Document Type

Article

Publication Date

2016

Abstract

Cognitive reflection has been shown to be an important trait which is correlated with the propensity to: take risks, delay gratification, and form accurate beliefs about others’ behavior. However, previous research has not cleanly identified whether reflective thinkers make ‘better’ decisions than intuitive thinkers, since inferences of decision quality are confounded by inferences regarding risk preferences, time preferences, and beliefs. We directly test for differences in decision quality between reflective thinkers and intuitive thinkers in both individual and strategic decisions using a design which makes it possible to objectively rank risky and strategic choices, independent of one’s attitudes toward risk or one’s beliefs about the strategic sophistication or altruism of other decision makers. Employing a lottery choice task involving a dominant and a dominated alternative, and implementing multiple rounds of a second price auction, we find that the tendency to cognitively reflect has strong predictive power across domains (reasoning tasks, choices between lotteries, bidding behavior in auctions), and across time (as the tasks were administered on separate dates). In particular, the same subjects who engaged in reflective thinking on simple reasoning problems were also more likely to choose optimally in the lottery choice task and to bid closer to the dominant strategy equilibrium in second price auctions. We also find that experience helps to narrow the gap in performance between reflective and intuitive thinkers.

Comments

Working Paper 16-24

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