Preference Formation, Preference Change and collective behavior an experimental study

Abstract

Behavioral and experimental economics are today the fields with higher innovation dynamics in economical sciences. The combination of psychological and economical insights with innovative experimental research methodologies have as start point the assumption that human beings act irrational, some times altruistic and cannot reach total self-control. Our research examines how individuals process information in the frame of a multilevel decision task. As illustrative example we use the willingness to pay for a chocolate bar, that is explored in two different levels At the first level we observe the individual information processing in five information aggregation steps. Each participant receives the same information about taste, texture, etc. of the chocolate bar and then will be asked about their willingness to pay in the frame of an incentive compatible auction. In the analysis of the individual answers we focused on the preference uncertainty after each information aggregation step. The distribution of willingness to pay (WTP) between participants shows a big variance, explained by the fact that subjects have different tastes regarding chocolate. This preference heterogeneity is the starting point to the second research level approach mode and trends formation. To better understand this part we let individuals interact in between allowing us to analyze the influence of exchange of information in the heterogeneity of preferences. Important to remark is the fact that individual preferences are heterogeneous. We want to observe if the difference in preferences decreases with the time, when new information is aggregated into the system. In other words, we want to explain the dynamic of mode and of trends formation by consumers interaction. To make decisions, subjects combine and analyze information they acquired in a certain period of time. Some decisions require more time and effort from the decision maker than others. The capacity of human beings to solve complex numerical and analytical problems is rule bounded, and certain economical decisions cannot exactly be solved, specially when high amounts of information are required. For this reason, humans normally make use of a heuristicsa that facilitate the take of decisions. However, heuristics create bias to decide, for example in orientation by creating a anchora points. In this experiment, the influence of information exchange has a weaker effect when people ask neighbors or relatives about their opinion regarding a certain good or service, revealing a poor capacity of individuals to trust and process information in short time intervals. We found out that own attitudes have strong effects to change decisions than attitudes from our neighborhood. Additionally, interaction as reinforcing of additional information does not have strong effects on uncertainty reduction, whereas interaction among individuals does not efficiently contribute to form consumption trends. The own attitudes are used as a kind of anchor to make decisions, suggesting that the concept of attitude must be taken into account in the definition of the utility function, despite both concepts stem from different disciplines. The concept of valuation is common to both, utilities and attitudes.