory for temporal changes in evaluation, prediction, and choice. I suggest that temporal construal is a general cognitive mechanism that underlies a broad range of psychological consequences of temporal distance.


Peter Ubel, Michigan
Risky feelings: Why 6% doesn't always feel like 6%

I will describe a series of studies in which judgments and decisions based on medical risk are influenced by affect. In some cases, the "feel" of risk is influenced by subtle factors, such as whether people are asked to make risk estimates before receiving risk information, or whether they are given irrelevant information, in the form of uninformative anecdotes, or uninformative comparative risk information. Other times, their decisions are influenced by the affective power of the medical outcomes they are asked to think about, to the point that the probability of those outcomes seems irrelevant.


Second Chance Offers vs. Sequential Auctions: Theory and Behavior
Timothy C. Salmon, Florida State University and Bart J. Wilson, George Mason University

Second chance offers in on-line marketplaces involve a seller conducting an auction for one unit of a good and then using the information gained during the auction to bargain privately with a losing bidder, offering a take-it-or-leave-it price for another unit. We seek to theoretically and experimentally investigate the nature of this practice. We first characterize the equilibrium bidding behavior in a two-stage game of a second price auction followed by an ultimatum game played by the seller and the price-setting bidder. Because the losing bidder wishes to hide his true value from the seller, value revelation is no longer an equilibrium in the second price auction, and the only equilibria that exist involve mixed strategies. We then conduct a controlled experiment to examine the revenue generation aspects of this process and compare it to conducting sequential English auctions for both goods. The results show that the auction-ultimatum game mechanism is able to raise more money for the auctioneer than the sequential auction.


Psychological Lithium: Task Engagement and the Self-Affirmation Motive
Nancy Rothbard (Penn)

Two experiments explored the effects of positive and negative experiences in one task on one's level of engagement in a subsequent task. In experiment 1, when participants were provided positive or negative feedback regarding their performance on a first task that was diagnostic of underlying ability, negative feedback increased engagement in a subsequent task, a compensatory response, whereas positive feedback, a direct self-affirmation, produced decreased levels of engagement on a second task. In the second experiment, this compensatory response was eliminated via an opportunity to indirectly affirm the self. The discussion focuses on the unintended consequences of satisfying the self-affirmation motive as well as how feeling better can sometimes impair doing better.


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