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Abstract:
Finance professionals, who are regularly exposed to notions of volatility, seem to confuse mean absolute deviation with standard deviation, causing an underestimation of 25% with theoretical Gaussian variables. In some fat tailed markets the underestimation can be up to 90%. The mental substitution of the two measures is consequential for decision making and the perception of market variability.

finance, volatility, risk, intuition, statistics, metrics

Abstract:
Consumer choice occurs over multiple products and services, each comprising multiple risks. In this paper, we present a new market research technique to measure consumers' preferences over large spaces of risks. We first describe the method, present its psychological and analytical motivation, and then report the results of empirical tests of reliability and validity, both within testing sessions and across the span of one year. The method is used to estimate the coefficient of relative risk aversion and the loss aversion parameter for a sample of adults saving for retirement. The new technique passes tests of reliability and validation and captures individual differences based on age and income. It also identifies two sub-populations, one best fit by a more classical model of risk preference, and the other by a behavioral model which incorporates loss aversion.

marketing research tools, consumer behavior, decision-making, parameter estimation, measurement, segmentation, risk, utility, uncertainty

Abstract:
Randomized experiments, conducted during the 2006 US midterm election and the 2005 German federal election, examined the impact on voter turnout of two simple treatments. The effects of a mere measurement treatment (asking people if they intend to vote) and an implementation intentions treatment (asking people how they intend to vote), were estimated for both one-shot goals (e.g., voting on Election Day) and open-ended goals (e.g., voting early) with deadlines in either days or months in the future. Mere measurement increased voter turnout for open-ended goals and for proximal one-shot goals but not for distant one-shot goals. Implementation intentions increased voter turnout for both open-ended and one-shot goals in the near and long term.

mere measurement, implementation intentions, voting, turnout, elections, surveys

Abstract:
Defaults have such powerful, pervasive and unrecognized effects on consumer behavior that in some settings they may be considered 'hidden persuaders'. Looking at defaults from the perspective of consumer welfare, consumer autonomy and marketing ethics, this paper shows that ignoring defaults is not an option. It identifies three theoretical causes of default effects-implied endorsement, cognitive biases, and effort-to guide thought on the appropriate marketer response to the issues posed for consumer autonomy and welfare. We propose the concepts of "smart defaults" and "adaptive defaults" as welfare-enhancing and market-oriented alternatives to the current practice of generally ignoring default effects, in addition to other remedies. Our analysis highlights how an ethical market orientation would consider the process of consumer decision making as well as its outcomes: marketers bear responsibility for consumer buying mistakes arising from the marketer's inept neglect or misuse of defaults. As well as recommendations for marketing practice, we also identify policymaker and research implications of defaults and consider, more broadly, the ethics of using techniques that influence consumer choice without consumer awareness.

Default Effects, Marketing Ethics, Consumer Choice, Consumer Welfare, Consumer Autonomy

Abstract:
The article discusses how should policy-makers choose defaults regarding organ donors. First, consider that every policy must have a no-action default, and defaults impose physical, cognitive, and, in the case of donation, emotional costs on those who must change their status. Second, note that defaults can lead to two kinds of misclassification, willing donors who are not identified or people who become donors against their wishes. Changes in defaults could increase donations in the United States of additional thousands of donors a year. Because each donor can be used for about three transplants, the consequences are substantial in lives saved.

organ donors, donation of organs, donation of tissues, transplantation

Abstract:
When asked to delay consumption, people are impatient and discount future rewards more than when offered the chance to accelerate consumption. Three experiments provide a process-level account for this asymmetry, with implications for the design of decision environments that promote less impulsivity. In Experiment 1, a thought-listing procedure shows that people decompose discount valuation into two queries. Considering delayed vs. accelerated receipt of a gift-certificate influences the order in which memory is queried to support immediate vs. delayed consumption, which affects the number of patient vs. impatient thoughts. Relative frequency and clustering of impatient thoughts predicts discounting and mediates the discounting asymmetry. Experiment 2 implicates query-order causally: Listing reasons for immediate vs. delayed consumption in the orders people use spontaneously in acceleration and delay decisions replicates the discounting asymmetry; reversing this order eliminates it. Experiment 3 supports a memory-interference account of the effect of query order, using an implicit-memory task.

Abstract:
The well-documented shortage of donated organs suggests that greater effort should be made to increase the number of individuals who decide to become potential donors. We examine the role of one factor: the no-action default for agreement. We first argue that such decisions are constructed in response to the question, and therefore influenced by the form of the question. We then describe research that shows that presumed consent increases agreement to be a donor, and compare countries with opt-in (explicit consent) and opt-out (presumed consent) defaults. Our analysis shows that opt-in countries have much higher rates of apparent agreement with donation, and a statistically significant higher rate of donations, even with appropriate statistical controls. We close by discussing the costs and benefits associated with both defaults as well as mandated choice.

Organ donation, Decision, Defaults, Policy

Abstract:
Defaults options have important applications within public policy programs concerning retirement savings, organ donation, and for consumer choice. Past research has theorized several potential reasons why no-action defaults have a profound effect on choice: (i) effort, (ii) implied endorsement, and (iii) reference dependence and its effect on preference construction. However, while the first two of these reasons have been experimentally demonstrated, the latter has not. In two experiments, we produce default effects and simultaneously measure the impact of these three factors. We examine choices between two environmentally consequential alternatives: a cheap but inefficient or an expensive but efficient, light bulb. The results demonstrate that reference dependence can play a leading role in mediating observed default effects. Specifically, we find that the queries formulated by the defaults produce differences in constructed preferences.

defaults, query theory, decision making, preference construction

Abstract:
Investing for retirement is one of the most consequential yet daunting decisions consumers face. We present a way to both aid and understand consumers as they construct preferences for retirement income. The method enables consumers to build desired probability distributions of wealth constrained by market forces and the amount invested. We collect desired wealth distributions from a sample of working adults, provide evidence of the technique's reliability and predictive validity, characterize individual- and cluster-level differences, and estimate parameters of risk aversion and loss aversion. We discuss how such an interactive method might help people construct more informed preferences.

Abstract:
The authors examine how a constructive preferences perspective might change the prevailing view of medical decision making by suggesting that the methods used to measure preferences for medical treatments can change the preferences that are reported. The authors focus on 2 possible techniques that they believe would result in better outcomes. The 1st is the wise selection of default options. Defaults may be best applied when strong clinical evidence suggests a treatment option to be correct for most people but preserving patient choice is appropriate. The 2nd is the use of environments that explicitly facilitate the optimal construction of preferences. This seems most appropriate when choice depends on a patient's ability to understand and represent probabilities and outcomes. For each technique, the authors describe the background and literature, provide a case study, and discuss applications.

constructive preferences, decision analysis, decision environments, affective forecasting, defaults

Abstract:
Making big decisions is a daily task for business executives. Dan Goldstein asks if you have given much thought to how those decisions are made. It may be that the way you or your company reach decisions is both time-consuming and wide of the mark when it should be fast and frugal.

Abstract:
Most consumers don't think about the potential range of choices in a sales transaction; thus, they often accept the pre-selected “default” choice. Companies can benefit immensely from well-designed defaults, though, and Daniel Goldstein tells us how.