Effect of Cognitive Biases on Rationality of Economic Decision Making under Risk among Students of Shahid Beheshti University

The purpose of this study is to determine the quality of individual economic decision making under risk and uncertainty. The research method is a quasi-experiment with single group and a post-test. The total population of the students of Shahid Beheshti University in 97 was 8.700 and due to non-normal distribution, we should use non-parametric Wilcoxon test, with sample of 180. The tool used to investigate the role of cognitive biases that prospect theory in economic decision-making was predicted was a multi-dimensional task we built which measured 31 problems in 5 sections that through phenomena such as risk aversion, loss aversion, ambiguity aversion, reference dependency, probability weighting and so on in shows irrationality in economic decision–making. Higher score means more irrational according to neoclassical economics. The median of scores was 25 out of 31 scores. In other words, more than 80% of participants received grades above 50% (or 15.5 points) (p <0.05). These findings fully supported the prospect theory that first two cognitive psychologists proposed as a correction to the expected utility theory. The prospect theory can explain, and can predicts, and intends to dissolve the gap between economy and psychology. The present research is an initial step in showing the significant role of psychology and cognition in economic decision-making and emphasize the importance of psychology in explaining economic tendencies and findings especially in our country, as the founders of the economy have expressed many centuries ago.