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 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.
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 be habituated to maintain 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
We characterize how decision makers acquire information about potential losses for different levels of actionability. We compare a rational model model of information acquistion with a disappointment model that takes into account the psychological feelings of disappointment (and elation) of hearing a bad (and good) news. For low probabilities and low levels of actionability, we document a reassurance effect, where DMs are ready to pay for information to psychologically reassure themselves. We also find evidence for our predictions in an online experiment that focusses on COVID-19 testing.
Awards: Best Paper Award in the theme “Marketing, Wellbeing, and Healthcare” at the 2018 American Marketing
Association Winter Academic Conference.
[6] Incentives for Reducing Mobile Usage: A Rational Addiction Perspective
Work in Progress
[9] 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.
