Judgement and Decision Making
Uncertainty, Risk, and Luck
Pricing Strategy and Incentive Design
The Luck Celebration Hypothesis: How Permission Lotteries Affect Permitted Purchases
Luxi Shen, Mantian Hu, and Chu Dang
pUBLISHED AND FORTHCOMING PAPERS
This research studies repetition decisions, namely, whether to repeat a behavior (e.g., a purchase) after receiving an incentive (e.g., a discount). Can uncertainty drive repetition? Four experiments, all involving real consequences to each individual participant, document a counterintuitive reinforcing-uncertainty effect: individuals repeat a behavior more if its incentive is uncertain than if it is certain, even when the certain incentive is financially better. This effect is robust; it holds in both lab and field settings and at both small and large magnitudes. Furthermore, the experiments identify two theory-driven boundary conditions for the reinforcing-uncertainty effect: the effect arises (a) only if the uncertainty is resolved immediately and not if the resolution of uncertainty is delayed, and (b) only after, not before, one has engaged in repetitions. These results support a resolution-as-reward account and cast doubt on other explanations such as reference-dependent preferences. This research reveals the hidden value of uncertain incentives and sheds light on the delicate relationship between incentive uncertainty and repetition decisions.
#Uncertainty #RiskPreference #BehavoralPricing #IncentiveDesign #Nudge #Gamification #FieldExperiment
People often encounter inherently meaningless numbers, such as scores in health apps or video games, that increase as they take actions. This research explored how the pattern of change in such numbers influences performance. We found that the key factor is acceleration—namely, whether the number increases at an increasing velocity. Six experiments in both the lab and the field showed that people performed better on an ongoing task if they were presented with a number that increased at an increasing velocity than if they were not presented with such a number or if they were presented with a number that increased at a decreasing or constant velocity. This acceleration effect occurred regardless of the absolute magnitude or the absolute velocity of the number, and even when the number was not tied to any specific rewards. This research shows the potential of numerical nudging—using inherently meaningless numbers to strategically alter behaviors—and is especially relevant inthe present age of digital devices.
#MagnitudeSensitivity #Evaluability #GoalMotivation #IncentiveDesign #NumericalCognition #Nudge #Gamification
Can a reward of an uncertain magnitude be more motivating than a reward of a certain magnitude? This research documents the motivating-uncertainty effect and specifies when this effect occurs. People invest more effort, time, and money to qualify for an uncertain reward (e.g., a 50% chance at $2 and a 50% chance at $1) than a certain reward of a higher expected value (e.g., a 100% chance at $2). This effect arises only when people focus on the process of pursuing a reward, not when they focus on the outcome (the reward itself ). When the focus is on the process of reward pursuit, uncertainty generates positive experience such as excitement and hence increases motivation. Four studies involving real rewards lend support to the motivating-uncertainty effect. This research carries theoretical implications for research on risk preference and motivation and practical implications for how to devise cost-efficient consumer incentive systems.
#Uncertainty #RiskPreference #GoalMotivation #IncentiveDesign #Nudge #Gamification
Runner-Up, Hillel Einhorn New Investigator Award, Society for Judgment and Decision Making, 2015
When are people sensitive to the magnitude of numerical information presented in unfamiliar units, such as a price in a foreign currency or a measurement of an unfamiliar product attribute? We propose that people exhibit deliberational blindness, a failure to consider the meaning of even unfamiliar units. When an unfamiliar unit is not salient, people fail to take their lack of knowledge into account, and their judgments reflect sensitivity to the magnitude of the number. However, subtly manipulating the visual salience of the unit (e.g., enlarging its font size relative to the font size of the number) prompts recognition of the unit’s unfamiliarity and reduces magnitude sensitivity. In five experiments, we demonstrated this unit salience effect, provided evidence for deliberational blindness, and ruled out alternative explanations, such as nonperception and fluency. These findings have implications for decision making involving numerical information expressed in both unfamiliar units and familiar but poorly calibrated units.
#MagnitudeSensitivity #Evaluability #NumericalCognition #MoneyIllusion
Student Travel Award, Judgment and Decision Making Preconference, Society for Personality and Social Psychology, 2011
As a resource-allocation method, free competition is generally considered more efficient and fairer than binding assignment, yet individuals’ hedonic experiences in these different resource-allocation conditions are largely ignored. Using a minimalistic experimental simulation procedure, we compared participants’ hedonic experiences between a free-competition condition (in which participants could equally and freely compete for the superior resource) and a binding-assignment condition (in which the superior and inferior resources were unequally and irreversibly assigned to different participants). We found that individuals in the binding-assignment condition -- even the disadvantaged ones -- were happier than those in the free-competition condition. We attributed the effect to individuals’ peace of mind, and supported the peace-of-mind notion by identifying two moderators: ease of social comparison and enjoyability of the inferior resource. In sum, this research highlighted the hedonic aspects of resource allocation methods and identified when accepting one’s fate is hedonically better than fighting for the best.
#Happiness #Uncertainty #IncentiveDesign #AllocationMethod #Competition
This research examines sellers’ price-setting behavior and discovers a naturally occurring mismatch between sellers and buyers: Sellers who make a price decision often consider alternative prices and engage in the joint evaluation mode, whereas buyers who make a purchase decision see only the finally set price and are in the single evaluation mode. This mismatch in evaluation modes leads sellers to overpredict buyers’ price sensitivity and underprice their products. However, these effects apply only to products unfamiliar to buyers and without salient reference prices and can be alleviated if sellers are encouraged to mimic single evaluation when making pricing decisions. These propositions are empirically tested and verified.
#MagnitudeSensitivity #Evaluablity #BehavoralPricing
This research examined how one affectively reacts to others’ guesses at a value one cares about, such as one’s income. Conventional wisdom suggests that people will feel happier upon receiving more favorable guesses (e.g., higher income) than less favorable guesses. We found the opposite pattern. We propose a model to explain the effect and identify its boundaries and report experimental evidence for the model. This research enriches existing literature on self-enhancement and yields practical implications for how to approach guessing in interpersonal communications.
#Happiness #BeliefUpdate #ImpressionManagement #SocialComparison
Wealth, Warmth, and Well-being:
Whether Happiness Is Relative or Absolute Depends on Whether It Is About Money, Acquisition, or Consumption
Christopher K. Hsee, Yang Yang, Naihe Li, and Luxi Shen
Journal of Marketing Research, 2009
A central question in consumer and happiness research is whether happiness depends on absolute or relative levels of wealth and consumption. To address this question, the authors evaluate a finer level than overall happiness and distinguish among three specific types of happiness: with money, with the acquisition of an item, and with the consumption of an item. They find that happiness with money and with acquisition is relative and that happiness with consumption can be either absolute or relative, depending on whether the consumption is inherently evaluable or not. Including both lab and field data, this research yields implications for how to increase consumer happiness from one generation to the next.
#MagnitudeSensitivity #Happiness #Evaluablity #FieldExperiment #EmpiricalAnalysis
The Explicit and Implicit Ways of Overcoming Temptation
Ayelet Fishbach and Luxi Shen
Dual Process Theories in the Social Mind, Jeffrey Sherman, Bertram Gawronski, and Yaacov Trope eds., 2014
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