Decision-Making on Behalf of Others
Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM
- Chair: Homa Zarghamee, Barnard College
Equity Concerns are Narrowly Framed
AbstractWe show that individuals narrowly bracket their equity concerns. Across four experiments including 1,600 subjects, individuals equalize components of payoffs rather than overall payoffs. When earnings are comprised of "small tokens" worth 1 cent and "large tokens" worth 2 cents, subjects frequently equalize the distribution of small (or large) tokens rather than equalizing total earnings. When payoffs are comprised of time and money, subjects similarly equalize the distribution of time (or money) rather than total payoffs. In addition, subjects are more likely to equalize time than money. These findings can help explain a variety of behavioral phenomena including the structure of social insurance programs, patterns of public good provision, and why transactions that turn money into time are often deemed repugnant.
Investing for Others: Principals’ vs. Agents’ Preferences
AbstractWe study a typical financial advice setting, in which financial agents make the de facto investment decisions for their principals. The relevant literature poses an unspoken but often insinuated question: What is the main driving factor of an agent’s risky investment decision for the principal? Is it the agent’s own preference or is it the principal’s? In a laboratory experiment with a 2-by-3 between-subject design, we vary the number of principals each agent takes a decision for, and employ three different payment schemes for the agents (fix, portfolio share, profit share). In the first part of our experiment, participants individually and privately map a set of five investment strategies, which range in wording from “very conservative” to “aggressive”, to investment shares into a risky asset. The terms used to describe the strategies are commonly used in financial advisory documents. In the second part, participants take a Gneezy-Potters (1997, QJE) investment decision: Principals choose one of the five investment strategies which is subsequently communicated to their financial agent. Knowing their principals’ preferred ‘verbal’ strategies, financial agents then decide how much of their principals’ endowments to invest in the risky asset. We assess i) whether agents’ choices are affected by their own risk attitude, ii) whether they differentiate between principals with different preferences, and iii) how decision-making is affected by different payment schemes. Initially collecting the individual mappings of investment strategies into risky investment shares allows us to control for mismatches in the perception of the investment strategies between principals and agents.
The Effect of Feedback Content and Timing on Self-Other Gap in Risk-Taking
AbstractPrevious experiments on delegated decision making find seemingly contradictory results: some experiments find that people take greater risks when they decide for others than for themselves, while other experiments find the opposite. I hypothesize that these mixed conclusions are the result of the type and the timing of feedback provided to subjects and conduct an experiment to identify these causes. In a choice between two binary lotteries, subjects either learn the outcome of only the chosen lottery or the outcome for both the chosen and the unchosen lottery. Feedback is provided immediately after each decision or after a sequence of ten decisions. I find that when subjects receive immediate feedback on the outcome of both the chosen and the unchosen options, they make a risky shift. That is, subjects take greater risks for others than for themselves. If I alter either the timing or the content of feedback, the risky shift disappears. If I alter both the timing and the content of feedback so that the feedback is given at the end, only on the outcome of the chosen option, I find a risky shift again. These findings reconcile the contradictory results in the previous studies. I present a theoretical model and analyze how subjects' risk-taking behavior evolves as they make more decisions.
- D9 - Micro-Based Behavioral Economics
- D7 - Analysis of Collective Decision-Making