Social and Economic Factors in Decision Making under Uncertainty : Five Essays in Behavioral Economics

The objective of this thesis is to improve the understanding of human behavior that goes beyond monetary rewards. In particular, it investigates social influences in individual’s decision making in situations that involve coordination, competition, and deciding for others. Further, it compares how monetary and social outcomes are perceived. The common theme of all studies is uncertainty. The first four essays study individual decisions that have uncertain consequences, be it due to the actions of others or chance. The last essay, in turn, uses the advances in research on decision making under uncertainty to predict behavior in riskless choices. The first essay, Fairness Versus Efficiency: How Procedural Fairness Concerns Affect Coordination, investigates whether preferences for fair rules undermine the efficiency of coordination mechanisms that put some individuals at a disadvantage. The results from a laboratory experiment show that the existence of coordination mechanisms, such as action recommendations, increases efficiency, even if one party is strongly disadvantaged by the mechanism. Further, it is demonstrated that while individuals’ behavior does not depend on the fairness of the coordination mechanism, their beliefs about people’s behavior do. The second essay, Dishonesty and Competition. Evidence from a stiff competition environment, explores whether and how the possibility to behave dishonestly affects the willingness to compete and who the winner is in a competition between similarly skilled individuals. We do not find differences in competition entry between competitions in which dishonesty is possible and in which it is not. However, we find that due to the heterogeneity in propensity to behave dishonestly, around 20% of winners are not the best-performing individuals. This implies that the efficient allocation of resources cannot be ensured in a stiff competition in which behavior is unmonitored. The third essay, Tracing Risky Decision Making for Oneself and Others: The Role of Intuition and Deliberation, explores how individuals make choices under risk for themselves and on behalf of other people. The findings demonstrate that while there are no differences in preferences for taking risks when deciding for oneself  and for others, individuals have greater decision error when choosing for other individuals. The differences in the decision error can be partly attributed to the differences in information processing; individuals employ more deliberative cognitive processing when deciding for themselves than when deciding for others. Conducting more information processing when deciding for others is related to the reduction in decision error. The fourth essay, The Effect of Decision Fatigue on Surgeons’ Clinical Decision Making, investigates how mental depletion, caused by a long session of decision making, affects surgeon’s decision to operate. Exploiting a natural experiment, we find that surgeons are less likely to schedule an operation for patients who have appointment late during the work shift than for patients who have appointment at the beginning of the work shift. Understanding how the quality of medical decisions depends on when the patient is seen is important for achieving both efficiency and fairness in health care, where long shifts are popular. The fifth essay, Preferences for Outcome Editing in Monetary and Social Contexts, compares whether individuals use the same rules for mental representation of monetary outcomes (e.g., purchases, expenses) as for social outcomes (e.g., having nice time with friends). Outcome editing is an operation in mental accounting that determines whether individuals prefer to first combine multiple outcomes before their evaluation (integration) or evaluate each outcome separately (segregation). I find that the majority of individuals express different preferences for outcome editing in the monetary context than in the social context. Further, while the results on the editing of monetary outcomes are consistent with theoretical predictions, no existing model can explain the editing of social outcomes

Fairness versus efficiency : how procedural fairness concerns affect coordination

What happens if a mechanism that aims at improving coordination treats some individuals unfairly? We investigate in a laboratory experiment whether procedural fairness concerns affect how well individuals are able to solve a coordination problem in a two-player Volunteer’s Dilemma. Subjects receive external action recommendations that can help them avoid miscoordination if followed by both players. One of the players receives a disadvantageous recommendation to volunteer while the other player receives a recommendation not to volunteer that gives her a payoff advantage if both players follow the recommendations they have received. We manipulate the fairness of the recommendation procedure by varying the probabilities of receiving a disadvantageous recommendation between players. We find that the recommendations improve overall efficiency regardless of their consequences for pay-off division. However, there are behavioral asymmetries depending on the recommendation received by a player: advantageous recommendations are followed less frequently than disadvantageous recommendations in case of actions that guarantee a low payoff. While there is no difference in acceptance of different recommendation procedures, beliefs about others’ actions are more pessimistic in the treatment with a procedure inducing unequal expected payoffs. Our data shows that beliefs about others’ behavior are correlated with one’s own behavior, however this is the case only when following recommendations is a strategy that involves payoff-uncertainty

Fairness versus efficiency: how procedural fairness concerns affect coordination

We investigate in a laboratory experiment whether procedural fairness concerns affect how well individuals are able to solve a coordination problem in a two-player Volunteer’s Dilemma. Subjects receive external action recommendations, either to volunteer or to abstain from it, in order to facilitate coordination and improve efficiency. We manipulate the fairness of the recommendation procedure by varying the probabilities of receiving the disadvantageous recommendation to volunteer between players. We find evidence that while recommendations improve overall efficiency regardless of their implications for expected payoffs, there are behavioural asymmetries depending on the recommendation: advantageous recommendations are followed less frequently than disadvantageous ones and beliefs about others’ actions are more pessimistic in the treatment with recommendations inducing unequal expected payoffs.Funding agencies: Svenska Forskningsradet Formas through the program Human Cooperation to Manage Natural Resources (COMMONS)</p

How does dishonesty affect winning and the willingness to compete? : evidence from a stiff competition environment

We experimentally investigate how the possibility of behaving dishonestly affects the willingness to compete and who the winner is when there is stiff competition. Our results show that although only some subjects are dishonest when competing, dishonest behaviour creates significant inefficiencies due to best performing subjects not winning. Willingness to compete, on the other hand, was unaffected

Risk preferences and attitudes to surgery in decision making

Background and purpose — There is increasing evidence that several commonly performed surgical procedures provide little advantage over nonoperative treatment, suggesting that doctors may sometimes be inappropriately optimistic about surgical ben- efit when suggesting treatment for individual patients. We investi- gated whether attitudes to risk influenced the choice of operative treatment and nonoperative treatment. Methods — 946 Swedish orthopedic surgeons were invited to participate in an online survey. A radiograph of a 4-fragment proximal humeral fracture was presented together with 5 differ- ent patient characteristics, and the surgeons could choose between 3 different operative treatments and 1 nonoperative treatment. This was followed by an economic risk-preference test, and then by an instrument designed to measure 6 attitudes to surgery that are thought to be hazardous. We then investigated if choice of non-operative treatment was associated with risk aversion, and thereafter with the other variables, by regression analysis. Results — 388 surgeons responded. Nonoperative treatment for all cases was suggested by 64 of them. There was no significant association between risk aversion and tendency to avoid surgery. However, there was a statistically significant association between suggesting to operate at least 1 of the cases and a “macho” atti- tude to surgery or resignation regarding the chances of influenc- ing the outcome of surgery. Choosing nonoperative treatment for all cases was associated with long experience as a surgeon. Interpretation — The discrepancy between available evidence for surgery and clinical practice does not appear to be related to risk preference, but relates to hazardous attitudes. It appears that choosing nonoperative treatment requires experience and a feel- ing that one can make a difference (i.e. a low score for resigna- tion). There is a need for better awareness of available evidence for surgical indications.

The effect of acute pain on risky and intertemporal choice

Pain is a highly salient and attention-demanding experience that motivates people to act. We investigated the effect of pain on decision making by delivering acute thermal pain to participants’ forearm while they made risky and intertemporal choices involving money. Participants (n = 107) were more risk seeking under pain than in a no-pain control condition when decisions involved gains but not when they involved equivalent losses. Pain also resulted in greater preference for immediate (smaller) over future (larger) monetary rewards. We interpret these results as a motivation to offset the aversive, pain-induced state, where monetary rewards become more appealing under pain than under no pain and when delivered sooner rather than later. Our findings add to the long-standing debate regarding the role of intuition and reflection in decision making.Funding agencies:This research was funded by the Ragnar Söderberg Foundation and Marianne and Marcus Wallenberg Foundation.</p