Virtual Experiments in Economics A Methodological Assessment Alessandro Innocenti ( University of Siena)

1. VirtualExperiments in Economics A MethodologicalAssessment Alessandro Innocenti (Universityof Siena)

2. Paper’s purpose • To propose Low immersive virtual experiments (LIVE) as tools for experimental economics where the laboratory approach has important limitations. • To explore the potentiality of LIVE by providing the preliminary findings of two specifically designed experimental studies investigating risk propension under social exposure and risk perception in workplaces.

3. Talk Outline • FailuresofLabExperiments • The Context-FreeBias • VirtualExperiments • The ALBO Project • Results • Conclusions

4. Failures of Lab Experiments a) situations are not really presented, but only described through language b) choices and decisions are only to be evoked, not to be really performed c) there is a lack in the normal cascade of events as actions and reactions d) temporal frame is generally compressed e) irrelevance of the context

5. Lab as silicon chip production Many experimental economists seem to view their enterprise as akin to silicon chip production. Subjects are removed from all familiar contextual cues. Like the characters 'thing one' and 'thing two' in Dr. Suess' Cat in the Hat, buyers and sellers become 'persons A and B', and all other information that might make the situation familiar and provide a clue about how to behave is removed. George Loewenstein (1999)

6. The context-free bias • The context-free experiment is an elusive goal • A major tenet of cognitive psychology is how all forms of thinking and problem solving are context-dependent • The laboratory is not a socially neutral context, but is itself an institution with its own formal or informal, explicit or tacit, rules • Games in the laboratory are usually played without labels but subjects inevitably apply their own labels

7. The power of labels Labels can increase experiment’s external validity with a minimal sacrifice of internal validity In particular, to test learning and cognitive models, itisnecessarytoremind and toevokecontextswhichmayactivateemotions, association, similarities in the laboratory Labels can make subjects more or less rational in relation to the evoked context

8. Labels make subjects more rational Jones-SugdenTheory and Decision (2001) Positive confirmation bias: tendency, when testing an existing belief, to search for evidence which could confirm that belief, rather than disconfirming it The original selection Wason’s task was formulated in highly abstract terms Correct response was facilitated by adding thematic content to the task, i.e. a cover story which accounts for the statement and gives some point to the task

9. Labels make subjects less rational Innocenti-Pazienza-LattaruloTransport Policy (2013) Main finding: Subjects’ inclination to prefer cars over bus and metro tends to override the incentives’ effect Laboratory behavior depends more on prior learning outside the laboratory than on gains in the laboratory In the experiment, it is as if subjects take into the lab the preferences applied to real choices between car, bus and metro and stick to them with high probability Labels give subjects clues to become less and not more rational

10. Virtual Experiments (VE) • The use of presentations with virtual reality (VR) simulations can convey objectively this kind of context • “A Virtual Experiment is an experiment set in a controlled lab-like environment, using typical lab or field participants, that generates synthetic field cues using Virtual Reality (VR) technology.” Fiore, Harrison, Hughes and Rutström (2009) FHHR (p. 66) • Virtual experiments are not defined as just those occurring over the web (Virtual Worlds experiments as a subset of Virtual Experiments)

11. Virtual Experiments (VE) • Virtual Experiment combines insights from virtual reality (VR) simulations in computer science, decision making and ecological rationality from psychology, and experiments from economics • The methodological objective of Virtual Experiments is to combine the strengths of the artificial controls of lab experiments with the naturalistic domain of field experiments

12. High and Low Immersive VE High Immersive Virtual Experiments (HIVE) utilize specialized displays such as CAVE, head-mounted displays or augmented reality, which perceptually surround subjects. The individual perceives himself to be enveloped by, included in, and interacting with an environment providing a continuous stream of stimuli Desktop or Low Immersive Virtual Experiments (LIVE) use computer screen based applications of virtual reality, such as “ad hoc” virtual simulations or virtual worlds (Second Life) to provide a weaker sense of presence.

13. Cave (HIVE)

14. Head-Mounted Display (HIVE)

15. Virtual simulations (LIVE)

16. Applications – Gain/Loss Asymmetry Bateman et al. 2009 In the majority of choice experiments on gain-loss asymmetry (WTA>WTP) the attributes of non-market goods are conveyed to respondents as a table of numeric and/or categorical data. Compared to the standard presentation, preferences elicited in the Virtual Experiment are less variable and exhibit a significant reduction in asymmetry between willingness to pay for gains and willingness to accept for corresponding losses.

17. VirtualRuralAreas (Bateman 2009)

18. Applications – Risk Perception Fiore et al. (2009) • VirtualExperimenttoelicitriskperceptionfrom wild fires and the opportunity cost of public funds allocated to prescribed burns • Subjectsexperience four dynamic visual simulations of specific wild fires, with varying weather and fuel conditions. Simulations are selected to represent high and low risk of fire damage • Participants experience a sense of presence, a psychological state of “being there and take decisions closer to real behavior” (with cognitive constraints )

19. Wild firesrenderings (Fiore 2009)

20. ALBO Project Main objectives • To demonstrate that the standard tools for detecting work-related factors of risk and stress (questionnaires and interviews) are inadequate to capture workers’ real perception • To prove that virtual and low immersive simulationsof work environments provide a better awareness of psycho-social risks in workplaces

21. ALBO ResearchFindings • Experiment 1 Individual risk attitude under social exposure in the lab is modified by the presence of a virtual coach • Experiment 2 Workers’ awareness of biases in risk perception is enhanced by virtual simulations of their work activities

22. Experiment 1 - Background Yechiam et al. “Observing others’ behavior and risk taking in decisions from experience”, JDM 2008 • choice between safe and risky option • two tasks: rare-loss and equiprobable-loss • exposure vs. no-exposure condition • observer vs. source role Main finding: Observing others’ choices increases observer’s risk propensity

23. Experiment 1 - Design • Between-subject • 52 undergraduate students (avg 22 y.) • Two subjects randomly and anonymously paired playing as source and observer • 30 repeated choices (alternate): 15 rare (equiprobable) gains 15 rare (equiprobale) losses • Comparison between source and observer condition

24. Experiment 1 - Tasks

25. Experiment 1 – MainFindings • Observers are more risk-lovers than sources also for gains (as for losses in Yechiam et al. 2008) • Both roles are risk averse for losses and risk loving for gains • No significant difference between rare/equiprobable condition (differently from Yechiam) • Faster reaction time for sources • Personality traits (Big Five Questionnaire) matters

26. LIVExp 1 - Design

27. LIVExp 1 – Results • No significant differences in risk attitudes between observers and sources • Both roles are confirmed as risk averse for losses and risk loving for gains • No difference in reaction time across roles

28. LIVE Exp 1 – Interpretation • Virtual environments are perceived as an intermediate safe environment and allow structuring therapy like a special and protected environment (Botella et al. 2008) • The Proteus Effect: deindividuation occurs in online environments because users may adhere to identities inferred from their avatars (McKenna & Bargh 2000, Yee-Bailenson 2007) • Deindividuation can also lead to both prosocial and antisocial behavior (Zimbardo 1969, Gergen et al. 1973).

29. LIVE Exp 1 – Interpretation • Differences between observers and sources are removed because the virtual coach make subjects’ choices less influenced by laboratory cues • The potentially worrisome desire to please the experimenter is attenuated because no embodiment of the experimental team appears in the lab • Virtual environment enables experimenter to focus subjects on experimental tasks • By allowing participants to take on natural roles in economic settings, virtual worlds can help subjects to focus on the laboratory task

30. LIVExperiment 2 • Virtual Movies vs. Real Movies in the Assessment of Work Related Stress • Obj.: to verify the presence of differences in the physiological and cognitive activations while subjects watch real movies vs. virtual movies • Hp.: Vision of virtual movies is associated with a lower physiological activation, a more detailed narrative and a greater detection of ‘errors’, thanks to a more objective perspective.

31. LIVExperiment 2 - Design • Between-subject • 20 postgraduate students + 16 professional workers • 2 Conditions: Real clip of a job stress situation + Virtual simulation of the same clips • Detection of three physiological indices: Heart rate Electromyography (EMG), measures the electrical impulses of face muscles at rest and during contraction Skin Conductance Level • Questionnaire GeneralizedSelf-Efficacyand Locus of Control (beliefs about control of events)

32. LIVExperiment 2

33. LIVExperiment 2 – HR

34. LIVExperiment 2 – EMG

35. LIVExp 2 – PreliminaryFindings • Physiological activations (HR and EMG) are significantly lower under virtual simulations • Limitations: Small sample and the use of pilot movies • Research Implications: Results obtained through the use of virtual reality tools allow to design stress assessment interventions and online training courses with virtual coaches

36. MainApproachto VE To test if subjects’ behaviour in VE conforms to results generated in conventional experimentation “Virtual experiments might be more convenient than lab experiments if he sees people behave in he same way in real-world and virtual experiments” (List 2007) “Determining where virtual world behavior mimics real world behavior is quite important for methodological reasons. If virtual world behavior can be treated as a model of human behavior in general, this would allow a fresh approach to empirical social science” (Castronova 2008)

37. VirtualExperiments - PROS • More naturalistic and less simple settings than laboratory • Cheaper to maintain virtual laboratory facilities • Easier to control decision tasks and enviroments • No involuntary non-verbal communication • Wider and unbiased population

38. VirtualExperiments - CONS • Virtual situations project a game-like atmosphere • Proteus effect / deindividuation(may be an asset) • it is difficult to establish subject trust in computer software • (virtual worlds experiments) subjects’ identity is not checked because physical presence is lacking

39. Conclusions • The difference between virtual and laboratory experiments and between virtual and real behavior is an asset rather than a problem for experimental economics. • It can very helpful in solving some failures of lab experiments Ir/relevance of the context Intertemporal choice – longtime experiments Heterogeneous subject pools Cross-cultural and professional comparisons

40. Back tomethodology Induced-value theory: use of a reward medium allows to induce pre-specified characteristics in experimental subjects and to make subjects’ innate characteristics largely irrelevant (Smith 1992) The central aspect of the VX methodology is a VR environment that makes participants experience a sense of presence, a psychological state of ‘‘being there.’’ This sense depends on the degree of involvement that participants experience as a consequence of focusing attention on the set of stimuli and activities generated by the VR simulation. (Fiore et al. 2009)