Thursday 25 February 2016

The Preference for Choice

Bias or preference?

Tyler at Marginal Revolution links to a new paper by Sunstein and co-authors showing that people in the lab prefer not to delegate responsibility for choices over to advisors, even when doing so would expectationally improve payoffs.

Now underdelegation can be a real problem in business and organisational environments: figuring out how to delegate well is important for productivity.

But think too on the flip-side of this. Some branches of behavioural economics suggest that people need to have choices taken away from them, or that their choices need to be strongly guided towards particular outcomes.

This paper suggests that people just hate having choices taken away from them, even when it reduces the payoffs they get in the lab.
Our results demonstrate that participants are willing to forgo rewards for the opportunity to control their own payoffs. This preference was observed not only when faced with potential gains (in accord with Owens et al. 2014), but also when faced with potential losses. Moreover, our findings indicate that participants accurately assess the (sub)optimality of their delegation choices, suggesting that they are aware of the premium they are paying to maintain control. 
Was it because people are stupid and overconfident about how well they'll do making their own decisions?
The results could not be explained by participants’ overconfidence in their ability to maximize rewards and minimize losses, as their beliefs regarding their own ability were elicited and accounted for. In fact, on average participants did not express overconfidence in Experiment I and were only slightly overconfident in Experiment II. This is not surprising, as the task was designed to minimize overconfidence; participants (1) were unlikely to hold prior beliefs about their ability from “real world” experience (2) had a 50% likelihood of making the correct choice on every trial, and (3) were given plenty of experience with the task. Participants were also given complete information about potential advisors, which would allow them to make rational decisions. Thus, under-delegation could not be attributed to a systematic misperception of either the subject’s expected utility or the advisor’s expected utility. Indeed, when questioned about their ability to delegate accurately, participants provided surprisingly accurate assessments.
People are willing to pay a premium to control their own choices: the ability to choose has value. On the flip side, though not in this paper, taking those choices away from people is insulting.

Would that the value of choice were not assumed away in policy applications of behavioural economics.

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