George Loewenstein

Risk as Feelings

Virtually all current theories of choice under risk or uncertainty are cognitive and consequentialist. They assume that people assess the desirability and likelihood of possible outcomes of choice alternatives and integrate this information through some type of expectation-based calculus to arrive at a decision. The authors propose an alternative theoretical perspective, the risk-as-feelings hypothesis, that highlights the role of affect experienced at the moment of decision making. Drawing on research from clinical, physiological, and other subfields of psychology, they show that emotional reactions to risky situations often diverge from cognitive assessments of those risks. When such divergence occurs, emotional reactions often drive behavior. The risk-as-feelings hypothesis is shown to explain a wide range of phenomena that have resisted interpretation in cognitive-consequentialist terms.

Anomalies in Intertemporal Choice: Evidence and an Interpretation

Research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility (EU) anomalies—behaviors that violate the expected utility axioms. The relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility (DU) anomalies. We enumerate a set of DU anomalies analogous to the EU anomalies and propose a model that accounts for the anomalies, as well as other intertemporal choice phenomena incompatible with DU. We discuss implications for savings behavior, estimation of discount rates, and choice framing effects.

The Psychology of Curiosity: A Review and Reinterpretation

Research on curiosity has undergone 2 waves of intense activity. The 1st, in the 1960s, focused mainly on curiositys psychological underpinnings. The 2nd, in the 1970s and 1980s, was characterized by attempts to measure curiosity and assess its dimensionality. This article reviews these contributions with a concentration on the 1st wave. It is argued that theoretical accounts of curiosity proposed during the 1st period fell short in 2 areas: They did not offer an adequate explanation for why people voluntarily seek out curiosity, and they failed to delineate situational determinants of curiosity. Furthermore, these accounts did not draw attention to, and thus did not explain, certain salient characteristics of curiosity: its intensity, transience, association with impulsivity, and tendency to disappoint when satisfied. A new account of curiosity is offered that attempts to address these shortcomings. The new account interprets curiosity as a form of cognitively induced deprivation that arises from the perception of a gap in knowledge or understanding. Curiosity is the most superficial of all the affections; it changes its object perpetually; it has an appetite which is very sharp, but very easily satisfied; and it has always an appearance of giddiness, rest

Time-inconsistent Preferences and Consumer Self-Control

Why do consumers sometimes act against their own better judgment, engaging in behavior that is often regretted after the fact and that would have been rejected with adequate forethought? More generally, how do consumers attempt to maintain self-control in the face of time-inconsistent preferences? This article addresses consumer impatience by developing a decision-theoretic model based on reference points. The model explains how and why consumers experience sudden increases in desire for a product, increases that can result in the temporary overriding of long-term preferences. Tactics that consumers use to control their own behavior are also discussed. Consumer self-control is framed as a struggle between two psychological forces, desire and willpower. Finally, two general classes of self-control strategies are described: those that directly reduce desire, and those that overcome desire through willpower. Copyright 1991 by the University of Chicago.

Projection Bias in Predicting Future Utility

People underappreciate how their own behavior and exogenous factors affect their future utility, and thus exaggerate the degree to which their future preferences resemble their current preferences. We present evidence which demonstrates the prevalence of such projection bias, and develop a formal model that draws out both descriptive and welfare implications of the bias. The model helps interpret established behavioral anomalies such as the endowment effect, and helps to explain commonly observed suboptimal patterns of behavior such as addiction and excessive pursuit of a high material standard of living. The model also suggests potentially welfare-improving policies, such as mandatory cooling-off periods for certain types of consumer decisions.

Time Discounting for Primary Rewards

Previous research, involving monetary rewards, found that limbic reward-related areas show greater activity when an intertemporal choice includes an immediate reward than when the options include only delayed rewards. In contrast, the lateral prefrontal and parietal cortex (areas commonly associated with deliberative cognitive processes, including future planning) respond to intertemporal choices in general but do not exhibit sensitivity to immediacy (McClure et al., 2004). The current experiments extend these findings to primary rewards (fruit juice or water) and time delays of minutes instead of weeks. Thirsty subjects choose between small volumes of drinks delivered at precise times during the experiment (e.g., 2 ml now vs 3 ml in 5 min). Consistent with previous findings, limbic activation was greater for choices between an immediate reward and a delayed reward than for choices between two delayed rewards, whereas the lateral prefrontal cortex and posterior parietal cortex responded similarly whether choices were between an immediate and a delayed reward or between two delayed rewards. Moreover, relative activation of the two sets of brain regions predicts actual choice behavior. A second experiment finds that when the delivery of all rewards is offset by 10 min (so that the earliest available juice reward in any choice is 10 min), no differential activity is observed in limbic reward-related areas for choices involving the earliest versus only more delayed rewards. We discuss implications of this finding for differences between primary and secondary rewards.

Heart Strings and Purse Strings Carryover Effects of Emotions on Economic Decisions

We examined the impact of specific emotions on the endowment effect, the tendency for selling prices to exceed buying or “choice” prices for the same object. As predicted by appraisal-tendency theory, disgust induced by a prior, irrelevant situation carried over to normatively unrelated economic decisions, reducing selling and choice prices and eliminating the endowment effect. Sadness also carried over, reducing selling prices but increasing choice prices—producing a “reverse endowment effect” in which choice prices exceeded selling prices. The results demonstrate that incidental emotions can influence decisions even when real money is at stake, and that emotions of the same valence can have opposing effects on such decisions.

Regulation for Conservatives: Behavioral Economics and the Case for 'Asymmetric Paternalism'

Regulation by the state can take a variety of forms. Some regulations are aimed entirely at redistribution, such as when we tax the rich and give to the poor. Other regulations seek to counteract externalities by restricting behavior in a way that imposes harm on an individual basis but yields net societal benefits. A good example is taxation to fund public goods such as roads. In such situations, an individual would be better off if she alone were exempt from the tax; she benefits when everyone (including herself) must pay the tax.

Preference Reversals between Joint and Separate Evaluations of Options: A Review and Theoretical Analysis

Arguably, all judgments and decisions are made in 1 (or some combination) of 2 basic evaluation modes-joint evaluation mode (JE), in which multiple options are presented simultaneously and evaluated comparatively, or separate evaluation mode (SE), in which options are presented in isolation and evaluated separately. This article reviews recent literature showing that people evaluated options differently and exhibit reversals of preferences for options between JE and SE. The authors propose an explanation for the JE/SE reversal based on a principle called the evaluability hypothesis. The hypothesis posits that it is more diffecult to evaluate the desirability of values on some attributes than on others and that, compared with easy-to-evaluate attributes, difficult-to-evaluate attributes have a greater impact in JE than in SE.

Measuring the Prevalence of Questionable Research Practices with Incentives for Truth-Telling

Cases of clear scientific misconduct have received significant media attention recently, but less flagrantly questionable research practices may be more prevalent and, ultimately, more damaging to the academic enterprise. Using an anonymous elicitation format supplemented by incentives for honest reporting, we surveyed over 2,000 psychologists about their involvement in questionable research practices. The impact of truth-telling incentives on self-admissions of questionable research practices was positive, and this impact was greater for practices that respondents judged to be less defensible. Combining three different estimation methods, we found that the percentage of respondents who have engaged in questionable practices was surprisingly high. This finding suggests that some questionable practices may constitute the prevailing research norm.