Building a bridge to behavioral economics: countervailing cognitive biases in lifetime saving decisions

This research project bridges system dynamics and behavioral economics by importing tools and concepts, such as feedback dynamics, into mainstream behavioral economics research. This project focuses on countervailing cognitive biases, a theory where two competing cognitive biases can interact or eve...

Full description

Saved in:
Bibliographic Details
Published in:System dynamics review 2019-07, Vol.35 (3), p.187-207
Main Authors: Bahaddin, Babak, Weinberg, Stephen, Luna‐Reyes, Luis F., Andersen, David
Format: Article
Language:English
Subjects:
Behavioral economics
Computer simulation
Economic models
Feedback
Human behavior
Iterative methods
Optimization
Retirement
System dynamics
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This research project bridges system dynamics and behavioral economics by importing tools and concepts, such as feedback dynamics, into mainstream behavioral economics research. This project focuses on countervailing cognitive biases, a theory where two competing cognitive biases can interact or even cancel out each other. We apply this concept to a key problem in behavioral economics: the difficulty that people have in making optimal trade‐offs between spending and saving for retirement. The simple model introduced in this paper represents the first iteration in the effort, and provides a proof‐of‐concept model that reproduces theoretical optimal behaviors from behavioral economics. Our exploratory analysis then adds to the simulation two cognitive biases that partially cancel each other out in ways that we had not initially expected. In the next step, we modify our original system dynamics model as an example of how to replace an economic optimization calculation with a decision‐making heuristic involving information feedback. © 2019 System Dynamics Society
ISSN:0883-7066
1099-1727
DOI:10.1002/sdr.1631