Essays
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Against Game Theory - Lucas, Gale M.
People make choices. Often, the outcome depends on choices other people make. What mental steps do people go through when making such choices? Game theory, the most influential model of choice in economics and the social sciences, offers an answer, one based on games of strategy such as chess and checkers: the chooser considers the choices that others will make and makes a choice that will lead to a better outcome for the chooser, given all those choices by other people. It is universally established in the social sciences that classical game theory (even when heavily modified) is bad at predicting behavior. But instead of abandoning classical game theory, those in the social sciences have mounted a rescue operation under the name of “behavioral game theory.” Its main tool is to propose systematic deviations from the predictions of game theory, deviations that arise from character type, for example. Other deviations purportedly come from cognitive overload or limitations. The fundamental idea of behavioral game theory is that, if we know the deviations, then we can correct our predictions accordingly, and so get it right. There are two problems with this rescue operation, each of them is fatal. (i) For a chooser, contemplating the range of possible deviations, as there are many dozens, actually makes it exponentially harder to figure out a path to an outcome. This makes the theoretical models useless for modeling human thought or human behavior in general. (ii) Modeling deviations are helpful only if the deviations are consistent, so that scientists (and indeed decision makers) can make predictions about future choices on the basis of past choices. But the deviations are not consistent. In general, deviations from classical models are not consistent for any individual from one task to the next or between individuals for the same task. In addition, people's beliefs are in general not consistent with their choices. Accordingly, all hope is hollow that we can construct a general behavioral game theory. What can replace it? We survey some of the emerging candidates. -
Behavioral Economics - Hochman, Guy
Standard economic models portray decision makers as perfectly rational agents who act selfishly to maximize their total earnings. In contrast, ample evidence in behavioral research suggests that people systematically deviate from the extreme rational assumption of such economic models. Behavioral economics is aimed at identifying the forces which shape the economic decisions that people make, in order to provide important insights of the human nature. This type of research often deals with questions such as how the presentation of information effect decision making, how different types and valances effect behavior, and what are the social, emotional, and situational factors that underlie economic decision making. This article describes foundational research in behavioral decision making and economics that lead to the emergence of behavioral economics; outline cutting‐edge research on applied behavioral economics, debiasing techniques, and neuroeconomics; and discusses key issues for future research, such as the use of field experiments and tailor‐made methodologies, and focusing on a more comprehensive approach. Our hope is that as behavioral economics advances it will examine not only the nature of the decisions people make but also their underlying cognitive processes. -
Choice Architecture - Camilleri, Adrian R.
“Choice architecture” is a metaphor capturing the idea that all choices occur within a structure of contextual and task features. These features in turn help to “construct” a person's choice. In this chapter, we summarize the academic literature on three types of choice architecture tools—defaults, information restructuring, and information feedback—and document some real‐world examples where these tools have been applied as successful “nudges.” We end the chapter with a discussion of some key challenges and opportunities associated with this new field—including the need for customized choice architecture and the political acceptability of the use of choice architecture—and highlight some avenues for future research. -
Coevolution of Decision‐Making and Social Environments - Bruch, Elizabeth
Social scientists have a longstanding theoretical interest in the relationship between individual behavior and social dynamics. A growing body of work demonstrates that, when human behavior is interdependent—that is, what one person does depends on the past, present, or anticipated future actions of others—there is not a simple or linear relationship between the choices of individuals and their collective consequences. Outside of the academy, policy makers are increasingly aware that well‐intentioned interventions can backfire if they fail to account for how people change their behavior in response to the intervention. This type of problem requires a systematic modeling approach. Our entry provides a brief introduction to a growing body of research that brings together two disparate literatures—studies of decision‐making and studies of the interplay between individuals' decisions and features of the social environment—through dynamic computational modeling. Cognitive scientists characterize human decision‐making under uncertainty using heuristics, rules‐of‐thumb that produce satisfactory choices quickly and with limited information. The heuristics we use and information samples we gather have profound consequences for the choices we make. At the same time, the social context defined by the choices of others feeds back to affect individual decision‐making. In recent years, there has been growing interest in methods such as agent‐based modeling and systems dynamics that can capture the dynamic interplay between individuals' choices and features of the environment. However, historically these approaches have not been grounded in cognitively plausible models of human behavior. We identify areas of high potential for future research, and lay out a preliminary framework to help guide understanding of the decision‐making process and its consequences in different social domains. -
Emotion and Decision Making - Huntsinger, Jeff R.
The topic of emotion and decision making is an old one. Classic Western philosophical perspectives generally considered emotion a contaminating influence on cognition, one that needed to be suppressed, ignored, or ideally brought in line with reason. Recent psychological research shows that, contrary to such pessimistic perspectives, emotion plays a largely functional and adaptive role in regulating cognition and decision making. We first outline how affect regulates cognition using the affect‐as‐information account as a guiding framework. We next discuss foundational research on the role of emotion in regulating cognition and decision making consistent with this account. Finally, we end with a discussion of new research developments and open research questions. -
Ethical Decision‐Making: Contemporary Research on the Role of the Self - Shu, Lisa L.
How do people decide when facing dilemmas that pit self‐interested gains against ethical values? We highlight two key principles from contemporary behavioral research: (i) people are more willing to act unethically when they can convince themselves that their behavior does not reflect poorly on their moral character and (ii) people tend to be content with an “ethical enough” self‐image. We examine how these principles shed light on the antecedents and consequences of ethical behavior, emphasizing situational determinants and psychological processes. We close by considering important questions that remain unanswered, and discuss how furthering our understanding the role of the self in ethical decision‐making can be used to nudge people toward more ethical behavior. -
Heuristic Decision Making - Carmines, Edward G.
The idea of decision‐making shortcuts, or heuristics, originated in psychological work explaining why individuals diverged from rational behavior. Political scientists have viewed shortcuts more positively. Applied to research on voter decision‐making processes, scholars have discovered the ubiquitous use of shortcuts by voters. These shortcuts are simplified decision‐making strategies that help voters compensate for a lack of detailed political knowledge about candidates and issues. Despite their widespread use, scholars continue to debate over whether these shortcuts are truly useful tools in helping citizens make good choices in the voting booth. Recent work has suggested that one fruitful way to resolve this debate is to consider the influence of political institutions and the ways in which they structure the decision environment. In this essay, we explore the psychological origins of heuristic research, its application to political science, and the ensuing debates over the efficacy of these shortcuts. We end with a discussion of recent research on institutions and the decision‐making environment, and how these factors might alter what scholars know about heuristic decision making. -
Managing Uncertainty in Work Organizations - Grote, Gudela
Managing uncertainty is a crucial task for organizations. This essay argues that uncertainty management should not only be understood in terms of reducing externally generated uncertainty, as previous research has predominantly done, but should also consider internal uncertainty creation. Evidence from extant research illustrates how this expanded perspective is better able to capture the paradoxical tensions inherent in uncertainty management. A multilevel approach is proposed as processes of reducing and creating uncertainty simultaneously happen and create complementarities across levels of analysis. Major theoretical frameworks, such as self‐regulation, decision‐making under uncertainty, contingency theory, and organizational control, will benefit from adopting such an expanded perspective because their explanatory power is currently limited due to the one‐sided view of uncertainty as an external threat to individual, team, and organizational goal‐striving. -
Models of Revealed Preference - Adams, Abi
Revealed preference theory is concerned with what we can learn about the process by which economic agents make decisions using simply the features of the world that we observe: choices. Different economic models place different restrictions on these choices. The revealed preference literature derives these restrictions and then puts them to use. Research effort has recently been extended far beyond the axiomatic characterization of neoclassical models of choice to consider data‐consistency and preference‐recoverability for a wide class of models. This essay places these recent developments in context, giving a brief introduction to the revealed preference approach before elaborating on recent research that has dramatically extended the domain and ambition of the discipline. We address the widening of the scope of revealed preference theory to new classes of models, which have introduced novel techniques, and challenges, to the discipline, before charting emerging trends within the areas of identification and power, which have arisen as revealed preference has emerged as an empirical method.