Reference Dependence and Attribution Bias: Evidence from Real-Effort Experiments

with Tristan Gagnon-Bartsch

Abstract: In this paper, we experimentally investigate whether participants exhibit a previously undocumented form of attribution bias stemming from reference-dependent preferences. In our base-line experiment, participants learned from experience about one of two unfamiliar tasks, one more onerous than the other. Some participants were assigned their task by chance just prior to their initial experience, while others knew in advance which task they would face. In a second session conducted hours later, we elicited those participants’ willingness to work again at that same task. Participants assigned the less-onerous task by chance were more willing to work than those who faced it with certainty (or high probability). Conversely, participants assigned the more-onerous task by chance were less willing to work than those who faced it with certainty. These qualitative results, and the fact that differences in willingness to work remained hours after initial impressions were formed, are consistent with the idea that participants mis- takenly attributed sensations of positive or negative surprise (relative to expectations) to the effort cost of their assigned task.

Learning with Misattribution of Reference Dependence

with Tristan Gagnon-Bartsch

Abstract: This paper explores how an individual who assesses outcomes relative to a reference point may develop biased beliefs when learning from experience. We consider an agent whose utility depends on both the intrinsic value of an outcome and how that value compares to expectations. A misattributing agent neglects how the utility from a positive or negative surprise contributes to her overall experience, and wrongly attributes this sensation to the intrinsic value of an outcome. Our model provides an intuition for why first-hand experience influences beliefs differently than second-hand observations containing identical information and why losses can impact beliefs more than gains. Our main results study implications of misattribution in dynamic environments. First, a misattributor’s expectations are over-influenced by recent experiences and under-influenced by earlier ones. Second, long-run beliefs grow pessimistic and undervalue prospects in proportion to their variability, leading a decision maker to abandon some risky options that are optimal. Third, when outcomes are autocorrelated, a misattributor persistently forms extrapolative and volatile forecasts about future payoffs. Applying the model, we show that (i) uncertain availability of a good can increase its perceived value, (ii) a misattributor may over-invest to insure against undesirable outcomes, and (iii) a misattributing principal may overestimate the ability of a manipulative agent who initially suppresses expectations and beats them thereafter.

A Model of Relative Thinking

with Joshua Schwartzstein and Matthew Rabin

Abstract: Fixed differences loom smaller when compared to large differences. We propose a model of relative thinking where a person weighs a given change along a consumption dimension by less when it is compared to bigger changes along that dimension. In deterministic settings, the model predicts context effects such as the attraction effect, but predicts meaningful bounds on such effects driven by the intrinsic utility for the choices. In risky environments, a person is less likely to exert effort for a fixed return if there is greater overall income uncertainty. In in-tertemporal consumption, relative thinking induces a tendency to overspend and for a person to act more impatient if infrequently allotted large amounts to consume than if frequently allotted a small amount to consume, and especially the greater the uncertainty in future consumption utility.

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A Neurocomputational Model of Altruism and Its Implications

with Cendri Hutcherson and Antonio Rangel

Appears in Neuron

Abstract: In this paper, we propose a neurocomputational model of altruistic choice and test it using behavioral and fMRI data from a task in which subjects make choices between real monetary prizes for themselves and another. Our model captures key patterns of choice, reaction time, and neural response in ventral striatum, temporo-parietal junction, and ventromedial prefrontal cortex. Additionally, the model generates several novel insights into the nature of altruism: it explains when and why generous choices are slower or faster than selfish choices; and why they produce greater response in TPJ and vmPFC, without invoking competition between automatic and deliberative processes or reward value for generosity. It also predicts that when one’s own payoffs are valued more than others’, some generous acts may reflect mistakes rather than genuinely pro-social preferences. 

Pavlovian Processes in Consumer Choice: The Physical Presence of a Good Increases Willingness-to-Pay

with Lindsay M. King, Colin Camerer, and Antonio Rangel

Appears in The American Economic Review

Abstract: This paper describes a series of laboratory experiments studying whether the form in which items are displayed at the time of decision affects the dollar value that subjects place on them. Using a Becker-DeGroot auction under three different conditions— (i) text displays, (ii) image displays, and (iii) displays of the actual items—we find that subjects’ willingness-to-pay is 40–61 percent larger in the real than in the image and text displays. Furthermore, follow-up experiments suggest the presence of the real item triggers preprogrammed consummatory Pavlovian processes that promote behaviors that lead to contact with appetitive items whenever they are available.

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Interpersonal Projection Bias: Theory and Experiments

with Tristan Gagnon-Bartsch

Risk Preferences: Consumption vs Money

Abstract: In this paper, we utilize a simple experiment to demonstrate that risk preferences over monetary outcomes differ from those over consumption. 

Loss Aversion and Ego

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