nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒06‒14
six papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Nonbinding Suggestions: The Relative Effects of Focal Points versus Uncertainty Reduction on Bargaining Outcomes By David Dickinson; Lynn Hunnicutt
  2. The Behavioral Effects of Minimum Wages By Armin Falk; Ernst Fehr; Christian Zehnder
  3. Choice under Uncertainty and Bounded Rationality By John K. Dagsvik
  4. ""Voice" and "Exit" in Japanese Firms during the Second World War: Sanpo Revisited" By Tetsuji Okazaki
  5. Trust, communication and equlibrium behaviour in public goods By Alexis Belianin; Marco Novarese
  6. Endogenous Leadership in Teams By Pedro Rey Biel; Steffen Huck

  1. By: David Dickinson (Appalachian State University); Lynn Hunnicutt
    Abstract: This paper focuses on the effects of nonbinding recommendations on bargaining outcomes. Recommendations are theorized to have two effects: they can create a focal point for final bargaining positions, and they can decrease outcome uncertainty should dispute persist. While the focal point effect may help lower dispute rates, the uncertainty reduction effect is predicted to do the opposite for risk-averse bargainers. Which of these effects dominates is of critical importance in the optimal design of alternative dispute resolution (ADR) procedures, which are becoming increasingly utilized to help resolve disputes in a variety of settings. We theoretically examine the effects of recommendations on the bargaining contract zone. Our theoretical framework, which allows bargainers’ final positions to influence a binding outcome should negotiations fail, provides for a more stringent test of focal points than previously considered. We also present data from controlled laboratory bargaining experiments that are consistent with our model of recommendation effects. Recommendations are empirically shown to influence final bargaining positions and negotiated settlement values. Furthermore, dispute rates are significantly lower when one includes recommendations, even where the recommendation is completely ignored in final-stage arbitration. This highlights a potentially significant role for the use of nonbinding procedures, such as mediation, as a preliminary stage in developing more efficient ADR procedures.
    Date: 2005
  2. By: Armin Falk (IZA Bonn and University of Bonn); Ernst Fehr (University of Zurich and IZA Bonn); Christian Zehnder (University of Zurich and IZA Bonn)
    Abstract: The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been removed. Firms are therefore forced to pay higher wages after the removal of the minimum wage than before its introduction. As a consequence, the employment effects of removing the minimum wage are significantly smaller than are the effects of its introduction. The impact of minimum wages on reservation wages may also explain the anomalously low utilization of subminimum wages if employers are given the opportunity of paying less than a minimum wage previously introduced. It may further explain why employers often increase workers' wages after an increase in the minimum wage by an amount exceeding that necessary for compliance with the higher minimum. At a more general level, our results suggest that economic policy may affect people’s behavior by shaping the perception of what is a fair transaction and by creating entitlement effects.
    Keywords: minimum wages, labor market, monopsony, fairness, reservation wages, entitlement
    JEL: C91 D63 E64 J38 J42 J58 J68
    Date: 2005–06
  3. By: John K. Dagsvik (Statistics Norway)
    Abstract: This paper develops a theory for probabilistic models for risky choices that can be viewed as an extension of the expected utility theory to account for bounded rationality. One probabilistic version of the Archimedean Axiom and two versions of the Independence Axiom are proposed. In addition, additional axioms are proposed of which one is Luce’s Independence from Irrelevant Alternatives. It is demonstrated that different combinations of the axioms yield different characterizations of the probabilities for choosing the respective risky prospects
    Keywords: Random tastes; bounded rationality; independence from irrelevant alternatives; choice among lotteries; probabilistic choice for uncertain outcomes.
    JEL: C25 D11 D81
    Date: 2005–03
  4. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: During the Second World War, the Japanese government and private sector searched for and implemented new mechanisms for coordination and motivation. One of these was sangyo hokokukai (sanpo). Sanpo unit was basically an organization of the employer and employees of each firm, which held meetings to moderate labor relations. Due to the government policy to promote sanpo units, around 70% of the total workers in Japan were organized into sanpo units in the early 1940s. As the members of labor unions and the workers of the companies which had factory committees, were only 7 % and 5% of the total workers in 1936 respectively, sanpo was the first large scale mechanism for Japanese employees to voice. In this paper, I examined the role of sanpo, using prefecture level data and firm level data, based on a framework integrating the "voice view" of unionism and the transaction cost economics. It was found that sanpo reduced the participation rate in labor disputes, and enhanced labor productivity at least in some period.
    Date: 2005–06
  5. By: Alexis Belianin (International College of Economics & Finance ICEF , . Higher School of Economics); Marco Novarese (Centre for Cognitive Economics - Università del Piemonte Orientale)
    Abstract: This paper reports a novel cross-cultural public goods game experiment played in real time through Internet. Web-based software was used to compare the contributions to public good of different groups of participants: mixed, consisting of both Italians (students in law and economics) and Russians (students in economics), as well as all-Italian and all-Russian groups. This setup allows for testing for a number of effects, including participants’ awareness of the group composition in terms of nationality and gender of group members; possibility of coordination of one’s strategy during a cheap talk session organized before some of the games was used as an additional control. Our results show that the degree of cooperation is rather high, but does not vary significantly with nationalities of the group members, while communication tends to enhance contributions to public goods. A notable difference between the subjects representing the two nations is an overly strong and increasing cooperativeness of the Russian female participants in contrast to that of the Russian men, as well as the Italians.
    JEL: C9
    Date: 2005–06–01
  6. By: Pedro Rey Biel (University College London); Steffen Huck (University College London)
    Abstract: In this paper we study the mechanics of ``leading by example'' in teams. Leadership is beneficial for the entire team when agents are conformists, i.e., dislike effort differentials. We also show how leadership can arise endogenously and discuss what type of leader benefits a team most.
    Keywords: team production; conformism; leadership; leading by example; endogenous timing
    JEL: C72 D23 D63 J31 L23
    Date: 2005–06–08

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