Applied Research Project

COGNITIVE BIASES IN PUBLIC GOOD EXPERIMENT : DOES MORE

INFORMATION LEADS TO IRRATIONAL DECISION ?

Mehmana Elmanli 20921

Syeda Nuzhat Fatima 21011
Syed Zuhair Hussain Naqvi 20466
Muhammad Hasnat Khalid 20964
Abid Zain Alam 20391
 Introduction

What are public goods?

public defence
street lights
police service
flood defences

Key points:
Nonexcludable- means that it is costly or impossible for one user to exclude
others from using a good.
Nonrivalrous- means that when one person uses a good, it does not prevent
others from using it.
 Introduction

Why Public Good Games are so attractive?

Nash-equilibrium outcome of the public good game is inefficient. Individuals in a

public good experiment are faced with confusion that to behave in individually
rational and selfish way does not generate efficient allocation
the provision of public goods is critical in many real world environments.
 Literature Review

Game theories proposes, people tend to be both selfish and rational.

Focus of conducting experiment is to analyze the change in behavior within given

set of conditions.
People produce less optimum amount under voluntary contribution situations
(Isaac, McCue and Plott, 1985)

In two-stage experiments, individuals become more aware that free riding is a

dominant strategy in repetition of rounds.
With repetition of rounds, participants figure out and adopts the dominant
strategy (Dawes and Thaler, 1988)
 Literature Review Cont.:

There are several number of invalidating factors, experiments were conducted in

order to avoid those factors with predictions of free riding problem.
There are no theories of an economic model to predict the phenomena of
free riding (Kim and Walker, 1984)

Participants do not have any knowledge about the benefits of other participants
in total and will behave irrationally.
Free riding equilibrium lies on an assumption that all participants are behaving
rationally (Andreoni, 1988)
Literature Review

one social dilemma is provision of public goods

Which describes the difference between social incentives to free riding and
individual incentives to contribution towards provision of public goods

Social preferences are reason for declined the voluntary corporation

(FISCHBACHER AND SIMON GCHTER,2007)
1. contributors are well coordinated with the contributors and free riders with free
riders(Burlando and Guala (2005))
2. contributors are more contributed if the free riders are disappeared from a
group(Houser and McCabe (2007))
Literature Review

Utility interdependence is not the main factor responsible for over-

contribution(Dmitry A. Shapiro,2008)
Naturally the over contribution in public good games depends on the contributors
care to the favour of others participants either it is negative or positive
Factors:
1. payoff and utility function cant explain the behaviour
2. average contribution of subject below the benchmark is doesnt matter it should
be above zero
3. participants belief than average contribution is as high as the endowment.
Conceptual Framework:
Conceptual Framework:

ALIEF
AUTOMATIC OR
HABITUAL BELIEF-LIKE
ATTITUDES

HOW WE INSTINCTIVELY
REACT TO SITUATIONS
Tamar Gendler
Conceptual Framework:

ALIEVES BELIEVES

AFFECTIVE
ASSOCIATIVE SAFE
AUTOMATIC
ARRATIONAL
Conceptual Framework: Cognitive Biases
in Decisions Making

Cognitive Biases are tendencies to think in certain ways that can lead to
systematic deviations from a standard of rationality.
Many of these biases affect belief formation, business and economic decisions,
and human behavior in general.

Cognitive
Biases:
Ambiguity
effect,
confirmation
bias,
information
bias, etc.
 Research Objective

To find out that, whether or not the provision of more information influence the
decision making in favor of one option over other in a linear public good
experiment.
 Hypothesis

H1 : Availability of information about projects where Public Funds are intended to

be used will positively affect the overall contribution from the participants.

H0 : Information about the projects where Public Funds are intended to be used
will have no effect the overall contributions from the participants.
 Experimantal design

Two samples are given a specific endowment fund to invest in either;

1.Public good investment

2.Private investment

Two questionnaires; with and without information of public good projects, are
made.
To determine individuals decision, distribute one questionnaire type in one
sample each.
Methodology
 Methodology

The game will only be played once because we were interested in obtaining
preferences based on the information itself and dont want to take into
account the considerations of the participant due to the repetitions of the
game.

The Endowment of 20 tokens will be given to each participant.

 Methodology

A Following Payoff Function will be introduced to both the groups:

Payoff = Ei Xi + 0.2(= )
Where;
Ei = Endowment Fund
Xi = Investment in Public Fund
n = Sample size

A similar Payoff Function to both groups is selected to eliminate any biasness due to
expected returns.

The tool which is used to collect responses from the participants is Google Forms.
 Findings

Increase in marginal value of public good leads to increase in contribution.

In the presence of altruism, participant's total contribution increases.
Free riding observed when provided no appropriate information regarding public good
Positive influence of others high contribution on ones contribution.
Individuals expected payoffs is determined by distribution of others decision
Provision of more precise information positively affect contribution.
 Limitation

This study only considers the biasness for more information on Public Projects but
does not consider the biasness for the type of project itself. For example; some
people will be more willing to contribute in a project to which they feel
emotional attachment.

Uncontrolled environment instead of controlled environment of Labs.

Influence of unobservable factors on participants decision

a. In relation to others, how well one do

b. How others have done

Limitation of generalizability of results

 Conclusion

As main aim of experiment was to see impact of information provision

regarding public good project and its influence on behaviour for voluntary
contribution
There is a significant difference in contribution with and without proper
information provision