The Kohan Decision Lab’s aim is to use tools and techniques from Economics, Sociology, Neuroscience, and Psychology to better understand the cognitive processes underlying economic decision making. Current projects include:
The field of neuroeconomics aims to understand the neurological basis of economic choice. An understanding of the processes and constrains that underlie choice behavior may help in the design of future models. Our work in this area has focused on the mechanics of learning and belief formation, and specifically the role of the neurotransmitter dopamine, which has been of interest to neuroeconomists due to its apparent role in transmitting information about beliefs and preferences. It has been hypothesized that dopamine encodes `reward prediction error’, or the the difference between the expected and realized rewards associated with an event. Much of our work has involved using theoretical techniques from economics to design experimental tests of the reward prediction hypothesis.
The typical assumption in economics is that choices follow a preference relation that is complete, stable over time, and that satisfies various normative properties (e.g. Expected Utility). However, this assumption has been criticized both empirically and conceptually. Empirically, by documenting a large number of “biases” incompatible with these postulates (e.g. the Willingness to Pay/Accept gap, or Stochastic Choice). Conceptually, a large literature in economics and psychology has criticized the assumption that preferences are complete, arguing that instead often subjects may not know what they prefer and may need to use a heuristic to make a choice in this case. The projects in this area study incomplete preferences formally and introduce models of behavior in which subjects may need to “resolve” this incompleteness in some way, leading to some of the well-known biases documented empirically. We also introduce projects to experimentally test the presence of incomplete preferences and the implications of these models.
Behavioral Patterns of the Poor
Standard theorizing about poverty falls into two camps. Social scientists regard the behaviors of the economically disadvantaged either as calculated adaptations to prevailing circumstances or as emanating from a unique “culture of poverty,” rife with deviant values. The first camp presumes that people are highly rational, that they hold coherent and justified beliefs and pursue their goals effectively, without mistakes, and with no need for help. The second camp attributes to the poor a variety of psychological and attitudinal short-fallings that render their views often misguided and their choices fallible, leaving them in need of paternalistic guidance. There might be an alternative view. The behavioral patterns of the poor, we argue, maybe neither perfectly calculating nor especially deviant. Rather, the poor may exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes.
Concept of Choice in Homelessness
The concept of “choice” in homelessness is often overlooked. We tend to think of homelessness as the inevitable result of broad social trends. Sometimes, this is the case. Large-scale economic depression does correlate strongly with increases in homelessness. But analysis at this level can only tell us so much. Homelessness at the micro-scale is the result of hundreds of choices, often between options that are equally unappealing. As economic challenges grow, so does the difficulty of the decision-making, and the consequences of each choice.