Bayesian updating is the dominant theory of learning. However, the theory is silent about how individuals react to events that were previously unforeseen. We study how decision-makers update their beliefs if unforeseen events materialize, and under which conditions they revise their views about previously observed relationships. We base our analysis on the framework of "reverse Bayesianism," under which the relative likelihoods of prior beliefs remain unchanged after an unforeseen event materializes. We find that participants do not systematically deviate from reverse Bayesianism when the unforeseen changes result in a new world that contains elements of the old world. In contrast, if a regime change is possible, decision-makers eventually overhaul their model of the old world in favor of a completely different view of uncertainty.

This paper examines behavior in contests where the prize value is ambiguous. We develop a theoretical model of bidding in a Tullock contest with an ambiguous prize where contestants account for the ambiguity attitude of their rival. Ambiguity affects optimal behavior via two countervailing channels - a direct effect arising from contestants’ ambiguity about the value of the prize and an indirect effect corresponding to the effect of ambiguity on the opponent’s behavior. Using a controlled laboratory experiment, we elicit individual risk and ambiguity attitudes and compare predicted and observed behavior in contests with an ambiguous prize, a risky prize and certain prizes. A comparison between contests with ambiguous and risky prizes, shows that participants invest significantly less under ambiguity. Additionally, we decompose the effect of changing from a certain prize to an ambiguous prize into two components - the first is the effect of introducing risk and the second is the effect of introducing ambiguity. Empirically, we find that both effects are significant, but work in opposite directions.

We study investment incentives when contracts do not cover all payoff-relevant contingencies. In a principal-agent model with moral hazard, the agent's non-contractible investment changes both the distribution over contracted contingencies and the probability of an unforeseen contingency governed by legal default and ex post negotiation. First, we develop a framework separating awareness effects across parties and contractual branches: the agent's awareness determines whether the unforeseen branch enters her investment incentives, whereas the principal's awareness affects his perceived profitability and prediction of her investment. Second, we show contractual unawareness can reverse the hold-up comparison: the aligned contract gives the agent the full marginal surplus on foreseen contingencies, while her marginal return on the unforeseen branch is generated by default and negotiation, and either force can dominate. Third, heterogeneous ex post evaluations or transfer constraints can cause negotiation to fail, leaving the court-imposed default in place. Legal defaults thus shape ex ante investment and ex post efficiency, and we characterize the trade-off governing the optimal default.

The paper elicits and compares ambiguity perceptions and attitudes to ambiguity in three strategic interactions, a contest, a coordination game, and a Rock-Paper-Scissors game, and a standard Ellsberg setup. We find remarkable stability of attitudes to ambiguity across all four environments. In contrast, subjects perceived a significantly greater amount of ambiguity in the minimum-effort coordination game, which has multiple equilibria and entails considerably more strategic uncertainty than the other games. Our findings suggest that ambiguity is ubiquitous in strategic interactions and its role is closely tied to strategic uncertainty.

The dual-process framework of habit and goal-directed control provides a fundamental lens for understanding financial decision-making, yet the relative effectiveness of interventions targeting these distinct systems has not been directly tested using computational markers. We compared two theory-based strategies in a 12-week behavioural randomised controlled trial with students at two universities in the United Kingdom and Australia (n = 224 completers from 397 enrolled). The Goal-Setting intervention leveraged model-based control through expense tracking, explicit savings targets, and progress feedback. The Habit-Based intervention targeted model-free processes through behavioural substitution by prompting cheaper alternatives for routine purchases. Using objective bank transaction data, the Goal-Setting intervention significantly reduced monetary consumption and improved account balances compared to control. The Habit-Based intervention showed no significant effects. Computational phenotyping revealed that individual differences in model-based control, measured through a two-step sequential decision task, predicted intervention success: participants with stronger goal-directed control (higher w parameter) showed greater spending reductions in both interventions. These findings demonstrate that while goal-directed scaffolding produces robust financial behaviour change, individual differences in model-based control predicted intervention success. The Goal-Setting effect on consumption remained significant in the smaller subsample that provided both spending and balance data, though it was estimated there with reduced precision. Our results indicate that habit-focused interventions may require stronger environmental restructuring than simple substitution prompts. Pre-intervention computational phenotyping could enable personalised financial interventions.

There is a paucity of work examining anesthetists' willingness to proceed as attending anesthetists (hereafter, WTP) in response to different risky medical conditions. Earlier studies offer only a partial and indirect explanation as to why variations in WTP exist. We evaluated whether psychological factors of risk-taking tendencies, attitudes toward uncertainty, sense of regret, and demographic variables, particularly experience and gender, might clarify the disparities in an anesthetist's WTP. Anesthetists from two National Health Service Trusts in England (i.e., hospitals) viewed, in random order, three different realistic scenarios (representing low-, medium-, and high-risk cases) and were asked to indicate how likely they were to agree to proceed as the attending anesthetist. They also answered questions evaluating their risk-taking tendencies, comfort with uncertainty, and tendency to experience regret. Anesthetists varied in their WTP. Importantly, our data revealed that a sense of uncertainty and regret, but not a risk attitude, could help explain these variations. Female anesthetists were less likely to agree to proceed as attending anesthetists regardless of the level of risk or individual differences, but we found no relationship between levels of experience and WTP. Examining anesthetists' WTP in isolation provides an important but only partial picture. Gaining a better understanding of the factors that drive decision-making is vital for improving both training and practice. In particular, given the high proportion of women in anesthesia, the gender difference found in this study has important implications for anesthetic training and practice.

Many argue that randomization is a fair way to allocate scarce resources. However, little is known about individual justice preferences for these mechanisms. This gap is particularly consequential, as public choices are often influenced by individual justice preferences. To address it, we propose a model using proportional probability weights for recipients' claims and conduct an empirical analysis using a longitudinal survey on allocating medical resources between two patients of different ages. A three-year panel dataset was collected from 2020 to 2022, containing 301 representative respondents. Our results show strong support for randomization reflecting proportional claims: 17% of participants favored equal probabilities, 63% prioritized younger patients, and 20% favored older patients, indicating varied justice principles. The findings indicate that the use of weighted lotteries to allocate scarce medical resources - and scarce resources more broadly - is consistent with the public's tradeoff between considerations of justice and efficiency.

The paper examines how pre-play communication between players with partial credibility affects the ensuing strategic interaction. We consider an environment where players are uncertain about the economic and psychological costs of reneging on promises but learn these at the time of their implementation. We demonstrate that in the equilibrium both players make promises. The latter are partially effective in terms of achieving collusive outcomes and improving the players' payoffs under strategic complementarity, where promises are used to signal future collusive behavior. In contrast, under strategic substitutability the ability to make a promise can be used to signal future aggressive behavior and one of the players may even get a lower expected (before the type is revealed) payoff than in the game without communication.

Households are currently struggling to keep up financial obligations with limited funds held away in savings account, however, the impact of interventions, such as financial education have demonstrated mixed efficacy. This study examines how behavioural interventions can produce substantial outcomes when using a holistic perspective of behaviour and cognition. We recruit a representative sample to participate in ethnographic interviews which we used to build two interventions, a Goal-setting intervention and a Habit-based intervention. We evaluated these interventions against a control group in a 12-week randomised controlled trial. We collected transactional data, presenting both monetary consumption and account balance activity. The Goal-setting intervention demonstrated significant improvements in both outcome measures, with reductions in monetary consumption and account balance. The Habit-based intervention did not demonstrate any treatment effects. We demonstrate how behavioural interventions can provide cost-effective solutions to increase saving propensity using promoting financial goals and action planning.

The ability of teams to self-organize and engage in spontaneous collaboration is crucial to 21st-century organizations. The large extent of nonroutine activities in such organizations hampers the effectiveness of traditional management instruments, such as monitoring effort and performance levels and exercising fiat — resulting in increasingly important self-organized collaboration. To explain how such collaboration is possible, we suggest a refinement of the psychological assumptions underpinning influential theories of the firm — specifically, concerning how people reason. We juxtapose Nash reasoning (the mode of reasoning underpinning organizational economic theories of the firm) with virtual bargaining (a more collaborative mode of reasoning drawing on recent research in cognitive science). Virtual bargaining enables individuals to establish, maintain, and abide by tacit "social contracts" of their team and organization — the (often tacit) norms, rules, roles, and responsibilities governing how employees should behave (irrespective of their personal objectives). Thus, virtual bargaining helps individuals mitigate challenges of team production, such as shirking and hold-up, in a self-organizing and self-enforcing way. We analyze the conditions under which virtual bargaining leads individuals to coordinate on enhanced effort levels in organizationally relevant settings. We outline avenues for empirically testing virtual bargaining in organizations and discuss conceptual implications.

People often make, and are held to account for, purely tacit commitments in interactions with other people: commitments that have never been explicitly articulated or agreed. Moreover, unspoken, tacit commitments are often perceived as binding: people often stick to, and are expected to stick to, these commitments, even where it might seem against their interests to do so. If they do not stick to these commitments, they may be punished, and expect to be punished, by others as a result, even if the act of punishment is itself costly for the punisher. These commitments have been widely seen as a crucial underpinning for human collaboration and cooperation. Yet how do such commitments arise, and are they compatible with human rationality? This paper provides a formal, reasoning-based account of tacit commitments based on “virtual bargaining”—a mode of reasoning that joins elements of individualistic and collaborative reasoning. We complement existing accounts by showing that even purely self-interested individuals can, under certain conditions, tacitly commit to punishing counterparts who violate an unenforceable agreement, or to cooperating in dynamic games, including the Centipede game and the finitely repeated Prisoner’s Dilemma game.

Social interaction is both ubiquitous and central to understanding human behavior. Such interactions depend, we argue, on shared intentionality: the parties must form a common understanding of an ambiguous interaction (e.g., one person giving a present to another requires that both parties appreciate that a voluntary transfer of ownership is intended). Yet how can shared intentionality arise? Many well-known accounts of social cognition, including those involving "mind-reading," typically fall into circularity and/or regress. For example, A's beliefs and behavior may depend on her prediction of B's beliefs and behavior, but B's beliefs and behavior depend in turn on her prediction of A's beliefs and behavior. One possibility is to embrace circularity and take shared intentionality as imposing consistency conditions on beliefs and behavior, but typically there are many possible solutions and no clear criteria for choosing between them. We argue that addressing these challenges requires some form of we-reasoning, but that this raises the puzzle of how the collective agent (the "we") arises from the individual agents. This puzzle can be solved by proposing that the will of the collective agent arises from a simulated process of bargaining: agents must infer what they would agree, were they able to communicate. This model explains how, and which, shared intentions are formed. We also propose that such "virtual bargaining" may be fundamental to understanding social interactions.

We derive representations of incomplete preferences in terms of willingness-to-pay measures. The paper demonstrates how these representations can be used to determine whether preferences are incomplete. We also study local approximations to incomplete preference structures and how attitudes to ambiguity affect willingness-to-pay measures.

The paper uses information on actual and hypothetical charitable contributions to cancer research in the United Kingdom to elicit information on justice principles endorsed by donors. They face a choice between fund-raising contributions for several hereditary and lifestyle-related cancers. Donors’ choices of how much to donate to different cancers reveal how they view luck vis-a-vis risky individual choices. The estimation results reveal that donations are smaller for cancers with higher prevention rates, which is the probability that the potential cancer victim can avoid the cancer in question by some choice. We also find that provision of information on lifestyle-related causes of cancer adversely affects contributions. In contrast, information on hereditary causes has a positive effect on donations. Furthermore, a large share of donors indicated in their feedback that they chose donations to a hereditary over a lifestyle-related cancer to “punish” poor individual choices. These findings suggest that many donors lean toward choice egalitarianism, which conditions donations on the potential beneficiaries’ choices.

Bayesian Updating is the dominant theory of learning in economics. The theory is silent about how individuals react to events that were previously unforeseeable or unforeseen. Recent theoretical literature has put forth axiomatic frameworks to analyze the unknown. In particular, we test if subjects update their beliefs in a way that is consistent "reverse Bayesian", which ensures that the old information is used correctly after an unforeseen event materializes. We find that participants do not systematically deviate from reverse Bayesianism, but they do not seem to expect an unknown event when this is reasonably unforeseeable, in two pre-registered experiments that entail unforeseen events. We argue that participants deviate less from the reverse Bayesian updating than from the usual Bayesian updating. We provide further evidence on the moderators of belief updating.

The article examines how the perception of others' irresponsible behavior and ambiguity regarding probabilities affect allocation among potential beneficiaries. To elicit these views, we conducted a survey where the participants were first asked to make an allocation of a fixed sum of money between a hereditary cancer, where chance plays a central role, and a lifestyle‐related cancer, where individual lifestyle decisions are more important. Our estimation results show that a substantial share of the respondents allocate significantly more to the hereditary cancer. This may indicate that these respondents care about others' irresponsible behavior. Then, we elicited perceptions of cancer hazards in the form of imprecise probabilities and examined the interplay between allocating behavior and risk perceptions. Finally, we investigated the effects of various socioeconomic characteristics, and of awareness of highly publicized cancer cases, on respondents' allocations.

May provides a compelling case that reasoning is central to moral psychology. In practice, many morally significant decisions involve several moral agents whose actions are interdependent - and agents embedded in society. We suggest that social life and the rich patterns of reasoning that underpin it are ethical through and through.