Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: Many transactions involve uncertain but learnable consequences. Who responds more to incentives to participate, individuals who find it easier to learn about consequences or those for whom it is more difficult? We show theoretically and experimentally that incentives disproportionately attract those with high learning costs. These participants decisions rest on worse information, rendering ex post regret more likely. Selection based on learning costs is substantially more pronounced than selection on risk preferences in many of our treatments. Our results apply to a wide range of economic transactions and, moreover, highlight a conflict between participation incentives and ethical principles of informed consent.

Click here to read the full paper, written with Sandro Ambuehl and Axel Ockenfels