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Drawing false inferences from mandated disclosures
- OREN BAR-GILL, DAVID SCHKADE, CASS R. SUNSTEIN
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- Journal:
- Behavioural Public Policy / Volume 3 / Issue 2 / November 2019
- Published online by Cambridge University Press:
- 15 February 2018, pp. 209-227
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Disclosure mandates are pervasive. Though designed to inform consumers, such mandates may lead consumers to draw false inferences – for example, that a product is harmful when it is not. When deciding to require disclosure of an ingredient in or characteristic of a product, regulators may be motivated by evidence that the ingredient or characteristic is harmful to consumers. But they may also be motivated by a belief that consumers have a right to know what they are buying or by interest-group pressure. Consumers who misperceive the regulator's true motive, or mix of motives, will draw false inferences from the mandated disclosure. If consumers think that the disclosure is motivated by evidence of harm, when in fact it is motivated by a belief in a right to know or by interest-group pressure, then they will be inefficiently deterred from purchasing the product. We analyze this general concern about disclosure mandates. We also offer survey evidence demonstrating that the risk of false inferences is serious and real.
7 - Cognitive Processes in Preference Reversals
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- By David A. Schkade, Chair in the Rady School of Management, University of California, San Diego, Eric J. Johnson, Professor of Business, Columbia Business School, Columbia University
- Edited by Sarah Lichtenstein, Paul Slovic
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- Book:
- The Construction of Preference
- Published online:
- 05 June 2012
- Print publication:
- 28 August 2006, pp 122-145
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Summary
Decision makers can reveal their preferences for alternatives using different methods or response modes. For example, a decision maker might choose between two alternatives or match them by adjusting a feature of the first so that it is equally as preferred as the second. According to normative theories of choice, preference orderings should be invariant across response modes, a property called procedure invariance (Tversky, Sattath, & Slovic, 1988). Empirically, however, different response modes can reveal very different preferences. The most well-known inconsistencies are demonstrations that preferences for simple gambles differ systematically across response modes (Slovic & Lichtenstein, 1983). Because these preference reversals are contrary to the most basic principles of rational choice, they have drawn substantial attention from both economists and psychologists.
The theories that have been proposed for preference reversal posit psychological mechanisms that could create different evaluations of the same gambles in different response modes. These theories have generally been tested through the extent to which they account for empirical patterns of inconsistent responses. By this standard, most of the proposed theories achieve some success, accounting for reversals in at least one pair of response modes. This research has largely used the characteristics of stimuli to manipulate these hypothesized psychological mechanisms. More recent research has studied these mechanisms through process tracing measures (Johnson, Payne, & Bettman, 1988) or by introducing choices involving riskless outcomes and then analyzing response patterns to reveal the influence of intransitivity and the tendency to overprice or underprice certain types of options (Tversky, Slovic, & Kahneman, 1990).
34 - Measuring Constructed Preferences: Towards a Building Code
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- By John W. Payne, Joseph J. Ruvane, Jr., Professor of Management and Marketing, Professor of Psychology, and Deputy Dean of The Fuqua School of Business, Duke University, James R. Bettman, Burlington Industries Professor of Marketing, The Fuqua School of Business, Duke University, David A. Schkade, Jerome Katzin Endowed Chair in the Rady School of Management, University of California, San Diego
- Edited by Sarah Lichtenstein, Paul Slovic
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- Book:
- The Construction of Preference
- Published online:
- 05 June 2012
- Print publication:
- 28 August 2006, pp 629-652
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INTRODUCTION
Imagine that you are a member of a management team at the Environmental Protection Agency (EPA) charged with allocating scarce resources to alternative environmental management interventions. As part of your efforts, you need to establish the value of potential natural resource benefits achieved from different proposed interventions. To help in that valuation exercise you seek information about public values for different levels of these natural resources; obtaining citizen inputs is a natural extension of the principles of democratic governance (see Gregory et al., 1997, for a discussion of this position). One method that you consider for getting such information about public values is to conduct a contingent valuation (CV) study of peoples' preferences for different levels of an environmental resource (for a general review of CV studies, see Mitchell & Carson, 1989). Those expressions of preferences will be used as inputs to design and select among alternative environmental management interventions.
Alternatively, imagine that you are the marketing manager for a new product and have been asked to generate a prediction regarding the likely sales of that product. The need to make such predictions is becoming both more important and more difficult because of rapid changes in technology and shortened product lives. You consider asking a sample of consumers to express their preference for your product in comparison with other competitor products that are, or might be, in the marketplace. Those expressions of preference will be used to predict future sales of your product.
31 - Economic Preferences or Attitude Expressions? An Analysis of Dollar Responses to Public Issues
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- By Daniel Kahneman, Eugene Higgins Professor of Psychology and Public Affairs, Woodrow Wilson School, Princeton University, Ilana Ritov, Associate Professor in the Department of Psychology and School of Education, The Hebrew University, David A. Schkade, Jerome Katzin Endowed Chair in the Rady School of Management, University of California, San Diego
- Edited by Sarah Lichtenstein, Paul Slovic
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- Book:
- The Construction of Preference
- Published online:
- 05 June 2012
- Print publication:
- 28 August 2006, pp 565-593
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Summary
INTRODUCTION
Economics and psychology offer contrasting perspectives on the question of how people value things. The economic model of choice is concerned with a rational agent whose preferences obey a tight web of logical rules, formalized in consumer theory and in models of decision making under risk. The tradition of psychology, in contrast, is not congenial to the idea that a logic of rational choice can serve double duty as a model of actual decision behavior. Much behavioral research has been devoted to illustrations of choices that violate the logic of the economic model. The implied claim is that people do not have preferences, in the sense in which that term is used in economic theory (Fischhoff, 1991; Payne, Bettman, & Johnson, 1992; Slovic, 1995). It is therefore fair to ask: If people do not have economic preferences, what do they have instead? Does psychology provide theoretical notions that can, at least in some contexts, account for both apparent violations of the rational model of preference and the regularities of observed choices? Behavioral research has documented several psychological processes that provide partial answers to this question, including concepts such as mental accounting, loss aversion, and hyperbolic discounting. To this set of conceptual tools the present treatment adds the concept of attitude, which we borrow from social psychology, and the core process – we label it affective valuation – which determines the sign and the intensity of the emotional response to objects.
36 - Economic Preferences or Attitude Expressions? An Analysis of Dollar Responses to Public Issues
- from PART EIGHT - ALTERNATIVE CONCEPTIONS OF VALUE
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- By Daniel Kahneman, Princeton University, Ilana Ritov, Hebrew University, David Schkade, University of Texas
- Edited by Daniel Kahneman, Princeton University, New Jersey, Amos Tversky, Stanford University, California
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- Book:
- Choices, Values, and Frames
- Published online:
- 01 February 2019
- Print publication:
- 25 September 2000, pp 642-672
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ABSTRACT. Participants in contingent valuation surveys and jurors setting punitive damages in civil trials provide answers denominated in dollars. These answers are better understood as expressions of attitudes than as indications of economic preference. Well-established characteristics of attitudes and of the core process of affective valuation explain several robust features of dollar responses: high correlations with other measures of attractiveness or aversiveness, insensitivity to scope, preference reversals, and the high variability of dollar responses relative to other measures of the same attitude.
KEY WORDS preferences, attitudes, contingent valuation, psychology and economics, utility assessment
JEL Classification D00, H00
INTRODUCTION
Economics and psychology offer contrasting perspectives on the question of how people value things. The economic model of choice is concerned with a rational agent whose preferences obey a tight web of logical rules, formalized in consumer theory and in models of decision making under risk. The tradition of psychology, in contrast, is not congenial to the idea that a logic of rational choice can serve double duty as a model of actual decision behavior. Much behavioral research has been devoted to illustrations of choices that violate the logic of the economic model. The implied claim is that people do not have preferences, in the sense in which that term is used in economic theory (Fischhoff, 1991; Slovic, 1995; Payne, Bettman and Johnson, 1992). It is therefore fair to ask: If people do not have economic preferences, what do they have instead?
9 - Assessing Punitive Damages (With Notes on Cognition and Valuation in Law)
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- By Cass R. Sunstein, University of Chicago, Daniel Kahneman, Public Affairs at Princeton University, David Schkade, University of Texas
- Edited by Cass R. Sunstein, University of Chicago
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- Book:
- Behavioral Law and Economics
- Published online:
- 05 June 2012
- Print publication:
- 28 March 2000, pp 232-258
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Summary
The award of punitive damages has become one of the most controversial and important uses of the tort law, extending well beyond the common law to such statutory areas as environmental protection and employment discrimination. In recent years many people have objected that punitive damages are unpredictable, even “out of control.” Consider, as possible examples, a punitive award of $4 million for nondisclosure of the fact that the plaintiff's new BMW had been repainted, a $6 million punitive award for tortious interference with contractual relations, a $400 million punitive award for fraud by an owner of funeral homes, a $30 million punitive award for anticompetitive conduct, and a $2.7 million award, later reduced to $480,000, to a woman who spilled coffee on herself that McDonald's knew to be too hot. These are mere anecdotes, but there is more systematic evidence as well, suggesting a far from trivial degree of randomness, especially at the high end.
Our principal interest here is in identifying some of the sources of unpredictability in jury judgments. On the basis of a study of 899 jury-eligible citizens, we offer the following major findings:
1. People have a remarkably high degree of moral consensus on the degrees of outrage and punishment that are appropriate for punitive damage cases. At least in the products liability cases we offer, this moral consensus, on what might be called outrage and punitive intent, cuts across differences in gender, race, income, age, and education.