Rahmandad, H., Denrell, J., & Prelec, D. (2020) What makes dynamic strategic problems difficult?

Question 1

GOAL

Answer 1

Explore the challenges of dynamic decision-making

differences in thinking through a dynamic problem may lead to substantial variation in performance, even if common sources of complexity and ambiguity are excluded.

Question 2

Dynamic decisions:

Answer 2

Dynamic decisions: decisions where taking an action today changes the payoff of the same or other actions in the future. (however, distribution over time should not be known)
- E.g. getting big fast: price low and gain marketshare, increase future value
- In dynamic tasks, choosing an action does not only provide information about future payoffs but also changes the payoffs

Question 3

Explaining why performance is poor:

Answer 3

• Misaligned incentives: Possibility of incentives emphasizing short-term outcomes. However, experiments still show a bias towards short-term outcomes
• Poor impulse control: tempted by short-term benefits.
• Sub-optimal learning: as it is not clear what action caused an observed changed, learning may be difficult.
• Unknown dynamics and rational avoidance: If the short term ‘safer’ option works, there might be a chance that they never try the long term option.
• Computational complexity: tasks is just hard in computational perspective.
• Unsystematic problem solving: Most do not use systems to learn.

Question 4

They find that”:

Answer 4

We find that behavioral factors—from learning heuristics to poor analytical solutions— explain much of the performance variations in rather simple and well-defined dynamic tasks.