nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒07‒09
six papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Task Transcending Satisficing - An Experimental Study By Werner Güth; Gerlinde Fellner; Ev Martin
  2. Satisficing or Optimizing? - An Experimental Study By Werner Güth; Gerlinde Fellner; Ev Martin
  3. Institutions as Determinants of Preference Change – A One Way Relation? By M. Binder; U. Niederle
  4. Happiness and Loss Aversion: When Social Participation Dominates Comparision By Vendrik Maarten; Woltjer Geert
  5. One Knowledge Base or Many Knowledge Pools? By Bengt-Åke Lundvall
  6. The effect of education on cognitive ability By Torberg Falch; Sofia Sandgren

  1. By: Werner Güth; Gerlinde Fellner; Ev Martin
    Abstract: The paper explores the applicability of bounded rationality theory. In particular, we investigate whether basic principles of aspiration formation and satisficing behavior are transferable between similar situations. Individuals are sequentially confronted with two risky investment tasks, a simple and a more complex one. Initially elicited state-contingent aspirations can be used to predict actual portfolio selection in both tasks. We explore whether individual characteristics of satisficing apply to both scenarios. Results indicate that stated aspirations frequently cannot be fulfilled. However, aspiration formation itself is highly transferable between tasks.
    Keywords: bounded rationality; aspirations; investment decisions
    JEL: C91 D81 G11
    Date: 2006–07
  2. By: Werner Güth; Gerlinde Fellner; Ev Martin
    Abstract: This experimental study investigates whether individuals prefer bounded rationality over rational choice theory when facing simple investment tasks. First, participants state some personal parameters that serve as an input to render a theoretical approach, namely satisficing or optimality, applicable. Then, they are guided through the decision making process where either ‘satisficing’ or ‘optimality’ is suggested and has to be implemented. The behavioral appeal of the two approaches is measured by the adjustments of personal parameters until accepting the investment decision suggested by theory. Additionally, a questionnaire is administered to elicit subjective contentment with the two approaches.
    Keywords: Theory absorption; Satisficing behavior; Portfolio selection
    JEL: C91 D81 G11
    Date: 2006–07
  3. By: M. Binder; U. Niederle
    Abstract: In recent economic literature, there has been an increasing interest in modelling preferences as endogenous. Some arguments go along the lines that institutions shape preferences. This paper suggests that adopting a more substantive concept of preferences furthers our understanding of how they systematically shape institutions. We integrate social-psychological concepts and combine them with an account of learning. Thus, a model of the dynamic interrelation between preferences and institutions can be developed. While institutional change can certainly be partly explained in terms of changing incentives, we offer an approach that goes beyond the standard explanation.
    Keywords: endogenous preferences, institutional change, learning, attitudes, wants, social instincts
    JEL: O12 D79 Z00
    Date: 2006–07
  4. By: Vendrik Maarten; Woltjer Geert (METEOR)
    Abstract: A central finding in happiness research is that a person’s income relative to the average income in her social reference group is more important for her life satisfaction than the absolute level of her income. This dependence of life satisfaction on relative income can be related to the reference dependence of the value function in Kahneman and Tversky’s (1979) prospect theory. In this paper we investigate whether the characteristics of the value function like concavity for gains, convexity for losses, and loss aversion apply to the dependence of life satisfaction on relative income. This is tested with a new measure for the reference income for a large German panel for the years 1984-2001. We find concavity of life satisfaction in positive relative income, but unexpectedly strongly significant concavity of life satisfaction in negative relative income as well. The latter result is shown to be robust to extreme distortions of the reported-life-satisfaction scale. It implies a rising marginal sensitivity of life satisfaction to more negative values of relative income, and hence loss aversion (in a wide sense). This may be explained in terms of increasing financial obstacles to social participation.
    Keywords: public economics ;
    Date: 2006
  5. By: Bengt-Åke Lundvall
    Abstract: The purpose of this paper is to show why to build ‘learning organisations’ must be a central element of knowledge management. The paper argues that the wide use of information technology has a contradictory impact on knowledge management. On the one hand it extends the potential for codifying knowledge. On the other hand it makes tacit knowledge scarcer and it contributes to the formation of ‘a learning economy’. The argument is supported by an empirical analysis of survey data from Denmark showing that firms that introduce several organisational practices, assumed to characterise the learning organisation, are more innovative than the average firm. The paper contributes to the empirical foundation for the argument that learning organisations stimulate innovation and competence building and it makes an original conceptual contribution of practical relevance by linking knowledge management to HRM and innovation management.
    Keywords: Knowledge management; learning economy; interactive learning; organisational change
    JEL: D83 O32
    Date: 2006
  6. By: Torberg Falch (Department of Economics, Norwegian University of Science and Technology); Sofia Sandgren (Department of Economics, Norwegian University of Science and Technology)
    Abstract: We analyze whether the amount of schooling influences intelligence as measured by IQ tests. By use of a novel longitudinal dataset we are able to condition on early cognitive ability to account for selection into non-compulsory schooling when estimating the effect on cognitive ability at age 20. OLS estimates indicate that one year of schooling increases IQ by 2.8-3.5 points (about 0.2 standard deviations). When family income per family member and teacher evaluations of the individuals at age 10 are used as instruments for schooling and early cognitive ability, the return to schooling is estimated to 3.5-3.8 IQ points.
    Keywords: Cognitive ability; Education production; Return to schooling
    JEL: I21 J24
    Date: 2006–06–10

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