nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒10‒07
twelve papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Institution Formation in Public Goods Games By Michael Kosfeld; Akira Okada; Arno Riedl
  2. Identity and Self-Other Differentiation in Work and Giving Behaviors: Experimental Evidence By Avner Ben-Ner; Brian P. McCall; Massoud Stephane; Hua Wang
  3. I know what you did last weekend- or do I? Introducing mental anchoring to the demand for sport By Men-Andri Benz; Leif Brandes; Egon Franck
  4. Three Prominent Tournament Formats: Predictive Power and Costs By Dmitry Ryvkin; Andreas Ortmann
  5. When and Why? A Critical Survey on Coordination Failure in the Laboratory By Giovanna Devetag; Andreas Ortmann
  6. Overoptimism and Lender Liability in the Consumer Credit Market By Elisabetta Iossa; Giuliana Palumbo
  7. Reforms and Confidence By Haaparanta , Pertti; Pirttilä, Jukka
  8. Social Norms and Conditional Cooperative Taxpayers By Traxler, Christian
  9. Entrepreneurial Decision Making: Examining Preferences for Causal and Effectual Reasoning in the New Venture Creation Process By Politis, Diamanto; Gabrielsson, Jonas
  10. Migrant Entrepreneurship from the Perspective of Cultural Diversity By Sahin, Mediha; Nijkamp, Peter; Baycan-Levent, Tuzin
  11. BTI - distorted reflections of personality? By Petersen, Verner C.
  12. The Construction of Organizational Identity. Comparative Case Studies of Consulting Firms By Alvesson, Mats; Empson, Laura

  1. By: Michael Kosfeld; Akira Okada; Arno Riedl
    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
  2. By: Avner Ben-Ner (University of Minnesota); Brian P. McCall (University of Minnesota); Massoud Stephane (University of Minnesota); Hua Wang (University of Minnesota)
    Abstract: We show that the distinction between Self and Other, ‘us’ and ‘them,’ or in-group and out-group, affects significantly economic and social behavior. In a series of experiments with approximately 200 Midwestern students as our subjects, we found that they favor those who are similar to them on any of a wide range of categories of identity over those who are not like them. Whereas family and kinship are the most powerful source of identity in our sample, all 13 potential sources of identity in our experiments affect behavior. We explored individuals’ willingness to give money to imaginary people, using a dictator game setup with hypothetical money. Our experiments with hypothetical money generate essentially identical data to our experiments with actual money. We also investigated individuals’ willingness to share an office with, commute with, and work on a critical project critical to their advancement with individuals who are similar to themselves (Self) along a particular identity dimension than with individuals who are dissimilar (Other). In addition to family, our data point to other important sources of identity such as political views, religion, sports-team loyalty, and music preferences, followed by television-viewing habits, dress type preferences, birth order, body type, socio-economic status and gender. The importance of the source of identity varies with the type of behavior under consideration.
    Keywords: Identify, Diversity, Experimental Economics, Conflict
    Date: 2006–08
  3. By: Men-Andri Benz; Leif Brandes; Egon Franck (Institute for Strategy and Business Economics, University of Zurich; Institute for Strategy and Business Economics, University of Zurich; Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Football matches are by no means homogenous goods. Rather, there are big differences in single match quality, which is ex-ante unobservable to consumers. We argue that quality uncertainty leads consumers to search for quality proxies which are observable in advance. Aggregate demand functions are shown to depend merely on prices, ex-ante quality perception and stochastic influence factors. Following the work by Kahneman, Tversky and Slovic, we suggest that consumer behaviour is to some extent driven by mental anchoring. Therefore, the usual approach to rely on absolute measures only, seems doubtful. The main focus of our empirical analysis is to introduce relative quality measures, which are based on different anchor levels. Besides seasonal-dynamic and seasonal-static anchors, this specification allows us to include absolute quality proxies as a special case. Applying median regression on a sample from over 2000 individual matches in the German Bundesliga, we find evidence for mental anchoring in the demand for sport. Our results indicate that consumers tend to compare current values for quality proxies to last season’s indicator values instead of last match’s indicator values.
    Keywords: mental anchor, censored median regression, fan demand
    JEL: C14 C24
    Date: 2006
  4. By: Dmitry Ryvkin; Andreas Ortmann
    Abstract: We analyze tournaments of heterogeneous players from an organizer’s perspective. Using a simple model of a noisy tournament, we demonstrate how the likelihood of selecting the best player, here termed the “predictive power” of a tournament, depends on the tournament format, the distribution of players’ types, and the overall noise level. We formalize the organizer’s decision problem for varying time and measurement costs and compare the predictive power of three widely used tournament formats – contests, binary elimination tournaments, and round-robin tournaments. We show which formats are preferred in the various scenarios and find that for certain parameter constellations, certain formats are not viable.
    Keywords: Tournaments, Design, Predictive power; tournaments, design, predictive power.
    JEL: C73 C90 D21
    Date: 2006–09
  5. By: Giovanna Devetag; Andreas Ortmann
    Abstract: Coordination games with Pareto-ranked equilibria have attracted major theoretical attention over the past two decades. Two early path-breaking sets of experimental studies were widely interpreted as suggesting that coordination failure is a common phenomenon in the laboratory. We identify the major determinants that seem to affect the incidence, and/or emergence, of coordination failure in the lab and review critically the existing experimental studies on coordination games with Pareto-ranked equilibria since that early evidence emerged. We conclude that coordination failure is likely to be the exception rather than the rule, both in the lab and outside of it.
    Keywords: Coordination games, Pareto-ranked equilibria, Payoff-asymmetric equilibria, Stag-hunt games, Optimization incentives, Robustness, Coordination, Coordination failure
    JEL: C72 C92
    Date: 2006–09
  6. By: Elisabetta Iossa (Brunel University); Giuliana Palumbo (Bank of Italy)
    Abstract: Credit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller. We study the rationale for this principle in situations where market failure arises because consumers under estimate the risk of product failure - for example due to selle rmisrepresentation - and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products.
    Keywords: consumer credit, lender liability, misrepresentation, overoptimism, product failure
    JEL: D18 G28 K13
    Date: 2006–09
  7. By: Haaparanta , Pertti (Helsinki School of Economics); Pirttilä, Jukka (Labour Institute for Economic Research)
    Abstract: We examine the choice of economic reforms when policymakers have present-biased preferences and can choose to discard information (maintain confidence) to mitigate distortions from excess discounting. The decisions of policymakers and firms are shown to be interdependent. Confident policymakers carry out welfare-improving reforms more often, which increases the probability that firms will invest in restructuring. While policymakers in different countries can be equally irrational, the consequences of bounded rationality are less severe in economies with beneficial initial conditions. We also examine how present-biased preferences influence the choice between big bang versus gradualist reform strategies. Our findings help explain differences in economic reform success in various countries.
    Keywords: policy reform; behavioural economics; hyperbolic discounting; con…dence; gradualism
    Date: 2005–04–01
  8. By: Traxler, Christian
    Abstract: This paper incorporates tax morale into the Allingham Sandmo (1972) model of income tax evasion. Tax morale is interpreted as a social norm for tax compliance. The norm strength, depending on the share of evaders in the society, is endogenously derived. Taxpayers act conditionally cooperative, as their evasion decision depends on the other agents' compliance. We characterize an equilibrium which accounts for this interdependence and study the impact of tax and deterrence policies on compliance. Our analysis is then extended to the case of a society which consists of heterogenous communities where individual evasion decisions are embedded in a complex social structure. In this scenario, behavior is crucially influenced by the norm compliance among morale reference groups. Within this framework, we discuss the role of belief management and belief leadership as alternative policy tools.
    Keywords: Tax Evasion; Tax Morale; Social Norms; Conditional Cooperation
    JEL: H26 Z13 K42
    Date: 2006–09
  9. By: Politis, Diamanto (Department of Business Administration, School of Economics and Management, Lund University); Gabrielsson, Jonas (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: A growing body of studies emphasizes the discovery of opportunities and the decision to exploit them as the essence of entrepreneurial activity. Following this stream of research, we present a study that examines entrepreneurs’ preferences for causal and effectual reasoning in the new venture creation process. The dominating view is that entrepreneurial decision making to a large degree varies in response to the unique situational context. In contrast, we are in this paper particularly interested to what extent individual career experiences and career motives makes entrepreneurs in favour of one decision making logic over another. From this point of departure we develop hypotheses of the expected influence of career experience and career motives on entrepreneurs’ preferences for causal and effectual reasoning. Statistical analysis on a sample of 291 Swedish entrepreneurs give ample support for the argument that entrepreneurs’ career experience and career motives have a significant influence on entrepreneurial decision making. The finding suggests that future research into entrepreneurial decision making should include career experience and career motives as contingency variables. Furthermore, the article provides an attempt to operationalize entrepreneurs’ preference for causal and effectual modes of reasoning. To our knowledge no such operationalizations exists.
    Keywords: entrepreneurial decision making; career experience; career motives; effectuation
    Date: 2006–09–19
  10. By: Sahin, Mediha (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Nijkamp, Peter; Baycan-Levent, Tuzin
    Abstract: The phenomenon of migrant entrepreneurship refers to business activities undertaken by migrants with a specific socio-cultural and ethnic background or migrant origin. The studies on migrant entrepreneurship in both the US and Europe have recognized the significant share of immigrants in SME activities. In the context of migrant entrepreneurship several scholars have highlighted the impact of different migrant group cultures on entrepreneurship. They emphasize the importance of values like social or business attitude, close family and religious ties and trust, which enable some immigrant groups to compete successfully in business. Against this background, the aim of this paper is to review and evaluate migrant entrepreneurship from the perspective of cultural diversity. The paper investigates key socio-economic and cultural aspects of migrant entrepreneurship and next addresses different migrant group entrepreneurs in the Netherlands in order to compare the differences between various migrant groups and to explore cultural diversity in migrant entrepreneurship.
    Keywords: Entrepreneurship; Migrant entrepreneurship; Cultural diversity
    JEL: A13 E24
    Date: 2006
  11. By: Petersen, Verner C. (Department of Management, Aarhus School of Business)
    Abstract: No abstract
    Keywords: No keywords;
    Date: 2006–09–01
  12. By: Alvesson, Mats (Department of Business Administration, School of Economics and Management, Lund University); Empson, Laura (Saïd Business School)
    Abstract: Despite the great interest in organizational identity, empirical studies are relatively rare. As yet, there have been no major comparative case studies of this phenomenon. Single case studies have yielded in-depth understanding of the process of identity construction in specific organizations, but very little is known about how organizational identity is constructed more generally. This paper explores how organizational identity is constructed in four very different firms within the consulting industry. The study suggests four broad dimensions that organizational members refer to in constructing their organizational identity: knowledge work, management and membership, personal orientation, and external interface. We identify multiple themes within these broad dimensions of identity construction and highlight several broader identity-related issues, specifically: the extent to which shared ideas of a distinct organizational identity are present or absent in organizations, the relationship between organizational identity and the individual, and the balance of reality and fantasy in identity construction.
    Keywords: Organizational identity; Consulting; Professional service firms
    Date: 2006–03–23

This nep-cbe issue is ©2006 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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