nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒07‒03
ten papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Consciousness By R. J. Aumann
  2. Driving Forces Behind Informal Sanctions By Armin Falk; Ernst Fehr; Urs Fischbacher
  3. Neuroeconomic Foundations of Trust and Social Preferences By Ernst Fehr; Urs Fischbacher; University of Zurich
  4. The Neuroeconomics of Mind Reading and Empathy By Tania Singer; Ernst Fehr
  5. Does Watching TV Make Us Happy? By Bruno S. Frey; Christine Benesch; Alois Stutzer
  6. Law and Behaviours in Social Dilemmas: Testing the Effect of Obligations on Cooperation By Roberto Galbiati; Pietro Vertova
  7. The Economics of Altruistic Punishment and the Demise of Cooperation By Martijn Egas; Arno Riedl
  8. With the Eye being a Ball, what Happens to Fixational Eye Movements in the Periphery? By Judith Avrahami; Oren Flekser
  9. The Survival of the Unfittest: Delinquent corporations and the production of organisational legitimacy through symbolic-discursive fit By Svensson, Peter
  10. Swedish evidence on the impact of cognitive and non-cognitive ability on earnings – an extended pre-market factor approach By Zetterberg, Johnny

  1. By: R. J. Aumann
    Abstract: Consciousness is the last great frontier of science. Here we discuss what it is, how it differs fundamentally from other scientific phenomena, what adaptive function it serves, and the difficulties in trying to explain how it works. The emphasis is on the adaptive function.
    Date: 2005–05
  2. By: Armin Falk (IZA Bonn and University of Bonn); Ernst Fehr (University of Zurich and IZA Bonn); Urs Fischbacher (University of Zurich)
    Abstract: This paper investigates the driving forces behind informal sanctions in cooperation games and the extent to which theories of fairness and reciprocity capture these forces. We find that cooperators’ punishment is almost exclusively targeted towards the defectors but the latter also impose a considerable amount of spiteful punishment on the cooperators. However, spiteful punishment vanishes if the punishers can no longer affect the payoff differences between themselves and the punished individual, whereas the cooperators even increase the resources devoted to punishment in this case. Our data also discriminate between different fairness principles. Fairness theories that are based on the assumption that players compare their own payoff to the group’s average or the group’s total payoff cannot explain the fact that cooperators target their punishment at the defectors. Fairness theories assuming that players aim to minimize payoff inequalities cannot explain the fact that cooperators punish defectors even if payoff inequalities cannot be reduced. Therefore, retaliation, i.e., the desire to harm those who committed unfair acts, seems to be the most important motive behind fairnessdriven informal sanctions.
    Keywords: sanctioning, cooperation, social norm, reciprocity, fairness, spitefulness
    JEL: A13 D63 D23 C92 K42
    Date: 2005–06
  3. By: Ernst Fehr (University of Zurich and IZA Bonn); Urs Fischbacher (University of Zurich); University of Zurich (University of Zurich)
    Abstract: This paper discusses recent neuroeconomic evidence related to other-regarding behaviors and the decision to trust in other people’s other-regarding behavior. This evidence supports the view that people derive nonpecuniary utility (i) from mutual cooperation in social dilemma (SD) games and (ii) from punishing unfair behavior. Thus, mutual cooperation and the punishment of free riders in SD games is not irrational, but better understood as rational behavior of people with corresponding social preferences. We also report the results of a recent study that examines the impact of the neuropeptide Oxytocin (OT) on trusting and trustworthy behavior in a sequential SD. Animal studies have identified Oxytocin as a hormone that induces prosocial approach behavior, suggesting that it may also affect prosocial behavior in humans. Indeed, the study shows that subjects given Oxytocin exhibit much more trusting behavior, suggesting that OT has a direct impact on certain aspects of subjects’ social preferences. Interestingly, however, although Oxytocin affects trusting behavior, it has no effect on subjects’ trustworthiness.
    Keywords: social preferences, foundations of trust, neuroeconomic
    JEL: A13 C90
    Date: 2005–06
  4. By: Tania Singer (Functional Imaging Laboratory,University College London); Ernst Fehr (University of Zurich and IZA Bonn)
    Abstract: The most fundamental solution concepts in Game Theory - Nash equilibrium, backward induction, and iterated elimination of dominated strategies - are based on the assumption that people are capable of predicting others' actions. These concepts require people to be able to view the game from the other players’ perspectives, i.e. to understand others’ motives and beliefs. Economists still know little about what enables people to put themselves into others’ shoes and how this ability interacts with their own preferences and beliefs. Social neuroscience provides insights into the neural mechanism underlying our capacity to represent others' intentions, beliefs, and desires, referred to as "Theory of Mind" or "mentalizing", and the capacity to share the feelings of others, referred to as "empathy". We summarize the major findings about the neural basis of mentalizing and empathizing and discuss some implications for economics.
    Keywords: neuroeconomics, mind reading, empathy
    JEL: A10 C90
    Date: 2005–06
  5. By: Bruno S. Frey; Christine Benesch; Alois Stutzer
    Abstract: The paper studies a major human activity – that of watching TV - where many individuals have incomplete control over, and foresight into, their own behavior. As a consequence, they watch more TV than they consider optimal for themselves and their well-being is lower than what could be achieved. Mainly people with significant opportunity costs of time regret the amount of time spent watching TV. They report lower subjective well-being when watching TV for many hours. For others, there is no negative effect on life satisfaction from watching TV. Long hours spent in front of a TV are linked to higher material aspirations and anxiety and therewith lower life satisfaction.
    Keywords: Life satisfaction; mispredicting utility; revealed behavior; self-control problem; TV consumption
    JEL: D12 I31
    Date: 2005–05
  6. By: Roberto Galbiati; Pietro Vertova
    Abstract: Laws consist of two components: the ‘obligations’ they express and the ‘incentives’ designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time.
    Keywords: Obligation, Incentives, Public Good Game, Experiments.
    JEL: K40 H26 C92 C91
    Date: 2005–04
  7. By: Martijn Egas (IBED, University of Amsterdam); Arno Riedl (CREED, University of Amsterdam, Tinbergen Institute and IZA Bonn)
    Abstract: Explaining the evolution and maintenance of cooperation among unrelated individuals is one of the fundamental problems in biology and the social sciences. Recent experimental evidence suggests that altruistic punishment is an important mechanism to maintain cooperation among humans. In this paper we explore the boundary conditions for altruistic punishment to maintain cooperation by systematically varying the cost and impact of punishment, using a subject pool which extends beyond the standard student population. We find that the economics of altruistic punishment lead to the demise of cooperation when punishment is relatively expensive and/or has low impact. Our results indicate that the 'decision to punish' comes from an amalgam of emotional response and cognitive costbenefit analysis. Additionally, earnings are lowest when punishment promotes cooperation, suggesting that the scope for altruistic punishment as a means to maintain cooperation is limited.
    Keywords: altruistic punishment, collective action, public goods, internet experiment
    JEL: C72 C91 C93 D70 H41
    Date: 2005–06
  8. By: Judith Avrahami; Oren Flekser
    Abstract: Although the fact that the eye is moving constantly has been known for a long time, the role of fixational eye movements (FEM) is still in dispute. Whatever their role, it is structurally clear that, since the eye is a ball, the size of these movements diminishes for locations closer to the poles. Here we propose a new perspective on the role of FEM from which we derive a prediction for a three-way interaction of a stimulus' orientation, location, and spatial frequency. Measuring time-to-disappearance for gratings located in the periphery we find that, as predicted, gratings located to the left and right of fixation fade faster when horizontal than when vertical in low spatial frequencies and faster when vertical than when horizontal in high spatial frequencies. The opposite is true for gratings located above and below fixation.
    Date: 2005–05
  9. By: Svensson, Peter (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: The survival of so called ‘delinquent organisations’ is the topic of this article. A delinquent organisation should here be conveived of as an organisation engaged in activities regarded by the public and stakeholders as harmful, hazardous or even lethal. Examples of delinquent organisations comprise producers of tobacco or warfare material. It has been recognised in the literature on organisations that the creation and maintenance of organisational legitimacy, i.e. the degree of congruence between the organisation’s deeds and the values, norms and expectations in society. This article aims at bringing into the limelight the symbolic-discursive aspects of organisational legitimacy, that is to say the construction of a fit between the text (written and spoken) produced by a particular organisation and the cultural and ideological environment wherein this organisation operates. Drawing upon ideas from discourse theory, the tobacco producer Swedish Match is subjected to a close up study. More specifically, the empirical case selected is that of a lawsuit filed against Swedish Match in 1997 and the related textual responses produced and distributed in public media by the organisation. I present the argument that, in order to construct a symbolic-discursive fit, Swedish Match has to navigate in between two strong ideological poles: a social democratic heritage and an emerging corpus of neo-liberal ideas, two forces that provide both the rhetorical means for and restraint of the construction of organisational legitimacy.
    Keywords: Organisational legitimacy; corporate reputation; delinquent corporation; Swedish Match; tobacco industry
    Date: 2005–05–02
  10. By: Zetterberg, Johnny (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: This paper investigates the impact on earnings of non-cognitive ability, measured in terms of individuals’ 'self-esteem' on earnings. Starting with the pre-market factor approach suggested by Neal & Johnson (1996) a main finding is that measures of relative self-esteem along with cognitive ability are positively correlated with earnings. The analysis also reveals that the returns to cognitive and non-cognitive ability vary over the earnings-distribution: the returns are larger at higher levels of earnings than at low levels. While qualitatively robust, the effects decrease in magnitude when an extended version of the pre-market factor model is used.
    Keywords: Incentive-influencing preferences; cognitive ability; non-cognitive ability; relative and absolute self-esteem; earnings distribution
    JEL: J31 M54
    Date: 2005–06–21

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