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on Cognitive and Behavioural Economics |
| By: | Werner Güth; M. Vittoria Levati; Matteo Ploner |
| Abstract: | We experimentally investigate whether the satisficing approach is absorbable, i.e., whether it still applies after participants become aware of it. In a setting where an investor decides between a riskless bond and either one or two risky assets, we familiarize participants with the satisficing calculus applied to specific portfolio selection tasks. After experiencing this calculus repeatedly, participants are free to use it or to select their portfolio freely. The results support, to some extent, the absorbability of the satisficing approach. |
| Keywords: | Theory absorption; Satisficing behavior; Portfolio selection |
| JEL: | C91 D81 G11 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:esi:discus:2006-10&r=cbe |
| By: | Nicolas Querou (Queen's University Belfast); Sylvain Beal (CREUSET, University of Saint-Etienne) |
| Abstract: | We define a finite-horizon repeated network formation game with consent, and study the differences induced by different levels of individual rationality. We prove that perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when, following Neyman (1985), players are assumed to behave as finite automata. We define two types of equilibria, namely the Repeated Nash Network (RNN), in which the same network forms at each period, and the Repeated Nash Equilibrium (RNE), in which different networks may form. We state a sufficient condition under which a given network may be implemented as a RNN. Then, we provide structural properties of RNE. For instance, players may form totally different networks at each period, or the networks within a given RNE may exhibit a total order relationship. Finally we investigate the question of efficiency for both Bentham and Pareto criteria. |
| Keywords: | Repeated Network Formation Game, Two-sided Link Formation Costs, Bounded Rationality, Automata |
| JEL: | C72 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.74&r=cbe |
| By: | James Andreoni |
| Date: | 2006–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000166&r=cbe |
| By: | Olof Johansson Stenman (Göteborg University); Minhaj Mahmud (Keele University, Centre for Economic Research and School of Economic and Management Studies); Peter Martinsson (Göteborg University) |
| Abstract: | Trust is measured using both survey questions and a standard trust experiment among a random sample of Muslim and Hindu household heads in rural Bangladesh. We found no significant effect of the social distance between Hindus and Muslims in the trust experiment in terms of fractions sent or returned, but the responses to the survey questions do indicate significant differences. Hindus, the minority, trust other people less in general, while Hindus trust Muslims more than Muslims trust Hindus. |
| Keywords: | Social capital; Trust; Social distance; Religion; Trust game; field experiment; Bangladesh. |
| JEL: | C93 Z12 Z13 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:kee:kerpuk:2006/10&r=cbe |
| By: | Olof Johansson Stenman (Göteborg University); Minhaj Mahmud (Keele University, Centre for Economic Research and School of Economic and Management Studies); Peter Martinsson (Göteborg University) |
| Abstract: | Levels of trust are measured by asking standard survey questions on trust and by observing the behaviour in a trust game using a random sample in rural Bangladesh. Follow-up questions and correlations between stated expectations and the sent amount in the trust game reveal that the amount sent in the trust game is a weak measure of trust. The fear of future punishment, either during or after this life, for not being sufficiently generous to others, was the most frequently stated motive behind the respondents' behaviour, highlighting the potential importance of motives that cannot be inferred directly from people's behaviour. |
| Keywords: | Trust; trust game; social capital; motivations; Bangladesh. |
| JEL: | C93 Z13 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:kee:kerpuk:2006/11&r=cbe |
| By: | Simon Gaechter (University of Nottingham); Manfred Koenigstein (University of Erfurt) |
| Abstract: | We present a simple classroom principal-agent experiment that can effectively be used as a teaching device to introduce important concepts of organizational economics and contracting. In a first part, students take the role of a principal and design a contract that consists of a fixed payment and an incentive component. In the second part, students take the role of agents and decide on an effort level. The experiment can be used to introduce students to the concepts of efficiency, incentive compatibility, outside options and participation constraints, the Coase theorem, and fairness and reciprocity in contracting. |
| Keywords: | Classroom experiments; post-contractual opportunism; incentive contracts; efficiency; reciprocity; Coase theorem |
| JEL: | A22 C92 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2006-04&r=cbe |
| By: | Bruno S. Frey |
| Abstract: | “Evaluitis” - i.e. ex post assessments of organizations and persons - has become a rapidly spreading disease. In addition to the well-known costs imposed on evaluees and evaluators, additional significant costs are commonly disregarded: incentives are distorted, ossification is induced and the decision approach is wrongly conceived. As a result, evaluations are used too often and too intensively. A viable and often superior alternative to evaluations is a careful selection of persons and afterwards leaving them to pursue their assigned tasks. |
| Keywords: | Evaluation, Performance, Selection, Research, Incentives |
| JEL: | D23 D61 H43 M40 M5 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:293&r=cbe |
| By: | Raúl López-Pérez |
| Abstract: | This paper explicitly introduces norms in games, assuming that they shape (some) players’ utility and beliefs. People feel badly when they deviate from a binding norm, and the less other players deviate, the more badly they feel. Further, people anger at transgressors and get pleasure from punishing them. I then study how social norms and emotions affect cooperation, coordination, and punishment in a variety of games. The model is consistent with abundant experimental evidence that alternative models of social preferences cannot explain. |
| Keywords: | Cooperation, Emotions, Focal Points, Punishment, Reciprocity, Social Norms |
| JEL: | C72 D02 D62 D64 Z13 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:292&r=cbe |
| By: | Andrew J. Oswald (University of Warwick and IZA Bonn); Nattavudh Powdthavee (University of London) |
| Abstract: | Economics ignores the possibility of hedonic adaptation (the idea that people bounce back from utility shocks). This paper argues that economists are wrong to do so. It provides longitudinal evidence that individuals who become disabled go on to exhibit recovery in mental wellbeing. Adaptation to severe disability, however, is shown to be incomplete. The paper suggests ways to calculate the level of compensatory damages for the pain and suffering from disablement. Courts all over the world currently use ad hoc methods. |
| Keywords: | disability, adaptation, happiness, legal compensation, wellbeing, GHQ scores |
| JEL: | D1 I3 I31 K0 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2208&r=cbe |
| By: | Thomas Dohmen (IZA Bonn); Armin Falk (IZA Bonn and University of Bonn); David Huffman (IZA Bonn); Uwe Sunde (IZA Bonn and University of Bonn) |
| Abstract: | Experimental evidence has convincingly shown the existence of reciprocal inclinations, i.e., a tendency for people to respond in-kind to hostile or kind actions. Little is known, however, about: (i) the prevalence of reciprocity in the population, (ii) individual determinants of reciprocity, (iii) the correlation between positive and negative inclinations within person, and (iv) consequences of reciprocal inclinations for wages, subjective well-being, friendships and other economic and social outcomes. Answering these questions requires moving out of the lab and using a large and representative subject pool, which combines information about subjects’ reciprocal inclinations with extensive socioeconomic background information. In this paper we measure the reciprocal inclinations of 21,000 individuals. We show that most people state reciprocal inclinations, in particular in terms of positive reciprocity. However, there is substantial heterogeneity in the degree of reciprocity, and quite surprisingly, only a weak correlation between positive and negative reciprocity for an individual. In terms of determinants, being female, and increasing age, lead to greater positive and less negatively reciprocal tendencies. Taller people are more positively reciprocal, but height has no impact on negative reciprocity. The asymmetric impact of these determinants provides further indication that positive and negative reciprocity are fundamentally different traits, rather than the outcome of a single underlying tendency. In terms of economic implications, we provide the first evidence using a large representative survey that corroborates an important hypothesis arising from laboratory experiments: Positively reciprocal workers are in fact paid more, and exert greater effort, on the job. Moreover, positively reciprocal people are more likely to be employed, report having more close friends, and have a higher overall level of life satisfaction. In this sense, Homo Reciprocans - in the positive domain - is in fact more successful than his or her non-reciprocal fellows. |
| Keywords: | reciprocity, trust, SOEP, wage regression, unemployment, happiness |
| JEL: | D63 J3 J6 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2205&r=cbe |
| By: | Eric M. Uslaner (University of Maryland) |
| Abstract: | Some researchers claim that diverse populations lead to less trust. Generalized trust is a core value that leads to positive outcomes in societies--from greater tolerance of minority groups and immigrants and willingness to do good deeds, to less corruption, more social welfare and education spending, more open markets, and better functioning government. Generalized trust fundamentally rests upon a foundation of respect for diversity, but at the same time arguing that societies have a common culture. It is the idea that people have a shared fate. Generalized trust rests upon a foundation of economic equality. Yet some claim that diversity leads to less trust rather than more trust. Trusting people who are different from yourself is atypical of most people, they claim. I dispute this--arguing that generalized trust is largely unrelated to population diversity. It is not diversity that matters--it is how populations are distributed. I show that trust is lower not in diverse societies, but rather in societies with large minority groups that are segregated from the majority groups. Minority residential segregation leads to less trust because it leads to less interaction across different groups in society--and leads minorities to associate only with each other, to form their own political organizations, and to see their fate as less dependent upon majority groups. I then discuss how economic inequality and the rule of law shape the relationship between trust and minority residential segregation. |
| Keywords: | Trust, Diversity, Corruption |
| JEL: | Z13 O57 D73 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.69&r=cbe |
| By: | Miguel A. Fonseca |
| Abstract: | This paper reports an experimental test of asymmetric Tullock contests. Both the simultaneous-move and sequential-move frameworks are considered. The introduction of asymmetries in the contest function generates experimental behavior qualitatively consistent with the theoretical predictions. However, especially in the simultaneous-move framework, average bidding levels are in excess of the risk-neutral predictions. We conjecture that the reason behind this behavior lies in subjects attaching positive utility to victory in the contest. |
| Date: | 2006–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:001058:002532&r=cbe |