The Effect of Cognitive Biases and Visceral Factors on Economics Decisions

This work presents new evidence of effects that cognitive biases and visceral factors, particularly hunger, have on economic decisions. In Chapter 1, I test whether individuals display inattention to the decimal digits of a price (i.e. left-digit bias). Using data from a unique experiment conducted by Chetty et al. (2009), who find that tax-salience decreases demand, I find that if tax-salience shifts the price left-most digit upwards the decrease in demand is larger. This study presents new evidence on left-digit bias and also suggests that this is the main channel through which tax salience affects consumers' decisions. In Chapter 2, I motivate a new research agenda by drawing parallel evidence from psychology, economics, and neuroscience, and posing the question: does cognitive-fatigue and hunger affect time preferences? Using data from a novel laboratory experiment, I find that hunger and cognitive-fatigue exacerbate impatience. On one hand, cognitive-fatigue appears to decrease attention and increase the use of heuristics, resulting on a higher degree of utility curvature. On the other hand, hunger has a larger effect on impatience when monetary rewards are immediate, resulting in present-biased preferences. These results show that present bias is a visceral response activated when sooner rewards are immediate, and can help explain why the poor tend to make more shortsighted economic decisions