How Utility Functions Bend in Reality
Psychologists can divide human beings into two groups, according to how they make decisions: intuitive and deliberative deciders. While the intuitive deciders tend to "listen to their stomache", i.e. they rely a lot on their feelings, deliberative decision-makers reflect more on the decision-making process and possible consequences. Up to today, many economists have neglected these psychological details in their studies of human decision-making. Therefore, the economist Daniel Schunk and the psychologist Cornelia Betsch have started an investigation about systematic relationships between economic modelling of risk attitude and psychological decicison modi.
On their search to translate psychological knowledge into economic language, the interdisciplinary research team has first identified subjects as deliberative or intuitive deciders wiht the help of a questionnaire. The intuitive decision-maker is characterized by treats like extraversion and a tendency to act quickly. The deliberative decision-maker unravels himself by treats like perfectionism, preciseness and a strong need for structures. The researchers have also assesed the utility curves of the participants of a labratory experiment. Utility curves help to express human decisions in mathematical form. Daniel Schunk and Cornelia Betsch find a statistically strong relationship: The flatter the utility curve, the more the decision-maker reflects on his decisions, i.e. the more deliberative is the decision-maker. In contrast, the utility curves of decision-makers that are classified as being rather intuitive have a pronounced curvature. The results allow to divide deciders into behavioral groups. That makes it possible to distinguish differences in decision making in portfolio choice or stock exchange decisions based on stable psychlogically measureable character traits.
Explaining heterogeneity in utility functions by individual differences in decision modes
MEA Discussion Paper: 078-05 Daniel Schunk, and Cornelia Betsch
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