We present a new behavioral foundation for regret theory. The central axiom of this foundation — trade-off consistency — renders regret theory observable at the individual level and makes our foundation consistent with the existing measurement method. For the first time, our behavioral foundation allows deriving a continuous regret theory representation and separating utility from regret.
Finally, the axioms in the behavioral foundation clarify that regret theory minimally deviates from expected utility by relaxing transitivity only.
Awards: Finalist, 2014, INFORMS Decision Analysis Society Student Paper Award
[2] Regret Theory and Risk Attitudes
We examine risk attitudes under regret theory and derive analytical expressions for two components - the resolution and regret premiums - of the risk premium under regret theory. We posit that regret-averse decision makers are risk seeking (resp., risk averse) for low (resp., high) probabilities of gains and that feedback concerning the forgone option reinforces risk attitudes. We test these hypotheses experimentally and estimate empirically both the resolution premium and the regret premium. Our results confirm the predominance of regret aversion but not the risk attitudes predicted by regret theory; they also clarify how feedback affects attitudes toward both risk and regret.
[3] Risk and time preferences interaction: An experimental measurement
We experimentally characterize and measure the interaction between risk and time preferences. Our results indicate that risk and time preferences are intertwined.
We find that decision makers are insensitive to time delay for small probabilities of gains, but become progressively more sensitive to time delay as the probability of
gain increases. We compare the fit of existing decision models that capture risk and time preferences. Our results indicate that the models which allow for probabilitytime interaction and capture magnitude effect fit the data better. We also show that
accounting for risk-time preferences interaction leads to lower estimated discount rates.
Working papers
[4] Raising the Temperature in the Tropics: Gradual Targets Promote Energy Conservation Habits
In tropical countries, ACs account for a significant fraction of energy consumption. Increasing the AC temperature can lead to substantial reduction in energy use. We conduct a randomized control trial (RCT) in which people are financially rewarded for setting a higher AC temperature than usual and investigate whether people can adapt to the higher temperature.
Along with a no-incentive control condition, two treatments were conducted over two time periods. In treatment 1, subjects were incentivized to raise the temperature gradually, by 1°C in period 1, and an additional 1°C in period 2. In treatment 2, subjects were only incentivized to abruptly increase the temperature by 2°C in period 2.
The treatment with gradual temperature targets worked better in maintaining the higher AC temperature during the intervention and post-intervention periods. Energy usage data confirmed that these higher AC temperatures translated into lower energy consumption.
[5] The Reassurance effect in information acquisition
To be effective, marketers of information need insights into the motivational bases of information acquisition. Conventionally, information acquisition is motivated by its instrumental value—the value derived from adapting action to new knowledge. In this paper, we analyse a model of individual preferences that anticipate elation and disappointment—the emotional responses to good and bad news. We assume loss aversion (bad news looms larger than good news) and diminishing sensitivity. While emotions are generally presumed to cause information avoidance, our key finding is that a consumer faced with a large potential loss of low probability may seek non-instrumental information for the purpose of reassurance. When information is weakly instrumental, the pursuit of reassurance can cause a consumer who is less likely to face a loss to value information more than a consumer who is more likely to face the same loss. This paradox disappears at higher levels of information instrumentality. We provide empirical support for this effect, first in the context of an incentivized controlled experiment involving a compound lottery choice (N = 403), and then in the context of a survey (N = 1349) about the desire to undertake COVID-19 testing, carried out at the early stages of the pandemic.
Awards: Best Paper Award in the theme “Marketing, Wellbeing, and Healthcare” at the 2018 American Marketing
Association Winter Academic Conference.
[6] Rational addiction in Mobile consumption
Work in Progress
[11] Replacing screen time with step count: Evidence from a field experiment
[12] Over-Diagnosis Equilibria: The Willful Marketing Of False Positives
In many markets, the decision to buy a product is preceded by taking a diagnostic test (or, more generally, gathering information to assess relevance). Testing is itself a proliferating industry in many domains, and critics have argued that, particularly in the medical context (but the problem is broadly relevant for many classes of consumer searches), consumers tend to engage in unnecessary amounts of testing. The purpose of this paper is to analyze over-testing as a market equilibrium. We start with a rational analysis of a doctor’s decision to test for the presence of a medical condition. Then, we take the perspective of a monopolistic firm that develops and sells diagnostic tests, and we identify this firm's decisions in terms of optimal test coarseness and pricing. We find that it is optimal for firms to offer a sequence of tests of increasing diagnosticity and price, such that a significant pool of consumers will be over-diagnosed initially, as compared to the socially optimal outcome. We show how free entry competition on the testing market will not necessarily resolve the over-diagnosis problem.
Other Research Papers & Projects
[1] Behavioral Game theory
Standard game theory has been criticized for requiring unreasonable assumptions about human cognitive abilities, and for failing to predict actual choices in experiments and in the field. Recent developments in behavioural game theory address these shortcomings by allowing people to be boundedly rational. We discuss two such developments: (1) the cognitive hierarchy (CH) model, which has successfully predicted non-equilibrium behaviour in one-shot games; and (2) the experience weighted attraction (EWA) model, which accurately tracks how choices converge to equilibrium over time. We use the famous p-beauty contest to demonstrate how both models work. Both have successfully been applied to many games and in the field.
