Contradictory deviations from maximization: Environment-specific biases, or reflections of basic properties of human learning?

Analyses of human reaction to economic incentives reveal contradictory deviations from maximization. For example, underinvestment in the stock market suggests risk aversion, but insufficient diversification of financial assets suggests risk-seeking. Leading explanations for these contradictions assume that different choice environments (e.g., different framings) trigger different biases. Our analysis shows that variation in the choice environment is not a necessary condition. It demonstrates how certain changes in the incentive structure are sufficient to trigger six pairs of contradictory deviations from maximization even when the choice environment is fixed. Moreover, our analysis shows that the direction of these deviations can be captured by assuming that choice propensities reflect reliance on small samples of past experiences. In order to clarify the underlying processes, we considered distinct models of the reliance on small samples assumption, and compared them to classical models of choice (including prospect theory). The comparison focused on both within-individual, and between-group predictions (based on a preregistered study with 120 new tasks). The results reveal large advantage of "wide sampling" models that (in the static settings we examine) approximate an effort to rely on the most similar past experiences. Surprisingly, we also found that assuming that the parameters reflect stable individual traits impairs predictions; it seems that the number of "most similar past experiences" for each individual varies from task to task. These results suggest that ignoring the predictable impact of the incentive structure can lead to exaggeration of the importance of environment- and individual-specific decision biases. (PsycInfo Database Record (c) 2023 APA, all rights reserved).

Promoting Healthy Eating Behaviors by Incentivizing Exploration of Healthy Alternatives.

Incentive-based intervention programs aimed at promoting healthy eating behaviors usually focus on incentivizing repeating the desired behavior. Unfortunately, even when effective, these interventions are often short-lived and do not lead to a lasting behavioral change. We present a new type of intervention program focused on incentivizing exploration of new healthy alternatives rather than incentivizing repeated healthy behaviors. This intervention aims to help participants find long-lasting "personal treasures" -new foods that are both healthy and tasty for them. Our field study included a final sample of 48 students with low or medium daily consumption of fresh salads. Participants in the control group received a fixed payment for completing the program, while the participants in the incentivized exploration group received a lower fixed fee for completing the task and a bonus for each new salad they tried. Results show that participants in the incentivized exploration group reported eating more salads even 1 year after the program ended compared to the participants in the control group. Though preliminary, our results paint a promising picture for the successful application of incentivizing exploration interventions to promote healthy lifestyle.

On the Value of Alert Systems and Gentle Rule Enforcement in Addressing Pandemics.

The COVID-19 pandemic poses a major challenge to policy makers on how to encourage compliance to social distancing and personal protection rules. This paper compares the effectiveness of two policies that aim to increase the frequency of responsible health behavior using smartphone-tracking applications. The first involves enhanced alert capabilities, which remove social externalities and protect the users from others' reckless behavior. The second adds a rule enforcement mechanism that reduces the users' benefit from reckless behavior. Both strategies should be effective if agents are expected-value maximizers, risk averse, and behave in accordance with cumulative prospect theory (Tversky and Kahneman, 1992) or in accordance with the Cognitive Hierarchy model (Camerer et al., 2004). A multi-player trust-game experiment was designed to compare the effectiveness of the two policies. The results reveal a substantial advantage to the enforcement application, even one with occasional misses. The enhanced-alert strategy was completely ineffective. The findings align with the small samples hypothesis, suggesting that decision makers tend to select the options that lead to the best payoff in a small sample of similar past experiences. In the current context, the tendency to rely on a small sample appears to be more consequential than other deviations from rational choice.