Mueller et al. (2019) on Illusory Preferences

Maximilian W. Mueller, Joan Hamory Hicks, Jennifer Johnson-Hanks, Edward Miguel, “The Illusion of Stable Preferences Over Major Life Decisions.” NBER Working Paper 25844, May 2019; available at http://www.nber.org/papers/w25844.

• Uh, "major life decisions" such as the number of children to have. 

• High-stakes decisions tend to be ones that we have little experience with: they are not like choosing a breakfast cereal. Also, they have major implications down the road, so it is helpful to have a good feeling of what our future preferences will be like. But perhaps people suffer from projection bias, they overestimate the extent to which their future preferences will resemble their current preferences.

• The inquiry looks into the stability over time with respect to women's preferences over the desirable number of children to have. Do women hold accurate forecasts of their own future preferences with respect to children? Do women recall accurately their previous preferences?

• The data are drawn from young Kenyan women, followed over a nine-year span.

• Most respondents, over the course of the nine years, change their desired number of children – and 20% change it by two or more children.

• Almost half of the respondents who do not expect to have a child in the next five years do have a child in that time. Mothers and married women who report that they do not expect to have a child in the next five years do not meet their expectations most of the time.

• Most women cannot correctly recall their desired fertility from three years ago. Indeed, for those whose desired fertility changes, less than 10 percent recall their old preferences correctly. Married women and mothers who have increased their desired fertility are particularly unlikely to recall accurately their old preferences – rather, they think that their current preferences are the same as what they used to be. 

• Average fertility desires are pretty stable over time – but at the individual level, there is lots of movement. This movement is neither foreseen nor, after the fact, recognized: there is both projection bias and retrospection bias. 

Vosgerau and Peer (2019) on Preference Malleability

Joachim Vosgerau and Eyal Peer, “Extreme Malleability of Preferences: Absolute Preference Sign Changes Under Uncertainty.” Journal of Behavioral Decision Making 32(1): 38-46, January 2019.

• The evidence on the extent to which preferences are constructed as opposed to revealed has been challenged. Much of the evidence is based on a person preferring option A to option B in one condition, and then, preferring option B to option A in a somewhat different condition -- where the conditions differ only with respect to supposedly irrelevant factors. 

• The best evidence of preference malleability would be where a person evaluates the same prospect (just A, no B) in opposite directions – is it a good or a bad, is it desirable or undesirable? – in different conditions. 

• The authors conduct two experiments (the second experiment is a near replication of the first with a larger sample size and some other improvements) where subjects indicate whether they have to be paid to accept a prospect (it’s bad), and also whether they would pay for the opportunity to obtain the same prospect (it’s good). If they are both willing to pay and need to be paid for the prospect, then it seems that their preferences are quite malleable. 

• One lottery: you win 30 NIS (Israeli New Shekels) if heads and lose 20 NIS if tails; second lottery: you win 30 NIS if a die toss brings an odd number and lose 20 NIS if the toss yields an even number. These lotteries are thus identical in terms of payoffs and probabilities. 

• The experimenters ask how much subjects would need to be paid (“compensation amount”) for one of the lotteries and how much they would be willing to pay for the other lottery. 

• Most people are willing-to-pay, and even more people demand compensation -- but about half (experiment 1) or about 84% (experiment 2) do both. People do not seem to know whether the lottery is desirable or undesirable or both: they do not seem to possess some underlying, stable preference concerning this lottery. 

• In experiment 1, the more people were willing to pay for the lottery, the more they also required to be compensated to receive the lottery.

•  The experimental design also allows some inferences to be made concerning risk preferences; for instance, if your willingness-to-pay for a lottery is less than the lottery's expected value, that is evidence that you are risk averse. Risk preferences, too, are not clear or stable: about 34% of the participants in experiment 1 (and 61%+ in experiment 2) indicate that they are both risk averse and risk seeking/neutral!

Duckworth et al. (2019) on Academics and Self-Control

Angela L. Duckworth, Jamie L. Taxer, Lauren Eskreis-Winkler, Brian M. Galla, and James J. Gross, “Self-Control and Academic Achievement.” Annual Review of Psychology 70: 373–99, 2019 [pdf here].

• Definitions of self-control vary (bringing on "jingle-jangle fallacies"); here, self-control is defined as “the self-initiated regulation of thoughts, feelings, and actions when enduringly valued goals conflict with momentarily more gratifying goals [p. 374].” 

• The competing actions examined here are the “academic goal-congruent” (AGC) action (like studying) and the academic goal-incongruent (AGI) action (like looking at your phone); the academic-goal congruent action is (in the cases of interest here) the one that would be chosen “upon reflection [p. 376]” 

• Many AGIs are of recent origin 

• Conflict between competing goals is unpleasant 

• Student multitasking is common, but it hinders learning; screens (laptops, phones) in the classroom are bad bad bad, even for college students. [Maybe instructors should make academics more interesting???]

• Average time-on-academic-task is less than 6 minutes (p. 378) 

• Self-control is a solid predictor of school success; preschool marshmallow tests predict SAT scores – but in general, self-control predicts grades better than it predicts standardized test scores

• The process model of self-control: situation attracts attention leads to appraisal and then to response (and a new situation) 

• Many self-control strategies such as rules, plans, and the inculcation of habits (like “study habits”) aim at skipping the assessment and jumping to the AGC response. Assessments can be altered, too, as with cognitive therapy. 

• Other strategies target the situation – eliminate potential distractions, say – or attention. 

• Focusing on the response is where willpower comes in (as opposed to relying less on the need for willpower), and willpower is a weak reed. 

Lowenstein (2019) Responds to Duckworth, Milkman, and Laibson (2019)

George Loewenstein, “Self-Control and Its Discontents: A Commentary on Duckworth, Milkman, and Laibson.” Psychological Science in the Public Interest 19(3): 95-100, 2019.

• Much to admire in Duckworth, Milkman, and Laibson (2019), especially the categorization of strategies to bolster self-control into situational v. cognitive and self-deployed v. other-deployed.

• Two (sort of) implicit assumptions seem to hover around the analysis, however, and I [Loewenstein] want to challenge those assumptions (assumptions which the authors themselves do not accept).

• One assumption that readers might come away with is that worsening problems such as lack of savings or obesity are brought about by self-control shortcomings, and that the strategies presented in Duckworth, Milkman, and Laibson (2019) are appropriate means to solve those problems. But inadequate self-control is not the source of (relatively recent) problems like rises in obesity and declines in savings. Rather, these problems have other, large causes, and thus, other solutions.

• A second assumption that readers might adopt is that self-control is about trying to get people to take a longer-term perspective. But many people suffer from being excessively future-minded (they are "hyperopic") -- these people need enhanced self-control to limit their future focus, to increase their current indulgence.

• The US has only become an outlier among nations with respect to undersaving and obesity in the past 40 years or so -- these problems do not reflect a new wave of a lack of self-control that swept across the land. What has changed is, for instance, a growth in income inequality and in the availability of snack foods and credit cards.

• Self-control is not about the present versus the future; it is about affect (System 1) versus more considered thinking (System 2) – this is why some people indulge insufficiently (“tightwaddism” and workaholism). (Look at the substantial investments people make in education -- do these evince present bias?) Mental accounting (like establishing an entertainment account) can help with future bias, too!

• Behavioral economics research might have a puritanical (or "Calvinist") bias.

Duckworth, Milkman, and Laibson (2019) on Willpower and Beyond

Angela L. Duckworth, Katherine L. Milkman, and David Laibson, “Beyond Willpower: Strategies for Reducing Failures of Self-Control.” Psychological Science in the Public Interest 19(3): 102-129, 2019.

• Higher self-control is associated with many good things -- but people struggle with self-control.

• Various models (such as dynamically inconsistent preferences) have been proposed to try to capture the workings (and failures) of self-control, and many strategies are deployed to try to bolster self-control. Exhortations to show more willpower, to just say no, are not that effective. That is, relying on willpower alone, as opposed to other strategies, is almost to give the game away.

• Strategies that try to make willpower more effective can usefully be categorized. In particular, some try to alter the situation (Situational strategies), and some try to target how the decision maker thinks about a given situation (Cognitive strategies). Further, some are undertaken by the decision maker herself (Self-Deployed strategies) and others are enacted by various outside actors, choice architects, including employers and regulators (Other-Deployed strategies). Self-Deployed strategies require that the decision maker understand, at least to some extent, her self-control shortcomings -- in the usual terminology, she must be somewhat sophisticated (not naive) about her intertemporal inconsistencies.

• Four categories of self-control strategies emerge within this two-dimensional framework, then: Self-Deployed Situational Interventions; Self-Deployed Cognitive Interventions; Other-Deployed Situational Interventions; and, Other-Deployed Cognitive Interventions. The authors list and discuss various strategies within each of these categories.

• Self-Deployed Situational Interventions attempt to manage the environment to reduce the need for self-control; such strategies include: deleting a game from your phone or employing other commitment devices (or commitment contracts) that reduce temptations or raise their effective prices; temptation bundling; removing temptations from view (which is one way to raise their effective price); and behavior therapy, such as removing "cues" from your environment when fighting an addiction.

• Self-Deployed Cognitive Interventions include: goal setting (which might be undertaken in public or in private); dividing the goal into bite-sized subgoals, and allowing for small wins along the way; explicit planning and implementation intentions (developing a detailed map of how a goal will be achieved); intensive self-monitoring (such as weighing yourself every day); psychological distancing from temptations or from interpersonal problems; mindfulness and cognitive therapy (generally provided in the form of Cognitive Behavioral Therapy).

• Other-Deployed Cognitive Interventions (which might not be recognized by the targets) include: descriptive social norms (like energy use by others in your neighborhood); social labeling (which might motivate you to live up to your identity, as a green consumer, say); age-processed renderings or other techniques to make one's own future self more relatable; and fresh-start framing, as with new year's resolutions.

• Other-Deployed Situational Interventions include: hard paternalism (e.g., social security, high sin taxes); microenvironments (healthy food placed at eye level); default settings or active choice mandates; requirements for choices to be made in advance; and planned interruptions (such as a mandated break on a slot machine, say).[Incidentally, as Loewenstein points out, hard paternalism does not bolster self-control but eliminates the need for self-control.]

Fennell (2019), "Personalizing Precommitment"

Lee Anne Fennell, “Personalizing Precommitment.” University of Chicago Law Review 86(2): 433-458, March 2019.

• Achieving long-term goals such as losing weight or writing a book requires the cooperation of many temporal selves of the same individual -- and perhaps the indulgences of some Mr. Hydes will undermine Dr. Jekyll's best-laid schemes. Precommitment can help, and the law might have a role to play in making such precommitments more available.

• Fennell invokes the "scale mismatch" terminology of Drazen Prelec; scale mismatch is when the goal (such as losing weight) is achieved in aggregate terms but the steps (literally?) to achieve the goal are lots of small individual decisions.

• Rigid rules – exercise one hour every day – might work in overcoming these temporal internalities, but such rules might be excessive or so demanding that they are abandoned.

• Perhaps people can fashion their own, less rigid but more sustainable rules? Good choices of “partitions” and “menus” can aid the process. For instance, appropriate serving sizes and types of serving utensils and single-serve packaging: all of these nudges can contribute to achieving a weight-loss goal.

• Segmentation eases metering and monitoring. How much cake did I eat? It might be easier to know the answer when the cake is consumed in segmented units -- I had three cupcakes -- than when I just keep picking at some unsegmented blob o' cake.

• Writing a book might be made manageable by segmenting the task into chapters and sections. But…while smaller chunks are easier to complete, given scale mismatch, they also look less meaningful in terms of progress, and more capable of postponement.

• Instead of segmenting work time, what about segmenting time not spent working – like limiting breaks to ten minutes?

• Monetary issues often can be addressed with precommitments and partitions. Purchasing a home can be a sort of forced saving – but this commitment device can be undone by easily acquired home equity loans. Can programs be provided that allow people to opt into a "no home equity loans" condition? 

• People might try to earmark money for savings by having special accounts or even physical envelopes -- though the commitment can be undone if an emergency arises. In general, setting high savings targets with sub-partitions (so that prematurely opening one savings envelope does not mean that all the others are opened, too) looks like a pretty good strategy. Even precommitting some money to indulgences can aid the larger goal of saving money. Should bank savings accounts come with earmarked sub-accounts that are made salient in web-based representations, say?

• Online menus could be personalized, by removing some excessively tempting items at the consumer’s request. 

• Rigid rules such as “no dessert” prune the menu to two choices: comply or don’t comply: “the reason that they can be so effective – the extreme chunkiness of the choices they present – is also the reason why they often fail” 

• Rules change the effective payoffs: the good choice becomes more automatic, and the wrong choice bears a higher price. 

• Lapses can induce further failures. Ex ante, it often is best to believe that behavior is bundled, that a lapse today will mean a rapid downward spiral. (Fennell calls such notions "behavioral firewalls"; in this case, good behavior today prevents future bad behavior.) Ex post (after a lapse), however, it is best to believe that the lapse was anomalous, that it doesn’t fore-ordain future behavior. Now the firewall changes: future behavior must be sealed off from the lapse.

• As with money set aside for financial indulgences, limited, planned exceptions can be helpful – but perhaps not implementable, perhaps zero tolerance, rigid rules are needed. 

• Receiving an income tax refund can be a form of forced savings or a welcome source of wam – but private firms can offer products that undo the commitment element of tax refunds. The IRS, incidentally, provides a split-refund facility, to allow the funneling of part of a refund into savings.

Quispe-Torreblanca et al. (2019) on Non-fungible Credit Card Bills

Edika G. Quispe-Torreblanca, Neil Stewart, John Gathergood, and George Loewenstein, “The Red, the Black, and the Plastic: Paying Down Credit Card Debt for Hotels, Not Sofas.” Management Science 65(11): 5392-5410, November 2019.

• Is money fungible? Many studies show that the source of money influences how it is spent – for instance, “playing with house money” 

• Consider the repayment of borrowed funds. Presumably the highest interest debt should be most rapidly repaid. 

• But durable goods create a stream of future benefits, so perhaps people can reduce the psychological pain of paying by paying off debts of transient goods more rapidly than debts associated with durable goods. 

• A vacation (a transient good) paid for in advance will be more pleasurable, by this accounting (“prospective accounting”) than the same vacation which is paid for after the fact. 

• People will be more willing to pay interest for a durable good like a clothes dryer. Pre-paying for the dryer does not appreciably raise its hedonic payoff. 

• These mental accounting effects might affect original decisions to make purchases, as well as how repayment occurs.

• A large field experiment is conducted, using UK credit card data. 

• Nondurable goods are indeed much more likely to be paid off at the end of the month than similar bills for durable items – an effect that would be matched by something like a 15% increase in the APR on non-durable debt.

Evers and Imas (2019) on Mental Accounting

Ellen Evers and Alex Imas, “Mental Accounting, Similarity, and Preferences Over the Timing of Outcomes,” September 12, 2019, available at https://ssrn.com/abstract=3452943.

• Do we experience life events in a bundle – a good day, say – or do we experience life more discretely, like a good work day followed by a nice dinner? Our “valuation” (of a day, for instance) will depend on the bundling, because of prospect-theory-style reference points. If we have a good morning, do we record that "event" as complete, in the hedonic books, as it were, and then start fresh in the afternoon?

• We might get more satisfaction if we could consume a good day in two or more parts, as a good morning followed by a good afternoon, as opposed to one indivisible event, a good day. Given "diminishing sensitivity" to gains and losses (a standard element of prospect theory), we would prefer to take gains discretely, and to bundle losses together.

• But can we actually choose how to bundle our experiences to maximize our well-being, to engage in “hedonic editing”? Maybe our control over the mental accounts is limited, maybe similar things (like a good morning and a good afternoon, both spent at the office) in a day will be bundled together.

• Similarity, here, takes the form of shared salient attributes. Temporal proximity is one salient feature, and hence, all else equal, with diminishing sensitivity, people would prefer losses to occur close together and gains to be spread out – but all else is not always equal, sometimes there are other factors (salient similarities) that lead to losses being mentally separated or gains being mentally bundled.

• Evers and Imas suggest that mental bookkeeping is done to economize on the comparison of attributes. At any rate, their “hedonic accounting hypothesis” is that people prefer to suffer similar losses in a short time span but dissimilar losses in a longer time span; alternatively, similar gains are spread over time and dissimilar gains are taken closer together. The similar losses are in the same mental account, and hence, treating them jointly helps (via diminishing sensitivity) to take away some of their sting. Dissimilar losses are sort of fated to be in different mental accounts, so there is no gain to bundling them, and something to be said for postponing one of them.

• In four online experiments (using mTurk, with more than 100 respondents for each of the experiments), the authors find support for their hypotheses: (1) more similar events are more likely to be bundled into a single event; (2) the more similar two negative events, the greater the desire to bundle them (by choosing to experience them in close temporal proximity); (3) the more similar two positive events, the greater the desire to separate them temporally; and (4) rendering events more similar by increasing the salience of their shared characteristics makes them more likely to be assigned to the same mental account. 

Sax and Doran (2019) on Ambiguity and Biotechnology

J. K. Sax and N. Doran, “Ambiguity and Consumer Perceptions of Risk in Various Areas of Biotechnology.” Journal of Consumer Policy 42(1): 47-58, March 2019 [gated copy here].

• Biotechnology-driven consumer goods such as vaccines, fluoridated water, and foods produced with GMOs seem particularly susceptible to exaggerated views of health and safety risks. Does ambiguity aversion drive these risk misperceptions?

• A survey with 14 scenarios is administered to 318 American adults with at least a high school education. Four questions attempt to measure the respondent's underlying ambiguity aversion. These questions are followed up with a series of items concerning views on vaccines, organic foods, bottled water, and embryonic stem cells, where at least one response to each item is (treated as) inconsistent with the consensus scientific view. 

• These preliminaries are succeeded by vignettes about fluoridated water, GMO foods, and so on, where the information presented is either conflicting or less-than-complete. The respondents rate the scenarios on the basis of risks and benefits, where the most positive response would view the scenario as one holding great benefit at low risk. 

• The idea is that scientists often are willing to assign low risk/high benefit status to various innovations even in the absence of complete information, or in the presence of some conflicting information. Do the respondents behave similarly, and does being more ambiguity averse in general lead to more pessimistic assessments of such innovations? 

• People view ambiguity concerning food to be particularly off-putting. Nonetheless, respondents who prefer bottled water to fluoridated tap water tend in other domains to go with the scientific consensus.

• The bottom line, from the Abstract (p. 47): "Participants who reported greater aversion to ambiguity tended to respond in a way that signals the assignment of high risk, and low benefit, when presented with some unknown or uncertain risk."

O’Donoghue and Somerville (2018) on Risk Aversion

Ted O’Donoghue and Jason Somerville, “Modeling Risk Aversion in Economics.” Journal of Economic Perspectives 32(2): 91-114, Spring, 2018.

• As Rabin and Thaler (2001) indicate, expected utility (EU) maximization seems incapable of explaining people’s risk preferences – even though it does suggest some nice measures of the degree of risk aversion. 

• Other models of risk aversion, however, might prove more empirically sound, while maintaining tractability. That is, we might not need expected utility to analyze problems involving risk aversion, as alternative models could replicate current standard, EU-based results, while offering still more or avoiding the shortcomings associated with the assumption of EU maximization. 

• Consider standard findings associated with insurance: (1) A more risk averse person is willing to pay more for insurance (than is a less risk averse person); and (2) at a fixed price per dollar of insurance (fixed in excess of the actuarially fair price), a more risk averse person will purchase more insurance (than will a less risk averse person). 

• Consider standard findings associated with financial investments: (1) In a world with one safe (riskless) and one risky asset, more risk averse people invest less in the risky asset; and (2) if the population as a whole becomes more risk averse, the price of the risky asset must fall (equivalently, the expected return from holding the risky asset must rise). 

• Consider standard findings of principal/agent analysis, say, when a risk neutral principal hires a risk averse agent: (1) if the agent’s effort is not observable, then to encourage effort, the agent will have to bear some risk (so that lower output leads to less pay); and (2) the unobservability of effort is costly to the principal, who would prefer to contract on effort directly. 

• The various claims made concerning risk aversion in the three previous bullet points do require risk aversion – but they do not require expected utility maximization. That is, many of the ideas that have been developed around the concept of risk aversion – developed in the context of expected utility maximization – remain valid even when expected utility maximization is not descriptively accurate.

• Consider loss aversion as an alternative approach, one where outcomes are judged against a reference point and “losses loom larger than gains.” For prospects with some loss and some gain outcomes, loss aversion can generate risk averse behavior. (This style of loss aversion does not require "diminished sensitivity," the feature of prospect theory that leads to risk averse behavior in the gains domain and risk seeking behavior in the losses domain.)

• A second alternative, also featured in prospect theory, is probability weighting. The general notion is that, in practice, decision weights might not equal objective probabilities. Specifically, probability weighting typically involves the overweighting of low probability events and the underweighting of high probability events. This type of probability weighting can generate, depending on the options, either risk seeking or risk averse behavior. Lotteries, for instance, might be attractive (induce risk seeking behavior) due to the overweighting of the low-probability outcome of a large win. 

• Finally, consider contextual features and salience. Extreme or vivid outcomes (like deaths in terrorist attacks) might garner intense attention, leading to higher decision weights on those outcomes. The contextual feature of the available (although unchosen) options can exert influence by shifting the salience of other outcomes. Again, choices displaying risk aversion can arise from these factors. Expected utility maximization is neither necessary nor sufficient for explaining risk-averse behavior.

Dai and Luca (2018) on Restaurant Hygiene Scores

Weijia (Daisy) Dai and Michael Luca, “Digitizing Disclosure: The Case of Restaurant Hygiene Scores.” Harvard Business School, Working Paper 18-088, 2018 [pdf of 2019 version here].

• San Francisco does not mandate that restaurants post their hygiene scores – which are public information generated by unannounced inspections – but is willing to facilitate the posting of the scores on Yelp. (The scores already are available on the City's Department of Public Health website -- but people don't usually go there to order food online!) The (common) reluctance to require disclosure by the restaurants themselves might draw in part from restaurant industry opposition.

• Two interventions are examined: (1) Yelp posts the hygiene scores on its restaurant webpages; and (2) Yelp makes low scores salient via a “hygiene alert” box (which covers the customer reviews part of the Yelp listing)

• A “Poor” restaurant hygiene score (70 or below) results from multiple high-risk violations

• The hygiene alert box informs the webpage visitor that food safety is the point of the hygiene score, and that the score is based on government inspection; further, the alert reveals that the restaurant received a Poor rating in its most recent review, which puts it in the bottom 5% of hygiene ratings.

• Prior to the Yelp interventions, less hygienic restaurants see slightly lower consumer purchasing intentions than do their more hygienic counterparts. Those purchasing intentions are measured via Yelp page visits, “leads,” and the number of Yelp reviews. A "lead" is tallied through various behaviors by online shoppers, such as calling the restaurant, seeking directions to the restaurant, or checking out the restaurant's own webpage (as opposed to its Yelp listing).

• Leads and Yelp reviews respond in the expected direction to Yelp posting of the hygiene scores; Yelp (star) ratings do not

• “Poor” restaurants see a 12% decline in leads compared to the non-Poor

• The salience intervention enhances the posting effect: take-out orders for Poor restaurants fall 12.8%. That is, how information is disclosed seems to matter, along with the disclosure itself.

• Poor restaurants seem to be (somewhat) motivated to clean up their act after Yelp posts the alert