The last post Persistence looked at persistence as being partially determined by the distribution of the waiting times for the reward. A fat tailed distribution might rationally steer one toward giving up after a short waiting period. Robin Hogarth (Educating Intuition) has recently published a paper: “Ambiguous Incentives and the Persistence of Effort: Experimental Evidence” in the Journal of Economic Behavior & Organization, Volume 100, April 2014, page 1-19, with Marie Claire Villeval that looks at economic activities where the reward is mundane–money. It is more aimed at looking at what determines our persistence from the employers point of view, but I believe it could be more broadly applicable.
Hogarth and Villeval explore ambiguous situations where economic agents reap the benefits of engaging in an activity across time until – unknown to them – there is a shift (the regime change) in the underlying process and pursuing the activity is no longer profitable. The term regime shift was new to me in the context. For an old city planner, regime shift meant a new mayor or change in the form of government. Apparently the ecological term more or less runs with the old definition and means abrupt long lasting non-linear change. Hogarth has helped me understand that humans have made an evolutionary career out of understanding linear change or functions that are linear over the relevant range, while we tend to be weak at non-linear functions. How long will the investor continue to place new orders and does this depend on the regularity of his previous outcomes? How long will an employee keep working in the same firm if she no longer receives a bonus? How is the decision affected by preferences regarding risk and ambiguity and/or the regularity with which bonuses have been paid in the past?