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] Raising the Temperature in the Tropics: Gradual Targets Promote Energy Conservation Habits

(with Teck-Hua Ho, Noah Lim, and Ingrid Koch, Under review)

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.

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

(with Vincent Eli, Revise and resubmit, Journal of Risk and Uncertainty )

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.

[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

(with Laura Zimmermann and Pham Quang Duc, Under review )

Excessive mobile phone usage has now become a growing concern for many individuals and policy makers across the world, as societies begin to question whether reducing mobile screen time could lead to a healthier and more productive lifestyle. We conduct a pre-registered randomized control trial (RCT) in which people are financially rewarded for using their mobile phones less than usual. Along with a no-incentive control condition, two treatments were conducted over two time periods. In treatment 1, subjects were incentivized to reduce their mobile screen time by 25% in both period 1 and 2. In treatment 2, subjects were incentivized to reduce their mobile screen time by 25% only in period 2, but were informed about their incentives and targets at the beginning of period 1 itself. We find that subjects in treatment 1 reduced their mobile usage in both periods and sustained it in the post-treatment period. Conversely, subjects in treatment 2 started reducing their usage in period 1 even prior to their incentive period but weren’t able to sustain their lower usage in the post-treatment period. We also find that subjects who reduced their usage had higher academic performance and were less concerned about the COVID-19 pandemic.

[7] Algorithms and adaptive risk attitudes: Evidence from resource allocation problems

(with Matthias Seifert and Prana Narayan, Draft available )

We examine the influence of algorithms in resource allocation contexts such as project portfolio management and multi-item newsvendor problem. Across two studies, we find that participants who receive highly and slightly risk-averse algorithmic suggestions (HRA and SRA conditions respectively) act more risk-averse compared to participants who receive risk-neutral algorithmic suggestions (RN condition). Strikingly, even after the algorithmic aid is removed, participants in the HRA condition continue to display higher levels of risk-aversion thereby demonstrating persistence of treatment effects. We demonstrate that the persistence is due to adjacent complementarity, where by subjects who turned more risk averse during treatment period continued to be more risk averse during post-treatment. Our findings suggest mutability of human risk-preferences with sufficient exposure to algorithmic advice.

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

(with Teck-Hua Ho and Beverly Wang , 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

[9] 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.