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The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load

Author

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  • Ondrej Rydval

    (Max Planck Institute of Economics, Jena, and CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic)

Abstract
We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.

Suggested Citation

  • Ondrej Rydval, 2012. "The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load," Jena Economics Research Papers 2011-064, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2011-064
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    Cited by:

    1. Sean Duffy & J. J. Naddeo & David Owens & John Smith, 2024. "Cognitive Load and Mixed Strategies: On Brains and Minimax," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 26(03), pages 1-34, September.
    2. Lau Lilleholt, 2019. "Cognitive ability and risk aversion: A systematic review and meta analysis," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(3), pages 234-279, May.
    3. Prokosheva, Sasha, 2016. "Comparing decisions under compound risk and ambiguity: The importance of cognitive skills," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 64(C), pages 94-105.
    4. repec:cup:judgdm:v:14:y:2019:i:3:p:234-279 is not listed on IDEAS
    5. Allred, Sarah & Duffy, Sean & Smith, John, 2016. "Cognitive load and strategic sophistication," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 162-178.
    6. Katarzyna Samson & Patrycjusz Kostyszyn, 2015. "Effects of Cognitive Load on Trusting Behavior – An Experiment Using the Trust Game," PLOS ONE, Public Library of Science, vol. 10(5), pages 1-10, May.
    7. Duffy, Sean & Smith, John, 2014. "Cognitive load in the multi-player prisoner's dilemma game: Are there brains in games?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 51(C), pages 47-56.
    8. Adam Sanjurjo, 2015. "Search, Memory, and Choice Error: An Experiment," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-16, June.
    9. Chen, Chia-Ching & Chiu, I-Ming & Smith, John & Yamada, Tetsuji, 2013. "Too smart to be selfish? Measures of cognitive ability, social preferences, and consistency," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 112-122.
    10. Deck, Cary & Jahedi, Salar, 2015. "The effect of cognitive load on economic decision making: A survey and new experiments," European Economic Review, Elsevier, vol. 78(C), pages 97-119.

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    More about this item

    Keywords

    Cognitive ability; Causality; Experiment; Financial incentives; Performance; Working memory;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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