Decision Science News

THE DIRT ON COMING CLEAN: PERVERSE EFFECTS OF DISCLOSING CONFLICTS OF INTEREST

Conflicts of interest have been at the heart of many business scandals. Investment bankers who get paid more when their clients trade more, or doctors who get paid more when their patients require more care, are both examples of advisors with a conflict of interest. The solution usually is considered to be a full disclosure of each party’s conflict of interest. A recent article out of Carnegie Mellon University by Daylian Cain, Don Moore, George Loewenstein investigates to what extent the receivers of advice use this knowledge to counteract any given biases and how disclosure of conflicts affects the advice given. The authors argue such disclosure may not remedy conflicts but could possibly aggravate them.

ABSTRACT

“Conflicts of interest can lead experts to give biased advice. While disclosure has been proposed as a potential solution to this, we show that disclosure can have perverse effects, and might even increase bias. Disclosure may increase bias because advisors feel morally licensed and strategically encouraged to exaggerate their advice even further from the truth. As for those receiving the advice, proper use of the disclosure depends on understanding how the conflict of interest biased the advice and how that advice impacted them. Because people lack this understanding, disclosure can fail to solve the problems created by conflicts of interest.”

QUOTES

“Perhaps, however, the benefits of disclosure should not be accepted quite so quickly. For disclosure to be effective, the recipient of advice must understand how the conflict of interest has influenced the advisor and must be able to correct for that biasing influence. In many important situations, however, this understanding and ability may be woefully lacking. For example, imagine a patient whose physician advises, “Your life is in danger unless you take medication X,” but who also discloses, “The medication’s manufacturer sponsors my research.” Should the patient take the medication? If not, what other medication? How much should the patient be willing to pay to obtain a second opinion? How should the two opinions be weighed against each other? The typical patient may be hard-pressed to answer such questions.”

“And what is the impact of disclosure on providers of advice? In the example just given, is it possible that the physician’s behavior might be affected by disclosure? For example, might the physician be more likely to exaggerate the danger of not taking the medication in order to neutralize the anticipated “warning” effect of the disclosure?”

“First, estimating the impact of a conflict of interest on an advice giver is an extraordinarily difficult problem that requires both economic and psychological insight. To properly estimate the degree to which a particular advisor is biased by a conflict of interest, one would want to know the extent to which the advisor embraces professional norms or is instead corrupt. One would also want to know how tempting the advisor finds the incentives for providing biased advice, and one would want to have an accurate mental model of how such incentives can bias advice. However, prior research suggests that most people have an incorrect understanding of the psychological mechanisms that transform conflicts of interest into biased advice.”

“Research on what has been called the “failure of evidentiary discreditation” shows that when the evidence on which beliefs were revised is totally discredited, those beliefs do not revert to their original states but show a persistent effect of the discredited evidence (Skurnik, Moskowitz, and Johnson 2002; Ross, Lepper, and Hubbard 1975). Furthermore, attempts to willfully suppress undesired thoughts can lead to ironic rebound effects, in some cases even increasing the spontaneous use of undesired knowledge (Wegner 1994).”

“Disclosure, at least in the context of the admittedly stylized experiment discussed in this paper, benefited the providers of information but not its recipients. To the extent that a similar effect occurs outside the experimental laboratory, disclosure would supplement existing benefits already skewed toward information providers. In particular, disclosure can reduce legal liability and can often forestall more substantial institutional change. We do not believe that this is a general result—that is, that disclosure always benefits providers and hurts recipients of advice—but it should challenge the belief that disclosure is a reliable and effective remedy for the problems caused by conflicts of interest.”

EXPERIMENTAL METHOD

“The estimation task involved estimating the values of jars of coins. Estimators were paid according to the accuracy of their estimates, and advisors were paid, depending on the experimental condition, on the basis of either how accurate or how high (relative to actual values) the estimators’ estimates were.

In each round, advisors took turns at closely examining a jar of coins and then completed an advisor’s report. Each advisor’s report contained the advisor’s suggestion of the value of the jar in question and provided a space in which the estimator would respond with an estimate of the jar’s worth.

After seeing the reports, the estimators saw the jar in question — but only from a distance of about 3 feet and only for about 10 seconds: the experimenter held the jar in front of estimators, turning the jar while walking along a line across the room and back. Estimators then attempted to estimate the value of the coins in the jar.

The amount of money in each of the six jars (M, N, P, R, S, and T) was determined somewhat arbitrarily to lie between $ 10 and $ 30, and advisors were informed of this range. Estimators were told that advisors had information about the range of actual values but were not given this range of values themselves. In fact, the values of the jars were M = $ 10.01, N = $ 19.83, P = $ 15.58, R = $ 27.06, S = $ 24.00, and T = $ 12.50. In the first three rounds, neither estimators nor advisors received feedback about their actual payoffs or about actual jar values. In each of the last three rounds, however, after advisors had given their advice and estimators had made their estimates, each advisor was shown the estimate of the estimator to whom their advice was given on the previous jar and, for each of the feedback rounds, the actual value of the jar in question was announced to everyone at the end of the round. Since payoff schedules were provided to all participants at the beginning of the experiment, feedback allowed both advisors and estimators to calculate how much money they had made in the previous round before continuing on to the next round. While estimators did not see the advisor’s instructions, advisors saw a copy of the estimator’s instructions and thus could also use feedback to calculate their estimator’s payoffs.

Both estimators and advisors were paid on the basis of the estimator’s estimates. Estimators were always paid on the basis of the accuracy of their own estimates. Advisors’ remuneration depended on the condition to which they were assigned. In the “accurate” condition, each estimator was paid according to how accurate the estimator’s estimate was, and this was disclosed prominently on the advisor’s report immediately under the advisor’s suggestion. (“Note: The advisor is paid based on how accurate the estimator is in estimating the worth of the jar of coins.”) In the “high/undisclosed” and “high/disclosed” conditions, each advisor was paid on the basis of how high the estimator’s estimate was. This conflict of interest was not disclosed in the high/undisclosed condition but was prominently disclosed in the high/disclosed condition, immediately under the advisor’s suggestion. (“Note: The advisor is paid based on how high the estimator is in estimating the worth of the jar of coins.”) In addition to being remunerated on the basis of their estimators’ estimates, all advisors had an additional opportunity to earn money: after they had completed the report for each jar, advisors were asked to give their own personal best estimates of the true value of the coins in the jar and were rewarded on the basis of accuracy.”

Advice provided for each jar, by condition

ABOUT THE AUTHORS

Daylian Cain

“I am a 4th year doctoral student at Carnegie Mellon University’s Tepper School of Business, (Pittsburgh, PA) where I concentrate on Organizational Behavior & Theory. My main area of interest is decision making — both the normative aspects (as informed by Ethics and Economics) and the descriptive aspects (as informed by Social Psychology and Behavioral Decision Research). I also earned an academic background in Philosophy, where I was interested in theories of rationality and morality. These combined interests lead me to conduct research and lecture on topics such as managerial decision making, business ethics, and negotiations. ”

Daylian Cain Home Page

Don Moore

Don Moore is an Assistant Professor in the Organzational Behavior and Theory group at the Tepper School of Business at Carnegie Mellon University. “The human mind, for all its miraculous power, does not come with an instruction manual. This ignorance has tremendous consequences, not only for the way we make decisions as individuals, but also for interactions (including negotiations), and for the organizations we create. My work seeks to fill important gaps in our understanding of ourselves and document the implications of these discoveries on social, organizational, and market outcomes.”

Don Moore’s Home Page

George Loewenstein

George Loewenstein is a professor in the Department of Social and Decision Sciences at Carnegie Mellon University. “My primary research focus is on intertemporal choice–decisions involving trade-offs between costs and benefits occurring at different points in time. Because most decisions have consequences that are distributed over time, the applications of intertemporal choice are numerous (e.g. saving behavior, consumer choice, labor supply).

In the past, formal analyses of intertemporal choice in economics and other social science disciplines have been dominated by a single model–the discounted utility model. I try to identify deficiencies with this model, explain these deficiencies in psychological terms and propose alternative models.”

George Loewenstein Home Page

DECISION SCIENCE RESEARCHER PROFILE: DUNCAN LUCE AWARDED 2003 NATIONAL MEDAL OF SCIENCE

R. Duncan Luce is a Distinguished Research Professor of Cognitive Science and Economics at UC Irvine. At the age of 79 Luce, in recognition of his work in the behavioral and social sciences, has been named one of eight U.S. scientists and engineers to receive the 2003 National Medal of Science; the highest scientific honor in the United States. On March 14, 2005 President George W. Bush will present them with the honor at the Whitehouse. Why it is awarded two years after 2003 is a mystery to us.

The National Medal of Science honors individuals both for pioneering and innovating scientific research that has led to a better understanding of the world, and for contributing to innovations and technologies that give the United States a global economic edge. The award was established in 1959 and is administered by the National Science Foundation.

Luce received his PhD in mathematics from the Massachusetts Institute of Technology in 1950. He feels there is an inherent link between math and psychology. “Given the fact that people manage to live together in a fairly reasonable way most of the time, there have to be behavioral regularities,” he says. “Mathematical behavioral science attempts to formulate such regularities.”

Professor Luce’s contributions to mathematical psychology have had a great influence on how the field examines decision making and sensory psychology. Luce combines mathematical theory and experiments, in efforts to understand features of individual behavior and orientation to the world. His method includes the development of formal mathematical models that consequently contribute to the shaping of contemporary economics.

As a child, Duncan Luce liked painting pictures and was fascinated with airplanes. His parents swayed him against an artistic career and an astigmatism kept him from becoming a military pilot. But Luce has been flying high for years and continues to create new ideas in his field.- from Luce’s homepage at UC Irvine.

Luce served as advisor to many successful graduate students, including Columbia University Center for the Decision Sciences Director, and past President of the Society for Judgment and Decision Making Elke Weber.

RESEARCH INTERESTS:

“The representational theory of measurement concerns the types of data that can be summarized in some numerical way. Much general theory has been developed (Foundations of Measurement, vols. 1,2,3, 1971, 1989, 1990, with D.M. Krantz, P Suppes, & A. Tversky) and still is being actively explored. Although some of my efforts lie in this general area, over the last seven years I have mostly been applying some of these ideas to individual decision making, where the numerical measures are called utility and subjective probability or weights. Recently I have been examining the kinds of behavioral laws that link riskless utility and risky utility. Accompanying the theoretical work is an empirical program in which these plausible behavioral properties are tested in computer-based, laboratory experiments. There are many tricky and interesting questions of how best to evaluate these properties. The results to date exhibit highly regular patterns that are nicely summarized by numerical models.” -from Professor Luce’s Homepage

RECENT BOOKS

(2000) Utility of Gains and Losses: Measurement-Theoretical and Experimental Approaches. Mahwah, NJ: Lawrence Erlbaum Association.

(1997) Choice, Decision, and Measurement: Essays in Honor of R. Duncan Luce

(1993) Sound & Hearing: A Conceptual Introduction. Hillsdale, NJ: Erlbaum.

(1991) Response Times: Their Role in Inferring Elementary Mental Organization: Oxford.

(1990) With D.H. Krantz, P. Suppes & A. Tversky. Foundations of Measurement, Vol. III, Academic Press.

2005 NORTH AMERICAN CONFERENCE OF THE ASSOCIATION FOR CONSUMER RESEARCH CALL FOR PAPERS

The 2005 North American Conference of the Association for Consumer Research will be held at the Crowne Plaza Hotel located on the Riverwalk in San Antonio, Texas, from Thursday September 29 through Sunday October 2, 2005.

Submission and Decision Deadlines
Submissions for competitive papers, working papers, roundtables, and special topic session proposals must be received no later than Friday, March 18, 2005. Notification of acceptance in these four categories will be made by Friday July 15, 2005. The entry deadline for film festival submissions is July 1, 2005. Notification of accepted films will be August 1, 2005.

To give as many people as possible the opportunity to participate in ACR 2005, note the requirement that each ACR participant may present in Special Topic and/or Competitive Paper sessions no more than twice during the duration of the conference.

General Submission Requirements and Procedures
Except for film festival submissions, all submissions, reviewing, and notification regarding ACR 2005 will be conducted electronically through the web site. The ACR web site (http://www.acrwebsite.org/) will contain a link to the 2005 conference site, which will be updated to accept all the required information through an interface that eliminates the need for e-mail submissions. The 2005 ACR conference web site will be available for submissions between Monday, February 7 and midnight PST of the deadline, Friday, March 18, 2005.

More detail below. This info culled from http://www.acrwebsite.org/conference/info.asp
Continue reading ACR 2005 Call For Papers

POSTDOCTORAL FELLOWSHIP – COLUMBIA UNIVERSITY CENTER FOR THE DECISION SCIENCES

ADDENDUM: This post has been filled, 4/2005.

Columbia University’s Center for the Decision Sciences anticipates hiring a computer-savvy postdoctoral Associate Director for a period of one to two years, with a starting date of August 2005. The Associate Director will carry out research, coordinate a year-long speaker series, administer the Center and run the CDS Online Virtual Laboratory server.

The Center for the Decision Sciences at Columbia University is directed by Professors Eric Johnson, David Krantz, and Elke Weber and includes researchers from psychology, marketing, management, medicine, law and beyond. Please visit the website for more information: http://cebiz.org/cds

This position is open to candidates with excellent computer skills and training in cognitive psychology or related disciplines who have recently earned their Ph.D., or who are expecting their degree in 2005 on a topic relevant to the psychology of decision making.

The candidate should be comfortable running a Linux Web server as well as coding HTML and dynamic scripting languages such as PHP and JavaScript. Experience with SQL, databases, SAS and lightweight UNIX systems administration and security is very much recommended but not essential.

One of the current Center foci is a large Preferences as Memory project, which looks at the role of psychological memory processes on the formation of preferences, inferences, and choice. Experience and interest in the psychology of memory would be a large asset.

To apply, please send a CV, two letters of recommendation, up to 3 reprints, and a cover letter describing research interests. In your letter, please describe computer skills, (memory) research expertise, and experience carrying out experimental research.

Review of applications will continue until the position is filled.

Applications should be sent to

Daniel Goldstein, Ph.D. Associate Director
Columbia University, Center for the Decision Sciences
420 W. 118th #805A MC3355, New York, NY 10027

Columbia University is an Affirmative Action, Equal Opportunity Employer.

DECISION SCIENCE RESEARCHER PROFILE: EGON BRUNSWIK

Egon Brunswik (1903-1955), a pioneer of cognitive psychology, devoted much of his work to the extension and elaboration of the fundamental point that psychology should focus as much on the properties of the organism’s environment as it does to the organism itself. The environment that an organism comes into contact with is uncertain and probabilistic. Adaptation to a probabilistic world requires an organism to adopt a probability-based strategy for survival. The organism must learn to rely upon uncertain information about the world. His “probabilistic functionalism” was the first behavior system to be founded on Probabilism, which today increasingly attracts the attention of learning, thinking, decision process, perception, and communication theorists.

In 1921 he graduated from the Theresianische Akademie after receiving training in mathematics, science, classics, and history. He then studied engineering and passed the state examinations but afterward enrolled as a student of psychology at the University of Vienna. Here he became an assistant in Karl Buehler’s Psychological Institute (among his student colleagues were Paul F. Lazarsfeld and Konrad Lorenz) and received a PH.D. in 1927. While a graduate student in psychology, he also passed the state examination for Gymnasium teachers in mathematics and physics.

His historical as well as theoretical analysis also led him to criticize orthodox methods of experimental design (particularly the “rule of one variable”) and to suggest methods for avoiding what he believed to be an unfortunate artificiality inherent in classical experimental procedures. His main field of empirical research was perception, but he also brought his probabilistic approach to bear on problems of interpersonal perception, thinking, learning, and clinical psychology.

Brunswik’s life did not come to a happy end. He committed suicide in 1955.

-from The Brunswik Society homepage

Egon Brunswik redefined the fundamental task of psychology (focus on distal / distal relations) based on thorough study of the history of psychology as a science, came up with a basic theoretical framework (the lens model and probabilistic functionalism) and original methodology of psychological research (representative design of experiments). His papers on perception introducing the concept of ecological validity of perceptual cues) predated the coming of “ecological psychology”. Built on his ideas the social judgment theory and cognitive continuum theory of Kenneth R. Hammond University of Colorado) and a others inspired a broad scope of research on perception, cognitive conflict resolution, decision making, policy formation and analysis which blooms on international scale today. Thousands of empirical studies, techniques using computer assisted counseling were developed since the beginning

-from the University of Chicago Press.

QUOTE:

“Perception, then, emerges as that relatively primitive, partly autonomous, institutionalized, ratiomorphic subsystem of cognition which achieves prompt and richly detailed orientation habitually concerning the vitally relevant, mostly distal aspects of the environment on the basis of mutually vicarious, relatively restricted and stereotyped, insufficient evidence in uncertainty-geared interaction and compromise, seemingly following the highest probability for smallness of error at the expense of the highest frequency of precision.That’s a simplification. Perception is standing on the sidewalk, watching all the girls go by.”

–Frank Rosenblatt, quoting Egon Brunswik’s “Perception and the Representative Design of Psychological Experiments,” and The New Yorker, December 19, 1959, in “Principles of Neurodynamics: Perceptrons and the Theory of Brain Mechanisms”, 1962.

WORKS BY BRUNSWIK:

*1934 Wahrnehmung und Gegenstandswelt: Grundlegung einer Psychologie vom Gegenstand her. Leipzig: Deuticke.
*1937 Psychology as a Science of Objective Relations. Philosophy of Science 4:227-260.
*1943 Organismic Achievement and Environmental Probability. Psychological Review 50:255-272.
*(1947) 1956 Perception and the Representative Design of Psychological Experiments. 2d ed., rev. & enl. Berkeley: Univ. of Calif. Press.
*1952 The Conceptual Framework of Psychology. Univ. of Chicago Press.
*1955 Representative Design and Probabilistic Theory in a Functional Psychology. Psychological Review 62:193-217.

SEPERATE NEURAL SYSTEMS VALUE IMMEDIATE AND DELAYED MONETARY REWARDS

People seem to alternate between choosing to indulge in what is immediately available and choosing to decide based upon the knowledge that patience often wins in the long run. If you offer someone $10 today and $11 tomorrow, it’s likely they will choose the $10 today. But if you offer someone $10 in a year and $11 in a year and one day, they’ll probably choose the $11. The relative values of options may be discounted according to how long one expects to wait until payoff. To date little research has investigated the source of the tension between short-term and long-term preferences. A recent study in Science by Samuel McClure, David Laibson, George Loewenstein and Jonathan Cohen suggests that this discrepancy is due to the fact that two separate neural systems value immediate and delayed monetary rewards.

ABSTRACT:
“When humans are offered the choice between rewards available at different points in time, the relative values of the options are discounted according to their expected delays until delivery. Using functional magnetic resonance imaging, we examined the neural correlates of time discounting while subjects made a series of choices between monetary reward options that varied by delay to delivery. We demonstrate that two separate systems are involved in such decisions. Parts of the limbic system associated with the midbrain dopamine system, including paralimbic cortex, are preferentially activated by decisions involving immediately available rewards. In contrast, regions of the lateral prefrontal cortex and posterior parietal cortex are engaged uniformly by intertemporal choices irrespective of delay. Furthermore, the relative engagement of the two systems is directly associated with subjects’ choices, with greater relative fronto-parietal activity when subjects choose longer-term options.”

QUOTES:
“In Aesop’s classic fable, the ant and the grasshopper are used to illustrate two familiar, but disparate, approaches to human intertemporal decision making. The grasshopper luxuriates during a warm summer day, inattentive to the future. The ant, in contrast, stores food for the upcoming winter. Human decision makers seem to be torn between an impulse to act like the indulgent grasshopper and an awareness that the patient ant often gets ahead in the long run. This research is unified by the idea that consumers behave impatiently today but prefer/plan to act patiently in the future.”

“Impulsive preference reversals are believed to be indicative of disproportionate valuation of rewards available in the immediate future. Some authors have argued that such dynamic inconsistency in preference is driven by a single decision-making system that generates the temporal inconsistency, while other authors have argued that the inconsistency is driven by an interaction between two different decision-making systems. Specifically, we hypothesize that short-run impatience is driven by the limbic system, which responds preferentially to immediate rewards and is less sensitive to the value of future rewards, whereas long-run patience is mediated by the lateral prefrontal cortex and associated structures, which are able to evaluate trade-offs between abstract rewards, including rewards in the more distant future.”

Brain regions that are preferentially activated for choices in which money is available immediately (Beta areas). (A) A random effects general linear model analysis revealed five regions that are significantly more activated by choices with immediate rewards, implying d 0 0 (at P G 0.001, uncorrected; five contiguous voxels). These regions include the ventral striatum (VStr), medial orbitofrontal cortex (MOFC), medial prefrontal cortex (MPFC), posterior cingulate cortex (PCC), and left posterior hippocampus (table S1). (B) Mean event-related time courses of Beta areas (dashed line indicates the time of choice; error bars are SEM; n 0 14 subjects). BOLD signal changes in the VStr, MOFC, MPFC, and PCC are all significantly greater when choices involve money available today (d 0 0, red traces) versus when the earliest choice can be obtained only after a 2week or 1-month delay (d 0 2 weeks and d 0 1 month, green and blue traces, respectively).

Brain regions that are active while making choices independent of the delay (d) until the first available reward (delta areas). (A) A random effects general linear model analysis revealed eight regions that are uniformly activated by all decision epochs (at P