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Differences in cognitive control between real and hypothetical payoffs

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  • Ralf Morgenstern
  • Marcus Heldmann
  • Bodo Vogt

Abstract

This study focuses on the question of neural differences in the evaluation of hypothetical and real payoffs. Hypothetical payoffs are not incentive compatible and are, therefore, not considered to be reliable. Behavioral differences between the evaluation of hypothetical and real payoffs can be attributed to this incentive effect. Because real payoff mechanisms are not always applicable in the field, it is necessary to know in which way both types of payoffs affect evaluation processes. In order to delineate the cognitive processes related to hypothetical bias, we conducted a within-subject EEG experiment with hypothetical and real payoffs. A certainty equivalent elicitation method for measuring risk attitudes was performed in which subjects had to indicate whether they preferred playing a lottery or receiving a sure payoff instead. At the behavioral level, subjects were more risk averse for real payoff choices, confirming a hypothetical bias. EEG-derived event-related potentials provide evidence that the processes underlying these differences in evaluations differ. A higher N2 component for hypothetical payoffs revealed increased cognitive control for hypothetical decisions. These neuronal underpinnings indicate additional evaluation processes in hypothetical choice paradigms, which can explain the shift in risk attitude toward the expected value of a lottery. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Ralf Morgenstern & Marcus Heldmann & Bodo Vogt, 2014. "Differences in cognitive control between real and hypothetical payoffs," Theory and Decision, Springer, vol. 77(4), pages 557-582, December.
    • Handle: RePEc:kap:theord:v:77:y:2014:i:4:p:557-582
    DOI: 10.1007/s11238-013-9408-x
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    Cited by:

    1. Haghani, Milad & Bliemer, Michiel C.J. & Rose, John M. & Oppewal, Harmen & Lancsar, Emily, 2021. "Hypothetical bias in stated choice experiments: Part I. Macro-scale analysis of literature and integrative synthesis of empirical evidence from applied economics, experimental psychology and neuroimag," Journal of choice modelling, Elsevier, vol. 41(C).
    2. Schosser, Stephan & Trarbach, Judith N. & Vogt, Bodo, 2016. "How does the perception of pain determine the selection between different treatments?," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 174-182.
    3. Haghani, Milad & Sarvi, Majid, 2018. "Hypothetical bias and decision-rule effect in modelling discrete directional choices," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 361-388.
    4. Milad Haghani & Michiel C. J. Bliemer & John M. Rose & Harmen Oppewal & Emily Lancsar, 2021. "Hypothetical bias in stated choice experiments: Part I. Integrative synthesis of empirical evidence and conceptualisation of external validity," Papers 2102.02940, arXiv.org.

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    More about this item

    Keywords

    Hypothetical bias; Cognitive control; N2; Decisions under risk;
    All these keywords.

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions

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