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PAYOFF DOMINANCE VS. COGNITIVE TRANSPARENCY IN DECISION MAKING |
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| Authors: | JULIE R IRWIN GARY H McCLELLAND MICHAEL McKEE WILLIAM D SCHULZE N ELIZABETH NORDEN |
| Institution: | Assistant Professor, Stern School of Business, New York University, New York, Phone 1–212-998-0511 Fax 1–212-995-4006 E-mail;Professor, Department of Psychology, University of Colorado, Boulder, Phone 1–303-492-8122 Fax 1–303-492-5580 E-mail;Associate Professor, Department of Economics University of New Mexico, Albuquerque Phone 1–505-277-1960, Fax 1–505-277-9445 E-mail;Professor, Department of Agricultural Economics, Cornell University, Ithaca, Phone 1–607-255-9611 Fax 1–607-255-9984, E-mail;Consultant, Lodestone Research, Loveland Phone 1–970-663-1055, Fax 1–970-663-2595 E-mail |
| Abstract: | This paper reports on three laboratory experiments designed to investigate the roles of decision costs and rewards on the accuracy of economic decisions. The experimental vehicle is a purchase decision employing the Becker-DeGroot-Marshak (BDM) mechanism. The first experiment verifies the incentive-compatibility of the BDM in a pure induced-value setting; the second tests its performance under different information regimes and payoff schedules; the third addresses the role of feedback information. Steep payoff schedules are found to be necessary to optimizing behavior only in cases where subjects must search out an optimal strategy rather than being able to deduce it from information provided. (JEL C91, D83) |
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