As part of the briq short lecture series, Alex Imas (Carnegie Mellon University) presented his research on the dynamics of decision-making. People do not make decisions in isolation. When choosing whether to buy stocks or stick to bonds, they usually consider how their portfolio had done in the past; when debating to accept or reject an offer, people are affected by how their partner had treated them throughout the negotiation even in one-shot interactions.
In his work, Alex shows that features of decisions over time, such as whether a prior outcome closes the associated mental account, whether a previous decision was a good one or not, and the amount of time elapsed between choices, have significant and lasting effects on subsequent behavior. His research aims to incorporate these features into theory to improve our understanding of dynamic decision-making and identify the implications for structuring more effective policy. By better understanding the dynamics of how prior outcomes are mentally grouped with prospects, managers can better structure contracts to align their risk preferences with those of their employees; by identifying how prior returns affect attention, even experienced fund managers can improve their performance.