Cognitive finance: Behavioural strategies of spending, saving, and investing.

Research in economics is increasingly open to empirical results. The advances in behavioural approaches are expanded here by applying cognitive methods to financial questions. The field of "cognitive finance" is approached by the exploration of decision strategies in the financial settings of spending, saving, and investing. Individual strategies in these different domains are searched for and elaborated to derive explanations for observed irregularities in financial decision making. Strong context-dependency and adaptive learning form the basis for this cognition-based approach to finance. Experiments, ratings, and real world data analysis are carried out in specific financial settings, combining different research methods to improve the understanding of natural financial behaviour. People use various strategies in the domains of spending, saving, and investing. Specific spending profiles can be elaborated for a better understanding of individual spending differences. It was found that people differ along four dimensions of spending, which can be labelled: General Leisure, Regular Maintenance, Risk Orientation, and Future Orientation. Saving behaviour is strongly dependent on how people mentally structure their finance and on their self-control attitude towards decision space restrictions, environmental cues, and contingency structures. Investment strategies depend on how companies, in which investments are placed, are evaluated on factors such as Honesty, Prestige, Innovation, and Power. Further on, different information integration strategies can be learned in decision situations with direct feedback. The mapping of cognitive processes in financial decision making is discussed and adaptive learning mechanisms are proposed for the observed behavioural differences. The construal of a "financial personality" is proposed in accordance with other dimensions of personality measures, to better acknowledge and predict variations in financial behaviour. This perspective enriches economic theories and provides a useful ground for improving individual financial services

The effects of expertise and information relevance on information search strategy.

Differences between experts and novices have been the focus of a variety of studies throughout the psychological literature. In general, task outcome differences have been found between experts and novices, but further study is needed to understand the mechanism for explaining these outcome differences. This study investigated taskprocessing differences between experts and novices, specifically, the use of relevant and irrelevant information. Forty human resource professionals served as experts and 40 undergraduate students served as novices in this study. Participants made two hiring decisions. Using an information board format, participants examined eight attributes across six candidates for the job of museum curator and chose the applicant they believed would perform the best. It was hypothesized that experts would be better able to ignore irrelevant information than novices. An interaction between expertise and information relevance was found such that experts searched less information than novices during a decision task in which both irrelevant and relevant information is present (low relevance condition). Novices did not differ in the quantity of information searched as a function of information relevance. To test an exploratory hypothesis, chi-square analyses were used to examine the use of compensatory versus noncompensatory .search strategy by experts and novices. Experts adjusted their use of search strategy based on the relevance of information presented, while novices tended to use a noncompensatory search strategy regardless of information relevance condition

THE INFLUENCE OF ATTRIBUTE CUTOFFS ON CONSUMERS’ CHOICES OF A FUNCTIONAL FOOD

This study investigates evidence of non-compensatory preferences by incorporating attribute cutoffs into the modeling of consumer choices in the context of food with health-related attributes (omega-3 content) that may be associated with fortification or may result from genetic modification (GM). Data for this study were collected through a nation-wide internet-based survey drawn from a representative panel of Canadian households maintained by a major North American marketing firm. In addition to querying respondents on their perceptions and attitudes regarding food and health, choices of canola oils are elicited using a stated choice experiment in which product alternatives are identified based on attributes of price, country of origin, omega-3 content and GM/non-GM derivation. Consumers’ choices for functional canola oil products are examined in three steps. Initially, a conditional logit (CL) model is estimated assuming that no cutoffs apply in decisions on canola oil choices. Respondent’s self-reported cutoffs are then incorporated into the CL model and a random parameters logit (RPL) model, applying a utility model which penalizes rather than eliminates a desired alternative when a cutoff violation occurs. In the third step, the problem of endogeneity associated with attribute cutoffs is examined by linking respondents’ self-reported cutoffs to their demographic characteristics. Results from estimations of models with/without cutoffs show that consumers value omega-3 content in canola oils but dislike GM-derived ingredients in canola oil products. These Canadian respondents prefer canola oils produced in Canada to those produced in the United States. Regarding attribute cutoffs, it is found that consumers suffer a utility loss when violating their self-reported attribute cutoffs. Comparisons between models with/without attribute cutoffs suggest that incorporating cutoffs into the compensatory utility model significantly improves the model fit. Cutoff endogeneity is examined by predicting cutoffs based on respondents’ demographic characteristics. Using predicted cutoffs as instruments for self-reported cutoffs, this study provides some evidence that self-reported cutoffs may be endogenous and that researchers should consider using approaches that account for the potential endogeneity.decision strategy, attribute cutoff, functional food, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Health Economics and Policy, C25, C93, D1,

A Comparison of Compensatory and Non-Compensatory Decision Making Strategies in IT Project Portfolio Management

In IT project portfolio management, selecting and prioritizing the various projects can be viewed as a decision making task requiring input from various stakeholders in the organization. Based on theories from the psychology literature on compensatory and non-compensatory individual decision making, this study evaluates the effectiveness of both strategies in the context of IT project prioritization. We compare the results of a frugal and fast non-compensatory decision making strategy with a more cognitively intense, attribute-based compensatory strategy and hypothesize that both will generate similar results. In addition, we hypothesize that the additional cognitive effort associated with the compensatory strategy will result in the compensatory strategy as being perceived as more accurate by the evaluator. For the conference, the hypotheses will be tested, and the preliminary results reported

Use of a Variable Compensation Item Response Model to Assess the Effect of Working-Memory Load On Noncompensatory Processing in an Inductive Reasoning Task

"A study of the relationship between noncompensatory processing and the working memory load of matrix completion items was conducted. Data were taken from the British Cohort Study of 1970, First Follow-up (N=14,875). To assess compensation, the GMIRT Rasch model (Spray & Ackerman, 1986), variable compensation model, was used with MCMC estimation via WINBUGS. In support of these analyses, a simulation study assessing parameter recovery for the GMIRT model was conducted. Sample size, item pool size, and interability correlation were manipulated. Adequate parameter recovery was observed when difficulty parameters were constrained equal across dimensions. In the application study, there was some evidence to support the relationship between working memory load and compensation "--Abstract from author supplied metadata