nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒11‒10
sixteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. An Experimental Test of Advice and Social Functioning By Bogachan Celen; Shachar Kariv; Andrew Schotter
  2. Endogenous Cognitive Types: An Experimental Study By Elizabeth Potamites; Andrew Schotter
  3. Imitation and Luck: An Experimental Study on Social Sampling By Theo Offerman; Andrew Schotter
  4. Cognition and Strategy: A Deliberation Experiment By Eric Dickson; Catherine Hafer; Dimitri Landa
  5. Do Participants and Observers Assess Intentions Differently During Bargaining and Conflict? By Eric S. Dickson
  6. Another experimental look at reciprocal behavior: indirect reciprocity By Bonein Aurélie; Serra Daniel
  7. An Experimental Approach to Comparing Trust in Pastoral and Non-Pastoral Australia By Ryan R.J. McAllister; Andrew F. Reeson
  8. Tax Evasion: Cheating Rationally or Deciding Emotionally? By Giorgio Coricelli; Mateus Joffily; Claude Montmarquette; Marie-Claire Villeval
  9. Public Opinion Polls, Voter Turnout, and Welfare: An Experimental Study By Jens Großer; Arthur Schram
  10. A Note on Skewness Seeking: An Experimental Analysis By Tobias Broenner; Rene Levinsky; Jianying Qiu
  11. When does a referent problem affect willingness to pay for a public good? By Nicolao Bonini; Ilana Ritov; Michele Graffeo
  12. Belief Formation and Evolution in Public Good Games. By Jaromir Kovarik
  13. The Hidden Costs of Control: An Unsuccessful Replication Study By Matteo Ploner; Anthony Ziegelmeyer
  14. Uncertainty and Organization Design By Avner Ben-Ner; Fanmin Kong; Stephanie Lluis
  15. What Does Economics Assume About People’s Knowledge? Who knows? By António Caleiro
  16. Novelty and the Bounds of Unknowledge in Economics By U. Witt

  1. By: Bogachan Celen (Columbia Business School); Shachar Kariv (Department of Economics, University of California, Berkeley); Andrew Schotter (Department of Economics, New York University)
    Abstract: Social learning is the process of individuals learning by observing the actions of others. In the real world, however, although people learn by observing the actions of others, they also learn from advice. This paper introduces advice giving into a standard social-learning problem. The experiment is designed so that both pieces of information ? actions and advice ? are equally informative (in fact, identical) in equilibrium. Despite the informational equivalence of advice and actions, in the laboratory, subjects are more willing to follow the advice given to them by their predecessors than to copy their actions. In addition, when advice is given subject behavior is more consistent with the prediction of the theory. Consequently, advice is both more informative and welfare improving.
    Keywords: Advice, Social Learning, Experiment
    JEL: C91 C92 D8
    Date: 2007–02–15
  2. By: Elizabeth Potamites; Andrew Schotter (Department of Politics, New York University)
    Abstract: A reading of the literature on cognitive hierarchies leaves the impression that a subject's type is predetermined before he comes into the lab so that the distribution of types is exogenous and immutable across games. In this paper we view the choice of a person's cognitive level as endogenous and explain it by focusing on subject's expectations about the cognitive levels endogenously chosen by others. We run a set of experiments using the 2/3rd?s guessing game where subjects receive public advice ordered by a set of advisors. We discover that certain types of public advice, those that are commonly interpreted as meaningful, are capable of shifting the distribution of observed cognitive types indicating that the distribution is endogenous.
    Keywords: Beauty Contest, Cognitive Types, Cognitive Hierarchies
    JEL: C72 C91
    Date: 2007–04
  3. By: Theo Offerman (University of Amsterdam); Andrew Schotter (New York University)
    Abstract: In this paper, we present the results of two experiments on social sampling. In both experiments, people are asked to make a risky decision in a situation where an idiosyncratic luck term a?ects their performance. Before they make their decision, people have the opportunity to sample others who have done exactly the same problem before them. These previous participants are ranked on the basis of their success. In the first experiment, we find that, by and large, subjects sample and imitate lucky risk seekers, while they could have sampled others to retrieve information that is valuable to solve their problem rationally. The simple behavioral rule of imitating the best appears to be robust to the setting of the problem. In the second experiment, we find that subjects tend to imitate successful others in both the winner's curse version and the loser's curse version of the Bazerman-Samuelson takeover game. Because of the way these problems are constructed, imitation exacerbates the winner's curse while it alleviates the loser's curse. In all problems, social sampling makes people look more risk seeking than the people who do not have the opportunity to sample.
    Keywords: Imitation, Social Learning
    JEL: D83 C92
    Date: 2007–02–12
  4. By: Eric Dickson (Department of Politics, New York University); Catherine Hafer (Department of Politics, New York University); Dimitri Landa (Department of Politics, New York University)
    Abstract: A theory of deliberation must provide a plausible account both of individuals? choices to speak or to listen and of how they reinterpret their own views in the aftermath of deliberation. We describe a game-theoretic laboratory experiment in which subjects with diverse interests and information choose to speak or to listen and, after updating their beliefs, vote over a common outcome. An important feature of our strategic setting is that not receiving a specific communication is sometimes just as informative as receiving it. We analyze subjects? deliberative choices and the relationship between these choices, subjects? initial positions and arguments, and individual cognition. Our evidence shows that, although subjects behave instrumentally, their behavior reveals the existence of a cognitive hierarchy defined by differing abilities to grasp the strategic implications of different kinds of information. We trace the consequences of these underlying cognitive differences for individual deliberative choices and for the informativeness of deliberation.
    JEL: C92 D83 C12
    Date: 2007–11
  5. By: Eric S. Dickson (Department of Politics, New York University)
    Abstract: Political actors in settings of bargaining and conflict often find themselves uncertain about the motives of their counterparts. This paper explores the psychology of motive assessment using a novel experimental design involving imperfect-information versions of the ultimatum and dictator bargaining games. Subjects are randomly assigned to one of three roles { the traditional proposer and recipient roles in these games, and a novel impartial observer role. Recipients and observers are given identical, but ambiguous, information about proposers' offers, and make post-play assessments of proposers' intentions that are rewarded based on accuracy. When uncertainty is sufficiently high, recipients' assessments of proposers' intentions are significantly lower than observers' assessments in the ultimatum game, in stark contrast to Bayesian predictions, but there is no evidence of any difference in the dictator game. The results suggest that individuals' perceptions can be directly affected by the set of strategic alternatives they possess, independent of access to information. One interpretation is that the power to accept or reject may prime individuals to be more critical or negative in forming assessments than they otherwise would be. If correct, this interpretation has important implications for theories of bargaining and con?ict, and for the design of institutions for conflict resolution.
    Keywords: Role-dependent Beliefs, Imperfect Information, Ultimatum Game, Dictator Game
    JEL: C91 D81 D82 D83 C78
    Date: 2007–02
  6. By: Bonein Aurélie; Serra Daniel
    Abstract: This paper highlights a new social motivation, the indirect reciprocity, through a three-player dictator-ultimatum game. Player 2 has the opportunity to reward or punish indirectly the player 1 by inciting – with her offer - player 3 to accept or to reject the division. We implement three treatments: in the first two we vary player 2’s available information whereas in treatment 3, players take part in a dictator game - as proposers - before being player 2s in the dictatorultimatum game. Results show that 55% of subjects in treatment 2 and 28% in treatment 3 behave as indirect reciprocity predicts. Another reciprocal behavior - the generalized reciprocity - is investigated through a three-player dictator game. Our data show that 80% of players 2 act according to this reciprocal behavior. Finally, our findings confirm that the more complex the strategic interaction becomes the more self-regarding behavior is likely and the less otherregarding behaviors, such as reciprocity, dominate.
    Date: 2007–04
  7. By: Ryan R.J. McAllister; Andrew F. Reeson (CSIRO Sustainable Ecosystems, Australia)
    Abstract: It is generally held that rural Australians are more cooperative in character than their urban counterparts. To explore one aspect of this notion, we conducted an experiment which compared trust and trustworthiness among a sample of Australian senior high school students which included students with both pastoral and non-pastoral backgrounds. While student behaviour is unlikely to mimic adult behaviour, any significant differences between pastoral and non-pastoral students would suggest differences do exist between the social norms that guide pastoral and non-pastoral communities. We repeated our experiment at three different schools containing students from both pastoral and non-pastoral backgrounds, allowing us to draw comparisons. In total 78 students participated. Our experiments were based on similar experiments that have been applied across a range of contexts internationally (trust game/investment game). We did not find evidence of differences between students with pastoral and non-pastoral backgrounds, either in the level of trust in others or in trustworthiness, though our methods probably have a bias towards this conclusion. Our results concurred with other studies in showing that social distance is an important determinant of the level of cooperation.
    Keywords: rural urban relations, economic behaviour, culture, arid zones, semiarid zones, pastoral society
    JEL: R00 C91 P25 A13
    Date: 2007–09
  8. By: Giorgio Coricelli (CNRS); Mateus Joffily (CNRS); Claude Montmarquette (CIRANO, University of Montréal); Marie-Claire Villeval (CNRS-GATE, University of Lyon and IZA)
    Abstract: The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance.
    Keywords: tax evasion, emotions, neuro-economics, physiological measures, shame, experiments
    JEL: C91 C92 D87 H26
    Date: 2007–10
  9. By: Jens Großer; Arthur Schram
    Abstract: We experimentally study the impact of public opinion poll releases on voter turnout and welfare in a participation game. We find higher turnout rates when polls inform the electorate about the levels of support for various candidates than when polls are prohibited. Distinguishing between allied and floating voters, our data show that this increase in turnout is entirely due to floating voters. Very high turnout is observed when polls indicate equal support levels for the candidates. This has negative consequences for welfare. Though in aggregate social welfare is hardly affected, majorities benefit more often from polls than minorities. Finally, our comparative static results are better predicted by quantal response (logit) equilibrium than by Bayesian Nash equilibrium.
    Keywords: laboratory experiments.
    JEL: C92
    Date: 2007–09
  10. By: Tobias Broenner (Institut zur Erforschung der wirtschaftlichen Entwicklung, Albert-Ludwigs-Universitaet Freiburg); Rene Levinsky (Max Planck Institute of Economics, Jena); Jianying Qiu (Max Planck Institute of Economics, Jena)
    Abstract: In this paper we experimentally test skewness seeking at the individual level. Several prospects that can be ordered with respect to the third-degree stochastic dominance (3SD) criterion are ranked by the participants of the experiment. We ï¬nd that the skewness of a distribution has a signiï¬cant impact on the decisions. Yet, while skewness has an impact, its direction differs substantially across subjects: 39% of our subjects act in accordance with skewness seeking and 10% seem to avoid skewness. On the level of individual decisions we ï¬nd that the variance of the prospects and subjects’ experience increase the probability of their choosing the lottery with greater skewness.
    Keywords: Skewness, Stochastic dominance, Decision making under uncertainty
    JEL: D81 C91 G11
    Date: 2007–11–01
  11. By: Nicolao Bonini; Ilana Ritov; Michele Graffeo
    Abstract: In two studies we examined the willingness to support action to remedy a public problem. In Study 1 people were asked whether they would financially contribute to solution of a public problem. In Study 2, people were asked whether they would sign a petition to support a public action. The aim was to test whether the willingness to support solution of a public problem is affected by the type of problem that is used as the referent. We hypothesized that the willingness to support a public action is lower when evaluated in the context of a high - as opposed to a low - importance referent problem (importance contrast effect). We also hypothesized that the importance contrast effect is tied to the perceived relatedness between the target and referent problems. The importance contrast effect should be found only when the two problems relate to different category domains. The findings bear out this prediction.
    Keywords: Willingness to support, joint evaluation, referent problem, category-bound thinking.
    JEL: C92
    Date: 2007–09
  12. By: Jaromir Kovarik
    Abstract: We analyze first-order beliefs in a variation of the Public Good Game. We show that (1) the role that belief elicitation plays in the experiment affects both the contribution behavior and beliefs, and (2) framing influences stated beliefs, as much as contribution behavior. In the second part of the paper, we study the role of heterogeneity in the formation of initial beliefs, and provide an empirical model of the belief up-dating process. Subjects use the past experience, stressing the role of experience that comes from situations similar to the current ones.
    Keywords: Beliefs, Public Good, Framing, Experiment, (Belief) Learning
    JEL: C91 D83 D84 H40
    Date: 2007–09
  13. By: Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group); Anthony Ziegelmeyer (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: This note reports a replication study of Falk and Kosfeld’s (2006) medium control treatment. In the experimental game, an agent has an endowment of 120 experimental currency units and decides how much to transfer to a principal. For every unit that the agent gives up, the principal receives two units. Before the agent decides how much to transfer voluntarily, the principal decides whether or not to control the agent by imposing a compulsory transfer of 10 units. Like the original study, we observe that control entails hidden costs. Unlike the original study, we do not observe that the hidden costs of control outweigh the beneï¬ts and we observe that most of the principals decide to control the agent.
    Keywords: Control, Experimental Economics, Incentives, Intrinsic Motivation, Trust.
    JEL: C91 M52
    Date: 2007–10–30
  14. By: Avner Ben-Ner; Fanmin Kong; Stephanie Lluis
    Abstract: The task environment, characterized by the degree of complexity, variability, and routine of workers’ tasks, creates varying degrees of asymmetric information between workers and their supervisors, as well as poses varying degrees of difficulty for supervisors and workers in making correct decisions. Thus the task environment generates internal uncertainty, some of which is under the control of workers, in contrast with external uncertainty, which arises from the market and is beyond their control. The measures that address problems associated with internal uncertainty (including incentives, delegation of decision-making to workers, monitoring by supervisors and internal labor markets) are elements of organization design. We explore theoretically and empirically the relationship between uncertainty and organization design, expanding on Baker and Jorgensen’s (2003) idea that the risk-incentives relationship depends on the nature and sources of risk and Prendergast’s (2002a) idea that incentive pay is not a direct response to a firm’s task attributes but is part of a broader organization design that includes additional complementary and substitutable elements.
  15. By: António Caleiro (Department of Economics, University of Évora)
    Abstract: The purpose of the paper is to explore, from an assessment viewpoint, the ideas below. Economics, as a social science, has always considered sets of individuals with assumed characteristics, namely the level of knowledge, although in an implicit way in most of the cases. In this sense, an influential approach in Economics assumed that society, as a global set of individuals, was characterised by a certain level of knowledge that, indeed, could be associated with the one of its representative agent. In fact, an attentive recall of the evolution of these matters in Economics will immediately recognise that, since the very first economic models of the government, it was assumed that the level of knowledge of society, represented by a set of voters, was not the same as the one of the agent being elected, i.e. the government. The irrelevance of the difference in the level of knowledge of economic agents was soon abandoned after some seminal works of Hayek and Friedman. More recently, the viewpoint of Economics has changed by focusing on the characteristics (e.g. knowledge) of individuals, who may interact in sub-sets of society. From this point of view is clearly relevant, given the close connection with the assumed level of knowledge, to distinguish the adaptive behaviour from the rational one, as well as the full rational from the bounded rationality behaviour by people. Quite recent developments in the Economics of Knowledge, i.e. the so-called learning models, have been considered as more realistic approaches to model the process by which individuals acquire knowledge, for instance from other individuals that are, themselves, acquiring knowledge.
    Keywords: Bounded Rationality, Economics of Knowledge, Knowledge, Learning, Rationality
    JEL: A12 B41 C91 D83
    Date: 2007
  16. By: U. Witt
    Abstract: The emergence of novelty is a driving agent for economic change. New technologies, new products and services, new institutional arrangements, to mention a few examples, are the backbone of development and growth. Important though it is, the emergence of novelty is not well understood. What seems to be clear, however, is that it implies “bounds of unknowledge” (Shackle) that impose epistemological and methodological constraints on economic theorizing. In this paper, the problems will be examined, possibilities for positively theorizing about novelty will be explored, and the methodological consequences for causal explanations and the modeling of economics dynamics will be discussed.
    Keywords: novelty, epistemic bounds, causation, dynamical systems, economic change, evolution Length 20 pages
    JEL: B41 C61 D83 O30 O31
    Date: 2007–11

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