nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒03‒18
ten papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. A Note on the Principle of "Normative Individualism" By Christian Schubert
  2. Performance Pay and Multi-dimensional Sorting: Productivity, Preferences and Gender By Thomas Dohmen; Armin Falk
  3. Performance Pay and the Erosion of Worker Cooperation: Field Experimental Evidence By Stephen Burks; Jeffrey Carpenter; Lorenz Goette
  4. The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence using Random Assignment to Real Social Groups By Lorenz Goette; David Huffman; Stephan Meier
  5. Dishonesty in everyday life and its policy implications By Nina Mazar; Dan Ariely
  6. Deciding to distrust By Iris Bohnet; Stephan Meier
  7. Subject Pool Bias in Economics Experiments By Pablo Guillen; Robert F.Veszteg
  8. Fatal Attraction: Focality, Naivete, and Sophistication in Experimental Hide-and-Seek Games By Vincent P. Crawford; Nagore Iriberri
  9. Self-Serving Biases in Bargaining By Kohnz, Simone
  10. Agent-Based Computational Economics: A Constructive Approach to Economic Theory By Tesfatsion, Leigh S.

  1. By: Christian Schubert
    Abstract: According to the principle of Normative Individualism, the evaluation of economic states and processes should be guided exclusively by the wishes of the individuals who are seen as the only bearer of values. Despite its intuitive appeal and its almost universal acceptance in normative economics (i.e., Welfare Economics as well as Constitutional Economics), the principle itself has received only scarce, mostly skeptical attention in the literature. It has even less been discussed from an explicitly evolutionary perspective on human preference formation processes. It is argued that it may be made compatible with such a perspective if it is transformed into a concept of "developmental individualism" that encompasses three sets of criteria, viz. preference-based, opportunity-based and distributive justice criteria.
    Keywords: Normative Individualism, Normative Reasoning, Welfare Economics, Variable Preferences, Responsibility
    JEL: B4 B52 D63 I3
    Date: 2006–03
  2. By: Thomas Dohmen (IZA Bonn); Armin Falk (IZA Bonn and University of Bonn)
    Abstract: This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. In a first step we elicit subjects’ productivity levels. Subjects then face the choice between a fixed or a variable payment scheme. Depending on the treatment, the variable payment is either a piece rate, a tournament or a revenue-sharing scheme. We elicit additional individual characteristics such as subjects’ risk attitudes, measures of selfassessment and overconfidence, social preferences, gender and personality. We also elicit self-reported measures of work effort, stress and exhaustion. Our main findings are as follows. First, output is much higher in the variable pay schemes (piece rate, tournament, and revenue sharing) compared to the fixed payment scheme. Second, this difference is largely driven by productivity sorting. On average, the more productive a worker is, the more likely he self-selects into the variable pay scheme. Third, relative self-assessment and overconfidence affect worker self-selection, in particular into tournaments. Fourth, risk averse workers prefer fixed payments and are less likely to sort into variable pay schemes. Fifth, people endowed with social preferences are less likely to sort into tournaments. Sixth, variable pay schemes attract men more than women, a difference that is partly explained by gender-specific risk attitudes. Seventh, self-selection is also affected by personality differences. Finally, reported effort is significantly higher in all variable pay conditions than in the fixed wage condition. In sum, our findings underline the importance of multi-dimensional sorting, i.e., the tendency for different incentive schemes to systematically attract people with different abilities, preferences, self-assessments, gender and personalities.
    Keywords: personnel economics, sorting, incentives, productivity, ability, piece rates, tournament, revenue sharing, risk preferences, overconfidence, gender, experiment
    JEL: M52 M55 J00 J3 J33 J31 J16 J22 J24 C91 D81
    Date: 2006–03
  3. By: Stephen Burks (University of Minnesota, Morris and IZA Bonn); Jeffrey Carpenter (Middlebury College and IZA Bonn); Lorenz Goette (University of Zurich, CEPR and IZA Bonn)
    Abstract: We report the results of a field experiment with bicycle messengers in Switzerland and the United States. Messenger work is individualized enough that firms can choose to condition pay on it, but significant externalities in messenger behavior nonetheless give their on-the-job interactions the character of a social dilemma. Firms therefore suffer efficiency losses when messengers fail to cooperate. Second-mover behavior in our sequential Prisoner's Dilemma allows us to characterize the cooperativeness of our participants. We find that messengers, like our student controls, have heterogeneous social preferences, but are much more cooperative than students. Among messengers, we find that employees at firms that pay for performance are significantly less cooperative than those who are paid hourly or are members of cooperatives. To examine whether the difference is the result of treatment or selection we exploit the fact that firm type is location-specific in Switzerland and that entering messengers must work in performance pay firms in the U.S. We find that the erosion of cooperation under performance pay is predominantly due to treatment, and that the treatment effect is relatively rapid, more akin to the differential cueing of a behavioral norm than the gradual acquisition of a new preference.
    Keywords: field experiment, social preference, altruism, conditional cooperation, egoism, social dilemma
    JEL: C72 C78 C93 D23 J33 J54 Z13
    Date: 2006–03
  4. By: Lorenz Goette (University of Zurich, CEPR and IZA Bonn); David Huffman (IZA Bonn); Stephan Meier (Federal Reserve Bank of Boston)
    Abstract: Due to incomplete contracts, efficiency of an organization depends on willingness of individuals to take non-selfish actions, e.g., cooperate when there is no incentive to do so, or punish inefficient actions by others. Organizations also constitute a social boundary, or group. We investigate whether this social aspect of organizations has an important benefit, fostering unselfish cooperation and norm enforcement within the group, but whether there is also a dark side, in the form of hostility between groups. Our experiment provides the first evidence without the confounding effect of self-selection into groups. Individuals are randomly assigned to different platoons during a four-week portion of officer training in the Swiss Army. We conduct choice experiments - simultaneous prisoner’s dilemma games, with and without third-party punishment - in week three. Random assignment significantly increases willingness to cooperate with fellow platoon members. Assignment does not lead to hostility, in the sense of vindictive punishment of outsiders, but does affect norm enforcement, enhancing willingness to enforce a norm of cooperation towards fellow platoon members. This suggests that the social aspect of organizations motivates efficient behavior even when ordinary incentives fail, and helps explain practices designed to foster social ties or group identification within an organization.
    Keywords: organizations, in-group favoritism, social identity, punishment
    JEL: D23 J00
    Date: 2006–03
  5. By: Nina Mazar; Dan Ariely
    Abstract: Dishonest acts are all too prevalent in day-to-day life. In the current review, we examine some possible psychological causes for such dishonesty that go beyond the standard economic considerations of probability and value of external payoffs. We propose a general model of dishonest behavior that includes also internal psychological reward mechanisms for honesty and dishonesty, and we point to the implications of this model in terms of curbing dishonesty.
    Keywords: Honesty ; Reward (Psychology)
    Date: 2006
  6. By: Iris Bohnet; Stephan Meier
    Abstract: We employ experiments to illustrate one factor contributing to the lack of distrust in the recent corporate scandals: Trust rather than no trust was the default. People are more trusting when the default is full trust than when it is no trust. We introduce a new game, the distrust game (DTG), where the default is full trust and find that in it, trust levels are higher than in the Berg, Dickhaut, and McCabe (1995) trust game (TG), where the default is no trust. At the same time, trustworthiness levels are lower in the DTG than in the TG. Agents (second movers) punish distrust more in the DTG than the lack of trust in the TG, but principals (first movers) do not correctly anticipate this. The distrust game produces more efficient outcomes than the trust game but also more inequality: Principals end up much worse than their agents in the DTG.
    Keywords: Trust ; Corporations - Corrupt practices
    Date: 2005
  7. By: Pablo Guillen (Harvard Business School); Robert F.Veszteg (University of Navarra)
    Abstract: In this paper we consider data from a large number of economic experiments, and look for demographic effects that may be a source of subject pool bias if not carefully accounted for in the subsequent statistical analysis. Our dataset contains information on 2,408 subjects and 597 experimental sessions from 74 experiments recorded over more than 2 years at an experimental laboratory. Using different estimation methods and model specifications, we identify the significant demographic determinants of personal earnings, and find that they account for less than 4% of the observed variation. Thus we deliver empirical evidence supporting the experimental method as monetary incentives, and therefore some kind of strategic behavior, seem to be more important than demographics in the laboratory. Exploiting the timeseries nature of the data we also study some dynamic issues of the subject pool: we analyze the factors that influence subjects’ decisions on returning to the laboratory.
    Keywords: Experiments, Subject pool bias, Demographic characteristics
    JEL: C9
    Date: 2006–03–08
  8. By: Vincent P. Crawford; Nagore Iriberri
    Date: 2006–03–03
  9. By: Kohnz, Simone
    Abstract: There is strong evidence that in bargaining situations with asymmetric outside options people exhibit self-serving biases concerning their fairness judgements. Moreover, psychological literature suggests that this can be a driving force of bargaining impasse. This paper extends the notion of inequity aversion to incorporate self-serving biases due to asymmetric outside options and analyses whether this leads to bargaining breakdown. I distinguish between sophisticated and naive agents, that is, those agents who understand their bias and those who do not. I find that breakdown in ultimatum bargaining results from naiveté of the proposers.
    JEL: D63 C7 A13
    Date: 2005–06
  10. By: Tesfatsion, Leigh S.
    Abstract: This chapter explores the potential advantages and disadvantages of Agent-based Computational Economics (ACE) for the study of economic systems. General points are concretely illustrated using an ACE model of a two-sector decentralized market economy. Six issues are highlighted: Constructive understanding of production, pricing, and trade processes; the essential primacy of survival; strategic rivalry and market power; behavioral uncertainty and learning; the role of conventions and organizations; and the complex interactions among structural attributes, behaviors, and institutional arrangements.
    JEL: B4 C0 C6 D0
    Date: 2006–03–06

This nep-cbe issue is ©2006 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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