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

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

Tourist choice processing: evaluating decision rules and methods of their measurement

A detailed understanding of decision rules is essential in order to better explain consumption behavior, yet the variety of decision rules used have been somewhat neglected in tourism research. This study adopts an innovative method, greedoid analysis, to estimate a noncompensatory type of decision rule known as lexicographic by aspect (LBA). It is quite different from the weighted additive (WADD) model commonly assumed in tourism studies. By utilizing an experimental research design, this study enables the evaluation of the two types of decision rules regarding their predictive and explanatory power. Additionally, we introduce a novel evaluation indicator (“cost”), which allows further investigation of the heterogeneity in the use of decision rules. The results suggest that although the out-of-sample accuracy is lower, the LBA model has a better explanatory performance on respondents’ preference order. Moreover, the different perspective provided by the LBA model is useful for obtaining managerial implications

Moving to Western Australia : decision making processes of migrants from the United Kingdom

International migration has assumed a new importance during the last few decades due to the volume and increase of population movement. Two important questions are relevant to the migration process. The person has to make the decision to move and to select a place of destination. In this thesis a series of studies designed to examine the factors that led to the consideration of leaving and the attributes which contributed to the choice of destination are presented. This research begins by adopting suggestions proposed by Jahoda (1981) to ask questions and thereby increase the knowledge base. The methodological framework of this research is derived from the different issues and controversies within psychology that have arisen due to a growing dissatisfaction with the traditional approaches that underpin much psychological research. Alternative philosophical and methodological approaches are drawn upon such as, substantive theorising (Wicker, 1989), the human science methodological framework (Dokecki, 1992), critical multiplism (Newbrough, 1992) and a systems perspective (Bronfenbrenner (1977) to achieve a more holistic approach to the research. A multi-method thesis is presented in four stages that incorporate triangulation of quantitative and qualitative methods to serve both completeness and confirmation of the research. Each level provides more detail and specificity moving from the macro to the micro level of inquiry. In order to address the key question of what factors influence the decision to migrate, the first stage explores the potential reasons why people leave the United Kingdom to live in Australia. The literature on possible reasons for migration is reviewed and is used as one source of information that is then further explored in this stage using qualitative semi-structured interviews that focus on the interpretive and descriptive analysis of these reasons. Some of the possible explanations included migrating for a better life and education for the children, the climate in Australia and the better economic prospects for the future. Based on these different perspectives provided by the participants, an informed decision tree was developed. The results of this first stage of the research informed the following two stages. The second stage of the research is a specific analysis of the substantive domain that examined the information obtained from stage one in more detail. This experimental stage was ideographic and used linear regression models obtained by regression analyses to understand the basis of the migration decision and the factors which contribute to that decision. Results of this study indicated that the judgments of two thirds of the participants were well modelled by the linear model. The implications and limitations for using this approach are discussed in detail. In the third stage of the research, the substantive domain is further explored in two studies which use a multiattribute utility model approach for conceptual clarification of the decision making process. In this stage, the additional research question was addressed which examined whether there were any differences in the decision making process between migrants from the U.K. living in Australia and a specific group with a visa intending to migrate who have not yet departed from the U.K. In the first study, 446 migrants from the U.K. already living in Australia completed a questionnaire. In the second study, a group of potential migrants, who had not yet migrated but had already obtained their visas, completed a similar questionnaire. In summary, the results supported the salience of the different factors determined in the previous studies and indicated that participants could be clearly divided into three groups using cluster analysis. The implications for understanding the results of both these studies are discussed. The final stage of the research continues the process of exploring the substantive domain and returns to the migrants to understand their experiences through real life episodes of migration. This stage uses the approach suggested by Dewey (1929), and returns to the migrants who have the experience and are able to clarify the situation as they have the best knowledge. The results reinforced the importance and salience of the different factors determined in the previous stages. It also confirmed that one cannot focus solely on only one factor, as there are a combination of factors which play a role in the decision to move. The final chapter reviews the results obtained in this thesis and the different methodological perspectives used in the research. The accumulation of knowledge that has resulted from this research and the contribution made to the understanding of the substantive domain of migration is discussed further. Positive suggestions for further research are proposed

Decision-making in practice: The use of cognitive heuristics by senior managers

This thesis uses a grounded theory methodology to reveal the processes by which cognitive heuristics are used by senior managers to make decisions in a large UK local authority. The thesis is based on primary data, organisational documentation and an extensive and critical review of the pertinent literature. Primary data was generated over four years and involved detailed observation of 156 senior managers making a total of 513 decisions, together with formal interviews and informal discussions with these managers. The organisation under study provided an ideal context for this research since it offered a rich insight into management decision-making practices in diverse contexts such as social work and highways, and with varying degrees of urgency ranging from procurement decisions lasting several months to instant decisions concerning child protection. Furthermore, UK local government has been subject to drastic change in recent years, such as the introduction of private sector management practices and increased competition. This has been exacerbated by an austerity programme which means that local authorities, in common with much of the world, have to do a lot more with a lot less. The turbulent context of local government is, in Yin’s (2009) terms, an ‘exemplifying’ case study, and hence the issues raised in this study resonate far beyond the scope of this thesis. This thesis makes a number of significant contributions to knowledge. Firstly, original flow charts are developed that allow the underlying processes of heuristic decision-making to be identified, and these reveal that, whereas the academic literature treats heuristics as discrete entities, there is actually considerable interplay between them. Further, a new definition of the moral heuristic is developed, which allows researchers to view this heuristic at a higher, more conceptual level than has hitherto been possible. The thesis also extends the work of Daniel Kahneman and demonstrates that the role of the unconscious in decision-making is more complex than previously thought. For instance, intuitive heuristics can be used consciously and choice-based heuristics can be used unconsciously. It is also argued that the underlying processes of ‘classical’ theory are better explained by the degree of consciousness involved when making a decision, and not by the commonly accepted normative/behavioural distinction made by Herbert Simon and others. As such, this thesis represents an important contribution to the decision-making literature

Why less can be more: A Bayesian framework for heuristics

When making decisions under uncertainty, one common view is that people rely on simple heuristics that deliberately ignore information. One of the greatest puzzles in cognitive science concerns why heuristics can sometimes outperform full-information models, such as linear regression, which make full use of the available information. In this thesis, I will contribute the novel idea that heuristics can be thought of as embodying extreme Bayesian priors. Thereby, an explanation for less-is-more is that the heuristics’ relative simplicity and inflexibility amounts to a strong inductive bias, that is suitable for some learning and decision problems. I will formalize this idea by introducing Bayesian models within which heuristics are an extreme case along a continuum of model flexibility defined by the strength and nature of the prior. Crucially, the Bayesian models include heuristics at one of the Bayesian prior strength and classic full-information models at the other end of the Bayesian prior. This allows for a comparative test between the intermediate models along the continuum and the extremes of heuristics and full regression model. Indeed, I will show that intermediate models perform best across simulations, suggesting that down-weighting information is preferable to entirely ignoring it. These results refute an absolute version of less-is-more, demonstrating that heuristics will usually be outperformed by a model that takes into account the full information but weighs it appropriately. Thereby, the thesis provides a novel explanation for less-is-more: Heuristics work well because they embody a Bayesian prior that approximates the optimal prior. While the main contribution is formal, the final Chapter will explore whether less is more at the psychological level, and finds that people do not use heuristics, but rely on the full information instead. A consistent perspective will emerge throughout the whole thesis, which is that less is not more