Daniel Houser

Anxiety impairs decision-making: psychophysiological evidence from an Iowa Gambling Task

Using the Iowa Gambling Task (IGT) and psychophysiological correlates of emotional responses (i.e., heart rate and skin conductance), we investigate the effects of trait anxiety (TA) on decision-making. We find that high TA is associated with both impaired decision-making and increased anticipatory physiological (somatic) responses prior to advantageous trials. For both high and low TA, skin conductance responses preceding advantageous trials predict decisions. At the same time, somatic responses to choice outcomes reflect differences between high and low TA sensitivities to punishments and rewards. The pattern of impaired decision-making and increased somatic markers that we find in high TA may have important implications for neuropsychological decision theory. In particular, it offers an example of defective modulation of somatic signals, coupled with disrupted discrimination of advantageous and disadvantageous choices.

Revisiting Kindness and Confusion in Public Goods Experiments

There has been substantial recent interest in determining why there is cooperation in public goods experiments even in environments that provide all subjects with the incentive to free ride (see e.g., John O. Ledyard, 1995). Theories used to explain such cooperation generally posit either that subjects are “confused” in the sense that they make errors or do not understand the game’s incentives, or that subjects contribute due to social factors such as altruism and reciprocity. Although several authors have pointed out the importance of distinguishing between these alternatives, the roles that confusion and social motives play in determining public contributions remain poorly understood. This paper provides new evidence on the way that confusion and social motives determine contributions in public goods games by reporting data from experiments that use a new design with the Voluntary Contribution Mechanism (VCM). Two important and often replicated findings in the experimental public goods literature are (1) that subjects’ public contributions are much greater than predicted by standard economic theories of free-riding and (2) that these contributions decay over the course of multiple-round games (see e.g., Douglas D. Davis and Charles A. Holt, 1993). Models that employ social factors to explain cooperation and its decay usually assume that subjects are motivated by altruism, reciprocity, or fairness (see e.g., Andreoni, 1990; Rachel T. A. Croson, 1998; Anna Gunthorsdottir et al., 2001). It has been argued, for instance, that subjects make contributions in order to elicit like contributions from reciprocators in subsequent rounds and that decay in public contributions might result from “frustrated attempts at kindness” (Andreoni, 1995 p. 892). Specifically, because there is generally heterogeneity in the willingness to contribute to the public good, initially cooperative players will likely reduce their public contributions after being grouped with relatively low contributors. In contrast, confusion theories postulate that players make public contributions either in error or because they do not understand how to pursue their self-interest. These theories argue that high initial contributions decay primarily because subjects gradually come to understand the game’s incentives. Recently, Andreoni (1995) conducted an interesting series of experiments in the first and, to our knowledge, only effort to discriminate between these competing theories of cooperative play. He provides two reasons that doing this is important. The first is that knowing the relative importance of confusion and social motives in generating cooperative decay can provide a useful guide to future research. While Andreoni argues that such knowledge could be used to inform research on learning models, note also that to the extent confusion is found to be important, shedding light on the way different sorts of instructions affect confusion could help to improve pedagogics. A second compelling reason Andreoni gives is that the outcomes of experiments designed to test theories of social giving are difficult to interpret if confusion is a primary source of cooperation. * Houser: Department of Economics and Economic Science Laboratory, University of Arizona, Tucson, AZ 85721; Kurzban: Economic Science Laboratory, University of Arizona, Tucson, AZ 85721. We thank Mark Isaac, Kevin McCabe, David Porter, Vernon Smith, Bart Wilson, seminar participants at the University of Arizona, and two anonymous referees for valuable comments on this research. The authors gratefully acknowledge the research support of fellowships from the International Foundation for Research in Experimental Economics. This research was supported by Russell Sage Foundation Grant No. 98-00-01. The authors are responsible for any errors. 1 See, for example, James Andreoni (1995), Martin Sefton and Richard Steinberg (1996), and Thomas R. Palfrey and Jeffrey E. Prisbrey (1997). 2 This paper focuses on only standard linear games in which to contribute zero to the public good is the dominant strategy.

Emotion Regulation and Decision Making Under Risk and Uncertainty

It is well established that emotion plays a key role in human social and economic decision making. The recent literature on emotion regulation (ER), however, highlights that humans typically make efforts to control emotion experiences. This leaves open the possibility that decision effects previously attributed to acute emotion may be a consequence of acute ER strategies such as cognitive reappraisal and expressive suppression. In Study 1, we manipulated ER of laboratory-induced fear and disgust, and found that the cognitive reappraisal of these negative emotions promotes risky decisions (reduces risk aversion) in the Balloon Analogue Risk Task and is associated with increased performance in the prehunch/hunch period of the Iowa Gambling Task. In Study 2, we found that naturally occurring negative emotions also increase risk aversion in Balloon Analogue Risk Task, but the incidental use of cognitive reappraisal of emotions impedes this effect. We offer evidence that the increased effectiveness of cognitive reappraisal in reducing the experience of emotions underlies its beneficial effects on decision making.

Neural responses to sanction threats in two-party economic exchange

Sanctions are used ubiquitously to enforce obedience to social norms. However, recent field studies and laboratory experiments have demonstrated that cooperation is sometimes reduced when incentives meant to promote prosocial decisions are added to the environment. Although various explanations for this effect have been suggested, the neural foundations of the effect have not been fully explored. Using a modified trust game, we found that trustees reciprocate relatively less when facing sanction threats, and that the presence of sanctions significantly reduces trustees brain activities involved in social reward valuation [in the ventromedial prefrontal cortex (VMPFC), lateral orbitofrontal cortex, and amygdala] while it simultaneously increases brain activities in the parietal cortex, which has been implicated in rational decision making. Moreover, we found that neural activity in a trustees VMPFC area predicts her future level of cooperation under both sanction and no-sanction conditions, and that this predictive activity can be dynamically modulated by the presence of a sanction threat.

Long-memoried processes, unit roots, and causal inference in political science

Theory: It has been argued that because researchers have not taken into account the longmemoried natures of certain political processes-especially the fact that some political time series appear to contain unit roots-some users of level Vector Autoregressions may have reached erroneous conclusions about the validity of important causal relationships and model specifications. Hypothesis: For the first time, this argument is evaluated. The difficulties associated with modeling long-memoried political processes are reviewed. Then several approaches to dealing with them are discussed. One of the most promising approaches, Fully-Modified Vector Autoregression (FM-VAR) is studied in detail. Method: The usefulness of FM-VAR is evaluated in a stylized Monte Carlo investigation and in reanalyses of major existing studies in political science-reanalyses that are representative of the ways in which level-VARs are employed in our discipline. Results: Our experiments indicate that FM-VAR performs well (particularly in terms of size) in small and large samples, in fully and near-integrated systems, and in stationary systems. Most important, use of FM-VAR calls into question some of the major causal findings and specification test results in published studies. The implication, therefore, is that taking into account the trend properties of political processes is essential in theory building in political science.

High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles

Kahneman and Tversky (1979) argued that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices. Yet results by Holt and Laury (2002) suggest that questionnaire responses and decisions in hypothetical and low monetary payoff environments do not well predict decisions in higher monetary payoff environments. This raises the question of whether investigating decision making in high stakes environments requires using high stakes. Here we show that one can induce preferences using the binary-lottery reward technique (e.g., Berg et al., 1986) in order to study high-stakes decision making using low-stakes. In particular, we induce preferences such that decisions in a low-stakes environment reflect well the choices made in the high stakes environment of Holt and Laury (2002). This finding is of interest to anyone interested in studying high-stakes decision behavior without paying high stakes.

Temptation and Commitment in the Laboratory

Temptation and self-control in intertemporal choice environments are receiving increasing attention in the theoretical economics literature. Nevertheless, there remains a scarcity of empirical evidence from controlled environments informing behavior under repeated temptations. This is unfortunate in light of the fact that in many natural environments, the same temptation must be repeatedly resisted. This paper fills that gap by reporting data from a novel laboratory study of economic decisions under repeat temptations. Subjects are repeatedly offered an option with instantaneous benefit that also entails a substantial reduction to overall earnings. We show that this option is “tempting�? in the sense that a substantial fraction of our subjects incur pecuniary costs to eliminate the choice, and thus commit to not choosing the tempting alternative. We compare the timing and price-elasticity of these commitment decisions to predictions from existing theoretical models of decision under temptation. Our data are broadly consistent with theory, with the notable exception that commitment often occurs with delay rather than at the first opportunity. Moreover, the timing of commitment is significantly impacted by the cost of the commitment device. The patterns we report have direct implications for economic theory, and are a first step toward designing mechanisms that promote prudent economic decisions under temptation.

Neural signatures of betrayal aversion: an fMRI study of trust

Decisions are said to be ‘risky’ when they are made in environments with uncertainty caused by nature. By contrast, a decision is said to be ‘trusting’ when its outcome depends on the uncertain decisions of another person. A rapidly expanding literature reveals economically important differences between risky and trusting decisions, and further suggests these differences are due to ‘betrayal aversion’. While its neural foundations have not been previously illuminated, the prevailing hypothesis is that betrayal aversion stems from a desire to avoid negative emotions that arise from learning ones trust was betrayed. Here, we provide evidence from an fMRI study that supports this hypothesis. In particular, our data indicate that the anterior insula modulates trusting decisions that involve the possibility of betrayal.

The causal effect of market priming on trust: an experimental investigation using randomized control.

We report data from laboratory experiments where participants were primed using phrases related to markets and trade. Participants then participated in trust games with anonymous strangers. The decisions of primed participants are compared to those of a control group. We find evidence that priming for market participation affects positively the beliefs regarding the trustworthiness of anonymous strangers and increases trusting decisions.

Inequality-Seeking Punishment

Inequality aversion is a key motive for punishment, with many prominent studies suggesting people use punishment to reduce or eliminate inequality. Punishment in laboratory games, however, is nearly always designed to promote equality (e.g., rejections in standard ultimatum games) and the marginal cost of punishment is typically non-trivially positive. As a consequence, individual preferences over punishment outcomes remain largely uninformed. We here report data from a laboratory experiment using dictator games. We find that when people are treated unfairly they systematically prefer to use punishment to create advantageous inequality. Our results shed new light on human preferences over punishment outcomes, and have important implications for the design of mechanisms to deter misconduct.