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Applied Micro Workshop – Sandro Ambühl, “For They Know Not What They Do: Selection Effects of Incentives When Information Is Costly”

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Sandro Ambühl, Axel Ockenfels, and Colin Stewart: “For They Know Not What They Do: Selection Effects of Incentives When Information Is Costly” We ask who participates in transactions when information about the consequences must be learned. Theoretically, we show that rational decision makers for whom learning is more difficult will respond more strongly to incentives for participating, and decide to participate based on worse information. Consequently, with higher incentives, the pool of participants consists of a larger fraction of individuals with a limited understanding of the consequences of their decision. Our behavioral experiment confirms these predictions, both for experimental variation in the costs of information acquisition, and for various laboratory and naturally occurring measures of information costs, including cognitive ability. These findings are relevant for any transaction in which a price paid for participation trades off with not fully understood yet learnable consequences and has applications throughout economics. Our results help address ethical concerns with incentives.

Event details
What
  • Presentation
When Nov 28, 2017
from 16:00 to 17:30
Where briq, Seminar Room 9/1.1, Schaumburg-Lippe-Straße 9
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