Saturday, March 15, 2008

Literature Update: Planning, Pricing, and Pissing Off

Do people plan?

John Bone, John Hey & John Suckling
Experimental Economics, forthcoming

We report the results of an experimental investigation of a key axiom of economic theories of dynamic decision making-namely, that agents plan. Inferences from previous investigations have been confounded with issues concerning the preference functionals of the agents. Here, we present an innovative experimental design which is driven purely by dominance: if preferences satisfy dominance, we can infer whether subjects are planning or not. We implement three sets of experiments: the first two (the Individual Treatments) in which the same player takes decisions both in the present and the future; and the third (the Pairs Treatment) in which different players take decisions at different times. The two Individual treatments differed in that, in one, the subjects played sequentially, while, in the other, the subjects had to pre-commit to their future move. In all contexts, according to economic theory, the players in the present should anticipate the decision of the player in the future. We find that over half the participants in all three experimental treatments do not appear to be planning ahead; moreover, their ability to plan ahead does not improve with experience, except possibly when we force subjects to pre-commit to their future decision. These findings identify an important lacuna in economic theories, both for individual behaviour and for behaviour in games.


Zero as a special price: The true value of free products

Kristina Shampan'er, Nina Mazar, & Dan Ariely
Marketing Science, forthcoming

When faced with a choice of selecting one of several available products (or possibly buying nothing), according to standard theoretical perspectives, people will choose the option with the highest cost-benefit difference. However, we propose that decisions about free (zero price) products differ, in that people do not simply subtract costs from benefits and perceive the benefits associated with free products as higher. We test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods, but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price. In contrast with a standard cost-benefit perspective, in the zero price
condition, dramatically more participants choose the cheaper option, whereas
dramatically fewer participants choose the more expensive option. Thus, people appear to act as if zero pricing of a good not only decreases its cost but also adds to its benefits. After documenting this basic effect, we propose and test several psychological antecedents of the effect, including social norms, mapping difficulty, and affect. Affect emerges as the most likely account for the effect.


Thinking Straight While Seeing Red: The Influence of Anger on Information

Wesley Moons & Diane Mackie
Personality and Social Psychology Bulletin, May 2007, Pages 706-720

Because angry people apparently rely on heuristic cues when making
judgments, anger has been claimed to trigger superficial, nonanalytic
information processing. In three studies, the authors found that induced
anger promoted analytic processing. Experiment 1 showed that angry
participants were more likely to discriminate between weak and strong
arguments than participants in neutral moods. Experiment 2 demonstrated that
anger overrode dispositional preferences not to process, causing even those
low in need for cognition to process analytically. Experiment 3 reconciled
these findings with previous work by showing that angry people used
accessible, valid, and relevant heuristics but otherwise processed
analytically, as indicated by attitude change and elaboration data.
Together, these experiments showed that angry people can have both the
capacity and motivation to process and that their selective use of
heuristics reflects the cue's perceived validity and not the failure to
process analytically.


Can an Angry Woman Get Ahead? Status Conferral, Gender, and Expression of
Emotion in the Workplace

Victoria Brescoll & Eric Luis Uhlmann
Psychological Science, March 2008, Pages 268-275

Three studies examined the relationships among anger, gender, and status conferral. As in prior research, men who expressed anger in a professional context were conferred higher status than men who expressed sadness. However, both male and female evaluators conferred lower status on angry female professionals than on angry male professionals. This was the case regardless of the actual occupational rank of the target, such that both a female trainee and a female CEO were given lower status if they expressed anger than if they did not. Whereas women's emotional reactions were
attributed to internal characteristics (e.g., "she is an angry person," "she is out of control"), men's emotional reactions were attributed to external circumstances. Providing an external attribution for the target person's anger eliminated the gender bias. Theoretical implications and practical applications are discussed.


Three comments: a shame that John Hey is a co-author on the first paper. I would love to cite the "Bone-Suckling paper." It would clearly be semenal. (Okay, I'm already sorry I said that. You won't tell anyone, right? That was just juvenile.)

Second: On the "free" paper: The point is that people underestimate the true costs of "free" stuff. And that's interesting. But I think it is safe to say that Elliott Spitzer would have been MUCH better off with what he was getting for free, from his wife, instead of what he was paying for, from Kristen.
In that case, at least, free really, really is better.

Third, Dan Ariely is a colleague of mine here at Duke. And he is doing some of the coolest stuff around.

(Nod to KL)