Using Behavioral Insights For a Better Understanding of Economic Decisions (Regarding Savings, Inequality and Dishonesty)

This dissertation consists of three essays on behavioral economics, with a general aim of enriching our understanding of economic decisions using behavioral insights and experimental methodology. Each essay takes on one particular topic with this general aim.

The first chapter studies savings behavior of the poor. In this project, partnering with a savings product provider in Kenya, we tested the extent to which behavioral interventions and financial incentives can increase the saving rate of individuals with low and irregular income. Our experiment lasted for six months and included a total of twelve conditions. The control condition received weekly reminders and balance reporting via text messages. The treatment conditions received in addition one of the following interventions: (1) reminder text messages framed as if they came from the participant’s kid (2) a golden colored coin with numbers for each week of the trial, on which participants were asked to keep track of their weekly deposits (3) a match of weekly savings: The match was either 10% or 20% up to a certain amount per week. The match was either deposited at the end of each week or the highest possible match was deposited at the start of each week and was adjusted at the end. Among these interventions, by far the most effective was the coin: Those in the coin condition saved on average the highest amount and more than twice as those in the control condition. We hypothesize that being a tangible track-keeping object; the coin made subjects remember to save more often. Our results support the line of literature suggesting that saving decisions involve psychological aspects and that policy makers and product designers should take these influences into account.

The second chapter is related to views towards inequality. In this project, we investigate how the perceived fairness of income distributions depends on the beliefs about the process that generated the inequality. Specifically, we examine how two crucial features of this process affect fairness views: (1) Procedural justice - equal treatment of all, (2) Agency - one's ability to determine his/her income. We do this in a lab experiment by varying the equality of opportunity (procedural justice), and one's ability to make choices, which consequently influence subjects’ ability to influence their income (agency). We then elicit ex-post redistribution decisions of the earnings as a function of these two elements. Our results suggest both agency and procedural justice matter for fairness. Our main findings can be summarized as follows: (1) Highlighting the importance of agency, we find that inequality resulting from risk is considered to be fair only when risk is chosen freely; (2) Highlighting the importance of procedural justice, we find that introducing inequality of opportunity significantly increases redistribution, however the share of subjects redistributing none remain close to the share of subjects redistributing fully revealing an underlying heterogeneity in the population about how fairness views should account for inequality of opportunity.

The third chapter is on morality. In this project, we study whether religious rituals act as an internal reminder for basic moral principles and thus affect moral judgments. To this end, we conducted two survey experiments in Turkey and Israel to specifically test the effect of Ramadan and Yom Kippur. The results from the Turkish sample how that Ramadan has a significant effect on moral judgments to some extent for those who report to believe in God. Those who believe in God judged the moral acceptability of ten out of sixty one actions significantly differently in Ramadan, whereas those who reported not to believe in God significantly changed their judgments only for one action in Ramadan. Our results extends the hypothesis established by lab experiments that religious reminders have a significant effect on morality, by testing it in the field in the natural environment of religious rituals.

This thesis is part of a broader collaborative research agenda with both colleagues and advisors. The programming, analyses, and writing, as well as any errors in this work, are my own.

The Rational Adolescent: Strategic Information Processing during Decision Making Revealed by Eye Tracking.

Adolescence is often viewed as a time of irrational, risky decision-making - despite adolescents' competence in other cognitive domains. In this study, we examined the strategies used by adolescents (N=30) and young adults (N=47) to resolve complex, multi-outcome economic gambles. Compared to adults, adolescents were more likely to make conservative, loss-minimizing choices consistent with economic models. Eye-tracking data showed that prior to decisions, adolescents acquired more information in a more thorough manner; that is, they engaged in a more analytic processing strategy indicative of trade-offs between decision variables. In contrast, young adults' decisions were more consistent with heuristics that simplified the decision problem, at the expense of analytic precision. Collectively, these results demonstrate a counter-intuitive developmental transition in economic decision making: adolescents' decisions are more consistent with rational-choice models, while young adults more readily engage task-appropriate heuristics.

The neural dynamics of stimulus and response conflict processing as a function of response complexity and task demands.

Both stimulus and response conflict can disrupt behavior by slowing response times and decreasing accuracy. Although several neural activations have been associated with conflict processing, it is unclear how specific any of these are to the type of stimulus conflict or the amount of response conflict. Here, we recorded electrical brain activity, while manipulating the type of stimulus conflict in the task (spatial [Flanker] versus semantic [Stroop]) and the amount of response conflict (two versus four response choices). Behaviorally, responses were slower to incongruent versus congruent stimuli across all task and response types, along with overall slowing for higher response-mapping complexity. The earliest incongruency-related neural effect was a short-duration frontally-distributed negativity at ~200 ms that was only present in the Flanker spatial-conflict task. At longer latencies, the classic fronto-central incongruency-related negativity 'N(inc)' was observed for all conditions, but was larger and ~100 ms longer in duration with more response options. Further, the onset of the motor-related lateralized readiness potential (LRP) was earlier for the two vs. four response sets, indicating that smaller response sets enabled faster motor-response preparation. The late positive complex (LPC) was present in all conditions except the two-response Stroop task, suggesting this late conflict-related activity is not specifically related to task type or response-mapping complexity. Importantly, across tasks and conditions, the LRP onset at or before the conflict-related N(inc), indicating that motor preparation is a rapid, automatic process that interacts with the conflict-detection processes after it has begun. Together, these data highlight how different conflict-related processes operate in parallel and depend on both the cognitive demands of the task and the number of response options.