nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒10‒06
ten papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Job Satisfaction and Co-worker Wages: Status or Signal? By Andrew E. Clark; Nicolai Kristensen; Niels Westergård-Nielsen
  2. Narrow Bracketing and Dominated Choices By Matthew Rabin; Georg Weizsäcker
  3. Response Time under Monetary Incentives: the Ultimatum Game By Pablo Branas-Garza; Ana Leon-Mejia; Luis M. Miller
  4. Behavioral foundation and agent-based simulation of regional innovation dynamics By Frank Beckenbach; Ramòn Briegel; Maria Daskalakis
  5. Performance Measurement, Expectancy and Agency Theory: An Experimental Study By Randolph Sloof; C. Mirjam van Praag
  6. Eliciting environmental preferences of Ghanaians: An experimental approach By Yael Meroz; Andrea Morone; Piergiuseppe Morone
  7. Reciprocity in young children By Dahlman, Sandra; Ljungqvist, Pontus; Johannesson, Magnus
  8. The Devil is in the Details - Sex Differences in Simple Bargaining Games By Ana Leon-Mejia; Luis M. Miller
  9. Psychological Bias as a Driver of Financial Regulation By Hirshleifer, David
  10. Predicting Health Behaviors with an Experimental Measure of Risk Preference By Lisa R. Anderson; Jennifer M. Mellor

  1. By: Andrew E. Clark (Paris School of Economics, CCP, Aarhus School of Business and IZA); Nicolai Kristensen (Aarhus School of Business, CIM and CCP); Niels Westergård-Nielsen (Aarhus School of Business, CCP and IZA)
    Abstract: This paper uses matched employer-employee panel data to show that individual job satisfaction is higher when other workers in the same establishment are better-paid. This runs contrary to a large literature which has found evidence of income comparisons in subjective well-being. We argue that the difference hinges on the nature of the reference group. We here use co-workers. Their wages not only induce jealousy, but also provide a signal about the worker’s own future earnings. Our positive estimated coefficient on others’ wages shows that this positive future earnings signal outweighs any negative status effect. This phenomenon is stronger for men, and in the private sector.
    Keywords: job satisfaction, co-workers, comparison income, wage expectations, tournaments
    JEL: C23 C25 D84 J28 J31 J33
    Date: 2007–09
  2. By: Matthew Rabin (University of California, Berkeley); Georg Weizsäcker (London School of Economics and IZA)
    Abstract: An experiment by Tversky and Kahneman (1981) illustrates that people's tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first-order stochastically dominated by other available combinations. We investigate the generality of this effect both theoretically and experimentally. We show that for any decisionmaker who does not have constant-absolute-risk-averse preferences and who evaluates her decisions one by one, there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices. We also characterize, as a function of a person's preferences, the amount of money that she can lose due to a single mistake of this kind. The theory is accompanied by both a real-stakes laboratory experiment and a large-sample survey from the general U.S. population. Replicating Tversky and Kahneman's original experiment where decisionmakers with prototypical prospect-theory preferences will choose a dominated combination, we find that 28% of the participants do so. In the survey we ask the respondents about several hypothetical large-stakes choices, and find higher proportions of dominated choice combinations. A statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect-theory value functions and that about 83% of people bracket narrowly. None of these results varies strongly with the personal characteristics of participants. We also demonstrate directly that dominated choices are driven by narrow bracketing: when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions, the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey.
    Keywords: lottery choice, narrow framing, representative-sample experiments
    JEL: B49
    Date: 2007–09
  3. By: Pablo Branas-Garza (Departamento de Teoria Economica, Universidad de Granada); Ana Leon-Mejia (IESA-CSIC); Luis M. Miller (IESA-CSIC and Max Planck Institute of Economics,)
    Abstract: This paper studies the response times of experimental subjects playing the Ultimatum game in a laboratory setting using monetary incentives. We find that proposals are not significantly correlated with response time, whereas responders' behavior is positively and significantly correlated. Hence, consistent with Rubisntein (forthcoming) we find that response times may capture relevant cognitive processes. However, the use of monetary incentives causes a reversal of his findings. These results have implications for the information about cognitive mechanisms that can be obtained from response times.
    Keywords: Monetary incentives, Ultimatum game, response time
    JEL: C72 C91
    Date: 2007–09–25
  4. By: Frank Beckenbach (Department of Economics, University of Kassel); Ramòn Briegel (Department of Economics, University of Kassel); Maria Daskalakis (Department of Economics, University of Kassel)
    Abstract: Starting from the observation that there exists a broad variety for the level as well as for the connectedness of innovation activities in a regional context, we try to figure out a behavioral approach for explaining such a variety. This approach is composed of (i)conceptual and theoretical reflections about the micro-foundation of innovation activities, (ii)an agent-based simulation model for these activities and (iii)empirical regional survey studies as a measuring rod for such an approach. Such a composition can fill the explanatory gap between external conditions for regional innovation activities on one side and the observable innovation outcome by specifying plausible internal conditions for novelty creating activities on the other side. Furthermore the emergence of regional innovation networks can be explained.
    Keywords: Regional Innovation Networks, Multi-Agent-System, Behavioral Economics, Evolutionary Economics
    Date: 2007–08
  5. By: Randolph Sloof (University of Amsterdam and Tinbergen Institute); C. Mirjam van Praag (University of Amsterdam, Tinbergen Institute and IZA)
    Abstract: Theoretical analyses of (optimal) performance measures are typically performed within the realm of the linear agency model. This model implies that, for a given compensation scheme, the agent’s optimal effort is unrelated to the amount of noise in the performance measure. In contrast, expectancy theory as developed by psychologists predicts lower effort levels for noisier performance measures. We conduct a real effort laboratory experiment and find that effort levels are invariant to changes in the distribution of the noise term, i.e. to expectancy. This suggests that enriching the economic (linear agency) model commonly applied within this area by including an expectancy parameter is not needed.
    Keywords: performance measurement, expectancy theory, real effort experiments, agency theory, personnel economics
    JEL: C91 J33
    Date: 2007–09
  6. By: Yael Meroz (University of Foggia); Andrea Morone (University of Bari); Piergiuseppe Morone (University of Foggia)
    Abstract: In this paper we aim - through an 'experimentally-adapted' Contingent Valuation survey - to look into the attributes of Ghanaians' willingness-to-pay for green products. This would help us addressing two main issues: first, from a theoretical point of view, we shall assess whether Ghanaians show a preference towards environmental goods - hence, countering the 'too poor to be green' argument. Secondly, from a methodological point of view, we shall try to see if the incentive compatible CV analysis provides a good measurement of subjects' willingness-to-pay for environmental premium. Our investigation provides an answer to both issues, showing how using an incentive compatible experiment produces, in the case of Ghana, reliable results and that Ghanaians consistently show that they are willing to pay an extra premium for green products.
    Keywords: contingent valuation, experiment, incentive-compatible, Ghana, organic products, willingness to pay.
    JEL: C9 Q5
    Date: 2007–09–25
  7. By: Dahlman, Sandra (Dept. of Economics, Stockholm School of Economics); Ljungqvist, Pontus (Dept. of Economics, Stockholm School of Economics); Johannesson, Magnus (Dept. of Economics, Stockholm School of Economics)
    Abstract: Reciprocal behavior, the rewarding of kind acts and the punishment of unkind acts, is relatively well established among adults. We test if reciprocal behavior exists already among children 3-8 years old. Three simple anonymous allocation games are conducted with 242 children. In a first stage, half of the children decide whether to give a bag of raisin to another anonymous child or not. The three games differ in terms of the cost of giving and the relative difference in payoffs. In a second stage the roles are reversed between the two children to test for reciprocal behavior. We find reciprocal behavior in all three games with highly significant effects for two of the three games. Furthermore, the degree of reciprocity tends to increase with age. The effect of reciprocity is not significant among 3-5 year old children, whereas the effect is highly significant in all three games for 6-8 year olds.
    Keywords: Reciprocity; prosociality; children; experiments
    JEL: C90 D64 J13
    Date: 2007–09–26
  8. By: Ana Leon-Mejia (IESA-CSIC); Luis M. Miller (IESA-CSIC and Max Planck Institute of Economics)
    Abstract: The study of gender differences in social preferences has shown mixed results, preventing economists and other social scientists from drawing definitive conclusions on this topic. Several original investigations and experimental reviews have hypothesized that the main reason of this heterogeneity of results is the myriad of experimental designs used to study gender differences. In this paper we test this hypothesis by making male and female participants to face two different but related experimental games and two different information treatments. Through this 2x2 factorial design, we obtain results in line with some recent papers: women are sensitive to the design and context of the experiment in ways that men are not. In addition, we go further providing a well-grounded account on the importance of the context for female decision-making.
    Keywords: Beliefs, economic experiments, empathy, gender differences, social preferences.
    JEL: C78 C91
    Date: 2007–09–25
  9. By: Hirshleifer, David
    Abstract: I propose here the psychological attraction theory of financial regulation—that regulation is the result of psychological biases on the part of political participants—voters, politicians, bureaucrats, and media commentators; and of regulatory ideologies that exploit these biases. Some key elements of the psychological attraction approach are: salience and vividness, omission bias, scapegoating and xenophobia, fairness and reciprocity norms, overconfidence, and mood effects. This approach further emphasizes emergent effects that arise from the interactions of individuals with psychological biases. For example, availability cascades and ideological replicators have powerful effects on regulatory outcomes.
    Keywords: Investor psychology; regulation; salience; omission bias; scapegoating; xenophobia; fairness; reciprocity; norms; mood; availability cascades; overconfidence; evolutionary psychology; memes; ideology; replicators
    JEL: H10 H0 G0
    Date: 2007–10–02
  10. By: Lisa R. Anderson (Department of Economics, College of William and Mary); Jennifer M. Mellor (Department of Economics, College of William and Mary)
    Abstract: We conduct a large-scale economics experiment paired with a survey to examine the association between individual risk preferences and health-related behaviors among adults aged 18 to 87 years. Risk preferences are measured by the Holt and Laury (2002) lottery choice experiment. Controlling for race, sex, and age, we find that risk preference is significantly associated with cigarette smoking, being overweight or obese, seat belt non-use, and driving over the speed limit. In additional specifications, we find that risk preference is significantly associated with heavy episodic drinking, and is a significant predictor of the number of risky behaviors.
    Keywords: risk preference, lottery choice experiment, health risk behaviors, smoking
    JEL: I12 C91
    Date: 2007–09–28

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