COGNITIVE ABILITIES,ANALYTIC COGNITIVE STYLE AND OVERCONFIDENCE: A COMMENTARY ON DUTTLE (2016)

In his recent paper, Duttle (2016) showed that individuals with higher cognitive abilities show less overconfidence. In these findings, cognitive abilities were equated with an analytic cognitive style (as measured by a cognitive reflection test, or CRT), although recent works in the field of cognitive psychology suggest separating these two constructs. In particular, it is argued that the analytic cognitive style, but not cognitive abilities, decreases susceptibility to cognitive biases. Analyses of data from Duttle's study support this assertion. Implications for cognitive psychology and behavioural economics are discussed.     

Too tall to be smart? The relationship between height and cognitive abilities

Recent research suggests for height–wage premiums because of differentials in cognitive abilities. This note adds to the discussion and examines whether verbal and non-verbal competencies are related to height. The results indicate that height is non-linearly associated to males' abilities.     

The impact of sustained attention on labor market outcomes: The case of Ghana

In this paper, we go beyond traditional measures of cognitive abilities (IQ) in explaining labor market and social outcomes in developing countries. We exploit a rich dataset from Ghana that provides information on demographics, labor market outcomes, and a direct measure of cognitive ability along with other test scores to construct a measure of sustained attention. Our work is therefore related to the broader literature in psychology on the importance of executive function on individual behavior and outcomes. We find that, at least for the case of Ghana, after controlling for IQ and other covariates, higher levels of sustained attention are associated with higher educational attainment and a higher likelihood of being employed in a white‐collar job.     

Underperformance of Actively Managed Portfolios: Some Behavioral Insights

Abstract

Two glaring anomalies in investment management are apparent: (1) after fees, active portfolio managers do worse than market indices, and (2) clients continue to pay for services they don’t receive. The purpose of this paper is to offer explanations of these anomalies from a behavioral perspective. We explore some of the cognitive biases that perpetuate active management and subsequent underperformance, including herding, disposition, and endowment effects, as well as conservatism and status quo biases, overconfidence, and agency problems. Investors’ continued use of active managers despite persistent disappointing returns is attributed to being victims of framing effect, hot-hand fallacy, lack of knowledge as well as intimidation or insecurity, and status quo bias. We propose some ways that portfolio managers and investors could improve their decision making.     

Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data

Considerable effort has been exercised in estimating mean returns to education while carefully considering biases arising from unmeasured ability and measurement error. Recent work has investigated whether there are variations from the “mean” return to education across the population with mixed results. We use an instrumental variables estimator for quantile regression on a sample of twins to estimate an entire family of returns to education at different quantiles of the conditional distribution of wages while addressing simultaneity and measurement error biases. We test whether there is individual heterogeneity in returns to education and find that: more able individuals obtain more schooling perhaps due to lower marginal costs and/or higher marginal benefits of schooling and that higher ability individuals (those further to the right in the conditional distribution of wages) have higher returns to schooling consistent with a non-trivial interaction between schooling and unobserved abilities in the generation of earnings. The estimated returns are never lower than 9 percent and can be as high as 13 percent at the top of the conditional distribution of wages but they vary significantly only along the lower to middle quantiles. Our findings may have meaningful implications for the design of educational policies.     

Time preferences,cognitive abilities and intrinsic motivation to exert effort

The experimental literature has found a positive relationship between patience and performance in cognitive tests that are not incentivized by money. It has also been shown that unincentivized cognitive tests capture not only cognitive ability (CA), but also intrinsic motivation related to the test takers’ personality traits. In order to determine whether the relationship between patience and test scores is driven by intrinsic motivation or CA, we run an experiment in which subjects take either incentivized or unincentivized cognitive tests. We find that while incentivized test scores positively correlate with patience, the unincentivized scores are not related to the time preferences of our subjects. The observed correlation between patience and cognitive test scores therefore seems to be driven by CA rather than by intrinsic motivation related to personality traits.     

Time for behavioral political economy? An analysis of articles in behavioral economics

This study analyzes leading research in behavioral economics to see whether it contains advocacy of paternalism and whether it addresses the potential cognitive limitations and biases of the policymakers who are going to implement paternalist policies. The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers. This suggests that behavioral political economy, in which the analytical tools of behavioral economics are applied to political decision-makers as well, would offer a useful extension of the research program. Such an extension could be related to the concept of robust political economy, according to which the case for paternalism should be subjected to ??worst-case?? assumptions, such as policymakers being less than fully rational.     

COGNITIVE SKILLS AND CONFIDENCE: INTERRELATIONS WITH OVERESTIMATION,OVERPLACEMENT AND OVERPRECISION

This experimental study measures the three major types of judgmental overconfidence in a within‐subjects design. Performance‐based overestimation and overplacement are elicited in a Raven Progressive Matrices test for general intelligence. Calibration‐based overprecision is evaluated in a forecasting by confidence intervals task. This study takes a closer look at the interrelations of these different types. Moreover, as the main focus, it considers the effect of cognitive abilities on overconfidence. These are quantified in a cognitive reflection test. I find that cognitive skills are substantially interrelated with subjects’ confidence levels. Although overconfidence in absolute terms (overestimation) is not affected by cognitive abilities, the effect on overconfidence in relative terms (overplacement) is positive and significant. Overprecision, the calibration‐based type of overconfidence, is found to be significantly affected by cognitive capacity as well. Interval forecasts of cognitively more able subjects were much better calibrated than those of their peers who displayed substantial overconfidence in the precision of their forecasts.     

Formulating research policy on expert advice

National Research Assessments represent the principal policy used by countries with public university systems to improve the quality of their universities׳ research. They typically employ expert panels of local academics to assess journal quality, and use such assessments to reward publications. We propose a model of how experts assess quality and test this model using data from the recent Australian assessment. Controlling for objective quality, we show that experts׳ cognitive biases dominate their assessments. Consequently, such assessments exaggerate the quality of the experts׳ research and understate that of their colleagues. Our model can explain 95% of the variation in assessments.     

Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?

We offer an explanation of why changes in house price are predictable. We consider a housing market with loss‐averse sellers and anchoring buyers in a dynamic setting. We show that when both cognitive biases are present, changes in house prices are predicted by price dispersion and trade volume. Using a sample of housing transactions in Hong Kong from 1992 to 2006, we find that price dispersion and transaction volume are, indeed, powerful predictors of housing return. For both in and out of sample, the two variables predict as well as conventional predictors such as the real interest rate and real stock return.     

Cognitive ability and human behavior in experimental ultimatum games

Recent researches have shed light on the effect of cognitive ability on economic decision-making. By measuring cognitive ability applying Raven's progressive matrix test, we obtain two significant results that this effect affects decision-making in two types of experimental ultimatum games. First, the higher the cognitive ability, the larger the amount a sender offers when the offer is smaller than or equal to the half split. Second, the higher the responders’ cognitive ability, the smaller the offer they accept, when they accept it or not with the strategy method. This study not only finds new factors that affect decision-making in experimental ultimatum games, but also provides more evidences that cognitive ability influences economic decision-making.     

企业投资管理的创新研究

通过分析研究企业投资决策人存在的认知偏差和非理性行为,提出了企业投资决策中的行为财务创新策略:企业投资决策人必须熟悉在企业投资决策中各种认知偏差和非理性行为的特征,善于学习、了解和接受行为财务相关新投资理念,保持谦虚冷静、自省自律心态,实行集体决策和科学决策,建立投资项目终止机制等。     

Implications of Bid Design and Willingness-To-Pay Distribution for Starting Point Bias in Double-Bounded Dichotomous Choice Contingent Valuation Surveys

We examine starting point bias in double-bounded dichotomous choice contingent valuation surveys. We investigate (1) the seriousness of the biases for the location and scale parameters of the willingness-to-pay (WTP) in the presence of starting point bias; (2) whether or not these biases depend on the distribution of WTP and on the bid design; and (3) how well a commonly used diagnostic for starting point bias—a test of the null that bid set dummies entered in the right-hand side of the WTP model are jointly equal to zero—performs under various circumstances. Monte Carlo simulations suggest that the effect of ignoring starting point bias depends on the bid design and on the true distribution of WTP. A well-balanced, symmetric bid design may result in very modest biases even when the anchoring mechanism is very strong. The power of bid set dummies in detecting starting point bias is low. They tend to account for misspecifications in the distribution assumed by the researcher for the latent WTP, rather than capturing the presence of starting point bias.     

Professionals’ endorsement of behavioral finance: Does it impact their perception of markets and themselves?

This paper provides evidence on the hypothesis that many behavioral finance patterns are so deeply rooted in human behavior that they are difficult to overcome by learning. We test this on a target group which has undoubtedly very strong incentives to learn efficient behavior, i.e. fund managers. We split this group into endorsers and non-endorsers of behavioral finance. Endorsers do, indeed, view markets differently as they regard stronger influences from behavioral biases. However, when it comes to the perception of one's own behavior the endorsement of behavioral finance becomes almost meaningless, even though endorsers otherwise do adapt behavior towards their conviction.     

Higher cognitive ability is associated with lower entries in a p-beauty contest

“Beauty contests” are well-studied, dominance-solvable games that generate two interesting results. First, most behavior does not conform to the unique Nash equilibrium. Second, there is considerable unexplained heterogeneity in behavior. In this work, we explore the relationship between beauty contest behavior and cognitive ability. We find that subjects with high cognitive ability exhibit behavior that is closer to the Nash equilibrium.     

Using the U.S. Test of Financial Literacy in Germany—Adaptation and validation

In this article, the authors present the adaptation and validation processes conducted to render the American Test of Financial Literacy (TFL) suitable for use in Germany (TFL-G). First, they outline the translation procedure followed and the various cultural adjustments made in line with international standards. Next, they present results from the validation of the TFL-G's content and relations between test scores and external variables, including test takers' prior economic education and interest in economic topics. Preliminary analyses of data gathered from expert interviews and cognitive labs, and the results of the first administration to first-year higher education students (N = 1,108) indicate that the TFL-G is a valid instrument to assess young adults' understanding of personal finance in Germany. Perspectives for future research are discussed.     

Cognitive abilities and portfolio choice

We study the relation between cognitive abilities and stockholding using the recent Survey of Health, Ageing and Retirement in Europe (SHARE), which has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and retirement accounts. Since the decision to invest in less information-intensive assets (such as bonds) is less strongly related to cognitive abilities, we conclude that the association between cognitive abilities and stockholding is driven by information constraints, rather than by features of preferences or psychological traits.     

The Effect of Parental Absence on Child Development in Rural China

This study estimates the effect of parental absence on the development of children in rural China. Although some previous studies have looked into the effect of parental absence on children's academic achievements, we investigate the effects of parental absence on both the cognitive and non‐cognitive skills of children. Our results show that parental absence during early child development mostly incurs negative effects on the academic achievement and non‐cognitive development of children. A child whose parents are both absent tends to have lower Chinese and mathematics test scores, lower self‐assessment on his/her behavior, and is less likely to be happy and satisfied. A gender difference is also observed in the effect of parental absence: girls suffer more from the effect of both parents being absent on their mathematics test scores than do boys.     

发明人角色识别及二元创新能力差异分析——社会资本视角的解释

发明人的创新活动嵌入在合作创新网络中。基于社会资本视角，从结构资本和认知资本两个维度辨识并定义4类发明人角色，包括“明星”、“纽带”、“平庸”和“活跃”发明人。以人工智能领域在德温特专利数据库（DII）授权的专利数据为样本，运用负二项模型，对4类发明人的二元创新能力进行实证对比分析。结果表明，不同角色发明人的二元创新能力显著不同。其中，“明星”发明人的二元创新能力最高，“平庸”发明人的二元创新能力最低，“活跃”发明人的二元创新能力高于“纽带”发明人，即认知资本对二元创新的影响大于结构资本。结论对提升发明人二元创新能力具有重要参考价值。