Research

IRBs can disallow high incentives they deem coercive. A vignette study on MTurk concerning participation in medical trials shows that a substantial minority of subjects concurs. They think high incentives cause more regret, and that more people would be better off without the opportunity to participate. We model observers as judging the ethicality of incentives by partially using their own utility. The model predicts that payments are repugnant only to the extent that they affect the participation decision, and more so for larger transactions. Incentivizing poorer participants is more repugnant, and in-kind incentives are less repugnant than monetary incentives. 

Our recent working paper (Ambuehl, Ockenfels, and Stewart, 2017) shows theoretically and experimentally that people with higher costs of information processing respond more to an increase in the incentive for a complex transaction, and decide to participate based on a worse understanding of its consequences. Here, we address the resulting tradeoff between the principle of informed consent and the principle of free contract. Respondents to our vignette study on oocyte donation overwhelmingly favor the former, and support policies that require donors to thoroughly understand the transaction. This finding helps design markets that are not only efficient, but also considered ethical. 

How do individuals value noisy information that guides economic decisions? In our laboratory experiment, we find that individuals underreact to increasing the informativeness of a signal, thus undervalue high-quality information, and that they disproportionately prefer information that may yield certainty. Both biases are entirely due to non-standard belief updating, rather than due to non-standard risk preferences. We find that individuals differ consistently in their responsiveness to information - the extent that their beliefs move upon observing signals. Individual parameters of responsiveness to information have out-of-sample explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude. 

Unraveling, the excessively early matching of future workers to employers, is a pervasive phenomenon in entry-level labor markets that leads to hiring decisions based on severely incomplete information. We provide a model of unraveling in one-to-one matching markets for prestigious positions. Its distinguishing feature is that the market operates over an extended time period during which information about potential matches arrives gradually. We find that unraveling causes potentially thick markets to spread thinly over a long time period. In equilibrium, an employers' desirability is correlated neither with the time at which they hire, nor with the expected productivity of their matched worker. Unraveling thus significantly redistributes welfare among employers compared to a pairwise stable match. We study policies that manipulate the availability of information about students and show that they are effective only if they provide a sudden surge in information. Our main application is the market for U.S. federal appellate court clerks, a significant input into the efficiency of the justice system. Consistent with the model, hiring times in our dataset are spread over a period of six months and are uncorrelated with the desirability of a judge as an employer.

The incentivization and remuneration of clinical trial participants is a central topic in medical ethics. The possibility to shorten the Covid-pandemic through controlled human infection studies lends the topic renewed relevance.  We summarize evidence from economics to demonstrate that many of the central questions surrounding human subject payment can be answered empirically. 

We study experimentally when, why, and how people intervene in others’ choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs fre- quently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. They violate common behavioral welfare criteria by removing impatient options even when all payoffs are delayed. CAs intervene not by removing options they wish they could resist when choosing for themselves (mistakes-projective paternalism), but rather as if they seek to align others’ choices with their own aspirations (ideals-projective paternalism). Laboratory choices predict subjects’ support for actual paternalistic policies.

We examine methods for evaluating interventions designed to improve decision-making quality when people misunderstand the consequences of their choices. In an experiment involving financial education, conventional outcome metrics (financial literacy and directional behavioral responses) imply that two interventions are equally beneficial even though only one reduces the average severity of errors. We trace these failures to violations of the assumptions embedded in the conventional metrics. We propose a simple, intuitive, and broadly applicable outcome metric that properly differentiates between the interventions, and is robustly interpretable as a measure of welfare loss from misunderstanding consequences even when additional biases distort choices.

 Participation payments are used in many transactions about which people know little, but can learn more: incentives for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We theoretically and experimentally identify a composition effect whereby incentives disproportionately increase participation among those for whom learning is harder. Moreover, these individuals use less information to decide whether to participate, which makes disappointment more likely. The learning-based composition effect is stronger in settings in which information acquisition is more difficult.

We investigate the impact of peer interaction on the quality of financial decision making in a laboratory experiment. Face-to-face communication with a randomly assigned peer significantly improves the quality of subsequent private decisions even though simple mimicry would have the opposite effect. We present evidence that the mechanism involves general conceptual learning (because the benefits of communication extend to previously unseen tasks), and that the most effective learning relationships are horizontal rather than vertical (because people with weak skills benefit most when their partners also have weak skills). The benefits of demonstrably effective financial education do not propagate to peers.

Around the world, laws limit the incentives that can be paid for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason are concerns about undue inducement—the highly influential but em- pirically untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives cause biased information search. Contrary to common inter- pretations, such behavior is no proof for harmful effects of incentives; it is consis- tent with Bayesian rationality. Empirically, a substantial minority of participants make bad decisions, but incentives do not magnify them in a way that would justify allowing a transaction but capping incentives. My results refute undue inducement concerns for a broad range of welfare weights and across a wide variety of treatments.

Collective decision making requires preference aggregation even if no ideal aggregation method exists (Arrow, 1950). We investigate how individuals think groups should aggregate members’ ordinal preferences – that is, how they interpret “the will of the people.” Our experiment elicits revealed attitudes toward ordinal preference aggregation and classifies subjects according to the rules they implicitly deploy. Majoritarianism is rare while rules that promote compromise are common. People evaluate relative sacrifice by inferring cardinal utility from ordinal ranks. Cluster analysis reveals that our classification encompasses all important aggregation rules. Aggregation methods exhibit stability across domains and across countries with divergent traditions.

Much economic analysis derives policy recommendations based on social welfare criteria intended to model the preferences of a policy maker. Yet, little is known about policy maker's normative views in a way amenable to this use. In a behavioral experiment, we elicit German legislators' social welfare criteria unconfounded by political economy constraints. When resolving preference conflicts across individuals, politicians place substantially more importance on least-favored than on most-favored alternatives, contrasting with both common aggregation mechanisms and the equal weighting inherent in utilitarianism and the Kaldor-Hicks criterion. When resolving preference conflicts within individuals, we find no support for the commonly used ``long-run criterion'' which insists that choices merit intervention only if the lure of immediacy may bias intertemporal choice. Politicians' and citizens' social welfare criteria largely coincide.

Good decision-making requires understanding the causal impact of our actions. Often, we only have access to correlational data that could stem from multiple causal mechanisms with divergent implications for choice. Our experiments comprehensively characterize choice when subjects face conflicting causal interpretations of such data. Behavior primarily reflects three types: following interpretations that make attractive promises, choosing cautiously, and assessing the fit of interpretations to the data. We characterize properties of interpretations that obscure bad fit to subjects. Preferences for more complex models are more common than those reflecting Occam’s razor. Implications extend to the Causal Narratives and Model Persuasion literatures.