Cognitive biases in expectation formation Lab evidence on redistribution preferences, financial forecasting, and subscription traps

Upon an introductory part, Chapter 2 brings existing inequality in South Africa (high) and Switzerland (low) to the lab to study how people’s preferences for redistribution change with the level of income inequality and uncertainty of income positions. The results propose an inequality trap: greater inequality today favors personal income overestimation. Demand for redistribution reduces, which propels advanced inequality tomorrow.
Chapter 3 reports a series of Learning-to-Forecast experiments, which are found to replicate price volatility of demand-driven asset markets quite accurately. This study investigates whether “bubble-and-crash” dynamics persist in the long run (150 periods) and how decision time (6 vs. 25 sec) influences market volatility. Low time pressure induces a tendency of prices converging to their fundamental value in the long run. In contrast, increasing time pressure limits trend-chasing behavior and coordination right from the beginning. Consequently, there is less price volatility and faster convergence to the fundamental value.
Chapter 4 explores a novel menu effect in the context of subscriptions. Providers typically capitalize on arranging offers such that a longer, but costlier option is chosen over the cheaper, but shorter alternative. Sizing the shorter subscription down to single-use raises its attraction. This suspects that the presence of a single-use option prompts rational evaluation based on a realistic estimate to use the subscription again. Instead, when both alternatives represent time spans, an irrational mind may discern them along the same category - referred to as pigeonholing - with the consequence that other comparative criteria come to the fore.