Tag

economy

Browsing

Friends of the Behavioral Economics Blog, this week we present the paper “Monetary incentives do not reduce the repetition-induced truth effect” by Speckmann, F. and Unkelbach, C. (2022) in which the authors carry out an experiment to know whether the introduction of financial incentives affects when it comes to distinguish between a lie and a truth, specifically, considering the repetition-induced truth effect. 

People see, read and hear many different events and statements every day (news, social networks, conversations…) that they may doubt or believe.

Apparently, people use repetition as a signal to lean one way or the other when it comes to making a decision about the veracity of what they hear. Therefore, they tend to believe statements that are repeated more, compared to statements that are repeated less. 

This phenomenon is known as the illusory truth effect, truth by repetition, or simply the truth effect.

In a paper by Hasher in the 1970s, participants were presented with a total of 60 statements. Half of them were false and half were true. The participants were exposed to them in two sessions. During each of these, 20 of the 60 statements were repeated, and the remaining 40 were newly introduced. That is, 20 of the 60 statements were shown in the two sessions. After the presentation phase in each session, participants were asked to rate the validity of each statement. The participants judged the repeated statements as more valid and credible than the new statements, which demonstrated the basic truth effect. 

The effect has gained more prominence in recent years, as it may serve as an explanation for people’s belief in conspiracy theories, misinformation and fake news, due to the frequent repetition of false information on the internet and social networks. 

In this study, the authors investigate what happens if, when a decision has to be made, economic incentives must be taken into account. That is, what happens when, when choosing between qualifying a statement as true or false, a certain amount of money is gained or lost, depending on whether one gets it right or wrong. 

In other words, they asked whether the repetition-induced truth effect persists if participants’ decisions are highly financially incentivized. 

The fact that incentives diminish the truth effect would suggest that the real-life impact of repeating information is not as critical as it seems. 

However, if monetary incentives do not reduce the truth effect of repetition, it would underline the relevance of the phenomenon in real life. At the theoretical level, it would show that people potentially consider repetition as a valid cue for making their decisions. 

In the experiment, the authors used 120 statements, 60 of which were true and 60 false. They recruited a total of 321 people. They divided them into three groups: the high-incentive group (they could earn up to 12€), the medium-incentive group (they could earn up to 6€), and a final group with no incentives. However, all three groups were told that they could earn a maximum of €4. 

For each statement, they had to indicate whether they considered it true or false. They did not know this, but for each correct answer they would receive €0.10 and for each false answer they would lose €0.10, and could never get negative results. 

Although some participants could receive up to €12 and others up to €6, it seems that the incentives did not substantially influence the repetition-induced truth effect. 

Using an exploratory contrast, the authors found a slight difference in the truth effect between the “no incentive” conditions and the “with incentive” conditions: participants showed a slight reduction in their tendency to judge repeated information as true, but the effect was very small in size, so it is not considered strong evidence. 

Significant differences occurred, however, when it came to response time. Being shorter, it seems logical to think that participants were motivated to answer correctly as often as possible to increase their gains. 

The results are consistent with others obtained in previous literature, and illustrate the robustness of the repetition-induced truth effect by showing that, even when adding direct consequences to truth judgments, there is no change in people. 

Thus, the data support existing cognitive explanations of the repetition-induced truth effect, with potential implications for real-world phenomena that have been explained for some time now, such as belief in fake news, conspiracy theories, among others. 

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

We are proud to announce that FeedSpot has ranked us in the top 10 best Behavioral Economics blogs on the internet. We are ranked as number 5, thanks to the collaboration of all our readers. From here, we want to thank both FeedSpot and you. We keep it up!

Friends of the Behavioral Economics Blog, this week we present the paper “Addressing Consumerism and the Planetary Health Crisis: Behavioral Economics Approach in Public Policy” by Sarkar, A. (2022), in which the author speaks about the different environmental problems that have been emerging in the last few years and are related to consumption, plus, he points out the utility of behavioral economics to improve the reduction of the negative impacts they have. 

Climate change, environmental pollution and the loss of biodiversity are the great enemies of humanity and, currently, its greatest threat.

They are called “The Planetary Crisis Triad”, and they cause serious problems in numerous areas of life. For example: the increase in extreme weather events, the spread of vector-borne infectious diseases due to the expansion of invasive arthropods into regions that were previously cold climates, hormonal diseases due to exposure to pollutants, even mental illnesses, among others many consequences.

That is why, for some years, the guidelines dictated by a series of international protocols and agreements have been followed, which have achieved some progress. For example, a decline in the production of hazardous chemical materials such as persistent organic pollutants, the rapid growth of renewable energy, and a commitment to stop promoting coal-fired power plants.

Even so, no international treaty has focused on stopping the unnecessary mass consumption at the individual level. Consumption is the main pull factor for high energy demands and depletion of the Earth’s finite resources, and industries are constantly increasing their output to meet customer demand.

In this sense, the rich countries and emerging economies cannot deny their part of responsibility in controlling current levels of consumption.

In recent years, the promotion of electric vehicles has been very important in stopping greenhouse gases, and its effects are expected to be even greater in the coming years.

However, it is worth noting that growing energy demands cannot be met by renewables alone. Renewable energy sources provide clean energy, but they also produce toxic waste. The evidence therefore makes it clear that success in tackling the planetary health crisis depends on tackling our consumption.

This is where the concept of circular economy appears. It is a novel discipline that aims to operate in the use of resources within closed-loop systems, reduce pollution and prevent resource leakage while maintaining economic growth. The system is called “circular” because it aims to reduce, reuse, recycle and recover.

However, circular economy has been criticized for having a limited conceptual basis and lack of consistency in terms of how it can contribute to sustainable development, for example if recycling itself is energy intensive.

In today’s society, a pervasive sense of dissatisfaction drives humans to desire material things and their subsequent rapid disposal, resulting in the purchase of newer products (here terms such as “planned obsolescence” become relevant). For example, we now buy 4-5 times more clothes than we did 30 years ago, leaving a staggering environmental impact. Globally, the fashion industry produces almost 90 million tons of waste per year, and consumes at least 80 billion liters of water.

Drawing on psychology and economics, behavioral economics has repeatedly proven its usefulness for many purposes, and the author believes that it could provide effective answers to the problem of the environment.

For example, humans are known to move in a fast, immediate world, so simple messages about stopping buying so much and using biodegradable products, switching to “eco-friendly” alternatives, might be more helpful.

Taxes and allowances can work well at times; however, simple economic incentives are not useful for everything; for example, charging for plastic bags in stores does not prevent customers from taking them away.

The author also mentions nudges, which are based on the fact that humans sometimes need nudges to act rationally. Well thought out, they can be effective. For example, placing information on restaurant menus about plates made with local or vegetarian products, to encourage their consumption.

The conclusion is that a paradigm shift is necessary to motivate and lead people towards a pro-environmental path, through effective social learning, advertising and communication campaigns, etc. For this, it seems that behavioral economics and the architecture of choice are very useful tools whose application should be explored.

​​If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

 

Friends of the Behavioral Economics Club, this week we present the paper “Wealth, Financial Literacy and Behavioral Biases in Japan: the effects of various types of financial literacy”, by Sekita, S.; Kakkar, V. and Ogaki, M. (2022), in which authors analyze the results of a big survey carried out in Japan in 2016 to know what is the level of financial education of the Japanese population, and deeply study what this level of knowledge implies. 

There is a growing body of literature documenting that levels of financial education measured around the world are alarmingly low, even in economically advanced countries.

With life expectancy increasing around the world, the responsibility for accumulating retirement savings shifts from employers to employees. Along with the increasing sophistication and complexity of financial products and services, these low levels of finance lead to significantly lower levels of well-being, obtained through poor economic decisions.

The evidence from surveys conducted on the subject shows that many adults do not have a retirement plan, and that savings are insufficient for retirement, so that the usefulness of families’ economic capital is not maximized and optimally enjoy the cycle of life.

This article explores the impact of financial education on a key economic variable with important consequences for general well-being: accumulated wealth per home.

Using data from Japan’s first large-scale survey of the financial literacy of its population, the article contributes to the emerging literature on the relationship between financial education and wealth accumulation.

For a little less than thirty years, the importance of financial knowledge has been highlighted to explain the importance of saving behavior. In addition, a large amount of research has been carried out on the measurement of financial education and its effects on different household behaviors.

Some of these studies find that financial education is related to a greater tendency to planning the retirement, less anxiety about life in retirement, a greater tendency to save for emergencies, greater possession of cash, less tendency to access indebtedness, less tendency to gamble, and even less tendency to smoke.

On the other hand, in 2021 it was discovered that people with high levels of financial education tend to make speculative investments, take on excessive debt and have somewhat resourceful financial attitudes.

So, is there really a difference between having financial knowledge or not? Authors believe that there is, but even if people are financially educated, they should be careful not to engage in bold and reckless behavior,  and mustn’t think that being financially educated is inherent in being always less vulnerable.

To review all of this data and to find out if this is indeed the case, authors used the 2016 Financial Literacy Survey that was conducted in Japan by the Japanese Central Financial Services Information Council.

It was the first large-scale survey conducted in Japan with the aim of assessing the financial knowledge and decision-making skills of Japanese adults. About 25,000 people between the ages of 18 and 79 participated.

The findings confirm that improvements in financial education can have large benefits for Japanese households and increase their financial asset balances.

It’s important to mention that it is useful to distinguish between different types of financial education, as they have different impacts. For example, knowledge of deposits, risk and debt has a greater impact when it comes to insurance.

The need to include financial education in the study plan of schools is pointed out and, not only that, but also to ensure that classes are taught effectively.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Club, this week we present the paper “Mobile Shopping Durin Covid-19: The Effect of Hedonic Experience on Brand Conspicuousness, Brand Identity and Associated Behavior” by Jiang, W. and Song, Y. (2022), in which authors carry out a study to know how the Generation Z people have been affected by the pandemic regarding their shopping habits, and how are these now. 

One of the measures adopted to reduce the transmission of Covid-19 was social distancing, which we still try to maintain today.

During the pandemic, the Internet has been particularly important, as people have increased their online activity for multiple reasons, resulting in, among other things, an extreme growth of online shopping. Only in China (this work’s context) 70% of consumers increased their online purchases during the pandemic.

The ease with which members of Generation Z make use of technologies is what has had the most impact on the e-commerce strategies of companies around the world. Brand efforts have increasingly focused on developing followers within this demographic group in the context of the Internet, for example, trying to identify the factors that make purchases to be made through mobiles or computers, and not face-to-face. 

One of the points that has caught the attention of the experts has been the identity of the brand and the identity of the consumers. In other words, consumers have a desire to express their personal identity through their brand choices. In terms of self-expression, it seems that the key factor is the perceived uniqueness of a brand.

Furthermore, because they have been born into the digital era, members of Generation Z have never known life without the internet or smartphones. It is often argued that, as a result, these individuals are more comfortable presenting a “public self” than members of previous generations. Proof of this would be the regular use of smartphones to model their identity and narrate their lives online, strengthening their sense of uniqueness.

All this is related to the so-called “hedonic experience”. This theory is based on the notions that consumption is driven by the pleasure consumers experience in using a product, and that the criteria for successful consumption are obviously aesthetic in nature. Much of the current literature on the hedonic experience suggests that the buying process itself is often a source of even greater pleasure than the actual purchase of products.

Furthermore, consumers pay a lot of attention to the design and appearance of products apart from their functional aspects.

On the other hand, we have already mentioned brand identity. Distinction and prestige tend to strengthen it, making certain brands more attractive than others.

Similarly, brands seen as especially distinctive tend to be seen as especially trustworthy, as consumers perceive them to care about protecting their reputation, and are more likely to meet customer expectations.

It should also be mentioned that, according to the social identity theory, individuals define themselves as members of certain social groups, and brand identity works in the same direction, facilitating the social identification of an individual within a group.

To test whether all of the above is true for Generation Z after the Covid-19 pandemic, authors conducted a research to assess the effects of hedonic experience on brand notoriety, product aesthetics, the brand’s identity and the attitude towards the product.

A total of 293 young people born between 1995 and 2010 and living in China took the survey.

Authors find that hedonic experience plays an essential role in brand visibility and product aesthetics, which in turn affects brand identity and associated behavioral reactions of consumers.

As expected, a favorable attitude toward the product encouraged repeat purchases of the same brand’s products. As people advance in age and careers, they tend to prefer products from well-known brands. Members of Generation Z, in addition, prefer to communicate through social networks using electronic devices and, in the same way, make much or most of their purchases online.

Because these consumers are well-informed and eager to learn new information, and to control their lives and futures, they are less loyal customers to retailers compared to other generations, such as Millennials.

On the other hand, China has the largest population of Gen Z members. Most are likely to achieve higher levels of education and income than members of previous generations, and thus are more likely to consume brands with international and stable reputations.

One way that future researchers can take advantage of this information is by testing it in other developed countries, and making comparisons to contribute form a universal theory of the brand, considering consumer behavior.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Club, this week we present the paper “Narcissistic Personality and Financial Risk Tolerance: an exploratory study in Turkey”, by Sen, S. (2022), where the author carries out a study with universitary population of Turkey to study whether narcissistic traits of personality are related to a greater tendency to assume financial risks. 

There is an assumption in traditional economics, which is: the individual always behaves rationally and his purpose is to maximize his benefits. 

However, if behavioral economics teaches us anything, it is that the individual has limited rationality and, as a human being, is vulnerable to cognitive and emotional biases that influence his or her decisions.

This article focuses on the narcissism bias and how it can shape an individual’s decision making.

Specifically, it focuses on the relationship between narcissism and financial risk tolerance. The research question is whether there is such a relationship between both and, if so, how it works.

The author raises this question because, according to other experts, narcissistic individuals are more inclined towards overconfidence and more risk taking than non-narcissistic individuals.

But what do we mean by narcissism? Inspired by the legend of the Narcissus story, it was Havelock who brought the concept of narcissism to the psychological literature in 1898. Later, Freud described some signs of narcissism, such as self-admiration or the need for personal growth.

There are authors who describe narcissism as a social tendency, others as a disorder, or even as a psychological structure that all people can have, to a certain extent, in their personality.

Furthermore, narcissism can be pathological or normal. 

If the individual is pathologically narcissistic, it is difficult for him to recover from bad moments. Such individuals become problematic when they encounter disappointments and threats to their positive image. 

On the other hand, normal narcissism helps people make progress with their goals and cope with disappointments.

Risk, on the other hand, is the possibility of failure, loss or obtaining no profit. In finance, risk is defined as the positive or negative difference from actual expected results.

We also need to clarify what we mean when we say “risk tolerance”. It is defined as the maximum amount of uncertainty that an individual accepts when making financial decisions.

From a behavioral economics perspective, the level of risk an individual takes can change based on cognitive, emotional, and demographic factors.

Socioeconomic conditions also influence, especially for financial risk tolerance. For example, there are studies that suggest that women tend to be more risk tolerant than men, and that single people tend to take more risks than married people, adults more than young people, and those with higher incomes more than those who have small salaries.

To study the relationship between narcissism and financial risk tolerance, if it exists, the author gathered a group of university students from Turkey (the context where the study takes place) and gave them a series of questionnaires.

According to the results, men would be more narcissistic than women. Furthermore, the analysis does not show a significant and important relationship between narcissism and taking financial risks. However, it is necessary to mention that in this work, narcissism and taking financial risks had a statistically positive relationship.

In other words, if a person’s tendency to narcissism increases, their tolerance for financial risk also increases, although the relationship between the two concepts is not particularly significant.

To conclude, the author mentions that this may help provide a framework to measure the link between narcissism and economic risk, as well as highlighting the bias of narcissism in the Turkish context.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Blog, this week we present the paper “Let’s Talk About It: Discussing Retirement with Multiple Sources is Associated with Retirement Preparation in Young Adults” by Treger, S. (2021), in which the author carries out an investigation to know what is the main source of information of young people about retirement and their general beliefs about it.

Managing personal finances can be overwhelming for young people but also grown-ups. With so many financial laws and terms, learning and keeping track of one’s finances can be complex and anxiety-provoking.

It can be an especially daunting topic for young adults who are approaching or transitioning into working life, as many are likely to have had little or no exposure to financial education.

The result is that young adults often have a poor understanding of finances.

Despite this, young adults seem to recognize that it is a very important topic and are interested in learning about it.

There are not many formal financial education programs in schools and institutes and, furthermore, according to the research, the ones used for that purpose seem to produce very small or almost insignificant effects. It looks like financial education from school does not have much impact on young people.

However, and although it is paradoxical, not having this financial education at school leads young people to look for different sources of information. The most common: parents. In fact, parental financial socialization has a stronger effect on healthy financial practices in young adults than school classes.

With the arrival of the internet age, it has never been easier for people of any age to interact with the economy. Now, young people who have not had much financial socialization can have their money to spend in a click. For this reason, this topic seems to take on special relevance.

Recent qualitative research suggests that young adults have mixed feelings about retirement. Using a sample of members of the millennial generation and generation Z, in a 2020 study, participants were asked to draw and write their idea of ​​what retirement and old age were, and found that they tended to have negative associations with aging but positive regarding retirement.

Interestingly, the concept of old age itself can affect the retirement preparation of young people. In a 2011 study, it was found that young adults’ attitudes toward retirement increased after they viewed a photo of themselves aging.

Young adults’ motivation to learn about retirement may lead them to look for multiple sources of information. The purpose of this article was to know whether young adults actively talk about retirement with various sources in their environment, which are these sources, and how these discussions prepare them for the process.

To do this, data was taken from interviews that belonged to another study, carried out with people born between 1995 and 2010. Only those of young people over 18 years of age were collected, reaching the figure of 1311 participants.

Parents were indeed the most common source of conversations about retirement in the sample. Participants who talked to their parents about the topic generally felt it was more important to learn about retirement, anticipated a greater likelihood of retiring, and believed they had gained interesting new knowledge about the topic from their parents. 

Of all the potential sources, parents are probably the ones young adults will interact with the most, in fact, during this study, approximately 51% of Americans ages 18-29 lived with their parents.

Still, parents are not the only source. The opinion of friends and close people was also taken into account. It seems that although we are in the Internet age, young people prefer to discuss these issues with people who know them and have experience. The couple’s source also appeared.

A series of doors open for future research. For example, researchers could explore whether the sources of retirement conversations, as well as attitudes and behaviors towards retirement, would change as the world recovers from Covid-19. That work would provide very useful information on how global economic downturns affect the financial habits of young adults.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Club, this week we present the paper “Gender priming in solidarity games” by Cadaoas Tacneng, R. and Martin Puzon, K. A. (2021), in which authors investigate whether a difference exists between the women’s behavior and men’s behavior when it comes about being solidary regarding money.

We know that everyone has a social identity, which can be gender, ethnic, religious, national, and even corporate.

Research has shown that once one of these types of identities stands out above the others, people tend to behave according to that particular identity.

It is what the authors call “priming”.

The purpose of the article is to examine how gender priming affects the ability of individuals to show solidarity with others when it comes to money.

Authors ask themselves questions such as: are there significant gender differences in behavior? How does thinking about our gender identity affect the will to be solidary?

There are a series of gender stereotypes that almost everyone knows. For example, look after the community and care about it is often associated with the feminine, while agent behaviors are often identified as masculine.

In the context of a country like the Philippines, which is where the experiment takes place, women are traditionally perceived as housewives and responsibilities include prioritizing family and household over other tasks.

In general terms, girls suffer more restrictions and the idea that their place is in the home stills existing, while boys enjoy more freedom.

In addition, there are intergenerational transfer mechanisms in families that determine the opportunities that will be available to sons and daughters.

For example, in rural areas, parents tend to prefer that boys take over the work of the land, investing more economic resources for girls so they can study.

Gender systems are complex and varied. As everyone belongs to a certain social group, it implies that they also subscribe to a complete normative system. Their decisions are greatly influenced by this system, by values ​​and by the culture of the place where people live.

The norms that dictate what is considered an appropriate behavior for men and women often depend on concepts related to family altruism. And it happens that when women deviate from this particular norm, they are considered to be not feminine enough.

Also, it should be noted that all gender variations depend on the context of the country we are talking about.

Therefore, it is important to always specify which one we are talking about, and what its history is.

For the research, authors carried out an experiment with a total of 96 people.

This consisted, firstly, of a questionnaire in which people were asked about the main differences perceived, in their opinion, between men and women.

In this way they were made more aware of these behavioral differences, facilitating priming.

Subsequently, a “game” was played in pairs. In it, both participants were asked about the following: imagining that both have the same amount of money and economic resources in general, how much would they give their partner if he/she loses in a dice game with 2/3 odds of winning?

Obtained results were interesting, although they did not surprise us.

A gender difference was observed in the amount donated to the partner, in the sense that women tended to give a greater amount.

This means that women tend to care more about others without expecting anything in return, when they are aware of their gender (that is, after priming).

That is, women seemed to think more about equity than about maximizing their own money, observing the opposite in men.

Regarding the exercise of priming, strength and maturity were cited as characteristics of the male gender, while responsibility, discipline, emotion, sensitivity, affection and patience were associated with women.

With these data we can affirm that, according to this study, it seems that when people reflect on gender and are more aware of their behavioral conditioning, they act accordingly, and the differences between them become more evident.

Authors comment that it is suggested that this “activation” promotes gender roles and stereotypes, so that decision-making by oneself should be motivated, trying to eliminate behavioral conditioning.

They point out that, in the future, they will intend to refine this study to obtain more conclusive results, in addition to studying to what extent the differences between genders have a biological or purely social component.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

 

Behavioral Economics Blog