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- Title:
- Addiction, Conditioning, and the Visceral Brain
- Author:
- Rangel, Antonio and Bernheim, Douglas
- Collector:
- Rangel, Antonio and Bernheim, Douglas
- Date:
- 2001
- Notes:
- Presented at SITE on August 20, 2001
- Title:
- Coherent Arbitariness: Stable Demand Curves without Stable Preferences
- Author:
- Lowenstein, George, Ariely, Dan, and Prelec, Drazen
- Collector:
- Lowenstein, George, Ariely, Dan, and Prelec, Drazen
- Description:
- Economic theory assumes that prices derive from fundamental values. However, it is rarely possible to measure fundamental values directly, so empirical tests examine necessary but not sufficient conditions for fundamental valuation – e.g., whether labor supply responds appropriately to transitory fluctuations in wages. We show that relative valuations can appear to be sensible, as if supported by fundamental values, even when they are quite arbitrary. In four studies, subjects stated willingness to accept (WTA) values for listening to annoying sounds of varying durations. At the onset of each session, subjects listened to a sample of the sound and were asked to state whether, hypothetically, they would be willing to listen to the sound again for either a large or small payment. Suggestive of coherence, prices were systematically related to noise duration. But, suggestive of arbitrariness, prices were powerfully influenced by the arbitrary high/low anchor accompanying the hypothetical question. We show that this pattern of "coherent arbitrariness" is consistent with a model that posits that preferences are initially malleable but become "imprinted" — i.e., precisely defined and largely invariant — after the individual makes an initial choice. The first experiment documents coherent arbitrariness at the individual level, the second in experimental markets, the third with random initial anchors and high payoffs, and the fourth tests the prediction of the imprinting model that prices will be disproportionately influenced by the first of multiple anchors.
- Date:
- 2001
- Notes:
- Presented at SITE on August 20, 2001
- Title:
- Discounting, Planning and Saving
- Author:
- Caplin, Andrew, Ameriks, John, and Leahy, John
- Collector:
- Caplin, Andrew, Ameriks, John, and Leahy, John
- Date:
- 2001
- Notes:
- Presented at SITE on August 20, 2001
- Title:
- Economic Value of EWA Lite: A Functional Theory of Learning in Games
- Author:
- Camerer, Colin, Ho, Teck-Hua, and Chong, Juin-Kuan
- Collector:
- Camerer, Colin, Ho, Teck-Hua, and Chong, Juin-Kuan
- Description:
- EWA Lite is a one-parameter theory of learning in normal-form games. It approximates the free parameters in an earlier model (EWA) with functions of experience. The theory is tested on seven different games and compared to other learning and equilibrium theories. Either EWA Lite or parameterized EWA predict best, but one kind of reinforcement learning predicts well in games with mixed-strategy equilibrium. Belief learning models predict worst. The economic value of theories is measured by how much more subjects would have earned if they followed theory recommendations. EWA Lite and EWA add the most economic value in every game but one.
- Date:
- 2001
- Notes:
- Presented at SITE on August 21, 2001
- Title:
- Information and the Evolution of the Utility Function
- Author:
- Samuelson, Larry and Swinkels, Jeroen
- Collector:
- Samuelson, Larry and Swinkels, Jeroen
- Description:
- Real utility functions differ from the classic form in a number of important ways. Presently biased preferences have received considerable attention. In addition, utilities often depend on the presence of salient unchosen alternatives (e.g., sticking to a low-calorie diet is more painful when surrounded by fattening temptations). We argue that important insight into utility functions can come from a combination of evolutionary psychology and information economics. Evolutionary psychology suggests viewing utility functions in terms of the incentives they provide for evolutionarily successful decisions. Information economics suggests looking at these incentives in a setting where there is information (the output of cognition) accessible to the agent (the organism) but not directly to Nature in her role as designer" of the utility function.
- Date:
- 2001
- Notes:
- Presented at SITE on August 21, 2001
- Title:
- Instantaneous Gratification
- Author:
- Laibson, David and Harris, Christopher
- Collector:
- Laibson, David and Harris, Christopher
- Description:
- We propose a tractable continuous-time model of hyperbolic discounting that can be used to study the behavior of liquidity-constrained consumers. We show that our dynamically inconsistent shares the same value function as a related dynamically consistent optimization problem with a wealth contingent utility function. Using this partial equivalence, we can show both existence and uniqueness of a hyperbolic equilibrium. We also show that the equilibrium consumption function is continuous and monotonic in wealth. None of these properties apply generally to analogous discrete-time models of hyperbolic discounting. All of the pathological properties of discrete-time hyperbolic models are eliminated by our continuous-time model.
- Date:
- 2001
- Notes:
- Presented at SITE on August 19, 2001
- Title:
- On Some Implications of Backward Discounting
- Author:
- Wang, Ruqu and Ray, Debraj
- Collector:
- Wang, Ruqu and Ray, Debraj
- Description:
- We study a model in which lifetime individual felicities are derived from both present and past consumption streams. Each of these streams is discounted, the former forward in the usual way, the latter backward. This discounting method is time-inconsistent, and implies constant regrets by the individual. We assume that an individual at date t evaluates consumption programs according to some weighted average of his own felicity (as perceived at date t) and that of a "future self" at some date T > t. This simple model shows that individuals may exhibit impatience across alternatives that are positioned in periods adjacent to the present, but patience across similar choices positioned in the more distant future, that such impatience is attenuated as an individual grows older, and that lifetime choice plans are generally time-inconsistent. The model can also be used to capture the notion of parental influence and investigate its impact on savings. We finally examine other applications of "backward discounting" in the paper.
- Date:
- 2001
- Notes:
- Presented at SITE on August 19, 2001
- Title:
- Procrastination on Long-Term Projects
- Author:
- O'Donoghue, Ted and Rabin, Matthew
- Collector:
- O'Donoghue, Ted and Rabin, Matthew
- Description:
- Whereas previous papers on time-inconsistent procrastination assume that projects are completed once begun, we develop a model of long-term projects in which a person chooses when to complete each stage, where the effort costs for the different stages may vary. In addition to procrastination in starting a valuable project, a naive person might undertake costly effort to begin a project but then never complete it. When the costs of completing different stages are more unequal, procrastination is more likely, and it is when the costs are larger for later stages that people start but don't finish projects. Moreover, we show that if the structure of costs over the course of a project is endogenous, people may be prone to choose a cost structure that leads them to start but not finish that project. We extend the model to the case where a person can complete multiple projects in succession and to the case where a person must pay a small cost to keep open the option of completing the project in the future.
- Date:
- 2001
- Notes:
- Presented at SITE on August 21, 2001
- Title:
- Random Choice and Random Utility
- Author:
- Pesendorfer, Wolfgang
- Collector:
- Pesendorfer, Wolfgang
- Date:
- 2001
- Notes:
- Presented at SITE on August 20, 2001
- Title:
- Self-Control in Peer Groups
- Author:
- Battaglini, Marco, Benabou, Roland, and Tirole, Jean
- Collector:
- Battaglini, Marco, Benabou, Roland, and Tirole, Jean
- Description:
- Much recent work has studied the behavioral and cognitive implications of dynamic inconsistency in the preferences of a single decision maker. Yet people are typically immersed in social relations, and often seek relief from their self–control problems by intensifying some of these interactions. Such is the case with self–help groups like Alcoholic Anonymous, Narcotics Anonymous and similar single–focus organizations in which agents are said to achieve better personal outcomes by simply sharing their experiences. Conversely, there are cases where group interactions can severely aggravate individual tendencies towards immediate gratification, as in some peer interactions among schoolmates or youths living in the same neighborhood. In this paper we therefore study how observing the actions of others affects individuals' ability to exercise self–control (resist impulses towards short–run gratification). The key difference with the single–agent case is that the informativeness of others' actions is endogenous, and depends on everyone's equilibrium strategies. The model, in which all externalities are purely informational, can give rise to multiple equilibria where agents' levels of self–restraint or self–indulgence are mutually reinforcing. More generally, we identify conditions on agents' initial self–confidence, confidence in others, and correlation between types (difficulty of the self–control problem) that uniquely lead to either a "good news" equilibrium where group membership improves self–discipline, a "bad news equilibrium" where it damages it, or to both. We also perform a welfare analysis to determine when –and for whom– group membership is preferable to, or worse than, staying alone. The model thus provides a formal theory of endogenous, psychologically–based peer effects or role models, as well as of the importance of group morale.
- Date:
- 2001
- Notes:
- Presented at SITE on August 19, 2001
- Title:
- Self-Signaling and Diagnostic Utility in Everyday Decision Making
- Author:
- Prelec, Drazen and Bodner, Ronit
- Collector:
- Prelec, Drazen and Bodner, Ronit
- Description:
- A self-signaling action is an action chosen partly to secure good news about one's traits or abilities, even when the action has no causal impact on these traits and abilities. We discuss some of the odd things that happen when self-signaling is introduced into an otherwise rational conception of action. We employ a signaling game perspective in which the diagnostic signals are an endogenous part of the equilibrium choice. We are interested (1) in pure self-signaling, separate from any desire to be regarded well by others, and (2) purely diagnostic motivation, that is, caring about what an action might reveal about a trait even when that action has no causal impact on it. When diagnostic motivation is strong, the person's actions exhibit a rigidity characteristic of personal rules. Our model also predicts that a boost in self-image positively affects actions even though it leaves true preferences unchanged — we call this a "moral placebo effect."
- Date:
- 2001
- Notes:
- Presented at SITE on August 19, 2001