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Law enforcement agents enforce rules that they might transgress in their private lives. Building from a theory of “hypocrisy aversion” where agents incur psychological costs from imposing a sanction on others for rules that they might break, the authors design a two-player game in which players are simultaneously placed in the roles of enforcer and potential transgressor. In this model, discretionary enforcement is endogenous to the size of the sanction. Conditional on rewards to enforcement and punishment that are both sufficiently small in the status quo, the authors demonstrate that price effects can be dominated by second-order hypocrisy effects, leading to rates of transgression that increase with larger sanctions. The authors test the model within a laboratory experiment where individuals can simultaneously gamble at the expense of a third party and punish those they observe gambling. Examining the comparable testable predictions of models of (i) selfish agents, (ii) pro-social agents, and (iii) pro-social agents who are averse to hypocrisy, the authors find evidence of hypocrisy aversion in the rates of gambling, sanctioning, and the changing composition of agent strategies. Our results suggest that increasing sanctions can backfire in the deterrence of common criminal and non-criminal offenses.

Introduction – Markowitz (1952) argues that individuals act rationally in their financial decisions. In contrast, Kahneman and Tversky (1979) claim that the psychological characteristics of people significantly affect financial decisions. In making these decisions, factors such as age, gender, and educational status may have an impact.

Purpose – The purpose of this study is to determine whether financial literacy has an impact on individuals’ cognitive biases related to financial investments.

Methodology – A sample of 444 individuals were surveyed.

Findings – In the results of study (1) it was determined that financial literacy leads to differences in cognitive biases; and (2) cognitive biases of individuals who do not receive finance education are different from individuals who receive finance education and professionals in the business world. The findings indicate that the increase in the level of financial literacy of individuals will reduce the cognitive biases and heuristics, and therefore will have a positive effect on the investor behavior in financial markets.

Mergers & acquisitions (M&A) are an important element of any company's growth plan. However, the actual performance of most M&A activity fails to live up to the expectations of the acquirers. The psychological biases that affect decision-making have been posited as a source of this disappointing performance. The broad strokes in which these biases have been offered up as explanation for M&A failure don't offer much insight into the specific causes, and therefore the actions business leaders can take to mitigate their impact. We review a 4-step M&A process, identify the different biases that affect the different stages, and then offer practical debiasing techniques targeted at that particular stage of the decision-making process. This targeted debiasing can help business leaders find practical solutions to this vexing problem. Finally, we review two biases that motivate decision makers to avoid pursuing M&A deals at all – to the detriment of achieving their growth targets.