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Faith in intuition and behavioral biases

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  • Alós-Ferrer, Carlos
  • Hügelschäfer, Sabine

Abstract

We use a 15-item self-report questionnaire known as “Faith in Intuition” to measure reliance on intuitive decision making, and ask whether the latter correlates with behavioral biases involving a failure of Bayesian updating. In a first experiment, we find that higher report scores are associated with an increased use of the representativeness heuristic (overweighting sample information). We find no evidence of increased conservatism (overweighting prior information). The results of a second experiment show that more intuitive decision makers rely more often on the “reinforcement heuristic” where successful decisions are repeated even if correctly updating prior beliefs indicates otherwise. However, this effect depends on the magnitude of incentives.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 84 (2012)
Issue (Month): 1 ()
Pages: 182-192

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Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:182-192

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Behavioral biases; Bayesian updating; Intuition; Representativeness; Conservatism; Reinforcement;

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References

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  1. Grether, David M, 1980. "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 537-57, November.
  2. Charness, Gary & Levin, Dan, 2003. "When Optimal Choices Feel Wrong: A Laboratory Study of Bayesian Updating, Complexity, and Affect," University of California at Santa Barbara, Economics Working Paper Series qt7g63k28w, Department of Economics, UC Santa Barbara.
  3. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
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  7. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
  8. Eva I. Hoppe & David J. Kusterer, 2010. "Behavioral biases and cognitive reflection," Cologne Graduate School Working Paper Series 01-03, Cologne Graduate School in Management, Economics and Social Sciences.
  9. Zizzo, Daniel John & Stolarz-Fantino, Stephanie & Wen, Julie & Fantino, Edmund, 2000. "A violation of the monotonicity axiom: experimental evidence on the conjunction fallacy," Journal of Economic Behavior & Organization, Elsevier, vol. 41(3), pages 263-276, March.
  10. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Grether, David M., 1992. "Testing bayes rule and the representativeness heuristic: Some experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 17(1), pages 31-57, January.
  12. Martin Jones & Robert Sugden, 2000. "Positive Confirmation Bias in the Acquisition of Information," Dundee Discussion Papers in Economics 115, Economic Studies, University of Dundee.
  13. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128 Elsevier.
  14. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
  15. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
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