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The gradual nature of economic errors

Carlos Alós-Ferrer and Michele Garagnani

Journal of Economic Behavior & Organization, 2022, vol. 200, issue C, 55-66

Abstract: Overwhelming evidence from the cognitive sciences shows that, in simple discrimination tasks (determining what is louder, longer, brighter, or even which number is larger) humans make more mistakes and decide more slowly when the stimuli are closer along the relevant scale. We investigate to what extent these effects are relevant for economic decisions in a setting where optimal choices are objectively known (and independent of attitudes toward risk). We find that, even for tasks with objectively-correct answers, error rates and response times increase gradually as expected values become closer. Differences in payoff-independent numerical magnitudes also play a role, which however only becomes clear when one accounts for expected values. We conclude that the gradual effects on choice found in cognitive discrimination paradigms are very much present in economic choices, and depend on economic as well as perceptual variables.

Keywords: Stochastic choice; Strength of preference; Decision errors (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 D91 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jebo.2022.05.015

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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