Faculty & Research

NSE Centre for Behavioral Science in Finance, Economics and Marketing

About the Centre

The NSE CBS at IIMA is set up to advance the frontiers of behavioral science research in India.

It is the first of its kind in a management institution in the region with sophisticated infrastructure and technology to conduct experiments in how different aspects of behavioral science impact processes and outcomes in markets.

The objective of the Centre is to undertake knowledge creation on a range of topics related to business issues in financial markets and financial services that would be insightful to help decision-making for policymakers, individual retail investors, fund managers, traders, analysts, wealth advisors, and other managers and leaders. In the process, it builds high-quality research, analytics, and insightful knowledge on a range of topics related to business issues in the Indian financial markets and financial services across different stakeholders.

The MOU was signed between NSE and IIMA to set up a center for behavioral science in finance, economics, and marketing at IIMA with the aim of encouraging research on social and behavioral aspects that tend to play a pivotal role in shaping the savings and investment habits of the population.

Behavioral science tools have been advancing over the years and could unearth deep-rooted behavioral patterns and biases. Insights gleaned from such research could shed new light on our understanding and help shape policies that could spread the benefits to a wider section of the population. The focuses is on multi-disciplinary, thematic, and applied research in areas related to the behavioural applications of finance, economics, organizational behavior, and marketing

Vision & Mission

The objective of the Centre is to engage in knowledge creation, foster cross-disciplinary collaboration, and promote meaningful industry-academia partnerships.

 

To educate, research, and highlight practices on a range of topics related to business issues in financial markets and financial services, that would be an insightful tool to aid decision-making for policymakers, individual retail investors, fund managers, traders, analysts, wealth advisors, and other stakeholders.

 

The centre provides a fertile environment for interdisciplinary collaboration aimed at understanding behavior and cognition in the subjects of behavioral finance, behavioral economics, neuromarketing, OB, and HR.

Research Areas

Build a niche platform for conducting and disseminating research grounded in neuroscientific and behavioral knowledge across the streams of management.

Centre Activities

The Behavioral Science Laboratory is designed to explore the applicability of behavioral science theories in marketing, finance, and economics. The lab undertakes empirical research, which in turn enables investigators to produce meaningful decision-making insights not only for industries but also to help shape better policies and improve services. Research is carried out in state-of-the-art laboratories.

EEG Lab

The Centres Lab is equipped with a 32-channel wireless EEG system from Brain Products. The LiveAmp amplifier of Brain Products' system is light and wearable and stores data internally. The wireless trigger set is a fully mobile solution for sending triggers and setting event markers, which helps during data analysis. As the system is wireless, it allows for more mobility and can be used to collect data across more realistic scenarios.

Electroencephalography (EEG) is one such approach by which one can monitor the electrical activity in the brain. It is a non-invasive methodology, where electrodes are placed on the scalp to record cortical activity with high temporal resolution. EEG has been used across the fields of marketing to understand consumer behavior, in finance to examine the differential effects of factors like risk and emotion while making financial decisions, and in economics to experimentally examine concepts of behavioral economics.

Eye-tracking Lab

The centre is equipped with both screen-based and wearable eye trackers from Tobii Pro. The first set is the "Tobii Pro Fusion," a screen-based eye tracker with sampling frequencies up to 250 Hz. The Tobii Pro Fusion's two custom cameras aid in binocular eye tracking of pupil and corneal reflections of the eyes in various lighting modes. This technology helps capture accurate and robust data for the individual’s eye gaze and point calibration which helps in faster data collection. The data from both eye trackers can be swiftly and comprehensively analyzed using software.

Eye tracking data is insightful in understanding the attention and engagement of an individual in real time while one interacts with a stimulus. Results from the gaze plots and fixation durations can help assess which elements the audience engages with and which ones they ignore. Recent research examines the behavioral biases of investors and traders by tracking their eye gaze trajectory.

Additional equipments

The lab has four high-end workstations, each equipped with E-Prime 3.0 software aiding in psychophysical and behavioral experiments. The latest E-Prime software allows both new and advanced users to collect behavioral responses such as reaction times (RTs) and accuracy data with precise timings. A variety of stimuli, including text, images, videos, and audio files, can be presented in the experiment.

Chronos, a multifunctional stimuli and response device, is also available at the center. The device allows for accurate recording of key presses and releases. This, combined with E-Prime, makes for a thorough data collection setup.

Centre's Research

Some of the noteworthy projects in the pipeline

Neuropricing (Prof. Arvind Sahay, Richa Nigam)

Non-Price attributes are equally crucial to purchase decisions as much as the price of a commodity in enhancing the perceived value and perceived quality of the products. The current study empirically tests the effect of modulations in IRPs and purchase decisions formed as a function of changes in expected future non priced attributes.

Consumer perceptions of different front-of-pack labels for Indian packaged food (Prof. Arvind Sahay, Prof. Ranjan Kumar Ghosh, Anushka Oza, Divya Reji and Rahul Sanghvi)

The objective of this study is to understand which front-of-the-pack-labels (FOPL) are most suited for Indian consumers in helping to choose healthier packaged food products. The sustainability is indicated by the comprehensibility, credibility and likeability of the FOPL and its ability to influence purchase decisions. Globally, FOPLs have evolved as an important complement to the Nutrition Facts Table as the latter are difficult for consumers to interpret (Ahmed et al., 2020; Hodgkins et al., 2012). They contain numerous forms of information on nutrients that include mandatory and voluntary measures adding to the confusion of consumers. Moreover, while consumers have the ability to interpret simple information in differentiating between product characteristics, they find the tables difficult to use for health choice decisions. On the other hand, some studies have shown that FOPL helps guide healthier product choices (Watson et al., 2014). There are numerous studies that have analyzed the effectiveness of different FOPL formats in different countries that have implemented these systems either on a voluntary or mandatory basis. However, in developing countries, FOPLs are still not much in practice. In this context, the proposed study planned to test the efficacy of different types of FOPLs.

Household Investor Survey (Prof Jeevant Rampal, Prof Joshy, Mayank Prakash, Abhishek Tripathy)

We intend to collect granular data on how Indian households take investment decisions. The survey will try to understand what drives the Indian household investor to invest in the way they choose to invest and what are the factors that influence the asset allocation for the Indian household investors. We will try to analyse if there is persistence of the household finance puzzles in Indian context which have been extensively talked about in the literature. We also intend to understand behavioural aspects of the decision making process of the Indian household. This would be one of a kind survey for Indian household investors.

Paper about the strategic interaction between the government and various agents in developing a market infrastructure institution (Prof Arvind Sahay, Mr Sudheesh Nambiath, Mayank Prakash and Adil Shah)

This paper tries to analyse games of strategic complementarities using the Global Games literature for situations where the fundamental is endogenous and players are heterogeneous. We intend to understand it as a single period game where a principal and continuum of heterogeneous players play the game. The fundamental evolves positively with the participation of more players. The principal has a role to persuade the players towards a socially optimal equilibrium. The decision of a player

to play a particular strategy depends on the fundamentals and what other strategies of other players. Global Games literature has modelled the game in situations of bank run or regime change where the fundamental is the strength of the bank or regime given exogenously at the beginning of the game. The players get a noisy signal about the fundamental and other players' strategies and hence decide their strategy. In this paper we propose that the fundamental is endogenous. Suppose, the principal presents an idea which has a particular strength i.e initial fundamental value but it can only be successful if it is supported by enough players. So the fundamental strength of the idea is dependent on the number of players participating in support of the idea. The basic strength of the idea i.e fundamental will hence depend on the actual strength of the idea and the number of players supporting it. The players would have a situation of strategic complementarity. We intend to understand the equilibrium in such situations.

Institutional Noise trading and its effect on volatility in the Stock Markets due to behavioral biases specifically Diagnostic Expectation (Prof Joshy, Mayank Prakash)

There might be ample reason to believe that institutions might have some behavioural biases while trading especially when they are noise trading. We strive to study if in the event of a shock like the crash of March 2020, do these institutional investors relying on Diagnostic Expectations lead to excessive volatility. We would also like to understand if the results depend on whether the institutions are Domestic Institutional Investors or Foreign Institutional Investors. Further we also like to investigate if there is a difference in the results in developed and developing markets with a keen focus on India.

Opponent’s foresight and optimal choices (Prof. Jeevant Rampal)

Using two experiments, this paper demonstrates that expert players of sequential- move games best respond to their opponents’ backward-induction ability. In particular, I show that these experts take advantage of inexperienced opponents’ weakness in backward induction. I find this when the expert is explicitly told that her opponent is inexperienced, but also when she infers the opponent’s weakness from the opponent’s preceding performance. I demonstrate that other-regarding preferences have no role in these findings. I find that a novel model of limited foresight and uncertainty about the opponent’s foresight fits the data better than Level-k or Quantal Response models.

Task satisfaction and charitable giving (Abhishek Mundhra, Prof. Jeevant Rampal, Divyanshu Jan, and Praneel Jain)

Divyanshu Jan, and Praneel Jain) Using online experiments, we study how charitable donations are causally affected by the nature of the task performed as part of one’s job. We find that donations are significantly higher for participants who were randomly allocated to a task designed to be ‘interesting’ compared to those participants who were randomly allocated to a task designed to be ‘tedious’, even though both tasks yielded equal earnings. We also measure the causal impact of making the nature-of-task salient before donation decisions. We find that this salience has a differential impact on the ‘interesting’ and ‘tedious’ tasks; salience reduces donations for the interesting task but increases donations for the tedious task.

Information and behavior during COVID-19 (Prof. Ritwik Banerjee, Prof. Anujit Chakraborty, and Prof. Jeevant Rampal)

Using a randomized-control-trial design, we study: (a) the level of support for a lockdown in rural Telangana, India, in September 2020, and (b) the causal impact of increasing COVID-salience on the support for a lockdown. As our salience intervention, we use a short audio clip containing commonly available information about COVID-19. The two control groups have a placebo audio clip which makes Dengue salient and no audio-clip respectively. We find high support (45%) for lockdowns in control groups, and, that a simple COVID-salience intervention causally

increases the willingness to continue lockdown by 25 percent and the reported appropriate number of days under lockdown by 33 percent. Assuming the second wave in India increased COVID-salience, our results suggest that there may be widespread support of a lockdown despite the economic consequences.

Contests within and between groups (Prof. Puja Bhattacharya and Prof. Jeevant Rampal

This paper examines behavior (theoretically and experimentally) in a two-stage group contest where the first stage comprises intra-group contests, followed by an inter-group contest in the second stage. Rewards accrue only to the members of the winning group in the inter-group contest, with the winners of the intra-group contest within that group receiving a greater reward. The model generates a discouragement effect, where losers from the first stage exert less effort in the second stage than winners. In contrast to previous frameworks of sequential contests, we show that a prior win may be disadvantageous, generating lower profits for first stage winners as compared to losers. This implies that incentives for participation in the first stage may not always be present. We also consider exogenous asymmetry between groups arising from a biased contest success function in the second stage. We show that although the asymmetry occurs in the second stage, the effect of the asymmetry plays out in the first stage, with the intra-group contest being more intense within the advantaged group. Experimental results find broad support for the qualitative predictions of the model. However, we find that relative overcontribution in the second stage by losers is higher than by winners of the first stage, implying that losers bear a higher burden of the group contribution than deemed strategic.

Strategic incentive for giving may be counterproductive (Prof. Jeevant Rampal)

In an experimental test of a modified dictator game, I find that incentivizing a dictator to give at least a small proportion of her endowment drives non-incentivized giving to zero. This reduces overall giving relative to the standard dictator game. Thus, introducing strategic incentives for giving can be counterproductive.

Trust and Algorithmic Control (Prof. Aditya C. Moses, Prof. Shaivi Mishra)

Algorithms may enable efficient, optimized, and data-driven decision-making, and in fact this vision is one of main drivers of increasing adoption of algorithms for managerial and organizational decisions. However, the fact that these decisions are made by algorithms, rather than by people, may influence perceptions of the decisions that are made, regardless of the qualities of the actual decision-outcomes (Sundar and Nass, 2001). Furthermore, employees who are subjected to algorithmic control may not be satisfied if they believe they have tacit knowledge which the algorithm does not possess. They may also not understand how the algorithm works. All these factors may lead to perception of reduced and agency and cause them to distrust the algorithm. Johannsen and Zak (2021) in multiple studies using neuroscience have shown that trust leads to better productivity of employees and enhances organizational performance.

Therefore, we propose two research questions: 1) What is the impact of algorithmic control on Trust? What factors impact trust? 2) What can organizations do to enhance trust in algorithmic control?

Developing CAPE indicator for the Indian market (Prof Jacob Joshi)

It is important to assess the level of financial market valuation relative to fundamentals through suitable indicators. One of the widely employed indicators of market valuation is the cyclically adjusted PE ratio (CAPE). The research project intends to develop and maintain a frequently updated database of CAPE for the Indian market, as a barometer of market valuation. It is intended to provide guidance for financial market practitioners, including fund managers and traders to monitor the aggregate market valuation levels.

A Report on the Study of Capital Requirements of Market Inter- mediaries (Prof Joshy Jacob)

This paper aims to develop risk-based capital adequacy norms for the intermediaries that would provide reasonable comfort regarding loss-absorption capacity of the intermediaries and mitigate the risk of spillover of losses to non-defaulting clients.

. Impact of Mood on Disposition Effect (Prof. Arvind Sahay, Yash Chakarvarty, Kunal Apastamb

Algorithms may enable efficient, optimized, and data-driven decision-making, and in fact this vision is one of main drivers of increasing adoption of algorithms for managerial and organizational decisions. However, the fact that these decisions are made by algorithms, rather than by people, may influence perceptions of the decisions that are made, regardless of the qualities of the actual decision-outcomes (Sundar and Nass, 2001). Furthermore, employees who are subjected to algorithmic control may not be satisfied if they believe they have tacit knowledge which the algorithm does not possess. They may also not understand how the algorithm works. All these factors may lead to perception of reduced and agency and cause them to distrust the algorithm. Johannsen and Zak (2021) in multiple studies using neuroscience have shown that trust leads to better productivity of employees and enhances organizational performance. Therefore, we propose two research questions:
1) What is the impact of algorithmic control on Trust? What factors impact trust?
2) What can organizations do to enhance trust in algorithmic control?

Developing CAPE indicator for the Indian market (Prof Jacob Joshi)

It is important to assess the level of financial market valuation relative to fundamentals through suitable indicators. One of the widely employed indicators of market valuation is the cyclically adjusted PE ratio (CAPE). The research project intends to develop and maintain a frequently updated database of CAPE for the Indian market, as a barometer of market valuation. It is intended to provide guidance for financial market practitioners, including fund managers and traders to monitor the aggregate market valuation levels.

A Report on the Study of Capital Requirements of Market Inter- mediaries (Prof Joshy Jacob)

This paper aims to develop risk-based capital adequacy norms for the intermediaries that would provide reasonable comfort regarding loss-absorption capacity of the intermediaries and mitigate the risk of spillover of losses to non-defaulting clients.

 

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Publications

Behavioral Finance Area Publication:

Majumdar, A., and Singh, P. (2021). Analysis and impact of COVID-19 disclosures: is IT-services different from others? Industrial Management and Data System, Emerald Publishing.

Abstract:

Purpose
There is ambiguity regarding whether coronavirus disease 2019 (COVID-19) is a boon or bane for the IT services industry. On the one hand, it has created opportunities, especially with the growth of collaborative technologies. On the other hand, many firms have reduced their IT budgets owing to the ongoing recession. This study explores how IT firms have assessed the risk of the pandemic in the early days and informed capital market participants. In addition, it examines the impact of such online disclosures on information asymmetry.
Design/methodology/approach
The authors analysed annual reports of publicly listed firms in the USA filed on the Securities and Exchange Commission website in 2020 and examined whether the disclosure scenario of technology firms was different from that of the other industries. Moreover, the risk sentiment of COVID-19-related disclosures was assessed by employing text analytics. Information asymmetry was measured using the bid–ask spread.
Findings
Overall, it was found that IT services firms were less likely to discuss the COVID-19 pandemic in their annual reports. Interestingly, it was observed that technology firms that chose to communicate about the pandemic had a lower incidence of words related to risks. Furthermore, communicating about COVID-19 in annual reports calms investors and improves the information asymmetry situation about the firm. Variation in the severity of the pandemic and the responses of state governments was controlled for by employing state-fixed effects in the empirical models.
Originality/value
The authors inform the literature on corporate disclosures and technology and highlight the importance of effectively communicating about the pandemic.

Behavioral Economics Area Publication

Rampal, J. (2022). Limited Foresight Equilibrium, Games and Economic Behavior, 132, 166-188.

Abstract: This paper models a scenario where finite perfect-information games are distorted in two ways. First, each player can have different possible levels of foresight, where foresight is a particular number of future stages that the player can observe/understand from each of her moves. In particular, each player's foresight is allowed to be “limited” or insufficient to observe the entire game from each move. Second, there is uncertainty about each opponent's foresight. I define

the Limited Foresight Equilibrium (LFE) for this model. An LFE specifies how limited-foresight players' strategies and beliefs about opponents' foresight evolve as they move through the stages of the game. I show the existence of LFE and describe its other properties. I show that in LFE limited-foresight players follow simple heuristics for beliefs and actions. As applications, LFE is shown to rationalize experimental findings on Sequential Bargaining and the Centipede game.

Interviews and Podcasts

Podcast Series by the NSE Centre for Behavioral Science, IIM Ahmedabad

Join the engaging podcast series by NSE Centre for Behavioral Science and listen to the esteemed IIMA faculty open up the latest debates, trends and applications that are to behavioral science in the field of management. Fresh upload every fortnight!

 

 

 

 

 

 

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