March 17, 2010
Click Here To Read: Intuitive Biases in Choice vs. Estimation: Implications for the Wisdom of Crowds
Abstract (via Simmons, Nelson, Galak & Frederick):
Although researchers have documented instances of crowd wisdom, it is important to know whether some kinds of judgments may lead the crowd astray, whether crowds’ judgments improve with feedback over time, and whether crowds’ judgments can be improved by changing the way judgments are elicited. We investigated these hypotheses in a sports gambling context (predictions against point spreads) believed to elicit crowd wisdom. In a season-long experiment, fans wagered over $20,000 on NFL football predictions. Contrary to the wisdom-of-crowds hypothesis, faulty intuitions led the crowd to predict “favorites” more than “underdogs” against spreads that disadvantaged favorites, even when bettors knew that the spreads disadvantaged favorites. Moreover, the bias increased over time, a result consistent with attributions for success and failure that rewarded intuitive choosing. However, when the crowd predicted game outcomes by estimating point differentials rather than by predicting against point spreads, its predictions were unbiased and wiser.
Click Here To Read: Intuitive Biases in Choice vs. Estimation: Implications for the Wisdom of Crowds
March 17, 2010
Funny I consistently find myself not wanting to pay taxes…
Click Here To Read: Heuristics and Biases in Thinking about Tax
Abstract: (via McCaffery & Baron SSRN)
The principal findings of behavioral economics and cognitive psychology over the past several decades have been to show that human beings deviate from ideal precepts of rationality in many settings, showing inconsistent judgment in the face of framing and other formal manipulations of the presentation of problems. This paper summarizes the findings of original experiments about subjects’ perceptions of various aspects of tax-law design. We show that in evaluating tax systems, subjects are vulnerable to a wide range of heuristics and biases, leading to inconsistent judgment and evaluation. The prevalence of these biases suggests that there is room for skillful politicians or facile political systems to manipulate public opinion, and that tax system design will reflect a certain volatility on account of the possibility of eliciting preference reversals through purely formal rhetorical means. More troubling, the findings suggest the possibility of a persistent wedge between observed and optimal public finance systems.
Click Here To Read: Heuristics and Biases in Thinking about Tax
March 17, 2010
Click Here To Read: Biases in Perceptions, Beliefs and Behavior
Abstract (via Isabelle Brocas & Juan Carrillo)
his paper presents a model where individuals have imperfect information about their preferences (or the environment) and there is an opportunity cost of learning. It shows that the endogenous decision to collect information before taking an action creates a systematic bias in the aggregate behavior of a population of rational, profit-maximizing agents. More precisely, individuals will favor actions with large payoff-variance, i.e., those which may potentially generate the highest benefits even if they may also generate the biggest losses. The paper thus concludes that systematically biased choices do not necessarily imply that agents have irrational, systematically biased beliefs. It also provides testable implications about the propensity of individuals to incur different types of errors. Some applications such as biases in judicial decision-making and career choices are discussed.
Click Here To Read: Biases in Perceptions, Beliefs and Behavior
March 17, 2010
Click Here to Read: Information Disclosure, Cognitive Biases and Payday Borrowing
Abstract: (via Bertrand & Morse)
If people face cognitive limitations or biases that lead to financial mistakes, what are possible ways lawmakers can help? One approach is to remove the option of the bad decision; another approach is to increase financial education such that individuals can reason through choices when they arise. A third, less discussed, approach is to mandate disclosure of information in a form that enables people to overcome limitations or biases at the point of the decision. This third approach is the topic of this paper. We study whether and what information can be disclosed to payday loan borrowers to lower their use of high-cost debt via a field experiment at a national chain of payday lenders. We find that information that helps people think less narrowly (over time) about the cost of payday borrowing, and in particular information that reinforces the adding-up effect over pay cycles of the dollar fees incurred on a payday loan, reduces the take-up of payday loans by about 10 percent in a 4 month-window following exposure to the new information. Overall, our results suggest that consumer information regulations based on a deeper understanding of cognitive biases might be an effective policy tool when it comes to regulating payday borrowing, and possibly other financial and non-financial products.
Click Here to Read: Information Disclosure, Cognitive Biases and Payday Borrowing
March 14, 2010
Click Here To Read: Are married women less risk-averse? If so, why?
Summary (Via Voxeu)
Does marriage make people less averse to risk? This column argues that this is the case for women, but not for men. But married women’s different attitude towards risk has fallen over time as the prevalence of marriage in society has faded. For women who work, marriage makes no difference.
Introduction & Excerpts (Via Voxeu)
A growing literature has explored gender differences in making financial decisions. At the same time, there is a parallel literature on the implications of marital status. This research generally reveals a higher degree of risk aversion among women and single people. Studies such as Sundén and Surette (1998), Jianakoplos and Bernasek (1998), and Barber and Odean (2001) consider marital status and gender jointly and conclude that single women exhibit the most cautious attitude.
A common explanation for these findings is that different choices directly reflect innate risk aversion, i.e., an exogenous personal characteristic that exhibits little time variation. With a focus on gender, Crozon and Gneezy (2009) survey the experimental literature and confirm that the stereotype that women are more risk-averse is supported by a robust and significant body of evidence which also points to nature, rather than nurture, as the driving force. But they also notice that gender differences in risk preferences are attenuated, and even disappear, when the subjects of the investigation are appropriately selected; particularly among managers and professional business persons, women no longer behave differently than men. They conclude by suggesting that different subsamples of the workforce may reveal similar patterns.
In a recent paper (Bertocchi et al. 2010), we focus on the impact of marital status on portfolio decisions, investigating the presence, determinants, and evolution of gender differences. In order to address these questions, we have two hypotheses.
Marriage as a risk-free asset
Our first hypothesis is that married women should become less risk-averse because marriage itself can be considered a fairly “safe asset”, especially for women. The idea of marriage as a source of financial security comes from the fact that women tend to have a more insecure societal role. Imagine there are two components of wealth: financial assets and the present value of labour earnings. By getting married, a woman becomes entitled to at least a portion of the gender gap in labour earnings. When no risks are associated with marriage status and the gender earnings gap, or when such risks are uncorrelated with the risks on financial returns, marriage can indeed be viewed as a sort of safe asset that decreases the overall variance of a married woman’s asset position. From this position of relative “safety”, the propensity to invest in risky financial assets should be higher for a married woman. Moreover, the difference between single and married women should be more pronounced than the difference between single and married men, originating a gender gap for the impact of marital status.
Click Here To Read: Are married women less risk-averse? If so, why?
March 14, 2010
Introduction (via Big Think)
Our legal system is based on a fallacious view of the human individual that does little to account for how we actually make decisions. Jon Hanson explains his project to change the law to fit with how humans—who can rarely explain their reasoning behind a decision—really think.
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March 11, 2010
H/T Liam Delaney @ Geary Behavior Center
Click Here To Read: Decision Making: Religion & Savings
Abstract (Via Geary Behavior Center)
In the Neoclassical growth model the saving ratio and human capital might be seen as the most important factors fostering economic growth. At last since Weber [2005 (1904/05)] it seems clear, that religious beliefs and involvement shapes both social and economic human behavior. This paper tests the hypothesis whether religious belonging and believing influence a household’s economic decision-making in the USA, which was found to foster economic growth, namely the saving ratio at the individual level. Using data from the Panel Study of Income Dynamics (PSID), we find religious effects on saving. Regarding the decision to save money no large differences within the Christian religions, namely Protestants and Catholics, were found. However, large differences exist compared to non-religious people as well as to Non-Christians and Jews.
Click Here To Read: Decision Making: Religion & Savings
March 11, 2010
Interesting article via Noah Goldstein Phd, author of Yes: 50 Scientifically Proven Ways To Be Persuasive
Click Here To Read: Influence: A Great Recipe for Employee Productivity…in Five Easy Minutes
Introduction (via Noah Goldstein)
When it comes to encouraging employees to be productive workers, managers seemingly have many tools in their motivational toolbox at their disposal. For example, perhaps they can increase worker motivation by offering to pay more to workers who are especially productive. Or maybe they can try to enhance overall employee morale by including them in a profit-sharing program. Or perhaps they could try to provide recognition to the best workers by offering rewards such as toasters, iPhones, and vacations. Although all of these tactics have the potential to be effective, they can be extremely costly to implement. However, some new research suggests a recipe for success without spending a dime, all in five easy minutes.
Adam Grant, a scholar in the field of organizational behavior, realized that workers often fail to live up to their potential because they’ve lost track of the significance and meaningfulness of their own jobs. He figured that if he could remind employees of why their jobs are important, they might become more highly motivated, and therefore, more productive individuals.
Click Here To Read: Influence: A Great Recipe for Employee Productivity…in Five Easy Minutes
March 11, 2010
David DiSalvo has posted an interesting review on NeuroNarrative of some fascinating research….
Click Here To Read: Time Pressures, Expectations, & Performance
Introduction -via NeuroNarrative
Let’s say that you’re preparing for an extremely important test that you and roughly 100 other classmates will be taking in a week. A few days before the test, you find out that your instructor will be going on a trip not long after the test is over and will be providing written and verbal feedback to the students within a day of the test.
This is unusual, because ordinarily the instructor waits a week or more before providing feedback. About half of the class finds out that they’ll be getting rapid feedback and the other half thinks they won’t receive feedback for several days, per usual.
Which group is more likely to perform better on the test?
That question was investigated by University of Alberta researchers Keri Kettle and Gerald Haubl in a study published in the journal Psychological Science. The researchers hypothesized that the mere anticipation of proximate feedback would result in better performance on a test. Previous research has shown that when feedback is rapid, the threat of disappointment increases. The desire to avoid the negative feeling of disappointment—the feeling you get when you fall short of expectations—is a potent motivator to perform well.
Click Here To Read: Time Pressures, Expectations, & Performance
