| Abstract: |
Despite decades of research on heuristics and biases, empirical evidence on
the effect of large incentives – as present in relevant economic decisions –
on cognitive biases is scant. This paper tests the effect of incentives on
four widely documented biases: base rate neglect, anchoring, failure of
contingent thinking, and intuitive reasoning in the Cognitive Reflection Test.
In laboratory experiments with 1,236 college students in Nairobi, we implement
three incentive levels: no incentives, standard lab payments, and very high
incentives that increase the stakes by a factor of 100 to more than a monthly
income. We find that response times – a proxy for cognitive effort – increase
by 40% with very high stakes. Performance, on the other hand, improves very
mildly or not at all as incentives increase, with the largest improvements due
to a reduced reliance on intuitions. In none of the tasks are very high stakes
sufficient to de-bias participants, or come even close to doing so. |