Conventional economics assumes that people desire information only because it helps them to make better decisions, and that they adjust their beliefs in response to new evidence. In reality, people often cherish their clearly misguided beliefs, defend them from perceived challenges, and can be hostile to those who hold different views. Examples include climate change denial and the anti-vaccination movement as well as managers who are overconfident about their skills and achievements.
To explain these phenomena, behavioral economists have developed the concept of “belief-based utility”, whereby the utility people derive from their convictions as such can make them cling to wrong beliefs even against all common sense. In the briq Beliefs Workshop, researchers presented and discussed novel findings spanning various facets of this topic – ranging from the role of political convictions to information avoidance and selective memory.
Several presentations highlighted the importance of beliefs and values as drivers of economic decision-making. Benjamin Enke linked voting behavior in recent U.S. presidential elections to beliefs about what is “right” and “wrong”: Whereas some individuals’ notion of morality is centered around “universal” values such as individual rights, justice and fairness, others emphasize “communal” values like loyalty, respect and tradition. For instance, while Donald Trump’s speeches focused on communal values, Hillary Clinton had rather drawn on universal vocabulary. To a significant extent, voting decisions in the election reflected the match between voters’ and candidates’ moral values, which accounted for 20% of the variation in voting behavior. Enke resumed that recent shifts towards communal values especially in rural areas of the U.S. might contribute to increasing political polarization.
Beliefs and educational choices
With regard to educational choices, Teodora Boneva presented the results of a large-scale survey on undergraduate students’ beliefs about the advantages and disadvantages of pursuing a postgraduate degree. The study uncovered that students whose parents obtained a university education are generally more optimistic than first-generation students: They expect a better social life and financial situation as well as more parental support during their postgraduate education. Moreover, they anticipate a stronger positive effect of a postgraduate degree on future earnings. These findings are important because they can explain why students from better socioeconomic backgrounds are more likely to enroll in postgraduate programs, despite efforts from universities to attract first-generation students.
Muriel Niederle analyzed the importance of competitiveness for education and labor market outcomes using a large data panel in the Netherlands. Together with her co-authors, she found that competitiveness is at least as predictive for educational attainment and earnings as risk attitudes and a set of commonly analyzed psychological traits like conscientiousness, extraversion and agreeableness. Her findings also confirm the results of her previous work, which showed that gender differences in competitiveness can explain about one fifth of the gender gap in career choices.
Beliefs and overconfidence
A second focus of the workshop was on how people’s beliefs are skewed towards what they want to be true. For example, Botond Köszegi presented theoretical work based on the observation that people tend to be overconfident and showed that this may result in prejudices. If individuals are generally too optimistic with regard to their ability, they will perceive their group to be discriminated against because they do not receive as much recognition as they think they should. This can explain the occurrence of two socially problematic phenomena: On the one hand, people tend to have overly positive perceptions of groups they are members of, while other groups they do not belong to are perceived too negatively. On the other hand, individuals from different groups disagree over the degree of discrimination.
In his presentation on the role of biased memory for manager overconfidence, David Huffman addressed the question of how overconfidence can persist despite repeated performance feedback. He and his co-authors analyzed the beliefs of store managers who receive about a fifth of their salary in the form of bonus payments, which depend on their relative performance rank among all stores owned by the company. Managers are ranked and awarded bonus payments quarterly, so they receive repeated feedback about their relative performance. Huffman and his team found that managers were persistently overconfident regarding their future performance. Moreover, those with a more positively distorted recall of their previous rank displayed the highest degree of overoptimism. This result provides new evidence for an important mechanism people use to sustain biased beliefs.
However, people’s beliefs are also shaped by their economic experiences. In the context of the 2015 Israeli elections, Moses Shayo demonstrated that participation in financial markets can affect political beliefs: Voters who were randomly assigned either Palestinian or Israeli stocks prior to the election were six percentage points more likely to vote for parties supportive of the peace process than their counterparts who had not received any assets. More than 30% of the effect can be explained by the observation that being exposed to financial markets reduced participants’ opposition to concessions for peace, and increased their awareness of the economic risks and consequences of conflict.
This is only a small selection of the large number of high-quality papers presented at the workshop.
View the full list of presentations here.