Predicting Shortâ Term Remembering as Boundedly Optimal Strategy Choice

It is known that, on average, people adapt their choice of memory strategy to the subjective utility of interaction. What is not known is whether an individual’s choices are boundedly optimal. Two experiments are reported that test the hypothesis that an individual’s decisions about the distribution of remembering between internal and external resources are boundedly optimal where optimality is defined relative to experience, cognitive constraints, and reward. The theory makes predictions that are tested against data, not fitted to it. The experiments use a noâ choice/choice utility learning paradigm where the noâ choice phase is used to elicit a profile of each participant’s performance across the strategy space and the choice phase is used to test predicted choices within this space. They show that the majority of individuals select strategies that are boundedly optimal. Further, individual differences in what people choose to do are successfully predicted by the analysis. Two issues are discussed: (a) the performance of the minority of participants who did not find boundedly optimal adaptations, and (b) the possibility that individuals anticipate what, with practice, will become a bounded optimal strategy, rather than what is boundedly optimal during training.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/133633/1/cogs12271-sup-0001-FigS1.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/133633/2/cogs12271-sup-0002-FigS2.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/133633/3/cogs12271.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/133633/4/cogs12271_am.pd

Essays On Dynamic Updating Of Consumer Preferences

Consumers dynamically update their preferences over time based on information learned through product search and consumption experiences, particularly in online media. Using three unique datasets from different domains, we address specific ways in which firms can use rich information about their customers\u27 behaviors to improve (1) the visual display of products on a webpage in online shopping, (2) predictions of new product adoption in online gaming, and (3) the timing of product release in online learning. First, we explore how consumers visually search through product options using eye-tracking data from two experiments conducted on the websites of two online clothing stores, which can inform retailers on how to position products on a virtual webpage. Second, we examine how consumers\u27 variety-seeking preferences change depending on past consumption outcomes within the context of an online multi-player video game, which can be used to improve predictions of new product adoption. Third, we use clickstream data from an online education platform to test theories of goal progress, knowledge accumulation, and boundedly rational forward-looking behavior, which can be used to explain binge consumption patterns and inform content providers on the best way to structure and release content. In each of these three projects, we build a mathematical model of individual decisions, with the parameterization grounded in theories of consumer behavior, and we demonstrate through in-sample prediction that our model is able to capture specific heterogeneous patterns within the data. We then test that our model is able to make out-of-sample predictions related to managerial interventions, and empirically verify our predictions using either lab experiments or new field data following a natural experiment policy change

Behaviors That Impact the Economic Outcomes of Mergers & Acquisitions; The Premium Price Paid and Return on Investment

This quantitative study explores the impact of overconfidence bias, lying for strategic advantage, and co-operation (or non-cooperation) among 29 highly experienced private equity fund and investment managers. Using four structured experiments, M&A professionals were assigned buyer and seller roles and allowed to choose among investment opportunities. Within a game theory framework, the buyers and sellers bargained over the purchase price. The results of these experiments were explored using a linear regression format. The skill level of the participants was measured using a financial literacy test prior to the experiments and two overconfidence measures were constructed. Lying for strategic advantage was an embedded behavior, and co-operation versus non-cooperation was observed. Results suggest that more experienced buyers, along with more skilled buyers, were able to achieve a lower price paid and higher ROI. Lying for strategic advantage was not found to have an impact on the price paid by buyers. Cooperation was not found to have a statistically significant impact. However, results suggest that when lying and cooperation is employed by a buyer, they can achieve a lower price paid for an acquisition, thus a higher ROI. These findings contribute to our understanding of outcomes observed from private equity transactions

Putting willpower into decision theory: the person as a team over time and intrapersonal team reasoning

In decision-theory, problems of self-control can be modelled as problems of intrapersonal cooperation, between a series of transient agents who each make choices at particular times. Early agents in the series can try to influence the actions of later agents, but there is no rational way to exert willpower. I show how willpower can be introduced into decision theory by applying the theory of team reasoning, which was originally developed to understand cooperation between individuals in groups and allows that there can be multiple levels of agency, the individual and the team. In the case of intertemporal choice, the levels are the transient agent and the person over time. Intra-personal team reasoning, understood as a psychological process of identifying with the person over time, can generate a plausible theory of rational control if the intertemporal problem is structured as a threshold public goods game. In this framework, willpower is the ability to align one’s present self with one’s extended interests by identifying with the person over time. I show how intra-personal team reasoning creates a space for resolutions in decision theory and how it resolves a puzzle that exists in accounts that understand willpower as making and then not reconsidering resolutions

Behavioral Criminal Law and Economics

A behavioral economics literature identifies how behaviorally-derived assumptions affect the economic analysis of criminal law and public law enforcement. We review and extend that literature. Specifically, we consider the effect of cognitive biases, prospect theory, hedonic adaptation, hyperbolic discounting, fairness preferences, and other deviations from standard economic assumptions on the optimal rules for deterring potential offenders and for regulating (or motivating) potential crime victims, legislators, police, prosecutors, judges, and juries

Essays on bounded rationality: individual decision and strategic interaction

Economics is a social science which, therefore, focuses on people and on the decisions they make, be it in an individual context, or in group situations. It studies human choices, in face of needs to be fulfilled, and a limited amount of resources to fulfill them. For a long time, there was a convergence between the normative and positive views of human behavior, in that the ideal and predicted decisions of agents in economic models were entangled in one single concept. That is, it was assumed that the best that could be done in each situation was exactly the choice that would prevail. Or, at least, that the facts that economics needed to explain could be understood in the light of models in which individual agents act as if they are able to make ideal decisions. However, in the last decades, the complexity of the environment in which economic decisions are made and the limits on the ability of agents to deal with it have been recognized, and incorporated into models of decision making in what came to be known as the bounded rationality paradigm. This was triggered by the incapacity of the unboundedly rationality paradigm to explain observed phenomena and behavior. This thesis contributes to the literature in three different ways. Chapter 1 is a survey on bounded rationality, which gathers and organizes the contributions to the field since Simon (1955) first recognized the necessity to account for the limits on human rationality. The focus of the survey is on theoretical work rather than the experimental literature which presents evidence of actual behavior that differs from what classic rationality predicts. The general framework is as follows. Given a set of exogenous variables, the economic agent needs to choose an element from the choice set that is avail- able to him, in order to optimize the expected value of an objective function (assuming his preferences are representable by such a function). If this problem is too complex for the agent to deal with, one or more of its elements is simplified. Each bounded rationality theory is categorized according to the most relevant element it simplifes. Chapter 2 proposes a novel theory of bounded rationality. Much in the same fashion as Conlisk (1980) and Gabaix (2014), we assume that thinking is costly in the sense that agents have to pay a cost for performing mental operations. In our model, if they choose not to think, such cost is avoided, but they are left with a single alternative, labeled the default choice. We exemplify the idea with a very simple model of consumer choice and identify the concept of isofin curves, i.e., sets of default choices which generate the same utility net of thinking cost. Then, we apply the idea to a linear symmetric Cournot duopoly, in which the default choice can be interpreted as the most natural quantity to be produced in the market. We find that, as the thinking cost increases, the number of firms thinking in equilibrium decreases. More interestingly, for intermediate levels of thinking cost, an equilibrium in which one of the firms chooses the default quantity and the other best responds to it exists, generating asymmetric choices in a symmetric model. Our model is able to explain well-known regularities identified in the Cournot experimental literature, such as the adoption of different strategies by players (Huck et al. , 1999), the inter temporal rigidity of choices (Bosch-Dom enech & Vriend, 2003) and the dispersion of quantities in the context of di cult decision making (Bosch-Dom enech & Vriend, 2003). Chapter 3 applies a model of bounded rationality in a game-theoretic set- ting to the well-known turnout paradox in large elections, pivotal probabilities vanish very quickly and no one should vote, in sharp contrast with the ob- served high levels of turnout. Inspired by the concept of rhizomatic thinking, introduced by Bravo-Furtado & Côrte-Real (2009a), we assume that each per- son is self-delusional in the sense that, when making a decision, she believes that a fraction of the people who support the same party decides alike, even if no communication is established between them. This kind of belief simplifies the decision of the agent, as it reduces the number of players he believes to be playing against { it is thus a bounded rationality approach. Studying a two-party first-past-the-post election with a continuum of self-delusional agents, we show that the turnout rate is positive in all the possible equilibria, and that it can be as high as 100%. The game displays multiple equilibria, at least one of which entails a victory of the bigger party. The smaller one may also win, provided its relative size is not too small; more self-delusional voters in the minority party decreases this threshold size. Our model is able to explain some empirical facts, such as the possibility that a close election leads to low turnout (Geys, 2006), a lower margin of victory when turnout is higher (Geys, 2006) and high turnout rates favoring the minority (Bernhagen & Marsh, 1997)

Self-Confidence and Motivated Memory Loss: Evidence from Schools

Motivated beliefs theory suggests the absorption of information may be biased, especially when it bears consequences for the ego. This paper finds empirical support for that hypothesis in the field, using longitudinal data on teenagers’ memories of mathematics report card grades and administrative data on actual grades. Students: i) make more errors in recalling lower grades; ii) update their academic self-confidence in association with recalled grades rather than actual grades; and iii) have more flattering memories of grades when the survey was administered with a longer delay. The first two results bolster recent research in demonstrating that patterns of motivated recall are robust to within-individual estimation. The last result extends the field literature in showing that a large part of the mechanism for motivated information absorption is memory loss over time. A structural model is used to represent memories as the outcome of a subconscious choice problem, disentangling competing motives to enhance self-confidence and respect reality. The estimated model indicates that the costs of memory distortions decrease as time passes after information transmission, and students with low self-confidence had a greatly diminished preference for inflating self-confidence via memory distortions

Human and Machine Learning

In this paper, we consider learning by human beings and machines in the light of Herbert Simon’s pioneering contributions to the theory of Human Problem Solving. Using board games of perfect information as a paradigm, we explore differences in human and machine learning in complex strategic environments. In doing so, we contrast theories of learning in classical game theory with computational game theory proposed by Simon. Among theories that invoke computation, we make a further distinction between computable and computational or machine learning theories. We argue that the modern machine learning algorithms, although impressive in terms of their performance, do not necessarily shed enough light on human learning. Instead, they seem to take us further away from Simon’s lifelong quest to understand the mechanics of actual human behaviour