Keep or trade? An experimental study of the exchange paradox

Butler, Susan F.; Nickerson, Raymond S.

doi:10.1080/13546780802253675

“…A third tested whether the distribution itself was critical. Participants may be acting more rationally than Butler and Nickerson (2008) suggested.…”

Section: Goalsmentioning

confidence: 98%

“…Butler and Nickerson (2008) alluded to such a context effect. So in Experiment 2 participants were directly asked to judge the prior probability of the amount in the envelope.…”

Section: Methodsmentioning

confidence: 99%

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Probabilistic reasoning in the two-envelope problem

Burns

¹

2014

Thinking & Reasoning

0

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In the two-envelope problem a reasoner is offered two envelopes, one containing exactly twice the money in the other. After observing the amount in one envelope it can be traded for the unseen contents of the other. Until recently it was argued that it did not matter whether the envelope was traded or not, but Abbott, Davis & Parrondo (2010) showed that gains could be made if trading was a probabilistic function of amount observed. Three experiments varied where the observed and maximum amounts fell in a possible distribution and tested whether this affected choices. Trading was less likely for lower observed amount than higher, but this effect differed depending on the stated distribution. This suggests that participants' trade decisions were affected by where observations fit in the distribution, and thus their probabilities. The modeling tools used here may be applicable to other reasoning phenomena.

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“…argue that trading behavior in some variants of the problem is often justifiable given sound subjective assumptions, presumably tacit, about the distribution of possible amounts involved. Butler & Nickerson (2008) demonstrate that participants do trade at considerable rates when provided with explicit reasons to do so. Thus, even though people cannot explain very well the consequences of their behavior, it seems to be nonetheless adaptive in most naturalistic circumstances.…”

Section: The Envelopes Problemmentioning

confidence: 99%

“…Interestingly, the same fallacy would be manifested in the envelopes problem, if the customary maximizing-expected-gain rule were applied to it from the viewpoint of egocentric framing. It has not been demonstrated that people are actually likely to commit the fallacy-originated decision when presented with the envelopes problem in its classic form (4 out of 30 participants in Butler & Nickerson, 2008, Exp 1, Game 6; 8 out of 90 -in the questionnaire data we collected). They must be counting on their intuition in that case more than on maximizing-expected-gain reasoning, even when they are moderately versed in applying it.…”

Section: Switching Due To Egocentric Framingmentioning

confidence: 99%

Egocentric Framing - One Way People May Fail in a Switch Dilemma: Evidence from Excessive Lane Switching

Navon

¹

,

Kaplan

²

,

Kasten

³

2013

SSRN Journal

0

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

Navon

¹

,

Kaplan

²

,

Kasten

³

2013

Acta Psychologica

0

View full text Add to dashboard Cite

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.

show abstract

Keep or trade? An experimental study of the exchange paradox

Cited by 5 publications

References 27 publications

Probabilistic reasoning in the two-envelope problem

Probabilistic reasoning in the two-envelope problem

Egocentric Framing - One Way People May Fail in a Switch Dilemma: Evidence from Excessive Lane Switching

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

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