Working Paper: NBER ID: w28650
Authors: Benjamin Enke; Uri Gneezy; Brian Hall; David C. Martin; Vadim Nelidov; Theo Offerman; Jeroen Van De Ven
Abstract: 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 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 response times – a proxy for cognitive effort – increase 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.
Keywords: No keywords provided
JEL Codes: D01; D03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Significant increase in response times (C41) | Increased cognitive effort (D91) |
| Complexity of tasks (C60) | Low effort not primary constraint (D20) |
| Increasing stakes (C73) | Significant increase in response times (C41) |
| High stakes (C73) | Mild or negligible performance improvements (D29) |
| High stakes (C73) | Cognitive biases remain statistically indistinguishable (D91) |
| Increased incentives (M52) | Reduced reliance on intuitions (D80) |
| High stakes (C73) | Increased cognitive effort (D91) |