L'analyse économique repose sur un postulat faux : la rationalité des acteurs. La nouvelle norme est celle du chaos perpétuel. Même le FMI a avoué qu'il avait beaucoup de mal à analyser avec les outils « classiques » de l'économie l'enchaînement de crises qui se succèdent depuis 2008 dans le monde. Deux économistes de renom, Vivien Levy-Garboua, « senior adviser » de BNP Paribas, et Gérard Maarek, conseiller scientifique de l'Edhec, prennent acte de ce constat d'impuissance dans ce nouveau livre qui propose ni plus ni moins une sorte de révolution pour leur discipline. Le problème, expliquent les deux auteurs, l'un et l'autre praticiens aguerris des modèles économétriques, c'est que ces modèles reposent sur l'hypothèse de rationalité de l'homo oeconomicus, de moins en moins pertinente pour analyser les évolutions convulsives de notre économie financiarisée et mondialisée. « Depuis quelques décennies, observent-ils, le psychisme de l'homme moderne s'est profondément modifié et, avec lui, celui des groupes constitués, familles, entreprises, peuples, dans lesquels il s'insère. »
In this short talk, psychologist Dan Ariely tells two personal stories that explore scientific conflict of interest: How the pursuit of knowledge and insight can be affected, consciously or not, by shortsighted personal goals. When we're thinking about the big questions, he reminds us, let's be aware of our all-too-human brains.
"........ The most difficult thing, of course, is to recognize that sometimes we too are blinded by our own incentives. And that's a much, much more difficult lesson to take into account. Because we don't see how conflicts of interest work on us. When I was doing these experiments, in my mind, I was helping science. I was eliminating the data to get the true pattern of the data to shine through. I wasn't doing something bad. In my mind, I was actually a knight trying to help science move along. But this was not the case. I was actually interfering with the process with lots of good intentions. And I think the real challenge is to figure out where are the cases in our lives where conflicts of interest work on us, and try not to trust our own intuition to overcome it, but to try to do things that prevent us from falling prey to these behaviors, because we can create lots of undesirable circumstances. ..."
Psychologist Barry Schwartz takes aim at a central tenet of western societies: freedom of choice. In Schwartz's estimation, choice has made us not freer but more paralyzed, not happier but more dissatisfied.
Early studies of intuitive judgment and decision making conducted with the late Amos Tversky are reviewed in the context of two related concepts: an analysis of accessibility, the ease with which thoughts come to mind; a distinction between effortless intuition and deliberate reasoning. Intuitive thoughts, like percepts, are highly accessible. Determinants and consequences of accessibility help explain the central results of prospect theory, framing effects, the heuristic process of attribute substitution, and the characteristic biases that result from the substitution of nonextensional for extensional attributes. Variations in the accessibility of rules explain the occasional corrections of intuitive judgments. The study of biases is compatible with a view of intuitive thinking and decision making as generally skilled and successful.
By H. Kent Baker and Victor Ricciardi Investor behaviour often deviates from logic and reason, and investors display many behaviour biases that influence their investment decision-making processes. Below, H. Kent Baker and Victor Ricciardi describe some common behavioural biases and suggest how to mitigate them. The investor's chief problem – even his worst enemy – is likely to be himself. Benjamin Graham
Abstract: We investigate the impact of various audit schemes on the future provision of public goods, when contributing less than the average of the group is sanctioned exogenously and the probability of an audit is unknown. We study how individuals update their beliefs about the probability of being audited, both before and after audits are definitely withdrawn. We find that when individuals have initially experienced systematic audits, they decrease both their beliefs and their contributions almost immediately after audits are withdrawn. In contrast, when audits were initially less frequent and more irregular, they maintain high beliefs about the probability of being audited and continue cooperating long after audits have been withdrawn. Inconsistency in experiencing audits across time clearly increases the difficulty of learning the true audit probabilities. Thus, conducting less frequent and irregular audits with higher fines can increase efficiency dramatically.
Abstract: We examine the effect of adherence to behavioral codes, as measured by the degree of religiosity, on the level of honesty by conducting under-the-cup die experiments. The findings suggest that behavioral codes, which prohibit lying, offset the monetary incentive to lie. The highest level of honesty is found among young religious females while the lowest is found among secular females. Moreover, when the monetary incentive to lie is removed, the tendency of secular subjects to lie disappears. Given the strict separation between the secular and religious education systems the research findings confirm the importance of education in instilling ethical values.
Discover how some strange human tendencies can play out in the market, posing the question: are we really rational?
Behavioral finance certainly reflects some of the attitudes embedded in the investment system. Behaviorists will argue that investors often behave irrationally, producing inefficient markets and mispriced securities - not to mention opportunities to make money. That may be true for an instant, but consistently uncovering these inefficiencies is a challenge. Questions remain over whether these behavioral finance theories can be used to manage your money effectively and economically. (To continue reading on behavioral finance, see Taking A Chance On Behavioral Finance.)
That said, investors can be their own worst enemies. Trying to out-guess the market doesn't pay off over the long term. In fact, it often results in quirky, irrational behavior, not to mention a dent in your wealth. Implementing a strategy that is well thought out and sticking to it may help you avoid many of these common investing mistakes.
With every decision you take, every judgement you make, there is a battle in your mind - a battle between intuition and logic.
And the intuitive part of your mind is a lot more powerful than you may think.
Most of us like to think that we are capable of making rational decisions. We may at times rely on our gut instinct, but if necessary we can call on our powers of reason to arrive at a logical decision.
Continue reading the main story If we think that we have reasons for what we believe, that is often a mistake” Prof Daniel KahnemanPrinceton University
We like to think that our beliefs, judgements and opinions are based on solid reasoning. But we may have to think again.
Prof Daniel Kahneman, from Princeton University, started a revolution in our understanding of the human mind. It's a revolution that led to himwinning a Nobel Prize.
His insight into the way our minds work springs from the mistakes that we make. Not random mistakes, but systematic errors that we all make, all the time, without realising.
Prof Kahneman and his late colleague Amos Tversky, who worked at the Hebrew University of Jerusalem and Stanford University, realised that we actually have two systems of thinking. There's the deliberate, logical part of your mind that is capable of analysing a problem and coming up with a rational answer.
It is now common practice, in digital communication, to use the character combination “:-)”, known as an emoticon, to indicate a smiling face. Although emoticons are readily interpreted as smiling faces, it is unclear whether emoticons trigger face-specific mechanisms or whether separate systems are utilized. A hallmark of face perception is the utilization of regions in the occipitotemporal cortex, which are sensitive to configural processing. We recorded the N170 event-related potential to investigate the way in which emoticons are perceived. Inverting faces produces a larger and later N170 while inverting objects which are perceived featurally rather than configurally reduces the amplitude of the N170. We presented 20 participants with images of upright and inverted faces, emoticons and meaningless strings of characters. Emoticons showed a large amplitude N170 when upright and a decrease in amplitude when inverted, the opposite pattern to that shown by faces. This indicates that when upright, emoticons are processed in occipitotemporal sites similarly to faces due to their familiar configuration. However, the characters which indicate the physiognomic features of emoticons are not recognized by the more laterally placed facial feature detection systems used in processing inverted faces.
Journalists have to simplify material for a general audience. Is there a technological fix?
Scientists and the journalists who cover them are locked in an “eternal tug of war,” Sabine Hossenfelder writes. The journos feel they have to elide detail so a general audience can read them. The scientists feel the resulting “knowledge transfer” to readers is pitifully low. Hossenfelder illustrates the problem with a series of graphs, like this one:
Hossenfelder notes that sports journalism doesn’t assume its readers need their reports dumbed-down, and suggests online science journalism may hold a solution: “a system with a few layers – call them beginner, advanced, pro – would already make a big difference.”
Abstract The aim of our study was to see if there is a correlation between declared consumption of a food product and the activation of specific brain regions measured with fMRI when consumers are presented images with package of their preferred product. The study included 50 participants divided into approximately equal age groups and sex categories. We found that hemodynamic changes in the precuneus area of the brain were found to be positively correlated with whether or not participants consumed a certain brand, suggesting the brand triggered personal relevance. Also we found that there was a significant association between cerebral activations in the caudate nucleus and participants’ responses on the consumption questionnaire, proving the brand’s capacity to generate emotions. Our study is consistent with data indicating striatum activation as a brain correlate for consumption and/or preference. In addition, activation found in precuneus is a confirmation of the involvement of this brain area in the recollection and processing of self-relevant information and can be used for evaluating the personal relevance of a commercial, or other marketing-related stimuli. Neuromarketing tools demonstrate that can provide critical inputs to marketers and decision makers.
What drives our desire to behave morally? Neuroeconomist Paul Zak shows why he believes oxytocin (he calls it "the moral molecule") is responsible for trust, empathy and other feelings that help build a stable society. Oxytocin infusion increases generosity in unilateral monetary transfers by 80 percent [and] increases donations to charity by 50 percent.
he British philosopher Derek Parfit espoused a severely reductionist view of personal identity in his seminal book, Reasons and Persons: It does not exist, at least not in the way we usually consider it. We humans, Parfit argued, are not a consistent identity moving through time, but a chain of successive selves, each tangentially linked to, and yet distinct from, the previous and subsequent ones. The boy who begins to smoke despite knowing that he may suffer from the habit decades later should not be judged harshly: “This boy does not identify with his future self,” Parfit wrote. “His attitude towards this future self is in some ways like his attitude to other people.”
Parfit’s view was controversial even among philosophers. But psychologists are beginning to understand that it may accurately describe our attitudes towards our own decision-making: It turns out that we see our future selves as strangers. Though we will inevitably share their fates, the people we will become in a decade, quarter century, or more, are unknown to us. This impedes our ability to make good choices on their—which of course is our own—behalf. That bright, shiny New Year’s resolution? If you feel perfectly justified in breaking it, it may be because it feels like it was a promise someone else made.
Abstract This study examines the effects of ﬁscal austerity, among other socioeconomic variables, on suicide rates in Greece over the period 1968-2011. Our results suggest that ﬁscal austerity, higher unemployment rates, negative economic growth and reduced fertility rates, signiﬁcantly increase suicide rates in Greece, while increased alcohol consumption and divorce rates do not exert any signiﬁcant inﬂuence on suicide rates. Interestingly, the effects of ﬁscal austerity and economic growth are gender-speciﬁc, as ﬁscal austerity measures and negative economic growth signiﬁcantly increase male suicide rates, while no signiﬁcantly effects of ﬁscal austerity and negative economic growth on female suicide rates could be identiﬁed. Finally, the effects of ﬁscal austerity on suicide rate are also age-speciﬁc, affecting mostly the population between the ages of 45 and 89 years. These results have important implications for policy makers, and for the creation and implementation of specialised suicide prevention programs in Greece by national health agencies.
A common explanation for biases in judgment and choice has been to postulate two separate processes in the brain: a “System 1” that generates judgments automatically, but using only a subset of the information available, and a “System 2” that uses the entire information set, but is only occasionally activated. This theory faces two important problems: that inconsistent judgments often persist even with high incentives, and that inconsistencies often disappear in within-subject studies. In this paper I argue that these behaviors are due to the existence of “implicit knowledge”, in the sense that our automatic judgments (System 1) incorporate information which is not directly available to our reflective system (System 2). System 2 therefore faces a signal extraction problem, and information will not always be efficiently aggregated. The model predicts that biases will exist whenever there is an interaction between the information private to System 1 and that private to System 2. Additionally it can explain other puzzling features of judgment: that judgments become consistent when they are made jointly, that biases diminish with experience, and that people are bad at predicting their own future judgments. Because System 1 and System 2 have perfectly aligned preferences, welfare is well-defined in this model, and it allows for a precise treatment of eliciting preferences in the presence of framing effects.
So why do neurons respond in this remarkable way? A new study by Professor Jeff Bowers and colleagues at the University of Bristol argues that highly selective neural representations are well suited to co-activating multiple things, such as words, objects and faces, at the same time in short-term memory.
The researchers trained an artificial neural network to remember words in short-term memory. Like a brain, the network was composed of a set of interconnected units that activated in response to inputs; the network ‘learnt’ by changing the strength of connections between units. The researchers then recorded the activation of the units in response to a number of different words.
When the network was trained to store one word at a time in short-term memory, it learned highly distributed codes such that each unit responded to many different words. However, when it was trained to store multiple words at the same time in short-term memory it learned highly selective (‘grandmother cell’) units – that is, after training, single units responded to one word but not any other. This is much like the neurons in the cortex that respond to one face amongst many.
Abstract: Abstract This note offers two comments on the article “Social Influences towards Conformism in Economic Experiments” by Hargreaves Heap that is to appear in the Economics e-Journal. One relates to the concept of conformism, the other lines out some phenomena where an explicit recognition of group processes, such as conformism, may be analytically helpful.
Downlodable - The implications of behavioural economics for law and regulation have been extensively discussed by Professor Cass Sunstein. His paper Empirically Informed Regulation (2011) is a particularly useful overview of the issues involved and we will discuss this in depth during the lecture. The more accessible account Simpler recounts Sunstein's time as a lead regulator within the Obama Administration. Key points: Benefits of incorporating empirical findings into the development of regulation. Can small inexpensive policy initiatives have large and highly beneficial effects?
We study the evolution of a social norm of “cooperation” in a dynamic environment.Each agent lives for two periods and interacts with agents from the previous and nextgenerations via a coordination game. Social norms emerge as patterns of behaviorthat are stable in part due to agents’ interpretations of private information aboutthe past, inﬂuenced by occasional commonly-observed past behaviors. For suﬃcientlybackward-looking societies, history completely drives equilibrium play, leading to asocial norm of high or low cooperation. In more forward-looking societies, there is apattern of “reversion” whereby play starting with high (low) cooperation reverts towardlower (higher) cooperation. The impact of history can be countered by occasional“prominent” agents, whose actions are visible by all future agents and who can leveragetheir greater visibility to inﬂuence expectations of future agents and overturn socialnorms of low cooperation.
Downloadable! We introduce and study the problem of manipulation of choice behavior. In a class of two-stage models of decision making, with the agent's choices determined by three "psychological variables," we imagine that a subset of these variables can be selected by a "manipulator." To what extent does this confer control of the agent's behavior? Within the specified framework, which overlaps with two existing models of choice under cognitive constraints, we provide a complete answer to this question.
C'è una via sicura per ridurre i vostri costi energetici? Non ci credereste: basta sapere quanto pagano i vostri vicini. Alex Laskey ci mostra come una particolare caratteristica del comportamento umano possa renderci migliori e più saggi consumatori di energia, con bollette più basse per dimostrarlo.
Abstract Applying a standard questionnaire (Lichtenstein and Fischhoff 1977) to a sample of 44 professional investors, we sought for explicit correlations between selected biological characteristics of the investors and the cognitive bias known as overconfidence. We found that both male and female investors showed overconfidence above the subjective probability of 0.7 and underconfidence below this threshold. But the sexes seemed to behave differently when they were totally uncertain of their answers. Experienced and inexperienced investors were overconfident whenever they were 70 percent (or above) confident of their answers. Despite that, experienced investors were relatively more calibrated. Of those who were highly uncertain of their answers, the inexperienced showed less confidence. Moreover, a logistic regression analysis showed that male subjects, fathers, right-handers, and subjects with a university degree and less than five years of experience in stock markets were more prone to the overconfidence effect.