Experiential and Neurobiological Influences on Economic Preferences and Risky Decision Making
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Economic preferences are fundamental to risky decision making and other economic decision- making. Unlike traditional economics, which routinely assumes that individuals are endowed with stable preferences and try to maximize the expected utility when facing risky decision-making problems, behavioral economics and neuroeconomics offer research strategies that help us explore the factors that influence economic preferences and risky decision-making process. This dissertation consists of three essays studying the underlying experiential influences on economic preferences and neurobiological effects on risky decision making. Chapter 2 examines whether experiences during adolescence have a long-term effect on economic preferences. Between 1966 and 1976, China's Sent-Down Movement required seventeen million urban teenagers to spend several years living and working in rural areas. The program had a number of goals for participants, including learning empathy for rural laborers and developing collectivist values. The sent-down movement can be regarded as a natural experiment, which allows us to investigate whether this government policy was successful in effecting a lasting change to economic preferences. Using a modified Global Preference Survey and employing a regression discontinuity design, we find that the experience of being Sent-Down significantly changed participants' risk preferences, other-regarding preferences, and attitudes toward government. Chapter 3 explores how the arousal system modulates attention and investment behavior. Experimental research shows that human decision making is shaped by emotions associated with an outcome's success or failure. Regret, for example, is a powerful predictor of future investment decisions in asset markets. Using a fictive learning model to capture regret, we examine changes in pupil diameter of participants performing a sequential investing task. By manipulating task uncertainty, we show that pupil dilation is positively correlated with both asset price variance and regret. In addition, pupil linked arousal is positively associated with the learning rate. We conclude that the pupil–linked arousal system helps regulate investment behavior in a dynamic market environment. Chapter 4 explores the complex process by which people make risky choices. While traditional models, like expected utility theory, model choice as the selection of the outcome with the highest probability-weighted value, research shows that in some environments these models do a poor job of describing behavior. This study explores the role of attention, pupil-linked arousal, and salience in risky choice. First, we replicate earlier findings that those choices are consistent with expected utility theory when the calculation is easy, however, as the calculation becomes harder, they make decisions by comparing unweighted payoffs and are attend to the salient option. Further, we find that pupil-linked arousal is associated with the level of cognitive effort needed to calculate expected utility. Finally, we show that arousal reflects cognitive effort associated with resisted selecting a more salient option.
General Audience Abstract
Economic decisions are those involving trade-offs where an individual must give up one item or possibility to get another. Economic preferences define which outcome an individual will value more, and helps explain why, for example, some people invest their money in high-risk and high- yield bonds while others keep their money in their savings account. Economists and other social scientists are interested in the differences between individuals' economic preferences, how they are formed, and how they translate into peoples' decisions. Risky decision making is one common type of economic decision that people make daily, for example, investing in the stock market, gambling in casinos, buying lottery tickets or trying a new restaurant. We know that when two people make different decisions that sometimes it is because they have different preferences, and sometimes it is because they go about making decisions in different ways. This dissertation explores whether people's early experiences have a long-term impact on economic preferences (Chapter 2), and investigate the roles that attention, emotional arousal, and information salience play in risky decision making (Chapters 3 4) using research methods from behavioral economics, experimental economics, and neuroeconomics. The scientific mission of this dissertation is to deepen our understanding of how and why people make choices. We add to the evidence that economic preferences are not inborn and stable; instead, they are shaped by people's experiences. We also explore risky choices like investing money and find that while people often try to minimize regret, our emotional arousal system significantly affects our attention patterns and behavior. In addition, when faced with decisions requiring calculations that are hard to do in your head, people make different decisions than when the calculations are easy. Overall, we paint a picture of human decision-makers whose past experiences and current options determine both the nature of their choices and how they make them.
- Doctoral Dissertations