A relevant issue in Economics is to provide a reliable answer to the question of how individuals do make choices. The traditional model is based on the assumption that individuals have stable and well defined preferences, and their choices are driven by consistent optimization (Sen, 1982). The idea is that if agents are motivated enough (normally through monetary incentives) they are going to do the best for themselves, that is, maximize their utility function. The failure of this motivational requisite (or incentive compatibility) is the most widespread explanation for the observed deviations between real and predicted behavior with the traditional economic model.
This general framework constitutes a simple, intuitive and powerful way to explain a wide range of economic behavior. However, “while this model of individual behavior dominates contemporary economic analysis there is a long history among economists of questioning its behavioral validity and seeking alternatives” (McFadden, 1999). Some of the most relevant “anomalies” have been found in terms of its deviations from the transitivity assumption (Allais, 1953), monotonicity (Kahneman, Slovic and Tversky, 1982) and procedural invariance (Tversky and Kahneman, 1986; and Arrow, 1982).
In a recent paper published in Ecological Economics, Xlab members Carmelo León and Jorge Araña consider the role of human emotions in the procedural invariance observed in what has been termed “the anchoring effect”. Their empirical evidence focuses on the relationships between emotions and anchoring effects in the context of the valuation of non-market goods utilizing the double bounded dichotomous choice (DBDC) contingent valuation method. The main tested hypotheses are the following: i) the role of human emotional intensity on welfare estimates; ii) the independence of the cognitive (i.e. anchoring) and the emotional dimensions; and iii) the sensitivity to scope when both the emotional and the cognitive dimensions are present.
Xlab authors concluded that anchoring effects do not seem to have a relevant influence on the individual’s ability to discern among different dimensions of a non-market good in a valuation scenario. A useful implication might be that relative Willingness to pay (WTP) for public goods could be successfully elicited. Nevertheless, anchoring effects are still present in their application and raise serious concerns about the underlying nature of human values and the capability of preference elicitation techniques to capture them. If individual choices are influenced by external anchors, it can be questioned how can preferences be defined and how can elicitation techniques be able to seize them. As pointed out by Ariely et al. (2003), “even if there are no clear violations of the transitivity axiom, the researcher can not ascertain whether elicited choices reveal a set of unique and well-defined preferences”.
In order to shed light on the conditions under which bid anchors could have an influence on the formation of individual preferences, we looked at the potential role of individual’s emotions. In particular, we focused on the relationship between the EIS and the degree of anchor raised by the bid offered in the first binary question. The results show that anchoring effects decline as emotional intensity increases, reaching a minimum for an average value of EIS. After this point, anchoring effects are again significant. The major implication of these findings is that individuals tend to improve their ability for the non-market valuation task when their emotional intensity is moderate.
On the other hand, the omission of EIS in the valuation function could bias non-market valuation results. The correlation between cognitive and emotional intensity implies that some index of the latter needs to be considered in the systematic part of the utility or expenditure functions. To our knowledge, previous work has generally assumed independence between the cognitive and emotional dimensions. The common incorporation of unexplained emotional conditions as part of the stochastic term introduces correlation between the systematic and the stochastic parts, leading to biased results.
Our results concur with the notion that there might be a trade-off between the emotional and cognitive dimensions in non-market valuation tasks. That is, some degree of emotional intensity might help reduce the cognitive load and enhance performance in human decision making. Nevertheless, it should be acknowledged that this relationship is complex because of the multivariate factors that can influence individual’s emotions and the cognitive aspects involved in the survey instrument. Further research should explore the relationships of other emotional and cognitive factors that might play a role in the decision making task and the formation of individual’s preferences.
Araña, J.E. and León, C.J. (2008). “Do Emotions Matter? Stability of Preferences under Anchoring and Emotional Intensity Effects”, Ecological Economics, 66 (4), pp. 700-711.
