Thinking and Deciding

50 THE STUDY OF THINKING
Incentives
Experimental economists typically put people in real situations, in which payoffs depend
on subjects’ responses. They argue that asking people what they would do is
less useful than observing what people actually do. Studies that compare hypothetical
and real choices that involve money typically find small differences — which
may result from differential attention to certain features of the real situation — but
the same effects (Beattie and Loomes, 1997; Camerer, 1995; Irwin et al., 1992). In
no case has anyone ever found an effect for hypothetical choices that is not found for
real choices, or vice versa.
Some of the worry about hypothetical choices is that they are too far removed
from reality. Two points can be made in reply. First, in some cases, we are interested
in how people think rather than just in what they do. This is not an idle interest,
because knowing how people think can help us persuade them to think and act differently,
if they should. Economists call such persuasion “cheap talk,” but much of
child rearing and education takes exactly this form.
Second, the argument about unreality is true, but it is true of experiments that
use real money too. Demonstrations of any effect in the laboratory are not enough
to show that the effect is important in the real world. For example, take the case
of the outcome bias described earlier, in which we judge decision makers according
to their good or bad luck rather than the quality of their decision making. This
bias could cause us to hold people responsible for events they could not control. In
order to find out whether it is really important, though, we need to go beyond the
laboratory and look for examples where this might have happened in the real world.
Discovery of such cases does not settle the issue either. In the real world, we lack
the control of extraneous variables that is possible only in the laboratory. But both
kinds of demonstrations together can give us sufficient confidence to act, if action is
otherwise warranted.
Development of normative models
The study of thinking, as we have seen, involves the comparison of actual judgments
and decisions to some normative standard. We cannot determine this standard by
observing what people do, through gathering descriptive information. The point is
to evaluate our judgments and decisions, to see if they can be improved. We cannot
do this if we adopt a standard of evaluation that we know in advance will tell us that
nothing is wrong.
Where, then, do normative models come from? This is a hard question, but it has
some possible answers. One answer is implicit in the discussion of within-subject
versus between-subject experiments. Normative standards are whatever people take
them to be. If you think that luck should not affect your judgments of someone else’s
decision-making ability, and if luck does affect your judgment, then you are inconsistent
with your own standard. This is a minimal definition of normative models.