DO P EOPLE ( WANT T O ) P LAN

Abstract

This paper makes a modest contribution to investigating whether people, when tackling dynamic decision problems, formulate plans and then implement them. Assumed behaviour of this form is central to many theories of economic decisionmaking, yet much direct empirical evidence (from economists and particularly from psychologists) suggests that it has rather dubious empirical support. The paper begins by discussing the importance and centrality of planning to economic theories of dynamic decision-making, and then examines the difficulty of empirically investigating whether planning occurs. It then describes a simple experiment that sheds some light on this phenomenon. The findings from the experiment, although only directly relevant to the context of the experiment, do suggest that people do (want to) plan when the circumstances are appropriate. The paper concludes by discussing alternative designs. I Introduction Central to effectively all economic theories of rational dynamic decision-making is the concept of a plan. The purpose of the experiment reported in this paper is to try and get some empirical grip on this concept. The paper is structured as follows: it begins by describing the various economic approaches to modelling rational behaviour in dynamic decision problems. Then we discuss the difficulty of empirically testing the key assumptions of these theories, referring to published material giving empirical evidence, before presenting our own modest experiment and evaluating its findings. In the concluding material we also discuss alternative designs. By a dynamic decision problem under risk we mean a sequence of moves by the decision maker and by Nature. For simplicity, we assume that the decision maker and Nature take turns – that is, each move by the decision maker is followed by a move by Nature and vice versa, until the end of the problem – at which point there is a payoff to the decision maker. 1 Nature moves probabilistically and not strategically. The decision maker is assumed to know all the moves that he or she and Nature can make, knows the probabilities

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