In 1974 an article appeared in Science magazine with the dry-sounding title “Judgment Under Uncertainty: Heuristics and Biases” by a pair of psychologists who were not well known outside their discipline of decision theory. In it Amos Tversky and Daniel Kahneman introduced the world to Prospect Theory, which mapped out how humans actually behave when faced with decisions about gains and losses, in contrast to how economists assumed that people behave. Prospect Theory turned Economics on its head by demonstrating through a series of ingenious experiments that people are much more concerned with losses than they are with gains, and that framing a choice from one perspective or the other will result in decisions that are exactly the opposite of each other, even if the outcomes are monetarily the same. Prospect Theory led cognitive psychology in a new direction that began to uncover other human biases in thinking that are probably not learned but are part of our brain’s wiring.

Thinking fast and slow.

Mothers and Others: The Evolutionary Origins of Mutual Understanding

Full Disclosure: The Perils and Promise of Transparency. By Archon Fung, Mary Graham, and David Weil. New York: Cambridge University Press, 2007. 282p. $28.00.One of the cornerstones of Woodrow Wilson's policy agenda, even before he formally sought the presidency, was transparency. To neutralize corporate misbehavior, for instance, he called for “turn[ing] the light” on corporations: “They don't like light. Turn it on so strong they can't stand it. Exposure is one of the best ways to whip them into line.” Although the authors of this superb work do not acknowledge Wilson's part in the evolutionary line of transparency policy, they do show by means of thorough and enlightening description and analysis the fruit finally borne of ideas like those Wilson espoused. Indeed, the authors tell a story of policy design that demonstrates the continuing value of careful legislative craftsmanship and policy refinement over time, based on feedback from administration and enforcement. It is a tale of effective legislative governance, particularly at the national level, that far too many American citizens, and even political leaders, believe is impossible or at least unlikely anymore.

Full Disclosure: The Perils and Promise of Transparency

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee, Esther Duflo.

/pdf/resena-poor-economics-a-radical-rethinking-of-the-way-to-4hbg7j41ln.pdf

Reseña: Poor economics. A radical rethinking of the way to fight global poverty.

We review methodological questions relevant for the design of information provision experiments. We first provide a literature review of major areas in which information provision experiments are applied. We then outline key measurement challenges and design recommendations that may be of help for practitioners planning to conduct an information experiment. We discuss the measurement of subjective beliefs, including the role of incentives and ways to reduce measurement error. We also discuss the design of the information intervention, as well as the measurement of belief updating. Moreover, we describe ways to mitigate potential experimenter demand effects and numerical anchoring arising from the information treatment. Finally, we discuss typical effect sizes in information experiments.

Designing information provision experiments

There is ample evidence that the average person thinks he or she is more skilful, more beautiful and kinder than others1,2 and that such overconfidence may result in substantial personal and social costs3–8. To explain the prevalence of overconfidence, social scientists usually point to its affective benefits, such as those stemming from a good self-image or reduced anxiety about an uncertain future9–13. An alternative theory, first advanced by evolutionary biologist Robert Trivers14–16, posits that people self-deceive into higher confidence to more effectively persuade or deceive others. Here we conduct two experiments (combined n = 688) to test this strategic self-deception hypothesis. After performing a cognitively challenging task, half of our subjects are informed that they can earn money if, during a short face-to-face interaction, they convince others of their superior performance. We find that the privately elicited beliefs of the group that was informed of the profitable deception opportunity exhibit significantly more overconfidence than the beliefs of the control group. To test whether higher confidence ultimately pays off, we experimentally manipulate the confidence of the subjects by means of a noisy feedback signal. We find that this exogenous shift in confidence makes subjects more persuasive in subsequent face-to-face interactions. Overconfidence emerges from these results as the product of an adaptive cognitive technology with important social benefits, rather than some deficiency or bias. Why are people so often overconfident? Schwardmann and van der Weele show that people self-deceive into higher confidence if they have the opportunity to persuade others for profit and that higher confidence aides persuasion.

/pdf/deception-and-self-deception-1e9b91mhhy.pdf

Deception and self-deception

Laboratory evidence shows that when people have to argue for a given position, they persuade themselves about the position’s factual and moral superiority. Such self-persuasion limits the potential of communication to resolve conflict and reduce polarization. We test for this phenomenon in a field setting, at international debating competitions that randomly assign experienced and motivated debaters to argue one side of a topical motion. We find self-persuasion in factual beliefs and confidence in one’s position. Effect sizes are smaller than in the laboratory, but robust to a one-hour exchange of arguments and a tenfold increase in incentives for accuracy. (JEL C93, D12, D72, D83, D91, I23)

/pdf/self-persuasion-evidence-from-field-experiments-at-2blr83ub.pdf

Self-Persuasion: Evidence from Field Experiments at International Debating Competitions

We study how the random assignment of new students to introductory-week groups shapes subsequent friendship networks. Both women and men report being much more likely to be friends with same-gender students with whom they were (randomly) assigned in a group during their first week on campus, and the effect is much stronger for women. When students from the same cohort play a repeated trust game in the experimental laboratory, their behavior helps explain what we observed in the field. Women display more stability and less flexibility than men in their interactions with individuals with whom they had previously played. This difference is enough to generate homophily in the observational data even though subjects show no intrinsic preference for same-gender interaction.

Gender differences in social interactions

It is widely hypothesized that anxiety and worry about an uncertain future lead to the adoption of comforting beliefs or "wishful thinking". However, there is little direct causal evidence for this effect. In our experiment, participants perform a visual pattern recognition task where some patterns may result in the delivery of an electric shock, a proven way of inducing anxiety. Participants engage in significant wishful thinking, as they are less likely to correctly identify patterns that they know may lead to a shock. Greater ambiguity of the pattern facilitates wishful thinking. Raising incentives for accuracy does not significantly decrease it.

https://www.econstor.eu/bitstream/10419/205332/1/19042.pdf

Anticipatory Anxiety and Wishful Thinking

Unfavorable news are often delivered under the disguise of vagueness. But are people sufficiently naive to be fooled by such positive spin? We use a theoretical model and a laboratory experiment to study the strategic use of vagueness in a voluntary disclosure game. Consider a sender who aims at inflating a receiver’s estimate of her type and who may disclose any interval that contains her actual type. Theory predicts that when facing a possibly naive receiver, the sender discloses an interval that separates her from worse types but is upwardly vague. Senders in the experiment adopt this strategy and some (naive) receivers are systematically misled by it. Imposing precise disclosure leads to less, but more easily interpretable, disclosure. Both theory and experimental data further suggest that imposing precision improves overall information transmission and is especially beneficial to naive receivers. Our results have implications for the rules that govern the disclosure of quality-relevant information by firms, the disclosure of research findings by scientists, and testimonies in a court of law.

Spin Doctors: A Model and an Experimental Investigation of Vague Disclosure

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