Thursday, February 3, 2011

One of the biggest sources of diversity in the way people experience, interpret and react to the world is their personality. A substantial literature has concluded that much of the observed variability in personality can be captured by five broad factors (Digman, 1990), which are now often referred to as the Big Five. Since people with different personality types tend to process information differently (Humphreys & Revelle, 1984), we hypothesized that aggregating the judgments of pairs of individuals on the basis of the diversity of their personality profiles would affect the accuracy of the aggregate judgments. Specifically, if members of high (personality) diversity pairs tend to rely on more diverse sets of information when forming their judgments (compared to low diversity pairs), then one should find that their aggregate judgments are more accurate than the aggregate judgments of low diversity pairs.

We examined the relationship between maximizing (i.e. seeking the best) versus satisficing (i.e.seeking the good enough) tendencies and forecasting ability in a real-world prediction task: forecasting the outcomes of the 2010 FIFA World Cup. In Studies 1 and 2, participants gave probabilistic forecasts for the outcomes of the tournament, and also completed a measure of maximizing tendencies. We found that although maximizers expected themselves to outperform others much more than satisficers, they actually forecasted more poorly. Hence, on net, they were more overconfident. The differences in forecasting abilities seem to be driven by the maximizers’tendency to give more variable probability estimates. In Study 3, participants played a betting task where they could select between safe and uncertain gambles linked to World Cup outcomes. Again, maximizers did more poorly and earned less, because of a higher variance in their responses. This research contributes to the growing literature on maximizing tendencies by expanding the range of objective outcomes over which maximizing has an influence, and further showing that there may be substantial upside to being a satisficer.

Depression and Accuracy: Evidence from the 2010 FIFA World Cup
INSEAD Working Paper 2011/19/DS/OB

Before and during the 2010 Soccer World Cup, participants made probabilistic forecasts for the outcomes of the tournament. We examine the relationship between depression levels and performance in this real-world forecasting task. Across two different waves of predictions, for both continuous and categorical classifications of depression, and with multiple measures of prediction accuracy, we find that depressed forecasters were less accurate. The poorer accuracy amongst the more depressed forecasters was mediated by neglect for base-rate probabilities: The depressed participants assigned probabilities that departed more substantially from the baserates, particularly for low base-rate events. Given the high incidence of depression in the workforce, the importance of probabilistic forecasting as a judgment task, and that we may be the first to look at forecasting accuracy on an ecologically valid task with objective outcomes over which the forecaster has no control, these finding may have important implications for both theory and practice.

Deadline Setting Decisions under Reciprocation Uncertainty: An Experimental Study
INSEAD Working Paper 2011/20/DS

We study the problem faced by a decision maker who must set a deadline for an offer to be accepted. There are two sources of uncertainty. First, he must estimate the probability of his offer being accepted under various deadlines. Second, he must estimate whether the recipient of an offer that is accepted will reward or punish him as a function of the deadline he set. We model the decision maker’s dilemma by embedding his decision problem in a game against another player, the responder. The responder is waiting for a better alternative, but an exploding offer must be accepted or rejected before discovering whether the better alternative will arrive. An extended offer allows the responder to first learn about the outcome of the better alternative. The responder, upon accepting the proposer’s offer, can reciprocate by altering the proposer’s payoff. In four experiments, we observe that many proposers issue exploding offers, even though this results in substantially lower payoffs. Differences in payoffs are primarily due to negative reciprocation towards exploding offers, which we term the reciprocation curse. Our analyses suggest that proposers giving exploding offers fall prey to projection bias – i.e., they issue exploding offers if they themselves would accept exploding offers. The main prescriptive conclusion for proposers is to consider explicitly the potential reciprocation curse when setting deadlines.

Anxiety, Risk and Culture: Relational Mobility Moderates the Influence of Anxiety on Risk-taking
INSEAD Working Paper 2011/21/OB/DS

Previous researchers have documented a negative correlation between anxiety and risk preferences. We propose that culture, and in particular relational mobility, moderates this relationship. Relational mobility is the degree to which individuals have opportunities to voluntarily form new and terminate old relationships. Across three studies, we found that for low relational mobility participants (e.g. for whom few opportunities for movement exist), more anxiety was related to less risk taking. For high relational mobility participants (e.g. for whom multiple opportunities to sever old and form new ties exist), the anxiety - risk relationship was less negative and at times reversed. These moderating effects were observed for self-reported intentions to take risks, for perceived benefits of risk-taking, for perceptions of the likelihood of future events, for actual risk taking behaviors that had financial consequences for the participants, when anxiety and risk were assessed together, and when those measures were separated by over a week. These findings add a cultural component to our growing understanding of the complex relationship between emotions and risk.