1. UBC Sauder, UPenn, Columbia U, Manhattan College, Western Ivey
"Once? No. Twenty times? Sure!" Uncertainty and precommitment in social dilemmas
David J. Hardisty, Howard Kunreuther, David Krantz, Poonam Arora, Amir Sepehri
UBC Sauder, UPenn, Columbia U, Manhattan College, Western Ivey
Funding support from NSF and SSHRC
Association for Consumer Research
Dallas, TX
Oct, 2018

2. Submitting Author: Amir Sepehri

3. IDS Background
Interdependent Security (IDS) is a social dilemma with stochastic losses (Kunreuther & Heal, 2003)
border security
pest/disease control
risky investments
People cooperate less in IDS than in a typical Prisoner’s Dilemma

4. Research Motivation
In real life, people sometimes precommit to invest in protection for several years in advance at a time
examples:
long-term insurance contracts
CO2 reductions
safety decisions (seat-belt, helmet, etc)

5. Research Motivation
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
Examples (choice bracketing):
Chance of a fire today or over 20 years?
Wear your seatbelt just once or every time?

6. Question 1: How does precommitment affect investment rates?
Study 1
Question 1: How does precommitment affect investment rates?

7. 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.

8. IDS payoff matrix Your Counterpart INVEST NOT INVEST You
- 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
- 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.

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

10. DEFINITELY | PROBABLY | PROBABLY NOT | DEFINITELY NOT
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

11. 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?
Do you think your counterpart will invest in protection in year 2?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ [...]
Will you invest in protection in year 20?
Do you think your counterpart will invest in protection in year 20?

12. 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

13. 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

14. PD vs IDS 1 0.9 0.8 0.7 0.6 IDS rep Investment Proportion 0.5 PD rep
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

15. PD vs IDS 1 0.9 0.8 0.7 0.6 IDS rep Investment Proportion 0.5 PD rep
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

16. PD vs IDS 1 0.9 0.8 0.7 0.6 IDS rep Investment Proportion 0.5 PD rep
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

17. Conclusion 1
Uncertainty lowers cooperation between individuals playing loss framed dilemma
Why? - Perhaps uncertainty transforms the game from a social dilemma to a game of chance

18. IDS: repeated vs precommitted1
0.9
0.8
0.7
0.6
IDS rep
Investment Proportion
0.5
IDS pre
PD rep
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

19. IDS: repeated vs precommitted1
0.9
0.8
0.7
0.6
IDS rep
Investment Proportion
0.5
IDS pre
PD rep
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

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

21. Coded Free Responses

22. Predictions of counterpart

23. Interesting results, but a major complicator:
Partner interaction (or non-interaction) effects

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

25. 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.
Tversky & Samuelson

26. IDS repeated vs Solo repeated

27. IDS repeated vs Solo repeated

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

29. Solo: repeated vs precommited

30. Solo: repeated vs precommited1
0.9
0.8
0.7
0.6
IDS rep
IDS pre
Investment Proportion
0.5
Solo rep
0.4
Solo pre
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

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

32. How else can we improve investment under uncertainty?
Environmental framing?
Highlight social goals and raise investment rates?

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

34. 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.

35. IDS environmental payoff matrix
Your Counterpart
INVEST
NOT INVEST
You
- 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
- 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.

36. 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

37. 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

38. Environmental Frame Results

39. Environmental Frame Results

40. Environmental Frame Results

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

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

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

44. PD: Repeated vs Precommitted1
0.9
0.8
0.7
0.6
PD rep
Investment Proportion
0.5
PD pre
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

45. PD: Repeated vs Precommitted1
0.9
0.8
0.7
0.6
PD rep
Investment Proportion
0.5
PD pre
0.4
0.3
0.2
0.1
Block 1
Block 2
Block 3
Block 4

46. 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

47. Summary: a pretty 2x2

48. Study 5
Solo game, N=355
Repeated vs Precommitted
Loss vs Gain

49. Study 5: Results

50. Summary
Precommitment lowers cooperation in regular prisoner’s 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

51. Thank You!

52. What did people say?

53. 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.

54. 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.

55. 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.

56. 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.
40000 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.