nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒09‒24
twenty papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Students' Academic Self-Perception By Arnaud Chevalier; Steve Gibbons; Andy Thorpe; Martin Snell; Sherria Hoskins
  2. Why sharecropping? : explaining its presence and absence in Europe's vineyards, 1750-1950 By Juan Carmona; James Simpson
  3. Comparing Small-Group and Individual Behavior in Lottery-Choice Experiments By Ronald J. Baker II; Susan K. Laury; Arlington W. Williams
  4. Do Rational Demand Estimates Differ From Irrational Ones? Evidence from an Induced Budget Experiment By Shomu Banerjee; James H. Murphy
  5. Financial literacy and stock market participation By Maarten van Rooij; Annamaria Lusardi; Rob Alessi
  6. Measuring Ethnic Identity and Its Impact on Economic Behavior By Amelie Constant; Klaus F. Zimmermann
  7. The glue of the economic system: the effect of relational goods on trust and trustworthiness By BECCHETTI LEONARDO; DEGLI ANTONI GIACOMO; FAILLO MARCO; MITTONE LUIGI
  8. Are cooperators effciency- or fair-minded? Evidence from a public goods experiment By M. Vittoria Levati; Matteo Ploner; Stefan Traub
  9. Competitive politics, simplified heuristics, and preferences for public goods By Felix Schlaepfer; Marcel Schmitt; Anna Roschewitz
  10. Inequity Aversion and Individual Behavior in Public Good Games: An Experimental Investigation By Dannenberg, Astrid; Riechmann, Thomas; Sturm, Bodo; Vogt, Carsten
  11. Trust in cooperation or ability? An experimental study on gender differences By Christiane Schwieren; Matthias Sutter
  12. Preferences, Intentions, and Expectations: A Large-Scale Experiment with a Representative Subject Pool By Charles Bellemare; Sabine Kröger; Arthur van Soest
  13. Why Volunteer? Evidence on the Role of Altruism, Reputation, and Incentives By Jeffrey Carpenter; Caitlin Knowles Myers
  14. Institutions and Behavior: Experimental Evidence on the Effects of Democracy By Pedro Dal Bo; Andrew Foster; Louis Putterman
  15. Lavish Returns on Cheap Talk: Non-binding Communication in a Trust Experiment By Avner Ben-Ner; Louis Putterman; Ting Ren
  16. Preferences For Redistribution and Perception of Fairness: An Experimental Study By Ruben Durante; Louis Putterman
  17. Impact of Initial-Trust Image on Shopper Trust and Patronage Intentions By Kaul Subhashini; Sahay Arvind; Koshy Abraham
  18. On the Co-evolution of Insider Information and Idiosyncratic Beliefs By Thomas Gehrig; Werner Gueth; Rene Levinsky
  19. Trust and Reciprocity: Implications of Game Triads and Social Contexts By James C. Cox
  20. Contracts as Reference Points By Oliver Hart; John Moore

  1. By: Arnaud Chevalier (Royal Holloway University of London, University College Dublin, CEE, London School of Economics and IZA); Steve Gibbons (CEP, London School of Economics); Andy Thorpe (University of Portsmouth); Martin Snell (University of Portsmouth); Sherria Hoskins (University of Portsmouth)
    Abstract: Participation rates in higher education differ persistently between some groups in society. Using two British datasets we investigate whether this gap is rooted in students’ misperception of their own and other’s ability, thereby increasing the expected costs to studying. Among high school pupils, we find that pupils with a more positive view of their academic abilities are more likely to expect to continue to higher education even after controlling for observable measures of ability and students’ characteristics. University students are also poor at estimating their own test-performance and over-estimate their predicted test score. However, females, white and working class students have less inflated view of themselves. Self-perception has limited impact on the expected probability of success and expected returns amongst these university students.
    Keywords: test performance, self-assessment, higher education participation, academic self-perception
    JEL: I21 J16 Y80
    Date: 2007–08
  2. By: Juan Carmona; James Simpson
    Abstract: The traditional view that sharecropping was a cause of low productivity in European agriculture prior to the Second World War has been challenged by economic historians, and today the contact is often considered as efficient at reducing the monitoring costs associated with labour and allocation of risk between landowners and farmers, especially when capital markets were weak for working capital. Yet if sharecropping was a relatively efficient contract, why was it not found more often? This paper looks at the vine, a crop that was widespread in Europe and that has been central to the current debates. It argues that while the literature has been right to emphasise the importance of the high monitoring costs, it has ignored the equally important costs associated with dividing the harvest. These were sufficiently large to make the contract unattractive, except in the few cases where the landowner was prepared to be actively involved in wine making and its sale, such as was found in Beaujolais or Tuscany.
    Date: 2007–07
  3. By: Ronald J. Baker II (Millersville University of Pennsylvania); Susan K. Laury (Georgia State University); Arlington W. Williams (Indiana University Bloomington)
    Abstract: Lottery-choice experiments are conducted to compare risk preferences revealed by three-person groups versus isolated individuals. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point from a low-risk to a high-risk lottery can be used to infer the degree of risk aversion. A between-subjects experiment of group versus individual lottery-choice decisions reveal that there is not a significant difference in the average crossover point, but lottery choices are affected by a significant interaction between subject composition (individual or group) and lottery winning percentage. Also, a three-phased individual-group-individual sequenced experiment reveals that the count of safe lotteries chosen by groups is, on average, significantly greater than the mean of the individual members. Finally, making a phase-two group decision has a significant impact on subsequent phase-three individual decisions relative to the initial phase-one (individual) decisions.
    Keywords: lab experiments, risk preferences, group decisions
    JEL: C91 C92 D80
    Date: 2007–09
  4. By: Shomu Banerjee; James H. Murphy
    Abstract: Both early and recent work have highlighted certain similarities between rational and irrational demand. We re-examine these findings using experimental choice data. After separating our subjects’ choices into rational and irrational subsets based on consistency with the axioms of revealed preference, we estimate and compare demand coefficients from the resulting subsamples, finding significant differences between the two. We also predict consistency based on sociodemographics and cognitive ability, then split the sample using predicted consistency and again estimate and compare the resulting subsamples’ demand coefficients. These comparisons indicate differences between rational and irrational demand and are largely consistent with successful prediction.
    Date: 2007–09
  5. By: Maarten van Rooij; Annamaria Lusardi; Rob Alessi
    Abstract: Individuals are increasingly put in charge of their financial security after retirement. Moreover, the supply of complex financial products has increased considerably over the years. However, we still have little or no information about whether individuals have the financial knowledge and skills to navigate this new financial environment. To better understand financial literacy and its relation to financial decision-making, we have devised two special modules for the DNB Household Survey. We have designed questions to measure numeracy and basic knowledge related to the working of inflation and interest rates, as well as questions to measure more advanced financial knowledge related to financial market instruments (stocks, bonds, and mutual funds). We evaluate the importance of financial literacy by studying its relation to the stock market: Are more financially knowledgeable individuals more likely to hold stocks? To assess the direction of causality, we make use of questions measuring financial knowledge before investing in the stock market. We find that, while the understanding of basic economic concepts related to inflation and interest rate compounding is far from perfect, it outperforms the limited knowledge of stocks and bonds, the concept of risk diversification, and the working of financial markets. We also find that the measurement of financial literacy is very sensitive to the wording of survey questions. This provides additional evidence for limited financial knowledge. Finally, we report evidence of an independent effect of financial literacy on stock market participation: Those who have low financial literacy are significantly less likely to invest in stocks.
    Keywords: Portfolio choice; Knowledge of Economics and Finance; Financial Sophistication.
    JEL: D91 G11 D80
    Date: 2007–09
  6. By: Amelie Constant; Klaus F. Zimmermann
    Abstract: The paper advocates for a new measure of the ethnic identity of migrants, models its determinants and explores its explanatory power for various types of their economic performance. The ethnosizer, a measure of the intensity of a person's ethnic identity, is constructed from information on the following elements: language, culture, societal interaction, history of migration, and ethnic self-identification. A two-dimensional concept of the ethnosizer classifies migrants into four states: integration, assimilation, separation and marginalization. The ethnosizer largely depends on pre-migration characteristics. Empirical evidence studying economic behavior like work participation, earnings and housing decisions demonstrates the significant relevance of ethnic identity for economic outcomes.
    Keywords: Ethnicity, ethnic identity, acculturation, migrant assimilation, migrant integration, work, cultural economics
    JEL: F22 J15 J16 Z10
    Date: 2007
    Abstract: The role of “relational goods” is almost unexplored in the literature, yet our experimental results document that, even in their weakest form (opportunity of meeting an unknown player at the end of an experimental game), they significantly affect important “lubricants” of economic activity such as trust and trustworthiness and generate significant departures from the standard Nash equilibrium outcome in trust (investment) games. Our findings do not reject the hypothesis that relational goods are an important “source of energy” in economic interactions and that the study of this “neglected particle” of socioeconomic life may produce significant advancements on both positive and normative economics.
    Date: 2007–09
  8. By: M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany, and University of Trento, Italy); Stefan Traub (Department of Business and Economics, University of Bremen, Germany)
    Abstract: We use a two-person public goods experiment to distinguish between efficiency and fairness as possible motivations for cooperative behavior. Asymmetric marginal per capita returns allow only the high-productivity player to increase group payoffs when contributing positive amounts. Asymmetric contributions, however, yield unequal individual payoffs. To assess a priori cooperative preferences, we measure individual 'value-orientations' by means of the decomposed game technique. Overall, our results indicate that fairness (or inequality aversion) is more influential than efficiency in driving behavior.
    Keywords: Public goods experiments, Conditional cooperation, Fairness, Efficiency, Value orientations
    JEL: A13 C92 D63 H41
    Date: 2007–09–20
  9. By: Felix Schlaepfer (Socioeconomic Institute, University of Zurich); Marcel Schmitt (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland); Anna Roschewitz (Economics Division, Federal Research Institute WSL, Birmensdorf, Switzerland)
    Abstract: This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a sub-sample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents’ general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information.
    Keywords: agriculture, bounded rationality, choice experiment, contingent valuation, landscape, heuristics, information, preference formation, public goods, voting
    JEL: D61 D70 D81 Q26 Q28 Q51
    Date: 2007–09
  10. By: Dannenberg, Astrid; Riechmann, Thomas; Sturm, Bodo; Vogt, Carsten
    Abstract: We present a simple two-steps procedure for a within-subject test of the inequity aversion model of Fehr and Schmidt (1999). In the first step, subjects played modified ultimatum and dictator games and were classified according to their preferences. In the second step, subjects with specific preferences according to the Fehr and Schmidt model were matched into pairs and interacted with each other in a standard public good game and a public good game with punishment possibility. Our results show that the specific composition of groups significantly influences the subjects’ performance in the public good games. We identify the aversion against advantageous inequity and the information about the coplayer’s type as the main influencing factors for the behavior of subjects.
    Keywords: individual preferences, inequity aversion, experimental economics, public goods
    JEL: C91 C92 H41
    Date: 2007
  11. By: Christiane Schwieren; Matthias Sutter
    Abstract: We examine gender differences in trust in another party’s cooperation (CC) or its ability (AC). While men and women do not differ concerning trust in cooperation, gender has a strong influence when trust in another subject’s ability is required.
    Keywords: Trust, Gender, Experiment, Cooperation, Ability, Stereotypes
    JEL: C72 C91
    Date: 2007–09
  12. By: Charles Bellemare (Université Laval, CIRPÉE and IZA); Sabine Kröger (Université Laval); Arthur van Soest (RAND, Tilburg University and IZA)
    Abstract: We specify and estimate an econometric model which separately identifies distributional preferences and the effects of perceived intentions on responder behavior in the ultimatum game. We allow the effects of perceived intentions to depend, among other things, on the subjective probabilities responders attach to the possible offers. We estimate the model on a large representative sample from the Dutch population. We find that the relative importance of distributional preferences and perceived intentions depends significantly on the socioeconomic characteristics of responders. Strong inequity aversion to the other player’s disadvantage is found for lower educated and older respondents. Responders tend to punish unfavorable offers more if they expect that fair proposals will occur with higher probability.
    Keywords: inequity aversion, intentions, subjective expectations
    JEL: C93 D63 D84
    Date: 2007–08
  13. By: Jeffrey Carpenter (Middlebury College and IZA); Caitlin Knowles Myers (Middlebury College and IZA)
    Abstract: Volunteering plays a prominent role in the charitable provision of goods and services, yet we know relatively little about why people engage in such prosocial acts. The list of possible motivations is long, but recent research has focused on altruism, reputational concerns, and material incentives. We present an analysis of a unique data set that combines an experimental measure of altruism, surveyed measures of other factors including reputational concerns, and call records from volunteer firefighters that provide an objective measure of the hours volunteered. Controlling for a variety of other explanations, we find that altruism and reputational concerns are positively associated with the decision to volunteer. Moreover, by utilizing variation in the presence and level of small stipends paid to the firefighters, we find that the positive effect of monetary incentives declines with reputational concerns, supporting a prediction that extrinsic incentives can crowd out prosocial behavior.
    Keywords: volunteer, altruism, reputation, firefighter
    JEL: C93 D12 J22 D64 D82
    Date: 2007–08
  14. By: Pedro Dal Bo; Andrew Foster; Louis Putterman
    Date: 2007
  15. By: Avner Ben-Ner; Louis Putterman; Ting Ren
    Date: 2007
  16. By: Ruben Durante; Louis Putterman
    Date: 2007
  17. By: Kaul Subhashini; Sahay Arvind; Koshy Abraham
    Abstract: The objective of this study is to examine the role of store image in influencing shopper trust and patronage intentions when 1) the store has never been visited and 2) the store has been visited. This study also identifies three stages through which ‘trust-image’ progresses and uses the first stage to construct and ‘initial-trust-image’ of the store. The experimental study findings provide empirical support that initial-trust-image of the store has significant impact on trust and patronage intentions for some shoppers. Retailers entering the Indian market are advised to be conscious of the symbolic cues that they embed in the store appearance, especially since the initial-trust-image needs to convey more than just competence and expertise. Significantly, the findings also indicate that asymmetric effects of trust operate at the stage of initial-trust – negative initial-image perception causes greater mistrust than positive initial-image causes trust.
    Date: 2007–09–06
  18. By: Thomas Gehrig (Institut zur Erforschung der wirtschaftlichen Entwicklung, Albert-Ludwigs-Universität); Werner Gueth (Max Planck Institute of Economics); Rene Levinsky (Max Planck Institute of Economics)
    Abstract: In a market with stochastic demand at most one seller can acquire costly information about demand. Other sellers entertain idiosyncratic beliefs about the market demand and the probability that an informed seller is trading in the market. These idiosyncratic beliefs co-evolve with the potential insider's inclination to acquire information. True demand expectations are not evolutionarily stable when beliefs, via revelation, can be used to commit to more aggressive behavior. The commitment effect fades away in large markets and has the same direction for both strategic substitutes and complements. Whether one observes an insider, in the long run, depends on information costs. For strategic substitutes insider activity benefits the whole population whereas the uninformed sellers could gain even more than the insider.
    Keywords: co-evolution of idiosyncratic beliefs, inside information, heterogeneous markets, information sharing.
    JEL: C79 D43 D82
    Date: 2007–09–21
  19. By: James C. Cox
    Abstract: null
    Date: 2007–09
  20. By: Oliver Hart; John Moore
    Abstract: We argue that a contract provides a reference point for a trading relationship: more precisely, for parties’ feelings of entitlement. A party’s ex post performance depends on whether he gets what he is entitled to relative to outcomes permitted by the contract. A party who is shortchanged shades on performance. A flexible contract allows parties to adjust their outcome to uncertainty, but causes inefficient shading. Our analysis provides a basis for long-term contracts in the absence of noncontractible investments, and elucidates why “employment” contracts, which fix wage in advance and allow the employer to choose the task, can be optimal.

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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