Table Of ContentContributions to Economics
Julia Puaschunder
Advances in
Behavioral
Economics and
Finance Leadership
Strategic Leadership, Wise Followership
and Conscientious Usership in
the Digital Century
Second Edition
Contributions to Economics
The series Contributions to Economics provides an outlet for innovative research
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Julia Puaschunder
Advances in Behavioral
Economics and Finance
Leadership
Strategic Leadership, Wise
Followership and Conscientious
Usership in the Digital Century
Second Edition
Julia Puaschunder
Graduate School of Arts and Sciences
Columbia University
New York, NY, USA
ISSN 1431-1933 ISSN 2197-7178 (electronic)
Contributions to Economics
ISBN 978-3-031-15709-7 ISBN 978-3-031-15710-3 (eBook)
https://doi.org/10.1007/978-3-031-15710-3
1st edition: © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
Switzerland AG 2020
First edition published under the title “Behavioral Economics and Finance Leadership—Nudging and
Winking to Make Better Choices”.
2nd edition: © Springer Nature Switzerland AG 2022
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Preface
Behavioral economics revolutionized decision-making theory. Behavioral insights
offer promising avenues to help people make better and more socially responsi-
ble choices in very many different domains. The behavioral revolution changed
economic theory and policy practice in fields ranging from marketing, corpo-
rate governance to public affairs as well as leadership. Behavioral economists
nowadays nudge and wink people into favorable decision outcomes.
This book aims at nurturing interdisciplinary interests in behavioral economics
in the digital century. Behavioral insights will innovatively be applied in the leader-
ship domain. Strategic followership recommendations in the wake of digitalization
will be given. The application of behavioral economics to leadership and digital
governance accounts for the most cutting-edge approach to capture the power of
real-world relevant economics.
The book innovates strategic leadership theory for wise followership insights—
stressing the case of a combined decision-making whether one wants to be a leader
or follower throughout the different choice architectures presented in a complex
world. Drawing from a line of research on bounded rationality, the book will
enable readers to empirically find how economics can better societal conditions.
The book also provides clear guidelines how to use digital tools wisely with a
future-oriented and ethical view. Individual decision makers are also empowered to
maximize financial profits thanks to a clear understanding of the impact of heuris-
tics and biases as well as social influences. Behavioral strategists will learn how
to lead other people by nudges and winks to choose wisely for themselves, oth-
ers, and society. Conscientious consumers will be advised how to navigate through
a constantly evolving online world. Global governance specialists will learn how
information may distort economic rational choice.
The concept of “Conscientious Usership” is introduced—capturing unpaid
online usership of search engines, social media, and online market places that
gets harvested for big data. The use of future-oriented discounting in the predica-
ment between utility in information sharing versus dignity in privacy in the digital
millennium is emphasized. Special attention is paid to digital social media plat-
forms’ role as information exchange on minor medical conditions during the
COVID-19 pandemic—foremost in social media COVID Long Haul groups that
currently revolutionize the medical information market but come with the caveat
of privacy concerns and discrimination potential of vulnerable patient groups.
v
vi Preface
Data ownership but also the culture of e-ethics that we all create online will be
emphasized in the digital age.
The book will start by introducing the wide range of psychological, economic,
and sociological laboratory and field experiments that proved human beings deviat-
ing from rational choices. Standard neoclassical profit maximization axioms were
found to fail to explain how humans actually behave. Human beings rather use
heuristics in day-to-day decision-making. These mental short cuts enable us to
cope with a complex world yet also often leave individuals biased and falling
ashtray to decision-making failures. What followed was the powerful extension
of these behavioral insights for public administration and public policy-making.
Behavioral economists proposed to nudge and wink citizens to make better choices
for them and the community. Many different applications of rational coordination
followed ranging from improved organ donations, health, wealth, and time man-
agement, to name a few. The results of these studies will be presented in order
to derive hands-on leadership recommendations but also strategic followership
guidance.
The book innovatively captures behavioral economics and proposes further
analysis strategies to unravel how to use economics for the greater societal good.
The book enables the reader to empirically find how economics can improve soci-
etal conditions with particular attention to digitalization. By drawing from the
historical foundations of political economy, the book seeks to advance the field
of behavioral economics through a critical stance on behavioral sciences’ use for
guiding on public concerns.
While acknowledging that behavioral economics revolutionized mainstream
neoclassical economics, the limitations and implicit problems arising from nudg-
ing will be uncovered in academic but also applied and quasi-Socratic writing.
Throughout the book, readers are guided to investigate and scientifically propose
further analysis strategies to unravel how the use of economics for the greater soci-
etal good can be improved. The book thereby takes a heterodox economics stance
in order to search for interdisciplinary improvement recommendations for the use
of economics in global governance.
The book proposes an international focus on behavioral insights by providing
information about the state of the art of behavioral traditions in Europe and North
America. Stakeholder-specific facets of behavioral sciences and the different scien-
tific disciplines’ approaches toward heterodox economics and behavioral finance
are provided in the search for governance recommendations. The role of social
online media for financial markets will be outlined with particular attention to
social volatility. Delineating the potential of behavioral economics to implement
social welfare portrays economics as a real-world relevant means to minimize soci-
etal downfalls. Informing about the most novel behavioral insights in the finance
domain helps readers to imbue trust in the globalized world economy.
In a nested approach, the book features qualitative and quantitative research
projects to gain invaluable information about the interaction of economic market
with the real-world economy. The book is targeted to have direct implications for
policy-makers. The monograph can also teach upcoming behavioral economists on
Preface vii
how to conduct heterodox science projects alongside breeding civic engagement
and leadership on behavioral economics and finance leadership.
Ethics of inclusion and economics of diversity in the post-COVID-19 era
are covered. Particular focus will be paid to COVID-induced and pandemic-
exacerbated inequality drawing from concrete cases on the provision of equal
access to health, economic, and finance market benefits as well as digitalization
benefits. In light of COVID-19-induced market instability and the potential long
COVID threat, the need for integrating rest and recovery in economic calculus is
argued for. Artificial intelligence, robotics but also big data insights appear as dig-
ital remedies to aid on pandemic prevention but also human recovery assistance
in the aftermath of the pandemic. The need for research on healthcare-dependent
multipliers within economics is made.
The concept of e-ethics will be expanded on behavioral online ethics. Edges of
ethical market behavior in the harmful online abuse of nudges in negative blackhat
strategies in search engines will be thematized. Blackhat strategies are used to
make competitors’ online content disappear and search engine results clogged with
useless information or defamation occurs in bloating negative contents via click
farms. A fair searchplace mandate and the concept of searchplace discrimination
alleviation will be argued for. A “Right to Not be Forgotten” and to be online
present is argued for in the eye of online searchplace discrimination.
A future of behavioral economics’ perspective covers the most vibrant exten-
sions in behavioral law and economics with particular attention to disparate impact
analyses. Concrete contemporary examples are given, such as the current Inter-
national Law Commission opening up the field of behavioral law in the reality
check of law-in-books versus law-in-practice. The second edition of Behavioral
Economics and Finance Leadership: Nudging and Winking to Make Better Choices
includes a revision of references throughout the book and most novel literature in
the field.
Overall, the monograph strives to teach the necessary leadership skills to bring
change in a world of nudges, winks, and artificial intelligence encroaching human
workspaces. Delineating the potential of behavioral economics to implement social
welfare portrays economics as a real-world relevant means to minimize societal
downfalls and imbue trust in the globalized world economy. Alongside providing
an overview of behavioral sciences with an application in leadership and strategic
followership, the book will also take a critical approach to the economic analysis
of contemporary public choices.
This book developed during placements at Harvard University, Columbia Uni-
versity, Princeton University, Yale University, and the New School. The author
acknowledges support of the Fulbright Commission, the Max Kade Foundation
New York in cooperation with the Austrian Academy of Sciences, the Prize Fel-
lowship in the Inter-University Consortium of New York, the Schwartz Center for
Economic Policy Analysis, George Washington University, the International Insti-
tute for Applied Systems Analysis, the Fritz Thyssen Foundation, the University of
Vienna and the Vienna University of Economics and Business. At the moment of
the second edition, the author was primarily affiliated with Columbia University
viii Preface
and conducted an academic training with the Friends of the International Insti-
tute for Applied Systems Analysis (IIASA) in cooperation with the United States
National Academy of Sciences. The author declares no conflict of interest. All
omissions, errors, and misunderstandings in this piece are solely the author’s.
New York, USA Julia Puaschunder
July 2022
Contents
Part I Behavioral Foundations
1 Behavioral Economics ............................................... 3
1.1 Introduction .................................................... 3
1.2 Theoretical Background ........................................ 6
1.3 Individual Decision-Making Under Uncertainty ................. 7
1.3.1 Homo Nudgiens ........................................ 8
1.3.2 Bounded Rationality and Ethicality ...................... 8
1.3.3 Mental Temporal Accounting ............................ 26
1.3.4 Evolutionary-Grown Human Decision-Making ........... 38
References ........................................................... 39
Part II Digital Behavioral Economics
2 Communication in the Twenty-First Century ........................ 51
2.1 Nudging and Winking in the Digital Era ........................ 52
2.1.1 On the Collective Soul of Booms and Busts ............. 54
2.1.2 Nudgital: Critique of Behavioral Political Economy ...... 56
2.1.3 The Nudging Divide in the Twenty-First Century ........ 62
2.1.4 The case of Searchplace Discrimination ................. 64
2.1.5 Digital Inequality in the Post-COVID-19 Era ............ 71
References ........................................................... 75
Part III Behavioral Finance
3 Value at Looking Back ............................................... 79
3.1 Reflexivity in Socio-economic Backtesting ...................... 79
3.2 Results ......................................................... 82
3.3 Discussion ..................................................... 87
References ........................................................... 94
4 Financial Behavioralism: A Behavioral Finance Approach
to Minimize Losses and Maximize Profits from Heuristics
and Biases ........................................................... 97
4.1 Diversifying Nudges ........................................... 97
4.2 Crises-Robust Market Options .................................. 99
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