Behavioral-Self-Management

Abstract

The empirical evidence seems to overwhelmingly suggest that endowment effects have a significant impact on the private exchange of goods and the functioning of the legal system. Jury decisions, claims for damages and restitution and the exercise of rights are all suggested to be subject to endowment effects. At the same time, much of the literature assumes that individuals are unable to correct their own bias. Consequently, the legal community often proposes legal interventions as a means of mitigating these effects.<br /> In my work, I propose and analyze mechanisms that facilitate "effortless" debiasing by aligning with individuals' natural behavior within their social and legal structures and institutions. One key focus of my research is to demonstrate that individuals not only have the ability to recognize their biases but also can strategically reduce them through the use of agents or by accessing social information. It appears that many individuals engage in such behavioral self-management strategies. In conclusion, my results advocate that legal interventions aimed at mitigating adverse consequences for the exchange of goods and the legal system should be considered primarily in situations where debiasing mechanisms do not apply. <br /> Key Findings<br /> 1. Market-typical behavior minimizes ownership effects. Reference points direct cognitive attention to the salient attributes of a good. Therefore, the loss of a good may weigh more heavily than the benefits of a trade, causing an endowment effect. However, task instructions in experiments also influence attentional focus. Experiments on endowment effects regularly ask participants to evaluate the goods they have been endowed with, which further focuses the decision-maker's attention on the good and thereby reinforces the bias. In contrast, the market-typical task is trading. It directs the attentional focus to estimating the willingness to pay of potential buyers, reducing the salience of the endowment status and thereby decreasing the bias. Thus the study shows evidence for effortless debiasing as participants simply follow their regular behavior in a particular domain. <br /> 2. Leveraging the behavior of others to minimize personal bias. Decision-makers are often presented with additional reference points alongside endowment status that capture their attention. This includes the behavior of others. When participants learn that the majority of their peers engage in an objectively advantageous trade, this reference point significantly reduces their endowment effect. My study provides evidence that participants strategically utilize this debiasing mechanism, accessing the provided information about the others` decisions in order to execute the trade. They also selectively block information about the behavior of others to avoid being deterred from an intended advantageous exchange. <br /> 3. Strategic delegation minimizes bias. Endowment effects are also eliminated when the decision-maker delegates the decision to another party or when the selling decision is made by a committee within a firm, for example. Delegation reduces the participants` responsibility for the decision outcome, and participants anticipate minimal regret costs over the sale, even if the decision proves to be disadvantageous. My studies show that participants can strategically use delegation to neutralize their bias and facilitate the trade. <br /> 4. Self-nudging contracts effectively promote self-binding. Loss-averse individuals exert more effort to avoid a loss than to achieve a symmetrical gain. For instance, Ayres had participants pay money on a website, which they would only receive back if they achieved a set goal. Such self-binding can help enforce preferences regarding personal (work-related, health-related, etc.) goals when these preferences are inconsistent over time. But self-nudging enables more than a typical commitment device. It relieves resources of self-control. For example, if someone sets up two accounts, one for everyday expenses and another for saving money, she still needs to exert continuous self-control to respect this soft psychological self-binding. In contrast once loss aversion is activated, the commitment is automatically maintained and pushes the individual to reach her goal. Moreover, my work shows that self-nudging preserves the autonomy of the individual who commits to the nudge which further improves individual productivity.