Abstract
Feedback is an effective tool for promoting efficient behavior: it enhances individuals’ awareness of choice consequences in complex settings. Our study aims to isolate the mechanisms underlying the effects of feedback on achieving efficient behavior in a controlled environment. We design a laboratory experiment in which individuals are not aware of the consequences of different alternatives and, thus, cannot easily identify the efficient ones. We introduce feedback as a mechanism to enhance the awareness of consequences and to stimulate exploration and search for efficient alternatives. We assess the efficacy of three different types of intervention: provision of social information, manipulation of the frequency, and framing of feedback. We find that feedback is most effective when it is framed in terms of losses, that it reduces efficiency when it includes information about inefficient peers’ behavior, and that a lower frequency of feedback does not disrupt efficiency. By quantifying the effect of different types of feedback, our study suggests useful insights for policymakers.
Highlights
A robust finding in economics, psychology, and behavioral sciences is the systematic failure to act according to rational well-informed preferences [1]. This failure to rationally process and integrate information due to limited cognitive resources may lead to inefficient behavior in many domains of everyday life and may produce costs that, in some cases, can be avoided by highlighting the consequences of such behavior
We investigated how different types of feedback enhance individuals’ awareness of choice consequences and search for efficient alternatives
We focused on the decision problem faced by an individual who has limited awareness of her choice consequences
Summary
A robust finding in economics, psychology, and behavioral sciences is the systematic failure to act according to rational well-informed preferences [1]. For instance, investors are relatively passive and do not spend time collecting information. They often abstain from joining advantageous plans, they tend to stick to the default option and do not explore new alternatives that may lead to more efficient choices [2]. Suboptimal behaviors may lead actual workers to not save enough, which may result in a generation of future poor pensioners. For this reason, regulators and policy makers
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