nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒12‒09
fourteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Monetary Incentives: Usually Neither Necessary Nor Sufficient? By Andreas Ortmann; Ralph Hertwig
  2. Reciprocity and Payment Schemes: When Equality Is Unfair By Abeler, Johannes; Altmann, Steffen; Kube, Sebastian; Wibral, Matthias
  3. Tournaments and Unfair Treatment By Sjögren Lindquist, Gabriella
  4. Incentives and the Allocation of Effort Over Time: The Joint Role of Affective and Cognitive Decision Making By Lorenz Goette; David Huffman
  5. Relative Rewards within Team-Based Compensation By Bernd Irlenbusch; Gabriele K. Ruchala
  6. Pure Redistribution and the Provision of Public Goods By Rupert Sausgruber; Jean-Robert Tyran
  7. Sharing the Cost of a Public Good: an Incentive-Constrained Axiomatic Approach By SPRUMONT, Yves; MANIQUET, François
  8. Who Misvotes? The Effect of Differential Cognition Costs on Election Outcomes By Kelly Shue; Erzo F.P. Luttmer
  9. The Role of Noncognitive Skills in Explaining Cognitive Test Scores By Lex Borghans; Huub Meijers; Bas ter Weel
  10. Trust and Trustworthiness in an Economy with Heterogeneous Individuals By Peter Katuscak; Joel Slemrod
  11. Informational externalities and convergence of behavior By Vieille, Nicolas; Rosenberg, Dinah; Solan, Eilon
  12. Three heuristics of search for a low price when initial information about the market is obsolete By Michal Skořepa
  13. Efficiency, communication and honesty By Demichelis, Stefano; Weibull, Jörgen
  14. Effects and Value of Verifiable Information in a Controversial Market: Evidence from Lab Auctions of Genetically Modified Food By Rousu, Matthew; Huffman, Wallace; Shogren, Jason F.; Tegene, Abebayehu

  1. By: Andreas Ortmann; Ralph Hertwig
    Abstract: Read (2005), in The Journal of Economic Methodology, took our target article in Behavioral and Brain Sciences (Hertwig & Ortmann 2001) as one point of departure to question the usefulness of monetary incentives for experimental work. In making his case, he misrepresents our analysis, and continues the unfortunate ritual of opportunistic sampling of evidence. As in our target article, we call for an empirical analysis of the impact of monetary incentives.
    Keywords: Experimental practices, monetary incentives, financial incentives, rhetorical cactics.
    JEL: C72 C91
    Date: 2006–09
  2. By: Abeler, Johannes (IZA Bonn and University of Bonn); Altmann, Steffen (IZA Bonn and University of Bonn); Kube, Sebastian (University of Karlsruhe); Wibral, Matthias (IZA Bonn and University of Bonn)
    Abstract: A growing literature stresses the importance of reciprocity, especially for employment relations. In this paper, we study the interaction of different payment modes with reciprocity. In particular,we analyze how equal wages affect performance and effciency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts and effciency. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is rather driven by the fact that reciprocity is violated far more frequently in the equal wage treatment. Agents suffering from a violation of reciprocity subsequently withdraw effort. Our results suggest that individual reward and punishment opportunities are crucial for making reciprocity a powerful contract enforcement device.
    Keywords: laboratory experiment; wage setting; wage equality; gift exchange; reciprocity; social norms; incomplete contracts; multiple agents
    JEL: C92 J33 J41 M12 M52
    Date: 2006–12–04
  3. By: Sjögren Lindquist, Gabriella (Swedish Institute for Social Research, Stockholm University)
    Abstract: This paper introduces the negative feelings associated with the perception of being unfairly treated into a tournament model and examines the impact of these perceptions on workers’ efforts and their willingness to work overtime. The effect of unfair treatment on workers’ behavior is ambiguous in the model in that two countervailing effects arise: a negative impulsive effect and a positive strategic effect. The impulsive effect implies that workers react to the perception of being unfairly treated by reducing their level of effort. The strategic effect implies that workers raise this level in order to improve their career opportunities and thereby avoid feeling even more unfairly treated in the future. An empirical test of the model using survey data from a Swedish municipal utility shows that the overall effect is negative. This suggests that employers should consider the negative impulsive effect of unfair treatment on effort and overtime in designing contracts and determining on promotions.
    Keywords: Unfair treatment; tournaments
    JEL: J33 M51 M52
    Date: 2006–12–06
  4. By: Lorenz Goette (University of Zurich, CEPR and IZA Bonn); David Huffman (IZA Bonn)
    Abstract: We use natural experiments – plausibly exogenous, anticipated increases in the piece rate – to study how effort responds to incentives. Our first finding, like some previous studies, lends little support to the view that incentives increase effort: raising the piece rate has zero effect on total daily effort. Previous studies have speculated that changes in motivation over the course of the workday, caused by the increase in the piece rate, may lead to this result, but have relied on data aggregated to the day. Our data allow us to look within the workday. We find that workers do respond to incentives within the day: they work significantly harder in early hours of work, but significantly less hard later on, with a net effect of zero on total daily effort. We consider different possible explanations for this behavior. The most parsimonious explanation is a model in the spirit of Loewenstein and O'Donoghue (2005), in which a cognitive system, assumed to behave like the standard economic model predicts, is in conflict with the affective system. We review evidence from psychology and neuroscience to argue that the affective system may be strongly influenced by within-day changes in earnings, relative to an earnings goal. The affective system cares less about income once the goal is surpassed, providing an explanation for a drop in effort later in the day, and for the findings of earlier studies.
    Keywords: labor supply, loss aversion, affect, intertemporal substitution
    JEL: J22 J33 D01 B49
    Date: 2006–10
  5. By: Bernd Irlenbusch (London School of Economics and IZA Bonn); Gabriele K. Ruchala (University College London)
    Abstract: How to design compensation schemes to motivate team members appears to be one of the most challenging problems in the economic analysis of labour provision. We shed light on this issue by experimentally investigating team-based compensations with and without bonuses awarded to the highest contributors in teams. A purely team-based compensation scheme induces agents to voluntarily cooperate while introducing an additional relative reward increases effort and efficiency only when the bonus is substantial. In this case, however, the data suggests that tournament competition crowds out voluntary cooperation within a team.
    Keywords: teamwork, bonus pools, relative rewards, motivation crowding out, voluntary cooperation, personnel economics, experiments
    JEL: C72 C91 H41 J33 L23 M52
    Date: 2006–11
  6. By: Rupert Sausgruber (Department of Public Economics, University of Innsbruck); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: We study pure redistribution as a device to increase cooperation and efficiency in the provision of public goods. Experimental subjects play a two-stage game. The first stage is the standard linear public goods game. In the second stage, subjects can redistribute payoffs among other subjects in their group. We find that cooperation and efficiency increases substantially with this redistribution scheme, and that the redistribution option is popular. Our results provide an intuitive explanation for why an imposed redistribution rule, as proposed by Falkinger (1996), is capable of sustaining cooperation in the provision of public goods.
    Keywords: experiment; public goods; redistribution
    JEL: C9 H41
    Date: 2006–12
  7. By: SPRUMONT, Yves; MANIQUET, François
    Abstract: We study the problem of provision and cost-sharing of a public good in large economies where exclusion, complete or partial, is possible. We search for incentive-constrained efficient allocation rules that display fairness properties. Population monotonicity says that an increase in population should not be detrimental to anyone. Demand monotonicity states that an increase in the demand for the public good (in the sense of a first-order stochastic dominance shift in the distribution of preferences) should not be detrimental to any agent whose preferences remain unchanged. Under suitable domain restrictions, there exists a unique incentive-constrained efficient and demand-monotonic allocation rule: the so-called serial rule. In the binary public good case, the serial rule is also the only incentive-constrained efficient and population-monotonic rule.
    Keywords: excludable blic good, incentive comtibility, fairness, serial rule
    JEL: D63 D71
    Date: 2006
  8. By: Kelly Shue (Harvard University); Erzo F.P. Luttmer (Harvard University, NBER and IZA Bonn)
    Abstract: If voters are fully rational and have negligible cognition costs, ballot layout should not affect election outcomes. In this paper, we explore deviations from rational voting using quasirandom variation in candidate name placement on ballots from the 2003 California Recall Election. We find that the voteshares of minor candidates almost double when their names are adjacent to the names of major candidates on a ballot. Voteshare gains are largest in precincts with high percentages of Democratic, Hispanic, low-income, non-English speaking, poorly educated, or young voters. A major candidate that attracts a disproportionate share of voters from these types of precincts faces a systematic electoral disadvantage. If the Republican frontrunner Arnold Schwarzenegger and Democratic frontrunner Cruz Bustamante had been in a tie, adjacency misvoting would have given Schwarzenegger an edge of 0.06% of the voteshare. This gain in voteshare exceeds the margins of victory in the 2000 U.S. Presidential Election and the 2004 Washington Gubernatorial Election. We explore which voting technology platforms and brands mitigate misvoting.
    Keywords: bounded rationality, voting mistakes, ballot design, voting technology, voter intent, electoral systems, electoral reform
    JEL: D01 D72 D83 J10
    Date: 2006–11
  9. By: Lex Borghans (ROA, Maastricht University and IZA Bonn); Huub Meijers (MERIT, Maastricht University); Bas ter Weel (MERIT, Maastricht University and IZA Bonn)
    Abstract: This paper examines whether noncognitive skills - measured both by personality traits and economic preference parameters - influence cognitive tests performance. The basic idea is that noncognitive skills might affect the effort people put into a test to obtain good results. We experimentally varied the rewards for questions in a cognitive test to measure to what extent people are sensitive to financial incentives. To distinguish increased mental effort from extra time investments we also varied the questions’ time constraints. Subjects with favorable personality traits such as high performance-motivation and an internal locus of control perform relatively well in the absence of rewards; consistent with a model in which trying as hard as you can is the best strategy. In contrast, favorable economic preference parameters (low discount rate, low risk aversion) are associated with increases in time investments when incentives are introduced, consistent with a rational economic model in which people only invest when there are monetary returns. The main conclusion is that individual behavior at cognitive tests depends on noncognitive skills.
    Keywords: cognitive test scores, noncognitive skills
    JEL: J20 J24
    Date: 2006–11
  10. By: Peter Katuscak; Joel Slemrod
    Abstract: We analyze the determinants of trust and trustworthiness in a matching equilibrium when agents have heterogeneous predispositions towards trusting and trustworthy behavior, there is transmission of information via both individual and collective reputations, and successful matches may persist. In new matches, more social trustworthiness breeds more individual trust. However, whether more social trust breeds more or less individual trustworthiness depends on the observability of individual histories of play. If it is low, more trust generally breeds less trustworthiness, while if it is high, more trust breeds more trustworthiness. We combine the links between social trust and trustworthiness to construct a general trust/trustworthiness equilibrium and discuss its properties.
    Keywords: Trust, trustworthiness, reputation.
    JEL: C7
    Date: 2006–09
  11. By: Vieille, Nicolas; Rosenberg, Dinah; Solan, Eilon
    Abstract: This paper presents a general model of information dissemination
    Keywords: private information; behavior; knowledge
    JEL: D82 D83
    Date: 2006–10–28
  12. By: Michal Skořepa (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
    Abstract: In traditional economics, buyer behaviour is usually modelled under the assumption of full information either on prices and their locations within the market or at least on the probability distribution of prices in the market. Neither of these assumptions seems appropriate in some cases such as when the buyer enters the specific market only very infrequently (e.g., markets for durables). This paper studies experimentally the search rules that buyers might use in this case of extreme lack of information on prices. The paper identifies three general search heuristics, derives three specific rules from the heuristics and, using data from a small-scale experiment, estimates parameters of the rules.
    Keywords: search; heuristics; aspiration level; experiment
    JEL: D12 D83
    Date: 2006–07
  13. By: Demichelis, Stefano (Università degli studi di Pavia); Weibull, Jörgen (Dept. of Economics, Stockholm School of Economics)
    Abstract: We here develop a model of pre-play communication that generalizes the cheap-talk approach by allowing players to have a lexicographic preference, second to the payoffs in the underlying game, for honesty. We formalize this by way of an honesty (or truth) correspondence between actions and statements, and postulate two axioms met by natural languages. The model is applied to finite and symmetric two-player games and we establish that honest communication and play of the Pareto dominant Nash equilibrium together characterize the unique evolutionarily stable set in generic and symmetric n×n-coordination games. In particular, this holds even in Aumann's (1990) example of a Pareto dominant equilibrium that is not self-enforcing.
    Keywords: efficiency; communication; coordination; honesty; evolutionary stability
    JEL: C72 C73 D01
    Date: 2006–02–01
  14. By: Rousu, Matthew; Huffman, Wallace; Shogren, Jason F.; Tegene, Abebayehu
    Abstract: Food products containing genetically modified (GM) ingredients have entered the market over the past decade. The biotech industry and environmental groups have disseminating conflicting private information about GM foods. This paper develops a unique methodology for valuing independent third-party information in such a setting and applies this method to consumers’ willingness to pay for food products that might be GM. Data are collected from real consumers in an auction market setting with randomized information and labeling treatments. The average value of third-party information per lab participant is small, but the public good value across U.S. consumers is shown to be quite large.
    JEL: C9 D1 D8
    Date: 2006–11–29

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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