nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒09‒23
fifteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Consumer Choice and Revealed Bounded Rationality By Paola Manzini; Marco Mariotti
  2. Two-stage Bargaining Solutions By Paola Manzini; Marco Mariotti
  3. Satisficing in Portfolio Selection - Theoretical Aspects and Experimental Tests By Werner Güth
  4. On the Co-evolution of Retribution and Trustworthiness: An (Indirect) Evolutionary and Experimental Analysis By Werner Güth; Hartmut Kliemt; M. Vittoria Levati; Geog von Wangenheim
  5. Statistical Discrimination in Labor Markets: An Experimental Analysis By David L. Dickinson; Ronald L. Oaxaca
  6. Institution Formation in Public Goods Games By Michael Kosfeld; Akira Okada; Arno Riedl
  7. Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes By Dirk Sliwka
  8. A Public Dilemma: Cooperation with Large Stakes and a Large Audience By Michele Belot,; V. Bhaskar; Jeroen van de Ven
  9. Asymmetric Payoffs in Simultaneous and Sequential Prisoner's Dilemma Games By T.K. Ahn; Myungsuk Lee; Lore Ruttan; James M. Walker
  10. The Effect of Rewards and Sanctions in Provision of Public Goods By Martin Sefton; Robert Shupp; James M. Walker
  11. Matching Contributions and the Voluntary Provision of a Pure Public Good: Experimental Evidence By Ronald J. Baker II; James M. Walker; Arlington W. Williams
  13. An experiment on corruption and gender By Fernanda Rivas
  14. An Experimental Investigation of the Disparity between WTA and WTP for Lotteries By Schmidt, Ulrich; Traub, Stefan
  15. An Experimental Investigation of Alternatives An Experimental Investigation of Alternatives By Morone, Andrea; Schmidt, Ulrich

  1. By: Paola Manzini (Queen Mary, University of London and IZA); Marco Mariotti (Queen Mary, University of London)
    Abstract: We study two boundedly rational procedures in consumer behavior. We show that these procedures can be detected by conditions on observable demand data of the same type as standard revealed preference axioms. This provides the basis for a non-parametric analysis of boundedly rational consumer behavior mirroring the classical one for utility maximization.
    Keywords: Bounded rationality, Revealed preference, Consumer choice
    JEL: D1 D11
    Date: 2006–09
  2. By: Paola Manzini (Queen Mary, University of London); Marco Mariotti (Queen Mary, University of London)
    Abstract: We introduce and characterize a new class of bargaining solutions: those which can be obtained by sequentially applying two binary relations to eliminate alternatives. As a by-product we obtain as a particular case a partial characterization result by Zhou (Econometrica, 1997) of an extension of the Nash axioms and solution to domains including non-convex problems, as well as a complete characterizations of solutions that satisfy Pareto optimality, Covariance with positive affine transformations, and Independence of irrelevant alternatives.
    Keywords: Bargaining, Non-convex problems, Nash bargaining solution
    JEL: C72 D44
    Date: 2006–09
  3. By: Werner Güth
    Abstract: The satisficing approach with its three constituent processes, aspiration formation, satisficing, and aspiration adjustment, is formally elaborated for a specific class of portfolio selection tasks. It is partly poorly confirmed by experimental data, indicating that bounded rationality requires teaching or, respectively, consulting, and learning. It is also discussed and tested experimentally whether satisficing is task transcending (are there individual constants in satisficing behavior for related tasks?) and absorbable (do we stick to satisficing behavior when becoming aware of it?).
    Date: 2006–09
  4. By: Werner Güth; Hartmut Kliemt; M. Vittoria Levati; Geog von Wangenheim
    Abstract: Standard economic explanations of good conduct in trade rely almost exclusively on future-directed extrinsic motivations induced by material incentives. But intrinsic motives to behave trustworthy and to punish untrustworthiness do support trade. In our model, intrinsically motivated players are aware of their own type and observe the population share of other types. The material success of various types and their co-evolution are analyzed, and it is checked whether the dynamics of the indirect evolutionary analysis are replicated in the laboratory.
    JEL: B52 C72 C90
    Date: 2006–09
  5. By: David L. Dickinson (Appalachian State University); Ronald L. Oaxaca (University of Arizona and IZA Bonn)
    Abstract: Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). “First-moment” statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. “Second-moment” discrimination would occur when risk-averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. This paper reports results from controlled laboratory experiments designed to study second-moment statistical discrimination in a labor market setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk=variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion.
    Keywords: statistical discrimination, experiments, labor markets
    JEL: J31 J71 C92
    Date: 2006–09
  6. By: Michael Kosfeld (University of Zurich and IZA Bonn); Akira Okada (Hitotsubashi University); Arno Riedl (Maastricht University, CESifo and IZA Bonn)
    Abstract: Centralized sanctioning institutions are of utmost importance for overcoming free-riding tendencies and enforcing outcomes that maximize group welfare in social dilemma situations. However, little is known about how such institutions come into existence. In this paper we investigate, both theoretically and experimentally, the endogenous formation of institutions in a public goods game. Our theoretical analysis shows that players may form sanctioning institutions in equilibrium, including those where institutions govern only a subset of players. The experiment confirms that institutions are formed frequently as well as that institution formation has a positive impact on cooperation rates and group welfare. However, the data clearly reveal that players are unwilling to implement institutions in which some players have the opportunity to free ride. In sum, our results show that individuals are willing and able to create sanctioning institutions, but that the institution formation process is guided by behavioral principles not taken into account by standard theory.
    Keywords: public goods, institutions, sanctions, cooperation
    JEL: C72 C92 D72
    Date: 2006–09
  7. By: Dirk Sliwka (University of Cologne and IZA Bonn)
    Abstract: An explanation for motivation crowding-out phenomena is developed in a social preferences framework. Besides selfish and fair or altruistic types a third type of agents is introduced: These ‘conformists' have social preferences if they believe that sufficiently many of the others do too. When there is asymmetric information about the distribution of preferences (the `social norm'), the incentive scheme offered or autonomy granted can reveal a principal's beliefs about that norm. High-powered incentives may crowd out motivation as pessimism about the norm is conveyed. But by choosing fixed wages or granting autonomy the principal may signal trust in a favorable social norm.
    Keywords: social preferences, incentives, intrinsic motivation, motivation crowding-out, social norms, trust, conformity, selection
    JEL: M52 J33 D23
    Date: 2006–09
  8. By: Michele Belot,; V. Bhaskar; Jeroen van de Ven
    Abstract: We analyze a large-stakes prisoner's dilemma game played on a TV show. Players cooperate 40% of the time, demonstrating that social preferences are important; however, cooperation is significantly below the 50% threshold that is required for inequity aversion to sustain cooperation. Women cooperate significantly more than men, while players who have "earned" more of the stake cooperate less. A player's promise to cooperate is also a good predictor of his decision. Surprisingly, a player's probability of cooperation is unrelated to the opponent's characteristics or promise. We argue that inequity aversion alone cannot adequately explain these results; reputational concerns in a public setting might be more important.
    Date: 2006–09–08
  9. By: T.K. Ahn (Florida State University); Myungsuk Lee (Sung Kyun Kwan University); Lore Ruttan (Emory University); James M. Walker (Indiana University Bloomington)
    Abstract: We investigate the role of payoff asymmetry in laboratory prisoner’s dilemma games. Symmetric and Asymmetric games are examined in simultaneous and sequential settings. In the asymmetric/sequential games, we study the impact of having payoff advantaged players moving either first or second. Asymmetry reduces the rates of cooperation in simultaneous games. In sequential games, asymmetry interacts with order of play such that the rate of cooperation is highest when payoff disadvantaged players move first. The presence of an exit option increases cooperation by the players who choose to play the game when payoffs are symmetric, or when payoffs are asymmetric and the payoff disadvantaged player moves first.
    Keywords: cooperation, prisoner’s dilemma, heterogeneity, exit option
    Date: 2005–08
  10. By: Martin Sefton (University of Nottingham); Robert Shupp (Ball State University); James M. Walker (Indiana University Bloomington)
    Abstract: A growing number of field and experimental studies 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. Sanctions represent a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero sum transfer from participants giving to those receiving rewards. We contrast reward and sanction institutions in regard to their impact on cooperation and efficiency in the context of a public goods experiment.
    Date: 2006–07
  11. By: Ronald J. Baker II (Millersville University of Pennsylvania); James M. Walker (Indiana University Bloomington); Arlington W. Williams (Indiana University Bloomington)
    Abstract: Laboratory experiments are used to study the voluntary provision of a pure public good in the presence of an anonymous external donor. The external funds are used in two different settings, lump-sum matching and one-to-one matching, to examine how allocations to the public good are affected. The experimental results reveal that allocations to the public good under lumpsum matching are significantly higher, and have significantly lower within-group dispersion, relative to one-to-one matching and a baseline setting without external matching funds.
    Keywords: public goods, free riding, laboratory experiments
    JEL: H41 C72 C92
    Date: 2006–08
  12. 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 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.
    JEL: O33 O18 C91
    Date: 2006–09
  13. By: Fernanda Rivas (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: There exists evidence in the social science literature that women may be more relationshiporiented, may have higher standards of ethical behavior and may be more concerned with the common good than men are. This would imply that women are more willing to sacrifice private profit for the public good, and this would be especially important for political life. Many papers with field data have found deference’s in the corrupt activities of males and females, but given their different insertion in the labor market and in politics, it is not clear if the differences are due to differences in opportunities or real gender differences. The aim of this paper is to see if women and men, facing the same situation behave in a different way, as suggested in the field-data studies, or on the contrary, when women are in the same position as men they behave in the same way. The results found in the experiment show that women are indeed less corrupt than men. This suggests that increasing women’s participation in the labor force and politics would help to reduce corruption.
    Keywords: corruption, gender, experiment
    JEL: C91 D73 J16
    Date: 2006–08
  14. By: Schmidt, Ulrich; Traub, Stefan
    Abstract: In this paper we experimentally investigate the disparity between willingness-toaccept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc.
    Keywords: WTA-WTP disparity, lotteries, background risk, contingent valuation
    JEL: C91 D81
    Date: 2006
  15. By: Morone, Andrea; Schmidt, Ulrich
    Abstract: Experimental research on decision making under risk has until now always employed choice data in order to evaluate the empirical performance of expected utility and the alternative nonexpected utility theories. The present paper performs a similar analysis which relies on pricing data instead of choice data. Since pricing data lead in many cases to a different ordering of lotteries than choices (e.g. the preference reversal phenomenon) our analysis may have fundamental different results than preceding investigations. We elicit three different types of pricing data: willingness-to-pay, willingness-to-accept and certainty equivalents under the Becker-DeGroot-Marschak (BDM) incentive mechanism. One of our main result shows that the comparative performance of the single theories differs significantly under these three types of pricing data.
    Keywords: expected utility, non-expected utility, experiments, WTP, WTA, BDM
    JEL: C91 D81
    Date: 2006

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