Jeeva Somasundaram

Assistant Professor of Decision Sciences (Operations & Technology area)

IE Business School, Madrid, Spain

Published Papers

[1] Regret Theory: A New Foundation

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.

Working papers

[3] The role of monetary incentives in developing energy efficient habits

(with Teck-Hua Ho, Noah Lim, and Ingrid Koch, Revision invited at Nature Energy )

A randomized control trial (RCT) targetting 250 residents (with individual air-conditioner units) in the residential colleges of NUS. The objective is to test economic models of habit formation and to evaluate the effectiveness of monetary incentives in inducing a sustainable increase in the household air-conditioner temperature. We installed temperature sensors and tracked the room temperature of 250 subjects for a period of 3 months.We randomized subjects into different monetary incentive conditions that aimed to increase the subject’s air­‐conditioner temperature by 2 degrees. We then removed the incentives and tracked if the subjects increased and sustained their new air­‐conditioner temperature. Consistent with theories of habit formation, our preliminary results suggest that subjects were more likely to maintain their higher temperature (post-treatment) if they gradually increased their temperature over a longer duration. In fact, a 2-­degree rise in air­‐conditioner temperature can reduce the energy usage of an average household by 16% in countries like Singapore, where air­‐conditioner contributes to almost 50% household energy usage.

[4] Demand for Genetic and Medical Testing: The Role of Anticipatory Emotions and Probability Distortion

Empirical evidence, and the emergence of direct-to-consumer markets for genetic and medical tests, indicate that there is a disconnect between the testing preferences of patients and doctors. To gain insight into this dichotomy, we contrast the testing preferences implied by a normative expected utility model with those implied by a behavioral model that accounts for anticipated emotions (e.g., rejoicing and misery) and probability distortions. Among other findings, we isolate a “reassurance effect” whereby patients will want to test more for severe, hard-to-treat diseases that have a lower probability of occurrence. We also show that probability distortions (as conventionally captured by an inverse S-shaped transformation function) tend to decrease the discrepancy between the testing preferences of patients and doctors. Our analysis also suggests product and promotional tactics for firms operating in the direct-to-consumer testing market. For example, these firms might benefit from introducing less reliable tests (with higher probability of false negative) for severe and less treatable diseases. By highlighting the potential for such manipulative tactics, this research can support further ethical and regulatory discussions.

Awards: Best Paper Award in the theme “Marketing, Wellbeing, and Healthcare” at the 2018 American Marketing Association Winter Academic Conference.

[5] Risk and time preferences interaction: An experimental measurement

We characterize and empirically measure the interaction between risk and time preferences in an experiment. Our results indicate that risk and time preferences are interwined and cannot be separated. We find that decision makers are insensitive to time for small probabilities, but become progressively more sensitive to time as probability increases.We show that existing decision models for risky decision making over time, cannot explain our results. Our findings argue for more deeper understanding of psychological mechanism that underlie risk-time preferences interaction.

[6] Role of self and social signalling in water conservation.

(with Teck-Hua Ho and Beverly Wang , Preliminary draft available)

A randomized control trial (RCT) targetting 6400 primary school students in Singapore (Grade III to V). The objective is to test if self and social signalling can induce school children to reduce their shower time.

Work in Progress

[7] Over-Diagnosis Equilibria: The Willful Marketing Of False Positives

(with Luc Wathieu, Preliminary model and results available)

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.

[2] Prize-Linked Savings (Hobby project)

Prize-Linked Savings (PLS) is a financial product that uses the appeal of lottery to nudge poor to save more. In a PLS, the investor receives zero (or small) interest, but instead gets a ticket to a lottery. The attached presentation discusses some preliminary results of an online experiment.