W. Fred van Raaij Economic Psychology Moscow, Russia: ICABEEP Conference September 2010

1. Schema Theory. Nonconscious Influences on Economic Behaviour W. Fred van Raaij Economic Psychology Moscow, Russia: ICABEEP Conference September 2010

2. Agenda Agenda of this presentation: • Relevance of the unconscious • Two systems? • Unconscious learning and skills • Direct elicitation of schemata and emotions • Word and number priming • Fluency processes • Basic motivations • Biases • Heuristics • Role of the conscious processes • Brain processes • Measuring the nonconscious/implicit

3. Low-involvement learning Low-involvement learning is explicit learning without conscious awareness or activity to memorize information. Situation of low motivation and interest (e.g., peripheral route in the ELM model), when watching TV commercials. Few or no cognitive responses or cognitive defences. Situations of information overload, and no possibility to process all information. Nevertheless, some learning effects occur after many exposures. TV is less suited for complex messages and argumentation. Low involvement learning is more common than high involvement learning. Herbert Krugman, General Electric

4. Nonconscious influences on behaviour Historical developments: Philosophers Augustine of Hippo (354-430) René Descartes (1596-1650): ‘Les Passions de l’Âme’. Baruch de Spinoza (1632-1677): Ethica Psychologists Willam James (1890) Joseph Jastrow (1906) Sigmund Freud (1915): unconscious, Vorbewuβte, conscious

5. Discussion on the ‘free will’ Baruch de Spinoza: pantheism (God = Nature), laws of nature, deterministic causality, no ‘free will’. Three levels of learning and development: • Body contagion and experiences of pleasure/pain (slavery). • Learning and insights through generalization. • Intuitive learning and insights (mastery). Psychologists Humanistic psychology: self-efficacy (Bandura), hierrachy of needs (Maslow) Timothy Wilson (2002), illusion of introspection Daniel Wegner (2002), illusion of free will

6. Relevance of nonconscious processes 95% of our brain activity is nonconscious activity (without conscious awareness and guidance). Regulation of somatic activities: blood circulation, digestion, respiration. Regulation of physical behaviour in space: navigation, eye-hand coordination, effort regulation. Regulation of memory: encoding and retrieval, recognition, recall. Regulation of basic learning and classical/operant conditioning. Regulation of skill and habit formation (car driving, piano playing). Different brain processes for learning the habit than for executing the learned habit (Langer & Imber, 1979; Lieberman et al, 2002) Regulation of ‘automatic’ emotions as responses to provoking stimuli. Regulation of ‘implicit’ judgment, preference and choice. → Nonconscious activity mainly for the perception of stimuli and the execution of behavior.

7. Two systems Zajonc: mere exposure (1968), cognitive and emotional system. This is too simple; note that there exist conscious and nonconscious cognitions and emotions. Kahneman (2003): system 1 (nonconscious) and system 2 (conscious). Two separate systems are, however, rather unlikely. Both systems have functional specializations and there must be interactions between both systems. John Bargh, Ap Dijksterhuis, … Comparison of these two systems.

8. Conscious and nonconscious system

9. Nonconscious processes • Reflexes and conditioning. • Skill acquisition: automatic behaviour after training and experience (car driving, violin playing). • Automatic encoding and activation of schemata (stereotypes, goals) if the relevant stimulus is present. • Ideomotoric action: mimicry of others’ behaviour and doing the behaviour yourself (modelling; mirror neurons). • The same brain area for perception, simulation and acting a particular behavior. Internal: Conscious thoughts about the behaviour Behaviour-relevant cognitive activity Behaviour External: Mereperception of others’ behaviour

10. (Un)intentional routes Intentional and unintentional routes to automatization • Goal/intention to acquire skill (button your shirt, golf, piano plying). • Repeatedly making the same choice in situations (unintentional). (Bargh & Chartrand, 1999) Intentional: Goal to acquire skill Frequent and consistent use of the same mental processes Removal of consciousrole in the process (automatization) Unintentional: Repeatedlymaking the samechoice

11. Intentional mediation of goal pursuit Intentional mediation (conscious choice) needed in a training/learning process of skill. The conscious process can be phased out later in the process. The conscious process may even deteriorate the process when moved in again. Schema (goal, stereotype) activation. Situation: Stimuli in the environment Goal activation Goal operation Consciouschoice Situation: Stimuli in the environment Goal activation Goal operation Consciouschoice

12. Development of emotions After a learning phase, provoking stimuli in the environment may directly elicit emotional responses and corresponding/congruent behaviours. Automatic evaluation and emotion activation. ‘Thin slices’ (Ambady & Rosenthal, 1992) are sufficient. Internal stimuli (pain) may also directly elicit emotions. Provoking stimuli in the environment Emotional response Corresponding behaviour Consciousevaluation of stimulus Provoking stimuli in the environment Emotional response Corresponding behaviour Consciousevaluation of stimulus

13. Schema theory Stimuli in the environment trigger schemas, and schemas guide/filter perception of the environment. Schemas may elicit/direct behaviours at the nonconscious level. The conscious level gets involved if there are conflicts between unconscious ‘departments’/areas of the brain or if there is communication/ reflection needed about the behaviour. Conscious Vorbewußte Unconscious Note the continuity of conscious and nonconscious content of schemas and processes in the brain. The Vorbewuβte is a (Freudian) in-between both. Cognitions Stereotypes Experience Emotions Expectations Associations Goal pursuits Stimuli in the environment Correspondingbehaviour Memorytraces

14. Schemas and scripts Schemas are association networks (connections) in (non)conscious memory: cognitions, stereotypes, emotions, goal pursuits, expectations. Scripts are behavioural sequences networks in (non)conscious memory: simulation of events and behavior, rehearsal of experiences, counterfactual thinking, (day)dreaming. Memory traces are perceptual or conceptual memory residues at a nonconscious level.

15. Word priming John Bargh • Concept priming effect (Bargh, 2002): • Participants are given a ‘priming task’ (word sort; sentence formation) with words of a certain meaning, e.g., utilitarian (in the other condition: hedonic) adjectives. In this way, utilitarian (hedonic) schemas (goal pursuits) are activated without awareness. Priming may be done sub- or supraliminally. • Filler task. • At a later, seemingly unrelated test, participants select more utilitarian (hedonic) products. Automatic goal pursuit. Implicit effect on attitude and on behavior. • Priming causes a nonconscious activation of a schema (goals pursuit, stereotype, associations). This schema triggers the relevant and/or corresponding behaviors.

16. Number priming • Number priming effect (Stephan, 2005) in a study for the Süddeutsche Klassenloterie: • In a telephone call, prospects were asked whether a lottery ticket of the Süddeutsche Klassenloterie is more or is less expensive than € 30 (in the other condition: € 60). • Then, the actual price of a lottery ticket (€ 45) is mentioned. • Willingness to buy a lottery ticket was significantly higher in the € 60 condition than in the € 30 condition. • Nonconscious activation of a the schema of a low vs. a high price. If a high price is activated, the actual price is perceived as a gain and thus becomes more attractive. • Even an irrelevant prime (just a high or low number) activates a schema of high and low prices. • The order of presentation, e.g., starting with expensive products, may influence the selection of an option.

17. Processing fluency 1 Chris Janiszewski Prior exposure to stimuli without awareness (recognition, recall) seems to leave memory traces and facilitates encoding and processing of the stimulus at a later time (Bornstein & d’Agostino, 1992). This is called processing fluency. People (mis)attribute ease of processing to a positive affect (liking). It plays a role in preference, decision making and choice (Schacter & Badgaiyan, 2001; Janiszewski & Meyvis 2001). Perceptual fluency: exposure creates a schema of a feature-based (form) representation, facilitating encoding and processing at a later time. Conceptual fluency: exposure creates a schema of a meaning-based (content) representation facilitating encoding and processing at a later time.

18. Processing fluency 2 • Dual-process theory (Groves & Thompson, 1970) explains the fluency effect. • Sensitization: excitatory response during initial exposures, declining with later exposures, based on: • stimulus intensity: high-contrast and complex stimuli are more stimulating and sensitizing. • stimulusrelevance: functionally relevant stimuli are more stimulating. • Habituation: inhibitory response, increasing at a marginally decreasing rate with additional exposure, based on: • stimulus intensity: less intense stimuli create stronger and more rapid habituation. • exposure interval/spacing: massed exposures increase habituation. • exposure duration: longer exposure durations increase habituation. • Chaiken & Trope (1999), dual-process theory in social psychology.

19. Recapitulation Perceptual fluency False fame Relearning PAR (same stimuli) Effects: Liking Fame Ease of learning Biased processing First occasion Second occasion A A B B Effects: Liking Motivation Goal pursuit Behavior C C D D Conceptual fluency Concept priming (stimulus generalization)

20. Critique of conscious thought Criticisms of conscious thought in the literature are (Baumeister & Masicampo, 2010) : • Introspection may be wrong (Nisbett & Wilson, 1977); invention of false explanations of own behaviour, from a stock pile of socially-acceptable explanations. • False information to integrate and complement information about the world. • Conscious thought may be too slow to guide behaviour (Kornhuber & Deecke, 1965; Libet, Gleason, Wright, & Pearl, 1983; Libet, 1999). • Conscious thought is not needed for the initiation of action (Bargh & Chartrand, 1999). • Conscious thought attributes too much behaviour to self initiation, rather than to environmental stimuli causing automatic behaviour (attribution error; Wegner, 2002). → Is conscious thought of any use/function to us?

21. Roles of conscious thought Conscious thought enables humans to coordinate with their social and cultural environment (Baumeister & Masicampo, 2010): • Mental crosstalk: Problem of connecting incoming stimulus with relevant brain sites. The incoming stimulus becomes a broadcast signal to brain sites. If brain sites differ in the course of action to be taken, the conscious will (try to) resolve the conflict. • Social communication: People can discuss only conscious schemas and thoughts with each other. Conscious thought may be silent speech (Vygotsky, 1962; Skinner, 1953). mirror neurons → arm movements → communication by gesture → vocal speech. 3.Cultural participation andcommunicationto test personal opinions, values and norms. Empathy and trust in others. 4. Sequential simulation: sentences of words, meaningful sequences of thought, narratives, scripts (replaying experiences, counterfactual thinking, logical and moral reasoning) are in the conscious domain. Simulations affect the same brain area as actual perceptions and actions.

22. Schema theory: role of conscious thought Conscious thought plays a role in gradually changing schemas for future perceptions and behaviors. Conscious thought is long-term oriented about important values, norms, identity, self-presentation, social acceptance, and lifestyle. Conscious thought is not to introspect and to direct ongoing behavior, but to give explanation, meaning, and perspective to ongoing behavior, to learn from behavior, and to communicate with others. Conscious Vorbewußte Unconscious Conscious thought: Mental crosstalk Social communication Cultural participation Sequential simulation Cognitions Stereotypes Experience Emotions Expectations Associations Goal pursuits Memorytraces

23. Schema theory: three functions of schemas • A schema /script is a nonconscious filter and bias on the perception of reality (the outside world). • A schema/script gives nonconsciously (automatic) direction to ongoing behavior. • A schema /script is a conscious reflection of behavior to provide meaning and justification of one’s own behavior. There are thus two/three functions of emotions, expectations, goal pursuits, etc. The nonconscious emotion plays a role in perception and behavior (liking, specific emotions). The conscious emotion is a reflection of experiences and behavior. The nonconscious expectation plays a role in perception (Gestalt) and behavior. The conscious expectation is a reflection of past experiences and a standard for evaluation and thus for satisfaction (Oliver, 1997). Cognitions Stereotypes Experience Emotions Expectations Associations Goal pursuits Memorytraces

24. Basic goal pursuits Basic human motivations and schemas (goal pursuits) (survival, Spinoza): • Improve personal conditions (gain, mastery, security). • Avoid negative developments (loss aversion, danger). • Improve social conditions (love, status, recognition). These three basic and often nonconscious goal pursuits influence and ‘colour’ (bias) our judgments, preferences, risk taking, decisions, and choices. These three basic goal pursuits explain some of our biases and heuristics. These biases and heuristics may be conscious or nonconscious.

25. Biases 1 Biases and anomalies in making correct estimates of frequencies and probabilities (Tversky & Kahneman, 1974): • Availability. The frequency or probability of an event will be estimated from the cases that can be brought to mind. • Representativeness. The frequency/probability that object A belongs to class B estimated from the degree to which A is representative for or similar to B. • Anchoring & adjustment. The initial/known value (anchor) is the base for estimation. Adjustment is often in the right direction but insufficient. These three biases to estimate numbers of probabilities are based on a restricted cognitive schema and observation of reality.

26. Biases 2 Other biases and anomalies are based on loss aversion (prospect theory, Kahneman & Tversky, 1979): • Endowment effect. The tendency to ask a higher price for selling a good (WTA) than the price one is willing to pay (WTP) (Knetsch, 1989; Kahneman, Knetsch & Thaler, 1990, 1991). • Status-quo bias. The tendency to remain at the present option, because the disadvantages of leaving the present option loom larger than the advantages of doing so (Samuelson & Zeckhauser, 1988). • Sunk-costs effect. An investment (even theatre tickets) has to be earned back before the mental account can be closed (Arkes & Blumer, 1985). People are unwilling to close an account with a loss. • Disposition effect. Selling winning stocks too early and selling loosing stocks too late. People are unwilling to sell their stocks with a loss and thus admitting a mistake. They rather take the risk to keep their loosing stock for a better time. These four biases are based on the negative schema /connotations of loss aversion: selling possessions, changing the status-quo, giving up an investment, and selling stocks at a loss. People rather take more risk to avoid a loss.

27. Heuristics Heuristics are simple and flexible (fast & frugal, Gigerenzer, 2007) tactics and decision rules of thumb and decision aids: • Affect heuristic (Slovic, Finucane, Peters, & MacGregor, 2002). People take their emotional response as an indicator /proxy of their preference. Emotion may signal preference (what to do) or danger (what to avoid). • Recognition heuristic (Goldstein & Gigerenzer, 2002). People use the recognition of an option as an indicator /proxy of the value/size/quality of the option, e.g., recognition of a brand name. • Gaze heuristic (in motoric behaviour; Babler & Dannemiller, 1993). Catching a fly ball by fixing the gaze on the ball, and adjusting the speed of running so that the angle of gaze remains constant. • String heuristic (Gigerenzer, 2007). Ranking the options in a one-dimensional list and choosing from that ranking. • Middle heuristic. In a choice between three or more options people tend to take the middle option or the one but most expensive option from a ranking. Heuristics 1, 2 and 3 are based on an approximation schema. Heuristics 4 and 5 are a simplified decision rule/schema/script.

28. Brain processes 1 Brain research to find relevant cerebral locations and their functions, and basic brain processes. Five main processes: • Representation of the problem, relevance, urgency. • Valuation system for options (expected value?). • Comparison and choice of options/behaviours. Rivalry between functions/desires (short-term vs. long-term; time discounting). • Evaluation of outcome. • Learning from experience (loop). Four parallel/sequential valuation systems:

29. Brain processes 2 Four parallel or sequential valuation systems in the brain: • Pavlovian , rather automatic system; classical and evaluative conditioning. Stimulus-base responses and generalizations to smell, noise, etc. • Habitual, rather automatic system of repetitions and routines; operant conditioning [dorsolateral part of corpus striatum]. • Mimicry, imitation, conformism, modelling, social learning (Bandura) [mirror neurons in premotorical cortex]. • Goal-directed system, controlled, deliberate (conscious) and flexible [neocortex, frontal brain; dorsomedial part of corpus striatum]. The first three systems are nonconscious in perception and direction of behaviour . The fourth system is conscious. If these four systems agree on options/outcomes/decisions, no problem will arise. With disagreement, the goal-directed system (neo-cortex) will try to dominate and control /arbitrage the other systems.

30. Measuring the nonconscious Anthony Greenwald Measurement of nonconscious, implicit processes and evaluations: • Implicit Attitude Test, reaction speed (Greenwald). • Go/No Go task (GNAT; Nosek & Banaji, 2001). • ZMAT, projective test (Zaltman, 2003). • Evidence from behavioural outcomes (in experiments and in reality).