BSDIM · Behavioural Spillovers and the Design of Institutions and Markets

Behavioural Spillovers and the Design of Institutions and Markets

Behavioural spillover refers to the fact that behaviour under one institution is affected by behaviour under different institutions, for example because people carry over behavioural routines from one context to another. Economists typically analyze each institution in isolation, thereby missing out on possible behavioural spillovers. Behavioural spillovers, however, are observed across many markets and institutions. The equity premium puzzle in financial markets is just one well known puzzle which can be thought of as resulting from behavioural spillovers. Framing effects often observed in economic and psychological experiments could arise because of behavioural spillovers. With the IEF we have tried to understand how such spillovers can arise. With the reintegration grant we aim to show how this understanding of spillovers can be used for the design of markets and institutions. We have studied how such behavioural spillovers can be made use of for a more efficient design of institutions and markets. Particular focus was placed on decision making under uncertainty and on how different informational systems can differentially affect risk preferences. In joint work with Elias Tsakas (Maastricht) and Alexander Vostroknutov (Trento, former Maastricht) we have found evidence that living in environments characterized by a large degree of uncertainty can affect risk preferences in future decisions, even if those decisions present substantially lower degrees of uncertainty. Our results should be of interest to any social scientist interested in how experiencing environments of different degrees of uncertainty shape risk preferences. Different political systems, media and education systems all create such different environments. To the extent that our results transfer to such settings they are potentially actionable by both marketers and policy makers in product design and policy interventions. The project was executed at Maastricht University in close collaboration with an excellent international group of researchers.

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