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Experimental evidence of behavioral improvement by learning and intermediate advice

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Abstract

This paper attempts to empirically assess how advice may reduce suboptimality in a portfolio choice experiment with risk-neutral participants induced via binary-lottery incentives. Previous studies (Theory Decis 83:195–243, 2017 and Theory Decis 85:151–177, 2018) with a larger set of choice tasks report overwhelming evidence of suboptimality and how it is slightly reduced by learning and experience. Participants confront 15 randomly ordered portfolio choices, which they experience again in 2 successive phases. Intermediate advice between phases alerts participants that less-risky investments can improve the outcome for at least one chance event without harming their success chances in the other random event. Compared to the pure choice treatment, another cognitively more demanding treatment additionally asks participants to form event-specific success aspirations that allow us to test satisficing and its optimality. The results show that intermediate advice increases the share of satisficing but not of optimal behavior beyond learning through experience. However, it significantly lowers the average distance from optimality.

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Notes

  1. In social situations, one learns by comparing one’s own behavior with that of others and imitating more-successful others (see Vega-Redondo 1997, and for experimental evidence of learning, Aperteguia et al. 2007. )

  2. See Di Cagno et al. (2017, 2018).

  3. When viewing rational choice theory as a philosophical exercise, intrapersonal payoff aggregation is hardly avoidable. In behavioral economics, however, it seems only a possibility that one might often want to avoid by applying a multiple-selves approach.

  4. For an analysis of the concepts of aspiration formation and satisficing, see Simon (1955), Siegel (1957), Manski (2017), Sauermann and Selten (1962), Selten (1998) and Güth and Ploner (2017). For experimental analyses, see Selten et al. (2012) and Hey et al. (2017).

  5. The fact that binary-lottery incentives do not trigger optimality (see Selten et al. 1999) has often been misunderstood. If they do not result in optimality, this questions not only risk-neutral optimality induced via binary-lottery incentives but more generally expected utility maximization.

  6. Administering advice immediately together with the instructions would have cognitively overburdened participants and could have rendered immediate advice ineffective.

  7. Di Cagno et al. (2017), only ran two phases; however, three \(c=0\) control tasks were included in each phase, which we excluded in this experiment.

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Correspondence to Noemi Pace.

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Di Cagno, D., Güth, W. & Pace, N. Experimental evidence of behavioral improvement by learning and intermediate advice. Theory Decis 91, 173–187 (2021). https://doi.org/10.1007/s11238-020-09799-5

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