nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒06‒11
fifteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Boom and Bust Behavior: On the Persistence of Strategic Decision Biases and their Collective Outcome By Michael Shayne Gary; Giovanni Dosi; Dan Lovallo
  2. Diffusion and appropriation of knowledge in different organizational structures By Gabriel Yoguel; Analia Erbes; Veronica Robert; Jose Borello
  3. Confidence Management: On Interpersonal Comparisons in Teams By Benoît S.Y. Crutzen; Otto H. Swank; Bauke Visser
  4. When the Shoe is on the Other Foot: Experimental Evidence on Valuation Disparities By Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
  5. Explanation and Misrepresentation in the Laboratory By Lucy F. Ackert; Bryan K. Church; Ping Zhang
  6. Discrimination in the Lab: Experiments Exploring the Impact of Performance and Appearance on Sorting and Cooperation By Marco Castillo; Ragan Petrie
  7. Estimation of Exit Behaviors--Panel Data Analysis of an Experiment with Intergroup Mobility By Hideki Fujiyama; Jun Kobayashi; Yuhsuke Koyama; Hirokuni Oura
  8. Resistance to change. Exploring the convergence of institutions, organizations and the mind toward a common phenomenon By Patalano, Roberta
  9. Which way to cooperate By Kaplan, Todd; Ruffle, Bradley
  10. Individual differences and occupational stress perceived: a Croatian survey By Nina Pološki Vokić; Ana Bogdanić
  11. Revealed Altruism By James C. Cox; Daniel Friedman; Vjollca Sadiraj
  12. Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior By James C. Cox; Klarita Sadiraj; Vjollca Vjollca
  13. Social Barriers to Cooperation: Experiments on the Extent and Nature of Discrimination in Peru By Marco Castillo; Ragan Petrie; Maximo Torero
  14. On Modeling Voluntary Contributions to Public Goods By James C. Cox; Vjollca Sadiraj
  15. Herding And Social Pressure In Trading Tasks: A Behavioural Analysis By Baddeley, M.; Pillas, D.; Christopoulos, Y.; Schultz, W.; Tobler, P.

  1. By: Michael Shayne Gary; Giovanni Dosi; Dan Lovallo
    Abstract: This work discusses the boom and bust dynamics which are a common feature of a large range of different industries. especially but not only new born ones. The common managerial behavior underpinning such dynamics is aggressive capacity expansion in the boom period ultimately yielding excess capacity turning the boom into bust. This paper examines the underlying cognitive and behavioral factors responsible for strategic decisions driving boom and busts, nested in the interaction between cognitive biases and capacity adjustment delay, and together tries to identify some tentative heuristics which tend to mitigate them. At the same time, we shall conjecturally conclude, there might be a positive collective side to boom and bust behavio r fostering accumulation of knowledge and physical infrastructure, especially regarding new technological paradigms.
    Keywords: Boom and bust; Overconfidence; Capacity adjustment; Adaptive behavior
    Date: 2007–05–30
  2. By: Gabriel Yoguel; Analia Erbes; Veronica Robert; Jose Borello
    Abstract: The central question of this paper is: what are the forces that determine the continuum negative relationship between knowledge diffusion and appropriation in the context of the new techno-productive paradigm? In connection to this question we will make reference to the following issues: [i] How does new knowledge spread in a capitalist economy and how is this issue related to a collusive or classical spread of the benefits of technical progress?; [ii] Does the underlying logic specific to tacit and codified forms of knowledge have a bearing on diffusion and appropriation dynamics?; [iii] Can the creation of cognitive capacities at the organizational level be understood as a relevant form of protection in the economy of the knowledge era?
    Date: 2007–05
  3. By: Benoît S.Y. Crutzen (Erasmus Universiteit Rotterdam); Otto H. Swank (Erasmus Universiteit Rotterdam); Bauke Visser (Erasmus Universiteit Rotterdam)
    Abstract: Organization differ in the degree to which they differentiate employees by ability. We analyse how the effect of differentiation on employee morale may explain this variation. By comparing employees using ordinary talk, a manager boosts the self-image of some, but hurts that of others. Whether the net effect is positive for the organization depends on the degree of synergy between employees and on the shape of their objective function. An implication for relative performance pay is that it yields a double dividend or constitutes a double-edged sword.
    Keywords: Comparisons; Confidence; Teams; Cheap talk
    JEL: D82 L23 J31
    Date: 2007–05–30
  4. By: Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
    Abstract: The method of elicitation has an important effect on valuations. We investigate the effect of perspective on decision makers’ elicited values. We conduct experimental sessions in which participants act as sellers or buyers and replicate the disparity between willingness to accept and willingness to pay: sellers want to collect more and buyers want to pay less. We conduct additional sessions in which endowed decision makers provide values that are used to determine a price at which anonymous others transact. In these sessions, decision makers’ experimental earnings are not affected by valuations, but rather determined by their endowment. Decision makers appear to consider their standing relative to anonymous others in providing valuations, i.e., decision makers’ endowments affect their valuations. The results indicate that the disparity between willingness to accept and willingness to pay disappears when decision makers’ endowment ensures that they are at least as well off as anonymous others.
    JEL: C91 C92
    Date: 2006–06
  5. By: Lucy F. Ackert; Bryan K. Church; Ping Zhang
    Abstract: We report the results of an experiment designed to examine the effect of opportunity to provide an explanation for inaccurate results and predictability of behavior on managers’ reporting bias and investors’ ability to decipher the bias. We conduct 20 experimental sessions, each comprised of one manager and three or four investors. The manager has an incentive, in general, to inflate investors’ expectations and investors have an incentive to accurately predict value. We find that the manager reports with an upward bias a majority of the time. The magnitude of the bias, however, is lessened considerably when the manager’s reporting behavior is unpredictable and the manager has an opportunity to explain inaccurate (biased) reports. The data suggest that under such conditions the manager seeks to avoid reporting inaccurately and having to choose an explanation. We also find that investors adapt to the manager’s behavior and, strikingly, anticipate that explanation dampens reporting bias.
    Date: 2006–09
  6. By: Marco Castillo; Ragan Petrie
    Abstract: We present experimental evidence consistent with statistical discrimination in a public good and group formation game. We find that behavior is correlated with race and gender, and people use race and gender to predict behavior when no other information is available. When information on behavior is provided, people disregard personal characteristics completely. These characteristics are also disregarded when individual behavior is induced to break the correlation between characteristics and behavior. That is, people disregard race and gender even when observed behavior is unusual but relevant to payoffs. Finally, our experiments show that sorting into groups has dramatic implications on cooperation. Overall payoffs are higher when sorting is possible than when groups are randomly assigned. This only occurs, however, when personal characteristics are known. Higher payoffs are attained at the cost of an equitable distribution.
    Date: 2006–07
  7. By: Hideki Fujiyama; Jun Kobayashi; Yuhsuke Koyama; Hirokuni Oura
    Abstract: We estimate exit behavior in a repeated social dilemma situation with intergroup mobility, using experimental data. Estimated results show that absolute levels of cooperation of others in one’s own group is a significant determinant. Also, the difference between the absolute levels of cooperation and the cooperation index based on a subject’s actual choices for cooperation, from the first some periods, is significant. Information about other groups is not important. Based on these results, we draw the following conclusions: (1) subjects care about the information concerning their own group. (2) the higher the cooperation index for a subject, the higher is the probability that he/she will move, given the same level of cooperation of others.
  8. By: Patalano, Roberta
    Abstract: Resistance to change is not a new concept in economic literature (Coch and French 1948, Boulding 1956). However, in the last few decades it has acquired specific connotations and meanings that deserve attention. The first aim of the paper is to analyze how the concept has evolved since its introduction by Lewin (1946) and how it has diversified. Having acknowledged that resistance characterizes institutions, organizations and the mind, we suggest that the convergence toward such phenomenon is not surprising. Indeed, it may be explained by taking the bounds that affect the cognitive and emotional counterparts of economic behavior into account. We finally reinterpret resistance to change as a heuristic that helps manage the natural tendency of human beings to fear, uncertainty and its expected effects.
    Keywords: Change - cognitive economics - heuristic - emotions - resistance
    JEL: B59 D83 D81
    Date: 2007–05
  9. By: Kaplan, Todd; Ruffle, Bradley
    Abstract: Cooperation in real-world dilemmas takes many forms. We introduce a class of two-player games that permits two distinct ways to cooperate in the repeated game. One way to cooperate is to play cutoff strategies, which rely solely on a player's private value to defection. The second cooperative strategy is to take turns, which relies on publicly available information. Our initial experiments reveal that almost all cooperators adopt cutoff strategies. However, follow-up experiments in which the distribution of values to defection are made more similar show that all cooperators now take turns. Our results offer insight into what form a cooperative norm will take: for mundane tasks or where individuals otherwise have similar payoffs, taking turns is likely; for difficult tasks that differentiate individuals by skill or by preferences, cutoff cooperation will emerge.
    Keywords: experimental economics; cooperation; incomplete information; alternating; cutoff strategies; random payoffs.
    JEL: C90
    Date: 2007–06–01
  10. By: Nina Pološki Vokić (Faculty of Economics and Business, University of Zagreb); Ana Bogdanić
    Abstract: Apart from elaborating the concept of occupational stress (through it’s definition, sources, consequences, ways of dealing with it, and it’s relationship with individual differences), the research had two objectives: (1) to measure occupational stress levels among different categories of employees working in Croatian enterprises, and (2) to study and analyze stress in Croatia in relation to individual differences (gender, age, marital status, parenthood, number of children, hierarchical level, department, and working hours). The greatest level of stress perceive respondents who have three or more children, who are more than 50 year old, and those employed in marketing, at middle levels or in procurement, while the lowest level of stress perceive employees younger than 30 years of age, those employed in HR, finances and production, and parents of one child. Concerning the relationship between individual differences and levels of stress experienced, although the cross-sectional design of the study does not allow for causal interpretation of relationships found, findings suggest that there is a connection between age, marital status, parenthood, number of children and hierarchical level, and the way stress is perceived, while gender, department and working hours are not connected to it. The research integrated a broader set of antecedent variables which enable a better understanding of the demographic and work factors that lead to occupational stress. That should subsequently help managers understand a greater proportion of the variance of employees’ satisfaction, performance and turnover, and help them better deal with it.
    Keywords: occupational stress, sources of occupational stress, consequences of occupational stress, individual differences, Croatia
    JEL: M1
    Date: 2007–05–23
  11. By: James C. Cox; Daniel Friedman; Vjollca Sadiraj
    Abstract: This paper develops a nonparametric theory of preferences over one's own and others' monetary payoffs. We introduce "more altruistic than" (MAT), a partial ordering over preferences, and interpret it with known parametric models. We also introduce and illustrate "more generous than" (MGT), a partial ordering over opportunity sets. Several recent studies focus on two player extensive form games of complete information in which the first mover (FM) chooses a more or less generous opportunity set for the second mover (SM). Here reciprocity can be formalized as the assertion that an MGT choice by the FM will elicit MAT preferences in the SM. A further assertion is that the effect on preferences is stronger for acts of commission by FM than for acts of omission. We state and prove propositions on the observable consequences of these assertions. Finally, empirical support for the propositions is found in existing data from investment games and from Stackelberg games and in new data from Stackelberg mini-games.
  12. By: James C. Cox; Klarita Sadiraj; Vjollca Vjollca
    Abstract: This paper reports three experiments with triadic or dyadic designs. The experiments include the moonlighting game in which first-mover actions can elicit positively or negatively reciprocal reactions from second movers. First movers can be motivated by trust in positive reciprocity or fear of negative reciprocity, in addition to unconditional other-regarding preferences. Second movers can be motivated by unconditional other-regarding preferences as well as positive or negative reciprocity. The experimental designs include control treatments that discriminate among actions with alternative motivations. Data from our three experiments and a fourth one are used to explore methodological questions, including the effects on behavioral hypothesis tests of within-subjects vs. across-subjects designs, single-blind vs. double-blind payoffs, random vs. dictator first-mover control treatments, and strategy responses vs. sequential play.
    JEL: C70 C91 D63 D64
  13. By: Marco Castillo; Ragan Petrie; Maximo Torero
    Abstract: We present a series of experiments to understand the nature and extent of discrimination in urban Lima, Peru. The experiments exploit varying degrees of information on performance and personal characteristics as people sort into groups to test for statistical versus taste-based discrimination. This allows us to examine the nature of discrimination. Our sample is similar to the racial and socio-economic diversity of young adults in urban Lima. This allows us to look at the extent of discrimination. We use a unique method to measure race, along four racial dimensions common in Peru, and find that race is clearly observable. This gives us confidence that we can examine discrimination based on race. While behavior is not correlated with personal, socio-economic or racial characteristics, people do use personal characteristics to sort themselves into groups. Beauty is a robust predictor of being a desirable group member as is being a woman. Being unattractive or looking indigenous makes one less desirable and looking white increases one’s desirability. Interestingly, indigenous subjects are three times more likely to be classified as unattractive, suggesting that beauty might mask discrimination. We find that once information on performance is provided, almost all evidence of discrimination is eliminated, except in the most-preferred group. The evidence in these cases is consistent with taste-based, rather than statistical, discrimination.
    Date: 2006–12
  14. By: James C. Cox; Vjollca Sadiraj
    Abstract: This paper addresses four "stylized facts" that summarize data from experimental studies of voluntary contributions to provision of public goods. Theoretical propositions and testable hypotheses for voluntary contributions are derived from two models of social preferences, the inequity aversion model and the egocentric other-regarding preferences model. We find that the egocentric other-regarding preferences model with classical regularity properties can better account for the stylized facts than the inequity aversion model with non-classical properties.
    JEL: C70 C91 D64 H41
    Date: 2006–10
  15. By: Baddeley, M.; Pillas, D.; Christopoulos, Y.; Schultz, W.; Tobler, P.
    Abstract: We extend the experimental literature on Bayesian herding using evidence from a financial decision-making experiment. We identify significant propensities to herd increasing with the degree of herd-consensus. We test various herding models to capture the differential impacts of Bayesian-style thinking versus behavioural factors. We find statistically significant associations between herding and individual characteristics such as age and personality traits. Overall, our evidence is consistent with explanations of herding as the outcome of social and behavioural factors. Suggestions for further research are outlined and include verifying these findings and identifying the neurological correlates of propensities to herd.
    Keywords: Herding, Bayesian updating, social learning, social pressure
    JEL: D7 D8 D81 D82 D83
    Date: 2007–05

This nep-cbe issue is ©2007 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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