Social Influences on Individual Decision Making Processes

PhD Thesis# 447
Author:
Ferdinand (F.M.) Vieider
Supervisor(s):
Prof. P.P. Wakker, Prof. H. Bleichrodt
Date:
2009-02-13

Abstract

The present thesis is concerned with how social influences�and in particular accountability in front of an audience whose views are unknown�influence decision making processes. Chapter 2 studies the effect of accountability on ambiguity aversion�the preference for known over normatively equivalent unknown probabilities. The effect of accountability is tested using an experimental design that makes the decision maker's preference over the outcomes her private information. Accountability is thereby found to strengthen ambiguity aversion even in the presence of real incentives. What is more, accountability is necessary for ambiguity aversion to occur in the experimental task employed. Additional incentives for normative decision making, though improving the general decision pattern, are found to be insufficient to counterbalance the strong accountability effect. Susceptibility to social pressure as measured by the fear of negative evaluation personality scale is found to be correlated with ambiguity aversion under accountability, which indicates that susceptibility to social pressure is indeed what makes people shy away from unknown probability processes when processes with more probabilistic information are available. Chapter 3 follows up on the ambiguity aversion issue by studying preference reversals under ambiguity. Preference reversals are said to occur whenever a decision maker changes her preference depending on how that preference is expressed. We find that subjects who prefer the ambiguous prospect if given a choice between extracting a ball from an urn with ambiguous probabilities of winning and an urn with known probabilities of winning generally are willing to pay a higher price for the known probability urn. Besides shedding light on ambiguity aversion per se, this preference reversal is also new in itself. Traditional preference reversals risk have been explained through the different salience that the probability and outcome dimension have in choice versus pricing tasks. The fact that preference reversals are found within the sole dimension of likelihood perception is instructive, and a theoretical model is presented to explain it. The latter relies on prospect theory and loss aversion relative to a state-dependent reference point�an explanation that has also been recently employed for traditional preference reversals. Chapter 4 examines the influence of accountability on risk attitude. Risk attitude is thereby decomposed into its three basic components�utility curvature, probability weighting, and loss aversion. While no effect on utility curvature or probability weighting is detected, accountability is found to reduce loss aversion. This effect is explained with the higher cognitive effort induced by accountability. The emotional reactions at the base of loss aversion are thus counterbalanced by more rational thought processes activated by accountability. The latter conclusion is reinforced by evidence from dual processing models. Chapter 5 is of a methodological nature. By neglecting social influences on individual decisions, economists have not only run into problems of external validity. There is also a problem with internal validity of experiments that vary incentives and try to study their effect on decisions�the very heart of economic experimentation. Indeed, by contrasting hypothetical decisions with decisions played out for real money, most scholars have co-varied accountability with incentives. Thus, accountability is a confound for real incentives, and effects traditionally ascribed to real incentives may be due to accountability. This makes causal attributions of effects problematic. We separate accountability and incentives, and find several effects. Accountability is found to reduce preference reversals between frames, for which incentives have no effect. Incentives on the other hand are found to reduce risk seeking for losses, where accountability has no effect. In a choice task between simple and compound events, accountability increases the preference for the simple event, while incentives have a weaker effect going in the opposite direction. It is thus shown that the confounding of accountability and incentives is relevant for studies on the effect of the latter, and that existing conclusions on the effect of incentives need to be reconsidered in light of this issue.

Publisher of the TI-theses is: Rozenberg Publishing Services