Findings

Modesty and the Best Policy

Kevin Lewis

March 09, 2011

From Natural Variation to Optimal Policy? The Lucas Critique Meets Peer Effects

Scott Carrell, Bruce Sacerdote & James West
NBER Working Paper, March 2011

Abstract:
We take cohorts of entering freshmen at the United States Air Force Academy and assign half to peer groups with the goal of maximizing the academic performance of the lowest ability students. Our assignment algorithm uses peer effects estimates from the observational data. We find a negative and significant treatment effect for the students we intended to help. We show that within our "optimal" peer groups, students self-selected into bifurcated sub-groups with social dynamics entirely different from those in the observational data. Our results suggest that using reduced-form estimates to make out-of-sample policy predictions can lead to unanticipated outcomes.

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Temporal view of the costs and benefits of self-deception

Zoë Chance, Michael Norton, Francesca Gino & Dan Ariely
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
Researchers have documented many cases in which individuals rationalize their regrettable actions. Four experiments examine situations in which people go beyond merely explaining away their misconduct to actively deceiving themselves. We find that those who exploit opportunities to cheat on tests are likely to engage in self-deception, inferring that their elevated performance is a sign of intelligence. This short-term psychological benefit of self-deception, however, can come with longer-term costs: when predicting future performance, participants expect to perform equally well - a lack of awareness that persists even when these inflated expectations prove costly. We show that although people expect to cheat, they do not foresee self-deception, and that factors that reinforce the benefits of cheating enhance self-deception. More broadly, the findings of these experiments offer evidence that debates about the relative costs and benefits of self-deception are informed by adopting a temporal view that assesses the cumulative impact of self-deception over time.

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When being wasteful appears better than feeling wasteful

Ro'i Zultan, Maya Bar-Hillel & Nitsan Guy
Judgment and Decision Making, December 2010, Pages 489-496

Abstract:
"Waste not want not" expresses our culture's aversion to waste. "I could have gotten the same thing for less" is a sentiment that can diminish pleasure in a transaction. We study people's willingness to "pay" to avoid this spoiler. In one scenario, participants imagined they were looking for a rental apartment, and had bought a subscription to an apartment listing. If a cheaper subscription had been declined, respondents preferred not to discover post hoc that it would have sufficed. Specifically, they preferred ending their quest for the ideal apartment after seeing more, rather than fewer, apartments, so that the length of the search exceeds that available within the cheaper subscription. Other scenarios produced similar results. We conclude that people may sometimes prefer to be wasteful in order to avoid feeling wasteful.

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Positive Fantasies about Idealized Futures Sap Energy

Heather Barry Kappes & Gabriele Oettingen
Journal of Experimental Social Psychology, forthcoming

Abstract:
Positive fantasies allow people to mentally indulge in a desired future. Whereas previous research found that spontaneously generated positive fantasies about the future predict poor achievement, we examined the effect of experimentally-induced positive fantasies about the future. The present four experiments identify low energy, measured by physiological and behavioral indicators, as a mechanism by which positive fantasies translate into poor achievement. Induced positive fantasies resulted in less energy than fantasies that questioned the desired future (Study 1), negative fantasies (Study 2), or neutral fantasies (Study 3). Additionally, positive fantasies yielded a larger decrease in energy when they pertained to a more rather than a less pressing need (Study 4). Results indicate that one reason positive fantasies predict poor achievement is because they do not generate energy to pursue the desired future.

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The Loser's Curse: Decision-Making & Market Efficiency in the National Football League Draft

Cade Massey & Richard Thaler
Yale Working Paper, January 2011

Abstract:
A question of increasing interest to researchers in a variety of fields is whether the biases found in judgment and decision making research remain present in contexts in which experienced participants face strong economic incentives. To investigate this question, we analyze the decision making of National Football League teams during their annual player draft. This is a domain in which monetary stakes are exceedingly high and the opportunities for learning are rich. It is also a domain in which multiple psychological factors suggest teams may overvalue the chance to pick early in the draft. Using archival data on draft-day trades, player performance and compensation, we compare the market value of draft picks with the surplus value to teams provided by the drafted players. We find that top draft picks are significantly overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research.

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The Consequences of Completion: How Level of Completion Influences Information Concealment by Decision Makers

Jaclyn Jensen, Donald Conlon, Stephen Humphrey & Henry Moon
Journal of Applied Social Psychology, February 2011, Pages 401-428

Abstract:
Numerous studies have demonstrated that decision makers will allocate additional resources to failing projects if those projects are close to completion, as opposed to far from completion. The present work considers whether high project completion leads to other effects; namely, decision-maker willingness to conceal negative information about a project. Three studies (1 at the group level, 2 at the individual level; 1 using qualitative data, 2 using quantitative data) established a link between project completion, incremental investment behavior, and the tendency to conceal negative information.

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Pressure and Perverse Flights to Familiarity

Ab Litt, Taly Reich, Senia Maymin & Baba Shiv
Psychological Science, forthcoming

Abstract:
Under pressure, people often prefer what is familiar, which can seem safer than the unfamiliar. We show that such favoring of familiarity can lead to choices precisely contrary to the source of felt pressure, thus exacerbating, rather than mitigating, its negative consequences. In Experiment 1, time pressure increased participants' frequency of choosing to complete a longer but incidentally familiar task option (as opposed to a shorter but unfamiliar alternative), resulting in increased felt stress during task completion. In Experiment 2, pressure to reach a performance benchmark in a chosen puzzle increased participants' frequency of choosing an incidentally familiar puzzle that both augured and delivered objectively worse performance (i.e., fewer points obtained). Participants favored this familiar puzzle even though familiarity was established through unpleasant prior experience. This "devil you know" preference under pressure contrasted with disfavoring of the negatively familiar option in a pressure-free situation. These results demonstrate that pressure-induced flights to familiarity can sometimes aggravate rather than ameliorate pressure, and can occur even when available evidence points to the suboptimality of familiar options.

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Affective Forecasting Errors in the 2008 Election: Underpredicting Happiness

Catherine Norris, Amanda Dumville & Dean Lacy
Political Psychology, April 2011, Pages 235-249

Abstract:
Individuals tend to be very bad at predicting their emotional responses to future events, often overestimating both the intensity and duration of their responses, particularly to negative events. The authors studied affective forecasting errors in the 2008 election in a large sample of undergraduates at Dartmouth College. Replicating past research, McCain supporters overpredicted their negative affect in response to the (future) election of Barack Obama. Obama supporters, however, underpredicted their happiness in response to his victory. Results are discussed with reference to mechanisms proposed to underlie the impact bias, as well as the unique circumstances surrounding this historic election season.

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Mistaking randomness for free will

Jeffrey Ebert & Daniel Wegner
Consciousness and Cognition, forthcoming

Abstract:
Belief in free will is widespread. The present research considered one reason why people may believe that actions are freely chosen rather than determined: they attribute randomness in behavior to free will. Experiment 1 found that participants who were prompted to perform a random sequence of actions experienced their behavior as more freely chosen than those who were prompted to perform a deterministic sequence. Likewise, Experiment 2 found that, all else equal, the behavior of animated agents was perceived to be more freely chosen if it consisted of a random sequence of actions than if it consisted of a deterministic sequence; this was true even when the degree of randomness in agents' behavior was largely a product of their environments. Together, these findings suggest that randomness in behavior-one's own or another's-can be mistaken for free will.

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Neural correlates of cognitive dissonance and choice-induced preference change

Keise Izuma et al.
Proceedings of the National Academy of Sciences, 21 December 2010, Pages 22014-22019

Abstract:
According to many modern economic theories, actions simply reflect an individual's preferences, whereas a psychological phenomenon called "cognitive dissonance" claims that actions can also create preference. Cognitive dissonance theory states that after making a difficult choice between two equally preferred items, the act of rejecting a favorite item induces an uncomfortable feeling (cognitive dissonance), which in turn motivates individuals to change their preferences to match their prior decision (i.e., reducing preference for rejected items). Recently, however, Chen and Risen [Chen K, Risen J (2010) J Pers Soc Psychol 99:573-594] pointed out a serious methodological problem, which casts a doubt on the very existence of this choice-induced preference change as studied over the past 50 y. Here, using a proper control condition and two measures of preferences (self-report and brain activity), we found that the mere act of making a choice can change self-report preference as well as its neural representation (i.e., striatum activity), thus providing strong evidence for choice-induced preference change. Furthermore, our data indicate that the anterior cingulate cortex and dorsolateral prefrontal cortex tracked the degree of cognitive dissonance on a trial-by-trial basis. Our findings provide important insights into the neural basis of how actions can alter an individual's preferences.

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Decision speed and choice regret: When haste feels like waste

Yoel Inbar, Simona Botti & Karlene Hanko
Journal of Experimental Social Psychology, forthcoming

Abstract:
We test a metacognitive account of why larger choice sets often lead to greater regret, proposing that people apply the lay theory that "a quick choice is a bad choice" when evaluating how well they have chosen. Because people often operate under time pressure, larger sets are likely to entail a more cursory selection process than smaller sets, generating a feeling of having rushed the evaluation of the alternatives and heightened regret. Four studies show that choice-set size does not influence participants' regret when they believe that they had enough time to choose, that the subjective feeling of being rushed accounts for greater regret when choosing from larger sets, and that changing people's lay theories about choosing quickly eliminates regret.

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A cross-cultural study of hindsight bias and conditional probabilistic reasoning

Hiroshi Yama et al.
Thinking & Reasoning, November 2010, Pages 346-371

Abstract:
Hindsight bias is a mistaken belief that one could have predicted a given outcome once the outcome is known. Choi and Nisbett (2000) reported that Koreans showed stronger hindsight bias than Americans, and explained the results using the distinction between analytic cognition (Westerners) and holistic cognition (Easterners). The purpose of the present study was to see whether hindsight bias is stronger among Easterners than among Westerners using a probability judgement task, and to test an "explicit-implicit" hypothesis and a "rule-dialectics" hypothesis. We predicted that the implicit process is more active among Easterners to generate hindsight bias, and that Easterners are more dialectical thinkers, whereas Westerners are more rule-based thinkers. French, British, Japanese, and Korean participants were asked to make probabilistic judgements in a Good Samaritan scenario (Experiment 1) and in a scenario including conditional probabilistic judgement (Experiment 2). In both Experiments, we presume that the implicit revision of causal models is made just by being given unexpected outcome information, and that explicit revision is made by being asked to point out possible factors for an unexpected outcome. In the results Easterners showed greater hindsight bias generally and it was greater in the Good Samaritan scenario. We conclude that the reason why hindsight bias was lower among Westerners is primarily that they tried to follow a rule to suppress the bias.

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A New Model for Predicting Policy Choices: Preliminary Tests

Bruce Bueno de Mesquita
Conflict Management and Peace Science, February 2011, Pages 65-87

Abstract:
A new forecasting model, solved for Bayesian Perfect Equilibria, is introduced. It, along with several alternative models, is tested on data from the European Union. The new model, which allows for contingent forecasts and for generating confidence intervals around predictions, outperforms competing models in most tests despite the absence of variance on a critical variable in all but nine cases. The more proximate the political setting of the issues is to the new model's underlying theory of competitive and potentially coercive politics, the better the new model does relative to other models tested in the European Union context.

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Expectations of clumpy resources influence predictions of sequential events

Benjamin Scheibehenne, Andreas Wilke & Peter Todd
Evolution and Human Behavior, forthcoming

Abstract:
When predicting the next outcome in a sequence of events, people often appear to expect streaky patterns, such as that sport players can develop a "hot hand," even if the sequence is actually random. This expectation, referred to as positive recency, can be adaptive in environments characterized by resources that are clustered across space or time (e.g., expecting to find multiple berries on separate bushes). But how strong is this disposition towards positive recency? If people perceive random sequences as streaky, will there be situations in which they forego a payoff because they prefer an unpredictable random environment over an exploitable but alternating pattern? To find out, 238 participants repeatedly chose to bet on the next outcome of one of two sequences of (binary) events, presented next to each other. One sequence displayed events at random while the other sequence was either more streaky (positively autocorrelated) or more alternating (negatively autocorrelated) than chance. The degree of autocorrelation varied in a between-subject design. Most people preferred to predict purely random sequences over those with moderate negative autocorrelation and thus missed the opportunity for above-chance payoff. Positive recency persisted despite extensive feedback and the opportunity to learn more rewarding behavior over time. Further, most participants' choice strategies were best described by a win-stay/lose-shift strategy, adaptive in clumpy or streaky environments. We discuss the implications regarding an evolved human tendency to expect streaky patterns, even if the sequence is actually random.

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How choice modifies preference: Neural correlates of choice justification

Jungang Qin et al.
NeuroImage, 1 March 2011, Pages 240-246

Abstract:
When making a difficult choice, people often justify the choice by increasing their liking for the chosen object and decreasing their liking for the rejected object. To uncover the neural signatures of choice justification, we used functional magnetic resonance imaging to monitor neural activity when subjects rated their preference for chosen and rejected musical CDs before and after they made their choices. We observed that the trial-by-trial attitude change (i.e., increase of preference for chosen items and decrease of preference for rejected items) was predicted by post-choice activity in the ventral medial prefrontal cortex (MPFC), right temporal-parietal junction, anterior insula, and bilateral cerebellum. Furthermore, individual difference in choice justification (i.e. increased preference for chosen items minus decreased preference for rejected items) was predicted by post-choice neural activity in the dorsal MPFC, left lateral prefrontal cortex and right precentral cortex positively. In addition, interdependent self-construal was correlated with decreased activity in the ventral MPFC in the post-choice than pre-choice sessions. These findings suggest that both negative arousal/regulation and self-reflection are associated with choice justification. This provides evidence for the self-threat theory of choice justification.


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