Get documents about "and Values Based Materialism University of Bolton
Document Sample
ECONOMIC PSYCHOLOGY:
NEW METHODS AND FINDINGS
Friday 26th March 2010
De Vere Whites Hotel, Reebok Stadium
A workshop hosted by the Economic Psychology
and Decision Research Group at the School of
Health & Social Sciences of the University of Bolton
Sponsored by the International Association for Research
Into Economic Psychology (IAREP) and the Society for the
Advancement of Behavioural Economics (SABE).
KEYNOTE SPEAKER
A Conceptual Framework of Psychological Accounts of
Anomalies of Stock Markets
Tommy Gärling
Department of Psychology, University of Gothenburg, Sweden
This talk will present a conceptual framework showing how market anomalies that
de-stabilize stock prices may result from cognitive biases. The market anomalies
include (1) overreaction to news, (2) disposition effect, (3)reactions to share splits,
and (4) naïve diversification of portfolio risk. Mr Gärling will argue that asymmetric
risk attitude, loss aversion, money illusion, diversification heuristic, and co-variation
neglect are cognitive biases that partly account for the anomalies of stock markets,
and that affective and social influences exaggerating the market anomalies cause
booms, bubbles and busts.
KEYNOTE SPEAKER
'When Rationality Fails: Lessons from the Credit Crisis'
Paul Ormerod
Economist and Author
It is the ideas at the heart of modern macroeconomics which provided the intellectual
justification of the economic policies which helped create the crash. The specific
focus of the paper is on the way in which mainstream economics deals with risk and
uncertainty. It is this which is at the root of the financial crisis. We need to jettison
the whole corpus of mainstream macroeconomic theory of the last 30 years.
Economic psychology offers much more realistic models of how decision makers -
individuals, firms, governments - actually behave. Economics can be rebuilt on the
basis of more scientifically credible rules of individual behaviour, and by restoring the
importance of institutional structures.
ORAL PRESENTATIONS
(A – Z By Surname)
Deal or No Deal:
Money, What Might Have Been and Human Happiness
Peter Ayton, Meri Pesola and Lucy Freemantle
Department of Psychology, City University London.
The notion that people do not classify or judge perceived objects independently of
their context has considerable economic significance when it comes to the human
reaction to money. That people’s utility for money depends on its relation to a
malleable reference point receives support from diverse empirical sources (cf.
Tversky and Kahneman, 1992; Boyce et al, 2010). Here we explored how the
happiness of TV game show contestants varies as a function of their monetary
winnings - and the money that they discover that they could have won if they had
chosen differently. The TV game show “Deal or No Deal” enables us to study the
effects on emotions of outcomes from simple well-defined risky decisions involving
real large stakes not used in experiments. We present data from three studies that
evaluate the rated and reported happiness of real contestants. Unsurprisingly, the
happiness of contestants was influenced by the amounts of money that they won.
However the happiness of contestants was strongly moderated by the magnitude of
the discrepancy between winnings and the amount they could have won had they
chosen differently. In terms of its impact on happiness counterfactual money was
worth about 75% of actual money won. Different kinds of counterfactual outcomes
had different effects: spurned riskless winnings declined in a failed gamble for higher
winnings hurt more than wins missed when contestants accepted a riskless amount
rather than gamble for more. Our result confirms the notion that the impact of money
on people’s happiness is context dependent.
To Deceive or Not To Deceive?
Consequences of Deception in
Group Assignment Procedures
Robert Böhm, International Graduate College, Wildstrasse, Germany
E-Mail : robert.boehm@uni-jena.de • Website: http://robertboehm.info
Robert Böhm 1,2 & Christina Botros1
1 International Graduate College, Friedrich Schiller University Jena, Germany
2 International Max Planck Research School “Uncertainty”
Participants of Social Psychological experiments are frequently deceived, whereas
deception procedures usually are not accepted among scientists in Economics.
Despite this essential difference in the research methods of Economics and (Social)
Psychology that might make interdisciplinary exchange difficult, there is only little
research about the effects of deception on participants and experimental behavior.
The present study investigated the long-term consequences of deception in group
assignment procedures. Participants were either deceived or not deceived with
regard to the procedure of a group assignment. Group identification and behavioral
in-group bias were measured before and after the debriefing, as well as in a second
experiment one day later. Group identification of participants who have been
deceived decreased significantly after the debriefing. Furthermore, deceived
participants were more suspicious, showed less group identification and smaller in-
group bias in a non-deceptive group assignment procedure one day later than
participants who have not been deceived in the first experiment. The results are
discussed with regard to the long-term effects of deception procedures in non-
renewable participant pools.
Peak Impact: Financial Risk Perception
and the Peak of the Return Distribution
Darren Duxbury and Barbara Summers (equal authors)
Leeds University Business School, UK
This paper investigates financial risk perception, evaluating a proposed heuristic
based on the influence of the peak of the return distribution. Results from previous
research suggest that risk perception may be driven by an evaluation of the value
and probability of the most likely outcome or peak, although prior studies cannot
isolate movements of the peak from other distributional characteristics. We
manipulate variance and skew experimentally to operationalize movement of the
peak of the distribution vertically and horizontally, respectively. Our results provide
strong support for the peak heuristic conjecture, with evaluations being in line with
range-frequency theory.
Definition and Measurement of Numeracy:
Views from Adult Numeracy and Mathematics Education
Jeff Evans1 and Phillip Kent2
1
Middlesex University London J.Evans@mdx.ac.uk
2
Institute of Education, University of London P.Kent@ioe.ac.uk
Recently psychological frameworks used in studying decision-making have been
elaborated to include the role of numeracy as a cognitive ability distinct from general
intelligence (Peters et al., 2006; Reyna et al., 2009). It is interesting at this point to
compare other traditions of conceptualising and measuring numeracy.
In the psychological work in this area, numeracy is broadly defined as a performance
on a series of tasks, usually short questionnaire items, and is thus measured as a
count of items correct (see, for example, the numeracy scale of Lipkus et al., 2001,
and its updated version by Peters et al., 2007). In contrast, there is a strand of work
amongst mathematics educators and adult numeracy researchers which aims to
recognise the context of numerate activity as central to any attempt to specify or to
measure it. We will refer to the work of PIAAC, the OECD’s new survey of adult
competencies including numeracy (PIAAC Numeracy Expert group, 2009); Evans’s
study of social science undergraduates (2000); and the work of Hoyles, Noss, Kent &
Bakker (2010) on the changing demands for mathematics in various workplace
contexts. Indeed, the concern for context, and 'situated understanding', led some
researchers to embrace the term numeracy, because of its parallels to literacy, since
the idea of a literate person expresses a competence in using (symbolic) language,
both written and verbal, across different contexts and working (and negotiating) with
different rules and conventions.
In comparing these different approaches, we shall focus on:
(i) the way that numeracy is defined / conceptualised;
(ii) the methods used to take account of context in the measurement / descriptive
process;
(iii) the extent to which the changing affordances and demands of ICT have changed
the type of mathematical skills required in different contexts (e.g. Hoyles et al.,
2010);
(iv) the role of the concept of numeracy in the development of research programmes:
as a key outcome, independent variable, individual difference, etc.
For example, one of the key drivers for the move by mathematics educators into
researching the use and learning of mathematics in context was to find out what
mathematics people could do in everyday and workplace situations (rather than
documenting ‘misconceptions’ or failure to attain higher stages of development), how
they do it, and how to support adults and students in becoming more able
mathematically.
People Make Irrational Decisions... Don’t They?
John Fennell and Roland Baddeley
Department of Experimental Psychology,
University of Bristol, UK
When making decisions based on probabilistic options, people overestimate small
probabilities, underestimate large probabilities, and treat positive and negative
outcomes differently. This non-linear probability weighting function is a main
component of Kahneman and Tversky’s Prospect Theory. Importantly, it is claimed
to be irrational. We show that this function is only irrational if probability statements
are associated with no uncertainty. In the real world, uncertainty is ubiquitous. In this
case the optimal strategy is to combine probability statements with prior information
using Bayes’ rule. We identify two forms of prior information: priors of ignorance
(situations unlike those previously encountered), and priors of inference (situations
similar to those previously encountered); we show that “internet blogs” can be used
to estimate the relevant prior of inference. Given these priors, a “Bayesian rational”
probability weighting function provides a potential mechanism that matches all
important features of the irrational probability weighting function of Prospect Theory.
Sensitivity to Autocorrelation in People using Their
Unaided Judgment to Make Forecasts from Time Series.
Nigel Harvey and Stian Reimers
University College London
Surveys have shown that people in many businesses and other organizations use
unaided judgment to make forecasts from time series. Many natural time series are
autocorrelated: observations at time t+1 are correlated with the observations at time
t. But can people incorporate autocorrelation information into their judgmental
forecasts? In Experiment 1, participants saw 12 trials in which autocorrelation varied
within-subjects. Participants showed sensitivity to the degree of autocorrelation, but
also implicitly assumed autocorrelation in uncorrelated time series. Experiment 2
used a one-shot single trial completely between-subjects design and found similar
results. Experiment 3 investigated how between-trials context influenced forecasting.
Results suggest that, although people are sensitive to autocorrelation when making
forecasts, they are not sensitive enough: they make predictions for highly
autocorrelated time series that are under-correlated with the last observation and
predictions for an independent time series that are positively correlated with the last
observation. Implications for heuristic and ‘Bayesian’ models of the cognitive
processes underlying judgmental forecasting are discussed.
The Role of the Dorsal Striatum in the Valuation
of Risky Rewards and Losses
Presenting Author: Dr. Neal S. Hinvest, Department of Psychology, University of
Bath, Bath, BA2 7AY Tel: 01225 383691 Email: n.hinvest@bath.ac.uk
Dr. Mark Brosnan, Department of Psychology, University of Bath
Professor Gemma Calvert, WMG, University of Warwick
Professor Robert Rogers, Department of Psychiatry, John Radcliffe Hospital,
University of Oxford
Dr. Tim Hodgson, School of Psychology, University of Exeter
Valuations determine the personal worth of an outcome, and by definition, occur at
an early stage in decision-making. Valuation of anticipated outcomes has been
localised to ventral prefrontal and limbic regions. However, little is known as to the
specific contributions of these regions to the production of valuations, especially for
potential losses. Participants were presented with two tasks whilst being scanned via
Functional Magnetic Resonance Imaging. In the valuation task, singular “prospects”,
containing a well-defined probability of winning or losing a hypothetical amount of
money, were presented and participants provided valuations of the personal worth of
each. Using well-defined prospects allowed the calculation of their expected value
(EV). A decision-making task in which each trial consisted of two reward or loss
prospects was also given in order to measure neural activity during preference
formation. Activity within the lateral prefrontal cortex and horizontal inferior parietal
sulcus was associated with viewing prospects in both types of task, suggesting
increase function of working memory and arithmetic processing. Parametric analyses
showed that, within the dorsal striatum, medial regions coded EV while lateral
regions coded probability. Results from the decision-making tasks extended these
findings by suggesting that similar regions of the dorsal striatum also coded the
difference in EV between prospects and also motivated preference for the to-be-
selected outcome. Thus, the dorsal striatum is an important structure in coding
valuations of both reward and loss outcomes independent of anticipation, and is also
important in coding differences between prospective payoffs in a choice.
Relative Theory of Choice:
Preference Change for Risky Choices
Kusev*, Johansson** and van Schaik***
City University London*, University College London**, Teesside University***
In three experiments we studied the extent to which theories of decision-making and
memory can predict people's preferences. Studding risky decisions, we aimed to
answer questions about human preferences, prompted by similarities between the
leading economic theory Expected Utility Theory (EUT) and the leading
psychological theory of human choice under risk - Prospect Theory (PT). People’s
behaviour in the face of risk implies that they judge and weight the probability of risky
events in characteristic ways that deviate from EUT. Nonetheless, both EUT and PT
frameworks share a common assumption: people’s risk preferences and decisions
under risk and uncertainty are independent of task. Accordingly, we studied (i) the
lability of human preferences and their relation to choice justifications given in risky
decision-making scenarios, (ii) the dynamics of preference formation for choice with
monetary gambles and (iii) the limits of existing theoretical accounts (e.g., UT and
PT) by contrasting them with a new theory of risky choice based on the impact of
context, complexity and prior choices. The results of all three experiments are not
anticipated by EUT, PT or experience-based decision research (Hertwig, Barron,
Weber, & Erev, 2004).We found evidence that people do not have underlying
preferences for risk; instead, context, complexity and prior choices determine
preferences even when the utilities (risk and reward) of alternative options are
known.
The Credit Crunch:
Ideological, Psychological & Epistemological Perspectives
Alan Lewis, Department of Psychology, University of Bath, 2 South, Bath, BA1 7AY,
United Kingdom E-mail: A.Lewis@bath.ac.uk
Two economic interpretations of the credit crunch are outlined and the question
posed whether these are incommensurate ideological positions. Psychological
perspectives are then explored including insights from cognitive and social
psychology. The argument is made that policy options depend on what constitutes
the ‘good society’ and whether the culture of financial institutions can be changed by
government intervention, social pressure and human agency. It is concluded that
those interested in economic psychology and socio-economics have a duty to
engage with alternative discourses.
THE EURO THROUGH THE LOOKING-GLASS:
PERCEIVED INFLATION FOLLOWING THE 2002 CURRENCY
CHANGEOVER
Dr. Pete Lunn* & Dr. David Duffy*
* Economic and Social Research Institute (ESRI), Whitaker Square, Sir John
Rogerson’s Quay, Dublin 2, Ireland. +353 1 863 2013, pete.lunn@esri.ie.
Following the Euro changeover in January 2002, consumers across the Euro Area
perceived a sharp rise in inflation, in contrast to official figures. Several theories have
been advanced to explain this apparent economic illusion, but they struggle to
account for its striking scale and persistence. We offer a new account, which
proposes that consumers reacted to increased uncertainty in their perception of the
value of monetary amounts. We show how taking account of this greater perceptual
error would have led consumers to experience a loss of purchasing power akin to
higher inflation. We then test two empirical hypotheses implied by our theory that the
increase in perceived inflation was caused by this perceptual error: (1) Did the rise in
perceived inflation coincide with a downward shift in expected inflation? (2) Did
subjective expressions of difficulty using the Euro match the pattern of perceived
inflation across time and countries. Using EU survey data from two sources, we
confirm both hypotheses. The results support the new theory and strongly suggest
that currency changeovers are not simple matters of numerical conversion. We
discuss possible experimental tests of the new theory.
Keywords: Euro changeover, uncertainty, inflation perceptions, inflation
expectations, consumer behaviour
Understanding and Knowledge of Credit Cost and
Duration: Effects on Credit Judgements and Decisions
Rob Ranyard1, Sandie McHugh1 and Alan Lewis2
1
University of Bolton, UK
2
University of Bath, UK
This paper presents three studies investigating the relationships among various
measures of consumer credit cost (monthly repayment, total cost and annual
percentage rate – APR), the duration of a loan, and credit judgements and decisions.
Study 1, part of a representative survey of UK adults (N = 1000), investigated the
effect of APR information on estimates of the total cost (TC) for credit. It was found
that when presented with APR information, participants significantly overestimated
the TC of a 12-month loan. Study 2 was a replication and extension with a sample of
UK bank customers (N = 242) in which the duration of the loan and APR were varied
in an independent groups experiment. TC estimates were sensitive to both loan
duration and APR but TC was again substantially overestimated. Study 3 was an
independent groups experiment with a different sample of UK bank customers (N =
241) which investigated the effect of APR and TC information on credit decisions. It
was found that APR information often influenced the choice between loans varying in
duration and monthly repayment, but that this effect was moderated by TC
information. It was concluded that (1) people generally misunderstand the relation
between APR and TC; and (2) APR information can have a large effect on credit
decisions but its effect is moderated by TC information. The findings are interpreted
in terms of a ‘take the best APR’ heuristic and the dual mental account model of
instalment credit. Implications for policy on information provision in the credit market
and for financial education are discussed.
A Reconsideration of Personality
and Values Based Materialism
D.A.Routh1,2, Carole B.Burgoyne2, Stefanie J. Sonnenberg3
1
Department of Experimental Psychology, University of Bristol, UK
2
School of Psychology, University of Exeter, UK
3
Department of Psychology, University of Portsmouth
Previously, Routh, Burgoyne and Sonnenberg (2006) demonstrated the apparent
superiority of a novel 4-factor, nested model for Richins and Dawson’s (1992)
Material Values Scale (MVS). They employed confirmatory factor analysis (CFA) to
model a general materialism factor and 3 first-order, residual factors (success,
centrality and happiness), using samples of UK students (N = 700) and members of
the general public (N = 712). In the present paper, we first revisit the problem of
modelling of such data, but using an approach based upon far weaker, non-linear
assumptions, namely, non-metric multidimensional scaling (NMDS). As one might
expect from Guttman’s facet theory, we obtained a well-fitting 2-dimensional radex
structure (with regions reflecting success, centrality and happiness). Next, because
the items used in the MVS and Belk’s (1985) personality based scale (a composite of
possessiveness, nongenerosity and envy) do not appear to be unequivocally distinct,
we aimed to determine the extent of their overlap, if any. To this end, we re-phrased
the reverse-coded items, and attempted to investigated the separate and joint
psychological structure of the 18 MVS and 24 Belk items, by collecting both
questionnaire and freesort data (N = 95). In separate NMDS analyses, both the
values and personality items exhibited well-fitting 2-dimensional radex structures.
The outcome for their joint analysis raises a number of interesting problems, but
suggests that the Belk’s and Richins and Dawson’s instruments do sample different
aspects of materialism.
Emotions as Necessary Causes of Economic Behavior:
Evidence from the Disposition Effect
Barbara Summers, Leeds University Business School. University of Leeds, Leeds,
LS2 9JT, UK E-mail: bs@lubs.leeds.ac.uk
Darren Duxbury, Leeds University Business School. University of Leeds, Leeds, LS2
9JT, UK. E-mail: dd@lubs.leeds.ac.uk
(both authors contributed equally to this paper)
The role of emotions in economic and financial decision making is an issue that has
received less attention than evaluations of choices under risk (such as prospect
theory), cognitive biases and heuristic processes. For a number of behavioral
anomalies there are accepted explanations that do not include emotions as
important elements, but the lack of influence of emotions in these effects has not
been established – might it be that emotions are a necessary cause for such
behaviors rather than merely playing a supporting role? In this paper we investigate
this issue experimentally, using as an example a robust behavioral anomaly in the
finance area; the disposition effect. By manipulating the emotions associated with an
investment task we show that specific emotions are necessary causes of this effect.
We provide evidence, therefore, that emotions may play a more important role than
previously recognized in many economic and financial decisions.
Key words: emotion; active/passive choice; disposition effect
Context-dependent Evaluations and Their Effect on
Preferences in Decisions Under Risk
Christoph Ungemach, University of Warwick
Dominant theories of risky choice assume that monetary amounts and probabilities
are directly transformable into subjective equivalents using psychoeconomic
functions. We investigated whether such transformations in the domain of decision
under risk involving both monetary amounts and probabilities are really independent
of the distribution of similar attribute values encountered in the context of the task. In
the first experiment we measured the effect of previously encountered prices in a
supermarket on risky choice. Experiment two examined the effect of preceding
judgements about the likelihood of rain. Both studies provided evidence for context
dependent preferences in decisions under risk. It could be shown that preference for
the risky lottery was related to the distribution of preceding attribute values and their
effect on the relative rank of the target values. These results can not be explained by
traditional models but they are in line with rank-dependent choice models like the
Decision by Sampling model (Stewart, Chater & Brown, 2006). It is argued that
incorporating context-based evaluations may advance our understanding of the
underlying processes in decisions under risk and could provide novel ways of
explaining individual differences and observed instability in this domain.
POSTER PRESENTATIONS
(A-Z By Surname)
Type of Gambler Differences in Information Search and
Lottery Decision Strategies: A Conversation-based
Process Tracing Study
Eileen Hill
University of Bolton
The main aim of the study was to investigate similarities and differences in the
information search and decision strategies and heuristics employed by different
types of gamblers when deciding between lotteries. The intention was to reveal how
the dimensions perceived as important govern lottery decision making, and how the
decision process develops. A secondary aim was to re-evaluate the thinking aloud
component of the conversation-based process tracing method used in the study,
especially with respect to reactivity, i.e. the extent to which the method alters
elements of the decision making process and final decisions. The technique
requires respondents to actively search for information when conversing with a
trained interviewer who orally provides the answers. Thus all information used in the
task is that which would be used under natural conditions, and is acquired within the
context of a natural conversation. The UK National Lottery and five betting industry
lotteries were the decision alternatives utilized in the study, in which 100 people
equally split between four think aloud and non-think aloud conditions took part.
Results imply that when choosing between lotteries, the decision making process is
constructed and constantly reformulated as people work through the problem, with
final decisions reached by the employment of simple decision heuristics. Although
there were significant differences between serious and non-serious gamblers in the
information search and decision strategies employed, there were also many
interpersonal differences. Finally, some evidence of reactivity as a result of thinking
aloud was found.
Numeracy and Decision Making:
The Development of a Probabilistic Reasoning Scale for
use in Decision Research
Andrea Taylor
University of Bolton
The relationship between numeracy and choice is a subject that has, in recent years,
become a topic of some interest in the field of decision research. Peter’s et al. (2006)
have presented evidenced that strongly suggest that numeracy has an effect on
choice separate from that of general cognitive ability, while Gigerenzer (2006) posits
that people are more likely to make normatively correct choices when probabilities
are described in terms of natural frequencies rather than percentages. The aims of
this study were, firstly, to test the internal consistency of a 19 item numeracy test
incorporating both the (predominantly percentage-based) scale developed by Lipkus,
Samsa and Rimer (2001) and additional frequency based questions; secondly, to
investigate whether frequency and percentage based questions would constitute
separate underlying factors; and, lastly, to examine the relationship between
performance on the new numeracy scale and violations of rational choice principles
on a lottery choice task. A sample of 151 participants completed the numeracy test,
63 of whom also took part in the lottery choice task. The value of Chronbach’s Alpha
for the test was .731, acceptable for a test of ability and greater than that for the
original scale alone (alpha = .622). Principle components analysis however revealed
that frequency and percentage based questions did not load onto separate factors. It
was also found that score on the test correlated negatively (r = -.687) with rate at
which the dominance principle was violated. These findings are discussed with
reference to dual-process models of choice.
Banking in Polish and British Youth
Agata Trzcińska,
PhD Student
Katedra Psychologii Poznawczej [Cognitive Psychology Department]
Wydział Psychologii [Faculty of Psychology]
Uniwersytet Warszawski [Warsaw University]
e-mail: atrzcinska@psych.uw.edu.pl
ul. Stawki 5/7
00-183 Warsaw, Poland
The poster will present a cross-cultural analysis of various aspects of banking
(frequency, activity, motivation) in Polish and British youth, being a part a broader
empirical research on saving money by Polish children and youth. The Polish study
addressed the following questions: what percentage of youth practice bank saving
and why do they or do they not use the services of financial institutions. Two
samples were surveyed: (1) pupils attending a suburban junior secondary school just
outside Warsaw (96 boys and girls aged 14-17) and (2) an Internet study of pupils
and former pupils of junior urban (Warsaw) and suburban secondary schools (200
boys and girls aged 14-19). The Polish version of the questionnaire contained
identical items to the ones Adrian Furnham used in his British research. Furnham
surveyed in 1999 a sample of 280 children and adolescents and described precisely
the results in his article. Significant differences were found between youth banking
behaviours in Poland and Britain. Despite the fact that Polish sample consisted of
older pupils, considerably less of them used services of financial institutions,
indicating as a main reason having no needs of possessing an account. Significant
differences were found also in the motives of opening bank accounts. In her
discussion of the findings the author focuses on different patterns of economic
socialization and different legal contexts in Poland and Great Britain.
