Foregone with the Wind: Indirect Payoff Information and its Implications for Choice

Examination of the effect of information concerning foregone payoffs on choice behavior reveals a complex pattern. Depending on the environment, this information can facilitate or impair maximization. Our study of nine experimental tasks suggests that the complex pattern can be summarized with the assumption that initially people tend to be highly sensitive, and sometimes too sensitive, to recent foregone payoffs. However, over time, people can learn to adjust their sensitivity depending on the environment they are facing. The implications of this observation to models of human adaptation and to problems of mechanism design are discussed.

[1]  Dilip Mookherjee,et al.  Learning behavior in an experimental matching pennies game , 1994 .

[2]  Farshid Vahid,et al.  Predicting How People Play Games: A Simple Dynamic Model of Choice , 2001, Games Econ. Behav..

[3]  A. Roth,et al.  Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria , 1998 .

[4]  J. Potters,et al.  An experiment on risk taking and evaluation periods , 1997 .

[5]  Teck-Hua Ho,et al.  Experience-Weighted Attraction Learning in Games: A Unifying Approach , 1997 .

[6]  J. Robinson.  AN ITERATIVE METHOD OF SOLVING A GAME , 1951, Classics in Game Theory.

[7]  Colin Camerer,et al.  Experience‐weighted Attraction Learning in Normal Form Games , 1999 .

[8]  I. Erev,et al.  Small feedback‐based decisions and their limited correspondence to description‐based decisions , 2003 .

[9]  O. H. Brownlee,et al.  ACTIVITY ANALYSIS OF PRODUCTION AND ALLOCATION , 1952 .

[10]  A. Roth,et al.  Learning in Extensive-Form Games: Experimental Data and Simple Dynamic Models in the Intermediate Term* , 1995 .

[11]  A. Diederich,et al.  Conflict and the Stochastic-Dominance Principle of Decision Making , 1999 .

[12]  D. Fudenberg,et al.  The Theory of Learning in Games , 1998 .

[13]  Murray Milgate,et al.  Allocation, Information, and Markets , 1989 .

[14]  Daniel Friedman,et al.  Individual Learning in Normal Form Games: Some Laboratory Results☆☆☆ , 1997 .

[15]  Lu Zheng,et al.  Out of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows , 2003 .

[16]  R. Selten.  Axiomatic Characterization of the Quadratic Scoring Rule , 1998 .

[17]  T. Koopmans,et al.  Activity Analysis of Production and Allocation. , 1952 .

[18]  P. W. Jones,et al.  Bandit Problems, Sequential Allocation of Experiments , 1987 .

[19]  A. Rapoport,et al.  Coordination, “Magic,” and Reinforcement Learning in a Market Entry Game , 1998 .

[20]  Charles A. Holt,et al.  Learning and Noisy Equilibrium Behavior in an Experimental Study of Imperfect Price Competition , 2002 .

[21]  R. Thaler,et al.  Myopic Loss Aversion and the Equity Premium Puzzle , 1993 .

[22]  I. Erev,et al.  Games and Human Behavior , 1999 .

[23]  A. Schotter,et al.  An Experimental Study of Belief Learning Using Elicited Beliefs , 2002 .

[24]  Amnon Rapoport,et al.  Experimental business research , 2005 .

[25]  R. Sarin,et al.  Payoff Assessments without Probabilities: A Simple Dynamic Model of Choice , 1999 .