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Dual-self models of consumer decisions in behavioral economics

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Dual-self models of consumer decisions in behavioral economics

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    1. Dual-self models of consumer decisions in behavioral economics What does the subject matter of this presentation have to do with economics? How can people protect themselves from the weaknesses discussed here? How can or should rational actors and policy makers make use of the ideas discussed here?What does the subject matter of this presentation have to do with economics? How can people protect themselves from the weaknesses discussed here? How can or should rational actors and policy makers make use of the ideas discussed here?

    2. Examples of dual-self models in behavioral economics Short-term/impulsive Doer Passions Affective/Visceral Hot state

    3. Short-run impulsive & long-run patient “Our theory proposes that many sorts of decision problems should be viewed as a game between a sequence of short-run impulsive selves and a long-run patient self.”

    4. Fudenberg & Levine (2006) Long-run (patient) self This side tries to maximize utility across time

    5. The “planner” and the “doer” “our work is the first systematic, formal treatment of a two-self economic man. The conflict between short-run and long-run preferences is introduced by viewing the individual as an organization. At any point in time the organization consists of a planner and a doer.” http://www.flickr.com/photos/itsaboyd/2350110888/http://www.flickr.com/photos/itsaboyd/2350110888/

    6. R.H. Thaler (Santa Clara) & H. M. Shefrin (Cornell), 1981, An economic theory of self-control, Journal of Political Economy, 89(2), 392-406. http://www.flickr.com/photos/12071800@N02/2287273610/ http://www.flickr.com/photos/12392252@N03/1839810842/ http://www.flickr.com/photos/12071800@N02/2287273610/ http://www.flickr.com/photos/12392252@N03/1839810842/

    7. R.H. Thaler (Santa Clara) & H. M. Shefrin (Cornell), 1981, An economic theory of self-control, Journal of Political Economy, 89(2), 392-406. http://www.flickr.com/photos/12071800@N02/2287273610/ http://www.flickr.com/photos/12392252@N03/1839810842/ http://www.flickr.com/photos/12071800@N02/2287273610/ http://www.flickr.com/photos/12392252@N03/1839810842/

    8. Thaler & Shefrin (1981) “Planner” This side tries to maximize utility across time

    9. Match the concepts Thaler and Shefrin’s “Doer” Fudenberg & Levine’s short-run, impatient selves Fudenberg & Levine’s long-run, patient self The rational human of standard economic theory Both C & D

    10. Match the concepts Thaler and Shefrin’s “Planner” Fudenberg & Levine’s short-run, impatient selves Fudenberg & Levine’s long-run, patient self The rational human of standard economic theory Both C & D

    11. Emotions, feelings, and drives http://www.flickr.com/photos/assbach/478397940/ http://www.flickr.com/photos/brndnprkns/89374545/http://www.flickr.com/photos/assbach/478397940/ http://www.flickr.com/photos/brndnprkns/89374545/

    12. Adam Smith: The Father of Modern Economics 1776 published The Wealth of Nations First modern work of economics

    13. Before The Wealth of Nations In 1758 Adam Smith published The Theory of Moral Sentiments. This work provided the underpinnings to The Wealth of Nations.

    14. The passions and the spectator “In his first book, The Theory of Moral Sentiments, Smith argued that behavior was determined by the struggle between what Smith termed the ‘passions’ and the ‘impartial spectator.’ N. Ashraf (Harvard), C. Camerer (Cal Tech), G. Loewenstein (Carnegie-Mellon), 2005, Adam Smith, behavioral economist. The Journal of Economic Perspectives, 19(3), 131-145 Yoda http://www.flickr.com/photos/11268292@N02/3087364544/Yoda http://www.flickr.com/photos/11268292@N02/3087364544/

    15. N. Ashraf (Harvard), C. Camerer (Cal Tech), G. Loewenstein (Carnegie-Mellon), 2005, Adam Smith, behavioral economist. The Journal of Economic Perspectives, 19(3), 131-145 http://www.flickr.com/photos/deep_shot/1812436948/ http://www.flickr.com/photos/deep_shot/1812436948/

    16. N. Ashraf (Harvard), C. Camerer (Cal Tech), G. Loewenstein (Carnegie-Mellon), 2005, Adam Smith, behavioral economist. The Journal of Economic Perspectives, 19(3), 131-145 http://www.flickr.com/photos/deep_shot/1812436948/ http://www.flickr.com/photos/deep_shot/1812436948/

    17. Thaler and Shefrin’s “Doer” Fudenberg & Levine’s long-run, patient self The rational human of standard economic theory Thaler and Shefrin’s Planner B, C, & D

    18. The rational human of standard economic theory Thaler and Shefrin’s “Planner” Fudenberg & Levine’s short-run impulsive selves Thaler and Shefrin’s “Doer” C & D

    19. Hot state and cold state models “cold state (i.e., not hungry, angry, in pain, etc.)”

    20. My tastes are different when I am in a cold state … G. Loewenstein (Carnegie Mellon), T. O’Donoghue (Cornell), M. Rabin (UC-Berkeley), 2003, Projection bias in predicting future utility. Quarterly Journal of Economics, 118(4), 1210G. Loewenstein (Carnegie Mellon), T. O’Donoghue (Cornell), M. Rabin (UC-Berkeley), 2003, Projection bias in predicting future utility. Quarterly Journal of Economics, 118(4), 1210

    21. Hot/cold model of addiction “The individual may also operate in a “cold” mode, wherein he considers all alternatives and contemplates all consequences.”

    22. Review Which of the following is similar to the “hot” state?

    23. Review The “hot” state is similar to

    24. Affective and deliberative systems “We develop a two-system model in which a person’s behavior is the outcome of an interaction between… G. Loewenstein (Carnegie Mellon) and T. O’Donoghue (Cornell), 2004, Animal spirits: Affective and deliberative processes in economic behavior, p. 1

    25. Visceral factors and rationality “Visceral factors refer to a wide range of negative emotions (e.g., anger, fear), drive states (e.g., hunger, thirst, sexual desire), and feeling states (e.g., pain), that grab people's attention and motivate them to engage in specific behaviors… G. Loewenstein, 2000, Emotions in economic theory and economic behavior. American Economic Review, 90(2), 426-432, p. 426

    26. Which emotions are in the first system [passions/hot state/affective/visceral]? Hunger Anger Fear Sexual Lust Thirst Pain Since this is a “G” rated class, let’s look at an example of this using “hunger”Since this is a “G” rated class, let’s look at an example of this using “hunger”

    27. System Parallels Hunger Anger Fear Sexual Lust Pain Since this is a “G” rated class, let’s look at an example of this using “hunger”Since this is a “G” rated class, let’s look at an example of this using “hunger”

    28. Hunger: An example of affective and deliberative conflict The affective system desires immediate gratification. The deliberative system considers longer-term effects on weight, appearance, and health based upon calorie content, fat, sugar, etc.

    29. Brain Biology “A crucial fact is that the human brain is basically a mammalian brain with a larger cortex. This means human behavior will generally be a compromise between… animal emotions and instincts, and… human deliberation and foresight.”

    30. Can we see two systems in the brain? Areas of the prefrontal cortex are associated with rational, higher cognitive thought. The more central limbic system is the immediate reward system (“dopaminergic”). http://en.wikipedia.org/wiki/File:OFC.JPG http://www.flickr.com/photos/labguest/3497647067/http://en.wikipedia.org/wiki/File:OFC.JPG http://www.flickr.com/photos/labguest/3497647067/

    31. Watching decision-making happen By making decisions in an fMRI machine, we can see which areas of the brain are activated. http://www.flickr.com/photos/macronin47/85006920/http://www.flickr.com/photos/macronin47/85006920/

    32. Limbic system reactions Choices between more $ later, less $ sooner. Earliest option: Today Earliest option: 2 Weeks Earliest option: 1 month

    33. Higher cognitive system reactions Choices between more $ later, less $ sooner. Earliest option: Today Earliest option: 2 Weeks Earliest option: 1 month Note: The Kable & Glimcher article in Nature Neuroscience proports to have falsified the hypothesis that the ventral striatum, medial prefrontal cortex, and posterior singulate cortex form a reward system that primarily values immediate reward.  However, their experiment was structured such that (1) there were no choices between two delayed rewards and (2) the immediate reward was always the same and was never presented visually.  It appearrs that their experimental structure created an endowment effect, i.e., where the immediate $20 was already planned/known/expected/owned in every trial, and thus the only impact on immediate reward would be couched in terms of loss.  In other words, if these systems only cared about immediate reward, it is possible that the activation related to the predicted probability of loss of the endowment.Note: The Kable & Glimcher article in Nature Neuroscience proports to have falsified the hypothesis that the ventral striatum, medial prefrontal cortex, and posterior singulate cortex form a reward system that primarily values immediate reward.  However, their experiment was structured such that (1) there were no choices between two delayed rewards and (2) the immediate reward was always the same and was never presented visually.  It appearrs that their experimental structure created an endowment effect, i.e., where the immediate $20 was already planned/known/expected/owned in every trial, and thus the only impact on immediate reward would be couched in terms of loss.  In other words, if these systems only cared about immediate reward, it is possible that the activation related to the predicted probability of loss of the endowment.

    34. What about this description from the brain science of addiction & relapse? Does the “go system”/“stop system” model described by Dr. Childress (U. Pennsylvania School of Medicine) correspond to the previous dual-self models? http://www.flickr.com/photos/tedpercival/2621455898/ http://www.flickr.com/photos/50906336@N00/2896787167/http://www.flickr.com/photos/tedpercival/2621455898/ http://www.flickr.com/photos/50906336@N00/2896787167/

    35. We could try using a long list… When given a big bowl of cookies before lunch, what is the natural reaction of your Short-term/ Impulsive/ Doer/ Passions/ Affective/ Visceral/ Hot state/ Core mammalian/ Limbic/ Go/ Automatic system?

    36. Let’s use a simple analogy “The image that I came up with … was that I was a rider on the back of an elephant. I’m holding the reins in my hands, and by pulling one way or the other I can tell the elephant to turn, to stop, or to go. I can direct things, but only when the elephant doesn’t have desires of his own. When the elephant really wants to do something, I’m no match for him.” Dr. Jonathan Haidt, (University of Virginia), The Happiness Hypothesis, 2006, p. 4, Basic Books: New York.

    37. The “elephant” and the “rider” Short-term Impulsive Doer Passions Affective/Visceral Hot state

    38. What does the subject matter of this presentation have to do with economics? How can people protect themselves from the weaknesses discussed here? How can or should rational actors and policy makers make use of the ideas discussed here?What does the subject matter of this presentation have to do with economics? How can people protect themselves from the weaknesses discussed here? How can or should rational actors and policy makers make use of the ideas discussed here?

    39. Dual-self metaphors: a list This presentation further discusses the dual-self model. This series of presentations does not discuss bounded self-interest.This presentation further discusses the dual-self model. This series of presentations does not discuss bounded self-interest.

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