Payment for Pain: Differences between Hypothetical and Real Preferences

Authors: J. Trarbach, S. Schosser, B. Vogt

Abstract:

Decision-makers tend to prefer the first alternative over subsequent alternatives which is called the primacy effect. To reliably measure this effect, we conducted an experiment with real consequences for preference statements. Therefore, we elicit preferences of subjects using a rating scale, i.e. hypothetical preferences, and willingness to pay, i.e. real preferences, for two sequences of pain. Within these sequences, both overall intensity and duration of pain are identical. Hence, a rational decision-maker should be indifferent, whereas the primacy effect predicts a stronger preference for the first sequence. What we see is a primacy effect only for hypothetical preferences. This effect vanishes for real preferences.

Keywords: Decision making, primacy effect, real incentives, willingness to pay.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1340300

References:

[1] Atkinson, R., & Shiffrin, R. (1968). Human memory: a proposed system and its control processes. In K. Spence, & J. Spence (Eds.), The psychology of learning and motivation: advances in research and theory (pp. 90–191). New York: Academic Press.
[2] Carney, D. R., Banaji, M. R., & Brosnan, S. F. (2012). First Is Best. PLoS ONE, 7, e35088.
[3] Deese, J., & Kaufman, R. (1957). Serial effects in recall of unorganized and sequentially organized verbal material. Journal of Experimental Psychology, 54, 180–187.
[4] Dow, J. (1991). Search Decisions with Limited Memory. The Review of Economic Studies 58, 1–14.
[5] Ebbinghaus, H. (1913). On memory: A contribution to experimental psychology. New York: Teachers College, Collumbia University.
[6] Glenberg, A., Bradley, M., Stevenson, J., & Kraus, T. (1980). A Two-Process Account of Long-Term Serial Position Effects. Journal of Experimental Psychology: Human Learning and Memory, 6, 355–369.
[7] Hastie, R., & Park, B. (1986). The relationship between memory and judgment depends on whether the judgment task is memory-based or on-line. Physiological Reviews, 93, 258–268.
[8] Hines, E. A., & Brown, G. E. (1936). The cold pressor test for measuring the reactibility of the blood pressure: data concerning 571 normal and hypertensive subjects. The American Heart Journal, 11, 1–9.
[9] Holt, C. A., & Laury, S. K. (2002). Risk Aversion and Incentive Effects. American Economic Review, 92, 1644–1655.
[10] Li, C. (2009). Primacy Effect or Recency Effect? a Long-Term Memory Test of Super Bowl Commercials. Journal of Consumer Behaviour, 9, 32-44.
[11] Li, Y., & Epley, N. (2009). When the best appears to be saved for last: Serial position effects on choice. Journal of Behavioral Decision Making, 22, 378–389.
[12] Mantonakis, A., Rodero, P., Lesschaeve, I., & Hastie, R. (2009). Order in Choice: Effects of Serial Position on Preferences. Psychological Science, 20, 1309–1312.
[13] Mullainathan, S. (2002). A Memory-Based Model of Bounded Rationality. The Quarterly Journal of Economics, 117, 735–774.
[14] Murphy, J. J., Allen, P. G., Stevens, T. H., & Weatherhead, D. (2005). A meta-analysis of hypothetical bias in stated preference valuation. Environmental and Resource Economics, 30, 313–325.
[15] Page, L. & Page, K. (2010). Last Shall Be First: a Field Study of Biases in Sequential Performance Evaluation on the Idol Series. Journal of Economic Behavior and Organization, 73, 186–198.
[16] Pieters, R. & Bijmolt, T. (1997). Consumer memory for television advertising: a field study of duration, serial position, and competition effects. Journal of Consumer Research, 23, 362-372.
[17] Van Boven, L., Kane, J., & McGraw, A. (2008). Temporally asymmetric constraints on mental simulation: Retrospection is more constrained than prospection. In: Markman, K., Klein, W. & Shur, S. (Eds.), The Handbook of Imagination and Mental Simulation, 131-149.
[18] Yuval, S. (2011). Procedural Analysis of Choice Rules with Applications to Bounded Rationality. American Economic Review, 101, 724–748.
[19] Schosser, S.; Trarbach, J. & Vogt, B. (2013). Is the first option worth paying for? An experimental study on the primacy effect. Volkswirtschaftliche Diskussionspapiere 36-13, TU Kaiserslautern.