Paul Grass

Abstract: Do mental models learned in one asset class shape expectations in another? This question has become pressing as many new investors now enter financial markets through cryptocurrency and turn to stocks only later. Across two preregistered experiments, participants encounter either a momentum or a contrarian model of cryptocurrency price dynamics. One to three days later, in an obfuscated follow-up, they forecast stock returns. The model spills over: momentum-trained participants extrapolate nearly four times as strongly from past stock returns as contrarian-trained participants. A fundamentals-based model for stocks does not displace the crypto model, and spillovers decline with the breadth of prior investment experience. Holding the stock information fixed, spillovers more than double under the crypto task's price-chart format relative to a text tear sheet. Expectations in one market thus draw on models learned in another, while surface similarity helps determine which model is used to interpret identical information.

Upcoming presentations: Dr. Hans Riegel PhD Symposium for Economic Research (Boppard), DGF Doctoral Workshop (Düsseldorf). 

Presented at: ESA European Meeting (Barcelona), Helsinki Finance Summit on Investor Behavior, Finance Research Revolution Conference (Weggis, poster), M-BEES (Maastricht), BCFM PhD Conference (Cologne), University of Bonn, CRC TR 224 Young Researchers Workshop (Mannheim).

People often form incomplete mental models, having to revise them as new relevant variables become observable. We show experimentally that models are 'sticky': revised models remain strongly influenced by earlier models formed using a subset of variables. Sticky models occur across three different data-generating processes and across heterogeneous reasoning types of subjects. Guided by a simple framework of dynamic model formation, we investigate cognitive effort allocation as a key mechanism: across three DGPs, we find that stickiness is driven by subjects who exert relatively less cognitive effort during the model revision relative to the initial model formation.

Presented at: MPI Workshop on Misperceptions, Mental Models and Polarization, M-BEES (Maastricht), Zeuthen Workshop on Cognitive Foundations of Economic Behavior (Copenhagen), Maastricht University, University of Bonn, CRC TR 224 Retreat (Montabaur), ESA European Meeting (Exeter). Presented by coauthors: SITE Experimental Economics (Stanford), Berlin Micro Theory and Behavioral Economics PhD Conference, ESA North American Meeting.

Policy Uncertainty and Household Investment: Evidence from Carbon Pricing (with Andreas Gerster, Kathrin Kaestner and Michael Kramm)

Presented at: Joint Workshop of IDOS, ECONtribute and University of Bonn, PhD Course on Subjective Expectations (Gerzensee), University of Bonn. Presented by coauthors: Behavioral Measurement Conference (Frankfurt), M-BEPS (Maastricht), Potsdam Institute for Climate Impact Research, University of Münster, WCERE (Carcavelos), TU Dortmund, AURÖ Annual Meeting.