Causality Illusion and Overconfidence in Predicting (Quasi)Stochastic Events

We argue that individuals systematically interpret sequences of events in a causal manner. The aim of this article is to show that people do so even if they are aware of the stochastic nature of the respective sequence. The bias can explain some anomalous behaviour of investors in financial markets. Small as well as professional investors may illusorily perceive causality of former random success and future yield. Laboratory experiments testing the interpretation of stochastically occurring events in financial designs as well as analyses of real trading data from financial markets confirm that investors indeed interpret (quasi)random events casually; they make incorrect predictions and they egocentrically allocate responsibility for their success. The causality illusion induces overconfidence, inefficient investment and risk seeking. In the conclusion, we discuss factors that may limit effects of the causality illusion and suggest future areas for research.

Citation: Houdek, P., Koblovský, P., Plaček, J., & Smrčka, L. (2017). Causality Illusion and Overconfidence in Predicting (Quasi)Stochastic Events. Acta Oeconomica Pragensia, 25(1), 51–63. doi: 10.18267/j.aop.568 [in Czech as: Iluze kauzality a nadměrná důvěra ve schopnost predikce (kvazi)náhodných finančních událostí:

Economics of sex: Cost benefit analysis

The article presents an application of the cost-benefit analysis to human sexual behavior. We suggest that an event or occasion which lowers the costs of sex – such as increasing free time, decreasing health risks of sexually transmitted diseases or lowering the probability of parenthood (or costs connected with parenthood) – usually leads to an increase in sexual activity. Although the reviewed studies concerning these effects confirm our predictions, findings are not robust, e.g. a vaccination against STDs does not always lead to an increase in sexual activity. In the conclusion, we make several socioeconomic recommendations resulting from the application of the economics of sex.

Citation: Houdek, P., & Koblovský, P. (2017). Economics of sex: Cost benefit analysis. Society, 54(1), 18-22. doi: 10.1007/s12115-016-0089-2

Behavioural economics of organization: Employees and managers

This short perspective article presents an overview of empirical evidence on the behavioural organizational economics on the basis of the extended standard model of worker’s behaviour. The advancements of behavioural economics theories, new detailed and structured data on actions of economic actors, and increasingly used fi elds experiments provide a strong basis for the creation of more precise and more robust models of the behaviour of employers and employees. In this article we analyse 4 stylized extensions of standard model of worker’s behaviour. Firstly, we give several examples of worker’s reference dependent decision-making. Secondly, we utilize Akerlof’s hypothesis on the relationship between an employer and an employee which is as predicted very reciprocal, similarly to the gifts exchange paradigm. We show that the more the employee thinks s/he is trusted by the employer, the harder and more effi ciently s/he works. Thirdly, we show several instances of the importance of extrinsic and intrinsic motivation in employees and how those two motivations interfere with each other and crowd each other out in some situations. The research shows that meaningfulness of the work can be a signifi cant driver of the employees’ effi ciency as well. In the last section devoted to employees we provide evidence on the impacts of relative performance compensation on cooperation, reciprocity, and sabotage in fi rms. The last part is devoted to analysing behavioural regularities of managers in their day-to-day decision-making. The overview briefly expands particularly on their over-optimism and on their possibly undeserved remuneration resulting from random events and market changes rather than from the managerial skills. The article concludes by proposing possible directions for further field research.

Citation: Houdek, P., & Koblovský, P. (2017). Behavioural economics of organization: Employees and managers. E&M Ekonomie a Management, 20(1), 4-15. doi: 10.15240/tul/001/2017-1-001

Where is my money? New findings in fiscal psychology

The essay outlines selected psychological attitudes towards taxes. We argue that the application of behavioural economics methodology to taxation is more than justified because, in their decision-making, taxpayers seem to be influenced by the perception of taxes rather than solely by their existence. We also discuss several real life examples of how tax salience affects the perception of taxes in various settings. The conclusion points out that the tax non-salience contributes to fiscal illusion, which allows governments to grow.

Citation: Houdek, P., Koblovský, P. (2015). Where is my money? New findings in fiscal psychology. Society, 52(2), 155-158. doi: 10.1007/s12115-015-9873-7

Optimism bias and overconfidence effects in managerial decision making

This article presents a review on how the optimism bias and overconfidence effects might affect the performance of an individual, and in particular, of a manager or a business owner. The former one appears to be an evolutionary adaptation responsible for a good mental health, and as such is being considered as one of the most consistent, prevalent, and robust biases documented in psychology and behavioral economics. Together with the latter one, these cognitive biases might result in persistent impression that chosen strategy is reasonable, even if a statistical evidence or past experience indicate the contrary. The paper also offers several ideas how to increase performance by reducing effects of an excessive optimism and confidence, even though sometimes just the mere awareness of them can do the trick.

Citation: Zíka, V., & Koblovský, P. Optimism bias and overconfidence effects in managerial decision making. 2016. Conference Paper.

Behavioral Economics and Customers’ Decisions at Energy Market

Financial planning is undoubtedly a useful tool to enhance an efficiency of both market sides and thus efficiency of the whole market. However, it is essential to realize that planning can fail in the face of a reliance on a neoclassical cost-benefit analysis while ignoring findings of the behavioral economics. Electricity markets, where despite recent tendencies to make such markets more competitive, consumers seem not to switch their tariffs as much as standard analysis would suggest. It appears that switching decisions are strongly influenced by several psychological factors like status-quo, time inconsistency and mental accounting. This paper presents a review of works on mentioned factors with aim to provide planners on the supply side with a theoretical background how to incorporate such factors into their cost-benefit analysis. By doing so, they can not only make the market more effective but will also improve welfare of their consumers.

Citation: Zíka, V., & Koblovský, P. Behavioral economics and customers’ decisions at energy market (2016). Conference paper.

General introduction to behavioral law and economics

Citation: Houdek, P., & Koblovský, P. (2007). General introduction to behavioral law and economics. Acta Oeconomica Pragensia, 4(15), 137-145.