My dissertation research uses a combination of theoretical, empirical and experimental methods to identify the psychological factors underlying decision processes and to quantify their effects in market contexts in the industrial organization literature.
The first essay, "Modeling Sequential Search with Anticipatory Regret and Rejoicing" models how regret and rejoicing arise when consumers sequentially search for lower prices, and shows that regret and rejoicing can explain why people are generally found to "search too little" compared to the theoretical benchmarks. Anticipatory regret and rejoicing are incorporated into the optimal search problem based on the formal regret theory of Bell (1982) and Loomes & Sugden (1982). Due to the asymmetry in anticipatory regret and rejoicing, the model predicts: First, "search too little" is optimal as long as people are more sensitive towards regret than towards rejoicing. Second, if additional feedback is offered so that people expect to see what the next price would have been had they continued to search, search behaviors become observationally indistinguishable from the benchmarks. In addition, if people's sensitivities towards future regret/rejoicing are strengthened after recently experiencing regret or rejoicing, the model can explain why people rationally recall past prices.
The second essay, "Testing Regret in Sequential Search: Evidence from Experimental Data" devices an empirical strategy to test if regret and rejoicing do affect actual search in the way prescribed by the model. An empirical investigation of 673 separate searches from an experimental dataset confirms that people's latent reservation prices are affected by their experiences with regret and rejoicing during search. In particular, regret about the last search being unsuccessful increases the probability of stopping from 18% to 31% in the current round. Two competing explanations for “search too little”, risk aversion and satisficing behaviors, are evaluated and are rejected in favor of regret/rejoicing. We also propose an experimental design that directly tests the effect of anticipatory regret on search through the manipulation of feedback following the decision to stop.
The final essay, "Surprise and Reciprocity: A Real Effort Experiment" presents the results of a real-effort field experiment which tests for the presence of a surprise effect in a gift-exchange game. We hypothesize that a surprise effect induces workers to work harder when the wage paid is greater than expected. We find that surprising workers with a higher wage induced them to work more meticulously, raising the quality but not the quantity of the work performed. The surprise effects did not diminish but persisted over time. In contrast, workers did not respond positively to additional wage payment when the bonus announcement was made ahead of time.