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on Cognitive and Behavioural Economics |
| By: | Ondrej Rydval |
| Abstract: | This paper extends existing evidence on the interaction and relative productivity of cognitive effort and cognitive capital in an experimental environment. I focus on the impact of task-specific cognitive capital, which is central to the capital-labor argument of Camerer and Hogarth (1999) as well as related research in cognitive science and behavioral decision making. Using a memory recall task situated in an accounting setting, I show that the impact of taskspecific accounting knowledge on recall performance varies with the timing of the introduction of performance-contingent financial incentives. I further illustrate that subjects better endowed with task-specific accounting knowledge greater improve recall performance in response to the introduction of performance-contingent financial incentives. I draw implications for further research of the capital-labor-production framework and for compensation practices in experiments as well as work settings. |
| Keywords: | Financial incentives, Cognitive abilities, Experiments, Field experiments. |
| JEL: | C81 C91 C93 D83 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp264&r=cbe |
| By: | Ernst Fehr; Susanne Kremhelmer; Klaus Schmidt |
| Abstract: | We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players. |
| Keywords: | ownership rights, double moral hazard, fairness, reciprocity, incomplete contracts |
| JEL: | C70 C90 J30 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1467&r=cbe |
| By: | Marianne Bertrand (University of Chicago, NBER & CEPR); Dean S. Karlan (Yale University, Economic Growth Center); Sendhil Mullainathan (Harvard University & NBER); Eldar Shafir (Princeton University); Jonathan Zinman (Dartmouth College) |
| Abstract: | Numerous laboratory studies report on behaviors inconsistent with rational economic models. How much do these inconsistencies matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experiences? We report on a field experiment designed to address this question. Incumbent clients of a lender in South Africa were sent letters offering them large, short-term loans at randomly chosen interest rates. Psychological “features” on the letter, which did not affect offer terms or economic content, were also independently randomized. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, the psychological features also significantly affected take-up. The independent randomizations allow us to quantify the relative importance of psychological features and prices. Our core finding is the sheer magnitude of the psychological effects. On average, any one psychological manipulation has the same effect as a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers. Moreover, the psychological features do not appear to draw in marginally worse clients, nor does the magnitude of the psychological effects vary systematically with income or education. In short, even in a market setting with large stakes and experienced customers, subtle psychological features that normatively ought to have no impact appear to be extremely powerful drivers of behavior. |
| Keywords: | Behavioral economics, psychology, microfinance, marketing, field experiment, credit markets |
| JEL: | C93 D12 D21 D81 D91 M37 O12 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:918&r=cbe |
| By: | Halevy, Yoram |
| Abstract: | An extension to Ellsberg's experiment demonstrates that attitudes to ambiguity and compound objective lotteries are tightly associated. The sample is decomposed into three main groups: subjective expected utility subjects - who reduce compound objective lotteries and are ambiguity neutral, and two groups that exhibit different forms of association between preferences over compound lotteries and ambiguity - corresponding to alternative theoretical models that account for ambiguity averse or seeking behavior. |
| JEL: | D81 C91 |
| Date: | 2005–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:halevy-05-07-26-11-51-13&r=cbe |
| By: | Ernst Fehr (University of Zurich); Jean-Robert Tyran (Department of Economics, University of Copenhagen) |
| Abstract: | There is abundant evidence that many individuals violate the rationality assumptions routinely made in economics. However, powerful evidence also indicates that violations of individual rationality do not necessarily refute the aggregate predictions of standard economic models that assume full rationality of all agents. Thus, a key question is how the interactions between rational and irrational people shape the aggregate outcome in markets and other institutions. We discuss evidence indicating that strategic complementarity and strategic substitutability are decisive determinants of aggregate outcomes. Under strategic complementarity, a small amount of individual irrationality may lead to large deviations from the aggregate predictions of rational models, whereas a minority of rational agents may suffice to generate aggregate outcomes consistent with the predictions of rational models under strategic substitutability. |
| Keywords: | bounded rationality; strategic interaction; strategic complementarity |
| JEL: | D50 D84 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0509&r=cbe |
| By: | David Chavalarias (CREA - Centre de recherche en épistémologie appliquée - CNRS : UMR7656 - Polytechnique - X) |
| Abstract: | Imitation is fundamental in the understanding of social system dynamics but the diversity of imitation rules employed by modelers proves that the modeling of mimetic processes cannot avoid the traditional problem of endogenization of all the choices, including the one of the mimetic rules. Starting from the remark that human reflexive capacities are the ground for a new class of mimetic rules, I propose a formal framework, metamimetic games, that enable to endogenize the distribution of imitation rules while being human specific. The corresponding concepts of equilibrium - counterfactually stable state - and attractor are introduced. Finally, I give an interpretation of social differentiation in terms of cultural co-evolution among a set of possible motivations that departs from the traditional view of optimization indexed to criteria that exist prior to the activity of agents. |
| Keywords: | Social cognition, imitation, cultural co-evolution, differentiation, reflexivity, metacognition, stochastic game theory, endogenous distributions, metamimetic games, counterfactual equilibrium. |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:ccsd-00007743_v1&r=cbe |
| By: | Jeffrey Carpenter (Middlebury College and IZA Bonn); Erika Seki (University of Aberdeen) |
| Abstract: | We provide a reason for the wider economics profession to take social preferences, a concern for the outcomes achieved by other reference agents, seriously. Although we show that student measures of social preference elicited in an experiment have little external validity when compared to measures obtained from a field experiment with a population of participants who face a social dilemma in their daily lives (i.e., team production), we do find strong links between the social preferences of our field participants and their productivity at work. We also find that the stock of social preferences evolves endogeously with respect to how widely team production is utilized. |
| Keywords: | field experiment, social preference, income pooling, productivity |
| JEL: | C93 D21 D24 H41 J24 M52 M54 Z13 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1697&r=cbe |
| By: | Rupert Sausgruber (University of Innsbruck) |
| Abstract: | It is often suggested that team spirit counteracts free-riding. Testing for team spirit with field data is difficult, however, due to an inherent identification problem. In this paper test for team spirit experimentally. In a team work task we vary subjects' information about relative team performance while we leave unchanged the structure of explicit incentives. We find that subjects contribute more to their team's project when teams observe each others' performance. We attribute this result to the enhancement of team spirit caused by asymmetric peer effects between observing teams. |
| Keywords: | team spirit, peer effects, organization of work, public goods experiments |
| JEL: | C92 H41 J2 |
| Date: | 2005–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0508001&r=cbe |
| By: | Roland Bénabou (Princeton University, CEPR, NBER and IZA Bonn); Jean Tirole (Institut d’Economie Industrielle (IDEI), GREMAQ, CERAS and MIT) |
| Abstract: | We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed and this "overjustification effect" can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify settings that are conducive to multiple social norms and those where disclosing one’s generosity may backfire. Finally, we analyze the choice by public and private sponsors of incentive levels, their degree of confidentiality and the publicity given to agents’ behavior. Sponsor competition is shown to potentially reduce social welfare. |
| Keywords: | altruism, rewards, motivation, esteem, crowding out, overjustification effect, identity, social norms, morals, greed, psychology |
| JEL: | D64 D82 H41 Z13 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1695&r=cbe |
| By: | Ben Greiner; Ro’i Zultan; Werner Güth |
| Abstract: | To explain why pre-play communication increases cooperation in games, one refers to a) strategic causes such as efficient communication or reputation effects, and b) changes in the utilities due to social processes. Hitherto experimental support for both explanations is mixed and confounded. Our experimental design eliminates all strategic factors and allows to focus on the effects of communication processes. We clearly find social effects, but none of revealed anonymity or salient communication. The social processes invoked are very heterogeneous but not irregular for different communicators. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:esi:discus:2005-18&r=cbe |
| By: | Bruno S. Frey |
| Abstract: | Awards in the form of orders, medals, decorations and titles are ubiquitous in monarchies and republics, private organizations, not-for-profit and profit-oriented firms. Nevertheless, economists have disregarded this kind of non-material extrinsic incentive. The demand for awards relies on an individual’s desire for distinction, and the supply of awards on the provision of incentives. Relative price and income effects are shown to be identifiable and strong. A number of empirically testable propositions are formulated. As awards are (at least so far) impossible to measure adequately, empirical tests are carried out using the technique of analytic narratives |
| Keywords: | incentives, motivation, awards, orders, distinction, principal-agent |
| JEL: | D23 D73 J22 J33 L22 Z13 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1468&r=cbe |
| By: | Jean-Robert Tyran; Lars P. Feld |
| Abstract: | Law backed by non-deterrent sanctions (mild law) has been hypothesized to achieve compliance because of norm activation. We experimentally investigate the effects of mild law in the provision of public goods by comparing it to severe law (deterrent sanctions) and no law. The results show that exogenously imposing mild law does not achieve compliance, but compliance is much improved if mild law is endogenously chosen, i.e. self-imposed. We show that voting for mild law induces expectations of cooperation, and that people tend to comply with the law if they expect many others to do so. |
| Keywords: | Deterrent effect of legal sanctions; Expressive law; Social norms; Public goods; Voting |
| JEL: | C92 D72 K42 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2005-17&r=cbe |
| By: | Ronald G. Cummings (Andrew Young School of Policy Studies); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Michael McKee; Benno Torgler (World Bank) |
| Abstract: | There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.” |
| Keywords: | Behavior, tax morale, tax compliance |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0516&r=cbe |