Payoff Dominance vs. Cognitive Transparency in Decision Making
Julie R. Irwin
University of Texas - Mccombs School of Business
University of Colorado at Boulder - Department of Psychology
Appalachian State University - Department of Economics
William D. Schulze
Cornell University - Department of Economics
February 10, 1998
Economic Inquiry, Vol. 36, pp. 272-285, 1998
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.
Number of Pages in PDF File: 14
Keywords: behavioral economics, experimental economics, becker-degroot-marshak, auctions, incentive compatibilityAccepted Paper Series
Date posted: February 11, 2009
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