Faith in intuition and behavioral biases

Alós–Ferrer, Carlos; Hügelschäfer, Sabine

doi:10.1016/j.jebo.2012.08.004

Cited by 41 publications

(25 citation statements)

References 35 publications

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“…This finding contradicts some earlier research on the information processing effect (Alós-Ferrer & Hügelschäfer, 2012;De Neyes, 2006;McElroy & Seta, 2003). These studies show that susceptibility to biases is higher when information is processed intuitively.…”

Section: Sunk-cost Effects and Information Processingcontrasting

confidence: 99%

Lending decision making in banks: A critical incident study of loan officers

Trönnberg

Hemlin

2014

European Management Journal

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Section: Sunk-cost Effects and Information Processingcontrasting

confidence: 99%

Lending decision making in banks: A critical incident study of loan officers

Trönnberg

Hemlin

2014

European Management Journal

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“…Thus, in the following we perform additional robustness checks. First, to test whether investor confidence is indeed a rather general personality characteristic, we analyze whether it is relatively stable over time within a person as predicted by several studies in psychology (Stanovich and West 2000;Evans 2003;Evans 2008;Alós-Ferrer and Hügelschäfer 2012).…”

Section: Heuristicsmentioning

confidence: 99%

How does investor confidence lead to trading? Linking investor return experiences, confidence, and investment beliefs

Hoffmann

Post

2016

Journal of Behavioral and Experimental Finance

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Confident investors trade more than less confident investors, but why? Prior research tests the ultimate relation between investor confidence and trading, but does not empirically examine the underlying mechanism that explains why confidence leads to trading. We complement the literature by developing a theoretical framework and presenting empirical evidence on a psychologically plausible mechanism through which confidence leads to trading.Using a combination of individual investors' brokerage records and matching monthly survey data, we show that more confident investors rely more on intuitive judgments when forming beliefs about expected returns. In particular, they rely more on naïve reinforcement learning and extrapolate individual return experiences into the future more strongly. Given the same return experience, more confident investors change their beliefs more strongly, providing more reason to trade. Ultimately, confident investors have higher turnover, which hurts their performance. JEL Classification: D14, D81, D83, D84, G02, G11 PsycINFO: 3920

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“…To explore the influence of personality factors, we also test whether participants' proneness to decision biases is related to their CRT, FI, and NFC scores, following Alós-Ferrer and Hügelschäfer ( 2012 , 2016 ). In particular, Alós-Ferrer and Hügelschäfer ( 2016 ) observed that higher CRT scores were linked to a lower likelihood of committing the conjunction fallacy and base-rate neglect, in line with previous research (Oechssler et al, 2009 ; Hoppe and Kusterer, 2011 ).…”

Section: Decision Biasesmentioning

confidence: 99%

“…As argued by Toplak et al ( 2011 ), low CRT scores might indicate a tendency to act on impulse and give an intuitive response. Alós-Ferrer and Hügelschäfer ( 2012 , 2016 ) showed that higher scores in Faith in Intuition are associated with higher error rates aligned with certain heuristics, e.g., based on representativeness or reinforcement, but found no systematic relation between the CRT and FI.…”

Section: Introductionmentioning

confidence: 99%

Cognitive Reflection, Decision Biases, and Response Times

2016

Self Cite

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We present novel evidence on response times and personality traits in standard questions from the decision-making literature where responses are relatively slow (medians around half a minute or above). To this end, we measured response times in a number of incentivized, framed items (decisions from description) including the Cognitive Reflection Test, two additional questions following the same logic, and a number of classic questions used to study decision biases in probability judgments (base-rate neglect, the conjunction fallacy, and the ratio bias). All questions create a conflict between an intuitive process and more deliberative thinking. For each item, we then created a non-conflict version by either making the intuitive impulse correct (resulting in an alignment question), shutting it down (creating a neutral question), or making it dominant (creating a heuristic question). For CRT questions, the differences in response times are as predicted by dual-process theories, with alignment and heuristic variants leading to faster responses and neutral questions to slower responses than the original, conflict questions. For decision biases (where responses are slower), evidence is mixed. To explore the possible influence of personality factors on both choices and response times, we used standard personality scales including the Rational-Experiential Inventory and the Big Five, and used them as controls in regression analysis.

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Faith in intuition and behavioral biases

Cited by 41 publications

References 35 publications

Lending decision making in banks: A critical incident study of loan officers

Lending decision making in banks: A critical incident study of loan officers

How does investor confidence lead to trading? Linking investor return experiences, confidence, and investment beliefs

Cognitive Reflection, Decision Biases, and Response Times

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