Cognitive Finance: Behavioral Strategies of Spending, Saving and Investing

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P. Otto
European Univ. Viadrina, Microeconomics Dept., Frankfurt (Oder)Germany

Series: Economic Issues, Problems and Perspectives

Research in economics is increasingly open to empirical results. The advances in behavioural approaches are expanded here by applying cognitive methods to financial questions. The field of “cognitive finance” is approached by the exploration of decision strategies in the financial settings of spending, saving, and investing. Individual strategies in these different domains are searched for and elaborated to derive explanations for observed irregularities in financial decision making. Strong context-dependency and adaptive learning form the basis for this cognition-based approach to finance. Experiments, ratings, and real world data analysis are carried out in specific financial settings, combining different research methods to improve the understanding of natural financial behaviour.

Table of Contents

Table of Contents

Preface
Acknowledgements

Abstract

List of Figures
List of Tables pp. xi

1. Introduction pp. 1-16
1.1. Context Specific Strategy Usage
1.1.1. Context Dependency and Framing
1.1.2. Context Dependency and Domain Specificity
1.2. Changes in Strategies
1.2.1. Learning
1.2.2. Adaptation
1.3. Behavioural Finance
1.3.1. Hedonics of Spending Strategies
1.3.2. Mental Accounting and Self-Control in Saving Strategies
1.3.3. Risk and Incentives in Investing Strategies
1.4. Methods for Capturing Cognitive Processes
1.4.1. Experiments
1.4.2. Ratings
1.4.3. Real World Data
2. Spending Strategies pp. 17-38
2.1. Behavioural Evaluation
2.1.1. Spending Literature
2.1.2. Individual Spending Differences
2.1.3. Behavioural Analysis
2.2. Usage of Behavioural Data
2.2.1. Data Aggregation
2.2.2. Data Interpretation
2.2.3. Customer Understanding
2.2.4. Conclusion

3. Saving Strategies pp. 39-58
3.1. Saving Literature
3.1.1. Economic Model
3.1.2. Behavioural Aspects
3.1.3. Applied Cognition
3.2. Saving Concept (Study 1)
3.2.1. Method
3.2.2. Results
3.2.3. Discussion
3.3. Saving Differences (Study 2)
3.3.1. Method
3.3.2. Results
3.3.3. Discussion
3.4. Saving Solutions
3.4.1. Product Demands
3.4.2. Prototype Generation and Selection
4. Investment Strategies I pp. 59-80
4.1. Company Concept (Study 3)
4.1.1. Method
4.1.2. Results
4.1.3. Discussion
4.2. Company Evaluation (Study 4)
4.2.1. Method
4.2.2. Results
4.2.3. Discussion
4.3. Company Positioning (Study 5)
4.3.1. Method
4.3.2. Results
4.3.3. Discussion
4.4. Company Characteristics
4.4.1. Universality of Corporate Personality Dimensions
4.4.2. Stability and Usefulness of Corporate Personality Dimensions

5. Investment Strategies II pp. 81-128
5.1. Performance Prediction
5.1.1. Strategy Repertoire
5.1.2. Strategy Learning
5.1.3. Models for Strategy Selection
5.2. Company Selection in Different Environments (Study 6)
5.2.1. Method
5.2.2. Results
5.2.3. Discussion
5.3. Company Selection with Memory Costs (Study 7)
5.3.1. Method
5.3.2. Results
5.3.3. Discussion
5.4. Company Selection with Information Costs (Study 8)
5.4.1. Method
5.4.2. Results
5.4.3. Discussion
5.5. Process Modelling
5.5.1. Strategies for Inferences
5.5.2. Strategy Selection Learning
5.5.3. Predicting Inferences
5.5.4. Adaptive Strategy Selection

6. General Discussion pp. 129-136
6.1. Characterizing Mental Processes 129
6.1.1. Domain Specificity versus Universal Mechanisms 130
6.1.2. Learning and Intra-/Interindividual Variation 130
6.2. Financial Personality 131
6.2.1. Demand Variation 131
6.2.2. Tailored Products 132
6.3. Economic Evaluation 133
6.3.1. Gains and Losses 133
6.3.2. Future Perspectives 134

Acknowledgements pp. 137-138

References pp. 139-162

Appendix pp. 163

Appendix A: Derived Saving Structures

Appendix B: The 10 Saving Factor Descriptions

Appendix C: Individual RepGrid Results for the Concep
‘Company’

Index pp. 179-187

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