Sandro Ambuehl, University of Toronto

For They Know Not What They Do: Selection through Incentives when Information is Costly
Friday, 13 October 2017 - 2:30 pm to 4:00 pm
Contact information
Contact person: 
Anthony Heyes
Registration required: 
Cost to attend: 
Free of charge
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Intended audience: 
Event sponsors: 
CRC Seminars in Environmental / Public Economics


Who participates in transactions when information about the consequences must be learned? Theoretically, we show that rational decision makers for whom acquiring and processing information is more costly will respond more strongly to 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 laboratory and naturally occurring measures of information costs, including cognitive ability. These findings are relevant for any transaction in which a price paid for participation trades off with not fully understood 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.