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Cognitive Uncertainty - link to paper

This paper shows theoretically and experimentally that cognitive uncertainty directionally predicts economic actions and beliefs. When people are cognitively uncertain about what the right action is, they implicitly compress objective probabilities towards a cognitive default of 50:50. By experimentally measuring cognitive uncertainty, this insight allows us to bring together and partially explain behavioral anomalies identified in choice under risk, choice under ambiguity, belief updating, and survey forecasts of economic variables. Through exogenous manipulations of both cognitive uncertainty and the location of the cognitive default, we provide causal evidence for the role of cognitive uncertainty, which we quantify through structural estimations.

Cognitive Biases - link to paper

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.