On difference between direct-response method and strategy method in decision-making: behavioural and neural evidence in a reward-punishment game

Luyao Li, Xiaobo Zhao, Dong Xie and Xue Xiao

Journal of the Operational Research Society, 2024, vol. 75, issue 9, 1681-1698

Abstract: Decision-makers may follow either the direct-response method or strategy method. While the two elicitation methods are theoretically equivalent, it is uncertain whether they lead to the same outcomes in practice. To explore this issue, we conduct an experiment based on a reward-punishment game under both methods, in which functional magnetic resonance imaging (fMRI) is used to provide neural evidence for uncovering the underlying behavioural mechanisms. The results show that both the reward and punishment rates are significantly higher under the strategy method compared to the direct-response method. We develop behavioural models to explain these differences and identify the ownership effect, strategic thinking, and counterfactual thinking as potential drivers. Comparison of neural activity between the two treatments demonstrates that during reward/no-reward decisions, the direct-response treatment accrues stronger activation in the bilateral anterior insula, indicating that decision-makers overweigh reward cost due to ownership effect, which consequently leads to reduced willingness to impose rewards. Conversely, during punishment/no-punishment decisions, the strategy treatment causes stronger activations in the bilateral anterior insula and inferior parietal lobule, implying that decision-makers perceive strong unfairness due to counterfactual thinking, which further results in more punishment decisions. Moreover, our findings reveal that strategic thinking influences decision-making during long-term interactions.

Date: 2024
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DOI: 10.1080/01605682.2023.2269984

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