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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.

Suggested Citation

  • Navon, David & Kaplan, Todd & Kasten, Ronen, 2013. "Egocentric framing - one way people may fail in a switch dilemma: Evidence from excessive lane switching," MPRA Paper 50032, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:50032
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    File URL: https://mpra.ub.uni-muenchen.de/50032/1/MPRA_paper_50032.pdf
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    References listed on IDEAS

    as
    1. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151-151.
    2. Fishburn, Peter C., 1983. "Transitive measurable utility," Journal of Economic Theory, Elsevier, vol. 31(2), pages 293-317, December.
    3. 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.
    4. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    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.
    7. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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