Do People (Want to) Plan?
Central to many theoretical accounts of the process by which (rational) people tackle dynamic decision problems is the concept of a plan: a set of conditional decisions as to what would be decided under certain conditions (imposed by Nature). The notion of a plan is clearly central to theories of dynamic decision making in which backward induction and the Principle of Optimality are invoked. To many theorists, the adoption and subsequent implementation of a plan are almost axioms of rational behaviour. These theorists ask two questions: how can dynamic decisions be taken in the absence of a plan; why would anyone want to change the plan once it is embarked upon. Experimental economists have begun to explore the implications of these notions. For example, work by Robin Cubitt and his associates has investigated whether the way a dynamic decision problem is formulated and presented to the subjects has any effect on the decisions taken by the subjects; if the subjects have a plan, and implement it in the sense discussed above, there should be no effect. Cubitt and his associates find some effect. With Massimo Paradiso I have investigated whether subjects have preferences over different formulations and presentations, for example, whether subjects prefer to be forced to pre-commit themselves (to a plan) or whether they prefer the flexibility of not being pre-committed. Of course, if subjects have a plan in the sense discussed above they should be indifferent between all such alternative formulations (of the same choice problem). However, we find they are not. Of course, subjects could behave the same yet have differing preferences; they could, conceivably also have identical preferences but behave differently, but neither of these types of experiments casts direct light on the key question as to whether subjects have plans and implement them. This is the purpose of the new experiments reported in this paper. These experiments were difficult to design because of the difficulty of observing correctly whether a plan exists in the subject’s mind, and particularly because of the difficulty of getting the subject to honestly reveal the existence and nature of a plan. The problem is simple: if the subject is not going to be forced to follow the announced plan, what incentive is there for reporting it honestly? And if the subject is forced to follow the announced plan, then the dynamic choice problem has been transformed into a static (pre-commitment) choice problem - and the very thing that we want to examine has been transformed away. We have an experimental design which overcomes these problems. The paper reports on the results of an experiment carried out by ESSE (Economia Sperimentale al Sud d’Europa) in Bari.
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- Cubitt, Robin P, 1996. "Rational Dynamic Choice and Expected Utility Theory," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 1-19, January.
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- Enrica Carbone & John Hey, .
"A Test of the Principle of Optimality,"
99/9, Department of Economics, University of York.
- Cubitt, Robin P & Starmer, Chris & Sugden, Robert, 1998. "Dynamic Choice and the Common Ratio Effect: An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 108(450), pages 1362-80, September.
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Levine's Working Paper Archive
625018000000000009, David K. Levine.
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- Epstein, Larry G, 1980. "Decision Making and the Temporal Resolution of Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 269-83, June.
- Hammond, P.J. & , ., 1987. "Consequentialist foundations for expected utility," CORE Discussion Papers 1987016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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