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Monday, April 23, 2018 at 4:15pm
Uris Hall, 498
Colin Stewart - University of Toronto
For They Know Not What They Do: Selection Through Incentives When Information is Costly (joint w/Sandro Ambuehl & Axel Ockenfels)
Abstract: Who participates in transactions when information about their consequences must be learned? Theoretically, we show that decision makers for whom acquiring and processing information is more costly respond more strongly to changes in incentives for participating, and decide to participate based on worse information. Consequently, with higher incentives, the pool of participants consists of a larger fraction of individuals with a worse understanding of the consequences of their decision. Our behavioral experiment confirms these predictions, both for experimental variation in the costs of information acquisition, and for various measures of information costs including school grades and cognitive ability. These findings are relevant for any transaction that combines a price paid for participation with uncertain yet learnable consequences. Our results also clarify the relation between incentives and the ethical principle of informed consent, and thus help address ethical concerns with incentives.