Equity-Efficiency Optimizing Resource Allocation: The Role of Time Preferences in a Repeated Irrigation Game

We study repeated water allocation decisions among small scale irrigation users in Tanzania. In a treatment replicating water scarcity conditions, convexities in production make that substantial efficiency gains can be obtained by deviating from equal sharing, leading to an equity–efficiency trade-off. In a repeated game setting, it becomes possible to reconcile efficiency with equity by rotating the person who receives the largest share, but such a strategy requires a longer run perspective. Correlating experimental data from an irrigation game with individual time preference data, we find that less patient irrigators are less likely to use a rotation strategy

Accumulation is late and brief in preferential choice

Preferential choices are often explained using models within the evidence accumulation framework: value drives the drift rate at which evidence is accumulated until a threshold is reached and an option is chosen. Although rarely stated explicitly, almost all such models assume that decision makers have knowledge at the onset of the choice of all available attributes and options. In reality however, choice information is viewed piece-by-piece, and is often not completely acquired until late in the choice, if at all. Across four eye-tracking experiments, we show that whether the information was acquired early or late is irrelevant in predicting choice: all that matters is whether or not it was acquired at all. Models with potential alternative assumptions were posited and tested, such as 1) accumulation of instantaneously available information or 2) running estimates as information is acquired. These provided poor fits to the data. We are forced to conclude that participants either are clairvoyant, accumulating using information before they have looked at it, or delay accumulating evidence until very late in the choice, so late that the majority of choice time is not time in which evidence is accumulated. Thus, although the evidence accumulation framework may still be useful in measurement models, it cannot account for the details of the processes involved in decision making

Removing financial incentives demotivates the brain

Social scientists and many biologists are all preoccupied in different ways with the nature and effects of the ways incentives influence behavior. One type of incentive is clearly intrinsic; it originates within a person and is often linked to exploratory behavior, hedonic pleasure from self-determined mastery, and desire to satisfy curiosity for its own sake (1). Another type of incentive is extrinsic; typically, it is designed and administered by an outside person or authority, is precise, and is usually financial, tied to fame, or has some other kind of monetizable status. Because of its various natures, intrinsic motivation is difficult to measure and observe. An adventurous step is to measure brain activity during conditions of apparent intrinsic and extrinsic motivation. Murayama et al. (2) do exactly this. Their results are striking evidence for a phenomenon often noted in social psychology—namely, extrinsic incentives (e.g., pay) can undermine intrinsic incentives (e.g., fun)

Developments in data for economic research

0info:eu-repo/semantics/publishe

The Impact of Simple Institutions in Experimental Economies with Poverty Traps

We introduce an experimental approach to study the effect of institutions on economic growth. In each period, agents produce and trade output in a market, and allocate it to consumption and investment. Productivity is higher if total capital stock is above a threshold. The threshold externality generates two steady states – a suboptimal poverty trap and an optimal steady state. In a baseline treatment, the economies converge to the poverty trap. However, the ability to make public announcements or to vote on competing and binding policies, increases output, welfare and capital stock. Combining these two simple institutions guarantees that the economies escape the poverty trap

Neural signatures of strategic types in a two-person bargaining game

The management and manipulation of our own social image in the minds of others requires difficult and poorly understood computations. One computation useful in social image management is strategic deception: our ability and willingness to manipulate other people's beliefs about ourselves for gain. We used an interpersonal bargaining game to probe the capacity of players to manage their partner's beliefs about them. This probe parsed the group of subjects into three behavioral types according to their revealed level of strategic deception; these types were also distinguished by neural data measured during the game. The most deceptive subjects emitted behavioral signals that mimicked a more benign behavioral type, and their brains showed differential activation in right dorsolateral prefrontal cortex and left Brodmann area 10 at the time of this deception. In addition, strategic types showed a significant correlation between activation in the right temporoparietal junction and expected payoff that was absent in the other groups. The neurobehavioral types identified by the game raise the possibility of identifying quantitative biomarkers for the capacity to manipulate and maintain a social image in another person's mind

Comonotonic Independence: The Critical Test between Classical and Rank-Dependent Utility Theories

This article compares classical expected utility (EU) with the more general rank-dependent utility (RDU) models. The difference between the independence condition for preferences of EU and its comonotonic generalization in RDU provides the exact demarcation between EU and rank-dependent models. Other axiomatic differences are not essential. An experimental design is described that tests this difference between independence and comonotonic independence in its most basic form and is robust against violations of other assumptions that may confound the results, in particular the reduction principle and transitivity. It is well known that in the classical counterexamples to EU, comonotonic independence performs better than full-force independence. For our more general choice pairs, however, we find that comonotonic independence does not perform better. This is contrary to our prior expectation and suggests that rank-dependent models, in full generality, do not provide a descriptive improvement over EU. For rank-dependent models to have a future, submodels and choice situations need to be identified for which rank-dependence does contribute descriptively

The Mythology of Game Theory

Non-cooperative game theory is at its heart a theory of cognition, specifically a theory of how decisions are made. Game theory\u27s leverage is that we can design different payoffs, settings, player arrays, action possibilities, and information structures, and that these differences lead to different strategies, outcomes, and equilibria. It is well-known that, in experimental settings, people do not adopt the predicted strategies, outcomes, and equilibria. The standard response to this mismatch of prediction and observation is to add various psychological axioms to the game-theoretic framework. Regardless of the differing specific proposals and results, game theory uniformly makes certain cognitive assumptions that seem rarely to be acknowledged, much less interrogated. Indeed, it is not widely understood that game theory is essentially a cognitive theory. Here, we interrogate those cognitive assumptions. We do more than reject specific predictions from specific games. More broadly, we reject the underlying cognitive model implicitly assumed by game theory

Self-control in decision-making involves modulation of the vmPFC valuation system

Every day, individuals make dozens of choices between an alternative with higher overall value and a more tempting but ultimately inferior option. Optimal decision-making requires self-control. We propose two hypotheses about the neurobiology of self-control: (i) Goal-directed decisions have their basis in a common value signal encoded in ventromedial prefrontal cortex (vmPFC), and (ii) exercising self-control involves the modulation of this value signal by dorsolateral prefrontal cortex (DLPFC). We used functional magnetic resonance imaging to monitor brain activity while dieters engaged in real decisions about food consumption. Activity in vmPFC was correlated with goal values regardless of the amount of self-control. It incorporated both taste and health in self-controllers but only taste in non–self-controllers. Activity in DLPFC increased when subjects exercised self-control and correlated with activity in vmPFC