Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

Marketing is an applied science that tries to explain and influence how firms and consumers actually behave in markets. Marketing models are usually applications of economic theories. These theories are general and produce precise predictions, but they rely on strong assumptions of rationality of consumers and firms. Theories based on rationality limits could prove similarly general and precise, while grounding theories in psychological plausibility and explaining facts which are puzzles for the standard approach. Behavioral economics explores the implications of limits of rationality. The goal is to make economic theories more plausible while maintaining formal power and accurate prediction of field data. This review focuses selectively on six types of models used in behavioral economics that can be applied to marketing. Three of the models generalize consumer preference to allow (1) sensitivity to reference points (and loss-aversion); (2) social preferences toward outcomes of others; and (3) preference for instant gratification (quasi-hyperbolic discounting). The three models are applied to industrial channel bargaining, salesforce compensation, and pricing of virtuous goods such as gym memberships. The other three models generalize the concept of gametheoretic equilibrium, allowing decision makers to make mistakes (quantal response equilibrium), encounter limits on the depth of strategic thinking (cognitive hierarchy), and equilibrate by learning from feedback (self-tuning EWA). These are applied to marketing strategy problems involving differentiated products, competitive entry into large and small markets, and low-price guarantees. The main goal of this selected review is to encourage marketing researchers of all kinds to apply these tools to marketing. Understanding the models and applying them is a technical challenge for marketing modelers, which also requires thoughtful input from psychologists studying details of consumer behavior. As a result, models like these could create a common language for modelers who prize formality and psychologists who prize realism

FINDING BURST CONTENT IN ONLINE STREAM VIA URL BASED DETECTION

Detection of emerging topics is now receiving renewed interest motivated by the rapid growth of social networks. Conventional-term-frequency-based approaches may not be appropriate in this context, because the information exchanged in social-network posts include not only text but also images, URLs, and videos. We focus on emergence of topics signaled by social aspects of theses networks. Specifically, we focus on mentions of user links between users that are generated dynamically (intentionally or unintentionally) through replies, mentions, and retweets. We propose a probability model of the mentioning behavior of a social network user, and propose to detect the emergence of a new topic from the anomalies measured through the model. Aggregating anomaly scores from hundreds of users, we show that we can detect emerging topics only based on the reply/mention relationships in social-network posts. We demonstrate our technique in several real data sets we gathered from Twitter. The experiments show that the proposed mention-anomaly-based approaches can detect new topics at least as early as text-anomaly-based approaches, and in some cases much earlier when the topic is poorly identified by the textual contents in posts

Advances and Applications of Dezert-Smarandache Theory (DSmT) for Information Fusion (Collected Works), Vol. 4

The fourth volume on Advances and Applications of Dezert-Smarandache Theory (DSmT) for information fusion collects theoretical and applied contributions of researchers working in different fields of applications and in mathematics. The contributions (see List of Articles published in this book, at the end of the volume) have been published or presented after disseminating the third volume (2009, http://fs.unm.edu/DSmT-book3.pdf) in international conferences, seminars, workshops and journals. First Part of this book presents the theoretical advancement of DSmT, dealing with Belief functions, conditioning and deconditioning, Analytic Hierarchy Process, Decision Making, Multi-Criteria, evidence theory, combination rule, evidence distance, conflicting belief, sources of evidences with different importance and reliabilities, importance of sources, pignistic probability transformation, Qualitative reasoning under uncertainty, Imprecise belief structures, 2-Tuple linguistic label, Electre Tri Method, hierarchical proportional redistribution, basic belief assignment, subjective probability measure, Smarandache codification, neutrosophic logic, Evidence theory, outranking methods, Dempster-Shafer Theory, Bayes fusion rule, frequentist probability, mean square error, controlling factor, optimal assignment solution, data association, Transferable Belief Model, and others. More applications of DSmT have emerged in the past years since the apparition of the third book of DSmT 2009. Subsequently, the second part of this volume is about applications of DSmT in correlation with Electronic Support Measures, belief function, sensor networks, Ground Moving Target and Multiple target tracking, Vehicle-Born Improvised Explosive Device, Belief Interacting Multiple Model filter, seismic and acoustic sensor, Support Vector Machines, Alarm classification, ability of human visual system, Uncertainty Representation and Reasoning Evaluation Framework, Threat Assessment, Handwritten Signature Verification, Automatic Aircraft Recognition, Dynamic Data-Driven Application System, adjustment of secure communication trust analysis, and so on. Finally, the third part presents a List of References related with DSmT published or presented along the years since its inception in 2004, chronologically ordered

Valuation and Decision-Making in Cortical-Striatal Circuits.

Adaptive decision-making relies on a distributed network of neural substrates that learn associations between behaviors and outcomes, to ultimately guide future behavior. These substrates are organized in a system of cortical-striatal loops that offer unique contributions to goal-directed behavior and receive prominent inputs from the midbrain dopamine system. However, the consequences of dopamine fluctuations at these targets remain largely unresolved, despite aggressive interrogation. Some experiments have highlighted dopamine’s role in learning via reward prediction errors, while others have noted the importance of dopamine in motivated behavior. Here, we explored the precise role of dopamine in shaping decision-making in cortex and striatum. First, we measure dopamine in ventral striatum during a trial-and-error task and show that it uniformly encodes a moment-by-moment estimate of value across multiple timescales. Our optogenetic manipulations demonstrate that changes in this value signal can be used to immediately enhance vigor, consistent with a motivational signal, and alter subsequent choice behavior, consistent with a learning signal. Next, I measured dopamine in multiple cortical-striatal loops to examine the uniformity of the value signal. I report that dopamine is non-uniform across circuits, but is consistent within them, implying that dopamine may offer unique contributions to the information processed in each loop. Finally, I performed single-unit recordings in the dorsal striatum, a major recipient of dopamine, to examine whether distinct its subcompartments—the patch and matrix—carry distinct value signals used in the selection of actions. I report preliminary data and summarize improvements in my electrode localization technique.PhDPsychologyUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/133227/1/jpettibo_1.pd

How social learning strategies boost or undermine decision making in groups

Social interactions resulting in emergent collective behaviour play a key role in almost all layers of society, from local, small-scale interactions, such as people crossing the street, to global, large-scale interactions, such as the spread of fake news on online platforms. In our digital and interconnected world, it is increasingly important to understand the emergence of beneficial or detrimental collective dynamics. The characteristics of such dynamics are expected to depend greatly on the nature of information individuals have personally acquired and how they learn from others. Yet, how the decision-making processes shape the resulting collective dynamics remains poorly understood. When do individuals seek more information from social sources? How do individuals reap the benefits when navigating in social environments, and when do they fail to do so? This dissertation aims to answer these questions extending established theories and frameworks from individual decision-making into the social realm. This approach allows for the operationalization of personal and social information in a theory-driven manner, thereby achieving a deeper understanding of the individual-level decision process. The first chapter provides a introductory overview of the interplay between personal information use, social learning strategies and collective dynamics, and introduces the key theories and models I will expand on in this dissertation. In Chapter 2, inspired by Brunswick's lens model, I investigate how individuals form beliefs about the meaning of ecological structures (i.e., cues). Here, participants had to categorize images based on multiple cues, the meaning of which had to be learned over trials. I showed that participants observing the same cues formed different beliefs about the cue meanings. This diversity in cue beliefs is, in turn, an important process governing the quality of social information. The greater this diversity, the more independent personal information is, and the stronger the potential for social information use. Participants, however, failed to realize the full potential of this diversity because they only changed their personal decisions if a large majority disagreed with them. Simulating different strategies of social information use, I show that this reliance on strongly agreeing majorities impedes individuals from benefiting from diversity. This chapter thus identifies diversity in cue beliefs as an important factor allowing individuals in groups to benefit from the wisdom of each other, while simultaneously highlighting the importance of the individuals' social learning strategies to exploit this diversity. Chapter 3 dives deeper into the social learning strategies individuals use. By carefully controlling the social information displayed to participants, the study in this chapter provides an in-depth analysis of social learning strategies. Participants were confronted with an estimation task. They first provided an independent estimate, after which they observed estimates of others. Using Bayesian modelling techniques, I show that the incorporation of others' opinions strongly depends on how consistent those opinions are with an individual's own opinion and the degree of agreement among others. Individuals also strongly differ in the social learning strategies they use. These results elucidate what aspects are conducive for people to change their minds and contribute to the understanding of how individuals’ social information use shapes opinion and information dynamics in our interconnected society. In Chapter 4, I embed individuals a in temporal dynamic system which allows the investigation of the use of information in interaction with the emergent collective dynamic. Here, my focus is on social interactions where multiple people make decisions sequentially and thereby are simultaneously emitters and receivers of social information. To shed light on the unfolding dynamic in such settings, I will introduce the social drift-diffusion model (DDM). The model allows the investigation of the cognitive processes underlying the integration of personal and social information dynamically over time, and the subsequent collective dynamic. Analysis of the data shows that correct information spreads when the participants’ confidence reflects accuracy and when more confident participants decide faster. Under these conditions, later-deciding participants are likely to adopt social information and thereby to amplify the correct signal provided by early-deciding participants. The social DDM successfully captures all the key dynamics observed in the social system, revealing the cognitive underpinnings of information cascades in social systems. The general principles of personal and social information use that emerge from Chapter 4 allow to investigate the optimal behaviour when deciding sequentially. In Chapter 5, I develop an agent-based version of the social DDM and embed it in evolutionary algorithms, allowing the identification of evolutionarily advantageous strategies. I show that the individuals' decision time should depend on the quality of information, with the most accurate individuals deciding first. For all later.deciding individuals it is evolutionary advantageous to imitate the (often accurate) first decision. When introducing asymmetric error costs, single individuals should develop response biases to avoid the more costly error. In groups, however, such response biases can have dramatic consequences, as these biases are likely to be amplified in the group. As a result, individuals in large groups should use much weaker response biases to benefit from social information. I conclude that individuals facing asymmetric error costs in social environments need to carefully trade off the expressed response bias and sensitivity to social information to avoid the more costly error but simultaneously benefit from the collective. Overall, this thesis deepens our understanding of social dynamics by accounting for individual-level decision-making processes across various choice problems. I show that the behaviour of individuals in social environments can significantly differ depending on the personal information individuals possess and the strategies individuals use. Furthermore, I highlight the importance of accounting for such differences to predict the emergence of beneficial or detrimental dynamics in social environments

Adaptive Economics: A neuroethological approach to the study of preferences, biases, and choice

A neuron's curse is that at every given time, with the information available to it, it must choose to either send a signal to its neighbouring cells or remain silent. It has evolved to be the optimal decision unit and, together with around 86 billion of its neighbours, the neuron keeps us alive, helps us cooperate, and allows us to successfully compete with others when resources get scarce. Yet, we, being collections of these neurons, still struggle to describe how these individual decision-makers support the broader process that is human decision-making. Traditionally, decision theory has sought to understand human choices by relying more on mathematics than biology. This has led to the general assumption that decision-makers behave ‘as-if’ guided by mathematical rules and algorithms that are mostly static over time. In reality, however, decision-making relies on a brain that, due to its limited capacity, has evolved the ability for flexible and dynamic cognition. The experiments presented in this thesis, build on dichotomies in human behaviour that cannot be explained by traditional economic models - first replicating these findings in rhesus macaques, then addressing the neurobiological algorithms that could reconcile these dichotomies. Specifically, I looked at the effects of different reward ranges, different levels of risk, and different experimental paradigms in shaping the way monkeys made choices. I demonstrate that, far from having the stable and fixed preferences prescribed by economic models, rhesus macaques appear to flexibly adapt their choice preferences in a way that optimizes their decision-making given their experience with the task at hand. I then elaborate on the neurobiological basis for preference adaptation, and show how incorporating simple, dynamic algorithms into economic choice models improves their predictive power. Taken together, my results demonstrate the need for, and advantage of, integrating neuroethological thought into the current framework of decision theory.This work was made possible by funding from the European Research Council and the Wellcome Trust