Ido Erev | Technion Israel Institute of Technology (original) (raw)

Papers by Ido Erev

Kagel, J. H., & Roth, A. E. (Eds.). The handbook of experimental economics (Vol. 2). Princeton university press., 2016

Decisions, 2015

The current analysis clarifies the relationship between four distinct reactions to rare events. ... more The current analysis clarifies the relationship between four distinct reactions to rare events. First, it suggests similarity between overconfidence in probability judgment (that implies underestimation of rare events) and underweighting of rare events in decisions from experience: Both tendencies can be reflections of reliance on small samples. Second, it suggests similarity between conservatism in probability judgment (that implies overestimation of rare events) and overweighting of rare events in decisions under risk without feedback: Both tendencies can be explained as the product of overgeneralizations. Finally, our analysis suggests a causal relationship between the two pairs: Overconfident judgments trigger initial overweighting in decisions under risk. For example, the experience that the estimate “5%” implies an occurrence rate of 20% (an indication of overconfident estimate) can lead people to prefer the gamble “5% chance to win 99” over “5 for sure” (an indication of overweighting of rare events). The value of this analysis is demonstrated in three studies. Study 1 shows that repeated experience with unbiased estimates decreases the weighting of rare events: The initial tendency to overweight rare events is replaced by underweighting of rare events. Study 2 demonstrates that experience with decisions based on subjective estimates increases overweighting of attractive rare events in subsequent decisions under risk. Study 3 highlights the robustness of the results in the context of unattractive rare events. These results are captured by models that abstract our qualitative assertions by assuming that both judgment and decision making are products of noisy retrieval from memory.

Recent policy initiatives offer cash payments to children (and often their families) to induce be... more Recent policy initiatives offer cash payments to children (and often their families) to induce better health and educational choices. These policies implicitly assume that children are especially impatient (ie, have high discount rates); however, little is known about the nature of children's patience, how it varies across children, and whether children can even make rational inter-temporal choices. This paper examines the inter-temporal choices of 5-to 16-year-old children in an artefactual field experiment.

Abstract This paper examines how selection affects trust and altruism in a Trust and Modified Dic... more Abstract This paper examines how selection affects trust and altruism in a Trust and Modified Dictator Game. Past Trust and Dictator game experiments not allowing partner selection show substantially more trust and altruism than equilibrium predicts. We predict partner selection will cause sorting in which behavior across partner types without selection will be positively correlated with partner choice.

Subjects chose when they could first use financial rewards between choices 2 months apart. We man... more Subjects chose when they could first use financial rewards between choices 2 months apart. We manipulated the early reward date and whether participants took immediate possession. Quasi-hyperbolic discounting is rejected in favor of hyperbolic discounting without but not with possession.

ABSTRACT In many low-and middle-income countries blood donations per capita are substantially low... more ABSTRACT In many low-and middle-income countries blood donations per capita are substantially lower than in advanced economies. In these countries blood supply is mostly collected through donations by relatives and friends of individuals needing transfusions or to replace blood used in emergencies. The World Health Organization considers this method of blood supply inefficient compared to undirected voluntary donations.

Abstract: This paper demonstrates how economic field experiments may offer researchers a method t... more Abstract: This paper demonstrates how economic field experiments may offer researchers a method to quickly assess policy outcomes that otherwise are difficult to measure. We compare lottery winners to losers of a privately run educational voucher program to measure the program's effect on confidence. We measure confidence on academic ability using protocols developed to assess the educational program. We find that confidence does not differ robustly between winners and losers.

Experimental evidence on gender differences demonstrates that women are generally less trusting a... more Experimental evidence on gender differences demonstrates that women are generally less trusting and more reciprocating than men in Investment Games. However, existing studies typically use a narrow population consisting of college students. To test the robustness of these findings, we report on an experiment using 18–84-year old participants recruited from an online panel.

In certain markets success may depend on how well participants anticipate the behavior of other p... more In certain markets success may depend on how well participants anticipate the behavior of other participants who have varying amounts of experience. Understanding if and how people's behavior depends on competitors' level of experience is important since in most markets participants have varying amounts of experience.

Although discrimination remains prevalent, the reasons for its occurrence remain hotly debated. T... more Although discrimination remains prevalent, the reasons for its occurrence remain hotly debated. To disentangle vying explanations, researchers have begun using laboratory experiments. However, this research has not allowed, or studied, the effects of selection. In this paper, we examine discrimination in a variant of Berg et al.'s (1995) investment game where subjects can and cannot select partners.

A multistage process model is proposed that predicts past prices are used to form a reference pri... more A multistage process model is proposed that predicts past prices are used to form a reference price (stage 1), the reference price determines perceived expensiveness of the current price (stage 2), and the perceived expensiveness mediates the effects of past prices on demand (stage 3). This process model is tested by measuring the effect of past prices on perceived expensiveness and actual demand in a simulated shopping experiment.

This paper reports on an experiment that distinguishes between learning rules that produce substa... more This paper reports on an experiment that distinguishes between learning rules that produce substantively rational behavior in more situations and learning simple rules that do not. The experimental task is a simplification of many naturally occurring search problems. The experiment manipulates individual choice problems such that simple rules produce substantively rational behavior in one condition but not in subsequent ones.

Abstract: Empirical research, intuition and theory suggest that experience pays. Further, two con... more Abstract: Empirical research, intuition and theory suggest that experience pays. Further, two constant-sum game experiments report that experienced participants earn significantly more than inexperienced participants in head-to-head competition. This paper tests the robustness of the experience advantage in four non constant-sum games. In contrast to the constant-sum game results, we find that in all four non constant-sum games experienced and inexperienced players earn statistically similar amounts.

Abstract Most game theory experiments are built around a single game, well chosen to provide a te... more Abstract Most game theory experiments are built around a single game, well chosen to provide a test of a specific theoretical prediction. Experiments concerned with testing the predictions of minimax behavior in two-person zero sum games have followed this path. The present paper uses a novel experimental design, better suited to investigating the regularities with which observed behavior deviates from specific predictions.

Abstract: Many households have insufficient savings to handle moderate and routine consumption sh... more Abstract: Many households have insufficient savings to handle moderate and routine consumption shocks. Many of these financially fragile households also have the highest lottery expenditures as a proportion of income. This combination suggests that Prize-Linked Savings (PLS) accounts, that combine principal-security with lottery-type jackpots, can increase savings among these at-risk households.

Abstract: Although it is well known that trust and trustworthiness (ie, the fulfillment of trust)... more Abstract: Although it is well known that trust and trustworthiness (ie, the fulfillment of trust) are important behaviors for the fulfillment of incomplete contracts, less is known about how the economic environment influences them. In this paper we design an experiment to examine how exogenously determined (stochastic) past relationship lengths affect trust and trustworthiness in new relationships.

Abstract: While peer effects have been shown to affect worker's productivity when workers are pai... more Abstract: While peer effects have been shown to affect worker's productivity when workers are paid a fixed wage, there is little evidence on their influence on quitting decisions. This paper presents results from an experiment in which participants receive a piece-rate wage to perform a real-effort task. After completing a compulsory work period, the participants have the option at any time to continue working or quit. To study peer effects, we randomly assign participants to work alone or have one other worker in the room with them.

Kagel, J. H., & Roth, A. E. (Eds.). The handbook of experimental economics (Vol. 2). Princeton university press., 2016

Decisions, 2015

The current analysis clarifies the relationship between four distinct reactions to rare events. ... more The current analysis clarifies the relationship between four distinct reactions to rare events. First, it suggests similarity between overconfidence in probability judgment (that implies underestimation of rare events) and underweighting of rare events in decisions from experience: Both tendencies can be reflections of reliance on small samples. Second, it suggests similarity between conservatism in probability judgment (that implies overestimation of rare events) and overweighting of rare events in decisions under risk without feedback: Both tendencies can be explained as the product of overgeneralizations. Finally, our analysis suggests a causal relationship between the two pairs: Overconfident judgments trigger initial overweighting in decisions under risk. For example, the experience that the estimate “5%” implies an occurrence rate of 20% (an indication of overconfident estimate) can lead people to prefer the gamble “5% chance to win 99” over “5 for sure” (an indication of overweighting of rare events). The value of this analysis is demonstrated in three studies. Study 1 shows that repeated experience with unbiased estimates decreases the weighting of rare events: The initial tendency to overweight rare events is replaced by underweighting of rare events. Study 2 demonstrates that experience with decisions based on subjective estimates increases overweighting of attractive rare events in subsequent decisions under risk. Study 3 highlights the robustness of the results in the context of unattractive rare events. These results are captured by models that abstract our qualitative assertions by assuming that both judgment and decision making are products of noisy retrieval from memory.

Recent policy initiatives offer cash payments to children (and often their families) to induce be... more Recent policy initiatives offer cash payments to children (and often their families) to induce better health and educational choices. These policies implicitly assume that children are especially impatient (ie, have high discount rates); however, little is known about the nature of children's patience, how it varies across children, and whether children can even make rational inter-temporal choices. This paper examines the inter-temporal choices of 5-to 16-year-old children in an artefactual field experiment.

Abstract This paper examines how selection affects trust and altruism in a Trust and Modified Dic... more Abstract This paper examines how selection affects trust and altruism in a Trust and Modified Dictator Game. Past Trust and Dictator game experiments not allowing partner selection show substantially more trust and altruism than equilibrium predicts. We predict partner selection will cause sorting in which behavior across partner types without selection will be positively correlated with partner choice.

Subjects chose when they could first use financial rewards between choices 2 months apart. We man... more Subjects chose when they could first use financial rewards between choices 2 months apart. We manipulated the early reward date and whether participants took immediate possession. Quasi-hyperbolic discounting is rejected in favor of hyperbolic discounting without but not with possession.

ABSTRACT In many low-and middle-income countries blood donations per capita are substantially low... more ABSTRACT In many low-and middle-income countries blood donations per capita are substantially lower than in advanced economies. In these countries blood supply is mostly collected through donations by relatives and friends of individuals needing transfusions or to replace blood used in emergencies. The World Health Organization considers this method of blood supply inefficient compared to undirected voluntary donations.

Abstract: This paper demonstrates how economic field experiments may offer researchers a method t... more Abstract: This paper demonstrates how economic field experiments may offer researchers a method to quickly assess policy outcomes that otherwise are difficult to measure. We compare lottery winners to losers of a privately run educational voucher program to measure the program's effect on confidence. We measure confidence on academic ability using protocols developed to assess the educational program. We find that confidence does not differ robustly between winners and losers.

Experimental evidence on gender differences demonstrates that women are generally less trusting a... more Experimental evidence on gender differences demonstrates that women are generally less trusting and more reciprocating than men in Investment Games. However, existing studies typically use a narrow population consisting of college students. To test the robustness of these findings, we report on an experiment using 18–84-year old participants recruited from an online panel.

In certain markets success may depend on how well participants anticipate the behavior of other p... more In certain markets success may depend on how well participants anticipate the behavior of other participants who have varying amounts of experience. Understanding if and how people's behavior depends on competitors' level of experience is important since in most markets participants have varying amounts of experience.

Although discrimination remains prevalent, the reasons for its occurrence remain hotly debated. T... more Although discrimination remains prevalent, the reasons for its occurrence remain hotly debated. To disentangle vying explanations, researchers have begun using laboratory experiments. However, this research has not allowed, or studied, the effects of selection. In this paper, we examine discrimination in a variant of Berg et al.'s (1995) investment game where subjects can and cannot select partners.

A multistage process model is proposed that predicts past prices are used to form a reference pri... more A multistage process model is proposed that predicts past prices are used to form a reference price (stage 1), the reference price determines perceived expensiveness of the current price (stage 2), and the perceived expensiveness mediates the effects of past prices on demand (stage 3). This process model is tested by measuring the effect of past prices on perceived expensiveness and actual demand in a simulated shopping experiment.

This paper reports on an experiment that distinguishes between learning rules that produce substa... more This paper reports on an experiment that distinguishes between learning rules that produce substantively rational behavior in more situations and learning simple rules that do not. The experimental task is a simplification of many naturally occurring search problems. The experiment manipulates individual choice problems such that simple rules produce substantively rational behavior in one condition but not in subsequent ones.

Abstract: Empirical research, intuition and theory suggest that experience pays. Further, two con... more Abstract: Empirical research, intuition and theory suggest that experience pays. Further, two constant-sum game experiments report that experienced participants earn significantly more than inexperienced participants in head-to-head competition. This paper tests the robustness of the experience advantage in four non constant-sum games. In contrast to the constant-sum game results, we find that in all four non constant-sum games experienced and inexperienced players earn statistically similar amounts.

Abstract Most game theory experiments are built around a single game, well chosen to provide a te... more Abstract Most game theory experiments are built around a single game, well chosen to provide a test of a specific theoretical prediction. Experiments concerned with testing the predictions of minimax behavior in two-person zero sum games have followed this path. The present paper uses a novel experimental design, better suited to investigating the regularities with which observed behavior deviates from specific predictions.

Abstract: Many households have insufficient savings to handle moderate and routine consumption sh... more Abstract: Many households have insufficient savings to handle moderate and routine consumption shocks. Many of these financially fragile households also have the highest lottery expenditures as a proportion of income. This combination suggests that Prize-Linked Savings (PLS) accounts, that combine principal-security with lottery-type jackpots, can increase savings among these at-risk households.

Abstract: Although it is well known that trust and trustworthiness (ie, the fulfillment of trust)... more Abstract: Although it is well known that trust and trustworthiness (ie, the fulfillment of trust) are important behaviors for the fulfillment of incomplete contracts, less is known about how the economic environment influences them. In this paper we design an experiment to examine how exogenously determined (stochastic) past relationship lengths affect trust and trustworthiness in new relationships.

Abstract: While peer effects have been shown to affect worker's productivity when workers are pai... more Abstract: While peer effects have been shown to affect worker's productivity when workers are paid a fixed wage, there is little evidence on their influence on quitting decisions. This paper presents results from an experiment in which participants receive a piece-rate wage to perform a real-effort task. After completing a compulsory work period, the participants have the option at any time to continue working or quit. To study peer effects, we randomly assign participants to work alone or have one other worker in the room with them.