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on Cognitive and Behavioural Economics |
| By: | Larry Epstein (University of Rochester); Igor Kopylov (University of California Irvine) |
| Abstract: | People like to feel good about past decisions. This paper models self- justification of past decisions. The model is axiomatic: axioms are defined on preference over ex ante actions (modeled formally by menus) The representation of preference admits the interpretation that the agent adjusts beliefs after taking an action so as to be more optimistic about its possible consequences. In particular, the ex post choice of beliefs is part of the representation of preference and not a primitive assumption. Behavioral characterizations are given to the comparisons "1 exhibits more dissonance than 2" and "1 is more self-justifying than 2." |
| Keywords: | cognitive dissonance, optimism, temptation, self-control, self-justification, choice-theoretic, choosing beliefs |
| JEL: | D81 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:525&r=cbe |
| By: | Ernesto Reuben; Frans van Winden |
| Abstract: | This experimental study investigates how behavior changes after punishment for an unkind action. It also studies how fairness perceptions affect the reaction to punishment and whether this effect is consistent across repeated play and role experiences. A repeated version of the power-to-take game is used. In this game, the proposer can make a claim on the resources of a responder. Then, the responder can destroy any part of her own resources. The focus is on how proposers adjust their behavior depending on their fairness perceptions, their experienced emotions, and their interaction with responders. We find that fairness plays an important role in the behavior of proposers. Specifically, deviations from a perceived fairness norm trigger feelings of shame and guilt, which induce proposers to lower their claims. However, we also find that the perceived fairness norm varies considerably between individuals. Therefore, it is not the case that proposers who considered they were acting fairly were particularly nice to responders. Our results also show that the different types of individuals predicted by models of social preferences, can be traced among the subjects that played the same role in both periods, but fail to describe the behavior of subjects who switched from one role to the other. |
| JEL: | C90 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1685&r=cbe |
| By: | Ernesto Reuben; Frans van Winden |
| Abstract: | This is an experimental study of a three-player power-to-take game where a take authority is matched with two responders. The game consists of two stages. In the first stage, the take authority decides how much of the endowment of each responder that is left after the second stage will be transferred to the take authority (the so-called take rate). In the second stage, each responder can react by destroying any part of his or her own endowment. Two treatments are considered: one in which all players are ‘strangers’ to each other (random matching), and one in which the responders know each other from outside the lab and are more or less close ‘friends’ (whereas the take-authority is again randomly selected). We focus on how the intensity of ties between responders impacts the decisions, beliefs, and emotions of both the responders and the take-authority. Some of our findings are: (1) although take rates are about the same, friends destroy more than strangers when faced with high take rates; (2) coordination on the same destruction level is stronger among friends; (3) the high level of coordination among friends can be explained by their emotional reaction towards one another; (4) the difference between the actual and expected take rate is a much better predictor of experienced emotions and destruction than the difference between the actual and (what is considered as) the fair take rate. |
| Keywords: | reciprocity, social ties, emotions, expectations, experiment, friends, principal-agent relationship, appropriation, fairness |
| JEL: | A10 C72 C91 C92 H20 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1674&r=cbe |
| By: | Daniel Haile; Abdolkarim Sadrieh; Harrie A. A Verbon |
| Abstract: | Trust games are employed to investigate the effect of heterogeneity in income and race on cooperation in South Africa. The amount of socio-economic information available to the subjects about their counterparts is varied. No significant behavioural differences are observed, when no such information is provided. However, when the information is available, it significantly affects individual trust behaviour. The low income subjects from both racial groups invest significantly less in partnerships with the high income subjects of the other racial group than in any other partnership. We attribute this behaviour to cross-racial envy, which on aggregate may lead to substantial underinvestment in the economy. |
| Keywords: | trust game, ethnic diversity, income inequality, cooperation |
| JEL: | C91 J15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1657&r=cbe |
| By: | Lydia Mechtenberg |
| Abstract: | In this paper, I o¤er a theoretical explanation of the robust gender differences in educational achievement distributions of school children. I consider a one shot cheap talk game with two different types of senders (biased teachers and fair teachers), two types of receivers ("normal" and "special" pupils) and uncertainty about the sender type on the side of the receiver. I demonstrate that the group of pupils who, in expectation, get either too much or too little encouragement will have less top achievers and a lower average achievement than the group of pupils who get a more accurate feedback message, even if the prior talent distribution is the same for both groups of pupils. |
| Keywords: | Cheap talk, Education, Discrimination, Gender |
| JEL: | D82 I21 J16 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2006-019&r=cbe |
| By: | Pavlo Blavatskyy; Ganna Pogrebna |
| Abstract: | In the television show Affari Tuoi a contestant is endowed with a sealed box containing a monetary prize between one cent and half a million euros. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability. |
| Keywords: | risk attitude, risk aversion, risk seeking, natural experiment |
| JEL: | C93 D81 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:278&r=cbe |
| By: | Diego Salzman (CORE, Université catholique de Louvain.); Emanuel Trifan (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)) |
| Abstract: | This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory. |
| Keywords: | Judgement under uncertainty, Bayesian Inference, Behavioral Finance, Decision Making, Emotions |
| JEL: | G1 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:tud:ddpiec:166&r=cbe |
| By: | Eleonora Patacchini (University of Rome "La Sapienza"); Yves Zenou (IUI, GAINS, CEPR and IZA Bonn) |
| Abstract: | We investigate the sources of differences in school performance between students of different races by focusing on identity issues. We find that having a higher percentage of same-race friends has a positive effect of white teenagers’ test score while having a negative effect on blacks’ test scores. However, the higher the education level of a black teenager’s parent, the lower this negative effect, while for whites, it is the reverse. It is thus the combination of the choice of friends (which is a measure of own identity) and the parent’s education that are responsible for the difference in education attainment between students of different races but also between students of the same race. One interesting aspects of this paper is to provide a theoretical model that grounds the instrumental variable approach used in the empirical analysis to deal with endogeneity issues. |
| Keywords: | ethnic minorities, peer effects, education achievement, endogeneity issues |
| JEL: | A14 I21 J15 J24 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2046&r=cbe |
| By: | Alois Stutzer; Lorenz Goette; Michael Zehnder |
| Abstract: | In this paper, we propose a decision framework where people are individually asked to either actively consent or dissent to some pro-social behavior. We hypothesize that confronting individuals with the choice of engaging in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences while simultaneously involving a commitment. The hypothesis is tested in a large-scale field experiment on blood donation. We find that this "active-decision" intervention substantially increases the stated willingness to donate blood, as well as the actual donation behavior of people who have not fully formed preferences beforehand. |
| Keywords: | active decision, pro-social behavior, field experiment, blood donation |
| JEL: | C93 D64 I18 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:279&r=cbe |