nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒04‒28
eighteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Effort and Comparison Income : Survey and Experimental Evidence By Andrew Clark; David Masclet; Marie-Claire Villeval
  2. Mixture Models of Choice Under Risk By Anna Conte; John D Hey; Peter G Moffatt
  3. Let Me See You! A Video Experiment on the Social Dimension of Risk Preferences By Werner Güth; M. Vittoria Levati; Matteo Ploner
  4. How enforcement institutions affect markets By Benito Arruñada; Marco Casari
  5. Does context matter more for hypothetical than for actual contributions? Evidence from a natural field experiment By Alpizar, Francisco; Carlsson, Fredrik; Johansson-Stenman, Olof
  6. Dumbing down rational players : Learning and teaching in an experimental game. By Antoine Terracol; Jonathan Vaksmann
  7. Experimental Economics: Contributions, Recent Developments, and New Challenges By Marie-Claire Villeval
  8. Punishment, Inequality and Emotions By David Masclet; Marie-Claire Villeval
  9. Effort Self-Selection and the Efficiency of Tournaments By Tor Eriksson; Sabrina Teyssier; Marie-Claire Villeval
  10. Exploring a New ExpAce: The Complementarities between Experimental Economics and Agent-based Computational Economics By Bruno Contini; Roberto Leombruni; Matteo Richiardi
  11. Welfare Stigma Allowing for Psychological and Cultural Effects. An Agent-Based Simulation Study By Dalit Contini; Matteo Richiardi
  12. Collective Social Dynamics and Social Norms By Fent, Thomas
  13. Personal Identity in the Dictator Game By Fernando Aguiar; Pablo Branas-Garza; Maria Paz Espinosa; Luis M. Miller
  14. Endogenous Leadership Selection and Influence By Emrah Arbak; Marie-Claire Villeval
  15. Cultural Assimilation, Cultural Diffusion and the Origin of the Wealth of Nations By Oded Galor; Quamrul Ashraf
  16. Frames and Games By Jordi Brandts; Christiane Schwieren
  17. Distribution-Free Learning By Karl H. Schlag
  18. Towards a "sophisticated" model of belief dynamics By Hill, Brian

  1. By: Andrew Clark (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - [CNRS : UMR8545] - [Ecole Normale Supérieure de Paris][Ecole des Hautes Etudes en Sciences Sociales]); David Masclet (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: This paper combines ISSP survey data and experimental evidence from a gift-exchange game to determine the effect of status or relative income on work effort. We find a strong effect of others' incomes on individual effort decisions in both datasets. The individual's rank in the income distribution has a more powerful effect on effort than does others' average income, suggesting that comparisons are more ordinal than cardinal. We further show that, controlling for own income and income rank, the width of the relevant income distribution matters, with effort increasing in the distance from the bottom of the income distribution. Last, effort is also affected by comparisons over time: those who received higher income offers or had higher income rank in the past exert lower levels of effort for a given current income
    Keywords: comparison income ; effort ; experiment ; income distribution ; peak-end ; rank
    Date: 2007–04–23
  2. By: Anna Conte; John D Hey; Peter G Moffatt
    Abstract: This paper is concerned with estimating preference functionals for choice under risk from the choice behaviour of individuals. We start from the observation that there is heterogeneity in behaviour between individuals and within individuals. By ‘heterogeneity between individuals’ we mean that people are different, not only in terms of which type of preference functional that they have, but also in terms of their parameters for these functionals. By ‘heterogeneity within individuals’ we mean that behaviour may be different even by the same individual for the same choice problem. Given the heterogeneity between individuals, the assumption of a ‘representative agent’ preference functional to represent the preference functional of all individuals may well lead to biased estimates. Given the heterogeneity within individuals, we should think carefully about the source of this heterogeneity and model it appropriately, for otherwise we get biased estimates. We propose solutions to both of these problems, concentrating particularly, but not exclusively, on using a Mixture Model to capture the heterogeneity of preference functionals across individuals.
    Keywords: errors, expected utility theory, experimental economics, maximum simulated likelihood, mixture models, preference functionals, risky choice, rank dependent expected utility theory, unobserved heterogeneity
    JEL: C15 C29 C51 C87 C91 D81
    Date: 2007–04
  3. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Jena, Strategic Interaction Group); Matteo Ploner (Max Planck Institute of Economics, Jena, Strategic Interaction Group)
    Abstract: Previous studies have shown that decision makers are less other-regarding when their own payoff is risky than when it is sure. Empirical observations also indicate that people care more about identifiable than unidentifiable others. In this paper, we report on an experiment designed to explore whether rendering the other identifiable - via a short speechless video - can affect the relation between other-regarding concerns and attitudes toward social risk. For this sake, we elicit risk attitudes under two treatments differing in whether the actor can see the other or not. We find that seeing the other does not affect behavior significantly: regardless of the treatment, individuals are mainly self-oriented as to social allocation of risk, though they are other-regarding with respect to expected payoff levels.
    Keywords: Risk attitudes, other-regarding concerns, identifiability
    JEL: C90 D63 D81
    Date: 2007–04–20
  4. By: Benito Arruñada; Marco Casari
    Abstract: In an experiment we study market outcomes under alternative incentive structures for thirdparty enforcers. Our transactions resemble an anonymous credit market where lenders can give loans and borrowers can repay them. When borrowers default, judges are free to enforce repayment but are themselves paid differently in each of three treatments. First, paying judges according to lenders’ votes maximizes surplus and the equality of earnings. In contrast, paying judges according to borrowers’ votes triggers insufficient enforcement, destroying the market and producing the lowest surplus and the most unequal distribution of earnings. Lastly, judges paid the average earnings of borrowers and lenders achieve results close to those based on lender voting. We employ a steps-of-reasoning argument to interpret the performances of different institutions. When voting and enforcement rights are allocated to different classes of actors, the difficulty of their task changes, and arguably as a consequence they focus on high or low surplus equilibria.
    Keywords: impersonal exchange ; third-party enforcement ; experiments ; steps of reasoning ; judges’ incentives ; repeated interaction
    JEL: C91 C92 D63 D72 K40
    Date: 2007–04
  5. By: Alpizar, Francisco (Environment for Development Center, Tropical Agricultural and Higher Education Center (CATIE)); Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We investigate the importance of the social context for people’s voluntary contributions to a national park in Costa Rica, using a natural field experiment. Some subjects make actual contributions while others state their hypothetical contribution. Both the degree of anonymity and provided information about the contributions of others influence subject contributions in the hypothesized direction. We do find a substantial hypothetical bias with regard to the amount contributed. However, the influence of the social contexts is about the same when the subjects make actual monetary contributions as when they state theirhypothetical contributions. Our results have important implications for validity testing of stated preference methods: a comparison between hypothetical and actual behavior should be done for a given social context. <p>
    Keywords: Environmental valuation; stated preference methods; voluntary contributions; anonymity; conformity; natural field experiment
    JEL: C93 Q50
    Date: 2007–04–19
  6. By: Antoine Terracol (GREMARS et Centre d'Economie de la Sorbonne); Jonathan Vaksmann (Centre d'Economie de la Sorbonne)
    Abstract: This paper uses experimental data to examine the existence of a teaching strategy among bounded rational players. If players realize that their own actions modify their opponent's beliefs and actions, they might play certain actions to this specific end ; and forego immediate payoffs if the expected payoffs if the expected payoff gain from a teaching strategy is high enough. Our results support the existence of a teaching strategy in several ways : First they show that players update their beliefs in order to take account of the reaction of their opponents to their own action. Second, we examine if players actually use a teaching strategy by playing an action that induces a poor immediate payoff but is likely to modify the opponent's behavior so that a preferable outcome might emerge in the future. We find strong evidence of such a strategy in the data and confirm this finding within a logistic model which suggests that the future expected payoff that could arise from a teaching strategy has indeed a significant impact on choice probabilities. Finally, we investigate the effective impact of a teaching strategy on achieved outcomes and find that efficient teachers can successfully use teaching in order to reach their favorite outcome at the expense of their opponents.
    Keywords: Game theory, teaching, beliefs, experiment.
    JEL: C72 C91 D83
    Date: 2007–03
  7. By: Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: Although economics has long been considered as a non-experimental science, the development of experimental economics and behavioral economics is amazingly rapid and affects most fields of research. This paper first attempts at defining the main contributions of experiments to economics. It also identifies four main trends in the development of experimental research in economics. The third contribution of this paper is to identify the major theoretical and methodological challenges faced by behavioral and experimental economics.
    Keywords: behavioral economy ; Experimental economics ; field experiment ; quantitative methods
    Date: 2007–04–19
  8. By: David Masclet (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: Cooperation among people who are not related to each other is sustained by the availability of punishment devices which help enforce social norms (Fehr and Gächter, 2002). However, the rationale for costly punishment remains unclear. This paper reports the results of an experiment investigating inequality aversion and negative emotions as possible determinants of punishment. We compare two treatments of a public good game, one in which costly punishment reduces the immediate payoff inequality between the punisher and the target, and one in which it does not affect inequality. We show that while inequality-aversion prevents some subjects from punishing in the equal cost treatment, negative emotions are the primary motive for punishment. Results also indicate that the intensity of punishment increases with the level of inequality, and reduces earnings inequality over time.
    Keywords: cooperation ; experiment ; Free-Riding ; inequity aversion ; negative emotions
    Date: 2007–04–23
  9. By: Tor Eriksson (Department of economics - [University of Aarhus]); Sabrina Teyssier (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: When exogenously imposed, rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter, and Weigelt 1987). However, since the efficiency of performance-related pay is attributable both to its incentive effect and to its selection effect among employees (Lazear, 2000), it is important to investigate the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on the degree of risk aversion, sorting is efficiency-enhancing since it increases the homogeneity of the contestants. We suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay.
    Keywords: experiment ; Incentives ; performance pay ; selection ; selection ; tournament
    Date: 2007–04–23
  10. By: Bruno Contini; Roberto Leombruni; Matteo Richiardi
    Abstract: What is the relationship, if any, between Experimental Economics and Agent-based Computational Economics? Experimental Economics (EXP) investigates individual behaviour (and the emergence of aggregate regularities) by means of human subject experiments. Agent-based Computational Economics (ACE), on the other hand, studies the relationships between the micro and the macro level with the aid of artificial experiments. Note that the way ACE makes use of experiments to formulate theories is indeed similar to the way EXP does. The question we want to address is whether they can complement and integrate with each other. What can Agent-based computational Economics give to, and take from, Experimental Economics? Can they help and sustain each other, and ultimately gain space out of their restricted respective niches of practitioners? We believe that the answer to all these questions is yes: there can be and there should be profitable “contaminations” in both directions, of which we provide a first comprehensive discussion.
    Keywords: Experimental Economics, Agent-based Computational Economics, Agent-Based Models, Simulation.
    JEL: B4 C9 C63
    Date: 2006
  11. By: Dalit Contini; Matteo Richiardi
    Abstract: We investigate the effects of income support on unemployment and welfare dynamics when stigma is attached to welfare provision. Stigma has been modelled in the literature as a cost of entry into welfare. Allowing for psychological factors, we assume that with stigma welfare provision leads to lower search effectiveness; moreover, we allow for interaction among agents. Carrying out an agent-based simulation study, we find that welfare take-up rates decrease with stigma while welfare spells get longer. Unemployment rates are not monotonically related to the amount of stigma, implying that we can find higher levels of unemployment with stigma than with no stigma.
    Keywords: job-search, welfare dependence, stigma, Agent-Based modeling, longitudinal data.
    Date: 2007
  12. By: Fent, Thomas
    Abstract: How individual behaviour is determined or at least influenced by social norms is one of the classic questions of social theory. We consider a norm as a rule guiding individual decisions concerning rituals, beliefs, traditions, and routines. Whenever coordinated behaviour is enforced without the help of an authority, this may be due to social norms. The individual being in the situation of taking a decision at the micro level is guided by social norms imposed at the macro level. The set of all individual decisions in a society generates the macro level behaviour of the system which may strengthen or weaken the existing social norms. Thus, the long run development of social norms is the result of collective dynamics within a social network. We use an agent based simulation model to investigate the emergence, stability, and replacement of social norms within a population of artificial agents. A social network connecting the agents serves to communicate the social norms and the actual behaviour among the agent population. The agents in the network possess two types of links connecting them with their ingroup and with their outgroup, respectively. Agents have the desire to be associated and accepted by the members of their ingroup and they want to be different from the members of their outgroup. Consequently, they derive a utility from adhering to the social norm of their ingroup and from deviating from the social norm of their outgroup. Agents may adopt their behaviour according to the norms given by their ingroup and outgroup. Thus, our model explains under what conditions social norms prevail within a subgroup of the society or even become global norms being respected within the whole population.
    Keywords: social norms; sociel networks; social interaction; collective social dynamics; ingroup; outgroup; agent based modelling
    JEL: C63 C61 Z13 D85
    Date: 2006–02–23
  13. By: Fernando Aguiar; Pablo Branas-Garza; Maria Paz Espinosa; Luis M. Miller (Max Planck Institute of Economics Jena, Strategic Interaction Group)
    Abstract: This paper aims to analize the role of personal identity in decision making. To this end, it starts by reviewing critically the growing literature on economics and identity. Considering the ambiguities that the concept of social identity poses, our proposal focuses on the concept of personal identity. A formal model to study how personal identity enters in individuals’ utility function when facing a Dictator Game decision is then presented. Finally, this "identity-based" utility function is studied experimentally. The experiment allows us to study the main parameters of the model, suggesting that we should move with caution when attributing identities to individuals.
    Keywords: personal identity, dictator game, game theory, experiments
    JEL: A13 C72 C91
    Date: 2007–04–20
  14. By: Emrah Arbak (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: When it examines the risk of coordinated effects, an antitrust authority will usually compare the situation where the merger is accepted with an attendant risk of collusion with the benchmark case in which competition is present ex-post. The main objective of this paper is to show that the antitrust authority must take into account the possibility for firms to collude if a merger is rejected. In fact, firms can have incitations to make collusion ex-post (after a rejection of a merger) whereas they would not make collusion ex-ante. All the papers on mergers and collusion tend to look at a minimal discount factor threshold for collusion to be sustained. This article does not only suggest necessary and sufficient conditions for collusion to be enforced but it also analyses the choice which firms have as to whether to collude. We consider an industry with cost-asymmetric firms and we study the analysis of collusion under leniency programmes.
    Keywords: endogenous switching models ; experiment ; influence ; leadership ; voluntary contribution
    Date: 2007–04–19
  15. By: Oded Galor; Quamrul Ashraf
    Date: 2007
  16. By: Jordi Brandts; Christiane Schwieren
    Abstract: Decision-makers are sometimes influenced by the way in which choice situations are presented to them or "framed" This can be seen as an important challenge to the social sciences, since strong and pervasive framing effects would make it difficult to study human behavior in a synthetic or theoretic manner. We present results from experiments with dilemma games designed to shed light on the effects of several frame variations. We study, among others, the particular public bad frame used by Andreoni (1995) and two more naturalistic frames involving stories. Our results show that none of the frame manipulations have a significant effect on average behavior, but we do find some effects on extreme behavior. We also find that incentives do matter where frames do not matter.
    Keywords: Framing, Experiments, Public Goods
    JEL: C92 H41
    Date: 2007–03–15
  17. By: Karl H. Schlag
    Abstract: We select among rules for learning which of two actions in a stationary decision problem achieves a higher expected payo¤when payoffs realized by both actions are known in previous instances. Only a bounded set containing all possible payoffs is known. Rules are evaluated using maximum risk with maximin utility, minimax regret, competitive ratio and selection procedures being special cases. A randomized variant of fictitious play attains minimax risk for all risk functions with ex-ante expected payoffs increasing in the number of observations. Fictitious play itself has neither of these two properties. Tight bounds on maximal regret and probability of selecting the best action are included.
    Keywords: fictitious play, nonparametric, finite sample, matched pairs, foregone payoffs, minimax risk, ex-ante improving, selection procedure
    JEL: D83 D81 C44
    Date: 2006
  18. By: Hill, Brian
    Abstract: It is well-known that classical models of belief are not realistic representations of human doxastic capacity; equally, models of actions involving beliefs, such as decisions based on beliefs, or changes of beliefs, suffer from similar inaccuracies. In this paper, a general framework is presented which permits a more realistic modelling both of instantaneous states of belief, and of the operations involving them. This framework is motivated by the inadequacies of existing models, which it overcomes, whilst retaining technical rigour in so far as it relies on known, natural logical and mathematical notions. As an illustration of this framework, it will be applied to the particular case of belief revision. A model of belief revision shall be obtained which, rstly, recovers the Gärdenfors postulates in a well-speci ed, natural yet simple class of particular circumstances; secondly, can accommodate iterated revisions, recovering several proposed revision operators for iterated revision as special cases; and nally, offers an analysis of Rott's recent counterexample to several Gärdenfors postulates [23], elucidating in what sense it fails to be one of the special cases to which these postulates apply
    Keywords: Representations of belief; bounded rationality; logical omniscience; awareness; logical locality; belief dynamics; iterated revision; Gärdenfors postulates; rational choice theory; framing effect
    JEL: C44 D83 D90
    Date: 2006–10–01

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