nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒11‒03
thirteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. The relation between fluid intelligence and the general factor as a function of cultural background: a test of Cattell's investment theory By Valentin Kvist, Ann; Gustafsson, Jan-Eric
  2. Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments By John Smith
  3. Changing Identity: The Emergence of Social Groups By Ulrich Horst; Alan Kirman; Miriam Teschl
  4. Overconfidence? By Benoît, Jean-Pierre; Dubra, Juan
  5. He who self-monitoring reading of implicit contents and moral of self By Di Giovanni Parisio; Bianchi Adele; Di Giovanni Eugenio
  6. A Theory of Reference-Dependent Behavior By Jose Apesteguia; Miguel A. Ballester
  7. Learning Strict Nash Equilibria through Reinforcement By Antonella Ianni
  8. "Behavioral Aspects of Implementation Theory" By Hitoshi Matsushima
  9. Substitution Between (and Motivations for) Charitable Contributions: An Experimental Study By David Reinstein
  10. The Dynamic Interplay of Inequality and Trust - An Experimental Study By Ben Greiner; Axel Ockenfels; Peter Werner
  11. Fair ultimatum: an experimental study of the Myerson value By Noemí NAVARRO; Róbert VESZTEG
  12. Reputation, Social Identity and Social Conflict By John Smith
  13. Deception through telling the truth?! Experimental evidence from individuals and teams By Matthias Sutter

  1. By: Valentin Kvist, Ann (Göteborg University); Gustafsson, Jan-Eric (Göteborg University)
    Abstract: According to Cattell’s (1987) Investment theory individual differences in acquisition of knowledge and skills are partly the result of investment of Fluid Intelligence (Gf) in learning situations demanding insights in complex relations. If this theory holds true Gf will be a factor of General Intelligence (g) because it is involved in all domains of learning. The purpose of the current study was to test the Investment theory, through investigating effects on the relation between Gf and g of differential learning opportunities for different subsets of a population. A second-order model was fitted with confirmatory factor analysis to a battery of 17 tests hypothesized to measure four broad cognitive abilities The model was estimated for three groups with different learning opportunities (N = 2358 Swedes, N = 620 European immigrants, N = 591 non-European immigrants), as well as for the total group. For this group the g Gf relationship was 0.83, while it was close to unity within each of the three subgroups. These results support the Investment theory.
    Keywords: Structure of intelligence; Cattell’s Investment theory; fluid Intelligence; general Intelligence
    JEL: J24 J61
    Date: 2007–06–27
  2. By: John Smith (Rutgers University-Camden)
    Abstract: In this paper we propose a theory of cognitive dissonance through imperfect memory. Cognitive dissonance is the tendency of a person to engage in self justification after a decision. We offer an interpretation of the single decision cognitive dissonance experiments: an agent has an unknown cost of effort and before the decision receives a private signal of the cost of effort, which is subsequently forgotten. Following the decision, the agent makes an inference regarding the content of this signal based on the publicly available information: the action taken and the wage paid. We explore the implications of this interpretation in a setting requiring a decision of effort in two periods. A preference for increasing payments naturally emerges from our model. With the auxiliary assumption that obtaining wage income requires an unknown cost of effort and obtaining rental income requires a known, zero cost of effort, our results provide an explanation for the experimental findings of Loewenstein and Sicherman (1991). These authors find evidence of stronger preferences for increasing "income from wages" rather than "income from rent." Our model makes the novel prediction that this preference for increasing payments will only occur when the contracts are neither very likely nor very unlikely to cover the cost of effort.
    Keywords: Cognitive Dissonance, Increasing Payments, Imperfect Memory, Imperfect Recall, Self-Perception Theory
    JEL: C73 D81
    Date: 2007–08–15
  3. By: Ulrich Horst (University of British Columbia); Alan Kirman (GREQAM, EHESS, Universite Aix-Marseille III, IUF); Miriam Teschl (College, University of Cambridge)
    Abstract: The original Homo Economicus has progressed from an atomistic and self-interested individual to a socially embedded agent in modern economics. In particular, social interaction models suggest that the individual’s own utility of undertaking an action may be influenced by the number of peers taking this same action. Hence, people gain by conforming to, or differentiating their behaviour from that of others. A number of papers have also suggested why people want to conform. In particular, Akerlof and Kranton (2000, 2002, 2005) suggest that people belong to certain groups and wish to adopt the corresponding social identity by behaving according to the behavioural prescriptions of these groups. In this paper, we present a social interaction model that is based on a different account of identity. The concept of identity used here is on a more personal level and suggests that people have desired self-images of themselves that they wish to attain at some time in the future. Hence, individuals aim to transform their current individual characteristics into those of their self-image. They try to achieve this by joining social groups and adopting the typical characteristics of these groups. However, groups will be modified over time by the people joining them. This may induce individuals to revise their previous choices and eventually to move on and to choose different groups. The model thus presents an endogeneous interaction structure and offers an account of endogenous group formation as well as an endogenous evolution of personal identity. We further study in what sense and under what conditions the dynamics at the individual and at the social level will reach an “equilibrium” and what the nature of such an equilibrium is.
    Keywords: Economic agent, social interaction, conformity, personal identity, self-image, change
    JEL: D01 D63 Z13
    Date: 2007–09
  4. By: Benoît, Jean-Pierre; Dubra, Juan
    Abstract: Many studies have shown that people display an apparent overconfidence. In particular, it is common for a majority of people to describe themselves as better-than-average. The literature takes for granted that this better-than-average is problematic. We argue, however, that, even accepting these studies on their own terms, there is nothing at all wrong with a strict majority of people rating themselves above the median.
    Keywords: Overconfidence; Irrationality; Signalling Models; Better than average.
    JEL: D83 D12 D11
    Date: 2007–10–27
  5. By: Di Giovanni Parisio; Bianchi Adele; Di Giovanni Eugenio
    Abstract: The research concerns self-monitoring psychological processes and aims to verify two hypothesises: that there is difference in the theories on Self in HSM and LSM, and that the HSMs are more able implicit readers than the LSMs. The 18 item SMS was administered to 86 people, who had also undergone the implicit reading test. HSM and LSM were then thoroughly studied with further implicit reading trials and by means of dilemmas intended to explore their implicit theories of self. The HSMs read more implicits, in a livelier way, and with less fatigue. The dilemmas show differences in the structure of the self and above all in the moral conviction of self.
    Date: 2006–12
  6. By: Jose Apesteguia; Miguel A. Ballester
    Abstract: Extensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Lastly, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior.
    Keywords: Individual rationality, reference-dependence, rationalization, path independence, status-quo bias, addiction, habit formation, LeeX
    JEL: A12 B41 D11
    Date: 2007–10
  7. By: Antonella Ianni
    Abstract: This paper studies the analytical properties of the reinforcement learning model proposed in Erev and Roth (1998), also termed cumulative reinforcement learning in Laslier et al. (2001). The stochastic model of learning accounts for two main elements: the Law of Effect (positive reinforcement of actions that perform well) and the Power Law of Practice (learning curves tend to be steeper initially). The paper establishes a relation between the learning process and the underlying deterministic replicator equation. The main results show that if the solution trajectories of the latter converge su¢ ciently fast, then the probability that all the realizations of the learning process over a given spell of time, possibly infinite, becomes arbitrarily close to one, from some time on. In particular, the paper shows that the property of fast convergence is always satisfied in proximity of a strict Nash equilibrium. The results also provide an explicit estimate of the approximation error that could prove to be useful in empirical analysis.
    JEL: C72 C92 D83
    Date: 2007
  8. By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo)
    Abstract: This paper incorporates behavioral economics into implementation theory. We use mechanisms that are strictly detail-free. We assume that each agent dislikes telling a white lie when such lying does not serve her/his material interest. We present a permissive result wherein by using just a single detail-free mechanism, any alternative can be uniquely implemented in iterative dominance as long as the agents regard this alternative as being socially desirable.
    Date: 2007–10
  9. By: David Reinstein
    Abstract: I run a series of laboratory experiments to estimate and describe the extent to which an individual’s charitable donation to one cause displaces his or her giving to another cause. The experiments also investigate motivations for giving, including the simple warm-glow and public-goods models, and the desire for influence, reputation, and normalizing behavior. In the first wave of experiments I allow 49 subjects to donate or keep any amount of their $10 "endowment" to any of three charities in each of six stages (with one stage randomly chosen for payments). Some of the stages include "shocks" (to certain charities), such as an expanded choice set, a higher "match" rate, and a promotional video. The second wave of experiments (48 subjects) has 13 stages, a larger set of treatments, and a $20 "endowment". All of the treatments have the hypothesized effect on giving, including the "price" shock; in contrast to previous experiments, the subjects exhibit price-elastic demand. Subjects also give significantly more when their decisions and identity are observed. The results demonstrate that "expenditure substitution" among charities can be seen in a laboratory setting. I find large own-price elasticities and very large cross-price elasticities - these charities are gross substitutes in the conventional sense. The substitution is stronger where the charities serve similar purposes, such as UNICEF and Care. In the "reduced form" model, using instrumental variables estimation, I estimate an expenditure substitution coefficient of 37% - when gifts to one charity are increased (or decreased) by a certain amount because of a shock, the sum of gifts to other charities decreases by 37% of this amount. The conditional-on-positive estimate of this substitution is 80%: where gifts to both charities remain positive, the "crowding out" is $0.80 for every $1.
    Date: 2007–10–22
  10. By: Ben Greiner; Axel Ockenfels; Peter Werner
    Abstract: We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.
    Keywords: inequality, trust, growth, laboratory experiments
    JEL: C73 C92 D63 E25 O15
    Date: 2007–10–12
  11. By: Noemí NAVARRO; Róbert VESZTEG
    Abstract: We conduct a laboratory experiment to test the empirical behavior of the bid-and-propose mechanism, defined in Navarro and Perea (2005). This mechanism implements the Myerson value for networks, and therefore its outcome posesses fairness properties. Since the bid-and-propose mechanism includes an ultimatum game in the last stage, we design an experiment with several treatments, where subjects also play the simple ultimatum game. In order to check whether subjectsbehave fairly in the sense of Myerson or they are inequity averse, we compare resultsfrom games with symmetric and asymmetric outside options.
    Keywords: experiments; fairness; Myerson value; ultimatum game
    JEL: C72 C91 D63
    Date: 2007–08
  12. By: John Smith (Rutgers University-Camden)
    Abstract: We interpret the psychology literature on social identity and examine its implications in a population partially composed of such agents. We model a population of agents from two exogenous and well defined social groups. Agents are randomly matched to play a reduced form bargaining game. We show that this struggle for resources drives a conflict through the rational destruction of surplus. We assume that the population contains both rational players and behavioral players. Behavioral players aggressively discriminate against members of the other social group. The existence and specification of the behavioral player is motivated by the social identity literature. For rational players, group membership has no payoff relevant consequences. We show that rational players can contribute to the conflict by aggressively discriminating and that this behavior is consistent with existing empirical evidence. Our paper relates to the empirical literature which finds that our measure of social heterogeneity tends to be increasing in economic variables which we interpret as signifying inefficiency. We provide an explanation that, as social groups compete for the benefits of public goods, disagreement and inefficiency can result. Our work also relates to the social conflict literature, which examines the relationship between macro level factors such as unemployment and civil disturbances. This literature finds that the amount of social conflict tends to be increasing in what we refer to as the inequitability of the environment.
    Keywords: reputation, conflict, identity
    JEL: C72 D74 L14
    Date: 2007–10–14
  13. By: Matthias Sutter
    Abstract: Informational asymmetries abound in economic decision making and often provide an incentive for deception through telling a lie or misrepresenting information. In this paper I use a cheap-talk sender-receiver experiment to show that telling the truth should be classified as deception too if the sender chooses the true message with the expectation that the receiver will not follow the sender’s (true) message. The experimental data reveal a large degree of ‘sophisticated’ deception through telling the truth. The robustness of my broader definition of deception is confirmed in an experimental treatment where teams make decisions.
    Keywords: Deception, Expectations, Team decision making, Individual decision making, Experiment
    JEL: C72 C91 D82
    Date: 2007–10–23

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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