Decision-making Procedures, Rational Choice and Welfare

2020-01-19

2020-01-20

The key outcome variables in this experiment are consistency scores measured by the choice data, as indicators of rationality. They include Generalized Axiom of Revealed Preference (GARP) violations (Varian 1982), Afriat’s (1967, 1972) critical cost efficiency index (CCEI) and swaps index (Apesteguia and Ballester, 2015). We will compare all consistency scores of individuals under different treatments.

We follow the literature to construct our outcome variables with choice data. The GARP violations index counts how many combinations of choices violate GARP. The CCEI measures the proportion of income that a person wasted by making the choice that violated revealed preference. The swaps index finds the minimized weighted sum of numbers of alternatives in a menu that must be swapped with the chosen one in order to make the choice of a consistent with the maximization of a preference.

Our secondary outcomes are individuals' satisfactions with their choice and decision-making processes, and how many times that they change their choices.

We measure individuals' satisfactions by survey questions after their completions of choice tasks. Participants simply provide their subjective evaluations. We measure individuals' willingness to change their choice by using an incentivized design. There are two blocks, A and B, each consists of the same 20 decision problems. Participants do not know that Block A and B consist of the same decision problem before entering Block B. Depending on the treatments, in Block B, they are presented with their Block A chocies (or sequence of eliminated alternatives) and can make different choices (or eliminate alternatives differently). In the end, they are asked to only one of Block A and Block B for payment. We count the numbers of choices that differ in Block A and Block B as a measure of awareness of "mistake" in making choices.

We design an online experiment via Qualtrics, which will take approximately 40 minutes. The experiment consists of three sections. In Section 1, each participant has to make choices in economic decision problems, either with a randomly assigned decision-making process or with her preferred decision-making process. In Section 2, we have four tests to measure cognitive function, including the International Cognitive Ability Resource (ICAR), the cognitive reflection test (CRT), the Stroop Color and Word Test (SCWT) and the Sternberg task. In Section 3, we collect information about participants’ preference on rational choice and choice process. Lastly, we ask participants for their demographic information, including gender, nationality, age, English level, education level and field of study.

In Section 1, there are two blocks, A and B, each consists of 20 decision problems representing a set of portfolio options associated with two equally probable unknown states. This is the most common design in studying decisions under risk (e.g. Choi et al., 2014; Carvalho et al., 2016; Kim et al., 2018). There are three treatment groups: direct decision-making, sequential elimination and process selection. Participant firstly complete Block A without knowing that Block B consists of the same decision problems as BlockA. In Block B, participants in the direct decision-making group are presented with their Block A choices and can make different choices. Participants in the sequential elimination group are presented with their Part A sequence of eliminated alternatives) and can eliminate alternatives differently. In the end, every participant is asked to only one of Block A and B for payment. Then the computer randomly chooses one round from the 20 rounds from the chosen block with equal probability. The participant will get rewarded depending on the outcome of this chosen round.

In Section 2, The ICAR consists of 12 questions about verbal reasoning, letter and number series, matrix reasoning, and three-dimensional rotation (Condon and Revelle, 2014). The CRT measures one’s ability to suppress an intuitive and spontaneous incorrect answer and instead to give the deliberative and reflective correct answer (Frederick 2005). The SCWT and the Sternberg task are standard tests in psychology to measure selective attentions and working memory capacity, respectively.

In Section 3, participants will have to imagine themselves in two sets of hypothetical scenarios and answer a few questions related to the scenarios. First, we present them with two inconsistent choices known as "attraction effects" and ask how comfortable they are. Second, we ask them to make a choice between two hypothetical options: 1) You went on a great vacation, but you remember nothing about the experience. There are no photos or videos left from your vacation and 2) You did not go on vacation. Therefore, you have no memories of it, but there are photos and videos of you having a great vacation.

The randomization will be done by the online survey tool Qualtrics.

Individual.

No

260 individuals.

260 individuals.

80 individuals treatment 1 (direct decision-making), 80 individuals treatment 2 (sequential elimination), 100 individuals treatment 3 (process selection)