Anchoring on valuations and perceived informativeness

Anchoring is a cognitive bias whereby individuals’ decisions are influenced by an uninformative number, the anchor. Anchoring bias for valuations of goods has important implications for consumer decisions, but its’ robustness has been questioned by recent studies. We investigate the effect of the perceived informativeness of the anchor on valuations of goods. In an online experiment, we vary the amount of information about the process by which the anchor was determined, and hypothesise that the more information provided, the less scope is left for the anchor to be perceived as non-random/informative, thus mitigating anchoring effects. Our results provide evidence that the perceived informativeness of the anchor does affect anchoring effects. Contrary to our prediction, we find stronger anchoring effects when more information is presented.</p

On the role of information in strategic and individual decision making

This dissertation comprises four independent chapters, each exploring the impact of information on decision-making processes within economic contexts. The overarching theme across these chapters is the role of information in shaping human behaviour and economic outcomes. The first two chapters investigate strategic interactions involving a sender possessing information desired by a receiver. The first chapter employs game theory to analyse these interactions, while the second chapter adopts an experimental approach to delve into how habits affect strategic communication. The third chapter investigates the influence of irrelevant information on individuals' valuation of goods, exploring whether market interactions mitigate this effect. The fourth chapter studies the decision-making process surrounding the disclosure of information pertaining to corporate fraud through whistleblowing mechanisms. Through these diverse topics, this dissertation contributes to the broader understanding of how information intersects with economic decision-making processes

On the role of information in strategic and individual decision making

This dissertation comprises four independent chapters, each exploring the impact of information on decision-making processes within economic contexts. The overarching theme across these chapters is the role of information in shaping human behaviour and economic outcomes. The first two chapters investigate strategic interactions involving a sender possessing information desired by a receiver. The first chapter employs game theory to analyse these interactions, while the second chapter adopts an experimental approach to delve into how habits affect strategic communication. The third chapter investigates the influence of irrelevant information on individuals' valuation of goods, exploring whether market interactions mitigate this effect. The fourth chapter studies the decision-making process surrounding the disclosure of information pertaining to corporate fraud through whistleblowing mechanisms. Through these diverse topics, this dissertation contributes to the broader understanding of how information intersects with economic decision-making processes

Consciously Uncertain: A Bayesian Analysis of Preferences Formation

We investigate experimentally whether players deliberately use irrelevant market cues to shape their evaluations of a traded item. We implement a repeated Vickrey median price selling auction of an unusual bad where players are informed on the market price and on the three lowest or highest asks. We elicited players’ consideration of market signals through a questionnaire at the end of the auction. We find that extreme information has a stronger influence on players’ evaluations than the market price. However, players’ consideration of the market signals explains their behavioral reactivity to the market price but not to the extremes. Hence, players deliberately use an unbiased estimator of the central tendency of the appraisals distribution, while extreme asks’ influence is consistent with a priming effect

Hierarchical inference as a source of human biases

The finding that human decision-making is systematically biased continues to have an immense impact on both research and policymaking. Prevailing views ascribe biases to limited computational resources, which require humans to resort to less costly resource-rational heuristics. Here, we propose that many biases in fact arise due to a computationally costly way of coping with uncertainty—namely, hierarchical inference—which by nature incorporates information that can seem irrelevant. We show how, in uncertain situations, Bayesian inference may avail of the environment’s hierarchical structure to reduce uncertainty at the cost of introducing bias. We illustrate how this account can explain a range of familiar biases, focusing in detail on the halo effect and on the neglect of base rates. In each case, we show how a hierarchical-inference account takes the characterization of a bias beyond phenomenological description by revealing the computations and assumptions it might reflect. Furthermore, we highlight new predictions entailed by our account concerning factors that could mitigate or exacerbate bias, some of which have already garnered empirical support. We conclude that a hierarchical inference account may inform scientists and policy makers with a richer understanding of the adaptive and maladaptive aspects of human decision-making

Giraffes, religion and conflict : essays in behavioral decision making

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2008.Includes bibliographical references.Essay 1: Objective Scale Anchoring in Sequential Judgments We explore the scope and boundary conditions for anchoring when respondents render sequential judgments in the absence of an explicit comparative standard. We show that previous judgments can anchor subsequent ones, even when these are not explicitly compared. We then demonstrate that the effect is caused by the reinterpretation of objective response scales. Much like the use of the label 'very heavy' will depend on its context, we show that the use of labels such as '1000 pounds' will also depend on context. Even though the pounds scale is objectively defined, psychologically it still must be interpreted, and is subject to similar effects as those that influence subjective scales. Essay 2: The Impact of Regular Activities on Well-being Because of people's tendency to adapt, few events in life have a lasting impact on subjective well-being. We suggest that while major events may not provide lasting increases in well-being, certain seemingly minor events - such as attending religious services or exercising - may do so by providing small but frequent boosts. In two studies we demonstrate the existence of such boosts to well-being, and provide evidence that these boosts may be cumulative. We suggest that shifting focus from the impact of major life changes on well-being to the impact of seemingly minor repeated behaviors is crucial for understanding how best to improve well-being. Essay 3: The Doomsday Device: A Mechanism for Avoiding Conflict Arms races are a common occurrence in the business world. In the current paper, we propose that such arms races can be avoided by the use of commitment to an extreme response, and we test this idea experimentally.(cont.) Our findings suggest that actual commitment is an effective but underused tool for avoiding the escalation of conflict. We also find that while cheap talk is not effective in the short run, it is useful for establishing a reputation for future interactions.by Daniel Mochon.Ph.D

Your Loss is my Gain: A Recruitment Experiment with Framed Incentives

As predicted by loss aversion, numerous studies find that penalties elicit greater effort than bonuses, even when the underlying payoffs are identical. However, loss aversion also predicts that workers will demand higher wages to accept penalty contracts. In six experiments I recruited workers online under framed incentive contracts to test the second prediction. None find evidence for the predicted distaste for penalty contracts. In four experiments penalty framing actually increased the job offer acceptance rate relative to bonus framing. I rule out a number of explanations, most notably self-commitment motives do not seem to explain the finding. Two experiments that manipulate salience are successful at eliminating the effect, but do not significantly reverse it. Overall, loss aversion seems to play surprisingly little role in this setting. The results also highlight the importance of behavioral biases for infrequent, binding decisions such as contract take-up

Anchoring_JESA

Raw data and Stata code for the paper "On the effect of anchoring on valuations when the anchor is transparently uninformative"