6 Laboratory Experiments: Additional Differences Between Homo economicus and Hom
6 Laboratory Experiments: Additional Differences Between Homo economicus and Homo sapiens
As mentioned previously, this chapter presents additional laboratory experiments designed to test the implications of the theories advanced in Chapter 4. Here, we learn about the classic advances made by behavioral economists and the main concepts underscored by Prospect Theory; concepts such as mental accounting, Ambiguity and Competency Effects, fairness, regret and blame, as well as loss aversion, reference dependence, and the Endowment Effect.
Mental Accounting (Version 1)
Consider the following two experiments proposed by Kahneman and Tversky (1984):
Experiment 1
Imagine that you have decided to see a new movie at your local cinema. You went online ahead of time, purchased a ticket for $10, and then printed the ticket to take with you to the cinema. As you enter the cinema, you discover that you have lost the ticket. The ticket cannot be recovered.
Would you pay $10 at the box office for another ticket?
Experiment 2
Imagine that you have decided to see a new movie at your local cinema, which costs $10 for a ticket. As you approach the box office to pay for a ticket, you discover that you have lost $10.
Would you still pay $10 for a ticket to the movie?
Homo economicus would recognize that, regardless of whether he had the $10 ticket in hand but lost it or lost $10 in cash beforehand, once at the cinema the $10 reduction in his income is what’s known as a “sunk cost.” He would therefore ignore this cost—completely put it out of his mind—and instead answer the question, “Is watching this movie worth $10 to me at this moment?” If the answer is “yes,” then he purchases the ticket and watches the movie. If the answer is “no,” he heads back home and does not watch the movie. Most importantly, Homo economicus’ answer to the question is not dependent on whether he lost the ticket itself (as in Experiment 1) or the cash (as in Experiment 2) (i.e., Homo economicus would not be guilty of “narrowly framing” his answer on whether it was a ticket or cash that was lost). As a result, we would expect the percentage of Homo economicus choosing to pay for another ticket in each experiment to be roughly 50%.
Based on samples of roughly 200 subjects each for two similar experiments, Kahneman and Tversky found that 46% of the subjects in Experiment 1 answered “yes,” they would pay $10 at the box office for another ticket, while in Experiment 2, 88% answered “yes.” The authors conclude that going to the cinema is normally viewed as a transaction in which the cost of the ticket is exchanged for the experience of seeing the movie. Buying a second ticket increases the cost of seeing the movie to a level that many Homo sapiens find unacceptable. In contrast, the loss of cash is not posted to the mental account of the movie, and it affects the purchase of a ticket only by making the individual feel slightly less affluent.[1]
This evidence suggests that Homo sapiens is prone to me