Framing interpersonal interactions (Week 12)

Question 1

What is the Discounted Utility Theory?

Answer 1

• The interest rate, r, determines everyone’s utility at diff. time pts. Indiv. diffs. in intertemporal choices should be minimal
• r > 0, positive discount rate
• r = a constant across diff. time points

Question 2

What is the Behavioural Perspective?

Answer 2

• Some ppl have extremely high discount rates
• Negative discount rate
• Impatience; Dynamic inconsistencies

Question 3

What is a high/low positive discount rate?

Answer 3

A stronger/lower desire to ACQUIRE IMMEDIATE GAINS and avoid IMMEDIATE LOSSES

Question 4

What is a high/low negative discount rate?

Answer 4

A stronger/lower desire to DELAY GAINS and to ACCEPT IMMEDIATE LOSSES

Question 5

What is the first violation by the descriptive perspective of intertemporal choice?

Answer 5

A violation of positive discount rate

Under a negative discount rate,

• the VALUE of the current item(s) become larger in the future
• ppl have a tendency to DELAY consumption

Question 6

What are some prescriptions for intertemporal choice?

Answer 6

Apply DU to financial decisions to maximise your benefits

Using DU rules to EVALUATE the outcomes of different options

Rather than follow your feelings to make financial investments

Question 7

What is the second violation by the descriptive perspective of intertemporal choice?

Answer 7

A violation of Preference Stability Assumption

r=a constant across diff. time points

Question 8

What are the reasons for the violation of Preference Stability Assumption?

Answer 8

• Impatience: In many situations, discount rate INCREASES as event approaches (Stronger desire to get smth right away and avoid immediate losses)
• Dynamic inconsistencies: Preference b/w 2 consumption streams changes over time

Question 9

What are the perspectives of descriptive violations of intertemporal choice?

Answer 9

Discounted Utility Theory: Our utility was determined solely by our consumption experiences

Behavioural Perspective: We don’t merely consume experiences; we consume the past and future

Question 10

What are the descriptive violations of intertemporal choice?

Answer 10

MEMORY: We often derive utility/disutility from past exp

ANTICIPATION: We savour future positive exps and dread future negative consequences

Question 11

What are some interactions between decisions?

Answer 11

1) Transaction decoupling

2) Joint vs separate evaluation

Question 12

What is transaction decoupling?

Answer 12

Ppl often prefer to DECOUPLE purchase & consumption to reduce the “pain of paying”

Question 13

What is joint vs. separate evaluation?

Answer 13

Some attributes are easier to evaluate & therefore receive more weight when evaluated JOINTLY

Rather than when evaluated SEPARATELY

C’s evaluation of price of items can change when presented together/separately.
Normative theory: Shouldn’t matter!

Question 14

What are allocations?

Answer 14

Choosing multiple items from a menu of options

Question 15

What is the normative account for allocation decisions?

Answer 15

1. Full info, 2. Stable prefs., 3. No interaction effect b/w items

Choose the portfolio of items that maximise aggregate utility

Question 16

What are the reasons for not choosing the most preferred item multiple times (behavioural perspective)?

Answer 16

• Value in INFO
• Value in VARIETY (Utility increases due to limited access, decreases due to repeated exposure)
• Value due to INTERACTION of items

Question 17

How do people generally allocate their decisions?

Answer 17

Ppl generally biased towards equal allocation (i.e. diversification)

No strong preferences –> Tend to diversify, depend on their mental framework (partition dependence)

Question 18

What is the problem of partition dependence?

Answer 18

If ppl rely to any extent on diversification heuristics, their allocations & choices will DEPEND crucially on HOW THEY PARTITION the set of available options

Question 19

When are people less likely to diversify their choices?

Answer 19

Experts: Know what they need, consistently pick what they’re looking for

Question 20

What is a summary of allocation decisions?

Answer 20

1. Ppl are biased towards EVEN ALLOCATIONS (“diversification heuristics”)
2. Depends on how ppl MENTALLY PARTITION the set of options
3. Such partition dependence is observed in DIFF DOMAINS and SITUATIONS
4. Partition dependence REDUCES with greater EXPERTISE/knowledge

Question 21

What is the research goal of class exercise 3?

Answer 21

Whether traits of perspective-taking & empathy would predict

perceptions of one’s own openness &
a counterpart’s openness to suggestions

during a situation with diff. opinions

Question 22

What are the results of class exercise 3?

Answer 22

Perspective-taking: +vely associated with perception of counterpart’s openness

Empathy: +vely associated with perceptions of own openness

Question 23

What are the implications of results from class exercise 3?

Answer 23

In a situation with dissenting opinions, ppl may INCREASE their perceptions of a counterpart’s openness by taking others’ perspectives

INCREASE their OWN openness by experiencing other’s emotions (i.e. empathy)