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Egocentric framing - one way people may fail in a switch dilemma: Evidence from excessive lane switching

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  • Navon, David
  • Kaplan, Todd
  • Kasten, Ronen

Abstract

To study switching behavior, an experiment mimicking the state of a driver on the road was conducted. In each trial participants were given a chance to switch lanes. Despite the fact that lane switching had no sound rational basis, participants often switched lanes when the speed of driving in their lane on the previous trial was relatively slow. That tendency was discerned even when switching behavior had been sparsely reinforced, and was especially marked in almost a third of the participants, who manifested it consistently. The findings illustrate a type of behavior occuring in various contexts (e.g., stocks held in a portfolio, conduct pertinent for residual life expectancy, supermarket queues). We argue that this behavior may be due to a fallacy reminiscent of that arising in the well-known “envelopes problem”, in which each of two players holds a sum of money of which she knows nothing about except that it is either half or twice the amount held by the other player. Players may be paradoxically tempted to exchange assets, since an exchange fallaciously appears to always yield an expected value greater than whatever is regarded as the player’s present assets. We argue that the fallacy is due to egocentrically framing the problem as if the “amount I have” is definite, albeit unspecified, and show that framing the paradox acentrically instead eliminates the incentive to exchange assets. A possible psychological source for the human disposition to frame problems in a way that inflates expected gain is discussed. Finally, a heuristic meant to avert the source of the fallacy is proposed.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50032.

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Date of creation: 18 Sep 2013
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Handle: RePEc:pra:mprapa:50032

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Keywords: Decision making; Reasoning; Cognitive fallacies and biases; Switching behavior;

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. J. Christopher Hughen & Cynthia G. McDonald, 2005. "Who Are The Noise Traders?," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 28(2), pages 281-298.
  3. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151.
  4. Fishburn, Peter C., 1983. "Transitive measurable utility," Journal of Economic Theory, Elsevier, vol. 31(2), pages 293-317, December.
  5. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  6. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
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