Effect of perceived cost on judgments regarding the efficacy of investment |
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Authors: | Phil Reed |
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Institution: | Department of Psychology, University College London, Gower Street, London, WC1E 6BT, UK |
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Abstract: | Three experiments examined the effect of costs associated with investments on the judgments of the causal effectiveness of those investments, and on the type of information utilised when making those judgements. Using operant conditioning technology, in an experimental analogue of making economic investments, it was found that greater costs associated with an investment reduced the judgement about the effectiveness of the response (Experiment 1). Greater investment costs tended to bias the subject toward using information integrated over a longer period of time; whereas low costs tended to produce judgements made on the basis of the conditions prevailing immediately prior to the return being acquired (Experiments 1–3). The effect of cost was modulated by the subjects' own financial background. The same absolute cost being treated as “greater” by those from less wealthy backgrounds compared to those from more affluent backgrounds (Experiments 2 and 3). These results suggest that as well as the nature of the schedule relating investment to return, the perceived cost of the investment determines the manner in which it is judged with respect to its efficacy. |
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Keywords: | Investment Judgement Perceived response cost Schedule of reinforcement |
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