Sophisticated Individuals Research Articles

“A Theory Waiting to Be Discovered and Used”: A Reanalysis of Canonical Experiments on Majority-Rule Decision Making

The paper offers a reassessment of canonical attempts to address a fundamental question about majority rule: what is the relationship between the preferences held by the participants and the outcomes that emerge from their interactions? Previous work, based on the analysis of abstract spatial models or relying on data from real-world spatial experiments, has yielded a mass of contradictory findings. Our work applies a new technique for estimating the uncovered set, a concept that describes a fundamental constraint on majority rule: given the preferences of decision makers, which outcomes can emerge from majority-rule decision making? By applying the uncovered set to a series of previous experiments on majority rule, we show that their seemingly bizarre and incompatible findings are in fact consistent with a clearly specified theory of how sophisticated individuals make decisions in majority-rule settings.

Rethinking Symbolic Racism: Evidence of Attribution Bias

This paper demonstrates that cognitive tendencies related to political sophistication produce an attribution bias in the widely accepted symbolic racism scale. When this bias is controlled statistically, the effect of symbolic racism on racial policy attitudes is greatly diminished. Our theory posits that high sophisticates tend to make global/distal attributions, allowing them to associate racial inequality with broader sociopolitical causes. Less sophisticated individuals, conversely, tend to make local/proximal attributions, thus biasing them against ascribing responsibility systemically. Consequently, less sophisticated individuals tend to be classified as intolerant by the symbolic racism scale, even when controlling for factors such as ideology and anti-black affect.

Benefits of Contribution: Individual Asset Allocation, Diversification and Welfare in a Defined Contribution Pension System

We analyse the new Swedish pension system, which constitutes a partial defined contribution plan where individuals can choose from hundreds of mutual funds to invest part of their pension savings, making them bearing part of the investment risks themselves. We perform a factor analysis in order to explore the actual asset classes that are driving the returns of the mutual funds available to individuals. The large amount of mutual funds can be represented with only a few orthogonal factors or distinct asset classes. Moreover, we investigate individuals’ asset allocation choices and relate individuals’ factor exposures to a number of demographic and socio-economic variables in order to find out who holds what, and whether asset allocation and diversification differ with respect to individual characteristics. We find that sophisticated individuals are more likely be active participants in the pension system and tend to load less on a general index factor and bond factors than less sophisticated individuals. Moreover, we find significant differences in individuals’ portfolio performance, the most eye-catching result being that men show better performance than women. We argue that systematic differences in asset allocation and performance might give rise to unwarranted distribution effects in the new pension system.

Media Message Flows and Interpersonal Communication

This study investigates the differential effects of exposure and attention to news and of interpersonal communication on change in public opinion under the condition of one-sided or two-sided information flows. Based on Zaller’s theory of public opinion dynamics, for less politically sophisticated individuals, we expected media to influence changes in opinion under the condition of a one-sided message flow. We further expected politically sophisticated individuals to rely more on cues for opinion change stemming from interpersonal communication. The study draws on two-wave panel surveys and media content analyses of television news and national newspapers. The results confirmed our hypotheses and showed media effects for less politically sophisticated individuals under the condition of a one-sided message flow and effects of interpersonal communication for politically sophisticated individuals. Media had no effect under the condition of a two-sided message flow. The study concludes with a discussion of the conditionality of media effects and the moderating role of political sophistication.

Health Values, Preference Inconsistency, and Insurance Demand

Several empirical studies provide evidence that their actual health state affects people's attitudes towards health and medical care in hypothetical health states. In the tradition of behavioural economics this paper considers the actual health state as a point of reference and builds a model for studying the implications of this phenomenon on health insurance and on demand for medical care. It considers the insurance demand of different types of agents: naive individuals, individuals who are able to commit to medical care demand and sophisticated individuals. Furthermore, it raises the question of whether inconsistency of preferences reinforces or tones down moral hazard problems.

Causal Attribution and Economic Voting in American Congressional Elections

This article examines the ways in which political sophistication conditions economic voting in U.S. congressional elections. At the congressional level, evidence of economic voting has been generally mixed and sometimes contradictory. In our view, much of the inconsistency in existing studies may result from a tendency to overlook significant heterogeneity in voter decisionmaking. Specifically, we argue that an individual’s ability to attribute responsibility for economic outcomes to congressional actors is a function of political sophistication. According to our theory, less sophisticated voters tend to focus their attributions of responsibility on the President (the most obvious national political figure), ignoring the influence of Congress on the national economy. More sophisticated individuals, by contrast, are capable of more diffuse attributions. Thus, to the extent that conventional economic voting occurs in congressional elections, it should be confined to the more sophisticated portion of the electorate.

Distance, Language, and Culture Bias: The Role of Investor Sophistication

This paper documents that investors are more likely to hold, buy and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor's native tongue, and that have chief executives of the same cultural background. These distance, language and cultural biases are less prevalent among the most investment-savvy institutions than they are among both households and less savvy institutions. Regression analysis indicates (1) that the marginal effect of distance is less for firms that are more nationally known, and for distances that exceed one hundred kilometers and (2) more sophisticated individuals exhibit less distance bias.

Activation and application of political party stereotypes: The role of television

Despite tremendous changes in the American political system, the two major political parties continue to play an important role in mass political behavior. In this article we investigate how the medium of information presentation affects the likelihood that party images are activated and subsequently applied to process political candidate information. Conceptualizing party images as stereotypes, we use a two‐stage experimental design to test several hypotheses about stereotype processing under different information conditions. We find that television enhances the activation of party stereotypes for the more sophisticated, but inhibits activation for the less sophisticated. Once activated, however, partisan stereotypes are used in an information‐economizing way by both sophisticated and less sophisticated individuals to evaluate political candidates. However, television interferes with the ability of the less sophisticated to use policy information.

Subjective Probability Without Monotonicity: or How Machina's Mom May Also be Probabilistically Sophisticated

If an agent's preferences over subjectively uncertain acts are consistent with his or her having a subjective probability distribution over the states of nature, then those preferences can induce consistent preferences over «objectively» risky lotteries. Such «probabilistically sophisticated» behavior thus allows us to treat decision making under situations of uncertainty in an analogous manner to those under risk. This paper first characterizes exactly what probabilistic sophistication entails for an agent's beliefs about the likelihood of states of nature. Secondly, it presents characterizations of probabilistically sophisticated individuals whose induced lottery preferences obey neither the Independence AXiom (unlike Savage (1954, 1972)) nor a monotonicity property that shares some of the nature of Independence (unlike Machina and Schmeidler (1992))

The need for a new model for jewish continuity: a response to lipset’s remarks

American Jewry has a unique historical trajectory. Its current position as an elite group in the United States contrasts with its roots as a pariah people in Europe. Adapting to this historical discontinuity and adjusting the traditional Jewish communitarian model to the new reality of a constituency composed of successful and sophisticated individuals operating in a consumer society is a major intellectual challenge.

On-line processing in candidate evaluation: The effects of issue order, issue importance, and sophistication

This article reports the results of a study that replicates and extends the impression-driven model of candidate evaluation reported in Lodge, McGraw, and Stroh (1989). This model holds that evaluations are formed and updated on-line as information is encountered, and that as a result, citizens need not rely on specific information available from memory to form their candidate evaluations. In the present work we explore whether the order in which information is encountered, as well as whether information that is personally important, influences the weight accorded to evidence in on-line processing. In addition, differences in information-processing strategies due to political sophistication are examined. The results indicate that important information receives more weight than unimportant information. In addition, the evidence suggests that political sophisticates are more efficient on-line processors than are less sophisticated individuals. The implications of these results for models of candidate evaluation are discussed.

Technovation and the informal investor

Technovation is a creative process in financial as well as technical terms. Inventors, entrepreneurs, and venture capital are the key ingredients in the technovation process. The key financial concepts include venture capital risk/reward trade-offs, discounted cash flow evaluation of income producing assets, and the risk-bearing role of entrepreneurs and venture investors. This paper discusses and illustrates the economic creativity of successful technovation, and explores the division of rewards between inventor/entrepreneurs and venture investors. Capital market gaps affecting the financing of emerging, technology-based ventures are identified. The paper concludes with a discussion of current research in-to the role of informal investors (essentially financially sophisticated individuals of means) as a source of risk capital for inventors and entrepreneurs.