Economic Rationality under Cognitive Load

Andreas C Drichoutis; Rodolfo M Nayga

doi:10.1093/ej/ueaa052

journal article May 08, 2020

Economic Rationality under Cognitive Load

Andreas C Drichoutis Rodolfo M Nayga

The Economic Journal Vol. 130 No. 632 pp. 2382-2409 · Oxford University Press (OUP)

View at Publisher Save 10.1093/ej/ueaa052

Abstract

AbstractEconomic analysis assumes that consumer behaviour can be rationalised by a utility function. Previous research has shown that some consistency of choices with economic rationality can be captured by permanent cognitive ability. No other known study however has examined how a temporary load in subjects’ working memory can affect economic rationality. Using two controlled laboratory experiments, we exogenously vary cognitive load by asking subjects to memorise a number while they undertake an induced budget allocation task (Choi et al., 2007a, b). Using a number of manipulation checks, we verify that cognitive load has adverse effects on subjects’ performance in reasoning tasks. However, we find no effect in any of the goodness-of-fit measures that measure consistency of subjects’ choices with the Generalized Axiom of Revealed Preference (GARP), despite having a sample size large enough to detect even small differences between treatments with 80% power. We also find no effect on first-order stochastic dominance and risk preferences. Our finding suggests that economic rationality can be attained even when subjects are placed under temporary working memory load, despite the fact that the load has adverse effects in reasoning tasks.

Topics

No keywords indexed for this article. Browse by subject →

References

73

[1]

Afriat "‘The construction of utility functions from expenditure data’" International Economic Review (1967) 10.2307/2525382

[2]

Afriat "‘Efficiency estimation of production functions’" International Economic Review (1972) 10.2307/2525845

[3]

Andreoni "‘The power of revealed preference tests: ex-post evaluation of experimental design’" (2013)

[4]

Benjamin "‘Who is “behavioral”? Cognitive ability and anomalous preferences’" Journal of the European Economic Association (2013) 10.1111/jeea.12055

[5]

Development of Abbreviated Nine-Item Forms of the Raven’s Standard Progressive Matrices Test

Warren B. Bilker, John A. Hansen, Colleen M. Brensinger et al.

Assessment 2012 10.1177/1073191112446655

[6]

Bodenhausen "‘Stereotypes as judgmental heuristics: evidence of circadian variations in discrimination’" Psychological Science (1990) 10.1111/j.1467-9280.1990.tb00226.x

[7]

Brañas Garza "‘Cognitive abilities and economic behavior’" Journal of Behavioral and Experimental Economics (2016) 10.1016/j.socec.2016.06.005

[8]

Briz "‘Randomization to treatment failure in experimental auctions: the value of data from training rounds’" Journal of Behavioral and Experimental Economics (2017) 10.1016/j.socec.2017.09.004

[9]

Burghart "‘An expected utility maximizer walks into a bar’" Journal of Risk and Uncertainty (2013) 10.1007/s11166-013-9167-7

[10]

Castillo "‘Sleepiness, choice consistency, and risk preferences’" Theory and Decision (2017) 10.1007/s11238-016-9559-7

[11]

Cettolin "‘Cortisol meets GARP: the effect of stress on economic rationality’" Experimental Economics (2020) 10.1007/s10683-019-09624-z

[12]

Choi "‘Consistency and heterogeneity of individual behavior under uncertainty’" American Economic Review (2007) 10.1257/aer.97.5.1921

[13]

Choi "‘Revealing preferences graphically: an old method gets a new tool kit’" American Economic Review (2007) 10.1257/aer.97.2.153

[14]

Choi "‘Who is (more) rational?’" American Economic Review (2014) 10.1257/aer.104.6.1518

[15]

Clithero "‘Improving out-of-sample predictions using response times and a model of the decision process’" Journal of Economic Behavior & Organization (2018) 10.1016/j.jebo.2018.02.007

[16]

Cochran "‘Controlling bias in observational studies: a review’" Sankhyā: The Indian Journal of Statistics, Series A (1973)

[17]

Colom "‘Working memory is (almost) perfectly predicted by g’" Intelligence (2004) 10.1016/j.intell.2003.12.002

[18]

Conway "‘Cognitive ability: does working memory training enhance intelligence?’" Current Biology (2010) 10.1016/j.cub.2010.03.001

[19]

Conway "‘Working memory capacity and its relation to general intelligence’" Trends in Cognitive Sciences (2003) 10.1016/j.tics.2003.10.005

[20]

Dean "‘Measuring rationality with the minimum cost of revealed preference violations’" Review of Economics and Statistics (2016) 10.1162/rest_a_00542

[21]

Understanding and misunderstanding randomized controlled trials

Angus Deaton, Nancy Cartwright

Social Science & Medicine 2018 10.1016/j.socscimed.2017.12.005

[22]

Deck "‘The effect of cognitive load on economic decision making: a survey and new experiments’" European Economic Review (2015) 10.1016/j.euroecorev.2015.05.004

[23]

Deck "‘The effects of different cognitive manipulations on decision making’" (2017)

[24]

Dziewulski "‘Eliciting the just-noticeable difference’" (2016)

[25]

Dziewulski "‘Just-noticeable difference as a behavioural foundation of the critical cost-efficiency’" (2019)

[26]

Echenique "‘The money pump as a measure of revealed preference violations’" Journal of Political Economy (2011) 10.1086/665011

[27]

Working Memory Capacity as Executive Attention

Randall W. Engle

Current Directions in Psychological Science 2002 10.1111/1467-8721.00160

[28]

z-Tree: Zurich toolbox for ready-made economic experiments

Urs Fischbacher

Experimental Economics 2007 10.1007/s10683-006-9159-4

[29]

Frederick "‘Cognitive reflection and decision making’" Journal of Economic Perspectives (2005) 10.1257/089533005775196732

[30]

Gerhardt "‘Essays in experimental and neuroeconomics’" (2011)

[31]

Gerhardt "‘Cognitive load increases risk aversion’" (2016)

[32]

Gilhooly "‘Working memory and strategies in syllogistic-reasoning tasks’" Memory & Cognition (1993) 10.3758/bf03211170

[33]

Gilhooly "‘Syllogistic reasoning tasks, working memory, and skill’" European Journal of Cognitive Psychology (1999) 10.1080/095414499382264

[34]

Gray "‘Neural mechanisms of general fluid intelligence’" Nature Neuroscience (2003) 10.1038/nn1014

[35]

Gray "‘Neurobiology of intelligence: science and ethics’" Nature Reviews Neuroscience (2004) 10.1038/nrn1405

[36]

Greiner "‘Subject pool recruitment procedures: organizing experiments with ORSEE’" Journal of the Economic Science Association (2015) 10.1007/s40881-015-0004-4

[37]

Gross "‘Two simple algorithms for generating a subset of data consistent with warp and other binary relations’" Journal of Business & Economic Statistics (1996) 10.1080/07350015.1996.10524652

[38]

Heufer "‘Consistent subsets: computationally feasible methods to compute the Houtman–Maks-index’" Economics Letters (2015) 10.1016/j.econlet.2015.01.024

[39]

Ho "‘Matching as nonparametric preprocessing for reducing model dependence in parametric causal inference’" Political Analysis (2007) 10.1093/pan/mpl013

[40]

Houtman "‘Determining all maximal data subsets consistent with revealed preference’" Kwantitatieve Methoden (1985)

[41]

Imbens (2016)

[42]

Recent Developments in the Econometrics of Program Evaluation

Guido W Imbens, Jeffrey M Wooldridge

Journal of Economic Literature 2009 10.1257/jel.47.1.5

[43]

Jensen (1980)

[44]

Kovacs "‘The domain specificity of working memory is a matter of ability’" Journal of Memory and Language (2019) 10.1016/j.jml.2019.104048

[45]

Kruglanski "‘Night and day, you are the one: on circadian mismatches and the transference effect in social perception’" Psychological Science (2008) 10.1111/j.1467-9280.2008.02083.x

[46]

Kupper "‘How appropriate are popular sample size formulas?’" American Statistician (1989) 10.1080/00031305.1989.10475628

[47]

Kyllonen "‘Reasoning ability is (little more than) working-memory capacity?!’" Intelligence (1990) 10.1016/s0160-2896(05)80012-1

[48]

Lehr "‘Sixteen s-squared over d-squared: a relation for crude sample size estimates’" Statistics in Medicine (1992) 10.1002/sim.4780110811

[49]

Lynn "‘Sex differences on three factors identified in Raven’s standard progressive matrices’" Intelligence (2004) 10.1016/j.intell.2004.06.007

[50]

Mackintosh "‘The fractionation of working memory maps onto different components of intelligence’" Intelligence (2003) 10.1016/s0160-2896(03)00052-7

Showing 50 of 73 references

Metrics

30

Citations

73

References

Details

Published: May 08, 2020
Vol/Issue: 130(632)
Pages: 2382-2409
License: View

Authors

A

Andreas C Drichoutis

Agricultural University of Athens

R

Rodolfo M Nayga

University of Arkansas

Cite This Article

Andreas C Drichoutis, Rodolfo M Nayga (2020). Economic Rationality under Cognitive Load. The Economic Journal, 130(632), 2382-2409. https://doi.org/10.1093/ej/ueaa052

Economic Rationality under Cognitive Load

You May Also Like