How Do People Learn to Allocate Resources? Comparing Two Learning Theories.

Abstract

How do people learn to allocate resources? To answer this question, 2 major learning models are compared, each incorporating different learning principles. One is a global search model, which assumes that allocations are made probabilistically on the basis of expectations formed through the entire history of past decisions. The 2nd is a local adaptation model, which assumes that allocations are made by comparing the present decision with the most successful decision up to that point, ignoring all other past decisions. In 2 studies, participants repeatedly allocated a capital resource to 3 financial assets. Substantial learning effects occurred, although the optimal allocation was often not found. From the calibrated models of Study 1, a priori predictions were derived and tested in Study 2. This generalization test shows that the local adaptation model provides a better account of learning in resource allocations than the global search model.

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