Rethinking heterogeneity: the role of attitudes, decision rules and information processing strategies

Abstract

The study of heterogeneity across individual decision makers is one of the key areas of activity in the field of behavioural research. However, a disproportionately large share of the research effort focusses on heterogeneity in sensitivities to individual attributes, and in particular how such heterogeneity can be accommodated in a random coefficients framework. While differences in marginal sensitivities clearly play a role in driving behaviour, this paper makes the case that <i>retrieved differences</i> in such sensitivities may in fact be caused by a number of different factors. In particular, we look at the possible role of underlying attitudes, differences in decision rules across respondents and the role of information processing strategies. We show evidence from a number of studies that suggest that accounting for such richer behavioural patterns leads to important gains in understanding of behaviour, and may also reduce the level of residual <i>random</i> heterogeneity. Conversely, this suggests that not adequately accounting for such additional factors may overstate the degree of unexplained heterogeneity in marginal sensitivities.