Shane Frederick

Representativeness revisited: Attribute substitution in intuitive judgment

The program of research now known as the heuristics and biases approach began with a survey of 84 participants at the 1969 meetings of the Mathematical Psychology Society and the American Psychological Association (Tversky & Kahneman, 1971). The respondents, including several authors of statistics texts, were asked realistic questions about the robustness of statistical estimates and the replicability of research results. The article commented tongue-in-heek on the prevalence of a belief that the law of large numbers applies to small numbers as well: Respondents placed too much confidence in the results of small samples, and their statistical judgments showed little sensitivity to sample size. The mathematical psychologists who participated in the survey not only should have known better – they did know better. Although their intuitive guesses were off the mark, most of them could have computed the correct answers on the back of an envelope. These sophisticated individuals apparently had access to two distinct approaches for answering statistical questions: one that is spontaneous, intuitive, effortless, and fast; and another that is deliberate, rule-governed, effortful, and slow. The persistence of large biases in the guesses of experts raised doubts about the educability of statistical intuitions. Moreover, it was known that the same biases affect choices in the real world, where researchers commonly select sample sizes that are too small to provide a fair test of their hypotheses (Cohen, 1969, 1992).

Try It, You'll Like It: The Influence of Expectation, Consumption, and Revelation on Preferences for Beer

Patrons of a pub evaluated regular beer and “MIT brew” (regular beer plus a few drops of balsamic vinegar) in one of three conditions. One group tasted the samples blind (the secret ingredient was never disclosed). A second group was informed of the contents before tasting. A third group learned of the secret ingredient immediately after tasting, but prior to indicating their preference. Not surprisingly, preference for the MIT brew was higher in the blind condition than in either of the two disclosure conditions. However, the timing of the information mattered substantially. Disclosure of the secret ingredient significantly reduced preference only when the disclosure preceded tasting, suggesting that disclosure affected preferences by influencing the experience itself, rather than by acting as an independent negative input or by modifying retrospective interpretation of the experience.

Frames and brains: elicitation and control of response tendencies

Using magnetic resonance imaging, De Martino and colleagues investigated the neural signature that is associated with decisions between small sure amounts of money and large riskier amounts when the framing of the outcomes is varied. We interpret their results within a dual-system framework, in which different frames evoke distinct emotional responses that different individuals can suppress to various degrees. The study advances the integration of brain imaging results into cognitive theory.

Opportunity Cost Neglect

To properly consider the opportunity costs of a purchase, consumers must actively generate the alternatives that it would displace. The current research suggests that consumers often fail to do so. Even under conditions promoting cognitive effort, various cues to consider opportunity costs reduce purchase rates and increase the choice share of more affordable options. Sensitivity to such cues varies with chronic dispositional differences in spending attitudes. We discuss the implications of these results for the marketing strategies of economy and premium brands.

A Reference Price Theory of the Endowment Effect

The common finding that selling prices exceed buying prices (the so-called endowment effect) is typically explained by the assumptions that consumers evaluate potential transactions with respect to their current holdings and that the owners of a good regard its potential loss to be more significant than nonowners regard its potential acquisition. In contrast to this “pain-of-losing” account, the authors propose that the endowment effect reflects a reluctance to trade on terms that appear unfavorable with respect to salient reference prices. In six experiments (and eight more summarized in appendixes), the authors show that manipulations that reduce the gap between valuations and reference prices reduce or eliminate the endowment effect. These results suggest that the endowment effect is often best construed as an aversion to bad deals rather than an aversion to losing possessions.

The Limits of Attraction

Consumer research has documented dozens of instances in which the introduction of an “irrelevant” third option affects preferences between the remaining two. In nearly all such cases, the unattractive dominated option enhances the attractiveness of the option it most resembles—a phenomenon known as the “attraction effect.” In the studies presented here, however, the authors contend that this phenomenon may be restricted to stylized product representations in which every product dimension is represented by a number (e.g., a toaster oven that has a durability rating of 7.2 and ease of cleaning rating of 5.5). Such effects do not typically occur when consumers experience the product (e.g., taste a drink) or when even one of the product attributes is represented perceptually (e.g., differently priced hotel rooms whose quality is depicted with a photo). The authors posit that perceptual representations of attributes do not support the sorts of comparisons that drive the attraction effect with highly stylized examples, and they question the practical significance of the effect.

Measuring Intergenerational Time Preference: Are Future Lives Valued Less?

Prior research has estimated intergenerational time preferences by asking respondents to choose between hypothetical life saving programs. From such choices, researchers have concluded that the public heavily discounts the lives of people in future generations. However, using a multiversion survey involving 401 respondents, I show that imputed intergenerational time preferences can be dramatically affected by the specific question that is asked. Different elicitation procedures can yield widely varying results by evoking or suppressing various relevant considerations (such as uncertainty). Many formats revealed no preference for current generations over future generations.

Overestimating Others’ Willingness to Pay

This article documents a widespread bias: a tendency to overestimate how much others will pay for goods. The effect may influence pricing and negotiations, which depend on accurate assessments of others’ valuations. It is also shown to underlie or interact with several widely researched behavioral phenomena, including egocentric empathy gaps, the endowment effect, and the false-consensus effect.

Disfluent fonts don't help people solve math problems

Prior research suggests that reducing font clarity can cause people to consider printed information more carefully. The most famous demonstration showed that participants were more likely to solve counterintuitive math problems when they were printed in hard-to-read font. However, after pooling data from that experiment with 16 attempts to replicate it, we find no effect on solution rates. We examine potential moderating variables, including cognitive ability, presentation format, and experimental setting, but we find no evidence of a disfluent font benefit under any conditions. More generally, though disfluent fonts slightly increase response times, we find little evidence that they activate analytic reasoning.

Bayesian decision analysis and uncertainty in fisheries management

Large variability and estimation errors in data create challenges for estimating risks and identifying appropriate fisheries management strategies. The formal quantitative method of decision analysis, sometimes referred to as statistical decision theory, can help deal with this challenge because it explicitly considers uncertainties in quantities such as parameters of dynamic processes in fish populations or fishing fleets. Field data can be used in conjunction with Bayesian statistical analysis to calculate probabilities associated with different estimates of the uncertain parameters. These probabilities can then be used as part of a decision analysis to identify the optimal management action for each specified management objective. We illustrate this approach of decision analysis with three examples. (1) The optimal decision for opening an in-river sockeye salmon fishery depended, among other things, on the assumed functional form (not just parameter values) of the stock-recruitment relationship, i.e. whether it was a Ricker model or a more flexible Shepherd model, which can take on various shapes, including a Ricker shape. (2) When uncertainties in density-dependent growth and in size-dependent vulnerability to fishing gear were accounted for, the optimal stocking density for juvenile rainbow trout in British Columbia lakes increased considerably compared with the case where uncertainties were ignored. (3) Marine fish stocks such as Atlantic menhaden typically exhibit large uncertainty in estimates of current stock biomass and stock-recruitment relationships. We show that commonly used arbitrary reductions in harvest rate (such as a 20% ‘safety margin’) that qualitatively try to allow for such uncertainties are not necessarily optimal, and can lead to significant reduction in benefits. Instead, optimal safety margins should be estimated for each situation. These examples demonstrate that it is worth explicitly considering uncertainties in analyses of fisheries management options because they can potentially alter the optimal decision.