nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒04‒24
eight papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. "It Wasn’t Me, It Was Them!" Social Influence in Risky Behavior by Adolescents By Andrew E. Clark; Youenn Lohéac
  2. What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory By John Bone; John Hey; John Suckling
  3. A Trace of Anger is Enough: On the Enforcement of Social Norms By Jakub Steiner
  4. Learning by Bidding: Evidence from a Large-Scale Natural Experiment By Jan Hanousek; Evzen Kocenda
  5. Gross National Happiness as an Answer to the Easterlin Paradox? By Rafael Di Tella; Robert MacCulloch
  6. Elusive effects of unemployment on happiness By Petri Böckerman; Pekka Ilmakunnas
  7. Environmental Awareness and Happiness By Ada Ferrer-i-Carbonell; John M. Gowdy
  8. Dynamic Psychological Games By Pierpaolo Battigalli; Martin Dufwenberg

  1. By: Andrew E. Clark (PSE (joint research unit CNRS-EHESS-ENPC-ENS), CNRS and IZA Bonn); Youenn Lohéac (FLAVIC (INRA-Dijon and ENESAD) and TEAM (University of Paris I Panthéon-Sorbonne and CNRS))
    Abstract: Many years of concerted policy effort in Western countries has not prevented young people from experimenting with cigarettes, alcohol and marijuana. One potential explanation is that social interactions make consumption "sticky". We use detailed panel data from the Add Health survey to examine risky behavior (the consumption of tobacco, alcohol and marijuana) by American adolescents. We find that, even controlling for school fixed effects, these behaviors are correlated with lagged peer group behavior. Peer group effects are strongest for alcohol use, and young males are more influential than young females. Last, we present some evidence of non-linearities in social interactions.
    Keywords: social interactions, smoking, drinking
    JEL: C23 D12 Z13
    Date: 2005–04
  2. By: John Bone; John Hey; John Suckling
    Abstract: This paper provides a very simple experimental test of a prediction of Nash Bargaining Theory that seems counterintuitive. The context is a simple bargaining problem between two players who have to agree a choice from three alternatives. One alternative favors one player and a second favors the other. The third is a fair compromise, but is excluded as an agreed choice by Nash Bargaining Theory. Our experimental results show that agreement on this third outcome occurs rather often. So the Nash theory is not well-supported by our evidence, although neither is a Strategic explanation of the data. The Nash-precluded outcome appeals because of its compromise nature; indeed, players are prepared to pay a price which is (according to the Nash theory) irrationally high, in order to reach a fair compromise.
  3. By: Jakub Steiner
    Abstract: It is well documented that the possibility of punishing free-riders increases contributions in one-shot public good games. I demonstrate theoretically that minimal punishment commitments (perhaps provided by anger) may lead to high contribution levels. Thus, almost selfish players may behave as strong reciprocators.
    Keywords: Reciprocity, Emotions, Commitment, Punishment, Public Good.
    JEL: D64 H41 Z13
    Date: 2005–01
  4. By: Jan Hanousek; Evzen Kocenda
    Abstract: Learning is a subject of intense research in experimental economics. We contribute to this debate by presenting persuasive evidence that learning took place among uninformed heterogeneous agents on a quasi-stock market during a large-scale natural experiment that by size, incentives, and variation belongs among the largest experiments ever conducted. To detect and quantify learning we develop new measures of individual performance during the bidding process when prices of goods vary over succeeding stages of bidding.
    Keywords: Learning, Natural experiment, Auction, Stock market, Privatization,Heterogeneous agents, Transition.
    JEL: C14 C93 D44 D82 D83 G14 P43
    Date: 2005–01
  5. By: Rafael Di Tella (Harvard Business School); Robert MacCulloch (Imperial College London)
    Abstract: The Easterlin Paradox refers to the fact that happiness data are typically stationary in spite of considerable increases in income. This amounts to a rejection of the hypothesis that current income is the only argument in the utility function. One possible answer is that human development involves more than current income (e.g., as argued by the UN). We find that the happiness responses of almost 400,000 people living in the OECD during 1975-97 are positively correlated with absolute income, the generosity of the welfare state and (weakly) with life expectancy; it is negatively correlated with the average number of hours worked, measures of environmental degradation (SOx emissions), crime, openness to trade, inflation and unemployment; all after controlling for country and year dummies. The estimated effects separate across groups in a manner that appears broadly plausible (e.g., the rich suffer environmental degradation more than the poor). Based on their actual change, the biggest contributors to happiness in our sample have been the increase in income and the increase in life expectancy. Our accounting exercise suggests that the unexplained trend in happiness is even bigger than would be predicted if income was the only argument in the utility function. In other words, introducing omitted variables worsens the income-without-happiness paradox.
    Keywords: income, subjective well-being, quality of life
    JEL: D63 H00 I31 O00 Q3
    Date: 2005–04–18
  6. By: Petri Böckerman (Labour Institute for Economic Research); Pekka Ilmakunnas (Helsinki School of Economics)
    Abstract: This paper explores the connection between unemployment and subjective well-being in Finland by using cross-sections for the years 1990, 1996 and 2000 from World Values Surveys. An unprecedented increase in the national unemployment rate (from 3 to 17 per cent) did not produce a drop in the mean level of subjective well-being. Experiencing unemployment personally reduces life satisfaction, but does not have a significant effect on happiness in ordered logit estimation. However, generalized ordered logit estimation reveals that being unemployed has a negative effect on happiness at lower happiness scores, but no significant effect at high happiness levels.
    Keywords: happiness, unhappiness, life satisfaction, unemployment
    JEL: C30 J28 J31
    Date: 2005–04–19
  7. By: Ada Ferrer-i-Carbonell (Amsterdam Institute for Advanced Labour Studies & Faculty of Economics and Econometrics (SCHOLAR), University of Amsterdam, The Netherlands); John M. Gowdy (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: The focus of this paper is on the relationship between an individual's environmental attitudes (or awareness) and well-being. We use an ordered probit model to examine the relationship between individual measures of subjective well-being and environmental attitudes regarding ozone pollution and species extinction. Using data from the British Household Panel Survey we find a negative correlation between well-being and concern about ozone pollution and a positive correlation between well-being and concern about species extinction. These relationships hold when explanatory variables are included indicating whether or not the person lives in a polluted environment and whether or not the person engages in outdoor leisure activities. These relationships also hold when we control for individual psychological traits. Our results are an important step in clarifying some of the subtleties of the relationship between environmental quality and well-being. This research area is important in addressing the related issues of sustainability and environmental policy design.
    Date: 2005–04
  8. By: Pierpaolo Battigalli; Martin Dufwenberg
    Abstract: Building on recent work on dynamic interactive epistemology, we extend the analysis of extensive-form psychological games (Geneakoplos, Pearce & Stacchetti, Games and Economic Behavior, 1989) to include conditional higher-order beliefs and enlarged domains of payoff functions. The approach allows modeling dynamic psychological effects (such as sequential reciprocity, psychological forward induction, and regret) that are ruled out when epistemic types are identified with hierarchies of initial beliefs. We define a notion of psychological sequential equilibrium, which generalizes the sequential equilibrium notion for traditional games, for which we prove existence under mild assumptions. Our framework also allows us to directly formulate assumptions about ‘dynamic’ rationality and interactive beliefs in order to explore strategic interaction without assuming that players beliefs are coordinated on an equilibrium. In particular, we provide an exploration of (extensive-form) rationalizability in psychological games.

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