Tuesday, June 19, 2018

Why high incentives might require muscular informed consent (Ambuehl, Ockenfels and Stewart)

Here's a new paper (or at least just recently on the web) showing that subjects who are enticed by high payments might be disproportionately those who have difficulty gathering information about the risks...i.e.. these potential participants respond more to high payoffs than those who might have been able to gather information easily (and might have participated for a lower payment or been deterred even despite a high payment).

Attention and Selection Effects

CESifo Working Paper No. 7091 (Mai 2018)
Primary CESifo Category: [13] Behavioural Economics 
Who participates in transactions when information about the consequences must be learned? We show theoretically that decision makers for whom acquiring and processing information is more costly respond more strongly to changes in incentive payments for participating and decide to participate based on worse information. With higher payments, the pool of participants thus consists of a larger proportion of individuals who have a worse understanding of the consequences of their decision. We conduct a behavioral experiment that confirms these predictions, both for experimental variation in the costs of information acquisition and for various measures of information costs, including school grades and cognitive ability. These findings are relevant for any transaction combining a payment for participation with uncertain yet learnable consequences.

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