Decision processes brown bag, 2002-2003

12-1:30 PM, Monday
Jon M. Huntsman Hall, room F50

Sept 16 Leif D. Nelson, Princeton Seeing Approach Motivation in the Avoidance Behavior of Others: Implications for an Understanding of Pluralistic Ignorance
Sept 23 Howard Kunreuther, Penn A Firm Can Only Go Bankrupt Once: Risk Management Strategies in an Uncertain World
Sept 30 Randy Gallistel, Rutgers When choice isn't what it appears: Allocating vs. Opting
Oct 7 Robert Kurzban, Penn Commitment and Reciprocity in Social Dilemmas
Oct 14 Terry Connolly, Arizona A second look at omission bias
Oct 21 Maurice Schweitzer, et al., Penn Promises and lies: Restoring violated trust
Oct 28 Jeffrey Rachlinski, Cornell The Uneasy Psychological Case for Paternalism
Nov 4 Jennifer Edson Escales, Arizona Narrative Versus Analytical Self-Referencing and Persuasion
Nov 11 Peter Gollwitzer, NYU The Benefits of Planning
Nov 18 Dan Romer, Penn Overgeneralization as an Accuracy Maximizing Strategy
Nov 25 No meeting (JDM)
Dec 2 Chris Anderson, SUNY Albany The root of error: Environmental influences on Unreliability in Judgment
Jan 27 Daniel Langleben, Penn Brain imaging during intentional deception
Feb 3 David F. Sally, Cornell Playing with a Broken Looking Glass: Autism and Games.
Feb 10 Ginger Pennington, Chicago Regulatory focus and temporal distance
Feb 17 CANCELLED (snow)
Feb 24 Eric Johnson, Columbia Remembering What I Want: Priming the Endowment Effect and the Construction of Preferences.
Mar 3 Irwin Levin, Iowa Individual Differences in Risky Choice Preference Reversals: Studies with Adults and Children
Mar 17 Christian Terwiesch, Penn Information Sharing in the Semiconductor Equipment Supply Chain
Mar 24 Richard Petty, OSU Thought Confidence and Persuasion: A New Way to Influence Attitudes
Mar 31 Steven J. Brams, NYU Efficient Fair Division: Help the Worst Off or Avoid Envy?
Apr 7 Shane Frederick, MIT In Search of Time Preference: Dissecting Discounting
Apr 14 Linda Babcock, CMU A situational perspective on gender and negotiation
Apr 21 Donald Redelmeier, Toronto Do traffic tickets prevent traffic fatalities?
Apr 23 Cass Sunstein, Chicago
Distinguished speaker, 4:30-6, Room G60
The Laws of Libertarian Paternalism

Other relevant events on campus

Applied economics workshop

Past years




Spring 1999

Jonathan Baron, web page maintainer


A Firm Can Only Go Bankrupt Once: Risk Management Strategies in an Uncertain World
Howard Kunreuther and Geoffrey Heal

The World Trade Center terrorist attacks of September 11th have stimulated us to think about the challenges organizations face in dealing with low-probability events that have catastrophic consequences. More specifically, there are certain bad events that can only occur once. Death is the clearest example: an individual's death is irreversible and unrepeatable. With respect to firm behavior, bankruptcy is the obvious analog.

This paper develops a framework for addressing the issue of interdependent security (i.e. when the protective decisions by one division affects the risks faced by others) and its relationship to catastrophic events that can cause bankruptcy. We show that when failure to take actions by any division can bankrupt the entire firm, the economic incentive for any division in an organization to invest in risk-reduction measures depends on how it expects the other divisions to behave in this respect. For this class of problems there may be situations where no one invests in safety measures, even though everyone would be better off if each division had incurred this cost.

To encourage the adoption of security measures in these situations one needs to turn to institutional coordinating mechanisms and/or public-private partnerships. The paper focuses on two such approaches: (1) how a firm encourage its divisions to invest in protection through internal rules and (2) the role that government regulations coupled with third party inspections and insurance play in encouraging investment in protection. The concluding section explores areas for future theoretical and empirical research in interdependent security.

Seeing Approach Motivation in the Avoidance Behavior of Others: Implications for an Understanding of Pluralistic Ignorance
Dale T. Miller and Leif D. Nelson, Princeton University

Four studies tested the hypothesis that observers tend to interpret others' actions as approach motivated even when they recognize that their own identical choices were motivated by avoidance. Study 1 contrasted voters in the 2000 U.S. Presidential election whose choice of candidate was based on admiration of a candidate and voters whose choice of candidate was based on dislike of a candidate. As predicted, avoidance-motivated voters thought that other supporters of their candidate liked him more than they did. In Studies 2 and 3 participants who learned that others made the same choice as themselves between two unappealing flavors of soda or jellybeans estimated that the others would pay more than they would for their common choice. In Study 4 participants reported greater perceived similarity in taste between themselves and an identically choosing other when the choice was made between two appealing, as opposed to two unappealing, flavors of jellybeans. The relevance of these findings for an understanding of pluralistic ignorance and its underlying mechanisms are discussed.

Narrative Versus Analytical Self-Referencing and Persuasion
Jennifer Edson Escales, Arizona

Consumer research has examined the positive effects of self-referencing, that is, processing information by relating it to one's self or personal experiences. However, this literature has uncovered contradictory findings. In some studies, self-referencing appears to enhance cognitive elaboration and the differential persuasive effect of strong versus weak arguments. In other research, self-referencing appears to distract attention away from weak arguments. This paper reconciles these differences by contrasting narrative self-referencing with non-narrative (analytical) self-referencing. I propose that narrative self-referencing persuades through affect transfer, realism of experience, and reduced negative cognitive responses, consistent with narrative transportation theory. These assertions are tested in two experiments in the context of mental simulation as a form of narrative self-referencing.

The Benefits of Planning
Peter M. Gollwitzer, New York University/Universitt Konstanz

When people encounter problems in translating their goals into action (e.g., failing to get started, becoming distracted, or falling into bad habits), they may strategically call on automatic processes in an attempt to secure goal attainment. This can be achieved by plans in the form of implementation intentions that link anticipated critical situations to goal-directed responses. (If situation x arises, then I will initiate the goal-directed response y.) Implementation intentions delegate the control of goal-directed responses to anticipated situational cues, which (when actually encountered) elicit these responses automatically. A program of research demonstrates that implementation intentions further the attainment of goals as they facilitate getting started and prevent straying off course.

Commitment and Reciprocity in Social Dilemmas
Robert Kurzban, Penn

Allowing players in public goods games to make small incremental commitments to contributing to the good might facilitate cooperation because it helps to prevent players from being "free ridden," contributing more to the public good than other group members. A series of experiments using a real-time version of the voluntary contribution mechanism were conducted to investigate the hypothesis that players are generally willing to contribute to public goods conditional on beliefs that others are doing so at similar levels. These experiments provided evidence that 1) affording a strategy of commitment can increase the production of public goods 2) most players are willing to contribute to the public good at a level at or slightly above the contribution of the lowest contributor in the group and 3) players are particularly concerned with monitoring the contributions of the least cooperative member of their group.

When choice isn't what it appears: Allocating vs. Opting
C. R. Gallistel, Rutgers

A Second Look at Omission Bias
Terry Connolly, University of Arizona

Several studies suggest that decisions are commonly distorted by ``omission bias'', a general tendency to prefer inactive to active options even when inaction leads to worse outcomes or greater risks. In this presentation I argue that existing research has not made a convincing case for either a general reluctance to act or for a verdict that such a tendency, if found, would constitute a bias. I will discuss several conceptual and methodological issues that together leave many earlier studies of omission bias equivocal. One group of these studies has found omission bias in parental decisions concerning vaccination for their children, raising serious public health issues as well as decision process concerns. I will report results of a study using this same decision setting, investigating the tendency towards action or inaction in a scenario-based study of undergraduate students (N=103) and non-student adults (N=192), using a simplified scenario and procedure. Both groups of respondents showed a majority preference for taking action (i.e. for vaccination). Vaccination intentions were significantly predicted by measures of the regret respondents expected to feel if vaccination or non-vaccination were to lead to a poor outcome. That is, the overall tendency was not to avoiding action but to avoiding regret. These regret-avoiding choices led some respondents to favor vaccination, others to oppose it. It is unclear that either group demonstrated bias. In two follow-up studies, few respondents mentioned action or inaction per se in explaining their choices.

Promises and Lies: Restoring Violated Trust
Maurice Schweitzer, John C. Hershey, Eric T. Bradlow

Trust has been recognized as a critical catalyst for market transactions and effective management. At the same time, trust violations in both economic markets and within organizations are common. Prior work has often assumed trust to be fragile--easily broken and difficult to repair. In this paper, we examine the trust repair process and test this assumption under different conditions. We report results from a laboratory study using a modified and repeated version of a trust game (Berg, Dickhaut, & McCabe 1995) and we separate untrustworthy action from deceptive communication. We consider the influence of words (i.e. cheap talk) and deeds on harming and restoring trust, and identify conditions under which trust can be effectively restored. We develop a parsimonious, yet flexible, mathematical model of trust recovery in which the parameters of the model can be interpreted as baseline trust, long-run (asymptotic) trust, amount of trust recovery, and speed of trust recovery. Using parameters from our fitted model, we find that while trustworthy actions significantly repair trust, the speed and amount of trust recovery is significantly moderated by cheap talk. Specifically, we find that deceptive communication harms both initial and long-term trust recovery and that a promise speeds the trust recovery process.

The root of error: Environmental influences on Unreliability in Judgment
Chris Anderson

In the past year, we have carried out a program of research that aims to expand our understanding of the causes of judgment error, in particular, the crucial and often overlooked role of human unreliability.

We developed a theoretical framework based in the lens model that shows how reliability and consistency are related and how they contribute to reductions in achievement and potential increases in conditional bias.

We have also conducted a meta-analysis demonstrating that task predictability is one source of inconsistency. This added inconsistency mediates a decline in relative achievement in low predictability environments. Thus, the environment produces error not just by setting a ceiling on accuracy, but also via its psychological effect on the judge.

Finally, we conducted a series of six experiments that aimed to determine the variables that influence reliability, and in turn observed the effect these changes had on other judgment parameters such as relative achievement, bias, matching, and consistency. Generally, we have found that complexity led judges to be less reliable, which contributed to a notable decrease in accuracy in more complex environments. On the other hand, some very simple and inexpensive interventions were able to boost reliability significantly and thus increase accuracy.

The work thus far suggests that investigating reliability provides an important window on judgment error. Our work also provides a foundation for more developed theories regarding the mechanisms that produce judgment reliability.

In my talk I will also explore connections between reliability and status quo and omission biases.

Overgeneralization as an Accuracy Maximizing Strategy
Dan Romer

This is a presentation about the phenomenon of overgeneralization in judgment and decision making. Although people are said to commit overgeneralization errors when predicting behavior from traits and other cues with limited diagnostic value, this strategy maximizes accuracy of prediction across a wide range of conditions. As long as a cue has any diagnostic value, using it universally to predict a criterion will result in more accurate prediction than relying on no data at all. The major problem with overgeneralization is the commission of excessive false positives. However, false positives can be reduced by increasing the number of independent diagnostic cues that are used to make predictions. This prediction has been confirmed by the US Customs Bureau in its attempts to reduce the number of unnecessary searches at ports of entry into the country.

The accuracy of overgeneralization explains (but does not fully rationalize) the success of unit weighting of cues in linear prediction models. However, nearly optimal prediction can be achieved if cues are evaluated in order of their diagnosticity for the criterion, along the lines of Tversky's elimination by aspects model. Nevertheless, time and cognitive resource limitations will still reduce our capacity to use all available cues in an optimal manner.

A major disincentive for relying on insufficient numbers of cues is the potential cost of false positives. However, in many situations, false positives are less costly to the decision maker than to persons affected by the decision (e.g., discrimination resulting from stereotyping and racial profiling). In these situations, the temptation to rely on insufficient information is problematic and requires the introduction of incentives to encourage the maximum use of available information.

The simplicity and power of overgeneralization as an accuracy maximizing strategy is consistent with an alternative criterion for behavioral decision theory: maximization of accuracy in achieving desired goals. Although this criterion is similar to maximization of utility, it deviates in important ways, not the least of which being its achievability. It also can explain some of the phenomena that prospect theory tries to handle, such as the power of completely certain outcomes. The relative ease of accuracy maximization may well provide an explanation for our ability to cope with a complex world despite our bounded capacities for optimal decision making.

Daniel Langleben
Brain imaging during intentional deception
Slides 1 (pdf)

Slides 2 (pdf)

Information Sharing in the Semiconductor Equipment Supply Chain
Christian Terwiesch (co-authored with Morris A. Cohen, Teck H. Ho, Justin Z. Ren)

Full paper available under:

We report on an empirical study of forecast sharing related to the acquisition of customized production equipment for the manufacturing of semiconductors. Customers, who are responding to the turbulent environment they face in the demands for their end-products, press for short customer lead-times, requiring product delivery within three months or less. At the same time, the complexity and degree of customization of the equipment causes manufacturing lead-times to be long and stochastic, ranging between several months to a whole year.

Taking the perspective of a supplier of customized semiconductor production equipment, we develop a formal model addressing the trade-off between the early start of a production process (leading to potential cancellation cost and holding cost) and a delay until more information has become available (leading to a potential delay cost due to loss of goodwill).

How this trade-off is resolved, depends on the cost structure of the supplier. While traditionally, the supply chain literature has taken these cost parameters as exogenously given and then searched for the optimal operational decision, we take a different approach. Based on an empirical observation of the supply chain over time, including detailed data of shared forecasts, actual purchase orders, production lead-times, and delivery dates, and on the assumption that the supplier is a rational actor, we are able to reconstruct the cost parameters that explain the empirical supply chain behavior. Our results show that the cancellation cost is about four times higher than the delay cost and the holding cost is twice as large.

Specifically, this paper makes two contributions. First, we quantify the effectiveness of an order forecast sharing system in the semiconductor equipment supply chain and show that it is not as effective as one would expect. Fearing order cancellation, the supplier, by and large, ignores the preliminary forecast information. Second, to the best of our knowledge, this is the first paper to empirically estimate the cost parameters that underlie the existing analytical models of coordination in supply chain management.

Playing with a Broken Looking Glass: Autism and Games.
David Sally (with Elisabeth Hill)

The choice to cooperate or compete with others confronts us on a daily basis, and it is likely that we use our mentalising skills to aid decision-making in such situations. In this study, the relationship was investigated between mentalising and two types of strategic games - those involving the choice to cooperate with another for joint gain or compete for own gain and those involving bargaining and division of a surplus - in children and adults with and without autistic spectrum disorders. The results suggest that strategic responses in the first type of game, the wellknown prisoner's dilemma, are associated with mentalising ability. In contrast, generosity in bargaining tasks did not depend upon mentalising skills, but initial strategically unequal offers did. These two essential social games appeared to be differentially compensated for in highfunctioning individuals with autistic spectrum disorders.

Regulatory Focus and Temporal Distance
Ginger L. Pennington and Neal J. Roese University of Illinois

Four studies identify and examine a temporal component to regulatory focus. Results support the assertion that promotion focus tends to predominate for temporally distant goals, whereas proximal goals are characterized by more balanced consideration of both promotion- focused and prevention- focused concerns. In Study 1, students rated the importance of promotion and prevention goals at two points in time: two weeks before and a few minutes before an examination. Promotion goal importance increased with temporal distance, whereas prevention goal importance remained constant over time. Study 2 replicated this pattern holding the actual time-span constant ( 3.5 weeks), and varying only the psychological sense of proximity/distance. In Study 3, subjects rated the regulatory focus of goals at varying points in tim e, both future and past. The temporal effect was replicated for both time periods. Study 4 provided evidence for the reverse effect, that of regulatory focus on the perceived temporal distance of future goals. Taken together, these findings suggest an i ntegration across research domains that links regulatory focus to temporal perspective for both prospective and retrospective judgments.

Efficient Fair Division: Help the Worst Off or Avoid Envy?
Steven J. Brams and Daniel L. King

Two or more players rank a set of indivisible items from best to worst. An efficient allocation of items is characterized, which may satisfy such properties as maximin, Borda maximin, and envy-avoidance. Whereas the two maximin properties are in conflict with envy-avoidance, there is always an efficient allocation that does not ensure envy, but it may not be maximin or Borda maximin. Computer calculations show that maximin allocations lead to envy quite often, but Borda maximin allocations do so only rarely. Implications of the theoretical findings for real-world fair-division problems are discussed.

Individual Differences in Risky Choice Preference Reversals: Studies with Adults and Children
Irwin P. Levin

For a number of years we have been studying in our lab phenomena associated with ``preference reversals'' or ``preference shifts'' where decisions differ in the domains of gains and losses. These include two forms: 1) Reflection effects where decision makers differ in riskiness depending on whether they are trying to achieve a gain or avoid a loss; and 2) Framing effects where identical decision tasks are responded to differently depending on whether outcomes are labeled in positive or negative terms. There have been many demonstrations of these effects at the aggregate level.

In the past several years our attention has turned to individual differences in these phenomena. Based on contributions from both cognitive psychology and personality theory, we developed a set of measures of individual differences to administer in conjunction with our decision making tasks. In Levin, Gaeth, Schreiber and Lauriola (2002) and Lauriola and Levin (2001), we showed that various scales of the Big Five Personality Inventory were predictive of the magnitude of framing effects and preference shifts.

Most recently, we have addressed the question of when such decision making biases develop by asking whether preference shifts can be observed at an early age (5-6 years old) and whether we can isolate measures of individual differences in personality and temperament in these children that are predictive of these effects. We used both parental reports (most notably, responses to Rothbart's Child Behavior Questionnaire or CBQ) and prior observation of these children to obtain our predictors. In addition, we administered exactly the same risky decision making task to parent and child. The main results were as follows: 1) both children and parents exhibited the preference shift of more risky choices in the domain of losses than in the domain of gains; 2) several measures of the CBQ were predictive of children's risk taking for gains and losses, and these are roughly parallel to the personality measures identified in the earlier studies with adults; and 3) choices made by parents were predictive of choices made by their children.

Eric Johnson, Columbia University
Remembering What I Want: Priming the Endowment Effect and the Construction of Preferences.

Nobody would disagree that memory plays a crucial role in preference and choice. Yet, economics and mathematical psychology have largely been silent on the nature and role of memory processes, preferring to ignore the psychological processes involved in preference formation. Instead they have modeled preference and choice in an "as-if" fashion as mathematical transformations and integrations of the features of choice objects, taking their inspiration from psychophysics rather than cognitive psychology. The research described in this proposal contrasts this preferences-as-functional-relationships approach with an alternative that conceptualizes preference as the natural output of the human memory system, following the properties and characteristics of other types of knowledge.

Richard E. Petty, Ohio State University
Thought Confidence and Persuasion: A New Way to Influence Attitudes

Numerous studies have examined how attitudes can be changed by thoughtful and non-thoughtful means. Prior investigations of thoughtful persuasion have focused on how a plethora of variables can influence the amount of thinking that takes place and the valence of the thinking (i.e., whether the thoughts are favorable or unfavorable toward the advocacy). An unexplored aspect of thinking is the confidence people have in the thoughts that they generate. The current research shows that numerous variables can influence people's confidence in their thoughts and thereby influence the amount of attitude change that occurs. When thoughts to a message are largely favorable, increasing confidence increases persuasion and decreasing confidence decreases persuasion. When thoughts to a message are largely unfavorable, however, increasing confidence in those thoughts reduces persuasion and undermining confidence increases persuasion. A diverse set of variables are shown to influence thought confidence including: the ease of thought generation, the credibility of the message source, and a person's mood state.

Cass Sunstein, University of Chicago
The Laws of Libertarian Paternalism

The idea of libertarian paternalism might seem to be an oxymoron, but it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice. Often people's preferences are ill-formed, and their choices will inevitably be influenced by default rules, framing effects, and starting points. In these circumstances, a form of paternalism cannot be avoided. Equipped with an understanding of behavioral findings of bounded rationality and bounded self-control, libertarian paternalists should attempt to steer people's choices in welfare-promoting directions without eliminating freedom of choice. It is also possible to show how a libertarian paternalist might select among the possible options and to assess how much choice to offer. Examples are given from many areas, including savings behavior, labor law, and consumer protection.

Donald Redelmeier, Toronto
Do traffic tickets prevent traffic fatalities?

Motor vehicle crashes are a common cause of death and account for about 1 million fatalities each year world wide. We tested whether traffic convictions, due to their direct influence on the recipient, might be associated with any reduced risk of a fatal motor vehicle crash. We identified licensed drivers involved in fatal crashes over an eleven year interval (n = 8,975 individuals) and used the case-crossover design to check for a protective effect from past convictions on driver risk (n = 21,501 convictions). The results help inform debates over health policy, driver decision making, and the role of emerging enforcement technologies.

Linda Babcock, CMU
A situational perspective on gender and negotiation

Over the last two decades, there has been an upsurge inresearch in social psychology on the relationships among gender, cognition, and social behavior. Over the same period, studies of gender in negotiation have declined, and the field has largely abandoned the gender variable as an inconsistent predictor of negotiator behavior or performance. In this research program, we argue that gender has mostly been treated as a static, decontextualized demographic variable in the negotiation literature, and that we are just beginning to consider the complex nature of gender as a labile yet influential psychological construct in negotiation. We offer a new conceptualization of gender in negotiation - one that is more psychological and contextual. Specifically, we seek to illustrate the diverse psychological processes that can mediate the relationship between gender and negotiation processes and outcomes (thus understanding why gender matters in negotiation). We also seek to uncover how such psychological processes can be moderated by situational features (thus understanding when gendered aspects of interaction may be more or less operative in negotiation.) This talk will present results from laboratory as well as fields studies.