Mental simulation refers to the imagination of alternative, counterfactual realities. This chapter provides an overview of research on simulations of the past— retrospective simulation—and simulations of the future— prospective simulation. Two major themes run throughout. The first is that both retrospective and prospective thinking are inextricably linked, relying on a mixture of episodic and semantic memories that share common neural substrates. The second is that retrospective and prospective simulation present trade-offs for the individual. On the one hand, they are functional, (...) identifying causal inferences and potential obstacles that prepare us to try harder and perform better in the future. On the other hand, they sometimes produce bias—retrospective thinking can enhance hindsight bias, whereas prospective thinking can evoke biased predictions about the likelihood of certain events as well as how one is going to feel about those events in the future. Fortunately, however, these biases can be diminished with debiasing techniques. (shrink)

The disposition effect refers to the tendency of investors to sell winners too early and hold on to losers too long, which is one of the most documented and robust decision biases. However, few studies have looked beyond demographic and social factors on the disposition effect. The current study investigated the association between financial self-efficacy (one’s belief about their personal capability in ultimate financial goals achieving), versatile cognitive style (an individual’s capability in deploying the experiential or rational mode in ways (...) that are contextually appropriate), and the disposition effect. A total of 285 employees from finance-related business completed anonymous questionnaires regarding financial self-efficacy, rational-experiential inventory, and the disposition effect. Our findings revealed that financial self-efficacy was significantly and positively associated with versatile cognitive style and the disposition effect. Further, versatile cognitive style partially mediated the relationship between financial self-efficacy and the disposition effect. Our findings provide valuable guidance for individual investors to make financial decisions based on their characteristics. (shrink)

Cumulative evidence suggests that, for children and adolescents, peer relatedness is an essential component of their overall sense of belonging, and correlates with subjective well-being and school-based well-being. However, it remains unclear what the underlying mechanism explaining these relationships is. Therefore, this study examines whether there is a reciprocal effect between school satisfaction and overall life satisfaction (Hypothesis 1), and whether the effect of peer relatedness on life satisfaction is mediated by school satisfaction (Hypothesis 2). A non-recursive model with instrumental (...) variables was tested with econometric and structural equation modeling methodologies, using a cross-sectional sample ofn= 5,619 Chilean early adolescents (49.2% girls), aged 10, 11, and 12 (46.13, 44.99, and 8.88% respectively). Results were highly consistent across methods and supported the hypotheses. First, the findings confirmed a significant reciprocal influence between school satisfaction and overall life satisfaction, with a greater impact from school to life satisfaction. Second, the effect of peer relatedness on overall life satisfaction was fully mediated by school satisfaction. The study further suggests the importance of considering reciprocal effects among domain-specific satisfaction and overall life satisfaction and illustrates the application of non-recursive models for this purpose. (shrink)

Does honesty result from the absence of temptation or the active resistance of temptation? The “will’’ hypothesis suggests that honesty results from the active resistance of temptation, while the ”grace” hypothesis argues that honesty results from the absence of temptation. We examined reaction time and measured the cheating behavior of individuals who had a chance to lie for money. In study 1, we tested the “grace” hypothesis that honesty results from the absence of temptation and found a priming effect of (...) moral constructs on increasing honest behavior. In study 2, we investigated the individual’s moral identity in the same context, articulating different mechanisms that lead people to behave ethically. The result confirms that the “grace” hypothesis was valid for people who had a high moral identity, while the “will” hypothesis was accurate for individuals who had a low moral identity. (shrink)