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The gradual nature of economic errors

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  • Alós-Ferrer, Carlos
  • Garagnani, Michele

Abstract

Overwhelming evidence from the cognitive sciences shows that, in simple discrimination tasks (determining what is louder, longer, brighter, or even which number is larger) humans make more mistakes and decide more slowly when the stimuli are closer along the relevant scale. We investigate to what extent these effects are relevant for economic decisions in a setting where optimal choices are objectively known (and independent of attitudes toward risk). We find that, even for tasks with objectively-correct answers, error rates and response times increase gradually as expected values become closer. Differences in payoff-independent numerical magnitudes also play a role, which however only becomes clear when one accounts for expected values. We conclude that the gradual effects on choice found in cognitive discrimination paradigms are very much present in economic choices, and depend on economic as well as perceptual variables.

Suggested Citation

  • Alós-Ferrer, Carlos & Garagnani, Michele, 2022. "The gradual nature of economic errors," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 55-66.
    • Handle: RePEc:eee:jeborg:v:200:y:2022:i:c:p:55-66
    DOI: 10.1016/j.jebo.2022.05.015
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    Cited by:

    1. Sean, Duffy & John, Smith, 2023. "Stochastic choice and imperfect judgments of line lengths: What is hiding in the noise?," MPRA Paper 116382, University Library of Munich, Germany.
    2. repec:cup:judgdm:v:17:y:2022:i:5:p:1072-1093 is not listed on IDEAS
    3. repec:jdm:journl:v:17:y:2022:i:5:p:1072-1093 is not listed on IDEAS

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    More about this item

    Keywords

    Stochastic choice; Strength of preference; Decision errors;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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