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Contradictory deviations from maximization: Environment-specific biases, or reflections of basic properties of human
Ido Erev1, Eyal Ert2, Ori Plonsky1
1Faculty of Data and Decision Sciences, Technion.
Psychological Review
|April 20, 2023
Summary
Human economic decisions show puzzling contradictions. This study reveals that changes in incentive structures, not just choice environments, cause these behaviors by relying on small samples of past experiences.
Area of Science:
- Behavioral Economics
- Decision Science
- Cognitive Psychology
Background:
- Human responses to economic incentives often appear contradictory, such as risk aversion in stock investments versus risk-seeking in asset diversification.
- Existing theories attribute these contradictions to different choice environments triggering distinct biases.
Purpose of the Study:
- To investigate if changes in incentive structures alone can explain contradictory deviations from rational choice.
- To propose and test a model based on reliance on small samples of past experiences to predict these deviations.
- To compare the predictive power of small-sample models against classical choice models like prospect theory.
Main Methods:
- Analyzed how changes in incentive structures trigger contradictory deviations in decision-making.
- Developed and compared distinct models of reliance on small samples of past experiences.
- Conducted a preregistered study with 120 new tasks, comparing within-individual and between-group predictions against classical choice models.
Main Results:
- Incentive structure variations are sufficient to cause contradictory deviations, even with a fixed choice environment.
- "Wide sampling" models, which utilize the most similar past experiences, significantly outperformed classical models.
- Predictive accuracy decreased when assuming stable individual traits, suggesting the number of relevant past experiences varies by task.
Conclusions:
- The incentive structure significantly influences decision-making biases, often more than previously assumed.
- Reliance on the most similar past experiences (wide sampling) is a key mechanism explaining seemingly contradictory economic behaviors.
- Decision biases are more dynamic and context-dependent than stable individual traits suggest.
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