Psychological and cognitive foundations of economics: how working memory load, estimation biases and (anti-) social preferences affect economic decision-making

The relation between economic choice theories and empirical psychology varied over the last centuries: Whereas early neo-classical economists were influenced by psychology, beginning with the 20th century, economists started to focus on axiomatic descriptions of decision-making devoid of psychological explanations. Since the rise of behavioral economics in the eighties of the last century, psychological methods and theories are again widely accepted in economics. Building on that development, this thesis presents three manuscripts that experimentally investigate the psychological and cognitive foundations of economic choices. Manuscript 1 examines the effect of a
reduction of cognitive capacities on economic choice behavior. As a result it was found that such a reduction affects choice consistency, that is the extent to which a participant makes choices in line with a single utility function, rather than economic preferences. Manuscript 2 explores the cognitive foundations of economic choices. Two experiments compare behavioral patterns in a number estimation task with economic behavior in giving certainty equivalences for monetary lotteries. As a result, similar distortions in both tasks were observed, suggesting that parts of economic behavior can be accounted for by basic cognitive distortions instead of economic preferences. Another area of interest within behavioral economics are social preferences, that is the observation that people are affected by the outcomes of other (relevant) people. Manuscript 3 examines how anti-social motives, that is gaining utility from reducing another person’s outcome relative to one’s own, can explain differences in the amount of risk-taking for oneself compared to someone else. In addition, the manuscript shows that these anti-social preferences are only expressed in choices under uncertainty and not under certainty. Together, these three manuscripts advance the field of behavioral economics by introducing cognitive theories about the perception and integration of choice options as well as the interaction between social motives and uncertainty to economic choice theory.