Humans exhibit a preference for options they have freely chosen over equally valued options they have not; however, the neural mechanism that drives this bias and its functional significance have yet to be identified. Here, we propose a model in which choice biases arise due to amplified positive reward prediction errors associated with free choice. Using a novel variant of a probabilistic learning task, we show that choice biases are selective to options that are predominantly associated with positive outcomes. A polymorphism in DARPP-32, a gene linked to dopaminergic striatal plasticity and individual differences in reinforcement learning, was found to predict the effect of choice as a function of value. We propose that these choice biases are the behavioral byproduct of a credit assignment mechanism responsible for ensuring the effective delivery of dopaminergic reinforcement learning signals broadcast to the striatum.
Quando facciamo una scelta, siamo portati a sopravvalutare i benefici che ne abbiamo ricavato per effetto di uno specifico meccanismo di rinforzo delle connessioni neurali, che avviene in seguito al rilascio del neurotrasmettitore dopamina. Un nuovo studio ha permesso di chiarire che le regioni cerebrali coinvolte in questo fenomeno sono il corpo striato e due diverse porzioni della substantia nigra
A panel of industry experts joined David Wethey to examine how BE can be applied to overcome bottlenecks in client-agency relationships. At the SOCI on Monday 28th February, IPA President, Rory Sutherland introduced David Wethey, BE Think Tank member and Founder of AAI at an exclusive IPA event. Building on the seven key Behavioural Economics principles of 1) loss aversion, 2) the power of NOW, 3) scarcity value, 4) goal dilution, 5) chunking, 6) price perception and 7) choice architecture - David put forward a view on how BE can be applied in the client-agency relationship. In particular he believes that BE can make a critical contribution to decision making in client briefing. He also touched on the potential for Choice Architecture to improve the client-agency relationship in areas like pitching and remuneration.
A recent article in the New York Times highlighting the oft-overlooked malady of “precrastination” gives us an opportunity to discuss some of the downsides of our own intuitions in relation to existing time management systems.
As the article points out, “people appear to be wired to incur a significant physical cost to eliminate a mental burden.” When applied to time management, this often results in what Dan Ariely refers to as “structured procrastination”.
Structured procrastination involves getting little, relatively insignificant things done, in an attempt to “eliminate a mental burden” -- in this case the burden of having many things on your plate. With a standard to-do list, we have a long list of potential activities that vie for our time, and we need to pick and choose which of all these things to take care of first. Not surprisingly, this leads to us checking off those things that are quick and easy to finish (and thus give us the joy of checking them off quicker), as opposed to the things that are difficult but also likely to be important.
On top of the drive to attend first to the small things (and maybe never getting to the large ones), we also generally waste a great deal of time on the maintenance of small tasks -- just writing them down and then ticking them off of our to-do lists. This is of course a fantastic way to feel productive, but it mostly results in putting off the things that we should really be focusing on: the looming project, the awkward phone call, the term paper.
Getting mentally demanding tasks done requires solidifying our commitment to these tasks. Research suggests that simply scheduling things leads to a much higher rate of completion, which is why we developed Timeful’s smart suggestions. We think having a proactive calendar that reminds us about truly important tasks is crucial to developing the behavior that will curb precrastination and procrastination both.
Here’s Dan on the problem of structured procrastination:
RELEARNING ECONOMICS: The Post-Crash Economics Society (PCES) have produced a compelling analysis of the failings in economics education and set out a road map for reform.
“This report addresses a real need, for a more pluralistic and varied approach to the economics curriculum at university level. The mainline of economics from Adam Smith onwards is diverse and often departs from the current mainstream and the way that the subject is taught needs to recognise this. I welcome this contribution to discussion about the way we should explore the living tradition of economic thought and the light it casts on the contemporary world.”
Dr Stephen Davies, Education Director at the Institute of Economic Affairs.
This is a very important Report by the Post-Crash Economics Society. They explore the existing curriculum in careful detail, displaying the narrow theoretical monoculture which characterises not only Manchester’s curriculum but most economics degree courses in the UK and, indeed, the world. They outline what they think the curriculum should be: a programme geared to the problems of the actual economy through history, using the diversity of analyses that have developed through the years. The Report is a landmark: scrupulous, well-informed, passionate, it is required reading for every head of an economics department and highly recommended for everyone interested in the future of economics.
Victoria Chick, Emeritus Professor of Economics at University College London and co-founder of the Post-Keynesian Economics Study Group.
During the last weekend of June, hundreds of students, university lecturers, professors and interested members of the public descended on the halls of University College London to attend the Rethinking Economics conference. They all shared a similar belief: that economics education in most universities had become narrow, insular and detached from the real world.
For a brief period after the financial crisis of 2008, the shortcomings of the economics profession and the way it is taught were recognized. Many economists offered up mea culpas of various kinds and conceded that since they did not foresee the biggest economic event since the Great Depression, there was probably something seriously wrong with the discipline. But as time passed and many economies began to experience gradual, somewhat muted recoveries, the profession regained its confidence.
When I was completing my master’s degree at Kingston University last year, I experienced this firsthand from the more mainstream faculty there. Lecturers offered potted explanations of the crisis using old analytical tools such as supply and demand graphs that cannot incorporate expectations to explain asset price bubbles. The same economists who, just a few years ago, told us that financial markets were the conduits of perfect information began to introduce doublethink phrases in the media such as “rational bubble” (in which investors allegedly act irrationally by bidding up asset prices in full knowledge that prices are heavily inflated but think they can bail out of the market before prices fall) to explain the events of the past few years. There is nothing rational about investors’ acting this way, because they cannot know when the bubble will burst and so cannot time their exit from the market. They cannot know when the herd movement that they are part of will come to an end, so any action that they take to ride the wave will be just as irrational as those of people unaware of the bubble. The entire exercise appeared to be an ad hoc attempt to reinterpret the facts to fit the pet theory — economic agents aware of relevant information act rationally — rather than to alter the theory in light of the facts.
It was difficult not to sense the Soviet-style revisionism that had occurred within the halls of learning: The party had tossed history down the memory hole and introduced a strange, seemingly self-contradictory language that they were busy foisting upon an unwitting public. One Chicago school economist, Ray Ball, argues that the now notorious efficient market hypothesis (EMH), which states that financial markets price in all relevant information, is actually supported by the recent crisis. He argues that the capital flight that led to the bank meltdowns lends support to the EMH because it shows how rapidly financial markets react to new information. But as many will remember, investigations clearly showed that information was not being processed efficiently by market participants in the run-up to the crisis. The most colorful example of this was the Standard & Poor’s employee who, responding to a colleague who said that they should not be rating a mortgage-backed security deal because the estimations of risk were incorrect, said that cows could be estimating the risk of a product and S&P would still rate it.
n part one of my interview with Nobel laureate Robert Engle, we discussed the development of the ARCH model, the global financial crisis, systemic risk, and forecasting liquidity with ARCH models. In this part, we will cover the application of ARCH models in high-frequency trading and how he thinks risk models should be applied in portfolio management.
CFA Institute: Let’s switch gears and talk about some of the most practical ways traders and portfolio managers leverage risk modeling. How about we start with high-frequency trading?
Robert Engle: There is no reason why you can’t calculate value at risk at a millisecond interval, except that we probably need a better volatility model, a volatility model that is specific to the time frame. One way people have done this is sort of what I call the brute force approach, which is you take thousands of observations every day, then you take thousands of observations the next day, put them all together to make them a million observations long, and fit it into the GARCH model. And it turns out that doesn’t work very well because it spends most of its effort predicting time of day shapes. So the decay rates of volatility are like an hour long. It predicts two days ahead. The volatility is not affected by what we know today. And we know that is not true. We need a more complex model.
"In 2012, the New South Wales Department of Premier and Cabinet brought in one of the UK’s senior nudgers, Dr Rory Gallagher, to help establish its own taskforce, where he remains as managing adviser.The NSW Behavioural Insights Unit now claims impressive results of its own. Last month, it hosted the first ever international BI conference in Sydney. Several hundred delegates joined leading academics and practitioners in the emerging field — almost exclusively from the UK, the United States, Singapore and Australia — to discuss ways of gently nudging citizens by exploiting their cognitive biases, rather than coercing them.“What we’re trying to do is design and deliver government services around the way people actually behave,” Gallagher explained.Based on the nudge unit’s trials, the NSW Office of State Revenue is rolling out new penalty notices and reminders that are forecast to get an extra $10 million worth of fines paid on time each year, saving $80,000 in printing costs alone. The people encouraged to pay on time are expected to avoid about $4 million in extra penalties.At Westmead Hospital, the nudge unit helped increase the number of emergency in-patients who use their private health insurance by two percentage points. At Auburn Hospital, the same techniques tripled the number of patients using their private cover and, when used in two more local health districts, are expected to nudge the state’s bottom line to the tune of $11 million.A trial of ways to nudge injured employees back to work sooner finishes up this month. So far, those in the trial group have been back to full capacity 27% faster than the control group, and are three times as likely to have completed their claims within 30 days. #neuroeconomcs #behavioraleconomics
Richard Thaler and Cass Sunstein, authors of Nudge: Improving Decisions About Health, Wealth, and Happiness joined moderators Nava Ashra, Associate Professor at Harvard Business School and Max Bazerman, co-director of the Center for Public Leadership for a discussion on behavioral economics. The panelists discussed how minimal changes or "nudges" can influence human behavior. Sunstein and Thaler also touched on how governments can use nudges and the perceived problems with using behavioral methods for policy purposes.
Kahneman discusses this phenomenon in his book Thinking Fast and Slow in the context of golf, where loss aversion actually improves performance:
"Failing to make par is a loss, but missing a birdies putt is a foregone gain, not a loss. [Devin] Pope and [Maurice] Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analyzed more than 2.5 million putts in exquisite detail to test that prediction. They were right. Whether the putt was easy or hard, at every distance from the hole, the players were more successful when putting for par [i.e. avoiding a loss] than for a birdie [i.e. achieving a gain]. The difference in their rate of success when going for par (to avoid a bogey) or for a birdie was 3.6%.
This difference is not trivial. Tiger Woods was one of the "participants" in their study. If in his best years Tiger Woods had managed to putt as well for birdies as he did for par, his average tournament score would have improved by one stroke and his earnings by almost $1 million per season."
Abstract: In this paper we present a model of representative behavior in the dictator game. Individuals have simultaneous and non-contradictory preferences over monetary payoffs, altruistic actions and equity concerns. We require that these behaviors must be aggregated and founded in principles of representativeness and empathy. The model results match closely the observed mean split and replicate other empirical regularities (for instance, higher stakes reduce the willingness to give). In addition, we connect representative behavior with an allocation rule built on psychological and behavioral arguments. An approach consistently neglected in this literature. Key words: Dictator Game, Behavioral Allocation Rules, Altruism, Equity Concerns, Empathy, Self-interest JEL classification
Understanding the human brain is one of the greatest challenges facing 21st century science. If we can rise to it, we can gain profound insights into what makes us human, build revolutionary computing technologies and develop new treatments for brain disorders. Today, for the first time, modern ICT has brought these goals within reach.
The members of the HBP are saddened by the open letter posted on neurofuture.eu on 7 July 2014, as we feel that it divides rather than unifies our efforts to understand the brain. However, we recognize that the signatories have important concerns about the project. Here we try to clarify some of the main issues they touch on. We also invite the signatories to discuss their concerns in a direct scientific exchange with scientists leading the HBP and its subprojects.
Olivier Oullier, a renowned expert in behaviour change and neuroeconomics, explains how research developments in brain sciences and behavioural finance help us comprehend the biases that distort financial and economic decisions and how investors and traders can better understand and cope with such problems.
Each year, advertisers spend very large portions of their budgets on promoting their brands via increasingly more integrated marketing campaigns; however, understanding the return on these investments has always been a challenge.
Constant changes in media, the advance of digital and the plethora of touchpoints that make up potential consumer engagement have simply made the picture more complex. Never before have brands had so many tools at their disposal to engage with consumers, promote their products and interact with their targets. What was once a relatively simple decision in terms of budget allocation and creative optimisation has become an extremely complex puzzle.
System 1 Brand Tracking measures the effectiveness and contribution of each element of a campaign and their impact on brand equity through an innovative approach inspired by the latest advances in behavioural science. Furthermore, it delivers where traditional brand tracking cannot - by revealing the emotionally charged relationship between a consumer and a brand, and delivering key takeaways to foster the emotional bond.
Gabriel Aleixo, Managing Director - LatAm, discusses case studies that demonstrate a more effective approach to brand tracking and measurement of integrated marketing campaigns, and the key driver to brand success - how consumers feel.
When it comes to making decisions, the fact is we think much less than we think we think! Behavioural Economics has shown that our decisions are guided not by our plans or intentions, but by where we are, the people we’re with and the unconscious forces inside us. Summaries of Behavioural Economics offer a collection of delightful anecdotes, but can leave you wondering how on earth to use it. To make sense of it, join Orlando Wood as he talks through BrainJuicer’s Behavioural Model; learn why it’s so important to make buying your brand fun, fast and easy and how the behavioural sciences can inspire better research and marketing.
In PNAS, Fritz et al. (1) follow up their groundbreaking 2012 paper with what will probably be the final nail in the coffin for those who would believe that old musical instruments sound demonstrably better than new instruments. Their study used six prized instruments, Stradivari and Guarneri “del Gesu” violins, and six modern violins. World class violinists who were literally blind to provenance (the violinists wore goggles that dramatically reduced their ability to see) were given two opportunities to play them: in a small salon and in a concert hall. They were allowed to bring a friend to act as a second judge. Their task was to rank order the violins in terms of desirability and to label them as old vs. new. These highly trained and highly discerning musicians utterly failed at detecting old vs. new and showed no consistent preferences.
The study balanced rigor with real-world considerations and represents the most ecologically valid conditions possible while maintaining strict experimental protocols. Yet, intriguingly, the participants themselves remained unconvinced, even after having seen the results with their own eyes (or heard them with their own ears). Said one, “the one thing that you cannot put into a new violin is that it’s been played for 300 years—these instruments change and develop.” Said another, “I would absolutely buy a new instrument, but for a later generation. They need to be broken in” (2).
Why is it that musicians and scientists reach different conclusions when considering the same data? This arises in part due to different ways of knowing things. Scientists know what they know through systematic observation of the external world, mediated by replicable experiments and objective measurement. Artists know what they know through emotional experience, subjectivity, and intuition. When they …
Behavioural insights draws on research into behavioural economics and psychology to influence choices in decision-making. By focusing on the social, cognitive and emotional behaviour of individuals and institutions it suggests that subtle changes to the way decisions are framed and conveyed can have big impacts on behaviour.
In part two of this new series, we present a simple model for intuition that provides a framework for understanding how to take advantage of its strengths and avoid its weaknesses.
Last month, I started a regular column on the power of intuition in investing that inspired many of you to write to me directly to discuss your experiences. While most of you viewed intuition positively, your responses indicated you still weren’t sure how to define it (i.e., that it lacked a central idea). You also expressed some reservations about applying intuition to investing because it is perceived as unreliable. Both these observations stem from the fact that we lack a simple, broadly adopted model of intuition to aid our understanding. With that in mind, here is my model. I hope it provides you with greater clarity.
A Simple Model of Intuition
Intuition is neither System 1 nor System 2 thinking as defined by Daniel Kahneman. Instead, intuition is a different category of mental action that is distinct from both instinct and deliberation. Intuition is a sense exactly like the five standard senses. Here is a simple model for understanding intuition as a sense:
Abstract: We report the results of a laboratory experiment testing for the existence of loss aversion in a standard risk aversion protocol (Holt and Laury, 2002). In our experiment, participants earn and retain money for a week before using it in an incentivized risk preference elicitation task. We find loss aversion, distinct from risk aversion, has a significant effect on behavior resulting in participants requiring higher compensation to bear risk.
Abstract: This paper considers the role which selfish, moral and social incentives and pressures play in explaining the extent to which stated choices over pro-environment behaviours vary across individuals. The empirical context is choices over household waste contracts and recycling actions in Poland. A theoretical model is used to show how cost-based motives and the desire for a positive self- and social image combine to determine the utility from alternative choices of recycling behaviour. We then describe a discrete choice experiment designed to empirically investigate the effects such drivers have on stated choices. Using a latent class model, we distinguish three types of individual who are described as duty-orientated recyclers, budget recyclers and homo oeconomicus. These groups vary in their preferences for how frequently waste is collected, and the number of categories into which household waste must be recycled. Our results have implications for the design of future policies aimed at improving participation in recycling schemes.
Surfing the web at work for leisure makes you 9% more productive, a new study finds. Now there’s something positive to tell your boss the next time you’re caught on Facebook or YouTube at work. A new study finds that taking a break at work to browse the internet can boost your performance at work (Coker, 2014).
Dr. Brent Coker of Melbourne University was inspired to carry out the research after he forwarded a YouTube video to his sister.