nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒04‒21
nineteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Are Risk Aversion and Impatience Related to Cognitive Ability? By Thomas Dohmen; Armin Falk; David Huffman; Uwe Sunde
  2. Endogenous Leadership: Selection and Influence By Emrah Arbak; Marie-Claire Villeval
  3. Identity, Dignity and Taboos: Beliefs as Assets By BENABOU, Roland; TIROLE, Jean
  4. Norm compliance: the contribution of behavioral economics models By Marco Faillo; Lorenzo Sacconi
  5. Double Standards: Social Preferences and Moral Biases By Croson, Rachel; Konow, James
  7. A Prize to Give for: An Experiment on Public Good Funding Mechanisms By Luca Corazzini; Marco Faravelli; Luca Stanca
  8. The Spite Dilemma Revisited: Comparison between Chinese and Japanese By Tatsuyoshi Saijo; Junyi Shen; Xiangdong Qin; Kenju Akai
  9. CULTURAL AND RISK-RELATED DETERMINANTS OF GENDER DIFFERENCES IN ULTIMATUM BARGAINING By Ainhoa Jaramillo Gutiérrez; Nikolaos Georgantzis; Aurora García Gallego; Miguel Ginés Vilar
  10. Social Value Orientation as a Moral Intuition: Decision-Making in the Dictator Game By Gert Cornelissen; Siegfried Dewitte; Luk Warlop
  11. A Process View of Organisations: Procedural Analysis By Kostel Gerndorf
  12. Performance Pay, Group Selection and Group Performance By Manfred Königstein; Gabriele K. Ruchala
  13. Intrinsic Motivation versus Signaling in Open Source Software Development By Bitzer, Jürgen; Schrettl, Wolfram; Schröder, Philipp J.H.
  14. Self-Perceived Job Insecurity and Social Context : Are there Different European Cultures of Anxiety? By Marcel Erlinghagen
  15. Is the Lure of Choice Reflected in Market Prices? Experimental Evidence Based on the 4-Door Monty Hall Problem By Siddiqi, Hammad
  16. How Does the Presence of Children Affect Dependent Care? A Psycho-Economic Approach By José Ignacio Giménez; Miriam Marcén; José Alberto Molina
  17. Gamson's Law and Hedonic Games By LE BRETON, Michel; ORTUNO-ORTIN, Ignacio; WEBER, Shlomo
  18. Mixed Feelings: Theories and Evidence of Warm Glow and Altruism By Konow, James
  19. LEARNING ACROSS GAMES By Friederike Mengel

  1. By: Thomas Dohmen (IZA); Armin Falk (IZA, University of Bonn and CEPR); David Huffman (IZA); Uwe Sunde (IZA, University of Bonn and CEPR)
    Abstract: Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with significantly more impatient behavior in the experiments, and with greater risk aversion. This relationship is robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.
    Keywords: risk preference, time preference, cognitive ability, field experiment
    JEL: C93 D01 D80 D90 J24 J62
    Date: 2007–04
  2. By: Emrah Arbak (CNRS-GATE, University of Lyon); Marie-Claire Villeval (CNRS-GATE, University of Lyon, and IZA)
    Abstract: In social dilemmas, leading a team by making heroic efforts may prove costly, especially if the followers are not adequately motivated to make similar sacrifices. Attempting to understand what motivates these seemingly selfless individuals to lead, we report the results of a two-stage public good experiment with endogenous timing. Even though it turns out to be costly on average, a large proportion of our subjects volunteer to lead. Our findings suggest that a fraction of these leaders are socially concerned, while others expect to distill some personal gain, possibly of non-pecuniary nature. The composition of the team also matters, as publicizing certain attributes of a subject’s teammates has an impact on her decision to lead. Lastly, though voluntary leaders improve efficiency in their team, they are not necessarily more influential than randomly imposed leaders.
    Keywords: leadership, endogenous selection, influence, voluntary contribution, experiment
    JEL: M54 J33 A13 C92 D63
    Date: 2007–04
  3. By: BENABOU, Roland; TIROLE, Jean
    JEL: D81 D91 Z13
    Date: 2006–12
  4. By: Marco Faillo; Lorenzo Sacconi
    Date: 2007
  5. By: Croson, Rachel; Konow, James
    Abstract: A consensus seems to be emerging in economics that at least three motives are at work in many strategic decisions: distributive preferences, reciprocal preferences and self-interest. An important obstacle to this research, however, has been moral biases, i.e., the distortions created by self-interest that can obscure social preferences. Among other things, this has led to disagreement about the relative importance of distributive preferences, reciprocal preferences, or both. This paper describes a simple experiment that decomposes behavior into these three forces and examines their interactions without the confounds that have compromised other designs. We compare the decisions of implicated “stakeholders” with those of impartial “spectators,” who have no stake. Several surprising and interesting results emerge. For example, stakeholders respond less forcefully to kindness and unkindness towards them than do spectators acting on their behalf. We also find an asymmetry in reciprocity: stakeholders punish but do not reward, whereas spectators both reward and punish. This result suggests that the lack of positive reciprocity found in other studies is not due to an asymmetry in underlying reciprocal preferences but rather to a moral bias by stakeholders in the application of that preference. More generally, we find that all three hypothesized motives have important and significant effects on final allocations.
    Keywords: Reciprocity; fairness; justice; moral bias
    JEL: D63 C91
    Date: 2007–03
  6. By: Friederike Mengel (Universidad de Alicante); Veronika Grimm (Universidad de Alicante)
    Abstract: We experimentally investigate the effect of imperfect separation of groups on group selection and cooperation in a standard prisoner¿s dilemma environment. Subjects can repeatedly choose between two groups, where in one of them an institutionalized norm fosters cooperation. The degree of separation of the two groups is varied between treatments. We find that both, the share of participants that choose into the group where the norm is implemented and the share of participants that cooperate, rise monotonously with the degree of group separation. Furthermore with higher group separation significantly more subjects support the enforcement of the norm.
    Keywords: Experiments, Cooperation, Group Selection, Social Norms, Population Viscosity.
    JEL: L13 L23
    Date: 2007–04
  7. By: Luca Corazzini (Department of Economics, University of Milan-Bicocca); Marco Faravelli (Department of Economics, University of Milan-Bicocca); Luca Stanca (Department of Economics, University of Milan-Bicocca)
    Abstract: This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution.
    Keywords: Auctions, Lotteries, Public Goods, Laboratory Experiments
    JEL: C91 D44 H41
  8. By: Tatsuyoshi Saijo (Osaka University); Junyi Shen (Osaka University); Xiangdong Qin (Shanghai Jiao Tong University); Kenju Akai (Osaka University)
    Abstract: This paper studies Chinese choice behavior in the provision of public goods via the voluntary contribution mechanism. The laboratory experiment conducted in China adopts the same design as the one used in Saijo and Nakamura (1995), i.e. either cooperating (full contribution) or free riding (no contribution) is predicted as the unique Nash equilibrium with a high (larger than one) or low (smaller than one) marginal return of contribution. Comparing the results of Chinese subjects with their Japanese counterparts, we find significant differences between these two countries in terms of their choice behavior, despite the similarities in their cultures and the proximity in geographical positions. Japanese subjects are more likely to act spitefully, and, in contrast, Chinese subjects are more likely to perform cooperatively. In addition, concerning the deviations from the Nash equilibria with different marginal returns, the statistical results indicate that Chinese subjects behave more consistent with the theoretical prediction in the high marginal return case, while Japanese choice behavior seems less different from the theoretical expectation in the low marginal return case.
    Keywords: Voluntary contribution mechanism, Spite dilemma, Chinese, Japanese
    JEL: C91 H41 D71
    Date: 2007–04
  9. By: Ainhoa Jaramillo Gutiérrez (Universitat Jaume I); Nikolaos Georgantzis (Universitat Jaume I); Aurora García Gallego (Universitat Jaume I); Miguel Ginés Vilar (Universitat Jaume I)
    Abstract: We study culture and risk aversion as causes of gender differences in ultimatum bargaining. It has often been conjectured in the literature that gender differences in bargaining experiments are partly due to differences in risky decision making. Using the data obtained from our experimental sessions with Spanish subjects, we are able to disentangle risk-related and genuinely gender-specific effects in ultimatum games framed as salary negotiation between an employer and an employee. First, we confirm the broadly accepted result that women are more risk averse than men. Gender differences in both employer and employee-subjects' behavior remain significant after risk attitudes are accounted for. In fact, we show that the reported gender differences are not because of but rather despite females' higher risk aversion. Gender effects are found to depend also on cultural differences. Greek and Spanish females reject more and offer lower wages than males. British subjects exhibit gender effects only with respect to employee behavior, but the sign of the effect is opposite to that observed in the case of Greece and Spain.
    Keywords: Ultimatum bargaining, salaries, gender, risk attitudes, experiments
    JEL: J30 C91
    Date: 2007–04
  10. By: Gert Cornelissen; Siegfried Dewitte; Luk Warlop
    Abstract: We studied the decision making process in the Dictator Game and showed that decisions are the result of a two-step process. In a first step, decision makers generate an automatic, intuitive proposal. Given sufficient motivation and cognitive resources, they adjust this in a second, more deliberated phase. In line with the social intuitionist model, we show that one’s Social Value Orientation determines intuitive choice tendencies in the first step, and that this effect is mediated by the dictator’s perceived interpersonal closeness with the receiver. Self-interested concerns subsequently lead to a reduction of donation size in step 2. Finally, we show that increasing interpersonal closeness can promote pro-social decision-making.
    Keywords: Dictator game; social dilemma; decision-making; two stage model; social value orientation, interpersonal closeness
    JEL: C91 D81
    Date: 2007–04
  11. By: Kostel Gerndorf (School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: One of the most popular topic in the organisation and management during the last 15 years has been the subject of business processes. The present paper presents fundamentals of the theory of procedural analysis. Procedural analysis is an organisation improvement method elaborated at Tallinn University of Technology in 1972–1974, the main content of which is the modelling and improvement of the organisational processes. Procedural analysis is a general methodology, theory and methods for a systematic treatment of processes in all organisations. The method is based on the general system theory and functional approach. It means that organisation’s performance is discussed as a system of functions and business processes are discussed in relationship with organisation’s functions. An outcome of using the method is a system of procedural rules, which is a graphic-verbal model of organisation’s performance. Discussion of organisational processes with the method of procedural analysis is a part of the organisation theory. Without analysing processes it is not possible to have a complete organisation theory.
    Keywords: system, function, organisation’s performance, business process, modelling, procedure, procedural rule, process parameters, organisation theory
    JEL: L15 L20 L23 M10 M11
    Date: 2006
  12. By: Manfred Königstein (University of Erfurt and IZA); Gabriele K. Ruchala (ELSE, University College London)
    Abstract: Within a laboratory experiment we investigate a principal-agent game in which agents may, first, self-select into a group task (GT) or an individual task (IT) and, second, choose work effort. In their choices of task and effort the agents have to consider pay contracts for both tasks as offered by the principal. The rational solution of the game implies that contract design may not induce agents to select GT and provide positive effort in GT. Furthermore it predicts equal behavior of agents with different productivities. In contrast, considerations of trust, reciprocity and cooperation - the social-emotional model of behavior - suggest that contract design can influence the agents’ willingness to join groups and provide effort. We analyze the data by applying a two-step regression model (multinomial logit and tobit) and find that counter to the rational solution, contract design does influence both, task selection and effort choice. The principal can increase participation in work groups and can positively influence group performance. Larger payment increases the share of socially motivated agents in work groups. The selection effect is larger than the motivation effect.
    Keywords: principal-agent, experiment, work group, selection, motivation
    JEL: M5 J3 C7 C9
    Date: 2007–03
  13. By: Bitzer, Jürgen (Free University Berlin); Schrettl, Wolfram (Free University Berlin); Schröder, Philipp J.H. (Department of Economics, Aarhus School of Business)
    Abstract: This papers sheds light on the puzzling fact that even though open <p> source software (OSS) is a public good, it is developed for free by <p> highly qualified, young, motivated individuals, and evolves at a rapid <p> pace. We show that when OSS development is understood as the private <p> provision of a public good, these features emerge quite naturally. <p> We adapt a dynamic private-provision-of-public-goods model to reflect <p> key aspects of the OSS phenomenon. Apart from extrinsic motives <p> (namely signaling), the present model also contains intrinsic motives <p> of OSS programmers, such as play value or homo ludens payoff, userprogrammers’ <p> and gift culture benefits. Such intrinsic motives feature <p> extensively in the wider OSS literature and contribute new insights to <p> the economic analysis
    Keywords: open source software; public goods; homo ludens; war of attrition
    JEL: H41 L31 L86
    Date: 2006–09–01
  14. By: Marcel Erlinghagen
    Abstract: Job insecurity causes far reaching negative outcomes. The fear of job loss damages the health of employees and reduces the productivity of firms. Thus, job insecurity should result in increasing social costs. Analyzing representative data from 17 European countries, this paper investigates self perceived job insecurity. Our multi level analysis reveals significant cross-country differences in individuals' perception of job insecurity. This finding is not only driven by social-structural or institutional differences, but job insecurity is also shown to be affected by cultural characteristics.
    Date: 2007
  15. By: Siddiqi, Hammad
    Abstract: The lure of choice is a behavioral bias with important implications for financial markets. The question of whether this bias survives in market equilibrium is an issue that can be tackled with experimental economics methods. Here, we use the 4-door Monty Hall as a tool to measure the lure of choice both at the individual as well as the market level. We find that if individuals exhibit this bias then market prices also reflect this bias, hence, trading activity alone is not sufficient to reduce or eliminate the lure of choice. The bias, both at the individual as well as the market level, is robust to learning. If at least two traders strongly exhibit this bias, then competition between them is sufficient to outweigh the impact of other biases in judgment. This result has important implications for models with heterogeneous traders. Furthermore, the lure of choice is found to be compatible with event-style market efficiency
    Keywords: Judgment Errors; Lure of Choice; Monty Hall; Group Experiments; Event Efficiency; Asset Pricing; Behavioral Bias Behavioral Bias; Asset Pricing
    JEL: G10 C92 G12
    Date: 2007–04–15
  16. By: José Ignacio Giménez (University of Zaragoza); Miriam Marcén (University of Zaragoza); José Alberto Molina (University of Zaragoza and IZA)
    Abstract: This paper adopts a psycho-economic approach, based on the "Demonstration Effect" hypothesis, to analyze the effects that the presence of children has on the time devoted to elder care. We combine the approach of the Social Cognitive Theory and a three-generation altruism model. Using the 2003 Spanish Time Use Survey (STUS), we confirm the "Demonstration Effect", i.e, the presence of children, while parents are engaged in elder care activities, increases by 11.63% the time devoted to these activities. Additionally, we find that time devoted to child care as primary activity increases by 11.19 minutes per day when children are present during adult care activities.
    Keywords: children, dependent care, psycho-economic approach, demonstration effect
    JEL: D13 D64 J13 J14
    Date: 2007–04
  17. By: LE BRETON, Michel; ORTUNO-ORTIN, Ignacio; WEBER, Shlomo
    JEL: C71 D71 Z1
    Date: 2006–11
  18. By: Konow, James
    Abstract: This paper presents theoretical and empirical analyses of experiments that test competing theories of altruism, including pure altruism (a preference for the well-being of others), warm glow (a good feeling from giving) and impure altruism (a combination of pure altruism and warm glow). These theories produce different predictions regarding crowding out, i.e., the reduction in private donations due to public spending. Variations on dictator experiments involving both students and charities examine the incidence of crowding out and provide a new direct measure of the effect of giving on feelings. The results indicate that crowding out is incomplete, i.e., less than dollar for dollar. The evidence on warm glow suggests mixed feelings: giving may be associated with good or bad feelings, depending on the context. As a way to resolve apparent inconsistencies and reconcile the evidence on crowding out and feelings, this paper proposes a theory of conditional altruism, which extends previous models to incorporate social norms that arise in the workplace, marketplace and laboratory.
    Keywords: Altruism; Warm-Glow; Happiness; Efficiency; Fairness; Justice; Need
    JEL: D64 D63
    Date: 2006–09
  19. By: Friederike Mengel (Universidad de Alicante)
    Abstract: In this paper (reinforcement) learning of decision makers that face many different games is studied. As learning separately for all games can be too costly (require too much reasoning resources) agents are assumed to partition the set of all games into analogy classes. Partitions of higher cardinality are more costly. A process of simultaneous learning of actions and partitions is presented and equilibrium partitions and action choices characterized. The model is able to explain deviations from subgame perfection that are sometimes observed in experiments even for vanishingly small reasoning costs. Furthermore it is shown that learning across games can stabilize mixed equilibria in 2×2 Coordination and Anti-Coordination games and destabilize strict Nash equilibria under certain conditions.
    Keywords: Game Theory, Bounded Rationality, Reinforcement Learning, Analogies.
    JEL: C70 C72 C73
    Date: 2007–04

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