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on Cognitive and Behavioural Economics |
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Issue of 2026–09–21
three papers chosen by Marco Novarese, Università degli Studi del Piemonte Orientale |
| By: | Ryan Oprea; Michael Woodford |
| Abstract: | The cognitive noise hypothesis is an increasingly popular explanation for a wide range of puzzling regularities in human behavior. Using simple, familiar tools and minimal assumptions drawn from neuroscience, cognitive noise models provide a parsimonious, unified explanation for a number of the most important anomalies documented in behavioral economics. The hypothesis proposes that limited cognitive resources force the brain to represent information imprecisely, generating coarser decisions, stochastic behavior and subjective uncertainty. Because brains deal with this kind of imprecision in a broadly Bayesian manner, imprecision leads to a number of well-known behavioral biases that may in fact be optimal given that imprecision. Because brains also allocate scarce cognitive resources adaptively, these biases and their severity are impacted by seemingly-irrelevant aspects of the choice environment, providing an explanation for a number of well-known context and experience effects that are otherwise difficult to explain. We review the basic structure of these models, their behavioral consequences, and the growing body of empirical evidence supporting them. |
| JEL: | D81 D91 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35714 |
| By: | Raja El Asri (FSJES Agadir, Université Ibn Zohr = Ibn Zohr University [Agadir]); Abdelaziz Messaoudi (FSJES Agadir, Université Ibn Zohr = Ibn Zohr University [Agadir]) |
| Abstract: | Financial decision-making has conventionally been conceptualized within the classical framework of rational agents functioning in efficient markets. This theoretical construct, represented by Homo economicus, posits that individuals possess complete information, demonstrate consistent behavior, and are solely dedicated to optimizing expected utility. Nevertheless, enduring market anomalies such as bubbles, excessive volatility, and momentum phenomena have called into question this rationalist perspective. These discrepancies underscore that investors frequently operate under the influence of psychological and social determinants rather than pure rationality. Behavioral finance has emerged as a discipline to bridge the existing gaps by synthesizing perspectives from psychology and sociology. It elucidates how cognitive biases, emotional responses, and heuristics such as overconfidence, loss aversion, and herding behavior consistently influence investment decisions. Prospect Theory, for example, illustrates that investors assess gains and losses asymmetrically, frequently resulting in suboptimal decision-making. Contemporary frameworks, such as Andrew Lo's Adaptive Market Hypothesis, endeavor to reconcile classical and behavioral paradigms by conceptualizing markets as evolutionary systems in which rationality evolves in response to shifting environmental conditions. Evidence from emerging economies, such as Morocco, substantiates these observations. Research indicates that investors in Morocco demonstrate analogous behavioral characteristics, particularly overconfidence, herding behavior, and loss aversion that markedly affect their investment results. Integrating classical finance theories with behavioral finance principles facilitates a more nuanced comprehension of financial behavior. Acknowledging both rational analytical frameworks and psychological inclinations enhances the development of superior financial models, more effective policy formulation, and refined decision-making strategies for both investors and managers. |
| Keywords: | Cognitive Biases, Efficient Market Hypothesis, Prospect Theory, Investment Decisions, Morocco, Intuition, Behavioral Finance, Rationality |
| Date: | 2025–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05691219 |
| By: | Sven A. Simon; Sven Arne Simon |
| Abstract: | Ignorance of facts and laws may provide an excuse for self-serving reporting behavior, even at the risk of telling the untruth. This paper examines what decision-makers report when they do not know their true entitlement to a financial gain, why they do so, and how the resulting dilemma under ignorance can be mitigated. In a theory-guided online experiment, I show that ignorance substantially increases self-serving but potentially untruthful reporting behavior relative to a full-information benchmark. Three mechanisms – two behavioral and one institutional – drive this shift: (i) decision-makers' beliefs about their true entitlement, (ii) social norms governing reporting under ignorance, and (iii) the requirement to provide a definite statement. I evaluate two interventions: allowing information acquisition and offering a fair buyout of the unknown entitlement. Both mitigate self-serving reporting under ignorance, but the fair buyout involves a trade-off: it has the unintended side effect of increasing dishonesty among informed decision-makers. |
| Keywords: | dishonesty, ignorance, information acquisition, fair buyout, social norms, experiment |
| JEL: | C91 D83 D91 H26 K42 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12985 |