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The Behavioral Genetics of Behavioral Anomalies

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Author Info

  • David Cesarini

    ()
    (Center for Experimental Social Science and Department of Economics, New York University, New York, New York 10012; and IFN-Research Institute of Industrial Economics, SE-102 15 Stockholm, Sweden)

  • Magnus Johannesson

    ()
    (Department of Economics, Stockholm School of Economics, SE-113 83 Stockholm, Sweden)

  • Patrik K. E. Magnusson

    ()
    (Department of Medical Epidemiology and Biostatistics, Karolinska Institutet, SE-171 77 Stockholm, Sweden)

  • Björn Wallace

    ()
    (Department of Economics, Stockholm School of Economics, SE-113 83 Stockholm, Sweden)

Abstract

A number of recent papers have examined the environmental and genetic sources of individual differences in economic and financial decision making. Here we contribute to this burgeoning literature by extending it to a number of key behavioral anomalies that are thought to be of importance for consumption, savings, and portfolio selection decisions. Using survey-based evidence from more than 11,000 Swedish twins, we demonstrate that a number of anomalies such as, for instance, the conjunction fallacy, default bias, and loss aversion are moderately heritable. In contrast, our estimates imply that variation in common environment explains only a small share of individual differences. We also report suggestive evidence in favor of a shared genetic architecture between cognitive reflection and a subset of the studied anomalies. These results offer some support for the proposition that the heritable variation in behavioral anomalies is partly mediated by genetic variance in cognitive ability. Taken together with previous findings, our results underline the importance of genetic differences as a source of heterogeneity in economic and financial decision making. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.

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File URL: http://dx.doi.org/10.1287/mnsc.1110.1329
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 58 (2012)
Issue (Month): 1 (January)
Pages: 21-34

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Handle: RePEc:inm:ormnsc:v:58:y:2012:i:1:p:21-34

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Keywords: behavioral anomalies; behavior genetics; heuristics and biases;

References

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  1. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  2. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  3. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  4. David Cesarini & Magnus Johannesson & Paul Lichtenstein & Örjan Sandewall & Björn Wallace, 2010. "Genetic Variation in Financial Decision-Making," Journal of Finance, American Finance Association, vol. 65(5), pages 1725-1754, October.
  5. Nicholas Barberis & Richard Thaler, 2002. "A Survey of Behavioral Finance," NBER Working Papers 9222, National Bureau of Economic Research, Inc.
  6. Lex Borghans & Bart H.H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity," Working Papers 200903, Geary Institute, University College Dublin.
  7. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
  8. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  9. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive Abilities and Behavioral Biases," Working Papers 0465, University of Heidelberg, Department of Economics.
  10. David, Cesarini & Dawes, Christopher T. & Johannesson, Magnus & Lichtenstein, Paul & Wallace, Björn, 2007. "Genetic Variation in Preferences for Giving and Risk-Taking," Working Paper Series in Economics and Finance 679, Stockholm School of Economics, revised 12 Jan 2009.
  11. Lex Borghans & Bart H.H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity Aversion," NBER Working Papers 14713, National Bureau of Economic Research, Inc.
  12. Jonathan P. Beauchamp & David Cesarini & Magnus Johannesson & Matthijs J. H. M. van der Loos & Philipp D. Koellinger & Patrick J. F. Groenen & James H. Fowler & J. Niels Rosenquist & A. Roy Thurik & N, 2011. "Molecular Genetics and Economics," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 57-82, Fall.
  13. Gunnar Isacsson, 2004. "Estimating the economic return to educational levels using data on twins," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 99-119.
  14. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
  15. Itamar Simonson & Aner Sela, 2011. "On the Heritability of Consumer Decision Making: An Exploratory Approach for Studying Genetic Effects on Judgment and Choice," Journal of Consumer Research, University of Chicago Press, vol. 37(6), pages 951 - 966.
  16. Barnea, Amir & Cronqvist, Henrik & Siegel, Stephan, 2010. "Nature or nurture: What determines investor behavior?," Journal of Financial Economics, Elsevier, vol. 98(3), pages 583-604, December.
  17. Cronqvist, Henrik & Siegel, Stephan, 2010. "The Origins of Savings Behavior," SIFR Research Report Series 73, Institute for Financial Research.
  18. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  19. Cosmides, Leda & Tooby, John, 1994. "Better than Rational: Evolutionary Psychology and the Invisible Hand," American Economic Review, American Economic Association, vol. 84(2), pages 327-32, May.
  20. Jessica L. Cohen & William T. Dickens, 2002. "A Foundation for Behavioral Economics," American Economic Review, American Economic Association, vol. 92(2), pages 335-338, May.
  21. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
  22. Gigerenzer, Gerd & Hertwig, Ralph & Hoffrage, Ulrich & Sedlmeier, Peter, 2008. "Cognitive Illusions Reconsidered," Handbook of Experimental Economics Results, Elsevier.
  23. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, David K. Levine.
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Citations

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Cited by:
  1. Dreber, Anna & Rand, David G. & Wernerfelt, Nils & Garcia, Justin R. & Lum, J. Koji & Zeckhauser, Richard, 2011. "The Dopamine Receptor D4 Gene (DRD4) and Self-Reported Risk Taking in the Economic Domain," Working Paper Series rwp11-042, Harvard University, John F. Kennedy School of Government.
  2. Henrik Cronqvist & Florian Münkel & Stephan Siegel, 2014. "Genetics, Homeownership, and Home Location Choice," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 79-111, January.

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