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Time Horizons in Interdependent Security International Conference on Social Dilemmas Kyoto, Japan August 24, 2009 David Hardisty, Howard Kunreuther, David Krantz, & Poonam Arora Columbia University

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Co-Authors NSF Grants SES & SES Howard KunreutherDave KrantzPoonam Arora

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Thank You ICSD 2009 Organizing Committee Satoshi Fujii Toshio Yamagishi Tsuyoshi Hatori Akira Kikuchi Haruna Suzuki

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IDS Background Interdependent Security (IDS) is a social dilemma with stochastic losses examples: border security pest/disease control risky investment

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Previous Findings on IDS Individuals cooperate less in IDS than in a typical repeated PD (Kunreuther et al, in press) However groups cooperate more in IDS (Gong, Baron & Kunreuther, in preparation)

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Research Motivation (1) Previous studies used probabilities of 20% to 80% Real life risks are often much lower

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Research Motivation (2) In real life, players often precommit their strategy (whether to invest in protection) for several years in advance at a time example: CO 2 reductions

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Research Motivation (2) Normally, greater delay is associated with increased uncertainty example: $10 promised today or in 20 years However, with repeated low probability events, increasing time horizon may increase subjective probability example: chance of fire today or in the next 20 years

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Study 1 Question 1: Do previous findings of low (~30%) cooperation under uncertainty hold with low probabilities? Or will it be even lower? Question 2: Does precommitment raise investment rates?

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IDS instructions (pg 1) Scenario: Imagine you are an investor in Indonesia and you have a risky joint venture that earns 8,500 Rp per year. However, there is a small chance that you and/or your counterpart will suffer a loss of 40,000 Rp in a given year. You have the option to pay 1,400 Rp for a safety measure each year to protect against the possible loss. However, you will only be fully protected if both you and your counterpart invest in protection. The loss has an equal chance of happening each year, regardless of whether it occurred in the previous year.

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IDS payoff matrix Your Counterpart INVESTNOT INVEST YouINVEST- You definitely lose 1,400 Rp, and have a 0% chance of the large loss occurring. - Your counterpart definitely loses 1,400 Rp, and has a 0% chance of the large loss occurring. - You definitely lose 1,400 Rp and have a 1% chance of losing an additional 40,000 Rp. - Your counterpart has a 3% chance of losing 40,000 Rp and a 97% chance of losing 0 Rp. NOT INVEST - You have a 3% chance of losing 40,000 Rp and a 97% chance of losing 0 Rp. - Your counterpart definitely loses 1,400 Rp and has a 1% chance of losing an additional 40,000 Rp. - You have a 4% chance of losing 40,000 Rp and a 96% chance of losing 0 Rp. - Your counterpart has a 4% chance of losing 40,000 Rp and a 96% chance of losing 0 Rp.

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PD payoff matrix Your Counterpart INVESTNOT INVEST YouINVEST- You lose 1,400 Rp. - Your counterpart loses 1,400 Rp. - You lose 1,800 Rp. - Your counterpart loses 1,200 Rp. NOT INVEST - You lose 1,200 Rp. - Your counterpart loses 1,800 Rp. - You lose 1,600 Rp. - Your counterpart loses 1,600 Rp.

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IDS: Choices Will you invest in protection this year? INVEST | NOT INVEST Do you think your counterpart will invest in protection this year? DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT

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Precommitted Condition Will you invest in protection in year 1? INVEST | NOT INVEST Do you think your counterpart will invest in protection in year 1? DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Will you invest in protection in year 2? INVEST | NOT INVEST Do you think your counterpart will invest in protection in year 2? DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ [...] Will you invest in protection in year 20? INVEST | NOT INVEST Do you think your counterpart will invest in protection in year 20? DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT

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Feedback Year 1 Results Your choice: INVEST Your counterpart's choice: NOT INVEST The random number was: 88 This Means For you, the large loss: did not occur For your counterpart, the large loss: did not occur Result: You lost 1,400 Rp, and your counterpart lost 0 Rp

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Design Details participants played blocks of 20 rounds (years) with an anonymous partner 4 blocks total random pairing before each block 1 block paid out for real money all manipulations between subject, 30 subjects per group

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PD vs IDS Block 1Block 2Block 3Block 4 Investment Proportion IDS rep PD rep

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PD vs IDS Block 1Block 2Block 3Block 4 Investment Proportion IDS rep PD rep

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PD vs IDS Block 1Block 2Block 3Block 4 Investment Proportion IDS rep PD rep

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Conclusion 1 Uncertainty lowers cooperation between individuals playing loss framed dilemma Why? - Perhaps uncertainty makes players more greedy (Johansson & Svedsater, yesterday) - Perhaps uncertainty transforms the game from a social dilemma to a game of chance

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IDS: repeated vs precommitted Block 1Block 2Block 3Block 4 Investment Proportion IDS rep IDS pre PD rep

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IDS: repeated vs precommitted Block 1Block 2Block 3Block 4 Investment Proportion IDS rep IDS pre PD rep

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Conclusion 2 Under uncertainty, precommitment raises cooperation Why? Perhaps precommitment raises subjective probability of the loss

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Precommitted Participants Estimated Higher Cumulative Probability

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Interesting results, but a major confound: Feedback

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Study 2 Question: Do individuals playing a (non-dilemma) solo game invest more often when precommitting?

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Solo payoff matrix INVEST- You definitely lose 1,400 Rp, and have a 0% chance of the large loss occurring. NOT INVEST- You have a 4% chance of losing 40,000 Rp and a 96% chance of losing 0 Rp.

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IDS repeated vs Solo repeated

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Conclusion 3 IDS players are mostly playing a game of chance, showing risk-seeking for losses

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Support 3

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Solo: repeated vs precommited

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Block 1Block 2Block 3Block 4 Investment Proportion IDS rep IDS pre Solo rep Solo pre

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Conclusion 4 Precommitment raises investment rates by individuals Why? Perhaps subjective probability is increased

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How else can we improve investment under uncertainty? Perhaps environmental framing can highlight social goals and raise investment rates However, earlier results are mixed

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Study 3 Question: Will environmental framing will increase investment rates?

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IDS environmental instructions Scenario: Imagine you are a farmer in Indonesia. You get an annual yield of 8,500 Rupiah (Rp) from your potato crops. Both you and a neighboring farmer use the pesticide Aldicarb on your potato crops. However, there is a small risk of groundwater contamination each year from this pesticide, which is toxic. If contamination occurs, you and/or your neighboring farmer will suffer a loss of 40,000 Rp, to pay for groundwater cleanup. You have the option to switch to a more expensive, though safer, pesticide, at the cost of 1,400 Rp annually, to avoid groundwater contamination. However, you will only be fully protected if both you and your counterpart invest in the safer pesticide. The groundwater contamination has an equal chance of happening each year, regardless of whether it occurred in the previous year.

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IDS environmental payoff matrix Your Counterpart INVESTNOT INVEST YouINVEST- You definitely lose 1,400 Rp, and have a 0% chance of groundwater contamination. - Your counterpart definitely loses 1,400 Rp, and has a 0% chance of groundwater contamination. - You definitely lose 1,400 Rp and have a 1% chance of groundwater contamination occuring and losing an additional 40,000 Rp. - Your counterpart has a 3% chance of losing 40,000 Rp due to groundwater contamination and a 97% chance of losing 0 Rp. NOT INVEST - You have a 3% chance of losing 40,000 Rp due to groundwater contamination and a 97% chance of losing 0 Rp. - Your counterpart definitely loses 1,400 Rp and has a 1% chance of groundwater contamination occuring and losing an additional 40,000 Rp. - You have a 4% chance of groundwater contamination occurring and losing 40,000 Rp and a 96% chance of losing 0 Rp. - Your counterpart has a 4% chance of groundwater contamination occurring and losing 40,000 Rp and a 96% chance of losing 0 Rp.

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IDS Environmental: Choices Will you invest in the safer pesticide this year? INVEST | NOT INVEST Do you think your counterpart will invest in the safer pesticide this year? DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT

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Feedback Year 1 Results Your choice: INVEST Your counterpart's choice: NOT INVEST The random number was: 88 This Means For you, groundwater contamination: did not occur For your counterpart, groundwater contamination : did not occur Result: You lost 1,400 Rp, and your counterpart lost 0 Rp

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Environmental Frame Results

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Conclusion 5 Environmental framing may not have a significant effect on investment rates

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Study 4 Question: How does precommitment affect investment rates in a deterministic prisoners dilemma

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IDD payoff matrix Your Counterpart INVESTNOT INVEST YouINVEST- You lose 1,400 Rp. - Your counterpart loses 1,400 Rp. - You lose 1,800 Rp. - Your counterpart loses 1,200 Rp. NOT INVEST - You lose 1,200 Rp. - Your counterpart loses 1,800 Rp. - You lose 1,600 Rp. - Your counterpart loses 1,600 Rp.

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PD: Repeated vs Precommitted Block 1Block 2Block 3Block 4 Investment Proportion PD rep PD pre

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PD: Repeated vs Precommitted Block 1Block 2Block 3Block 4 Investment Proportion PD rep PD pre

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Conclusion 6 Precommitment reduces investment rates in deterministic social dilemmas Why? Perhaps individuals realize there is no opportunity for reciprocity and are worried about being a sucker

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Summary Precommitment lowers cooperation in regular prisoners dilemma, but raises it in interdependent security situations Why? In IDS, precommitment raises subjective probability of loss, but in the deterministic case it removes the possibility of reciprocity

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Thank You!

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References Gong, M. J. Baron and H. Kunreuther (2008). Group Cooperation under Uncertainty. Wharton Risk Center Working Paper # Kunreuther, H., G. Silvasi, E. Bradlow, and D. Small (in press). Deterministic and Stochastic Prisoner's Dilemma Games: Experiments in Interdependent Security. Judgment and Decision Making. Xiao, Erte & Kunreuther, H. (in preparation). Punishment and Cooperation in Stochastic Social Dilemmas.

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Questions Do you believe the risk perception story? What new conditions would be most interesting? All-or-nothing precommitment? Group play? Change the payoffs (so non-investment dominates)? What journals do you recommend publishing in? What are the biggest holes in this story?

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What about individual differences?

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Comprehensive Health Insurance

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Gender

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First-Round Comparison

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Overall Comparison

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20-Round Profile

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80 Round Profile

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What did people say?

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IDS - Repeated The probability of loosing was too low so I didn't decide to invest. For the most part, it seemed better NOT to invest than to invest. I found that the initial 1-5 years influenced how I invested in the remaining 15 years. So if I mainly did NOT invest the first 5 years, then I didn't invest for the remaining 15 years. I also found that my partner followed how I invested if I had no losses. I chose not to invest dut to low probality of loss It was a little intimidating, but after awhile an understanding occurred between myself and my partner and we flowed fairly well over the years. I chose to invest in the beginning so I wouldn't end up with negative numbers. Afterwards, I chose not to invest because I figured the chances of losing 40,000 were small, and even if I lost the money once, I would probably not lose it again in the 20 year span.

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IDS - Precommitted I chose to invest almost all 20 times except for one or 2 years to make an extra bonus An interesting game where I can observe that some people do take risks. I chose to invest in every year and every scenario since statistically it makes more sense to invest in protection. The loss is big compared to the amount spent on protection and there is an average of more than one occurrence of loss in a 20 year period even if only one person invests. I invested too many times the first round, and when I saw that my partner rarely invested and suffered little losses, I invested less as well by the next round. I felt rather smug when he/she lost 40k while I invested-- but I thought it was interesting that I invested a lot more often than most of my counterparts. Initially I was just playing it safe, and then for the 2 later rounds I pretty much went with the Nash Equilibrium choice of Not Investing.

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Solo - Repeated At first, it seemed as though investing would be a good idea. After the second round, I realized that not investing would probably give a better payout because the chances of actually suffering a loss was so slim. I mainly choose to not invest because there was only a 4% chance of losing Rp. But then every 4 or 5 turns, I would randomly decide to invest in protection. Now that I think about it, even if I hadn't gone with investing at all, the outcome may have been the same or maybe even better. I would invest at points where I thought that I was happy enough with my cumulative gains that I didn't want to risk losing what I had already gained.

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Solo - Precommitted It's obvious safer to invest, and the investment totally worth that. Even if you invest for 20 years, the cost is lower than one large loss which might happen every year. However, as there was no large loss happened in the first session, I therefore chose to take some risks in following sessions. The potential loss from investing every time seemed less than from not investing more often where even one bad year could produce less income Rp possible loss * 4% chance = 1600 Rp loss expected. So in general it's worth it to invest. However, given the low likelihood, it might be worth it to take a risk & skip some years.

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Why Groups Cooperate More than Individuals in SPD - Safety Oriented to Avoid Guilt and Blame People take less risk when their decisions affect others (Charness and Jackson 2008) In DPD –Defection is always better off –No ex post guilt or blame In SPD –Defection has a higher expected payoff, but also a higher probability of suffering a loss. –If a large loss follows defection ex post guilt and ex post blame for the one who suggested defection –Group members favor safety-oriented strategy (cooperation) to avoid ex post guilt and blame Reversed discontinuity effect

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Why Groups Cooperate More than Individuals in SPD -Social Pressure to Conform to Certain Norms Three norms are most relevant in PD games: Being pro-group, Being smart, and Being nice Similar to the group morality and individual morality argument (Cohen 2006; Pinter 2007) In DPD –Both pro-group (group morality) and smart norm clearly indicate defection –Niceness (individual morality) is clouded In SPD –Unclear what strategy is pro-group and smart –Being nice is socially desirable and more salient than in DPD.

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