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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. Cronqvist, Henrik & Siegel, Stephan, 2010. "The Origins of Savings Behavior," SIFR Research Report Series 73, Institute for Financial Research.
  2. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
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  9. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive Abilities and Behavioral Biases," Working Papers 0465, University of Heidelberg, Department of Economics.
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  12. David Cesarini & Christopher T. Dawes & Magnus Johannesson & Paul Lichtenstein & Björn Wallace, 2009. "Genetic Variation in Preferences for Giving and Risk Taking," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 809-842, May.
  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. 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.
  15. 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.
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  18. 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.
  19. Gigerenzer, Gerd & Hertwig, Ralph & Hoffrage, Ulrich & Sedlmeier, Peter, 2008. "Cognitive Illusions Reconsidered," Handbook of Experimental Economics Results, Elsevier.
  20. 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.
  21. 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.
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Cited by:
  1. 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.
  2. Wernerfelt, Nils Christian & Rand, David Gertler & Lum, J. Koji & Zeckhauser, Richard Jay & Dreber, Anna & Garcia, Justin, 2011. "The Dopamine Receptor D4 Gene (DRD4) and Self-Reported Risk Taking in the Economic Domain," Scholarly Articles 5347066, Harvard Kennedy School of Government.

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