Chaudhry, S.J., Hand, M., & Kunreuther, H. “Broad bracketing for low probability events,” in press at Journal of Risk and Uncertainty. Available at SSRN: https://ssrn.com/abstract=3537938 and NBER: https://www.nber.org/papers/w27319
Individuals tend to underprepare for rare, catastrophic events because of biases in risk perception. A simple form of broad bracketing—presenting the cumulative probability of loss over a longer time horizon—has the potential to alleviate these barriers to risk perception and increase protective actions such as purchasing flood insurance. However, it is an open question whether broad bracketing effects last over time: There is evidence that descriptive probability information is ignored when decisions are made from “experience” (repeatedly and in the face of feedback), which describes many protective decisions. Across six incentive-compatible experiments with high stakes, we find that the broad bracketing effect does not disappear or change size when decisions are made from experience. We also advance our understanding of the mechanisms underlying broad bracketing, finding that, while cumulative probability size is a strong driver of the effect, this is dampened for larger brackets which lead people to be less sensitive to probability size.
Robinson, P.J., Botzen, W.J.W., Kunreuther, H., & Chaudhry, S.J. “Default Options and Insurance Demand,” conditionally accepted at Journal of Economic Behavior & Organization. Available at NBER: https://www.nber.org/papers/w27381
Default options may provide a low-cost way of influencing behaviour without modifying incentives and constraining choices between alternatives. However, an improved understanding is needed on whether they are effective when individuals have experience with making the choice in practice and have preferences for specific alternatives. We study whether defaults can be used to increase insurance coverage against low-probability/high-impact risks, like floods, and whether past flood insurance purchases and flooding experience moderate the effect of defaults. Our study uses a naturally occurring difference in experience, comparing the surveyed flood insurance choices of 1,187 homeowners, half of whom are in the Netherlands, where flood insurance penetration rates are low and recent flooding caused minor losses, and the other half of whom are in the United Kingdom (UK), where the opposite is true. We find defaults are effective among homeowners with little to no flood-related experience: in the Netherlands defaults increase the likelihood of insuring by between 17 and 18 percentage points. Although there is no overall effect of defaults in the UK, defaults increase flood insurance coverage for risk averse individuals, and those who have no reported previous flood experience and have not purchased flood insurance. Anticipated regret about not having insurance coverage in the event of a flood, and perceptions about the insurance cost explain between 34 and 37 percent of the relationship between the default and flood insurance demand. We discuss policy implications of our findings.
Chaudhry, S.J. & Loewenstein, G. (2019) “Thanking, apologizing, bragging, and blaming: Responsibility exchange theory and the currency of communication.” Psychological Review, 126(3), 313-344. http://dx.doi.org/10.1037/rev0000139
From the time we are children, we are taught to say “thank you” and “I’m sorry.” These communications are central to many social interactions, and the failure to say them often leads to conflict in relationships. Research has documented that, alongside the impact they can have on relationships, apologies and thanks can also impact material outcomes as small as restaurant tips and as significant as settlements of medical malpractice lawsuits. But, it is trivial to utter the words; how can such “cheap talk” carry so much value? In this paper, we propose a “responsibility exchange theory” that explains why these communications are not costless, and which draws connections between four forms of communication that have not previously been connected: thanking, apologizing, bragging, and blaming. All four of these communications relay information about credit or blame for a positive or negative outcome, and thus introduce image-based costs and benefits for both the communicator and the recipient of communication. Each of the four communications, we show, involves a tradeoff between appearing competent and appearing warm. By formalizing these social psychological insights with a cognitive approach to modeling communication, and by applying game theoretic analysis, we offer new insights and predictions about social communication. We test several of the model’s novel predictions about strategic communication in two experiments: The first involves hypothetical choices in a scenario study (N = 1,079), and the second involves real choices in a live interaction (N = 205 pairs). We end with a discussion of the theory’s place in the literature and consider extended predictions and applications as examples of future directions for research.
Chaudhry, S.J. & Klinowski, D. (2016) “Enhancing autonomy to motivate effort: An experiment on the delegation of contract choice.” in Sebastian J. Goerg, John R. Hamman (ed.) Experiments in Organizational Economics (Research in experimental economics, vol 19). Emerald Group Publishing Limited, pp.141-157. [link]
We investigated whether giving workers autonomy by letting them choose their payment contract intrinsically motivates effort. In contrast to previous work, our design isolated the effect of autonomy by controlling for preferences. We found no difference in effort between agents with autonomy and those without it. Because our novel design feature excludes the possibility that preferences are playing a role, and because workers engaged in a real effort task, this result casts doubt on the practical link between autonomy, per se, and the motivation of employees in the workplace. Our results suggest that workplace incentives might do best by targeting instrumental benefits of autonomy rather than autonomy itself.
Bhatia, S. & Chaudhry, SJ. (2013). The dynamics of anchoring in bidirectional associative memory networks. In Proceedings of the 35th Annual Conference of the Cognitive Science Society (pp. 1899-1904). [link]
In this paper, we leveraged a neurally feasible model to describe the judgment processes underlying the well-known anchoring-and-adjustment heuristic. We specified a network model based on associative memory that was composed of two layers of nodes. Anchors were represented by one of the nodes being “on” at the start of the constraint satisfaction process. We showed that anchors biased how the network settled, mirroring the insufficient adjustment that results from presenting someone with an anchor. We argued that this model could reconcile two conflicting theories as well as provide new testable predictions about judgments in the presence of anchoring.