Cognitive Biases: Mistakes or Missing Stakes?

70 Pages Posted: 31 Mar 2020

See all articles by Benjamin Enke

Benjamin Enke

Harvard University

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management

Brian J. Hall

NOM Unit Head, Harvard Business School; National Bureau of Economic Research (NBER)

David Martin

Harvard University

Vadim Nelidov

University of Amsterdam

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Jeroen van de Ven

University of Amsterdam; Tinbergen Institute

Date Written: 2020

Abstract

Despite decades of research on heuristics and biases, empirical evidence on the effect of large incentives – as present in relevant economic decisions – on cognitive biases is scant. This paper tests the effect of incentives on four widely documented biases: base rate neglect, anchoring, failure of contingent thinking, and intuitive reasoning in the Cognitive Reflection Test. In pre-registered laboratory experiments with 1,236 college students in Nairobi, we implement three incentive levels: no incentives, standard lab payments, and very high incentives that increase the stakes by a factor of 100 to more than a monthly income. We find that cognitive effort as measured by response times increases by 40% with very high stakes. Performance, on the other hand, improves very mildly or not at all as incentives increase, with the largest improvements due to a reduced reliance on intuitions. In none of the tasks are very high stakes sufficient to de-bias participants, or come even close to doing so. These results contrast with expert predictions that forecast larger performance improvements.

Keywords: cognitive biases, incentives

JEL Classification: D010

Suggested Citation

Enke, Benjamin and Gneezy, Uri and Hall, Brian and Martin, David and Nelidov, Vadim and Offerman, Theo and van de Ven, Jeroen, Cognitive Biases: Mistakes or Missing Stakes? (2020). CESifo Working Paper No. 8168. Available at SSRN: https://ssrn.com/abstract=3564873

Benjamin Enke (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Brian Hall

NOM Unit Head, Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-5062 (Phone)
617-496-4191 (Fax)

HOME PAGE: http://www.people.hbs.edu/bhall/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Martin

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Vadim Nelidov

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Jeroen Van de Ven

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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