nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒11‒18
sixteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. The Self-Perception Theory vs. a Dynamic Learning Model By Otto H. Swank
  2. Aspiration formation and satisficing in isolated and competitive search By Werner Güth; Ev Martin; Torsten Weiland
  3. A Simple Model of Performance-enhancing Goals By Daniel Léonard; Ngo Van Long; Antoine Soubeyran
  4. A Psychological Game with Interdependent Preference Types By J. Atsu Amegashie
  5. Dynamic Choice, Independence and Emotions By Astrid Hopfensitz; Frans van Winden
  6. Grow Rich while you sleep: Selection in Experiments with Voluntary Participation By Pieter Gautier; Bas van der Klaauw
  7. Knowing What You Like versus Discovering What You Want: The Influence of Choice Making Goals on Decision Satisfaction By Cassie Mogilner; Tamar Rudnick; Sheena Iyengar
  8. Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision By Dennis Dittrich; Martin G. Kocher
  9. Group Polarization in the Team Dictator Game reconsidered By Wolfgang J. Luhan; Martin G. Kocher; Matthias Sutter
  10. Altruism in the (Social) Network. By Pablo Brañas-Garza; Ramón Cobo-Reyes; Maria Paz Espinosa; Natalia Jiménez; Giovanni Ponti
  11. Session Effects in the Laboratory By Guillaume R. Fréchette
  12. A Behavioral Finance Model of the Exchange Rate with Many Forecasting Rules By Paul De Grauwe; Pablo Rovira Kaltwasser
  13. Causes, consequences, and cures of myopic loss aversion - An experimental investigation By Gerlinde Fellner; Matthias Sutter
  14. All that glitters is not gold: A critically-constructive analysis of positive organizational behavior By Lopes, Miguel Pereira; Cunha, Miguel Pina e
  15. Is it Possible to Define Subjective Probabilities in Purely Behavioral Terms? A Comment on Epstein-Zhang (2001) By Klaus Nehring
  16. Bernoulli Without Bayes: A Theory of Utility-Sophisticated Preferences under Ambiguity By Klaus Nehring

  1. By: Otto H. Swank (Erasmus Universiteit Rotterdam)
    Abstract: <p> <p> Abstract will be available soon. <p> <p>
    Keywords: D82; D83
    Date: 2006–10–11
  2. By: Werner Güth; Ev Martin; Torsten Weiland
    Abstract: We experimentally explore individual and interactive decision making in a sequential search task and test whether generally accepted principles of bounded rationality (aspiration formation, satisficing, and aspiration adjustment) adequately explain the observed search behavior. Subjects can, at a cost, employ screening and selection methods facilitating their search and revealing their aspirations. The majority of subjects seems to follow the single threshold heuristic after extensive experimentation. Contrary to popular theories of sequential search, aspiration levels are set below the maximum value of all previously inspected alternatives. In a competitive search subjects tend to experiment less before engaging in satisficing and generally state lower aspirations. Finally, systematic satisficing seems to significantly enhance payoffs.
    Keywords: sequential search, secretary problem, optimal stopping, bounded rationality
    JEL: C44 C61 D83
    Date: 2006–11
  3. By: Daniel Léonard; Ngo Van Long; Antoine Soubeyran
    Abstract: We show that goal setting influences effort level, and that an appropriately set goal can enhance performance. We derive an inverted U-shaped relationship between the goal and the effort level. We then extend the model to a two-period framework, and demonstrate that the goal level set for period 1, together with success or failure, can affect the self-confidence level in period two, which in turn influences period-two optimal goal, effort, and performance. The optimal choice of period-one goal to maximize period-two payoff is derived, under alternative assumptions about the relationship between the goal setter and the (potential) goal achiever. <P>Nous montrons que les objectifs choisis influencent le niveau d’effort et qu’un objectif bien choisi peut améliorer les performances. Nous déduisons une relation ‘en forme de cloche’ entre l’objectif et l’effort. Nous généralisons le modèle en introduisant une seconde période et démontrons que l’objectif choisi pour la première période influence le moral dans la deuxième période, et de là l’effort, l’objectif choisi et la performance en deuxième période. Les choix optimaux des objectifs sont caractérisés sous différentes hypothèses à propos des relations entre celui qui choisit l’objectif (l’entraîneur) et celui qui tente de l’atteindre (l’athlète).
    Keywords: confidence, effort, performance, success, effort, moral, performance, succès
    Date: 2006–11–01
  4. By: J. Atsu Amegashie
    Abstract: In psychological games, higher-order beliefs, emotions, and motives - in addition to actions - affect players’ payoffs. Suppose you are invited to a party, movie, dinner, etc not because your company is desired but because the inviter would feel guilty if she did not invite you. In all of these cases, it is conceivable that the intention behind the action will matter and hence will affect your payoffs. I show that this social interaction is a psychological game. However, under certain conditions, it is a special case of games with interdependent preference types as studied in Gul and Pesendorfer (2005). I find a complex social interaction in this game. In particular, there exists a unique equilibrium in which a player may stick to a strategy of accepting every invitation with the goal of discouraging insincere invitations. This may lead one to erroneously infer that this player is eagerly waiting for an invitation, when indeed his behavior is driven more by strategic considerations than by an excessive desire for social acceptance. The discussion shows that while games with interdependent preference types can capture phenomena that psychological games seek to address, the intuition, motivation, or explanation for the same phenomenon may be different. I discuss how being tolerated but not being truly accepted can explain the rejection of mutually beneficial trades, the choice of identity, social exclusion, marital divorce, and political correctness.
    Keywords: guilt, intentions, interdependent preference types, psychological game, second-order beliefs, social interaction
    JEL: C73 J16 Z13
    Date: 2006
  5. By: Astrid Hopfensitz (University of Geneva); Frans van Winden (Universiteit van Amsterdam)
    Abstract: From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk”, that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision but before the resolution of the investment risk; (iii) after the resolution of the investment risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.
    Keywords: emotions; investment; global-risk; background risk; laboratory experiment; regret; anxiety
    JEL: A12 C91 D81
    Date: 2006–10–09
  6. By: Pieter Gautier (Vrije Universiteit Amsterdam); Bas van der Klaauw (Vrije Universiteit Amsterdam)
    Abstract: We use data from a promotion campaign of NH-Hoteles to study self-selection of participants in a gift-exchange experiment. The promotion campaign allowed guests to pay any non negative amount of money for a stay in one of 36 hotels in Belgium and the Netherlands. The data allow us to distinguish between `regular guests', who booked prior to the announcement of the promotion campaign and guests who booked after the campaign was announced. During the promotion campaign we varied the posted price of a room that was communicated to the guests. Only the regular guests respond to the exogenous variation in the posted price and they pay substantially more on average. This different behavior cannot be explained by differences in satisfaction or observed compositional differences between both groups. We argue that the promotion campaign mainly attracted individuals who find it relatively unimportant to be viewed of as prosocial.
    Keywords: field experiment; gift-exchange game; self-selection
    JEL: C93
    Date: 2006–10–11
  7. By: Cassie Mogilner; Tamar Rudnick; Sheena Iyengar (School of Business, Columbia University)
    Abstract: This investigation contrasts choosers who have one of two choice making goals—to either select an option matching previously established preferences or to construct a preference from among the options provided. Evidence from field and laboratory studies, in which choosers selected magazines, indicates that irrespective of the number of options provided, chooser satisfaction results from fulfilling one’s specific choice making goal. For Preference Matchers, satisfaction requires a choice set that includes their established favorite. For Preference Constructors, satisfaction requires perceptions of a variety of options to identify their optimal preference. Display cues (i.e., categories) serve to enhance these perceptions of choice.
    Keywords: Preference Matching, Preference Constructors, Display Cues
    Date: 2006–05
  8. By: Dennis Dittrich (University of Erfurt); Martin G. Kocher (Universiteit van Amsterdam)
    Abstract: We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.
    Keywords: incentive contracts; supervision; efficiency wages; experiment; incomplete contracts; reciprocity
    JEL: C91 J31 J41
    Date: 2006–11–01
  9. By: Wolfgang J. Luhan (University of Innsbruck); Martin G. Kocher (Universiteit van Amsterdam); Matthias Sutter (University of Cologne)
    Abstract: While most papers on team decision-making find teams to behave more selfish, less trusting and less altruistic than individuals, Cason and Mui (1997) report that teams are more altruistic than individuals in a dictator game. Using a within-subjects design we re-examine group polarization by letting subjects make individual as well as team decisions in an experimental dictator game. In our experiment teams are more selfish than individuals, and the most selfish team member has the strongest influence on team decisions. Various sources of the different findings in Cason and Mui (1997) and in our paper are discussed.
    Keywords: experiment; dictator game; team behavior; social preferences
    JEL: C72 C91 C92 D70
    Date: 2006–11–01
  10. By: Pablo Brañas-Garza (Universidad de Granada); Ramón Cobo-Reyes (Universidad de Granada); Maria Paz Espinosa (Universidad del País Vasco); Natalia Jiménez (Universidad de Alicante); Giovanni Ponti (Università di Ferrara; Universidad de Alicante)
    Abstract: This paper explores the role of social integration on altruistic behavior. To this aim, we develop a two-stage experimental protocol based on the classic Dictator Game. In the first stage, we ask a group of 77 undergraduate students in Economics to elicit their social network; in the second stage, each of them has to unilaterally decide over the division of a fixed amount of money to be shared with another anonymous member in the group. Our experimental design allows to control for other variables known to be relevant for altruistic behavior: framing and friendship/acquaintance relations. Consistently with previous research, we find that subjects favor their friends and that framing enhances altruistic behavior. Once we control for these effects, social integration (measured by betweenness, a standard centrality measure in network theory) has a positive effect on giving: the larger social isolation within the group, the more likely it is the emergence of selfish behavior. These results suggest that information on the network structure in which subjects are embedded is crucial to account for their behavior.
    Keywords: altruism, social integration, social networks, experiments
    JEL: C91 D64 Z13
    Date: 2006–11–13
  11. By: Guillaume R. Fréchette
    Abstract: In experimental economics, where subjects participate in different sessions, observations across subjects of a given session might exhibit more correlation than observations across subjects in different sessions. The problem of session effects is related to similar problems in many experimental and non-experimental fields. This paper attempts to clarify what the issues are and proposes a set of practical tests to identify the problem as well as ways to test for treatment effects in the presence of session-effects. Simulations are used to assess how these tests perform given the relatively small samples typical of experimental data sets. <P>En économie expérimentale où les sujets participent à différentes sessions, les observations peuvent être plus corrélées à l'intérieur d'une même session qu'entre les participants ayant participé à différentes sessions. Ce type d'effet est présent également dans plusieurs autres domaines, autant expérimentaux que non-expérimentaux. Cette étude tente de mettre en lumière quelles sont les sources du problème et propose un ensemble de tests pour déterminer s'il y a ou non présence de corrélation intra-session dans une collecte de données, et pour identifier l'effet d'un traitement lorsque ce problème est présent. Des simulations ont été effectuées pour évaluer la performance de ces tests sur des échantillons avec peu d'observations, ce qui est commun lors de la collecte de données de type expérimental.
    Keywords: experimental economics, session effects, économie expérimentale, corrélation intra-session
    Date: 2006–11–01
  12. By: Paul De Grauwe; Pablo Rovira Kaltwasser
    Abstract: This paper presents a behavioral finance model of the exchange rate. Agents forecast the exchange rate by means of very simple rules. They can choose between three groups of forecasting rules: fundamentalist, extrapolative and momentum rules. Agents using a fundamentalist rule are not able to observe the true value of the fundamental exchange and therefore have to rely on an estimate of this variable to make a forecast. Based on simulation analysis we find that two types of equilibria exist, a fundamental and a non-fundamental one. Both the probability of finding a particular type of equilibrium and the probability of switching between different types of equilibria depend on the number of rules available to agents. Furthermore, we find that the exchange rate dynamics is sensitive to initial conditions and to the risk perception about the underlying fundamental. Both results are dependent on the number of forecasting rules.
    JEL: C53 F31
    Date: 2006
  13. By: Gerlinde Fellner (University of Bonn, Department of Economics, Adenauerallee 24-42, 53113 Bonn.; Matthias Sutter (University of Innsbruck and Max Planck Institute for Economics Jena)
    Abstract: Myopic loss aversion (MLA) has been established as one prominent explanation for the equity premium puzzle. In this paper we address two issues related to the effects of MLA on risky investment decisions. First, we assess the relative impact of feedback frequency and investment flexibility (via the investment horizon) on risky investments. Second, given that we observe higher investments with a longer investment horizon, we examine conditions under which investors might endogenously opt for a longer investment horizon in order to avoid the negative effects of MLA on investments. We find in our experimental study that investment flexibility seems to be at least as relevant as feedback frequency for the effects of myopic loss aversion. When subjects are given the choice to opt for a long or short investment horizon, there is no clear preference for either. Yet, if subjects face a default horizon (either long or short), there is rather little switching from the one to the other horizon, showing that a default might work to attenuate the effects of MLA. However, if subjects switch, they are more often willing to switch from the long to the short horizon than vice versa, suggesting a preference for higher investment flexibility.
    Keywords: loss aversion, risk, investment, experiment
    JEL: C91 D80 G11
    Date: 2005–06
  14. By: Lopes, Miguel Pereira; Cunha, Miguel Pina e
    Abstract: Positive Organizational Behavior (POB) is taking its momentum in management studies, but it is far from its fullest potential as it is not yet developing integrative comprehensive explanatory models of organizational behavior. This article discusses the biased character of POB revealed in its focus on the positive outcomes of positive psychological capabilities and lack of consideration for the negative side of positive capabilities. We argue that this results from a confirmatory bias also featured in mainstream psychology towards the negative outputs of negative psychological states. We discuss counterintuitive empirical evidence that positive psychological capabilities can produce either positive or negative outputs the same way negative psychological states do. On that basis, we propose three new avenues for further advancement of POB: exploring nonlinear frameworks, focusing on contextual relations, and adopting counterintuitive research techniques.
    Date: 2006
  15. By: Klaus Nehring (Department of Economics, University of California Davis)
    Abstract: It is shown that well-behaved preference orderings may exhibit the Ellsberg paradox on the set of unambiguous events as defined by Epstein and Zhang (2001). Moreover, since such counterexamples can be constructed even when the set of unambiguous events is rich, EZ’s main representation result does not clarify satisfactorily when the proposed definition delivers probabilistic sophistication on unambiguous events. We conclude by conjecturing that these problems indicate the existence of inherent limitations of a strictly behavioral approach to identifying probabilistic beliefs in the presence of ambiguity, rather than deficiencies in EZ’s implementation of that approach.
    Date: 2006–04
  16. By: Klaus Nehring (Department of Economics, University of California Davis)
    Abstract: A decision-maker is utility-sophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistication in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utility-sophisticated preferences are completely determined by consequence utilities and event attitudes captured by preferences over bets. The Anscombe-Aumann framework as employed in the classical contributions of Schmeidler (1989) and Gilboa-Schmeidler (1989) can be viewed as an important special case. For the class of utility sophisticated preferences with sufficiently precise beliefs, we also propose a definition of revealed probabilistic beliefs that overcomes the limitations of existing definitions.
    Keywords: Expected Utility, Ambiguity, Probalistic Sophistication, Revealed Probabilistic Beliefs
    JEL: D81
    Date: 2006–05

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