Misperceptions of Feedback in Dynamic Decision Making

Abstract

In recent years laboratory experiments have shed significant light on human behavior in a variety of microeconomic and decision-theoretic contexts including auctions, bargaining, and preference elicitation (Plott 1986, Smith 1986, Slovic and Lichtenstein 1983). Despite the success of experimental techniques in the domain of the individual and small group, there has been comparatively little work relating the behavior of decision makers to the dynamics of larger organizations such as an industry or the macroeconomy. Experiments in both economics and psychology have focussed (with significant exceptions, e.g. Hogarth and Makridakis 1981, Kleinmuntz 1985, Brehmer 1986, Smith 1986) on static and discrete judgments. Hogarth (1981, 198) emphasizes

…the continuous, adaptive nature of the judgmental processes used to cope with a complex, changing environment…. With few exceptions…judgment researchers have focussed on discrete incidents (particular actions, predictions, and choices) that punctuate these continuous processes; furthermore, task environments are typically conceptualized to be stable.…. [I]nsufficient attention has been paid to the effect of feedback between organism and environment.

Condensed and reprinted by permission of the publisher from Organizational Behavior and Human Decision Processes, 43 (June 1989). Copyright © 1989 by Academic Press, Inc.