The Personalization Hypothesis

What makes people tick? Dt tries to explain.

The Personalization Hypothesis

Postby The management » Mon Aug 22, 2005 2:49 pm

Drama theory can explain many psychological facts through use of the Personalization Hypothesis. This states that humans consciously or unconsciously think of entities they interact with in making difficult decisions as other parties in a drama.

This hypothesis underlies the explanation of Kubler-Ross's 5 stages of Dying given elsewhere in this forum. It also enables a dt explanation of the Ellsberg Paradox.

Daniel Ellsberg (Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics, 75, 643-669, 1961) told subjects that an urn contained

--50 red balls
--100 black & yellow balls

but didn't say how many of the 100 were black & how many were yellow. He then asked them to choose between the following pairs of gambles.

First pair
Gamble 1: $100 if you draw a red ball. Gamble 2: $100 if you draw a black one.

Second pair
Gamble 1: $100 if you draw red or yellow. Gamble 2: $100 if you draw black or yellow.

Most subjects strongly prefer Gamble 1 in the first pair and Gamble 2 in the second pair. This can't be explained on the assumption that they have subjective probabilities for their chance of picking black or yellow and are maximizing expected utility.

It's explained by assuming that they subconsciously think of the experimental setup as another party in the following interaction.

Image

Subjects have been told that when they reveal their bet, the odds will not be stacked against them by the experiment varying the proportion of Black and Yellow balls. Thinking of the experiment as another party, they might mistrust this assurance. By choosing Gamble 1 in the first pair and Gamble 2 in the second, they make it impossible for the odds to be stacked in this way. Thus, they eliminate the trust dilemma shown by the question marks in columns S and a.
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Postby MikeYoungAtWork » Tue Mar 21, 2006 3:24 pm

In the experiment the subjects knew about both gambles beforehand, and were picking from the same box (thus the experimenter could not change the number of balls in the box between gambles).

Technically, there is no trust dilemma in the Ellsberg Paradox, as having a large number of yellow balls and a few black will help those with gamble 1 second time and hinder those with gamble 2 first time. But it takes some working out.

I think the problem is that the probabilities are difficult to understand and most subjects can't do the math. Others can only do some of the math, that for Gamble 1 in the first case and Gamble 2 in the second, for them its a known probability vs an unknown probability.

So when you can't do the math there is a perceived trust dilemma, and as you say, people opt for the safe option.
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