ABSTRACT
For financial decision-making, people trade off the expected value (return) and the variance (risk) of an option, preferring higher returns to lower ones and lower risks to higher ones. To make decision-makers indifferent between a risky and risk-free option, the expected value of the risky option must exceed the value of the risk-free option by a certain amount-the risk premium. Previous psychological research suggests that similar to risk aversion, people dislike inconsistency in an interaction partner's behavior. In eight experiments (total N = 2,412) we pitted this inconsistency aversion against the expected returns from interacting with an inconsistent partner. We identified the additional expected return of interacting with an inconsistent partner that must be granted to make decision-makers prefer a more profitable, but inconsistent partner to a consistent, but less profitable one. We locate this inconsistency premium at around 31% of the expected value of the risk-free option.
Subject(s)
Decision Making , Social Interaction , HumansABSTRACT
While previous research has revealed several reasons why humans generally do good deeds, we explore a simple nudge that might get more of them done: the "maybe favor." We first show conceptually that, compared to a conventional favor, humans are more willing to grant a favor to a stranger on which they might eventually not have to make good. Furthermore, we conducted a series of fully incentivized experiments (total N = 3,475) where participants could make actual donations to charity. Introducing a "maybe" into our donation proposals by randomly revoking some donations not only led to significant increases in donation rates but also increased the total amount of donations. That is, due to biased perceptions of costs and benefits combined with nonlinear probability weighting, the donations we revoked due to the "maybe" were overcompensated by an increased overall willingness-to-donate. (PsycInfo Database Record (c) 2021 APA, all rights reserved).
