nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒09‒16
sixteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. How Far Ahead Do People Plan? By John Hey; Julia Knoll
  2. Income and happiness: Evidence, explanation and economic implications By Andrew E. Clark; Paul Frijters; Michael A. Shields
  3. A note on unhappiness and unemployment duration By Andrew E. Clark
  4. Why Does Ethnic Diversity Undermine Public Goods Provision? An Experimental Approach By James Habyarimana; Macartan Humphreys; Daniel N. Posner; Jeremy Weinstein
  5. The Puzzle of Altruism Reconsidered: Biological Theories of Altruism and One-Shot Altruism By Shultziner, Doron; Dattner, Arnon
  6. Evaluations: Hidden Costs, Questionable Benefits, and Superior Alternatives By Bruno S. Frey; Margit Osterloh
  7. Cash or Credit? The importance of reward medium and experiment timing in classroom preferences for fairness By David L. Dickinson
  8. Dynamic Variational Preferences By Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
  9. Estimates of Own Lethal Risks and Anchoring Effects By Olivier Armantier
  10. Do Wealth Differences Affect Fairness Considerations? By Olivier Armantier
  11. A Behavioral Model for Participation Games with Negative Feedback By Pietro Dindo; Jan Tuinstra
  12. Who Gets the Last Word? An Experimental Study of the Effect of a Peer Review Process on the Expression of Social Norms By Jim Engle-Warnick; Andreas Leibbrandt
  13. Overbidding in Independant Private-Values Auctions and Misperception of Probabilities By Olivier Armantier; Nicolas Treich
  14. Leadership As A Source Of Inspiration By Hartog, D.N. den
  15. Path Dependence and Occupations By Maristella Botticini; Zvi Eckstein
  16. Worker satisfaction and perceived fairness: result of a survey in public, and non-profit organizations By Ermanno Tortia

  1. By: John Hey; Julia Knoll
    Abstract: We report on a simple experiment which enables us to infer how far people plan ahead when taking decisions in a dynamic risky context. Usually economic theory assumes that people plan right to the end of the planning horizon. We find that this is true for a little over half of the subjects in the experiment, while a little under one half seem not to plan ahead at all.
    Keywords: Planning, dominance, myopia, naivety, sophistication
    JEL: D80 C80
    Date: 2006–08
  2. By: Andrew E. Clark; Paul Frijters; Michael A. Shields
    Abstract: There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.
    Date: 2006
  3. By: Andrew E. Clark
    Abstract: Although it is now widely-accepted that unemployment is associated with sharply lower levels of individual well-being, relatively little is known about how this effect depends on unemployment duration. Data from three large-scale European panels is used to shed light on this issue; these data allow us to distinguish habituation to unemployment from sample selection. The panel results show little evidence of habituation to unemployment in Europe in the 1990's.
    Date: 2006
  4. By: James Habyarimana (Georgetown University and IZA Bonn); Macartan Humphreys (Columbia University); Daniel N. Posner (University of California, Los Angeles); Jeremy Weinstein (Stanford University)
    Abstract: A large and growing literature links high levels of ethnic diversity to low levels of public goods provision. Yet while the empirical connection between ethnic heterogeneity and the underprovision of public goods is widely accepted, there is little consensus on the specific mechanisms through which this relationship operates. To gain analytic leverage on the question of why ethnicity matters, we identify three families of mechanisms – what we term preference, technology, and strategy mechanisms. Our empirical strategy is to identify and run a series of experimental games that permit us to examine these mechanisms in isolation and then to compare the importance of ethnicity in each. Results from experimental games conducted with a random sample of 300 subjects in Kampala’s slums reveal that successful collective action among homogenous ethnic communities in urban Uganda is attributable to the existence of norms and institutions that facilitate the sanctioning of non-contributors. We find no evidence for a commonality of tastes within ethnic groups, for greater degrees of altruism toward co-ethnics, or for an impact of shared ethnicity on the productivity of teams.
    Keywords: ethnic diversity, collective action, public goods, field experiments
    JEL: D71 H41 J15 O10 Z13
    Date: 2006–08
  5. By: Shultziner, Doron (Politics & International Relations Department, Oxford University); Dattner, Arnon (Department of Zoology, Tel Aviv University)
    Abstract: This paper critically examines the state of the literature in evolutionary biology regarding theories of altruistic behavior. The shared theoretical problems of Kin-selection and Group-selection are examined. Theoretical and severe methodological problems of Reciprocal Altruism theory are also discussed. We offer new conceptual clarifications of the Handicap Principle theory regarding costs and benefits to both the donor and the recipient of an altruistic act. We also summarize supportive empirical studies which demonstrate how Handicap Principle theory easily explains altruistic behavior on a different logic than the one employed by other theories of altruistic behavior. Finally, we discuss the phenomenon of one-shot altruism in order to evaluate, and distinguish between, the predictive and explanatory power of different theories of altruistic behavior.
    Keywords: altruism; altruistic behavior; theories of altruism; handicap principle; reciprocity; reciprocal altruism; group selection; kin selection; one-shot altruism
    JEL: A12 Z00
    Date: 2006–09–06
  6. By: Bruno S. Frey; Margit Osterloh
    Abstract: Research evaluation is praised as the symbol of modern quality management. We claim firstly, performance evaluations in research have higher costs than normally assumed, because the evaluated persons and institutions systematically change their behavior and develop counter strategies. Moreover, intrinsic work motivation is crowded out and undesired lock-in effects take place. Secondly, the benefits of performance evaluations are questionable. Evaluations provide too little information relevant for decision-making. In addition, they lose importance due to new forms of scientific cooperation on the internet. Thirdly, there exist superior alternatives. They consist in careful selection and supportive process coaching – and then leave individuals and research institutions to direct themselves.
    Keywords: Evaluation; rankings; hidden costs; multi tasking; intrinsic motivation; control theory; selection
    JEL: C44 D02 D61 D72 H52 I23 M12
    Date: 2006–08
  7. By: David L. Dickinson
    Abstract: The author conducts experiments examining fairness preferences (Andreoni and Miller, 2002) and compares cash versus extra credit points as the reward medium. Additionally, he explores the role that classroom experiment timing—over the course of a semester—can have on outcomes. The results show that subjects are just as rational, if not more so, when the motivation is class points rather than cash. Also, preference classifications show that subjects are significantly more likely to be Selfish (and less likely to be Utilitarian) when the experiment is conducted early in the academic semester. One possible explanation is that is that the ultimate value of an extra credit point is more uncertain early in the semester, thus leading risk-averse students to make more selfish experiment allocations.
    Date: 2006
  8. By: Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
    Abstract: We introduce and axiomatize dynamic variational preferences, the dynamic version of the variational preferences we axiomatized in [21], which generalize the multiple priors preferences of Gilboa and Schmeidler [9], and include the Multiplier Preferences inspired by robust control and first used in macroeconomics by Hansen and Sargent (see [11]), as well as the classic Mean Variance Preferences of Markovitz and Tobin. We provide a condition that makes dynamic variational preferences time consistent, and their representation recursive. This gives them the analytical tractability needed in macroeconomic and financial applications. A corollary of our results is that Multiplier Preferences are time consistent, but Mean Variance Preferences are not.
    Keywords: Ambiguity Aversion; Model Uncertainty; Recursive Utility; Robust Control; Time Consistency
    JEL: C61 D81
    Date: 2006
  9. By: Olivier Armantier
    Abstract: The paper reports on an experiment testing whether agents perceive correctly the lethal risks they face personally. The results suggest that subjects exhibit comparable biases when making predictions for their own-age-cohort, or for the entire population (i.e. agents overestimate rare risks, and under-estimate common risks). The hypothesis that agents have better knowledge of their own risks, however, cannot be dismissed entirely, as responses in the own-age-cohort survey are more homogenous and better ordered. Finally, it is shown that administering surveys in succession can generate anchoring effects, which may explain why our conclusions differ markedly from a previous study. <P>Ce papier rapporte les résultats d’une expérience qui cherchait à tester si les individus percevaient correctement les risques mortels auxquels ils font face personnellement. Les résultats suggèrent que la perception des sujets est autant biaisée lorsqu'ils font des prédictions pour leur propre groupe d'âge ou pour la population entière (c'est-à-dire que les individus surestiment les risques rares, et sous-estiment les risques les plus communs). Cependant, l'hypothèse que les individus possèdent une meilleure connaissance de leurs propres risques ne peut être écartée complètement puisque les réponses du sondage sur leur propre groupe d'âge sont plus homogènes et mieux ordonnées. Finalement, nous démontrons que l'administration des sondages en série a pu générer des effets d’ancrage (anchoring effects) qui pourraient expliquer le fait que nos conclusions diffèrent sensiblement d'une étude précédente.
    Keywords: anchoring, health and safety hazard, rational expectation, risks perception, effet d’ancrage, espérance rationnelle, perception des risques, risques pour la santé et la sécurité
    JEL: D8 C9
    Date: 2006–09–01
  10. By: Olivier Armantier
    Abstract: The influence of relative wealth on fairness considerations is analyzed in an ultimatum game experiment in which participants receive large and widely unequal initial endowments. Subjects initially demonstrate a concern for fairness. With time however, behavior becomes at odds with both subgame perfection and fairness. Evidence of learning is detected for both proposers and receivers in the estimation of a structural reinforcement learning model. The estimation results suggest that, guided by foregone best responses and an acquired sense of deservingness, rich subjects become more selfish, while poor subjects, influenced only by their own experience, learn to tolerate this behavior. <P>L’influence de la richesse relative sur les préoccupations d’équité est analysée dans un jeu de l’ultimatum dans lequel les participants reçoivent d’importantes dotations initiales largement inégales. Au départ, les sujets démontrent un soucis d’équité. Cependant, avec le temps, leur comportement s’éloigne de la perfection en sous-jeux ainsi que de l’équité. L’estimation d’un modèle structurel d’apprentissage par renforcement montre des signes d’apprentissage autant chez les sujets qui proposent que chez les receveurs. Les résultats de l’estimation suggèrent que, lorsque guidés par les meilleures réponses possibles et par un sens acquis de ce qui leur est dû, les sujets riches deviennent plus égoïstes, alors que les sujets pauvres, influencés uniquement par leur expérience personnelle, apprennent à tolérer ce comportement.
    Keywords: experimental economics, fairness, learning, ultimatum game, apprentissage, économie expérimentale, équité, jeu de l’ultimatum
    JEL: C91 C78 C13 C78 C13 C78 C13 C15
    Date: 2006–09–01
  11. By: Pietro Dindo (Faculty of Economics and Business, Universiteit van Amsterdam); Jan Tuinstra (Faculty of Economics and Business, Universiteit van Amsterdam)
    Abstract: We study participation games with negative feedback, i.e. games where players choose either to participate in a certain project or not and where the payoff for participating decreases in the number of participating players. We use the replicator dynamics to model the competition between different behavioral rules that specify how to play the game in a repeated setting. This results in an analytically tractable model which is able to describe the type of behavior found in the experimental and computational literature. We find that an increase in the number of players destabilizes the unique symmetric mixed strategy Nash equilibrium. The time series of perpetually fluctuating participation rates typically exhibits linear autocorrelation structure and underparticipation. We investigate whether this time series structure can be exploited, and we relate underparticipation to the payoff structure of the participation game.
    Keywords: participation games; evolutionary game theory; nonlinear dynamics
    JEL: C72 C73
    Date: 2006–08–25
  12. By: Jim Engle-Warnick; Andreas Leibbrandt
    Abstract: We alter who gets the last word on the outcome in three different types of trust games: the first mover, the second mover, or, a committee comprised of first and second movers. The committee functions in a manner similar to a peer review process, in which experienced subjects pass judgment on the outcome reached by a different pair of subjects. Surprisingly, giving the first mover the last word benefits the second mover. Letting the committee decide increases the first mover’s trust. And first and second movers pass different types of judgments when they act as a committee. <P>Au cours de trois jeux de confiance différents, nous alternons la personne qui aura le dernier mot sur le résultat : le premier joueur, le deuxième joueur, ou un comité (à qui revient la décision) composé du premier et du second joueur. Ce comité fonctionne de manière similaire à la révision conventionnelle par les pairs, où des joueurs expérimentés passent un jugement sur les résultats préalablement réalisés par deux joueurs différents. Étonnamment, donner le dernier mot au premier joueur donne l’avantage au deuxième joueur. D’autre part, laisser le comité prendre la décision augmente la confiance du premier joueur. Finalement, les premiers et seconds joueurs passent différents types de jugements lorsqu’ils font partie d’un comité.
    Keywords: experimental economics, peer review, social norm, social preferences, third-party punishment, trust, confiance, économie expérimentale, normes sociales, préférences sociales, révision par les pairs, sanctions par une tierce personne
    JEL: C92
    Date: 2006–08–01
  13. By: Olivier Armantier; Nicolas Treich
    Abstract: We conduct an experiment to test whether probability misperception may be a possible alternative to risk aversion to explain overbidding in independent first-price private-values auctions. The experimental outcomes indicate that subjects underestimate their probability of winning the auction, and indeed overbid. Yet, when provided with feed-back on the precision of their predictions, subjects learn first to predict their probability of winning correctly, and second to curb-down significantly overbidding. The structural estimation of different behavioral models suggests that i) subjects are heterogenous with respect to risk preferences and probability perceptions, ii) subjects tend to best-respond to their stated beliefs, and iii) although necessary to explain fully behavior, risk aversion appears to play a lesser role than previously believed. Finally, our experimental findings are shown to be consistent with a standard theoretical auction model combining risk aversion and misperception of probabilities. <P>Nous menons une expérience pour évaluer si le fait qu'un sujet évalue mal ses probabilités de gagner peut être une hypothèse alternative à l’aversion au risque pour expliquer les surenchères lors d'enchères indépendantes privées au premier prix. Les résultats expérimentaux montrent, en effet, que les sujets sous-estiment leurs probabilités de gagner l'enchère et ont tendance à surenchérir. Cependant, lorsqu'on leur présente plus de précisions sur leurs prédictions, les sujets apprennent d'abord à prédire correctement leurs probabilités de gagner, puis à limiter considérablement la surenchère. L'estimation de différents modèles du comportement suggère que i) les sujets sont hétérogènes par rapport à leurs préférences du risque et leurs perceptions des probabilités, ii) les sujets choisissent leur meilleure réponse conditionnellement aux croyances qu’ils révèlent, et iii) bien que nécessaire pour expliquer pleinement le comportement des sujets, l'aversion au risque semble jouer un rôle moins important que prévu. Finalement, nos résultats expérimentaux sont consistants avec un modèle théorique d'enchères standard qui combine l'aversion au risque et la mauvaise perception des probabilités.
    Keywords: auctions, misperception of probabilities, overbidding, risk-aversion, aversion au risque, enchères, mauvaise perception des probabilités, surenchère
    JEL: C70 C92 D44 D81
    Date: 2006–08–01
  14. By: Hartog, D.N. den (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Keywords: Inspirational leadership;transformational leadership;performance and success;vision and charisma;Shackleton;
    Date: 2001–10–05
  15. By: Maristella Botticini; Zvi Eckstein
    Abstract: Path dependence in occupations refers to the observed occupational distribution in a population or in a sub-population at a point in time that depends on changes that occurred years or centuries earlier. Path dependence in occupations can be the outcome of the cumulative concentration of certain productive activities in specific regions over time, it can emerge through the effect of parental income or wealth on offspring’s occupations and incomes, or it can be the outcome of group effects. Some historical cases are selected to illustrate the various mechanisms through which path dependence in occupations can emerge or disappear.
    Keywords: path dependence, occupational structure, social norms, trade diasporas, Jewish occupational selection, feminization of occupations, African-American occupational transition
    JEL: J1 J2 J6 J7 N3 O1 Z12 Z13
    Date: 2006
  16. By: Ermanno Tortia
    Abstract: Exploiting a unique data set concerning a sample of 228 social service organizations, and on 2066 workers, the paper seeks to demonstrate that workers’ satisfaction with the job and loyalty to the organization are crucially influenced by fairness concerns. Worker well-being is increased by a higher degree of perceived fairness, and the effect is highest for procedural fairness. By sorting the organizations into public and nonprofits, the former are found to be at a disadvantage in regard to both satisfaction and perceived fairness. Nonprofits show the highest scores on most items and the gap is highest in the realm of procedural fairness.
    Date: 2006

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