nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒01‒14
seventeen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. The Nature of Salience Revisited: Cognitive Hierarchy Theory versus Team Reasoning By Nicolas Bardsley; Judith Mehta; Chris Starmer; Robert Sugden
  2. The Affect Heuristic and the Attractiveness of Simple Gambles By Ian Bateman; Sam Dent; Ellen Peters; Paul Slovic; Chris Starmer
  3. Market Experience Eliminates Some Anomalies – And Creates New Ones By Jacinto Braga; Steven Humphrey; Chris Starmer
  4. The Framing of Games and the Psychology of Strategic Choice By Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
  5. AN EXPERIMENTAL ANALYSIS OF CONDITIONAL COOPERATION By Rachel Croson; Enrique Fatas; Tibor Neugebauer
  6. The limits of self-governance in the presence of spite: Experimental evidence from urban and rural Russia By Simon Gaechter; Benedikt Herrmann
  7. The Effects of (Incentivized) Belief Elicitation in Public Good Experiments By Simon Gaechter; Elke Renner
  8. Private-Collective Innovation and the Fragility of Knowledge Sharing By Simon Gaechter; Georg von Krogh; Stefan Haefliger
  9. Emotions Enforce Fairness Norms (a Simple Model of Strong Reciprocity) By López-Pérez, Raúl
  10. Hierarchy and Opportunism in Teams By Eline van der Heijden; Jan Potters; Martin Sefton
  11. Imitation with Intention and Memory: an Experiment By Astrid Matthey
  12. Communication and Coordination in the Laboratory Collective Resistance Game By Cason, Timothy N.; Mui, Vai-Lam
  13. ‘Ethical Novelty’: new insights into economic change By Encinar, Maribel; Muñoz, Félix; Cañibano, Carolina
  14. Regional Learning Networks in Medium-Tech Technologies and European Integration By Riccardo Cappellin; Luigi Orsenigo
  15. Individuals Time Preference and Social Discounting: A Survey and a Meta-Analysis By Marco Percoco; Peter Nijkamp
  16. Formal Knowledge Examination Institutions: Chance Or Threat to European Medium Tech-Nology SMEs? A Cognitive and Institutional Perspective By Silviya Draganinska; Rudiger Wink
  17. On the psychological determinants of fertility. A panorama of concepts and approaches, and evidence from eastern Germany By Holger Von der Lippe

  1. By: Nicolas Bardsley (National Centre for Research Methods, University of Southampton); Judith Mehta (School of Economics, University of East Anglia); Chris Starmer (CeDEx, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: This paper reports experimental tests of two alternative explanations of how players use focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory explains coordination as the result of common beliefs about players’ pre-reflective inclinations towards the relevant strategies; the theory of team reasoning explains it as the result of the players’ using a non-standard form of reasoning. We report two experiments; one finds support for the first theory, the other for the second. In the light of additional questionnaire evidence, we conclude that players’ reasoning is sensitive to the decision context.
    Keywords: salience, focal point, cognitive hierarchy, team reasoning
    JEL: C72 C92
    Date: 2006–09
  2. By: Ian Bateman (Centre for Social and Economic Research on the Global Environment, University of East Anglia); Sam Dent (Centre for Social and Economic Research on the Global Environment, University of East Anglia); Ellen Peters (Decision Research, Eugene, Oregon); Paul Slovic (Department of Psychology, University of Oregon); Chris Starmer (CeDEx, University of Nottingham)
    Abstract: Prior studies have observed that the attractiveness of playing a simple gamble (7/36 to win $9; otherwise win nothing) is greatly enhanced by introducing a small loss (7/36 win $9; otherwise lose 5¢). The present studies tested and confirmed an explanation of this finding based on the concept of evaluability and the affect heuristic. Evaluators of the “noloss” gamble lack a precise feeling for how good $9 is, hence give it little weight in their judgment. In the second gamble, comparison with the small loss makes $9 “come alive with feeling” and become weighted in the judgment, thus increasing the attractiveness of the gamble. These results demonstrate the importance of contextual factors in determining affect and preference for simple risk-taking opportunities. They show that the meaning, utility, and weighting of even a very familiar monetary outcome such as $9 is not fixed, but depends greatly on these contextual factors.
    Keywords: affect heuristic, preference construction, evaluability, gambles
    Date: 2006–09
  3. By: Jacinto Braga (University of Nottingham); Steven Humphrey (University of Nottingham); Chris Starmer (University of Nottingham)
    Abstract: We report two experiments which investigate whether experience of decision-making in repeated markets purges behavior of preference reversals. We investigate two behavioral mechanisms that may be shaping bids in repeated auctions: a tendency to adjust bids towards previously observed market prices, and a tendency to reduce bids following bad market outcomes. We find little support for the former but strong support for the latter. Also, whilst 'just enough' market exposure eliminates the typical preference reversal phenomenon, continued exposure fosters the mirror image anomaly. Therefore, although market experience shapes behavior, it does not generally promote consistency with standard preference theory.
    Keywords: preference reversal, Vickrey auction, refining, loss experience, price following
    JEL: C91 D81 D83
    Date: 2006–10
  4. By: Martin Dufwenberg (University of Arizona); Simon Gaechter (University of Nottingham); Heike Hennig-Schmidt (University of Bonn)
    Abstract: Psychological game theory can provide a rational choice explanation of framing effects; frames influence beliefs, and beliefs influence motivations. We explain this point theoretically, and explore its empirical relevance experimentally. In a 2×2-factorial framing design of one-shot public good experiments we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: Framing; psychological games; guilt aversion; reciprocity; public good games; voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2006–10
  5. By: Rachel Croson (University of Pennsylvania); Enrique Fatas (Universitat de València); Tibor Neugebauer (University Hannover)
    Abstract: Experimental and empirical evidence identifies the existence of socialpreferences and proposes competing models of such preferences. In this paper, wefurther examine one such social preference: conditional cooperation. We run threeexperimental public goods games, the traditional voluntary contribution mechanism(VCM, also called the linear public goods game), the weak-link mechanism (WLM) andthe best-shot mechanism (BSM). We then analyze the existence and types ofconditional cooperation observed. We find that participants are responsive to the pastcontributions of others in all three games, but are most responsive to differentcontributions in each game: the median in the VCM, the minimum in the WLM and themaximum in the BSM. We conclude by discussing implications of these differences forbehavior in these three mechanisms. This paper thus refines our notions of conditionalcooperation to allow for different types of public good production functions and byextension, other contexts.
    Keywords: experimental economics, conditional cooperation, public goods
    JEL: C72 C92 D44 H41
    Date: 2006–11
  6. By: Simon Gaechter (University of Nottingham); Benedikt Herrmann (University of Nottingham)
    Abstract: We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is substantial spiteful punishment of high contributors in all four subject pools. Thus, spite undermines the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only.
    Keywords: social norms, free riding, punishment, spite, experiments
    JEL: H41 C91 D23 C72
    Date: 2006–07
  7. By: Simon Gaechter (University of Nottingham); Elke Renner (University of Nottingham)
    Abstract: We investigate the impact of eliciting beliefs about the average contribution of other group members in finitely repeated public goods experiments. We find that belief accuracy is significantly higher when beliefs are incentivized. The distribution of beliefs as well as the relationship between contributions and beliefs are unaffected by incentives. Eliciting incentivized beliefs increases contribution levels relative to a benchmark treatment without belief elicitation, and significantly so in the latter half of the experiment. This result contradicts Croson (2000). We discuss the implications of our results for the design of experiments.
    Keywords: Incentives, beliefs, experiments, public goods
    JEL: C90
    Date: 2006–09
  8. By: Simon Gaechter (University of Nottingham); Georg von Krogh (ETH Zurich); Stefan Haefliger (ETH Zurich)
    Abstract: Incentives to innovate is a central element of innovation theory. In the private-investment model, innovators privately fund innovation and then use intellectual property protection mechanisms to appropriate returns from these investments. In the collective-action model, public subsidy funds public goods innovations, characterized by non-rivalry and non-exclusivity. Recently, these models have been compounded in the privatecollective innovation model where innovators privately fund public goods innovations (von Hippel and von Krogh, 2003). Private-collective innovation can be illustrated in the case of open source software development. The current paper contributes to the work on private-collective innovation by investigating incentives that motivate innovators to share their knowledge in an initial situation devoid of community activity. We use game theory to predict knowledge sharing behavior, and test these predictions in a laboratory setting. The results show that knowledge sharing is a coordination game with multiple equilibria, reflecting the fragility of knowledge sharing between innovators with conflicting interests. The experimental results demonstrate important asymmetries in the fragility of knowledge sharing and, in some situations, much more knowledge sharing than theoretically predicted. A behavioral analysis suggests that knowledge sharing is not only affected by the material incentives, but also by social preferences. The results offer general insights into the relationship between incentives and knowledge sharing and contribute to a better understanding of the inception of privatecollective innovation.
    Keywords: innovation, private-collective innovation model, knowledge sharing, incentive, open source software, experimental economics, game theory
    Date: 2006–10
  9. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: In experimental games, many subjects cooperate contrary to their material interest and they do that in a reciprocal manner. In addition, many subjects punish those others who behave unkindly, and previous history usually influences subjects’ choices. We propose a simple game-theoretical model to account for these and other experimental phenomena, and compare it with other models of social preferences and reciprocity.
    Keywords: Emotions; Fairness; Path-Dependency; Strong Reciprocity; Social Norms
    JEL: C70 C72 D63 D64 D74 Z13
  10. By: Eline van der Heijden (Department of Economics, Tilburg University); Jan Potters (Department of Economics, Tilburg University); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We use an experiment to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenue-sharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance.
    Keywords: leadership, team production, experiment
    JEL: C9 D2 L2
    Date: 2006–09
  11. By: Astrid Matthey
    Abstract: Three results emerge from a simple experiment on imitation. First, I find behavior which strongly suggests an intention to imitate. Second, players im- itate successful other players rather than repeating successful actions. Third, to find imitation examples, players use several periods of memory. This lends support to learning models with a non-trivial role of memory. The experiment analyzes imitation in an individual learning context. It sup- plements the results obtained for imitation in evolutionary processes.
    Keywords: Imitation, Learning, Memory, Experiments
    JEL: D01 D83
    Date: 2006–12
  12. By: Cason, Timothy N.; Mui, Vai-Lam
    Abstract: This paper presents a laboratory collective resistance (CR) game to study how different forms of non-binding communication among responders can help coordinate their collective resistance against a leader who transgresses against them. Contrary to the predictions of analysis based on purely self-regarding preferences, we find that non-binding communication about intended resistance increases the incidence of no transgression even in the one-shot laboratory CR game. In particular, we find that the incidence of no transgression increases from 7 percent with no communication up to 25-37 percent depending on whether communication occurs before or after the leader’s transgression decision. Responders’ messages are different when the leaders can observe them, and the leaders use the observed messages to target specific responders for transgression.
    Keywords: Communication ; Cheap Talk ; Collective Resistance ; Laboratory Experiment ; Social Preferences
    JEL: C92 D74
    Date: 2006–11
  13. By: Encinar, Maribel; Muñoz, Félix (Departamento de Análisis Económico (Teoría e Historia Económica). UAM); Cañibano, Carolina (Universidad Rey Juan Carlos)
    Abstract: Agents’ knowledge combines their perception of what reality is with their conception of what reality should be. “Ethical dynamics” refers to the evolution in the latter conception. This is a key element to explain changes in agents’ objectives of action, which usually do not result simply from interaction or “cognitive dynamics”. “Ethical novelties” are important sources of economic change. They consist of changes in the structure of action objectives which result from ethical dynamics.
    Keywords: knowledge; action plan; ethical novelty; cognitive and ethical dynamics; economic change
    JEL: O10
  14. By: Riccardo Cappellin; Luigi Orsenigo
    Abstract: The paper aims at investigating the transfer of tacit knowledge both at the regional and at the interregional level and it focuses on the factors and forms of the processes of interactive learning between small and medium size in medium technology sectors. The analysis proceeds from the contributions of four strands of literature, focusing on economics of agglomeration, cognitive economics, industrial strategic alliances and governance in a knowledge economy. While industrial economics interprets technology spill-over at the local level as an automatic and chaotic process allowed by geographical proximity of the firms, regional economics identifies different specific types of flows and networks, which link together in an organized way the various firms and other private and public actors within a given regional innovation system. Cognitive economics may bring a significant contribution, as it considers the relevance for economics of human cognitive aspects and it discovers the key role in the creation of new ideas of selected factors, such as the stimulus by changes in the external environment, the process of “neurognosis†or negative reaction aiming to the protection of the internal integrity, the search process constrained by cognitive proximity, the success in pattern making and the achievement of consistency and compatability, the process of “exaptation†or reconversion leading to path-dependency, the creation of new connections and routines and institutions, which allows to save the limited cognitive capacity of individuals and organizations. This theoretical framework in the analysis of the processes of knowledge creation may be schematically represented through the model of “Territorial Knowledge Managementâ€, which aims at promoting the interactive learning processes within the regional innovation systems and focuses on a selected list of knowledge levers, such as: market orientation, accessibility, receptiveness, common identity, creativity and governance. On the base of these theoretical concepts and tools, the paper analyses various case studies of firms embedded in different industrial clusters in Europe, focusing on the forms of the process of interactive learning and innovation between the various regional actors. Finally, the paper attempts to derive from that analysis useful indications for the possible extension of knowledge and innovation networks at the interregional and international level and for decreasing the regional divide in a modern knowledge economy. The research has been undertaken within the framework of the project: “IKINET – International Knowledge and Innovation Network†(EU FP6, N° CIT2-CT-2004-506242). Keywords: knowledge creation, interactive learning processes, industrial clusters, innovation policies, European integration, medium technology sectors, small and medium size firms.
    Date: 2006–08
  15. By: Marco Percoco; Peter Nijkamp
    Abstract: The choice of an appropriate social rate of discount is critical in the decision-making process on public investments. In this paper we review concisely the literature on social discounting and refer explicitly to a recently growing field of related research, that is, individual time preference. The consideration and analysis of behavioural factors of individuals in the definition and use of an appropriate social discount rate are critical for balanced decision-making, for example, in the field of environmental policy. The empirical literature shows quite some variation in the estimated values of individual discount rates. Therefore, we present results from a meta-analysis conducted over more than 40 experimental and field studies reporting individual discount rate estimates. We find that the experimental design of a study has a great impact on these estimates and conclude that our meta-regression function has a low transfer value.
    Date: 2006–08
  16. By: Silviya Draganinska; Rudiger Wink
    Abstract: For most SME in incumbent medium-technology sectors, international business is only possi-ble, if additional support by specified institutions is provided. These additional services in-clude information on foreign markets – regulation, market partners, sales potential – as well as coordination – for trade fairs, common international recruitment and qualification strategies – and capabilities like access to financial markets or international public funding for interna-tionalisation or cutting-edge technological knowledge. For many of these services, private provision is possible, as exclusive use and rivalry in consumption are given. For other ser-vices, however, network characteristics restrict a completely private provision. The proposed paper analyses institutional arrangements particularly designed on regional, national or European level to support linkages between organisations and networks in differ-ent European regions. The investigation is based on information collected within the frame-work of the “IKINET project – International Knowledge and Innovation Network†(EU FP6, N° CIT2-CT-2004-506242). The specific challenge of the institutions investigated within this paper refers to linkages between organisations and networks with different institutional de-signs, e.g. the role of public and/or private supply, the characteristics and subjects of services, organisational structures and modes of coordination. These institutions attempt to bridge the gap between SME and organisations in different regions, but also to ease the access to EU funding for transnational (transregional) cooperation between SME. The paper will analyse their products, organisational structure, funding and codes of interaction. This investigation will be used to identify general and regionally specific prerequisites for effective interregional boundary spanning institutions. Secondly, the connectivity between the institutions will be analysed to reveal necessary standards or institutional arrangements to secure interregional trust in cooperation. These standards can range from rather informal, for example on the basis of business norms in trade fairs, to completely formal arrangements, for example in the case of contractual agreements on intellectual property rights and licenses. The assessment of these institutional arrangements uses an integrative methodological framework based on institu-tional analysis to overcome information asymmetries in cooperative innovative processes, sociological and cognitive psychological models of organisational and cognitive proximity and management models for SME as learning organisations. As a result, insights are expected for the European Union, which institutional arrangements are necessary for technology plat-forms on a regional level to secure interregional knowledge interactions.
    Date: 2006–08
  17. By: Holger Von der Lippe (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: In this paper we study the transition to parenthood, analyzing data from three waves of a psychological longitudinal survey from Rostock, eastern Germany. We apply hazard regressions in order to predict the timing of first births of 117 men and 124 women born in 1970 and 1971. Subjects, who were in their 20s during the 1990s, made their family decisions during the most turbulent times of societal transformation in eastern Germany following unification. We hypothesized a crucial relevance of personality traits, coping-styles, and other psychological variables for the prediction of fertility in this context. Results for men show that dispositional self-actualization and internal control-styles as well as a tendency to social withdrawal decrease the probability of fatherhood. For women, dispositional emotional stability and mental health decrease the probability of motherhood, whereas a tendency toward rationalization increases it. We discuss findings in light of the gender-specific life-span development of people’s personality and control behavior.
    Keywords: Germany (new Länder), fertility determinants, first birth, life span, psychology
    JEL: J1 Z0
    Date: 2006–12

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