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 or in accordance with the Cognitive Hierarchy model. 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. (shrink)

The growing literature on how people learn to make decisions based on experience focuses on two types of paradigms. In one paradigm, people are faced with a choice, and must retrospectively consult past experience of similar choices to decide what to do. In the other paradigm, people are faced with a choice, and then have the opportunity prospectively to gather new experiences that might help them make that choice. The current paper examines the joint impact of both retrospective and prospective (...) experiences. Two experiments reveal strong interactions. In Study 1, repeated experience with new samples appears to reduce sensitivity to the average outcome in the samples and enhances underweighting of rare events. Study 2 shows that repeated experience with pre-choice samples can reverse the impact of the new information. The results suggest that prospectively gathering new samples can have two, potentially contrasting, influences on choice: the first focuses on the sample’s face value and selects the option with the higher value in the new sample; by contrast, the second treats the new sample as a cue to recall similar prior experiences, which in turn drive choice. The paper concludes with a discussion of the possibility that part of the descriptive value of prospect theory reflects the fact that it summarizes the joint impact of similar “face-or-cue” processes. (shrink)

Over the past decades psychological theories have made significant headway into economics, culminating in the 2002 (partially) and 2017 Nobel prizes awarded for work in the field of Behavioral Economics. Many of the insights imported from psychology into economics share a common trait: the presumption that decision makers use shortcuts that lead to deviations from rational behaviour (the Heuristics-and-Biases program). Many economists seem unaware that this viewpoint has long been contested in cognitive psychology. Proponents of an alternative program (the Ecological-Rationality (...) program) argue that heuristics need not be irrational, particularly when judged relative to characteristics of the environment. We sketch out the historical context of the antagonism between these two research programs and then review more recent work in the Ecological-Rationality tradition. While the heuristics-and-biases program is now well-established in (mainstream neo-classical) economics via Behavioral Economics, we show there is considerable scope for the Ecological-Rationality program to interact with economics. In fact, we argue that there are many existing, yet overlooked, bridges between the two, based on independently derived research in economics that can be construed as being aligned with the tradition of the Ecological-Rationality program. We close the paper with a discussion of the open challenges and difficulties of integrating the Ecological Rationality program with economics. (shrink)

One of the paradigms in judgment and decision-making involves decision-makers sample information before making a final consequential choice. In the sampling paradigm, certain computational models have been proposed where a set of single or distribution parameters is calibrated to the choice proportions of a group of participants. However, currently little is known on how aggregate and hierarchical models would account for choices made by individual participants in the sampling paradigm. In this paper, we test the ability of aggregate and hierarchical (...) models to explain choices made by individual participants. Several models, Ensemble, Cumulative Prospect Theory, Best Estimation and Simulation Techniques, Natural-Mean Heuristic, and Instance-Based Learning, had their parameters calibrated to individual choices in a large dataset involving the sampling paradigm. Later, these models were generalized to two large datasets in the sampling paradigm. Results revealed that the aggregate models accounted for individual choices better than hierarchical models upon generalization to problems that were like those encountered during calibration. Furthermore, the CPT model, which relies on differential valuing of gains and losses, respectively, performed better than other models during calibration and generalization on datasets with similar set of problems. The IBL model, relying on recency and frequency of sampled information, and the NMH model, relying on frequency of sampled information, performed better than other models during generalization to a challenging dataset. Sequential analyses of results from different models showed how these models accounted for transitions from the last sample to final choice in human data. We highlight the implications of using aggregate and hierarchical models in explaining individual choices from experience. (shrink)