Tag Archives: behavioral economics

Feeling like you’re an expert can make you closed-minded

Posted on by

I just came across this article on Research Digest which explores the relationship between expertise and closed-mindedness.  It is definitely worth a read but it got me thinking about decision making.

The article expresses that there could indeed be a strong link between people who feel that they are experts in a field and the dogmatism they provide.  A recent study in the Journal of Experimental Social Psychology published the findings.

So my first thought was does this occur in economics or finance?  We assume that agents are experts in things like ranking their own choices for utility.  Do these dogmatic feelings carry over to here?  I’m sure they do to some degree.  And if this is the case, how does an economist model this behavior?

We use habit persistent utility functions, but what about misidentified preferences?  Generally, our assumptions on preferences require them to be complete, reflexive, and transitive.  This last assumption should hold for “rational” individuals.  It would be interesting to include the dogmatic behavior of agents to see if any tractable results rise to the surface.

A more macro view of this behavior would be to see how individuals in the finance sector absorb information.  Does expertise breed closed-mindedness in this arena?  My intuition says yes.  I believe that there is some persistence to beliefs rooted in some dogma surrounding each institution.  Again, It would be interesting to see how, if at all, this could be measured through econometrics.

It’s all about who you know

Posted on by

The Washington Post recently posted an article describing what your neighbor knows rather than what you know.

A quick puzzle to tell whether you know what people are thinking

Their example requires you to observe a fictional town and the connections between the population.  What becomes apparent is that popular opinion may be biased in some way.  The network in this example shows that the majority believe their the minority.  This is a very real perception that many people in our society posit.

I think that the article said it best when they state that: “our sliver of local knowledge, can lead us to the false conclusion.”

This article speaks to how agents make decisions in the economy and this is very far from the idea of rational expectations.  Behavioral economics is beginning to explore these deviations from traditional methodology and with articles such as this, I believe that even macroeconomics will benefit from the change.