Strategies vs backward induction in dynamic decision-making: an experimental investigation

Abstract

This paper reports the results of an experimental investigation into \npeople’s evaluations of choice problems that are strategically equivalent, \nbut differ in respect of their temporal framings. We elicit individual \nvaluations for three strategically equivalent choice problems, which \ndiffer in terms of their framing and the timing of the decision. This allows \nus to begin to understand how people view dynamic decision problems \nand how they tackle them. This research is complementary to earlier \nexperimental work of others, which suggests that the temporal frame \nof a dynamic decision problem may well influence the decisions that \nare taken. We show that the framing affects also some people’s evaluation \nof the problem. We combine these findings with the earlier findings \nto relate the two issues: the evaluations and the decisions. This helps us \nget some insight into the thought processes of dynamically inconsistent \npeople.

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