Overwhelming evidence from the cognitive sciences shows that, in simple discrimination tasks (determining what is louder, longer, brighter, or even which number is larger) humans make more mistakes and decide more slowly when the stimuli are closer along the relevant scale. We investigate to what extent these effects are relevant for economic decisions. Strikingly, we find that even when there is an objectively correct answer independently of attitudes toward risk, the same effects obtain as expected values become closer. Contrary to pure discrimination tasks, however, differences in payoff-independent numerical magnitudes play a minor role. When correct answers depend on subjective attitudes toward risk, differences in expected values fail to explain error rates. The gradual effects on error rates and response times subsist but are instead explained by cardinal differences in independently-estimated subjective utilities (“strength of preference”). This is in agreement with assumptions typically made (but seldom validated) in random utility models. We conclude that the gradual effects on choice found in cognitive discrimination paradigms are very much present in economic choices, but depend on purely economic variables. An implication is that even if correct economic choices can be seen as ordinal, actual economic choices carry a cardinal component.
{"title":"Strength of Preference and Decision Making Under Risk","authors":"Carlos Alós-Ferrer, Michele Garagnani","doi":"10.2139/ssrn.3428515","DOIUrl":"https://doi.org/10.2139/ssrn.3428515","url":null,"abstract":"Overwhelming evidence from the cognitive sciences shows that, in simple discrimination tasks (determining what is louder, longer, brighter, or even which number is larger) humans make more mistakes and decide more slowly when the stimuli are closer along the relevant scale. We investigate to what extent these effects are relevant for economic decisions. Strikingly, we find that even when there is an objectively correct answer independently of attitudes toward risk, the same effects obtain as expected values become closer. Contrary to pure discrimination tasks, however, differences in payoff-independent numerical magnitudes play a minor role. When correct answers depend on subjective attitudes toward risk, differences in expected values fail to explain error rates. The gradual effects on error rates and response times subsist but are instead explained by cardinal differences in independently-estimated subjective utilities (“strength of preference”). This is in agreement with assumptions typically made (but seldom validated) in random utility models. We conclude that the gradual effects on choice found in cognitive discrimination paradigms are very much present in economic choices, but depend on purely economic variables. An implication is that even if correct economic choices can be seen as ordinal, actual economic choices carry a cardinal component.","PeriodicalId":284509,"journal":{"name":"DecisionSciRN: Other Decision Theory (Sub-Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124535230","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper proposes an economic model of psychological energy used toward the production of experiences. A review of ideas at the nexus of economics and psychology, and how they lead to the thesis of this paper, is presented. A simple mathematical economic model is developed, with two main uses of psychological energy toward well-being. These are the generation of impressions (inward experiences that are sense-like) and expression (outward experiences that are action-like). Choosing is understood as investing energy to change the probabilities of an outcome. The model optimizes energy use between intensity of impressions and capacity for expression. For a fixed energy level, as experiential intensity increases resources are substituted out of decision making and implementation, leading to choices of lower utility. If the material losses are substantial during an experience, the share of psychological energy used to modify impressions will increase, and away from influencing seemingly random external outcomes. Over multiple periods, this generates a feedback loop where the person feels increasingly disempowered, and thus less concerned about making better choices. This feedback loop can be stopped by an external entity providing sufficient resources for the person to experience greater expression.
{"title":"Experiences, Choice and Well-Being: An Economics of Psychological Energy","authors":"David Axelrod","doi":"10.2139/ssrn.3387481","DOIUrl":"https://doi.org/10.2139/ssrn.3387481","url":null,"abstract":"This paper proposes an economic model of psychological energy used toward the production of experiences. A review of ideas at the nexus of economics and psychology, and how they lead to the thesis of this paper, is presented. A simple mathematical economic model is developed, with two main uses of psychological energy toward well-being. These are the generation of impressions (inward experiences that are sense-like) and expression (outward experiences that are action-like). Choosing is understood as investing energy to change the probabilities of an outcome. The model optimizes energy use between intensity of impressions and capacity for expression. For a fixed energy level, as experiential intensity increases resources are substituted out of decision making and implementation, leading to choices of lower utility. If the material losses are substantial during an experience, the share of psychological energy used to modify impressions will increase, and away from influencing seemingly random external outcomes. Over multiple periods, this generates a feedback loop where the person feels increasingly disempowered, and thus less concerned about making better choices. This feedback loop can be stopped by an external entity providing sufficient resources for the person to experience greater expression.","PeriodicalId":284509,"journal":{"name":"DecisionSciRN: Other Decision Theory (Sub-Topic)","volume":"68 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131732847","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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