Sebastian Bobadilla-Suarez, Cass R. Sunstein, and Tali Sharot, “Are Choosers Losers? The Propensity to Under-Delegate in the Face of Potential Gains and Losses.” February 15, 2016 (pdf, perhaps somewhat updated, available here).
• People seem to value control over decisions, and are willing to sacrifice (in terms of expected returns) to make a decision themselves rather than to delegate. Perhaps for decisions involving losses, however, people might prefer to delegate, to insulate themselves a bit from painful choices.
• This paper reports on two laboratory experiments that are conducted to look at delegation versus control. Sample sizes are rather small: 26 subjects for the first experiment, and 25 for the second. In some trials, participants can delegate the choice to an advisor, after being informed of the reliability and cost of the advisor. (In reality, the advisor is a computer player programmed with the appropriate reliabilities.)
• Both experiments start with a learning phase. Participants are shown two geometrical shapes, and are asked to pick the better one. They are not told what criteria go into “better,” but if they pick correctly, they receive a higher payoff (or avoid a bigger loss) than if they choose incorrectly. Unbeknownst to the players, there is no underlying rule for “better,” the computer just designates, randomly, one of the two shapes as better. But humans are good at finding patterns in random events!
• In the delegation phase of experiment one, participants are given the option, prior to being shown the shapes, to delegate their decision to an advisor (actually, a chooser) whose probability of choosing correctly is revealed in advance, along with the cost of using the advisor. After the delegate-or-not decision, the two shapes are revealed, a choice is made (although, if made by an advisor, not revealed), and onto the next round (60 in total). Subjects do not learn the outcome of individual trials, but are compensated at the end on a random subset of ten of the trials.
• Given that the subjects themselves have a 50% chance of choosing correctly, it is easy to determine when the expected monetary payoff to the subject is higher by delegating the decision to the advisor (thanks to those known probabilities and costs; incidentally, the price of using the advisor is only imposed if the advisor is used, and if the advisor chooses correctly).
• The advisors are configured (costs and accuracy) in such a way that the subjects would do best (in expected monetary terms) by delegating on half of the trials. Instead, subjects choose to delegate only about 30% of the time, whether they are choosing for gains or to avoid losses. The departures from “optimal” play are almost all in the direction of failing to delegate the decision when expected returns would have been higher with delegation.
• Subjects’ perceptions of their own abilities to choose are canvassed, and the aversion to delegation is not the result of excessive optimism with respect to the accuracy of their own choices.
• The second experiment is nearly identical to the first one, except that the decision to choose or to delegate is now made each round after the shapes themselves have been revealed. Still, there is substantial, even slightly worse, under-delegation.
• The fact that under-delegation also is present in the “loss” trials indicates that people, at least in this setting, don’t seem to want to shield themselves from painful decisions through delegation.
Showing posts with label control. Show all posts
Showing posts with label control. Show all posts
Saturday, May 6, 2017
Thursday, March 10, 2016
Florack and Sheffrin (2013) on Psychology and Taxes
Nicole E. Florack and Steven M. Sheffrin, “Psychological Non-Equivalence of Tax Bases: An Empirical Investigation.” Proceedings of the 106th National Tax Association, November 2013; available at SSRN: http://ssrn.com/abstract=2376990.
• Identical tax schedules can be framed either as wage taxes or as consumption taxes. Florack and Sheffrin ask if the framing will influence decision making, as well as preferences for one frame as opposed to the other.
• They use an internet survey to ask about: (1) the willingness to take a second job and (2) the willingness to alter prospective retirement age and current consumption in the face of higher future taxes.
• The authors find that the framing matters quite a bit. Wage taxes undermine the willingness to take on a second job to a greater extent than do equivalent consumption taxes. This asymmetry remains (actually, is amplified) even after the equivalence of the two tax schemes carefully is explained to the survey respondents.
• Retirement ages are more likely to be raised when wage taxes increase as opposed to when (equivalent) consumption taxes increase; the two tax frames also differentially affect the time path of pre- and post-retirement consumption.
• Though the two frames produce identical effects on budget sets, the longer respondents considered the issue (with respect to the second job scenario), the less likely they were to favor the wage tax framing. In the early going, the wage tax framing was more popular than the consumption tax framing. After the explanation of equivalence, the spending frame is more popular, but oddly, only about one-third of the respondents view the equivalent tax frames as, well, equivalent. The spending frame is more popular with respect to retirement decisions, too.
• The authors suggest that tax salience is driving some of the results. In particular, when deciding whether to take a second job, a wage tax seems more salient, more relevant, somehow, than a consumption tax – and hence the wage tax deters more people from taking a second job.
• The (eventual) preference for the consumption tax might be related to a sense of control: perhaps respondents think that they can avoid a consumption tax through increased saving. This view, within the framework of the model, is illusory, but perhaps not so illusory for similar taxes in the real world. The notion of self-administration of taxes (via spending decisions) is a related control-like feature.
• Identical tax schedules can be framed either as wage taxes or as consumption taxes. Florack and Sheffrin ask if the framing will influence decision making, as well as preferences for one frame as opposed to the other.
• They use an internet survey to ask about: (1) the willingness to take a second job and (2) the willingness to alter prospective retirement age and current consumption in the face of higher future taxes.
• The authors find that the framing matters quite a bit. Wage taxes undermine the willingness to take on a second job to a greater extent than do equivalent consumption taxes. This asymmetry remains (actually, is amplified) even after the equivalence of the two tax schemes carefully is explained to the survey respondents.
• Retirement ages are more likely to be raised when wage taxes increase as opposed to when (equivalent) consumption taxes increase; the two tax frames also differentially affect the time path of pre- and post-retirement consumption.
• Though the two frames produce identical effects on budget sets, the longer respondents considered the issue (with respect to the second job scenario), the less likely they were to favor the wage tax framing. In the early going, the wage tax framing was more popular than the consumption tax framing. After the explanation of equivalence, the spending frame is more popular, but oddly, only about one-third of the respondents view the equivalent tax frames as, well, equivalent. The spending frame is more popular with respect to retirement decisions, too.
• The authors suggest that tax salience is driving some of the results. In particular, when deciding whether to take a second job, a wage tax seems more salient, more relevant, somehow, than a consumption tax – and hence the wage tax deters more people from taking a second job.
• The (eventual) preference for the consumption tax might be related to a sense of control: perhaps respondents think that they can avoid a consumption tax through increased saving. This view, within the framework of the model, is illusory, but perhaps not so illusory for similar taxes in the real world. The notion of self-administration of taxes (via spending decisions) is a related control-like feature.
Saturday, January 30, 2016
Time and Happiness: Aaker, Rudd, and Mogilner (2010)
Jennifer L. Aaker, Melanie Rudd, and Cassie Mogilner, “If Money Doesn’t
Make You Happy, Consider Time.” Stanford Graduate School of Business,
Research Paper No. 2067, November 2010; gated published version here.
• There are (income) budget constraints and there are time constraints; most economics subjective wellbeing research has concerned income. But our happiness depends to a large measure on how we spend our time.
• Social activities involving friends and family are more conducive to happiness than are solitary activities. Work is not all that conducive to happiness, but it helps considerably if you like your boss, and if you have a best friend at work.
• Imagining and planning for happy experiences (such as travel) can bring more happiness (and use less time) than the activities themselves.
• Control over discretionary time is a source of happiness. Being mindful of the present – breathe deeply, slowly – helps to keep away anxiety about time being short.
• Happiness tends to be minimized about the age of fifty, and older people associate happiness less with excitement and more with peacefulness. Spending time with old friends and family is more valuable to happiness for older people than for younger people.
• There are (income) budget constraints and there are time constraints; most economics subjective wellbeing research has concerned income. But our happiness depends to a large measure on how we spend our time.
• Social activities involving friends and family are more conducive to happiness than are solitary activities. Work is not all that conducive to happiness, but it helps considerably if you like your boss, and if you have a best friend at work.
• Imagining and planning for happy experiences (such as travel) can bring more happiness (and use less time) than the activities themselves.
• Control over discretionary time is a source of happiness. Being mindful of the present – breathe deeply, slowly – helps to keep away anxiety about time being short.
• Happiness tends to be minimized about the age of fifty, and older people associate happiness less with excitement and more with peacefulness. Spending time with old friends and family is more valuable to happiness for older people than for younger people.
Do People Choose What Makes Them Happy?
Daniel J. Benjamin, Ori Heffetz, Miles S. Kimball, and Alex Rees-Jones,
“What Do You Think Would Make You Happier? What Do You Think You
Would Choose?” American Economic Review 102(5): 2083–2110, 2012 (ungated version here).
• The motivation for this study by Benjamin et al. (2012) is that subjective wellbeing (SWB) is often used as a proxy for unmeasureable “utility.” In the standard economics model, people choose in ways to maximize their utility; do they choose in ways to maximize subjective wellbeing?
• Benjamin et al. use surveys with binary choices such as whether you would choose a job with more pay and less sleep or an alternative job with less pay and more sleep. People also are asked to indicate which option would make them happier.
• The results of the surveys are that subjective wellbeing and choice are strongly positively correlated; indeed, of all the factors measured, (predicted) subjective wellbeing has the strongest connection to (predicted) choice. The measure of subjective wellbeing that is most strongly connected with choice is one that tries to capture lifetime satisfaction, as opposed to measures that aim more at shorter-term positive affect.
• When subjective wellbeing and choice deviate, they do so in a systematic way. People will make choices that do not maximize subjective wellbeing in circumstances in which the chosen option contributes more to a sense of purpose, for instance, or family happiness, or control, or social status.
• To investigate whether self-control shortcomings explain the divergence between choice and happiness – that is, I know I would be happier with choice A but I cannot resist temptation so I make choice B – the authors asked respondents about their meta-preferences, about which choice they wished they would make. Most of the deviations of choice from SWB maximization cannot be explained by self-control problems.
• The motivation for this study by Benjamin et al. (2012) is that subjective wellbeing (SWB) is often used as a proxy for unmeasureable “utility.” In the standard economics model, people choose in ways to maximize their utility; do they choose in ways to maximize subjective wellbeing?
• Benjamin et al. use surveys with binary choices such as whether you would choose a job with more pay and less sleep or an alternative job with less pay and more sleep. People also are asked to indicate which option would make them happier.
• The results of the surveys are that subjective wellbeing and choice are strongly positively correlated; indeed, of all the factors measured, (predicted) subjective wellbeing has the strongest connection to (predicted) choice. The measure of subjective wellbeing that is most strongly connected with choice is one that tries to capture lifetime satisfaction, as opposed to measures that aim more at shorter-term positive affect.
• When subjective wellbeing and choice deviate, they do so in a systematic way. People will make choices that do not maximize subjective wellbeing in circumstances in which the chosen option contributes more to a sense of purpose, for instance, or family happiness, or control, or social status.
• To investigate whether self-control shortcomings explain the divergence between choice and happiness – that is, I know I would be happier with choice A but I cannot resist temptation so I make choice B – the authors asked respondents about their meta-preferences, about which choice they wished they would make. Most of the deviations of choice from SWB maximization cannot be explained by self-control problems.
Saturday, July 25, 2015
Sunstein on Choosing Not to Choose
Cass R. Sunstein, “Choosing Not to Choose.” Duke Law Journal 64(1):
1-52, October, 2014.
• This article essentially responds to a critique of one common behavioral economics-style policy intervention, the strategic use of default settings. The critique is that using default settings to nudge people is an affront to their autonomy, even if it is easy to choose something other than the default.
• Sunstein’s response is to suggest that a failure to provide a default could just as easily be an affront to autonomy: often, people do not want to choose, they want a well-chosen default in place so that they can avoid choosing.
• Therefore, mandating an active choice (as opposed to setting up a default) can itself be paternalistic, and maybe not even in a libertarian fashion. Sunstein calls it “choice-requiring paternalism” (page 7).
• A compromise between using a default and requiring an active choice would be to ask people if they want to choose, knowing that if they do not, they can “opt out” of choosing and receive a default choice (which they could alter) instead; this approach is called “simplified active choosing” (page 8).
• Of course, the question of whether you want to choose might itself be an unwelcome query.
• If you can’t trust the default, there is much to be said for active choosing. But if the situation is unfamiliar, then why choose, if the default setters can be trusted?
• Active choice might make more sense in situations where you can learn about choices over time, or develop your preferences.
• The rise of big data means that sellers might know better than consumers what the consumers want.
• One reason not to want to choose is to deflect responsibility. Also, people have plenty of decisions to make (200 a day for food, we are told) and might prefer to focus their autonomy on an important but manageable subset of decisions.
• Sometimes active choice is to protect third parties, or to provide credible proof that a choice was made in a deliberate fashion. This might be the case with organ donation, for instance.
• Is GPS undermining our ability to navigate? Does Pandora hinder learning about different types of music? Jane Jacobs noted that cities bring about unwelcome but nevertheless consciousness-expanding encounters, by providing an architecture of serendipity.
• People seem to value more highly options they have chosen than options they have been assigned, that is, they have a bias in favor of choice.
• Would you be willing to have your book purchases chosen by big data? How would you feel about being defaulted into a regime where big data chose your books and charged your bank account? (You could return the books for a refund.) Would you feel differently if we were talking not about books but about household goods like paper towels or detergent?
• In summary, choice can sometime be a curse, undermining your autonomy and your welfare.
• This article later spawned a book with the same title.
• This article essentially responds to a critique of one common behavioral economics-style policy intervention, the strategic use of default settings. The critique is that using default settings to nudge people is an affront to their autonomy, even if it is easy to choose something other than the default.
• Sunstein’s response is to suggest that a failure to provide a default could just as easily be an affront to autonomy: often, people do not want to choose, they want a well-chosen default in place so that they can avoid choosing.
• Therefore, mandating an active choice (as opposed to setting up a default) can itself be paternalistic, and maybe not even in a libertarian fashion. Sunstein calls it “choice-requiring paternalism” (page 7).
• A compromise between using a default and requiring an active choice would be to ask people if they want to choose, knowing that if they do not, they can “opt out” of choosing and receive a default choice (which they could alter) instead; this approach is called “simplified active choosing” (page 8).
• Of course, the question of whether you want to choose might itself be an unwelcome query.
• If you can’t trust the default, there is much to be said for active choosing. But if the situation is unfamiliar, then why choose, if the default setters can be trusted?
• Active choice might make more sense in situations where you can learn about choices over time, or develop your preferences.
• The rise of big data means that sellers might know better than consumers what the consumers want.
• One reason not to want to choose is to deflect responsibility. Also, people have plenty of decisions to make (200 a day for food, we are told) and might prefer to focus their autonomy on an important but manageable subset of decisions.
• Sometimes active choice is to protect third parties, or to provide credible proof that a choice was made in a deliberate fashion. This might be the case with organ donation, for instance.
• Is GPS undermining our ability to navigate? Does Pandora hinder learning about different types of music? Jane Jacobs noted that cities bring about unwelcome but nevertheless consciousness-expanding encounters, by providing an architecture of serendipity.
• People seem to value more highly options they have chosen than options they have been assigned, that is, they have a bias in favor of choice.
• Would you be willing to have your book purchases chosen by big data? How would you feel about being defaulted into a regime where big data chose your books and charged your bank account? (You could return the books for a refund.) Would you feel differently if we were talking not about books but about household goods like paper towels or detergent?
• In summary, choice can sometime be a curse, undermining your autonomy and your welfare.
• This article later spawned a book with the same title.
Bartling, Fehr, and Herz, “The Intrinsic Value of Decision Rights”
Björn Bartling, Ernst Fehr, and Holger Herz, “The Intrinsic Value of Decision Rights.” University of Zurich, Department of Economics Working Paper No. 120, April 19, 2013 [updated version available].
• Consider a principal-agent situation, where the principal would like to have a task accomplished. The principal can control fully the choice of task and effort, or can delegate the choices to an agent with different preferences -- though the delegation, if it takes place, can specify a minimum effort level. The question that the authors explore is whether the principal is willing to sacrifice some expected return just to keep control.
• In their experiment, the answer is… “Yes”: principals give up more than 16% in certainty equivalent terms to control the choices. The higher the stakes, the greater the intrinsic value that principals place on control. Also, and oddly, the closer the alignment between principal and agent preferences, the greater the intrinsic value of control to the principal, even though the agent would make similar choices to what the principal makes, and the principal knows that.
• Note that the intrinsic value of control or ownership is non-transferable; it is subject to a sort of endowment effect. Sometimes proposed corporate mergers become undone because neither group of executives is willing to cede control.
• Entrepreneurs and scientists seem to sacrifice income for control.
• Consider a principal-agent situation, where the principal would like to have a task accomplished. The principal can control fully the choice of task and effort, or can delegate the choices to an agent with different preferences -- though the delegation, if it takes place, can specify a minimum effort level. The question that the authors explore is whether the principal is willing to sacrifice some expected return just to keep control.
• In their experiment, the answer is… “Yes”: principals give up more than 16% in certainty equivalent terms to control the choices. The higher the stakes, the greater the intrinsic value that principals place on control. Also, and oddly, the closer the alignment between principal and agent preferences, the greater the intrinsic value of control to the principal, even though the agent would make similar choices to what the principal makes, and the principal knows that.
• Note that the intrinsic value of control or ownership is non-transferable; it is subject to a sort of endowment effect. Sometimes proposed corporate mergers become undone because neither group of executives is willing to cede control.
• Entrepreneurs and scientists seem to sacrifice income for control.
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