6 - evidence on dynamic choice

Question 1

what is the paper

Answer 1

Cubitt Starmer and Sugden

Question 2

what were the 3 challenges of the experimental design that needed to be solved

Answer 2

1. plans
2. incentives
3. decision trees

Question 3

what was the plans problem

how can you test dynamic consistency?

Answer 3

problem with observing plans in heads - hard to
- it is hard to directly test dynamic inconsistency

Question 4

what was CSS solution to the planning challenge

Answer 4

looks at across problem restrictions instead of within (dynamic consistency is a within problem restrcition)

avoids the need to elicit a plan by using timining independence instead of dynamic consistency

Question 5

what is the difference between timing independence and dynamic consistency

Answer 5

dynamic consistency = test if people plan ahead - final action at n2 (choice node) to be the same at n1 (planning node)

timing independence = the action you make at n2 would be the same regardless of the timing you had to make the decision - you would make that decision before or after the chance node

Question 6

what was the incentives problem

within subjects design - no incentives

Answer 6

each person does all of the tasks
- problem with how you would incentivise all of the tasks = costly
- what if they already win enough money and then stop attempting the rest of the tasks

Question 7

what was CSS solution to incentives problem

Answer 7

use a between subject design instead of within
- each subject one task for real money outcomes
- different groups of subjects face each task
* will compare the proportions of each group that make choices
- random assignment - no systematic differences between risk attitudes in each group

Question 8

what was the Trees problem

Answer 8

theory assumes that frame independence justifies the use of decision trees for analysis on decision making

• but we cant assume that all subjects understand decision trees
• could make errors

Question 9

what was CSS solution to trees problem

Answer 9

use words to describe the decision problems instead

• would test frame independence by using 2 problems that differ in verbal description but have the same tree

Question 10

what are the 3 features of CSS that confront the challenges

Answer 10

1. uses between-subjects design
2. uses timing independence instead of dynamic consistency
3. no trees - verbal descriptions of the problems

• tasks for real money

Question 11

what was the structure of CSS experiment and what was it testing

Answer 11

scaled up problem
prior lottery problem
precommitment problem
2 stage problem
scaled down problem

Question 12

what does EUT imply about scaled up and scaled down problem

Answer 12

equivalent
by 4 principles

• we should observe same behavuour in each stage

Question 13

what does CRE suggest about scaled up and scaled down

Answer 13

some subjects will make different choices in each
- violate their equivalence

Question 14

how did they test separability

Answer 14

1. make choice
2. make the choice after a lottery

• shouldnt matter what the history is they should make same chocie - same subtree

Question 15

how did they test timing independence

Answer 15

2. choice after lottery
3. choose choice that will happen after the lottery - but make the choice before the lottery

• same choice just making it at a different time (ahead in time)
• it shouldnt matter at what time you make the choice

Question 16

how did they test frame independence

Answer 16

only difference is the way the problem is verbally written
- has the same tree

Question 17

how did they test reduction of compound lotteries

Answer 17

4.
5.

5 is just problem 4 but with the compound lotteries multiplied out

Question 18

what did CSS find

results

Answer 18

• only found statistical difference in the proportion of subjects choosing risky option between
  stage 2 and stage 3
• violation of timing independence

Question 19

if EUT principles held what results would you expect to see

Answer 19

statistically similar proportions of subjects choosing risky option in each stage - if random allocation is valid

Question 20

how was timing independence violated

Answer 20

subjects facing precommitment were twice as likely to choose risky option than those in the prior lottery
* evidence that people take more risks when they precommit
* people precommit to risks they wouldnt take if they werent precommitted

Question 21

did CSS find results of CRE

Answer 21

• no statistical difference between 1 and 5 - doesnt show CRE
• pooled test - find that there is statistically significant difference between scaled up and scaled down - inconsistent with EUT

Question 22

what was objective of CSS

Answer 22

to see if there is any violation of the principles
- found violation of timing independence

Question 23

what does CRE do

Answer 23

• CRE not consistent with EUT
• CRE motivates behavioural models of risky choice

Question 24

what is the case used to justify that EUT is the correct model of peoples underlying true preferences

• even with CRE

Answer 24

• people sometimes make random errors in their choice - explains why CRE - people switch

Question 25

what is the Fechnerian error model

Answer 25

peoples preferences are captured by EUT
but they make errors when calculating EU

Question 26

why would you make error in Fechnerian error model

how does this explain CRE

Answer 26

more likely to make an error the smaller the difference between the EUs

CRE = shrinks the EU difference between the lottery - making it more lil

Question 27

what are the problems with the fechnerian model

Answer 27

1. error has mean zero - doesnt explain why large cohort change from safe to risky - it suggests we would expect it to move to 50/50
2. doesnt explain CCE - because CCE there is no change in the differences in EU (which is where we get the error from)
3. variance of e independent

Question 28

what are the 2 classic assumtions of EUT

Answer 28

1. people have preferences representable as maximising EU
2. always choose in line with their preferences

Question 29

what is a good thing about the Fechnerian model

Answer 29

1. predicts the asymmetry in the direction of the violations