We report a large-scale behavioral reduction experiment: due to information processing constraints, the flexibility of people’s decisions about economic fundamentals is often very small. We run over 30 tests, 20 of which are crowd-sourced from leading experts. These tests include many economic decisions, from choice and measurement to the formation of beliefs, from strategic games to optimization problems, involving investment, saving, effort supply, product demand, taxes, environmental externalities, fairness, cooperation, beauty contests, information. disclosure, search, policy evaluation, memory, prediction and explanation. In 93% of our experiments, the flexibility of decision bases decreased with participants’ cognitive uncertainty, our measure of the difficulty of information processing constraints. Furthermore, for decision problems with objective solutions, we see much less elasticity than usual. Many of the most widely studied decisions represent special cases of reducing behavior. We discuss both its limitations and why it often appears in the ancient practice of decreased sensitivity.
That appears in a new and very important working paper by Benjamin Enke, Thomas Graeber, Ryan Oprea, and Jeffrey Yang.
It can be said that incentives are important, however they don’t care enough. This is one of the most important economics papers of the year.
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