Confidence Interval Estimation Tasks and the Economics of Overconfidence

Experiments in psychology, where subjects estimate confidence intervals to a series of factual questions, have shown that individuals report far too narrow intervals. This has been interpreted as evidence of overconfidence in the preciseness of knowledge, a potentially serious violation of the rationality assumption in economics. Following these results a growing literature in economics has incorporated overconfidence in models of, for instance, financial markets. In this paper we investigate the robustness of results from confidence interval estimation tasks with respect to a number of manipulations: frequency assessments, peer frequency assessments, iteration, and monetary incentives. Our results suggest that a large share of the overconfidence in interval estimation tasks is an artifact of the response format. Using frequencies and monetary incentives reduces the measured overconfidence in the confidence interval method by about 65%. The results are consistent with the notion that subjects have a deep aversion to setting broad confidence intervals, a reluctance that we attribute to a socially rational trade-off between informativeness and accuracy.overconfidence; uncertainty; monetary incentives; experiments

Confidence interval estimation tasks and the economics of overconfidence

Experiments in psychology, where subjects estimate confidence intervals to a series of factual questions, have shown that individuals report far too narrow intervals. This has been interpreted as evidence of overconfidence in the preciseness of knowledge, a potentially serious violation of the rationality assumption in economics. Following these results a growing literature in economics has incorporated overconfidence in models of, for instance, financial markets. In this paper we investigate the robustness of results from confidence interval estimation tasks with respect to a number of manipulations: frequency assessments, peer frequency assessments, iteration, and monetary incentives. Our results suggest that a large share of the overconfidence in interval estimation tasks is an artifact of the response format. Using frequencies and monetary incentives reduces the measured overconfidence in the confidence interval method by about 65%. The results are consistent with the notion that subjects have a deep aversion to setting broad confidence intervals, a reluctance that we attribute to a socially rational trade-off between informativeness and accuracy

Billiards and brains: Cognitive ability and behaviour in a p-beauty contest

Beauty contests are well-studied, dominance-solvable games that generate two interesting results. First, most behavior does not conform to the unique Nash equilibrium. Second, there is considerable unexplained heterogeneity in behavior. In this work, we evaluate the relationship between beauty contest behavior and cognitive ability. We find that subjects with high cognitive ability exhibit behavior that is closer to the Nash equlibrium. We examine this finding through the prism of economic and biological theory

Billiards and Brains: Cognitive Ability and Behavior in a p-Beauty Contest

"Beauty contests" are well-studied, dominance-solvable games that generate two interesting results. First, most behavior does not conform to the unique Nash equilibrium. Second, there is considerable unexplained heterogeneity in behavior. In this work, we evaluate the relationship between beauty contest behavior and cognitive ability. We find that subjects with high cognitive ability exhibit behavior that is closer to the Nash equlibrium. We examine this finding through the prism of economic and biological theory.beauty contest; rationality; cognitive ability; Nash equlibrium

Is Financial Risk-Taking Behavior Genetically Transmitted?

In this paper, we use a sample of almost 30,000 Swedish mono- and dizygotic twins to study the heritability of financial risk-taking. Following a major pension reform in the year 2000, virtually all Swedish adults had to simultaneously make a financial decision affecting post-retirement wealth. We take this event as a field experiment to infer risk preferences. We use standard techniques from behavior genetics to partition variation in risk-taking into environmental and genetic components. Our findings suggest that genetic variation is an important source of individual heterogeneity in financial risk-taking

Genetic influences on economic preferences

In this paper, we use the classical twin design to provide estimates of genetic and environmental influences on experimentally elicited preferences for risk and giving. Using standard methods from behavior genetics, we find strong prima facie evidence that these preferences are broadly heritable and our estimates suggest that genetic differences explain approximately twenty percent of individual variation. The results thus shed light on an important source of individual variation in preferences, a source which has hitherto largely been neglected in the economics literature

Genetic variation associated with differential educational attainment in adults has anticipated associations with school performance in children

Genome-wide association study results have yielded evidence for the association of common genetic variants with crude measures of completed educational attainment in adults. Whilst informative, these results do not inform as to the mechanism of these effects or their presence at earlier ages and where educational performance is more routinely and more precisely assessed. Single nucleotide polymorphisms exhibiting genome-wide significant associations with adult educational attainment were combined to derive an unweighted allele score in 5,979 and 6,145 young participants from the Avon Longitudinal Study of Parents and Children with key stage 3 national curriculum test results (SATS results) available at age 13 to 14 years in English and mathematics respectively. Standardised (z-scored) results for English and mathematics showed an expected relationship with sex, with girls exhibiting an advantage over boys in English (0.433 SD (95%CI 0.395, 0.470), p<10-10) with more similar results (though in the opposite direction) in mathematics (0.042 SD (95%CI 0.004, 0.080), p = 0.030). Each additional adult educational attainment increasing allele was associated with 0.041 SD (95%CI 0.020, 0.063), p = 1.79×10-04 and 0.028 SD (95%CI 0.007, 0.050), p = 0.01 increases in standardised SATS score for English and mathematics respectively. Educational attainment is a complex multifactorial behavioural trait which has not had heritable contributions to it fully characterised. We were able to apply the results from a large study of adult educational attainment to a study of child exam performance marking events in the process of learning rather than realised adult end product. Our results support evidence for common, small genetic contributions to educational attainment, but also emphasise the likely lifecourse nature of this genetic effect. Results here also, by an alternative route, suggest that existing methods for child examination are able to recognise early life variation likely to be related to ultimate educational attainment

Essays on genetic variation and economic behavior

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2010.Cataloged from PDF version of thesis.Includes bibliographical references.This thesis is a collection of papers in which behavior genetic methods are used to shed light on individual differences in economic preferences, behaviors and outcomes. Chapter one uses the classical twin design to provide estimates of genetic and environmental influences on experimentally elicited preferences for risk and giving. The paper reports evidence that these preferences are broadly heritable, with estimates suggesting that genetic differences explain approximately twenty percent of individual variation. The results thus point to genes as an important source of individual variation in preferences, a source which has hitherto been largely neglected in the economics literature. The chapter is written with Christopher T. Dawes, Magnus Johannesson, Paul Lichtenstein and Bjorn Wallace. Chapter two shows that these findings also extend to the field. Following a major pension reform in the late 1990s, all Swedish adults had to form a portfolio from a large menu of funds. Matching individual investment decisions to the Swedish Twin Registry, the paper finds that approximately 25% of individual variation in portfolio risk is due to genetic variation. The results, which are complementary to those reported in chapter one, also hold for several other aspects of financial decision-making. The chapter is written with Magnus Johannesson, Paul Lichtenstein, Orjan Sandewall and Bjorn Wallace. Chapter three uses two complementary Swedish datasets to examine the importance of family environment in explaining variation in income, educational attainment, and measures of cognitive and non-cognitive skills. Using seven different sibling types who differ in their degree of genetic relatedness and rearing status, I find moderate family effects on educational attainment, cognitive skills and non-cognitive skills. This contrasts with the effects of family on income, which are low. Additional analyses, based on a sample of identical (MZ) and fraternal (DZ) twins for which more comprehensive income data is available, reveal large and persistent separation of the MZ and DZ correlations over the entire lifecycle, except at very early ages. One interpretation of this finding is that there are strong family effects on the timing of labor market entry. I discuss the relevance of these results for efforts to understand the causes of income inequality.by David Alexander Cesarini.Ph.D

Most Reported Genetic Associations with General Intelligence Are Probably False Positives

General intelligence (g) and virtually all other behavioral traits are heritable. Associations between g and specific single-nucleotide polymorphisms (SNPs) in several candidate genes involved in brain function have been reported. We sought to replicate published associations between g and 12 specific genetic variants (in the genes DTNBP1, CTSD, DRD2, ANKK1, CHRM2, SSADH, COMT, BDNF, CHRNA4, DISC1, APOE, and SNAP25) using data sets from three independent, well-characterized longitudinal studies with samples of 5,571, 1,759, and 2,441 individuals. Of 32 independent tests across all three data sets, only 1 was nominally significant. By contrast, power analyses showed that we should have expected 10 to 15 significant associations, given reasonable assumptions for genotype effect sizes. For positive controls, we confirmed accepted genetic associations for Alzheimer’s disease and body mass index, and we used SNP-based calculations of genetic relatedness to replicate previous estimates that about half of the variance in g is accounted for by common genetic variation among individuals. We conclude that the molecular genetics of psychology and social science requires approaches that go beyond the examination of candidate genes.Economic