nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒09‒30
four papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Valuing a Risky Prospect Less than Its Worst Outcome: Uncertainty Effect or Task Ambiguity? By Andreas Ortmann; Sasha Prokosheva; Ondrej Rydval; Ralph Hertwig
  2. Learning by Similarity in Coordination Problems By Jakub Steiner; Colin Stewart
  3. Are the Unskilled Really That Unaware? An alternative explanation By Marian Krajc; Andreas Ortmann
  4. Implications of Behavioural Economics for Mandatory Individual Account Pension Systems By Waldo Tapia; Juan Yermo

  1. By: Andreas Ortmann; Sasha Prokosheva; Ondrej Rydval; Ralph Hertwig
    Abstract: Gneezy, List and Wu [Q. J. Econ. 121 (2006) 1283-1309] document that lotteries are often valued less than the lotteries’ worst outcomes. We show how to undo this result.
    Keywords: Risky choice, framing, experiments, task ambiguity, subject confusion.
    JEL: C81 C91 C93 D83
    Date: 2007–07
  2. By: Jakub Steiner; Colin Stewart
    Abstract: We study a learning process in which subjects extrapolate from their experience of similar past strategic situations to the current decision problem. When applied to coordination games, this learning process leads to contagion of behavior from problems with extreme payoffs and unique equilibria to very dissimilar problems. In the long-run, contagion results in unique behavior even though there are multiple equilibria when the games are analyzed in isolation. Characterization of the long-run state is based on a formal parallel to rational equilibria of games with subjective priors. The results of contagion due to learning share the qualitative features of those from contagion due to incomplete information, but quantitatively they differ.
    Keywords: Similarity, learning, contagion, case-based reasoning, global games, coordination, subjective priors.
    Date: 2007–04
  3. By: Marian Krajc; Andreas Ortmann
    Abstract: In a series of articles and manuscripts (e.g., Kruger & Dunning, 1999, Dunning et al.,2003, Ehrlinger et al., 2005), Dunning, Kruger and their collaborators argued that the unskilled lack the metacognitive ability to realize their incompetence. We propose that the unskilled-and-unaware problem – rather than being one of biased judgements – is one of unbiased judgements based on biased information.
    Keywords: Calibration, judgement errors, unskilled, unaware, metacognition.
    JEL: C46 C91 C93 D01 D81 D83 D84
    Date: 2007–04
  4. By: Waldo Tapia; Juan Yermo
    Abstract: In individual account pension systems, members bear the risks and consequences of their investment decisions. If participants behave as predicted by economic theory, such responsibility would be welfare-enhancing as members would invest and hold a portfolio of financial assets with a risk-return combination consistent with their investment horizon, degree of risk aversion and the portfolio of other assets they hold, including their human capital and, where relevant, their home. Behavioural economists and empirical researches have shown that in reality members are not particularly good at handling their retirement savings, either because they lack the necessary cognitive ability to solve the optimization problem, because they have insufficient will power to execute it, or even sometimes because they are overconfident. This paper describes the extent to which plan members make active investment decisions in these systems and assesses the policy solutions that have been put forward to facilitate choice. The paper offers a comparative analysis of ten countries that have implemented investment choice in the accumulation stage of their individual account pension system. <P>Implications de l’économie des comportements pour les systèmes de pension à comptes individuels obligatoires <BR>Dans les systèmes de pension à comptes individuels, les membres supportent les risques et les conséquences de leurs décisions d'investissement. Si les participants se comportent comme le prédit la théorie économique, le fait qu‘ils assument cette responsabilité doit améliorer leur bien-être car ils réaliseront des investissements et détiendront un portefeuille d‘actifs financiers présentant un couple risque-rendement qui sera cohérent avec leur horizon d'investissement, avec leur degré d'aversion au risque et avec les autres types d‘actifs qu'ils détiennent, notamment en termes de capital humain et, le cas échéant, d'immobilier. Les économistes du comportement et les recherches empiriques ont toutefois montré que, dans la réalité, les membres des systèmes de pension à comptes individuels ne savent pas particulièrement bien gérer leur épargne retraite, parce qu‘ils n‘ont pas les connaissances nécessaires pour résoudre le problème de l'optimisation, ou parce qu'ils n‘ont pas la volonté suffisante pour mettre en oeuvre les décisions nécessaires ou, parfois encore, parce qu'ils pèchent par excès de confiance. Dans ce document, on observe dans quelle mesure les membres des plans font des choix d'investissement actifs et on examine les mesures qui ont été prises par les pouvoirs publics pour faciliter ces choix. On procède, par ailleurs, à une analyse comparative de la situation dans dix pays qui ont introduit des possibilités de choix des investissements, durant la phase d'accumulation, dans leur système de pension à comptes individuels.
    Keywords: pension fund, fond de pension, portfolio preferences, préférence de portfolio, élection individuelle, compte individuel, alternative d'investissement, plan de retraite, retour d'investissement, limite d'investissement, individual choice , individual account, investment alternative, pension plan, investment return , investment limits
    JEL: G11 G18 G23 J31
    Date: 2007–07

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