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Effects of Stress on Economic Decision-Making: Evidence from Laboratory Experiments

See on Scoop.itBounded Rationality and Beyond

Abstract: The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of risk-aversion, and substantially lowers the effort individuals make to learn about financial decisions.

Liam Delaney (liam.delaney@stir.ac.uk), Günther Fink (gfink@hsph.harvard.edu) and Colm P. Harmon (colm.harmon@sydney.edu.au) 
See on ftp.iza.org

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Essay: Our Brains Aren’t to Blame for Our Financial Woes

See on Scoop.itBounded Rationality and Beyond

Behavioral finance is a breakout star of the post-2008 economic world. A little-known academic discipline a mere decade ago, this combination of psychology and finance now serves as a catchall explanation for why we act against our own financial best interests time and time again.

In the view of many behavioral finance promoters, the fault for our many financial failures is not in our stars, or in a less-than-stable economy. It’s that we’re not rational. Even at the price of our long-term financial well-being, we simply can’t resist falling prey to anything from too-good-to-be-true housing bubbles to impulsive luxury purchases.

It’s a tempting explanation, this behavioral finance thing. Just about all of us can recall money frittered away on fripperies like frappuccinos that we could’ve, should’ve saved for that unexpected medical bill.

It’s our own fault, we think. We shop too much and we fall for housing and stock market bubbles. If only we’d had an automatic savings plan that could have saved us from ourselves! We’d be rich — or at least not in the desperate straits so many of us are in, lacking emergency funds and piling on more credit card debt than we have in savings accounts.

See on www.bloomberg.com

17
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Manipulate Me: The Booming Business in Behavioral Finance

See on Scoop.itBounded Rationality and Beyond

It’s hard to find a place today where concepts of behavioral finance aren’t being applied to real-world situations. From London to Washington to Sydney, governments are experimenting with the psychology of decision-making and trying to “nudge” citizens toward better behaviors, whether that means saving more for retirement or signing an organ donation card. Meanwhile, businesses see opportunities for higher profits. To grab more attention and dollars from consumers, companies as far afield as banks and fitness-app makers carefully design their offerings with consumers’ decision-making quirks in mind. The article discusses some of the challenges encountered in using behavioral science in the commercial sphere which raises an important question about how much change should we expect from the application of behavioral science findings in the commercial market and the difficulty in reaching consumers with well intentioned products designed to “nudge” them into more positive behavior. 

In a crowded market place, how do you get consumers to respond and engage behavioral products or is behavioral science best applied in the policy sphere?

See on www.bloomberg.com

16
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14

Vincenzo Barbato: I 12 bias cognitivi che ci impediscono di essere razionali

See on Scoop.itBounded Rationality and Beyond

Il bias è una forma di distorsione della valutazione causata dal pregiudizio. La mappa mentale d’una persona presenta bias laddove è condizionata da concetti precedenti non necessariamente connessi tra loro da legami logici e validi.
Il bias, contribuendo alla formazione del giudizio, può quindi influenzare un’ideologia, un’opinione, e un comportamento. È probabilmente generato in prevalenza dallecomponenti più ancestrali e istintive del cervello.
Il cervello umano è capace di eseguire 10^16 (10 alla sedicesima processi al secondo), il che lo fa essere più potente di qualsiasi computer oggi esistente. Questo però non significa che i nostri cervelli non abbiano delle limitazioni. Una calcolatrice delle più economiche è migliaia di volte meglio di noi in matematica, spesso la memoria non ci assiste, e in più siamo soggetti a biasis cognitivi, quei fastidiosi difetti del nostro modo di pensare che ci fanno prendere decisioni discutibili e giungere a conclusioni errate. Qui abbiamo raccolto una dozzina dei biasis cognitivi più comuni e dannosi che è necessario conoscere (e nel caso correggere).
Prima di iniziare, è importante distinguere tra biasis cognitivi e fallacie logiche.
Una fallacia logica è un errore nell’argomentazione logica (Es: attacco ad hominem,fallacia del piano inclinato, degli argomenti circolari, ricorso alla forza, etc).
Un biasis cognitivo, invece, è una vera carenza o un limite del nostro pensiero: un difetto nel giudizio che deriva da errori della memoria, attribuzione sociale ed errori di calcolo (ad esempio errori statistici o un falso senso di probabilità).
Alcuni psicologi sociali credono che i nostri biasis cognitivi ci aiutino a elaborare le informazioni in modo più efficiente, soprattutto nelle situazioni di pericolo. Eppure, ci portano a commettere gravi errori. Magari siamo inclini a questo tipo di errori, possiamo imparare però ad esserne consapevoli. Qui ci sono alcuni tra i più importanti da tenere in mente.

See on www.vincenzobarbato.org

15
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14

The Exceptional Motivational Power Of Pizza

See on Scoop.itBounded Rationality and Beyond

Over the decades I was involved in more employee surveys than I can recall.  But one thing I do recall is that the single issue that came up in literally all of them – a chronic source of employee frustration – was lack of recognition.   Employees never felt they were getting enough of it.

 

Yesterday I was reminded yet again how big a difference small things make in management.   I was speaking with a young woman in a very good mood.  She’d just gotten out of work – she has a temporary position at a hotel, greeting guests who are in town for conferences – and at the end of the day her supervisor had told her she was doing a fine job and gave her a small card.  The young woman showed me the card.  It said:

“We appreciate your outstanding service!  Thank you for being so welcoming, thoughtful and friendly to our guests.   Please enjoy a slice of pizza & a Pepsi for 75 cents as our thanks.”  At the bottom of the card were listed several local eateries where the card could be redeemed.

I sort of wondered why she had to pay 75 cents – why weren’t the pizza and Pepsi free?  But no matter.  And no matter that the card’s value (let’s assume around here in round numbers a slice of pizza costs $3 and a Pepsi $1) was around $3.25.  The young woman couldn’t have been more pleased.  The card was the highlight of her day.

 

See on www.forbes.com

15
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14

Colin Camerer: Genius Whose Ideas About Behavior Could Change Lives

See on Scoop.itBounded Rationality and Beyond

Caltech’s Colin Camerer is a recent recipient of a MacArthur Foundation grant to continue his work as a leader of the emerging field of neuroeconomics.

Behavioral science received a nice pat on the back in September, when California Institute of Technology neuroeconomist Colin Camerer won a $625,000 no-strings-attached MacArthur Foundation “genius grant.”

Using fMRI imaging, game-theory laboratory experiments, and a variety of other empirical tools, Camerer’s work reaches across several disciplines and has been instrumental in the ongoing attempts to rewrite standard economic accounts of human decision-making so that they better map real-life behavior. As the Foundation put it, Camerer’s “innovative thinking and modeling acumen are fostering an even more nuanced analysis of individual behavior and the practical policy implications of neuroscientific insights about human decision making. Camerer recently conducted an email interview with Pacific Standardwhich touched on everything from financial regulation to the origins of brain-scan pseudoscience to the ongoing problems with economic orthodoxy. The interview has been shortened and lightly edited from its original form.

See on www.psmag.com

15
apr
14

Music, Fame, and Sexual Selection

See on Scoop.itBounded Rationality and Beyond

Does music play a role in sexual selection? 

Famous musicians like Mick Jagger, Justin Timberlake, and Kanye West seem to have no trouble attracting women. But does an interest in music give any advantage to guys who rock out in garages and basements rather than stadiums? An elegantly simple experiment done in France suggests that it does.

First, researchers recruited a good-looking young man. (To do this they showed photographs of 14 male volunteers to a number of young women and asked them to rate each man’s attractiveness on a scale of 1 to 10. The man with the highest score became their confederate in the experiment.)

Next, on a sunny afternoon in early summer, the good-looking confederate took up his place on one of the shopping streets of a small city. His contribution to science was to approach women between the ages of 18 and 22 who were walking alone and (following a set script) ask for their phone number so he could invite them to meet later for a drink. He did this in three different conditions: Holding an acoustic guitar case, holding a sports bag or a control condition of holding nothing. 

The researchers hypothesized that more women would be receptive to the young man’s overtures if he was holding a guitar case. Charles Darwin believed that music played a role in human courtship and sexual selection. This idea continues to have plausibility among researchers today who hypothesize that musical interest or ability may be associated with intelligence and physical dexterity—both traits that are likely to be attractive to women.

See on www.psychologytoday.com




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