Project Details
Projekt
Belief Formation: Recency, Visual Salience, and Memory
Term
since 2022
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 504264722
How people translate information at their disposal into beliefs about future uncertain outcomes concerns researchers in diverse fields such as child protection, housing, justice, health, education, traffic level, and climate change. In economics, the normative benchmark is given by rational expectations: agents should use all available information and immediately incorporate it following Bayes’ law. However, there is broad evidence that individuals do not always process information rationally but often in a biased way. While gaining insights how people form expectations is obviously interesting for many domains, the focus of this proposal is on financial decision-making. Financial decisions have a huge influence on people’s life, for example, when saving for retirement or taking a mortgage. Therefore, our overarching research objective is to better understand how financial market participants form beliefs based on the most ubiquitous information available – stock price charts. More explicitly, we aim at (1) experimentally and empirically exploring the relation between the visual salience of certain price path areas and extrapolative beliefs, (2) distinguishing between recency and visual salience effects as two distinct mechanisms that drive extrapolative beliefs, and (3) understanding how memory effects explain the relation between return salience and beliefs. On a methodological level, we want to establish that bottom-up visual salience helps to explain how people form beliefs. To do so, we apply a new neuro-scientifically inspired machine learning algorithm to measure bottom-up visual salience. On a conceptual level, we extend existing theories on attention effects. Referring to real-world applications, we intend to provide evidence on how visualizations can impact retail investors’ attitudes towards financial products such as mutual funds or retirement saving products. These insights can both help financial service providers in designing such products and guide policy makers in setting regulative requirements.
DFG Programme
Research Grants
International Connection
Netherlands, USA
Cooperation Partners
Professor Colin F. Camerer, Ph.D.; Professor Dr. Sven Nolte
