nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒05‒27
sixteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. The Effect of an Additional Alternative on Measured Risk Preferences in a Laboratory Experiment in Peru By Jim Engle-Warnick; Javier Escobal; Sonia Laszlo
  2. Pinocchio's Pupil: Using Eyetracking adn Pupil Dilation to Understand Truth-telling and Deception in Games By Joseph Tao-yi Wang; Michael Spezio; Colin F. Camerer
  3. Learning and Visceral Temptation in Dynamic Savings Experiments By Alexander L. Brown; Colin F. Camerer; Zhikang Eric Chua
  4. Preferences, Poverty and Politics: Experimental and Survey Data from Vietnam By Tomomi Tanaka; Colin F. Camerer; Quang Nguyen
  5. Design of web questionnaires : the effect of layout in rating scales By Toepoel,Vera; Das,Marcel; Soest,Arthur van
  6. Beyond Penrose : a cognitive theory of the firm By Nooteboom,Bart
  7. Human nature in the adaptation of trust By Nooteboom,Bart
  8. The Double Nature of Conventions - An Experimental Analysis By Luis M. Miller
  9. The origins of bubbles in laboratory asset markets By Lucy F. Ackert; Narat Charupat; Richard Deaves; Brian D. Kluger
  10. Effort and Comparison Income : Survey and Experimental Evidence By Andrew Clark; Davis Masclet; Marie-Claire Villeval
  11. Decision Framing and Support for Concessions in the Israeli-Palestinian Conflict By Ifat Maoz; Ilan Yaniv; Naama Ivri
  12. The Relationship Between Risk Attitudes and Heuristics in Search Tasks: A Laboratory Experiment By Daniel Schunk; Joachim Winter
  13. Classification of Human Decision Behavior: Finding Modular Decision Rules with Genetic Algorithms By Franz Rothlauf; Daniel Schunk; Jella Pfeiffer
  14. Personality Preferences and Pre-Commitment: Behavioral Explanations in Ultimatum Games By Pamela M. Schmitt; Robert S. Shupp; Kurtis J. Swope; Justin Mayer
  15. The Effect of Rewards and Sanctions in Provision of Public Goods By Martin Sefton; Robert S. Shupp; James Walker
  16. Social Position and Distributive Justice: Experimental Evidence By Kurtis Swope; John Cadigan; Pamela Schmitt; Robert S. Shupp

  1. By: Jim Engle-Warnick; Javier Escobal; Sonia Laszlo
    Abstract: We experimentally test for the effect of an additional alternative on the measured risk preferences of farmers in rural Peru. In our experiment, subjects revealed their risk preferences with a series of choices between two gambles. We added a third gamble, which was always dominated by one of the two existing gambles. We found that subjects chose this gamble nearly one quarter of the time, in some cases causing the subjects to appear to be more risk loving. We found that subjects in a traditional laboratory environment did not choose the dominated gamble, but their choices were affected by its presence. <P>Une étude expérimentale a été menée dans le but de vérifier l’incidence qu’un choix supplémentaire peut avoir sur les préférences mesurées des fermiers des zones rurales du Pérou à l’égard du risque. Au cours de notre expérience, les sujets étaient appelés à exprimer leurs préférences face au risque en fonction d’une série de choix entre deux loteries. Nous avons ajouté une troisième loterie, laquelle était toujours dominée par une des deux loteries existantes. Nous avons pu constater que, le quart du temps, les sujets choisissaient cette nouvelle loterie, de sorte que, dans certains cas, les sujets semblaient être plus enclins au risque. Nous avons constaté, dans un environnement de laboratoire traditionnel, que les sujets ne choisissaient pas la loterie dominée, mais que leurs choix étaient influencés par sa présence.
    Keywords: rural development, technology choice; risk preferences, risk measurement instruments, experimental economics, choix de la technologie, développement rural, économie expérimentale, instruments de mesure du risque, préférences à l’égard du risque
    JEL: O33 O18 C91
    Date: 2006–05–01
  2. By: Joseph Tao-yi Wang; Michael Spezio; Colin F. Camerer
    Date: 2006–05–14
  3. By: Alexander L. Brown; Colin F. Camerer; Zhikang Eric Chua
    Date: 2006–05–14
  4. By: Tomomi Tanaka; Colin F. Camerer; Quang Nguyen
    Date: 2006–05–14
  5. By: Toepoel,Vera; Das,Marcel; Soest,Arthur van (Tilburg University, Center for Economic Research)
    Abstract: This article shows that respondents gain meaning from visual cues in a web survey as well as from verbal cues (words). We manipulated the layout of a five point rating scale using verbal, graphical, numerical, and symbolic language. This paper extends the existing literature in four directions: (1) all languages (verbal, graphical, numeric, and symbolic) are individually manipulated on the same rating scale, (2) a heterogeneous sample is used, (3) in which way personal characteristics and a respondent's need to think and evaluate account for variance in survey responding is analyzed, and (4) a web survey is used. Our experiments show differences due to verbal and graphical language but no effects of numeric or symbolic language are found. Respondents with a high need for cognition and a high need to evaluate are affected more by layout than respondents with a low need to think or evaluate. Furthermore, men, the elderly, and the highly educated are the most sensible for layout effects.
    Keywords: web survey;questionnaire lay out;context effects;need for cognition;need to evaluate
    JEL: C42 C81 C93
    Date: 2006
  6. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper uses a cognitive theory of firms and organizations, with a focus on learning and innovation. Here, cognition is a wide notion, including value judgments and corresponding feelings and emotions. This paper focuses on the relation between that cognitive theory and Penrose's theory of the growth of the firm. As in Penrose's work, the focus is on learning, rather than on efficient utilization of resources or appropriation of returns from them. Also as in Penrose, the underlying view of cognition is a constructivist one, according to which people with different experience view the world differently. So far, the paper is consistent with Penrose. However, it also adopts and further develops some of the criticism of her views, concerning the role of other human resources than managers in organizational learning, problems of conflicts of interest and governance within the firm, dynamic capabilities for developing new capabilities, and, above all, the alternative of collaboration between firms, for learning and innovation, in the combination of capabilities between rather than within the firm. In particular, it argues that, in contrast with Penrose, there are limits to firm size.
    Keywords: theory of the firm;Penrose;knowledge;learning;innovation;dynamic capabilities;firm size;growth of the firm
    JEL: D21 L22 M13 M14 O31
    Date: 2006
  7. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This chapter pleads for more inspiration from human nature, in agent-based modeling. As an illustration of an effort in that direction, it summarizes and discusses an agentbased model of the build-up and adaptation of trust between multiple producers and suppliers. The central question is whether, and under what conditions, trust and loyalty are viable in markets. While the model incorporates some well known behavioural phenomena from the trust literature, more extended modeling of human nature is called for. The chapter explores a line of further research on the basis of notions of mental framing and frame switching on the basis of relational signaling, derived from social psychology.
    Keywords: trust;transaction costs;buyer-supplier relationships;social psychology
    JEL: A14 D64 L14 L24 Z13
    Date: 2006
  8. By: Luis M. Miller
    Abstract: This paper aims to integrate both economic and sociological notions of conventions in a single analytical framework. To this end, it starts by distinguishing conceptually between behavioral convention, i.e. an arbitrary but stable social regularity, and normative convention, i.e. a principle of action prescribing how to behave in a certain class of situations. A game theoretical framework to represent the interrelation between both concepts is then introduced. Finally, this relation is studied experimentally. The main results of the experiment are: (1) normative conventions have to be commonly known and accepted among subjects in order to work as guides to coordinate on behavioral conventions; (2) once subjects follow a normative convention they are highly consistent with it in a repeated environment; (3) efficiency concerns are focal in the class of games studied in this paper.
    Keywords: coordination, convention, consistency, efficiency, experiments
    Date: 2006–04
  9. By: Lucy F. Ackert; Narat Charupat; Richard Deaves; Brian D. Kluger
    Abstract: In twelve sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur. This finding suggests that both factors are important bubble drivers.
    Date: 2006
  10. By: Andrew Clark; Davis Masclet; Marie-Claire Villeval (GATE CNRS)
    Abstract: This paper combines ISSP survey data and experimental evidence from a gift-exchange game to determine the effect of status or relative income on work effort. We find a strong effect of others’ incomes on individual effort decisions in both datasets. The individual’s rank in the income distribution has a more powerful effect on effort than does others’ average income, suggesting that comparisons are more ordinal than cardinal. We further show that, controlling for own income and income rank, the width of the relevant income distribution matters, with effort increasing in the distance from the bottom of the income distribution. Last, effort is also affected by comparisons over time: those who received higher income offers or had higher income rank in the past exert lower levels of effort for a given current income
    Keywords: comparison income, effort, experiment, income distribution, peak-end, rank
    JEL: A13 C92 D63 J33 M54
    Date: 2006–01
  11. By: Ifat Maoz; Ilan Yaniv; Naama Ivri
    Abstract: The purpose of the study is to explore, in the context of the Israeli-Palestinian conflict, the influence of framing a decision task as inclusion or exclusion on Israeli-Jewish respondents' support for the concession of Jewish settlements in the West Bank and Gaza. Respondents received a list of 40 Jewish settlements. Details such as the number of residents and geographical location were provided for each settlement. The respondents were randomly assigned to one of two conditions. In the inclusion condition 55 respondents were asked to mark the settlements for which they recommended that Israeli sovereignty be conceded. In the exclusion condition 53 respondents were asked to mark the settlements for which they recommended that Israeli sovereignty not be conceded. The findings confirm the predictions tested and indicate that: (1) Framing the task in terms of inclusion or exclusion affects respondents' support for territorial compromise, so that respondents in the exclusion condition support the concession of more settlements than respondents in the inclusion condition. (2) Framing the task in terms of inclusion or exclusion has a greater effect on support for conceding options (settlements) that are perceived as ambiguous (less consensual in the climate of opinion) in comparison to options (settlements) that are perceived as more clear-cut (more consensual). The theoretical and practical implications of these findings are discussed.
    Date: 2006–05
  12. By: Daniel Schunk; Joachim Winter (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: The existing evidence from laboratory experiments suggests that relatively simple heuristics describe observed search behavior better than the optimal stopping rule derived under risk neutrality. Such behavior could be generated by two entirely di®erent classes of decision rules: (i) rules that are optimal conditional on utility functions that depart from risk neutrality or (ii) heuristics that derive from limited cognitive processing capacities and satisfycing. In this paper, we develop and test search models that depart from the standard assumption of risk neutrality in order to distinguish these two possi- bilities. In our experiment, we present subjects not only with a standard search task, but also with a series of lottery tasks that serve to elicit the shape of their utility functions. We do not ¯nd a relationship between behavior in the search task and measures of risk aversion. Our data suggest, however, that loss aversion is important for explaining search behavior.
    JEL: D83 C91
    Date: 2005–06–21
  13. By: Franz Rothlauf; Daniel Schunk; Jella Pfeiffer (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: The understanding of human behavior in sequential decision tasks is im- portant for economics and socio-psychological sciences. In search tasks, for example when individuals search for the best price of a product, they are confronted in sequential steps with di®erent situations and they have to decide whether to continue or stop searching. The decision behavior of individuals in such search tasks is described by a search strategy. This paper presents a new approach of ¯nding high-quality search strategies by using genetic algorithms (GAs). Only the structure of the search strategies and the basic building blocks (price thresholds and price patterns) that can be used for the search strategies are pre-speci¯ed. It is the purpose of the GA to construct search strategies that well describe human search behavior. The search strategies found by the GA are able to predict human behavior in search tasks better than traditional search strategies from the literature which are usually based on theoretical as- sumptions about human behavior in search tasks. Furthermore, the found search strategies are reasonable in the sense that they can be well in- terpreted, and generally that means they describe the search behavior of a larger group of individuals and allow some kind of categorization and classi¯cation. The results of this study open a new perspective for future research in developing behavioral strategies. Instead of deriving search strategies from theoretical assumptions about human behavior, researchers can directly analyze human behavior in search tasks and ¯nd appropriate and high- quality search strategies. These can be used for gaining new insights into the motivation behind human search and for developing new theoretical models about human search behavior.
    Date: 2005–06–21
  14. By: Pamela M. Schmitt (U. S. Naval Academy); Robert S. Shupp (Department of Economics, Ball State University); Kurtis J. Swope (U. S. Naval Academy); Justin Mayer (U. S. Naval Academy)
    Abstract: This paper uses responder pre-commitment and psychological type, as measured by the Myers- Briggs Type Indicator (MBTI), to gain insight into subject behavior in a laboratory ultimatum bargaining experiment. Three experiment design details are noteworthy: (1) one design requires responders to make a nonbinding pre-commitment rejection level prior to seeing the offer, (2) one design requires responders to make a binding pre-commitment rejection level, and (3) one design includes a third person (or “hostage”) who makes no decision, but whose payment depends on the proposal being accepted. Offers are higher when proposers know that responders make a binding pre-commitment to reject but are not different when a hostage is present. Responders make lower pre-commitments when they are binding and when a hostage is present. Behavior in our experiment is generally consistent with hypotheses based on theoretical underpinnings of the MBTI and its descriptions of psychological type.
    Keywords: Ultimatum game; preferences; personality
    JEL: C72 C78 C91
    Date: 2005–05
  15. By: Martin Sefton (University of Nottingham, United Kingdom); Robert S. Shupp (Department of Economics, Ball State University); James Walker (Department of Economics, Indiana University, Bloomington, IN)
    Abstract: A growing number of field and experimental studies in social dilemma settings focus on the institutional arrangements by which individuals are able to solve collective action problems. Important in this research is the role of reciprocity and institutions that facilitate cooperation via opportunities for monitoring, sanctioning, and rewarding others. This study contrasts sanction and reward institutions in the context of a public goods experiment. Sanctions represent a net loss, a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero sum transfer from participants giving rewards to those receiving rewards. These institutions are compared in regard to their impact on overall levels of cooperation and economic efficiency.
    JEL: C92
    Date: 2005–02
  16. By: Kurtis Swope (Department of Economics, United States Naval Academy); John Cadigan (Department of Public Administration, American University); Pamela Schmitt (Department of Economics, United States Naval Academy); Robert S. Shupp (Department of Economics, Ball State University)
    Abstract: In a simple double-blind dictator experiment, systematically removing subjects’ levels of power and entitlement increases their choice of an income distribution generally consistent with Rawls (1971) concept of distributive justice, although choices are less unanimous and risk-averse than hypothesized
    Keywords: Power; entitlement; justice; experiments
    JEL: C91 D31
    Date: 2005–06

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