Are investors really willing to agree to disagree? An experimental investigation of how disagreement and attention to disagreement affect trading behavior

Using a series of laboratory markets, this paper provides evidence that a willingness to engage in speculative trade is largely driven by a failure of traders to account for information about value implicit in other traders’ actions and that this behavior arises because traders construct myopic mental models that ignore the perspective of other traders. In a baseline set of markets, where traders are prompted to estimate fundamental value but are not overtly prompted to consider disagreement, I find that traders are generally insensitive to adverse selection and readily engage in suboptimal, speculative trade. Moreover, this effect does not decline across trials suggesting that market feedback alone is unlikely to correct traders’ behavior. In contrast, when traders are prompted to assess disagreement over asset values or when they trade in more transparent markets, they appear less willing to “agree to disagree.” These results provide insight into why investors depart from rational trading strategies and how investor psychology will influence trading behavior.     

TOKEN REINFORCEMENT: A REVIEW AND ANALYSIS

Token reinforcement procedures and concepts are reviewed and discussed in relation to general principles of behavior. The paper is divided into four main parts. Part I reviews and discusses previous research on token systems in relation to common behavioral functions—reinforcement, temporal organization, antecedent stimulus functions, and aversive control—emphasizing both the continuities with other contingencies and the distinctive features of token systems. Part II describes the role of token procedures in the symmetrical law of effect, the view that reinforcers (gains) and punishers (losses) can be measured in conceptually analogous terms. Part III considers the utility of token reinforcement procedures in cross‐species analysis of behavior more generally, showing how token procedures can be used to bridge the methodological gulf separating research with humans from that with other animals. Part IV discusses the relevance of token systems to the field of behavioral economics. Token systems have the potential to significantly advance research and theory in behavioral economics, permitting both a more refined analysis of the costs and benefits underlying standard economic models, and a common currency more akin to human monetary systems. Some implications for applied research and for broader theoretical integration across disciplines will also be considered.     

Stock optimizing in choice when a token deposit is the operant.

Each of 2 monkeys typically earned their daily food ration by depositing tokens in one of two slots. Tokens deposited in one slot dropped into a bin where they were kept (token kept). Deposits to a second slot dropped into a bin where they could be obtained again (token returned). In Experiment 1, a fixed-ratio (FR) 5 schedule that provided two food pellets was associated with each slot. Both monkeys preferred the token-returned slot. In Experiment 2, both subjects chose between unequal FR schedules with the token-returned slot always associated with the leaner schedule. When the FRs were 2 versus 3 and 2 versus 6, preferences were maintained for the token-returned slot; however, when the ratios were 2 versus 12, preference shifted to the token-kept slot. In Experiment 3, both monkeys chose between equal-valued concurrent variable-interval variable-interval schedules. Both monkeys preferred the slot that returned tokens. In Experiment 4, both monkeys chose between FRs that typically differed in size by a factor of 10. Both monkeys preferred the FR schedule that provided more food per trial. These data show that monkeys will choose so as to increase the number of reinforcers earned (stock optimizing) even when this preference reduces the rate of reinforcement (all reinforcers divided by session time).     

Assessing reinforcers under progressive schedule requirements.

Recent research findings suggest that reinforcing stimuli may be differentially effective as response requirements increase. We extended this line of research by evaluating responding under increasing schedule requirements via progressive‐ratio schedules and behavioral economic analyses. The differential effectiveness of preferred stimuli in treating destructive behavior maintained by automatic reinforcement also was examined. Results showed that one of two stimuli was associated with more responding under increasing schedule requirements for the 4 participants. Furthermore, stimuli associated with more responding under increasing schedule requirements generally were more effective in treating destructive behavior than stimuli associated with less responding. These data suggest that progressive‐ratio schedules and behavioral economic analyses may be useful for developing a new technology for reinforcer identification. From a clinical perspective, these results suggest that two reinforcers may be similarly effective for low‐effort tasks and differentially effective for high‐effort tasks.     

Diminishing marginal value as delay discounting.

The fundamental law underlying economic demand and exchange is the tendency for value of marginal units to diminish with increasing amounts of a commodity. The present paper demonstrates that this law follows from three still-more-basic psychological assumptions: (a) limited consumption rate, (b) delay discounting, and (c) choice of highest valued alternative. Cases of diminishing marginal value apparently due to pure intensity of reward may plausibly be attributed to the above three factors. The further assumption that maximum consumption rate may vary within and across individuals implies that some substances may be unusually addictive and that some individual animals may be unusually susceptible to addiction.     

Lick-trading by rats: on the substitutability of dry, water, and saccharin tubes.

Thirsty rats licked two metal tubes: a water tube paired with another water tube, with saccharin, or with a dry tube. For each pair, a multipoint baseline function was measured by offering free access to one tube throughout each session, and free or restricted access to the other. The three resulting baseline functions showed the members of each pair to be mutual substitutes: When access to either tube was restricted, the rats made more licks at the other. A linear function identified the two water tubes as perfect substitutes. Convex functions identified the members of the saccharin-water and the dry-water pair as imperfect substitutes. Each pair was also tested under several reciprocal fixed-ratio schedules that required instrumental licking of either tube for contingent access to the other. The resulting schedule functions showed the members of each pair to be perfect substitutes: Water licks decreased linearly as licks at the other water tube, the saccharin, or the dry tube increased, in agreement with a conservation model of instrumental performance. Baseline and schedule functions, indistinguishable in the water-water pair, indicated a schedule facilitation of dry-tube licking in the dry-water pair and of water-tube licking in the saccharin-water pair.     

The Evolution of Social Ethics: Using Economic History to Understand Economic Ethics

In the development of Roman Catholic social thought from the teachings of the scholastics to the modern social encyclicals, changes in normative economics reflect the transformation of an economic terrain from its feudal roots to the modern industrial economy. The preeminence accorded by the modern market to the allocative over the distributive function of price broke the convenient convergence of commutative and distributive justice in scholastic just price theory. Furthermore, the loss of custom, law, and usage in defining the boundaries of economic behavior led to a depersonalization of economic relationships that had previously provided effective informal means of protecting individual well-being. Hence, recent economic ethics has had to look for nonprice, nonmarket mechanisms for distributive justice. This is reflected, for example, in the shift in attitude from the medieval antipathy toward unions to the contemporary defense of organized labor on moral grounds.     

Effects of income on drug choice in humans.

The effects of income (money available to spend during the experimental session) on human choice were examined in a concurrent-schedule arrangement. Subjects were 7 nicotine-dependent smokers, and reinforcers were puffs on the subject's usual brand of cigarette ("own") and puffs on a less preferred brand of cigarette with equal nicotine content ("other"). Across sessions, income varied and the price of the two reinforcers was held constant, with the other puffs one fifth the price of the own puffs. As income increased, consumption of own puffs increased while consumption of the less expensive other puffs decreased. These effects of income on choice were highly consistent across subjects. For some subjects, however, income had little effect on total puff consumption. Finally, an additional condition examined whether price and income manipulations would have functionally equivalent effects on choice by repeating an income condition in which the price of the other brand was increased. Although the increased price of the other puffs decreased their consumption in 4 subjects, 2 subjects showed increased consumption of the other puffs at the higher price. The results, when defined in economic terms, indicate that the own puffs were a normal good (consumption and income are directly related), the other puffs were an inferior good (consumption and income are inversely related), and the direct relationship between consumption of the other puffs and their price is defined as a Giffengood effect. The latter result also suggests that for these 2 subjects, price and income manipulations had equivalent effects on choice. These results extend findings from previous studies that have examined the effects of income on choice responding to human subjects and drug reinforcers, and provide a framework for further experimental tests of the effects of income on human choice behavior. Methodological and theoretical implications for the study of choice and for behavioral pharmacology are discussed.     

Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect

People typically demand more to relinquish the goods they own than they would be willing to pay to acquire those goods if they did not already own them (the endowment effect). The standard economic explanation of this phenomenon is that people expect the pain of relinquishing a good to be greater than the pleasure of acquiring it (the loss aversion account). The standard psychological explanation is that people are reluctant to relinquish the goods they own simply because they associate those goods with themselves and not because they expect relinquishing them to be especially painful (the ownership account). Because sellers are usually owners, loss aversion and ownership have been confounded in previous studies of the endowment effect. In two experiments that deconfounded them, ownership produced an endowment effect but loss aversion did not. In Experiment 1, buyers were willing to pay just as much for a coffee mug as sellers demanded if the buyers already happened to own an identical mug. In Experiment 2, buyers’ brokers and sellers’ brokers agreed on the price of a mug, but both brokers traded at higher prices when they happened to own mugs that were identical to the ones they were trading. In short, the endowment effect disappeared when buyers were owners and when sellers were not, suggesting that ownership and not loss aversion causes the endowment effect in the standard experimental paradigm.     

Economics of religion on trial: how disestablishment did not lead to religious revival in the Swiss cantons of Geneva and Neuchâtel

According to ideas in contemporary economics of religion, religious disestablishment will lead to religious vitality: more strictness, more evangelising, and more growth. The present article puts this theory to the test by inspecting the historical record (1900 to the present) of the two Swiss cantons where disestablishment went farthest—Geneva and Neuchâtel—and by comparing them to other Swiss cantons where church and state remained closely linked. I find that the predictions of the economic model are not corroborated. Formerly established churches did not become stricter, did show increased, but relatively unsuccessful marketing efforts, did not grow, and became very poor financially. Non-established churches did not seem to benefit in any way from the disestablishment. The article makes four specific theoretical points that explain why this was the case.