Because many economic decisions are difficult, people may exhibit cognitive uncertainty: subjective uncertainty about what the optimal action is.
In the presence of such cognitive uncertainty, people implicitly compress objective probabilities
towards a cognitive default of 50:50.
By experimentally measuring and exogenously manipulating cognitive uncertainty,
this idea brings together and partially explains a set of striking similarities in well-known behavioral anomalies in choice under risk,
choice under ambiguity, belief updating, and survey forecasts of economic variables.
Structural estimations show that the pronounced inverse S-shaped response patterns that pervade these literatures result from how cognitive uncertainty varies with objective probabilities.
This paper studies how people make inference about a state of the world when the information structure includes additional, payoff-irrelevant states. For example, learning about effort from observed performance may require accounting for the otherwise irrelevant role of luck. This creates an attribution problem that is common to information structures with multiple causes. We report controlled experimental evidence for pervasive overinference about states that affect utility given an action, providing an explanation for a collection of well-known but previously unconnected misattribution patterns. In studying why systematic misattribution arises, we consistently find that errors are not due to excessive task complexity or deliberate effort avoidance. Instead, people form incomplete mental models of the information structure and fail to notice the need to account for alternative causes. These mental models are not stable but context-dependent: misattribution responds to a variety of attentional manipulations, but not to changes in the costs of inattention.
Heterogeneity of Gain-Loss Attitudes and Expectations-Based Reference Points with Lorenz Goette, Alex Kellogg and Charles Sprenger
This project examines the role of heterogeneity in gain-loss attitudes for identifying models of expectations-based reference dependence (Kőszegi and Rabin, 2006, 2007) (KR). Different gain-loss attitudes lead to different signs for KR comparative statics. Failure to account for the known heterogeneity in gain-loss attitudes is a central confounding factor challenging prior tests of the KR model conducted under the assumption of universal loss aversion. We document heterogeneous treatment effects over gain-loss types in both an initial experiment and an exact replication. Recognizing heterogeneity over types allows us to both recover the KR model’s central predictions, and account for inconsistency across prior empirical tests.
Does prosocial behavior promote happiness? We test this longstanding hypothesis in a behavioral experiment that extends the
scope of previous research. In our Saving a Life paradigm, every
participant either saved one human life in expectation by triggering a targeted donation of 350 euros or received an amount of 100
euros. Using a choice paradigm between two binary lotteries with
different chances of saving a life, we observed subjects’ intentions at the same time as creating random variation in prosocial
outcomes. We repeatedly measured happiness at various delays.
Our data weakly replicate the positive effect identified in previous research but only for the very short run. One month later, the
sign of the effect reversed, and prosocial behavior led to significantly lower happiness than obtaining the money. Notably, even
those subjects who chose prosocially were ultimately happier if
they ended up getting the money for themselves. Our findings
revealed a more nuanced causal relationship than previously suggested, providing an explanation for the apparent absence of
universal prosocial behavior.