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Measuring Utility By a Single-response Sequential Method
Abstract
The purpose of this paper is to describe a sequential experiment that provides, at each stage in the sequence, an estimate of the utility to the subject of some amount of a commodity (e.g., money), and to present a few experimental results obtained with the method. The procedure is based upon the following well-known ‘expected utility hypothesis’. For each person there exist numerical constants, called utilities, associated with the various possible outcomes of his actions, given the external events not under his control. If, for a given subject, we could know the values of these constants and the (‘personal’) probabilities he assigns to the various external events we could, according to this model, predict his choice from among any available set of actions. He will choose an action with the highest expected utility; i.e., with the highest average of utilities of outcomes, weighted by the probabilities he assigns to the corresponding events. He will be indifferent between any two actions with equal expected utilities. Note that (by the nature of weighted averages) the comparison between expected utilities does not depend on which two particular outcomes are regarded as having zero-utility and unit-utility.
... As in Study 2b, we ran some US participants with the same pay as offered to the participants in South Africa. Other US participants worked for pay adjusted to reflect local differences in purchasing power, using a procedure analogous to the one in Study 2b 107 . In the US sample with the same subjective pay, we increased the base pay from $1.30 to $2.25 in all conditions, as well as the piece-rate from 5 to 9 cents per 10 images in the monetary condition. ...
... Participants. Participants for all three samples were recruited from Prolific: N = 1,053 in Mexico; N = 1,098 in the US sample with the same nominal pay; N = 1,122 in the US sample with increased pay pre-tested to be subjectively equivalent 107 to that in Mexico. The participants in Mexico completed the study in Spanish, while those in the United States did so in English. ...
... To determine subjectively equivalent pay amounts for Prolific participants from Mexico and from the United States, we followed the Becker-DeGroot-Marschak (BDM) procedure 107 . A separate group of participants got briefly acquainted with the task and were then asked how much remuneration they would need to complete its full version. ...
Motivating effortful behaviour is a problem employers, governments and nonprofits face globally. However, most studies on motivation are done in Western, educated, industrialized, rich and democratic (WEIRD) cultures. We compared how hard people in six countries worked in response to monetary incentives versus psychological motivators, such as competing with or helping others. The advantage money had over psychological interventions was larger in the United States and the United Kingdom than in China, India, Mexico and South Africa (N = 8,133). In our last study, we randomly assigned cultural frames through language in bilingual Facebook users in India (N = 2,065). Money increased effort over a psychological treatment by 27% in Hindi and 52% in English. These findings contradict the standard economic intuition that people from poorer countries should be more driven by money. Instead, they suggest that the market mentality of exchanging time and effort for material benefits is most prominent in WEIRD cultures.
... The basis of this investigation is the human capital hypothesis. This is the basic idea of linking the mediating and dependent variables to the independent components as highlighted in Human capital theory (Becker, DeGroot, and Marschak 1964;Tsang, Rumberger, and Levine 1991) includes the following conceptual framework. ...
... According to the human capital theory of Becker, DeGroot, and Marschak (1964), it can be inferred that the methods used by employees are negatively correlated with turnover. Furthermore, if firms attempt to internalize employment without investing in employee development, human capital theory predicts that they may do so. ...
... To determine whether to internalize or externalize employment, it is helpful to compare the estimated returns on worker productivity. Furthermore, a supporting hypothesis in this study is the efficiency wage theories that were highlighted and proposed by Becker, DeGroot, and Marschak (1964) in the human capital theory to explain pay practices and turnover. These arguments support the notion that paying employees more lowers employee turnover. ...
In this study, psychological empowerment, work engagement, and pay satisfaction were used to estimate the best fit model for teacher retention at the Department of Education in Region XII. The study employed quantitative research design using path analysis and correlational approach which are under non-experimental research design. Using the stratified random sampling technique, the 400 secondary teachers from the divisions of South Cotabato, Koronadal, General Santos, and Sarangani were identified. The statistical tools that were used in interpreting the data were weighted mean, Pearson r correlation coefficient, and path analysis. Additionally, survey questions that had been adjusted, changed, and validated were employed. The outcome demonstrates the extremely high degree of psychological empowerment among secondary educators. Teachers also exhibit high levels of work engagement. Nonetheless, secondary teachers have a poor degree of salary satisfaction. As a result, secondary teachers have a high rate of teacher retention. Additionally, the results indicated that pay satisfaction was substantially connected with teacher retention when each independent variable was examined in relation to teacher retention. Additionally, there was a strong correlation between teacher retention and psychological empowerment. The best fit model for predicting teacher retention is model 3. According to the model, among secondary school teachers in Region XII, psychological empowerment and pay satisfaction are predictive factors of teacher retention.
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... I measure the externalities of the training by asking farmers how much they are willing to pay for only one specific farmer in their village to be trained on pest-control practices for the pest fall armyworm. The willingness-to-pay elicitation mechanism, a variant of the Becker-deGroot-Marschak or BDM (Becker et al., 1964), is incentive-compatible and yields a measure of the externalities generated by one trained farmer keeping others' actions constant. 1 The feature of keeping others' actions constant is achieved by allowing a maximum of one farmer to receive training per village through a lottery; it allows to shut down complementarities and substitutabilities in demand that would confound the observed willingness-to-pay for others. ...
... My paper overcomes this bias by eliciting valuations that are incentive-compatible and have real stakes. The elicitation technique I adopt is a multipleprice-list (MPL) variant of the standard BDM (Becker et al., 1964) 4 , shown to perform just as well as BDM for demand estimation in the field; Berry et al. (2020) implement a multiple-price-list variant of the BDM mechanism in the field to estimate willingnessto-pay for water filters in Ghana and compare BDM to take-it-or-leave-it (TIOLI) offers experimentally, finding they perform similarly; Burchardi et al. (2021) compare MPL to standard BDM and find comparable and high rates of comprehension and optimal bidding behavior. In my elicitation exercise, I collect valuations from six to nine sampled farmers per village in 103 villages in the Eastern region of Uganda (780 farmers in total), and each sampled farmer formulates one valuation for herself and one for every other sampled farmer in her village 5 (yielding five to eight valuations for others). ...
... The elicitation technique I employ is a multiple-price list variant of that proposed by Becker et al. (1964), in which a participant formulates a bid b for an item and the bid is compared with a random price draw p. If the bid is equal to or larger than the random price, the participant has to buy the item; if the bid is lower than the random price, the participant cannot buy the item. ...
... PR poses a fundamental challenge to the theory of revealed preferences and has important policy implications because it questions whether preferences can be reliably revealed from choices. While alternative explanations for PR exist, such as regret aversion (Loomes & Sugden, 1983;Loomes et al., 1989Loomes et al., , 1991, flaws in some particular experimental designs such as the Becker-DeGroot-Marschak (Becker et al., 1964) mechanism (Holt, 1986;Karni & Safra, 1987;Segal, 1988), or scale compatibility (Tversky et al., 1990), there has been a persistent interest in explaining PR by stochastic choice. The stochastic choice explanation is attractive because it can account for PR while retaining procedurally invariant preferences, a fundamental postulate of many theories. ...
... Butler and Loomes (2007) assumed that subjects may have imprecise understanding of their preferences, and showed experimentally that the systematic difference in the imprecision of preferences between the two bets and stochastic choice could explain PR. Collins and James (2015) elicited the probability equivalents for nine endogenously constructed pairs of lotteries using the dualto-selling version of the Becker-DeGroot-Marschak mechanism (Becker et al., 1964;James, 2011), in addition to the original design of Lichtenstein and Slovic (1971). They found that subjects responded differently to probability equivalents than to certainty equivalents, and that reversals based on probability equivalents were less frequent and could be explained by Blavatskyy (2009). ...
Stochastic choice, the act of choosing differently in repeated decisions, can be a conscious decision made by individuals who are aware of their inability to make a definitive choice. To examine the prevalence and implications of conscious stochastic choice, we developed a novel method and implemented it in a preference reversal experiment: In each valuation choice between the bet and a varying reference option, subjects could either pay a small cost to select a specific option or opt for a free randomization choice where a computer randomly selects an option. Our findings revealed that the majority of subjects exhibited conscious stochastic choice, and further that their choices were significantly affected by the elicitation procedures.
... In order to obtain behavioral measures of subjective value at the singletrial level, the subjects performed a version of the Becker-DeGroot-Marschak (BDM) auction task-a standard incentive-compatible paradigm used to elicit subjective value 63 . On each trial, the subjects saw an image of a snack food item presented on a computer screen and had to indicate the maximum amount they were willing to pay for the snack food item (Fig. 1a). ...
... We chose the incentive compatible willingness-to-pay approach presented here for two reasons. First, unlike the liking-rating approach, with the BDM it is in the subjects' best interest to provide their true valuation of the rewards and some research indicates that this yields more accurate estimates of subjective value at the behavioral level 63 . Second, compared with choice tasks that offer two or more options, each trial presents only one object for evaluation, simplifying the interpretation of neural data to the representation of a single object. ...
Evidence from monkeys and humans suggests that the orbitofrontal cortex (OFC) encodes the subjective value of options under consideration during choice. Data from non-human primates suggests that these value signals are context-dependent, representing subjective value in a way influenced by the decision makers’ recent experience. Using electrodes distributed throughout cortical and subcortical structures, human epilepsy patients performed an auction task where they repeatedly reported the subjective values they placed on snack food items. High-gamma activity in many cortical and subcortical sites including the OFC positively correlated with subjective value. Other OFC sites showed signals contextually modulated by the subjective value of previously offered goods—a context dependency predicted by theory but not previously observed in humans. These results suggest that value and value-context signals are simultaneously present but separately represented in human frontal cortical activity.
... Subjects provide informed consents and are made aware that their responses would be used for research purposes. We use the incentive-compatible BDM method (Becker et al., 1964) to elicit their true belief. Particularly, we introduce the example task and payment scheme before the formal task to guarantee subjects' understanding. ...
Robust aggregation integrates predictions from multiple experts without knowledge of the experts' information structures. Prior work assumes experts are Bayesian, providing predictions as perfect posteriors based on their signals. However, real-world experts often deviate systematically from Bayesian reasoning. Our work considers experts who tend to ignore the base rate. We find that a certain degree of base rate neglect helps with robust forecast aggregation. Specifically, we consider a forecast aggregation problem with two experts who each predict a binary world state after observing private signals. Unlike previous work, we model experts exhibiting base rate neglect, where they incorporate the base rate information to degree $\lambda\in[0,1]$, with $\lambda=0$ indicating complete ignorance and $\lambda=1$ perfect Bayesian updating. To evaluate aggregators' performance, we adopt Arieli et al. (2018)'s worst-case regret model, which measures the maximum regret across the set of considered information structures compared to an omniscient benchmark. Our results reveal the surprising V-shape of regret as a function of $\lambda$. That is, predictions with an intermediate incorporating degree of base rate $\lambda<1$ can counter-intuitively lead to lower regret than perfect Bayesian posteriors with $\lambda=1$. We additionally propose a new aggregator with low regret robust to unknown $\lambda$. Finally, we conduct an empirical study to test the base rate neglect model and evaluate the performance of various aggregators.
... Program ini bertujuan untuk memberikan pelatihan keterampilan guna mengembangkan kompetensi angkatan kerja dan meningkatkan produktivitas serta daya saing angkatan kerja. (Becker, G. M., DeGroot, M. H., & Marschak, 1964) menjelaskan bahwa investasi dalam pendidikan dan pelatihan meningkatkan kemampuan pekerja, yang kemudian meningkatkan produktivitas kerja mereka. Program Prakerja sebagai bentuk investasi dalam sumber daya manusia bertujuan untuk meningkatkan keterampilan dan kompetensi pekerja, sehingga mereka dapat beradaptasi dengan perubahan pasar kerja dan teknologi. ...
Program Prakerja merupakan inisiatif pemerintah Indonesia yang bertujuan untuk meningkatkan kualitas tenaga kerja melalui pelatihan dan pendidikan. Dalam perspektif komunikasi pembangunan, program ini tidak hanya berfungsi sebagai alat peningkatan keterampilan individu, tetapi juga sebagai medium penyebaran informasi dan edukasi yang efektif kepada masyarakat luas. Program ini memainkan peran penting dalam meningkatkan produktivitas dan meningkatkan kompetensi pekerja, sehingga mereka lebih siap menghadapi tantangan di pasar kerja yang dinamis. Penelitian ini menggunakan metode penelitian kualitatif dengan tipe deskriptif analisis. Hasil penelitian menunjukkan Program Prakerja berkontribusi signifikan terhadap pencapaian Tujuan Pembangunan Berkelanjutan (TPB) atau Sustainable Development Goals (SDGs), khususnya pada poin pendidikan berkualitas, pekerjaan layak, dan pertumbuhan ekonomi. Melalui analisis komunikasi pembangunan, artikel ini mengeksplorasi bagaimana Program Prakerja mengintegrasikan prinsip-prinsip tersebut untuk menciptakan dampak positif yang berkelanjutan dalam masyarakat. Implementasi yang efektif dan strategis dari program ini diharapkan dapat memberdayakan peserta secara ekonomis dan sosial, serta mendorong pembangunan yang inklusif dan berkelanjutan di Indonesia.
... identify the meaning of cues (less than 60% of trials; n=3); showed excessive head motion 69 (n=2), or because of technical problems (n=4 have to exert any effort (Becker et al., 1964). Ratings and bids were correlated (r=0.66, ...
Representing the probability and uncertainty of outcomes facilitates adaptive behavior by allowing organisms to prepare in advance and devote attention to relevant events. Probability and uncertainty are often studied only for valenced (appetitive or aversive) outcomes, raising the question whether the identified neural machinery also processes the probability and uncertainty of motivationally neutral outcomes. Here, we aimed to dissociate valenced from valence-independent (i.e., generic) probability (p; maximum at p=1) and uncertainty (maximum at p=0.5) signals using human neuroimaging. In a Pavlovian task (n=41; 19 females), different cues predicted appetitive, aversive, or neutral liquids with different probabilities (p=0, p=0.5, p=1). Cue-elicited motor responses accelerated, and pupil sizes increased primarily for cues that predicted valenced liquids with higher probability. For neutral liquids, uncertainty rather than probability tended to accelerate cue-induced responding and decrease pupil size. At the neural level, generic uncertainty signals were limited to occipital cortex, while generic probability also activated anterior ventromedial prefrontal cortex. These generic probability and uncertainty signals contrasted with cue-induced responses that only encoded the probability and uncertainty of valenced liquids in medial prefrontal, insular and occipital cortices. Our findings show that the brain processes probability and uncertainty in a generic fashion. Moreover, the behavioral and neural dissociation of generic and valenced signals indicates that the brain keeps track of motivational charge and highlights the need and usefulness of characterizing the exact nature of learned representations.
Significance Statement Encoding the probability and uncertainty of outcomes is important for adaptive behavior. Here we ask to what extent the brain represents probability and uncertainty regardless of whether the predicted outcomes are valenced (i.e. motivationally relevant) or generic (i.e., valence-independent). We dissociate generic from valenced variables by using not only cues that predict appetitive or aversive outcomes, but also cues that predict neutral outcomes. Our data reveal distinct behavioral effects and largely separate neural representations of valenced and generic variables. For example, valenced probability activated more proximal parts of medial prefrontal and occipital cortex whereas generic probability activated more distal parts. Thus, the representation of probability and uncertainty is multiplexed, allowing for tailored information processing according to computational needs.
... The Becker-DeGroot-Marschak (BDM) mechanism (Becker et al., 1964) is a wellknown mechanism, frequently used in experimental economics and non-market valuation research and an important tool for eliciting subjects' valuations both inside and outside the lab. The mechanism is widely used for the valuation of novel products and product attributes, as well as in examining agents' risk/time preferences or departures from standard economic models of individual behavior through the valuation of lotteries or tokens. ...
We explore several behavioral issues associated with bidding behavior in the Becker-DeGroot-Marschak (BDM) mechanism; a popular mechanism in experimental economics and valuation research. By manipulating the random binding price and framing, we find that bids are affected by the choices made by experimenters. Our theoretical framework, shows that the treatment effects are consistent with an attachment to expectations-based reference points, anchoring on the highest price, as well as the no-loss-in-buying hypothesis of Novemsky and Kahneman (2005). Overall, our theory and experimental results confirm that the mechanism is not incentive compatible and thus previous results regarding product valuations, as well as various treatment effects identified using the mechanism, should be interpreted as conditional on the particular choice of design variables.
... In order to elicit types (i.e., generate a sample), the firm could for instance conduct market research and elicit such a sample by means of a mechanism that induces each type to self-select to a different pair of quantity and price. 16 Indeed, this is common practice: beyond gathering qualitative information about consumers' preferences from surveys, focus groups, or interviews, many consultancy firms also experimentally elicit consumers' types using incentive-compatible mechanisms in what is known in the industry under the umbrella term of 'experimental auctions' -even though sometimes it simply corresponds to the BDM mechanism (Becker, Degroot and Marschak, 1964). 17 This market research can then lead to the original sample or expand an existing sample -in which case a cost-benefit analysis on the net value of acquiring additional observations may come into play. ...
This paper tackles challenges in pricing and revenue projections due to consumer uncertainty. We propose a novel data-based approach for firms facing unknown consumer type distributions. Unlike existing methods, we assume firms only observe a finite sample of consumers' types. We introduce \emph{empirically optimal mechanisms}, a simple and intuitive class of sample-based mechanisms with strong finite-sample revenue guarantees. Furthermore, we leverage our results to develop a toolkit for statistical inference on profits. Our approach allows to reliably estimate the profits associated for any particular mechanism, to construct confidence intervals, and to, more generally, conduct valid hypothesis testing.
... In OLS, the participant chooses only one lottery from a sequential set. The participant makes an offer in the Becker-DeGroot-Marschak mechanism (Becker et al., 1964). Then, a random price is compared with the offer. ...
Bu çalışmada risk tutumları ayrışan ajanların güvene dayalı ilişkilerde farklı davranışlar sergileyip sergilemedikleri ve tecrübe edilen güven ilişkilerinin risk tutum ve tercihlerini etkileyip etkilemediği araştırılmıştır. İlgili çerçevede yazında giderek popüler hale gelen deneysel iktisat yöntemleri kullanılarak özgün bir melez tasarım hazırlanmıştır. Bireylerin risk tercihlerini analiz etmek amacı ile Holt & Laury (2002) tarafından geliştirilen çoklu fiyat listesi uygulamasından istifade edilmiştir. Bireyler arasındaki güven ilişkisini çözümlemek için ise Berg, Dickhaut & McCabe (1995) tarafından yazına kazandırılan klasik güven oyununun bir sürümü tercih edilmiştir. Deney sonucunda elde edilen veriler çeşitli istatistiki testler ve ekonometrik yöntemler ile analiz edilmiştir. Bulgular, risk tercihlerinin güven kararı üzerinde belirleyici bir rolü olmadığını işaret etmektedir. Oysaki güven ilişkisi tecrübesinin bireylerin risk tercihlerini değiştirdiği gözlemlenmiştir. Bireyler güven ilişkisi sonucunda kendilerini kazançlı hissettiklerinde risk alma yatkınlıkları azalmaktadır. Ek olarak, bireylerin kendilerine yapılan transferleri iş birliğini arttırma sinyali olarak yorumlayıp daha fazla risk alma ve toplumsal optimuma yakınsama eğilimi içine girdikleri değerlendirilmiştir.
... The experimental method can also be divided into two parts. The first approach consists of typical systematic payoffs and the respective probabilities designed by Becker-DeGroot-Marschak (1964), Binswanger (1980), and more recently, Holt and Laury (2002). The second approach is more contextualized and frequently used in applying agricultural inputs, i.e., the experiment's fertilized seeds and other input variables. ...
Risk behavior is crucial among poor in developing countries, their daily risk and probability decisions matter for their livelihood and overall well-being in the long run. Risky choices varied with decision-makers' characteristics and their economic capability. We investigated farmer risk behavior in Madhya Pradesh, India using a Holt-Laury experimental procedure to examine the determinants of risk behavior. We found that individual characteristics are more important in determining risk behavior among poor rather different wealth indicators.
... To elicit consumers' monetary preferences for food products labelled with the NS, a non-hypothetical experimental economics mechanism has been applied (Lusk & Shogren, 2007). Specifically, a Becker-DeGroot-Marschak (BDM) (Becker et al., 1964) lottery has been employed in this study, being, along with the Vickrey auction (Vickrey, 1961), one of the most two widely used demand-revealing mechanisms in experimental economics (Noussair et al., 2004). In BDM, participants simultaneously submit their offer price to purchase a given good. ...
... To measure the WTP, we used a version of the incentivecompatible BDM lottery (Becker et al., 1964) and we added another lottery since we use online survey (Fuchs et al., 2015). Participants were told to imagine that they were taking part in a lottery to win 15 dollars. ...
While prior work suggests the significant role virtual influencers (VIs) can play in addressing social and welfare issues, it remains unclear how they can increase social media users' engagement in prosocial behaviors. The current study examines the role of influencer flattery in driving the prosocial behavior of social media users. Specifically, the research investigates how flattery and humanlike appearance influence the perceived authenticity of VIs and the subsequent prosocial behavior of social media users (Studies 1 and 2). Furthermore, the research substantiates these effects by exploring how flattery and anthropomorphism via humanlike traits impact perceived authenticity and prosocial behavior when social media users witness the influencer praising others (Study 3). Beyond intention to donate (Study 1), the study also investigated its impact on related prosocial behaviors, such as click‐through behavior (Study 2) and the willingness to pay for fundraising merchandise (Study 3). The findings of this research offer concrete implications for nonprofit organizations by demonstrating the persuasive impact of flattery, perceived authenticity, and anthropomorphism in mobilizing public support, donations, and merchandise purchases for social causes.
... We ran a pilot PES program in the Brazilian Amazon, in the state of Acre, during the last years of Jair Bolsonaro's mandate, at a time when incentives to deforest were strong. 2 We implemented a PES procurement auction using the Becker-DeGroot-Marschak (BDM) mechanism to elicit landowners' reservation prices for forest conservation (Becker et al., 1964). We embedded this BDM auction in a randomized controlled trial (RCT), which included one control group and two treatment groups of about 150 voluntary landowners each. ...
In Payment for Ecosystem Services (PES) programs, incentive payments conditional on zero deforestation do not always match the time profile of landowners' opportunity costs. In this study, we examine the impact of adding some flexibility to PES contracts to allow landowners the possibility of receiving part of the financial incentive if some deforestation is detected during the contract period. We ran a pilot PES program in the Brazilian Amazon during the last years of Jair Bolsonaro's mandate, at a time when incentives to deforest were strong. Using the Becker-DeGroot-Marschak (BDM) mechanism, we implemented a PES procurement auction to elicit landowners' reservation prices for forest conservation. We embedded the BDM auction in a randomized controlled trial (RCT), which included one control group and two PES treatment groups of about 150 voluntary landowners each. In line with theoretical predictions, we found that, while the flexible PES contract allowing some deforestation saved slightly more forest, the fixed payment contract requiring zero deforestation exhibited a higher benefit-cost ratio.
... The BDM mechanism was originally proposed as a single-response sequential method by Becker et al. (1964) and has been shown to be incentive compatible under standard expected utility (Azrieli et al., 2018;Vossler & Holladay, 2018). The BDM mechanism was selected because it is widely used to elicit consumer preferences and WTP as an incentive-compatible mechanism, and it does not require strategic interaction among multiple subjects (Evans et al., 2011;Liu & Tian, 2021;Lusk & Schroeder, 2004;Lusk & Shogren, 2007;Ortega et al., 2018;Xue et al., 2010). ...
This article investigates the effectiveness of lottery incentive schemes for eliciting consumer valuations in large‐scale online experiments. We implement a fully incentivized condition within a geographically dispersed sample of consumers in which bids for a Criollo steak elicited by a Becker‐DeGroot‐Marschak mechanism are realized with certainty and the products are priority shipped in dry‐ice coolers. The fully incentivized condition is compared to between‐subject random incentivized schemes, in which only a fraction of subjects realize their choices. We tested two treatments with a 10% probability framed as a percentage or an absolute number of subjects, one treatment with a 1% probability, and a purely hypothetical reference condition. The results reveal that between‐subject random incentivized schemes with 10% and 1% payment probabilities are effective in eliciting valuations that are statistically indistinguishable from the fully incentivized scheme. In addition to finding insignificant statistical differences between 10% and 1% and the fully incentivized scheme, all incentivized conditions mitigate hypothetical bias, resulting in lower product valuations than the purely hypothetical condition. We contribute a novel methodological framework for conducting large‐scale experiments with geographically diverse and representative subjects, increasing the external validity and producing reliable valuations while significantly reducing financial and logistic constraints.
... A lower willingness to pay indicated higher confidence in their knowledge test estimates. This confidence measure was conducted following a modified Becker-DeGroot-Marschak (BDM) mechanism (Becker, DeGroot, and Marschak 1964) where a random price was drawn. If a participant's willingness to pay to view answer options was lower than the drawn price, they were not shown the multiple-choice options. ...
The paper examines the effect of social identity on adult learning within a hierarchical social setting-an important yet often understudied issue for effective adult education. We leverage the random matching of students and teachers from a randomized controlled experiment in India, where illiterate adult female learners aged 18-45 were randomly assigned to a literacy program. We find a positive and significant impact of matching an upper caste teacher with a lower caste adult student on literacy scores. We also find suggestive evidence of an increase in students' confidence measures when matched with an upper caste teacher, indicating a plausible impact mechanism. Our findings highlight the need for future research on social identity and its influence on adult learning, particularly in countries with existing deep-rooted hierarchical social constructs.
... After receiving specific paper instructions (see Appendix A) and answering a short comprehension quiz, but prior to viewing the first stimuli in a series, participants provided a certainty equivalent they would be willing to accept instead of a payoff depending on a randomly chosen prediction. This is done through a standard Becker-DeGroot-Marschak mechanism (Becker et al., 1964) which is an incentive-compatible procedure for measuring willingness to accept (WTA) used herein, as well as its alternative: willingness to pay (WTP). Implementation details are provided in Appendix A. We also measured several individual characteristics and abilities: emotional intelligence captured by "Reading the Mind in the Eyes" test score (Baron-Cohen et al., 2001), capacity to apply backward induction in the Race-to-17 game (Gneezy et al., 2010;Chen et al., 2019), cognitive skills as measured by the standard 3-item Cognitive Reflection Test (Frederick, 2005), two questions on general attitudes towards trusting other people and trusting strangers adopted from the German Socio-Economic Panel Study, and an incentivized lottery task for measuring risk preferences (Gneezy and Potters, 1997). ...
... In the first stage, specifically, participants decide which amount they request for giving up the opportunity to participate in the second stage. We elicit their willingness to accept by way of a mechanism in the spirit of Becker, DeGroot, and Marschak (1964). A person participates in the second stage provided the minimum price she has chosen is the same or larger than the random price that the computer selects from a uniform distribution, in the range [0, 100]. ...
Oliver Williamson has coined the term “fundamental transformation.” It captures the following situation: before they strike a deal, buyers and sellers are protected by competition. Yet, thereafter, they find themselves in a bilateral monopoly. With common knowledge of standard preferences, both sides would conclude the contract regardless if its expected value exceeds their outside options. We run an experiment to test whether additional behavioral concerns deter mutually beneficial trade. We test four concerns: If the risk materializes, another individual makes a windfall profit; she does so by intentionally exploiting another individual; the exploited individual may be her assigned partner; the individual that is let down is her contractual partner, and hence has voluntarily exposed herself to this risk. Behavioral effects are heterogeneous. About a quarter of participants from a standard student subject pool exhibit the hypothesized additional deterrent effect. This fraction is bigger than a third if participants interact with a random partner from somewhere in the world.
... If participants invest in adaptation and experienced a normal season, they paid for unneeded protection. We opted for eliciting individuals' WTP based on the Becker-DeGroot-Marschak (BDM) method (Becker et al. 1964 ) to yield a continuous measure for adaptation behaviour instead of simply eliciting a binary decision of whether to adapt (i.e., follow the warning) or not. With this, we can measure fine, more nuanced treatment effects. 2 The BDM method has the advantage that it is incentivised and motivates individuals to state their true WTP because their stated values do not influence the final price (Schmidt and Bijmolt 2019 ). ...
Facing climate change, seasonal forecasts and weather warnings are increasingly important to warn the public of the risk of extreme climate conditions. However, being confronted with inaccurate forecast systems may undermine individuals’ responsiveness in the long run. Using an online experiment, we assess how false alarm and missed alarm-prone forecast systems influence individuals’ adaptation behaviour. We show that exposure to false alarm-prone forecasts decreases investments if a warning is issued (the ‘cry-wolf effect’). Exposure to missed alarm-prone forecasts increases adaptation investments if no warning, but also if a warning has been issued. Yet, individuals exposed to both false and missed alarm-prone forecasts still adjust their adaptation investments depending on the forecasted probability of extreme climate conditions. Individuals with missed alarm-prone forecasts are, however, less sensitive to the forecasted probability if a warning has been issued. In case of low probability warnings, overshooting investments in adaptation hence becomes more likely.
... In order to motivate participants to accurately report confidence, confidence judgments were incentivized by a Matching Probabilities (MP) mechanism, a well-validated method from behavioral economics adapted from the Becker-DeGroot-Marschak auction 87,88 . Specifically, we randomly selected three trials from three runs (i.e., one trial/ run) and then compared the confidence rating p at that trial with a random number r (chosen from the range between 50% and 100%). ...
While navigating a fundamentally uncertain world, humans and animals constantly evaluate the probability of their decisions, actions or statements being correct. When explicitly elicited, these confidence estimates typically correlates positively with neural activity in a ventromedial-prefrontal (VMPFC) network and negatively in a dorsolateral and dorsomedial prefrontal network. Here, combining fMRI with a reinforcement-learning paradigm, we leverage the fact that humans are more confident in their choices when seeking gains than avoiding losses to reveal a functional dissociation: whereas the dorsal prefrontal network correlates negatively with a condition-specific confidence signal, the VMPFC network positively encodes task-wide confidence signal incorporating the valence-induced bias. Challenging dominant neuro-computational models, we found that decision-related VMPFC activity better correlates with confidence than with option-values inferred from reinforcement-learning models. Altogether, these results identify the VMPFC as a key node in the neuro-computational architecture that builds global feeling-of-confidence signals from latent decision variables and contextual biases during reinforcement-learning.
... To increase the robustness of the findings, an incentive-compatible design was employed in our experiment to test the research question, and mediators were measured to examine the possible mediating effect. The incentive-compatible design was first introduced by [2], which involves participants indicating their most valuable option among several choices and then having the opportunity to acquire it. This design enhances participants' reality and more effectively elicits their actual preferences. ...
... After wine tasting and rating were completed for all four wines, we used computerized Becker-deGroot-Marschak (BDM) (Becker et al. 1964) mechanism auctions for demand elicitation. The BDM was selected as the elicitation method because subjects do not bid against each other but rather submit a sealed bid for wine. ...
Expert and peer reviews and popularity are freely available both on the Internet and in printed materials for a variety of food products. Using two experimental studies with non-hypothetical tastings and auctions, we explore the impact of peer tasting popularity, actual peer ratings, and expert ratings on demand for wines consumers can or have tasted. We find that higher own wine ratings are associated with higher willingness to pay (WTP). Morevoer, higher peer and expert rating scores increase consumer WTP for wine even after controlling for the impact of consumers’ own ratings. Observed peer popularity also increases WTP for preferred wines.
... Each alternative consisted of a red-dog hand and a specification of the number of points that could be won or lost. In order to motivate careful judgments, the Marschak bidding technique was employed (Becker, DeGroot, & Marschak, 1964). Both judgment and choice experiments were carried out to provide a stringent criterion for the occurrence of a preference reversal. ...
A real-time neural network model, called affective balance theory, is developed to explain many properties of decision making under risk that heretofore have been analyzed using formal algebraic models, notably prospect theory. The model describes cognitive-emotional interactions that are designed to ensure adaptive responses to environmental demands but whose emergent properties nonetheless can lead to paradoxical and even irrational decisions in risky environments. Emotional processing in the model is carried out by an opponent processing network called a gated dipole. Learning enables cognitive representations to generate affective reactions of the dipole. Habituating chemical transmitters within a gated dipole determine an affective adaptation level, or context, against which later events are evaluated. Neutral events can become affectively charged either through direct activations or antagonistic rebounds within a previously habituated dipole. The theory describes the affective consequences of strategies in which an individual compares pairs of events or statements that are not necessarily explicitly grouped within the stimuli. The same preference orders may sometimes, but not always, emerge from different sequences of pair-wise alternatives. The role of short-term memory updating and expectancy-modulated matching processes in regulating affective reactions is described. The formal axioms of prospect theory are dynamically explicated through this analysis. Analyses of judgments of the utility of a single alternative, choices between pairs of regular alternatives, choices between riskless and risky alternatives, and choices between pairs of risky alter-natives lead to explanations of such phenomena as preference reversals, the gambler's fallacy, the framing effect, and the tendency toward risk aversion when gains are involved but risk taking when losses are involved. These explanations illustrate that data concerning decision making under risk may now be related to data concerning the dynamics of conditioning, cognition, and emotion as consequences of a single psychophysiological theory.
... For a comprehensive analysis of participants' willingness to exert effort to turnout (or their willingness to pay money to turnout), one could use an incentive-compatible mechanism à laBecker et al. (1964). However, this option would have increased the complexity and duration of our online experiment and was not necessary to test our main predictions. ...
Different voting rules are commonly used to settle collective decisions. A promising way to assess voting rules, for which little is known, is to compare the expressive utility that voters derive from voting with each rule. In this paper, we first propose a simple ordinal model of expressive voting that allows us to compare voting rules in terms of the expressive utility that voters can derive from voting (their expressive power). Our model provides a novel testable implication according to which expected turnout increases with expressive power. We then ran an online experiment testing this implication in a controlled environment. We find that if voters are made aware of alternative voting rules, turnout is higher in voting rules with higher expressive power. Our results also show that higher expressive power is associated with a better representation of voters’ actual preferences and, according to our model, higher expressive utility. This suggests that the expressive power of voting rules is a relevant criterion when choosing between voting rules for economic and political decisions.
... Specifically, we used a sliding scale ($0 -$15) with an incentive-compatible lottery (Becker et al. 1964), which represents a reliable method for eliciting consumers' true, unbiased willingness to pay (Wertenbroch and Skiera 2002). To enable the method's efficient implementation, online panel participants were informed they would enter a lottery for a $15 prize. ...
While prior research has gleaned important insight into consumers' social media engagement, an important literature-based tension exists that warrants further attention. On the one hand, females are increasingly empowered (e.g., through their rising spending power). On the other hand, advertising-based gender stereotypes persist, thus limiting female consumers' empowerment and decelerating advertising-based inclusion, equity, and diversity. Deploying regulatory mode theory, we propose that the adoption of a locomotion (vs. assessment) orientation, which emphasizes the initiation, and continuation, of the consumer's goal pursuit (vs. focuses on the individual's arrival at "the right" decision), respectively, can be leveraged to empower female consumers and boost their engagement with social media-based advertising. These predictions are tested across field studies 1a-1b and experiments 2-3. These findings can benefit marketers in developing effective communication strategies that resonate positively with female consumers, thus boosting their advertising-based inclusion, equity, and diversity.
... To have an indication of subjects' level of attention in the ex-18 The instructions as well as the control questions can be found in the supplement in both Italian (original language) and English. 19 As indicated in the first pre-registration, after the lottery-choice task and before undertaking the CRT7, subjects were also asked to express their willingness to pay for the lotteries encountered in the lottery-choice task by using the Becker, Degroot, and Marschak (1964)'s method (BDM). This task was included in the experimental design to test an additional hypothesis included in the pre-registration that relates the heuristic subjects are induced to use with the classical preferencereversal phenomenon (Lichtenstein and Slovic, 1971). ...
Despite its importance, relatively little attention has been devoted to studying the effects of exposing individuals to digital choice interfaces. In two pre-registered lottery-choice experiments, we administer three information-search technologies that are based on well-known heuristics: in the ABS (alternative-based search) treatment, subjects explore outcomes and corresponding probabilities within lotteries; in the CBS (characteristic-based search) treatment, subjects explore outcomes and corresponding probabilities across lotteries; in the Baseline treatment, subjects view outcomes and corresponding probabilities all at once. We find that (i) when lottery outcomes comprise gains and losses (experiment 1), exposing subjects to the CBS technology systematically makes them choose safer lotteries, compared to the subjects that are exposed to the other technologies, and (ii) when lottery outcomes comprise gains only (experiment 2), the above results are reversed: exposing subjects to the CBS technology systematically makes them choose riskier lotteries. By combining the information-search and choice analysis, we offer an interpretation of our results that is based on prospect theory, whereby the information-search technology subjects are exposed to contributes to determine the level of attention that the lottery attributes receive, which in turn has an effect on the reference point.
... Recent papers in economics investigate multi-attribute choice models under numerous domains including consumer, risky, intertemporal, and stochastic choices (Bordalo et al., 2012a(Bordalo et al., ,b, 2013(Bordalo et al., , 2020Kőszegi and Szeidl, 2013;Bushong et al., 2021;Landry and Webb, 2021;Allen and Rehbeck, 2022). 3 In this paper, we interpret the Becker-DeGroot-Marschak (BDM) mechanism (Becker et al., 1964) as an MPL since the decision problems in the BDM mechanism can be identically explained by the list format (see Healy (2018)). Notes: In m-MPL, if x is chosen, then the subject obtains the product, and payment is not required. ...
This paper studies how to accurately elicit quality for alternatives with multiple attributes. Two multiple price lists (MPLs) are considered: (i) m-MPL which asks subjects to compare an alternative to money, and (ii) p-MPL where subjects are endowed with money and asked whether they would like to buy an alternative or not. Theoretical results show that m-MPL requires fewer assumptions for accurate quality elicitation compared to p-MPL. Experimental evidence from a within-subject experiment using consumer products shows that switch points between the two MPLs are different, which suggests that quality measures are sensitive to the elicitation method.
... MPL resembles Becker-DeGroot-Marschack (Becker et al. 1964) in its use of a lottery to ensure incentive compatibility. Its advantage is simplicity: Since MPL uses simple take-it-or-leave-it offers repeated at different price points instead of a second-price auction, it is easier for participants to 5When recruiting the Facebook participants, we restrict our ad placement to positions only viewable by logged-in Facebook users, which excludes Facebook Audience Network and Instagram. ...
We study how choice architecture that companies deploy during data collection influences consumers' privacy valuations. Further, we explore how this influence affects the quality of data collected, including both volume and representativeness. To this end, we run a large-scale choice experiment to elicit consumers' valuation for their Facebook data while randomizing two common choice frames: default and price anchor. An opt-out default decreases valuations by 14-22% compared to opt-in, while a \$0-50 price anchor decreases valuations by 37-53% compared to a \$50-100 anchor. Moreover, in some consumer segments, the susceptibility to frame influence negatively correlates with consumers' average valuation. We find that conventional frame optimization practices that maximize the volume of data collected can have opposite effects on its representativeness. A bias-exacerbating effect emerges when consumers' privacy valuations and frame effects are negatively correlated. On the other hand, a volume-maximizing frame may also mitigate the bias by getting a high percentage of consumers into the sample data, thereby improving its coverage. We demonstrate the magnitude of the volume-bias trade-off in our data and argue that it should be a decision-making factor in choice architecture design.
... This discrepancy, known as hypothetical bias in economic literature, is influenced by the hypothetical nature of the task (Harrison and Rutström 2008). Incentive-aligned direct methods, such as the Becker, DeGroot, and Marschak mechanism (BDM;1964) and the ICERANGE approach (Wang, Venkatesh, and Chatterjee 2007), can mitigate this bias by measuring consumers' AWTP. Similarly, incentive-aligned counterparts of the single dichotomous-choice question format (Brynjolfsson, Collis, and Eggers 2019) or multiple-question, incentive-aligned choice-based conjoint analysis (ICBC; Ding, Grewal, and Liechty 2005;Ding 2007;Dong, Ding, and Huber 2010) can indirectly measure consumers' AWTP 3 . ...
... ; https://doi.org/10.1101/2023.07.20.549309 doi: bioRxiv preprint stimulus using a Becker-deGrout-Marshak auction procedure (Becker et al., 1964). ...
With an aim to understand how brains compute the expected utility of mixed prospects, namely those associated with both negative and positive attributes, we designed a task which equated the opportunity to learn about these attributes and their hedonic value. Participants underwent fMRI scanning while they experienced a classical conditioning paradigm where emotionally-neutral faces predicted a probability of pain and reward conforming to a 2 (Electric Pain: high, low) x 2 (Monetary Reward: high, low) factorial design. We found a robust interaction between the anticipation of pain and reward in the BOLD signal. Analysis of simple effects revealed that sensitivity to each attribute increased under high levels of the other attribute. In the bilateral insula and mid-cingulate gyrus sensitivity to pain was greater under high reward, and in the OFC, caudate, ventral striatum and VTA sensitivity to reward was greater under high pain. We speculate that this pattern is due to dynamic shifts in the reference point participants considered to evaluate each attribute.
... Participants received the expected monetary compensation that resulted from their winning bids, which similarly incentivized truthfulness. The presence of automated robo-bidders, rather than actual humans, rendered our protocol similar to an auction that used the Becker-DeGroot-Marschak (BDM) method 64 , in which participants compete in auctions against bids generated randomly via a statistical distribution, rather than other humans. It has been shown that the BDM auction is incentive compatible with the strategy of truthful bidding to sell an item (as in the Vickrey auction) when the maximum buyout price-the maximum the seller could be expected to receive-generated by the distribution does not exceed a realistic buyout price for the good and when the sellers are aware of this concept 65 . ...
For augmentative exoskeletons that assist able-bodied users, a clear metric of success remains an open question. Here we leverage the Vickrey second-price auction to quantify the economic value added by lower-limb exoskeletons and their assistance. We posited that if exoskeletons provided helpful assistance during a difficult task, this value could be quantified through a lowering of participant auction bids to continue walking. The bidding results were compared across different conditions to determine the economic value of the exoskeleton, bearing in mind also the cost of wearing the added mass of the exoskeleton. Results show that the total value of the exoskeleton and assistance was modest. While most participants found the assistance itself valuable, this value was mostly offset by the extra mass added of wearing the exoskeleton. Our approach provides insight into how exoskeleton wearers may value different aspects of user experience. These results suggest economic value may be a powerful tool in the design and control of exoskeletons that maximize user benefit.
... Through a paper-and-pencil questionnaire in a classroom test setting, each subject was asked to state his or her certainty equivalent (CE) for 8 sets of gambles, presented in three different orders. Each participant received course credit and two subjects were randomly selected to each play out one set of gamble(s) for real money using a Becker-DeGroot-Marschak (1964) incentive compatible mechanism. ...
... Lottery-style tasks have featured significantly in studies of both normative and descriptive decision theories. A considerable number of authors have applied, modified, or adopted the Ordered Lottery Selection designs (OLS), for example, Binswanger (1980), Multiple Price List (MPL) designs, for example, Holt and Laury (2002), Becker, Degroot and Marshak (BDM) Design, for example, Becker et al. (1964), the Random Lottery Pair Designs, for example, Hey and Orme (1994), bespoke methods, for example, Balcombe et al. (2019) among others in real and hypothetical cases. ...
The predominant way of eliciting risk attitudes is to ask decision-makers to choose between discrete monetary lotteries with known probabilities attached to the payoffs. Yet, arguably, most choices made day-to-day entail continuous outcomes where objective distributions are unknown. This paper investigates responses to continuous “prospects,” employing parametric methods based upon prospect theory under conditions of risk and uncertainty. We find that behavior under uncertainty seemed to mirror that of risk, but there appear to be some differences in how participants dealt with the uncertainty frame compared to risk. Participants appear not to treat “equally likely” outcomes as being “equally likely,” thus demonstrated cumulative probability warping suggested by prospect theory. Participants’ behavior was difficult to fully reconcile with prospect theory, at least to the extent that it is commonly parameterized, perhaps due to endpoints (in particular zero endpoints) being “salient.” Since continuous interval densities have zero mass at zero, this result is curious and has not been reported in experiments using discrete lotteries. We conjecture that although participants on one level understood the nature of the continuous prospects, the format induced a focus on endpoints over and above what would be warranted by the objective distributions given to them.
... One of these decisions is randomly implemented for payment. This procedure is normatively equivalent to the Becker-DeGroot-Marschak mechanism (Becker et al., 1964). Overall, subjects receive a participation fee of £1.00 and additionally, depending on the randomly selected question from the price list, either the price for selling the lottery or the outcome of the lottery itself. ...
... In particular, we measure farmers' and traders' expected storage losses under various storage scenarios, as well as traders' beliefs about demand and supply on local markets. Second, we experimentally measure farmers' and traders' willingness-to-pay (WTP) for PICS bags using a variant of the Becker-DeGroot-Marschak (BDM) mechanism (Becker et al 1964). Finally, we conduct a survey experiment to test the hypothesis that the higher nominal price of PICS bags may be overly weighted in the demand decision. ...
This study investigates the potential of Malawi's groundnut sector to enhance smallholder food security and diversify agricultural production, alongside the risks posed by aflatoxin contamination. Utilizing primary survey data from smallholder farmers and traders in Kasungu and Lilongwe Agricultural Development Divisions, we analyze the relationship between aflatoxin knowledge and the adoption of aflatoxin-reducing practices, as well as attitudes towards consumption of affected groundnuts. Our findings reveal that traders generally possess higher aflatoxin knowledge, particularly regarding post-harvest practices. Both farmers and traders express significant concerns about the consumption of mouldy groundnuts and livestock products from animals fed with contaminated groundnuts. Regression analysis indicates positive correlations between aflatoxin knowledge and the adoption of preventive measures. Specifically, knowledge of proper farming practices such as early planting and timely harvesting is associated with the adoption of aflatoxin-reducing practices. The study highlights the need to enhance extension services by training agents on aflatoxin risks and mitigation strategies, understanding the influence of market environments on trader practices, and focusing on awareness campaigns about the health risks of aflatoxin. These insights are crucial for aligning local practices with international standards, improving market access, and ensuring food safety.
Some aspects of cognition are more taxing than others. Accordingly, many people will avoid cognitively demanding tasks in favor of simpler alternatives. Which components of these tasks are costly, and how much, remains unknown. Here, we use a novel task design in which subjects request wages for completing cognitive tasks and a computational modeling procedure that decomposes their wages into the costs driving them. Using working memory as a test case, our approach revealed that gating new information into memory and protecting against interference are costly. Critically, other factors, like memory load, appeared less costly. Other key factors which may drive effort costs, such as error avoidance, had minimal influence on wage requests. Our approach is sensitive to individual differences, and could be used in psychiatric populations to understand the true underlying nature of apparent cognitive deficits.
Product optimisation is one of the most crucial phases in the new product development or launch process. This work proposes applying penalty analysis to investigate the impact of not just-about-right (JAR) sensorial aspects on willingness to pay (WTP) and an overall liking for a local Italian ancient pear variety and to verify the mediating role of pleasantness in the relationship between not-JAR sensory attributes and consumers’ WTP using structural equation model (SEM). One hundred and twelve non-expert participants recruited during an in-store experiment evaluated overall liking and JAR attributes and were involved in an in-field experimental auction based on the non-hypothetical Becker–DeGroot–Marshak (BDM) mechanism. The participants’ average WTP for the sample was EUR 3.18 per kilogramme. Only juiciness and sourness significantly impact con-sumers’ overall liking but not on consumers’ WTP. Moreover, pleasantness did not mediate the re-lationship between non-balanced sensorial aspects and WTP. In conclusion, the penalty analysis for attributes not being JAR in monetary and hedonic terms is a beneficial research approach for a deep-inside evaluation of the potentiality of the product in the marketplace, providing helpful di-rections for product optimisation. Results show market potential for the local ancient pear variety ‘Angelica’
Some people overestimate the benefits of certain kinds of foods, such as organic foods, while others underestimate it. Previous studies have found that reducing people’s self-assessed knowledge successfully moderated these extreme attitudes. In this study, we investigated interventions to reduce people’s self-assessed knowledge and to moderate attitude extremity. We examined extreme attitudes toward organic foods and investigated the effects of implementing two intervention methods to moderate their attitude: (1) providing knowledge on organic food after asking them some questions and (2) simply providing them with knowledge. We conducted a two-factor mixed-design experiment with 653 college-educated Japanese women. In the first condition, before knowledge provision, participants were asked to answer questions about organic foods and were then informed of the correct answer and whether their answer was correct (Q&A Intervention). This step was based on an intervention conducted in a previous study to reduce their self-assessed factual knowledge. In the second condition, participants were simply provided with knowledge without being asked to answer any questions (Simple Intervention). The results showed that both intervention methods, on average, decreased the participants’ self-assessed knowledge and attitude extremity. Therefore, simply providing knowledge may be effective in reducing their self-assessed factual knowledge and moderating their extreme attitudes toward organic foods.
Many models of choice assume that people retrieve memories of past experiences and use them to guide evaluation and choice. In this paper, we examine whether samples of recalled past experiences do indeed underpin our evaluations of options. We showed participants sequences of numerical values and asked them to recall as many of those values as possible and also to state how much they would be willing to pay for another draw from the sequence. Using Bayesian mixed effects modeling, we predicted participants’ evaluation of the sequences at the group level from either the average of the values they recalled or the average of the values they saw. Contrary to the predictions of recall-based models, people’s evaluations appear to be sensitive to information beyond what was actually recalled. Moreover, we did not find consistent evidence that memory for specific items is sufficient to predict evaluation of sequences. We discuss the implications for sampling models of memory and decision-making and alternative explanations.
I empirically assess the salience theory (Bordalo et al. [2013b]) across various asset market formats in the context of the growth-value puzzle, as previously posited by Fama and French [1992]. The salience theory predicts that investors tend to overprice assets with salient positive returns and underprice those with salient negative returns. In individual investment tasks, laboratory subjects trade with an automated investor rather than human counterparts. The salience theory aligns with observed behavior, where assets with salient positive returns see increased asking prices, and those with salient negative returns have reduced bid prices. However, market dynamics and feedback in call markets drive bids and asks closer to rational expectations. In the context of continuous double auction markets, subjects even exhibit aversion to relatively high probabilities of losses (Huber et al. [2019]), a phenomenon at odds with the predictions of the salience theory.
Previous research has shown that people intrinsically value non-instrumental information, which cannot be used to change the outcome of events, but only provides an early resolution of uncertainty. This is true even for information about rather inconsequential events, such as the outcomes of small lotteries. Here we investigated whether participants’ willingness to pay for non-instrumental information about the outcome of simple coin-flip lotteries with guaranteed winnings was modulated by acute stress. Stress was induced using the Socially Evaluated Cold Pressor Test (SECPT), and information-seeking choices were compared to a warm water control group. Our results neither support the hypothesis that stress decreases information-seeking by directing cognitive resources away from the relevance of the lotteries, nor the opposite hypothesis that stress increases information-seeking by driving anxiety levels up. Instead, we found that despite successful stress induction, as evidenced by increased saliva cortisol levels in the SECPT group, information valuation was remarkably stable. This finding is in line with recent findings that experimentally increased state anxiety did not modulate non-instrumental information seeking. Together, these results suggest that the aversiveness of “not knowing” is a stable cognitive state and not easily modulated by situational context, such as acute stress.
In complex situations involving communication, agents might attempt to mask their intentions, exploiting Shannon’s theory of information as a theory of misinformation. Here, we introduce and analyze a simple multiagent reinforcement learning task where a buyer sends signals to a seller via its actions, and in which both agents are endowed with a recursive theory of mind. We show that this theory of mind, coupled with pure reward-maximization, gives rise to agents that selectively distort messages and become skeptical towards one another. Using information theory to analyze these interactions, we show how savvy buyers reduce mutual information between their preferences and actions, and how suspicious sellers learn to reinterpret or discard buyers’ signals in a strategic manner.
The distinction between prescriptive and descriptive theories of decision is similar to that between logic — a system of formally consistent rules of thought — and the psychology of thinking. A logical rule prescribes, for example, that if you believe all X to be Y, you should also believe that all non-Y are non-X, but not that all Y are X; and if you believe, in addition, that all Y are Z, you should believe all X to be Z (a logical rule known as transitivity of inclusion). Here, X, Y, and Z are objects or propositions. Such prescriptive rules do not state that all people of a given culture, social position, age, and so forth, always comply with them. If, for example, the links in a chain of reasoning are numerous, the rule of transitivity will probably be broken, at least by children or by unschooled or impatient people.
Students of decision-making have advanced several general hypotheses, some of them contradictory, about the decision process. The present paper outlines these hypotheses, suggests experiments to test them, and reports preliminary evidence from investigations carried out by the author.