Cognitive Biases: Mistakes or Missing Stakes?

79 Pages Posted: 12 Apr 2021 Last revised: 14 Apr 2022

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 C. 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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2021

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 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 response times – a proxy for cognitive effort – increase 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.

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Suggested Citation

Enke, Benjamin and Gneezy, Uri and Hall, Brian and Martin, David C. and Nelidov, Vadim and Offerman, Theo and van de Ven, Jeroen, Cognitive Biases: Mistakes or Missing Stakes? (April 2021). NBER Working Paper No. w28650, Available at SSRN: https://ssrn.com/abstract=3824526

Benjamin Enke (Contact Author)

Harvard University ( email )

1875 Cambridge Street
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Uri Gneezy

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

9500 Gilman Drive
Rady School of Management
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Brian Hall

NOM Unit Head, Harvard Business School ( email )

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

National Bureau of Economic Research (NBER)

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David C. Martin

Harvard University ( email )

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Vadim Nelidov

University of Amsterdam ( email )

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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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