Learning under compound risk vs. learning under ambiguity – an experiment

We design and conduct an economic experiment to investigate the learning process of agents under compound risk and under ambiguity. We gather data for subjects choosing between lotteries involving risky and ambiguous urns. Agents make decisions in conjunction with a sequence of random draws with replacement, allowing us to estimate the agents’ beliefs at different moments in time. For each type of urn, we estimate a behavioral model for which the standard Bayesian updating model is a particular case. Our findings suggest an important difference in updating behavior between risky and ambiguous environments. Specifically, even after controlling for the initial prior, we find that when learning under ambiguity, subjects significantly overweight the new signal, while when learning under compound risk, subjects are essentially Bayesian.     

The Foreign Policy Beliefs of Political Campaign Contributors: A Post-Cold War Analysis

Objective. In this article we address two questions raised by the literature on the structure of foreign policy beliefs. First, has the end of the Cold War brought about any major changes in these belief systems? Second, how do ideology and economic interests shape these beliefs? Methods. We analyze data from a 1996 survey of U.S. presidential campaign contributors conducted by the Ray Bliss Center to determine the foreign policy belief systems of contributors. We then compare those results to the belief systems found in a 1988 survey of contributors. Results. We find that Cold War belief systems are quite durable. There was surprisingly little change in the structure or content of contributors' foreign policy beliefs between 1988 and 1996. We also find that both ideology and economic interests help shape these beliefs and examine the circumstances under which each of these two considerations appears to have the most important effects. Conclusions. Policymakers face new challenges since the end of the Cold War, but domestic political elites still approach foreign policy with a Cold War perspective. Also, although ideology is very important in determining how individuals think about foreign policy, material interests also make a difference for campaign contributors.     

Dynamic awareness and zero probability beliefs

We study behavioral patterns of insurance demand for low-probability large-loss events (catastrophic losses). Individual patterns of belief formation and risk attitude that were suggested in the behavioral decisions literature emerge robustly in the current set of insurance choices. However, social comparison effects are less robust. We do not find any evidence for peer effects (through social-loss aversion or imitation) on insurance take-up. In contrast, we find support for the prediction that people underweight others’ relevant information in their own decision making.     

Can good news lead to a more pessimistic choice of action?

Adapting a definition introduced by Milgrom (1981) we say that a signal about the environment is good news relative to some initial beliefs if the posterior beliefs dominate the initial beliefs in the sense of first-order stochastic dominance (the assumption being that higher values of the parameter representing the environment mean better environments). We give an example where good news leads to the adoption of a more pessimistic course of action (we say that action a ₁, reveals greater pessimism than action a ₂, if it gives higher payoff in bad environments and lower payoff in good environments). We then give sufficient conditions for a signal not to induce a more pessimistic choice of action.A first version of this paper was written when the author was Heyworth Research Fellow at Nuffield College, Oxford, and presented at the Second Annual Congress of the European Economic Association (Copenhagen, August 1987). The author is grateful to an anonymous referee for helpful comments.     

Beliefs in Conspiracy Theories Among African Americans: A Comparison of Elites and Masses*

Objective. Several studies have reported a widespread belief in conspiracy theories among African Americans. Such theories have been shown to have possible deleterious effects, especially when they deal with HIV/AIDS. It has been conjectured that African‐American elites could play a role in dispelling these beliefs, unless, of course, they believe in these theories themselves. To examine this possibility the present study examines the conspiratorial beliefs of African‐American locally elected officials in Louisiana and compares them with a previous study of African‐American churchgoers in the same state. Methods. A systematic sample of 400 African‐American locally elected officials was drawn from a list of all African‐American elected officials in the state and 170 officials completed and returned the mail survey. Confirmatory factor analysis and OLS regression were used to analyze the attitude structure and determinants of beliefs, respectively. Results. The locally elected officials believe in these theories as much as the churchgoers and the structures of their beliefs are also very similar. In some very important ways, however, the predictors of these beliefs differ between the two samples. Conclusions. Our findings suggest that beliefs in conspiracy theories are widespread and that African‐American locally elected officials will not seek to dispel these beliefs.     

Beliefs About Affirmative Action and Diversity and Their Relationship to Support for Hiring Policies

Two hundred seventy-three White undergraduates participated in an investigation of how beliefs relate to support for affirmative action (AA) policies. Beliefs included belief in the fairness of AA, belief in merit, and belief in the value of diversity. Analyses predicted support for a general affirmative action policy, a tiebreak policy, and a policy using banding from beliefs and individual-level variables such as future benefit from AA and demographics. For the general policy, each belief predicted support for AA. Fairness and value of diversity predicted support for a tiebreak policy. Value of diversity predicted support for aptitude testing. Individual characteristics improved prediction for AA in general but not for tiebreak policy or aptitude testing. We discuss predictions and results in terms of procedural and distributive justice, fairness heuristic theory, and models of support for AA.     

An Experimental Comparison of Induced and Elicited Beliefs

Understanding choice under risk requires knowledge of beliefs and preferences. A variety of methods have been proposed to elicit peoples beliefs. The efficacy of alternative methods, however, has not been rigorously documented. Herein we use an experiment to test whether an induced probability can be recovered using an elicitation mechanism based on peoples predictions about a random event. We are unable to recover the induced belief. Instead, the estimated belief is systematically biased in a way that is consistent with anecdotal evidence in the economics, psychology, and statistics literature: people seem to overestimate low and underestimate high probabilities.     

Deterring domestic violence: Do criminal sanctions reduce repeat offenses?

This study presents an empirical analysis of domestic violence case resolution in North Carolina for the years 2004 to 2010. The key hypothesis is that penalties at the level set for domestic violence crimes reduce recidivism (re-arrest on domestic violence charges or conviction in 2 years following an index arrest). We use state court data for all domestic violence-related arrests. Decisions to commit an act of domestic violence are based on a Bayesian process of updating subjective beliefs. Individuals have prior beliefs about penalties for domestic violence based on actual practice in their areas. An individual’s experience with an index arrest leads to belief updating. To address endogeneity of case outcomes, we use an instrumental variables strategy based on decisions of prosecutors and judges assigned to each index arrest in our sample. Contrary to our hypothesis, we find that penalities, at least as set at the current levels, do not deter future arrests and convictions.     

Are More Alternatives Better for Decision-Makers? A Note on the Role of Decision Cost

While the traditional economic wisdom believes that an individual will become better off by being given a larger opportunity set to choose from, in this paper we question this belief and build a formal theoretical model that introduces decision costs into the rational decision process. We show, under some reasonable conditions, that a larger feasible set may actually lower an individual’s level of satisfaction. This provides a solid economic underpinning for the Simon prediction.     

Co‐production in the epidemiological clinic: A decentred analysis of the tensions in community‐based,client‐facing risk work

Public health policies to prevent disease within populations are giving rise to shifting patterns of healthcare delivery in the late modern era. There is an inherent tension in modern medicine between evidence‐based standardisation, on the one hand, and patient‐centred specificity on the other. This tension manifests in recent policy narratives regarding public health risk (which we have characterised in terms of the epidemiological clinic) and co‐production. Drawing on co‐produced data with health trainers (lay health workers tasked with supporting behavioural change in patients at high risk of cardiovascular disease) in a deprived post‐industrial region of England, our decentred analysis focuses on three extended narratives from this data set. Our analysis builds on and develops emerging theories of risk work, informed by Habermas, and we explore the extent to which elite narratives of public health risk are resisted, absorbed, or bracketed off by client‐facing health workers—emphasising the heterogeneity of responses—and locate these responses within the context of the workers' employment conditions, their embodied experiences, and their wider beliefs and traditions. We argue that co‐production—albeit in a highly constrained form—is possible while delivering public health interventions. However, in the context of a community where health is so adversely affected by wider social problems and where task shifting has drawn lower status healthcare workers into these client‐facing roles, workers must find their own ways to negotiate and attempt to reconcile this context with the risk‐framed practices they are required to carry out.     

Belief formation in a signaling game without common prior: an experiment

Using belief elicitation, the paper investigates the process of belief formation and evolution in a signaling game in which a common prior is not induced. Both prior and posterior beliefs of Receivers about Senders’ types are elicited, as well as beliefs of Senders about Receivers’ strategies. In the experiment, subjects often start with diffuse uniform beliefs and update them in view of observations. However, the speed of updating is influenced by the strength of initial beliefs. An interesting result is that beliefs about the prior distribution of types are updated slower than posterior beliefs, which incorporate Senders’ strategies. In the medium run, for some specifications of game parameters, this leads to outcomes being significantly different from the outcomes of the game in which a common prior is induced. It is also shown that elicitation of beliefs does not considerably change the pattern of play in this game.     

Risk aversion and religion

We use a dataset for a demographically representative sample of the Dutch population that contains a revealed preference risk attitude measure, as well as detailed information about participants’ religious background, to study three issues. First, we find strong confirmatory evidence that more religious people, as measured by church membership or attendance, are more risk averse with regard to financial risks. Second, we obtain some evidence that Protestants are more risk averse than Catholics in such tasks. Third, our data suggest that the link between risk aversion and religion is driven by social aspects of church membership, rather than by religious beliefs themselves.     

Risk Perceptions and Alcohol Consumption among Young People

Swedish cross-sectional survey data on young individuals was used to analyse the determinants of perceived risks of alcohol use and how these perceptions relate to drinking behaviour. Three major conclusions were drawn: (1) that people overestimate the risks of alcoholism, (2) that these risk perceptions fall substantially with age, but nevertheless imply risk overestimation, and (3) that education about alcohol, narcotics and tobacco leads individuals to perceive risks more correctly and to have lower risk beliefs. An additional finding was that individuals with higher perceived risks were less likely to consume alcohol. Equations were estimated both separately and simultaneously.     

Inferring beliefs as subjectively imprecise probabilities

We propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.     

Faith and Politics: The Influence of Religious Beliefs on Political Participation*

Objective. The relationship between religion and political participation has not been rigorously investigated, typically employing only basic measures of church attendance or denomination. In this study, we utilize precise measures of various religious behaviors, traditions, and beliefs to examine their influence on political participation. Methods. Using data from the Baylor Religion Survey 2005, we demonstrate that merely including measures of church attendance or denomination camouflages much of religion's influence on political participation. Results. We find that religious beliefs are significantly related to national political participation. For religious activities, identifying with a religious tradition reduces participation, but participation in church activities increases political participation. Conclusion. Different types of religious beliefs influence political participation differently. Although some macro religious beliefs significantly increase macro political behavior, believers in an involved God are less likely to participate politically. Individualistic, micro beliefs have no affect on national politics. Thus, the scope of the religious belief fits with the scope of the political activity, in that more macro concerns translate to national political participation.     

Sex differences in attitudes toward driving: A survey

A survey of a convenience sample of 198 students at the University of Texas at El Paso was used to determine if sex differences in attitudes toward the task of driving could be detected. Males reported more behaviors than females that would put them at higher risk of collision—like driving under the influence and in vehicles with high centers of gravity. In addition, men expressed more comfort than women for driving at night, in unfamiliar territory and in bad weather. There was also some evidence of higher driving exposure for males than females. Women were more likely than men to report compliance with traffic regulations: using turn signals and obeying speed limits. Overall, it appears than men have more confidence in their driving skills than women. This confidence of males may reflect more of a belief in their superior driving skills rather than any disregard for the risks involved in operating a motor vehicle.     

The Impact of Health-Related Emotions on Belief Formation and Behavior

We present a theoretical model of health beliefs and behaviors that explicitly takes into account the emotional impact of possible bad news (i.e., illness), ex-ante in the form of anxiety and ex-post in the form of disappointment. Our model makes it possible to explain (simultaneously) a number of anomalies such as ’low’ testing rates, heterogeneous perceptions of risk levels, underestimation of health risk, ostriches and hypochondriacs, over-use and under-use of health services, patient preference for information when relatively certain of not being ill, yet avoiding information when relatively certain of being ill, etc. Our model matches observed patterns both in health beliefs and health behaviors and irrational health beliefs and behaviors can be characterized as the optimal response under a given structure of emotions and preferences.     

Aggression in toddlerhood: The roles of parental beliefs,parenting behavior and precursors of theory of mind

Parental beliefs, parenting behavior, and precursors of theory of mind have been related uniquely to each other and to early aggression, but have not yet been studied simultaneously. The present study combined these risk factors in the prediction of aggression during toddlerhood using a sample of 152 mother–child dyads. At 20 months, mothers' parental beliefs (parental self‐efficacy and perceived parental impact) were examined with the Parental Cognitions and Conduct Toward the Infant Scale. Maternal parenting behavior (sensitivity, intrusiveness, and successful positive engagement) was observed during free play and teaching tasks, and children's precursors of theory of mind were assessed using a visual perspectives task and an imitation task. At 30 months, child aggression was examined using the Child Behavior Checklist. A regression analysis indicated that lower parental self‐efficacy and lower imitation skills predicted more aggressive behavior. When estimating the indirect effects using bootstrapping, a final model was found indicating that lower perceived parental impact was related to less successful positive engagement, which, in turn, was associated with children's poorer imitation abilities which predicted more aggressive behavior. It can be concluded that aggression during toddlerhood is predicted significantly by interrelated parental beliefs, parenting behavior, and children's early social cognitive abilities.     

Games of Incomplete Information Without Common Knowledge Priors

We relax the assumption that priors are common knowledge, in the standard model of games of incomplete information. We make the realistic assumption that the players are boundedly rational: they base their actions on finite-order belief hierarchies. When the different layers of beliefs are independent of each other, we can retain Harsányi's type-space, and we can define straightforward generalizations of Bayesian Nash Equilibrium (BNE) and Rationalizability in our context. Since neither of these concepts is quite satisfactory, we propose a hybrid concept, Mirage Equilibrium, providing us with a practical tool to work with inconsistent belief hierarchies. When the different layers of beliefs are correlated, we must enlarge the type-space to include the parametric beliefs. This presents us with the difficulty of the inherent openness of finite belief subspaces. Appealing to bounded rationality once more, we posit that the players believe that their opponent holds a belief hierarchy one layer shorter than they do and we provide alternative generalizations of BNE and Rationalizability. Finally, we show that, when beliefs are degenerate point beliefs, the definition of Mirage Equilibrium coincides with that of the generalized BNE. This revised version was published online in June 2006 with corrections to the Cover Date.