Lecture 13: Doing Research in Economic Psychology Flashcards
economists vs psychologists (Sarah Lichtenstein and Paul Slovic)
P-bets vs $-bets study by psychologists
- economists considered the study very strange and tried to explain the ‘mistakes’
- replicated the study
- hostile towards participants and experimenters
common critique from economists
- if the stakes are large enough, people will get it right
- in the real world people will learn to get it right
- in the aggregate errors will cancel
- in markets, arbitrage and competition will eliminate the effects of irrational agents
- where is the theory?
- economic thoery has done very well so far, and if it is not broken don’t fix it
- if the stakes are large enough, people will get it right
- preference reversal phenomenon occurs with and without financial incentive
- people still don’t lie to the full extent when incentives are high
- in ultimatum game, when playing for $100, people still reject unfair offers
- in the real world people will learn to get it right
- accurate learning requires timely and organized feedback
- many lab phenomena were replicated in the field
- in the aggregate errors will cancel
- ‘errors’ that have been discovered are systematic
- not rational ≠ random and unpredictable
- in markets, arbitrage and competition will eliminate the effects of irrational agents
- conditions that allow rational agents to reach an optimal behavior and result are rare
- mistakes in market often persist, as they do not create profit (and thus exploitation)
- where is the theory?
these behavioral phenomena add up and lead to the development of descriptive theories that predict behavior
- economic theory has done very well so far, and if it is not broken, why fix it
- the success of economic theory depends on how it tests
- a test should support a theory only if it would also refute it under opposite results, yet economic theories are rarely challenged in this way
- proposal for an incentive-based bets on experiment outcomes to assess scientists’ confidence in their predictions (reputation)
2 false statements
Thaler believed that if everyone would agree that these statements are flase, then no one would have to waste any time repudiating them
- “rational models are useless”
- “all behavior is rational”
psychology vs economics (psychology)
- external validity
- more context
- less use of incentives
- more one-shot
- use of experimental deception
external validity (psychology)
generalize from the research context to the setting that the research is intended to approximate
more context (psychology)
context is part of the decision making process and is important
less use of incentives (psychology)
- less focus on incentivized behavior, sometimes with points or hypothetical choices
- at times leads to similar results as with incentives
more one-shot (psychology)
- one-shot decisions are more common
- if repetition exists, it is seen as a tool to examine learning
use of experimental deception (psychology)
participants are sometimes told information that is not true (to manipulate factors, measure outcomes more easily)
psychology vs economics (economics)
- internal validity
- less context
- more use of incentives
- more repetitions
- no experimental deception
internal validity (economics)
draw confident causal conclusions from one’s research
less context (economics)
context is not important, the payoff/rules are (player 1/2)
more use of incentives (economics)
strong focus on incentivized behavior, assumes removing incentives will change behavior/ not capture it properly
more repetitions (economics)
- repetition is common (many rounds)
- ‘until they get it right’/avoid confusion and way to increase external validity (but is it realistic?)
no experimental deception (economics)
- strong norm against experimental deception
- can harm reputation of the lab, contaminate the participation pool, and affect results
behavioral change toolbox
- regulation (bans and restrictions)
- incentives (taxes, fines, subsidies, grants)
- information, education, and persuasion
- nudges and choice architecture
choosing the right tool
- is enforcement feasible and cost-effective
- is freedom of choice important
- what is the possible responses from the market
- what are the potential outcomes of the policy (also long-term)
do incentives always work
no
- can be counteractive and have a reversal effect
- day care fine for being late
nudge
any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives
when nudges are useful
- freedom of choice is important
- economic incentives or penalties are not appropriate
- behavior is affected by cognitive influences and individuals struggle with turning intentions into action
- to increase alignment with current regulations or incentives
when nudges should be avoided
- it may lead to exploitation by businesses or other institutions in the marketplace
- intended outcome of the nudge may go against individual intentions
principles for ‘good’ nudging
- transparent and never misleading
- easy to opt out of the nudge
- have a good reason to encourage the specific behavior
- use existing social norms to make your nudge stick
- get everyone in the decision environment involved
- keep it simple: reduce complexity and make it easier to choose
- think about (unexpected) alternative outcomes
- employ careful research and consideration
experimental economists and external validity
EE experiments are particularly vulnerable to external validity
repetition
- among EEs there is a strong and growing belief in the importance of repetition (view repetition as a technique for increasing external validity)
- argued that stationary replication is not a common feature of economic life
context
EEs are beginning to gain an appreciation of the importance of context effects
internal validity (EEs)
EE experiments, like all empirical research, also face threats to internal validity
- often due to failure of assigning subjects randomly to different treatments
