Cognitive Resource Depletion, Choice Consistency, and Risk Preferences

30 Pages Posted: 17 Jun 2013

See all articles by Marco Castillo

Marco Castillo

Department of Economics, Texas A&M University; IZA Institute of Labor Economics

David L. Dickinson

Appalachian State University

Ragan Petrie

Texas A&M University - Department of Economics; University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Date Written: November 1, 2012

Abstract

We investigate the consistency and stability of individual risk preferences by slightly manipulating the cognitive resources of subjects through sleepiness. Participants are recruited and randomly assigned to an experiment session at a preferred time of day relative to their diurnal preference (circadian matched) or at a non-preferred time of day (circadian mismatched). For the decision task, subjects and are asked to choose how much to allocate between two state-dependent assets (using the Choi et al., 2007 design). We have two main findings. First, the consistency of behavior for circadian matched and mismatched subjects is statistically the same. This is true whether it is (non-parametrically) defined as consistency with GARP, payoff dominance, expected utility, disappointment aversion, or cumulative prospect theory. Second, while our cognitive resource manipulation yields no difference in consistency of behavior, it results in an increased tendency to take risk. Our experiment confirms theoretical predictions that preferences are consistent yet state-dependent.

Suggested Citation

Castillo, Marco and Dickinson, David L. and Petrie, Ragan, Cognitive Resource Depletion, Choice Consistency, and Risk Preferences (November 1, 2012). GMU Interdisciplinary Center for Economic Science Department of Economics Paper No. 13-16. Available at SSRN: https://ssrn.com/abstract=2280215 or http://dx.doi.org/10.2139/ssrn.2280215

Marco Castillo

Department of Economics, Texas A&M University ( email )

Allen Building
4228 TAMU
College Station, TX 77843-3137
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

David L. Dickinson

Appalachian State University ( email )

Boone, NC 28608
United States
1-828-262-2117 (Phone)
1-828-262-6105 (Fax)

Ragan Petrie (Contact Author)

Texas A&M University - Department of Economics ( email )

4228 TAMU
College Station, TX 77843-4228
United States

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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