nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒11‒24
fourteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Three Very Simple Games and What It Takes to Solve Them By Ondrej Rydval; Andreas Ortmann; Michal Ostatnicky
  2. Noise and Bias in Eliciting Preferences By John D. Hey; Andrea Morone; Ulrich Schmidt
  3. The Focusing and Informational Effects of Norms on Pro-Social Behavior By Erin Krupka; Roberto A. Weber
  4. Testing Bounded Rationality against Full Rationality in Job Changing Behavior By Bruno Contini; Matteo Morini
  5. Feedback in Tournaments under Commitment Problems: Theory and Experimental Evidence By Oliver Gürtler; Christine Harbring
  6. Non-Cognitive Child Outcomes and Universal High Quality Child Care By Nabanita Datta Gupta; Marianne Simonsen
  7. Multiagent System Platform for Auction Simulations By Alan Mehlenbacher
  8. The Minnesota Income Tax Compliance Experiment: Replication of the Social Norms Experiment By Coleman, Stephen
  9. A Mathematical Representation of “Excitement†in Games from the Viewpoint of a Neutral Audience By Kumagai, Satoru
  10. Cumulative prospect theory and second order stochastic dominance criteria: an application to mutual funds performance By Giuseppe De Nadai; Paolo Pianca
  11. Risk, Ambiguity, and the Klibanoff Axioms By Kin Chung Lo
  12. Affective Decision Making: a Behavioral Theory of Choice By Anat Bracha; Donald J Brown
  13. The Fetters of the Sib: Weber Meets Darwin By Ingela Alger; Jörgen W. Weibul
  14. Learning: What and How? An Empirical Study of Adjustments in Human Resource Systems By Avner Ben-Ner; Stephanie Lluis

  1. By: Ondrej Rydval (Max Planck Institute of Economics, Jena, Germany, and CERGE-EI); Andreas Ortmann (CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic); Michal Ostatnicky (CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic)
    Abstract: We study the nature of dominance violations in three minimalist dominance-solvable guessing games, featuring two or three players choosing among two or three strategies. We examine how subjects' reported reasoning translates into their choices and beliefs about others' choices, and how reasoning and choices relate to their measured cognitive and personality characteristics. Only about a third of our subjects reason in accord with dominance; they always make dominant choices and almost always expect others to do so. By contrast, around 60% of subjects describe reasoning processes inconsistent with dominance, yet a quarter of them actually make dominant choices and a fifth of them expect others to do so. Dominance violations seem to arise mainly due to subjects misrepresenting the strategic nature of the guessing games. Reasoning errors are more likely for subjects with lower ability to maintain and allocate attention, as measured by working memory, and for subjects with weaker intrinsic motivation and premeditation attitudes.
    Keywords: cognition, bounded rationality, beliefs, guessing games, experiment
    JEL: C72 C92 D83
    Date: 2007–11–21
  2. By: John D. Hey; Andrea Morone; Ulrich Schmidt
    Abstract: In the context of eliciting preferences for decision making under risk, we ask the question: “which might be the ‘best’ method for eliciting such preferences?”. It is well known that different methods differ in terms of the bias in the elicitation; it is rather less well-known that different methods differ in terms of their noisiness. The optimal trade-off depends upon the relative magnitudes of these two effects. We examine four different elicitation mechanisms (pairwise choice, willingness-to-pay, willingness-to-accept, and certainty equivalents) and estimate both effects. Our results suggest that economists might be better advised to use what appears to be a relatively inefficient elicitation technique (i.e. pairwise choice) in order to avoid the bias in better-known and more widely-used techniques.
    Keywords: pairwise choice, WTP, WTA, errors, noise, biases
    JEL: C91 C81
    Date: 2007–11
  3. By: Erin Krupka (IZA); Roberto A. Weber (Carnegie Mellon University)
    Abstract: This paper reports an experiment examining the effect of social norms on pro-social behavior. We test two predictions derived from work in psychology regarding the influence of norms. The first is a "focusing"influence, whereby norms only impact behavior when an individual’s attention is drawn to them; and the second is an "informational" influence, whereby a norm exerts a stronger impact on an individual the more others he observes behaving consistently with that norm. We find support for both effects. Either thinking about or observing the behavior of others produces increased pro-social behavior - even when one expects or observes little pro-social behavior on the part of others - and the degree of prosocial behavior is increasing in the actual and expected pro-social behavior of others. This experiment eliminates strategic influences and thus demonstrates a direct effect of norms on behavior.
    Keywords: norms, pro-social behavior, experiments, dictator game
    JEL: D63 C91
    Date: 2007–11
  4. By: Bruno Contini (University of Torino, LABORatorio R. Revelli and IZA); Matteo Morini (University of Torino, LABORatorio R. Revelli)
    Abstract: In this paper we question the hypothesis of full rationality in the context of job changing behaviour, via simple econometric explorations on microdata drawn from WHIP (Worker Histories Italian Panel). Workers’ performance is compared at the end of a three-year time window that starts when choices are expressed, under the accepted notion that the main driving forces of job change are future real wages and expected job quality. Bounded rationality suggests that individuals will search for new options capable to attain "satisfactory" targets (aspirations levels, standards, norms), based on conditions prevailing in their own local environments. Our empirical strategy consists of appropriately defining such environments (cells) and observing the ex-post individual performance in relation to the degree of dispersion, clustering and mobility within and between cells. Under full rationality the following are to be expected: high inter-cell mobility, large dispersion around the targets, and clustering in the vicinity of the efficiency frontier. None of the above expectations are confirmed in this exploration. Our conclusion is that workers behave according to principles of rationality that seem distant from those of "full rationality" assumed in the vast majority of contemporary empirical (and theoretical) studies. The idea of "bounded rationality" à la Simon provides a better fit to our observations.
    Keywords: bounded rationality, job changes, mobility, testing bounded rationality
    JEL: J0 J6 J69
    Date: 2007–11
  5. By: Oliver Gürtler (University of Bonn); Christine Harbring (University of Cologne and IZA)
    Abstract: In this paper, we analyze a principal's optimal feedback policy in tournaments. We close a gap in the literature by assuming the principal to be unable to commit to a certain policy at the beginning of the tournament. Our analysis shows that in equilibrium the principal reveals intermediate information regarding the agents’ previous performances if these performances are not too different. Moreover, we investigate a situation where the principal is not able to credibly communicate her information. Having presented our formal analysis, we test these results using data from laboratory experiments. The experimental findings provide some support for the model.
    Keywords: tournament, commitment problems, feedback, experiment
    JEL: C91 D83 J33 M52
    Date: 2007–10
  6. By: Nabanita Datta Gupta (Danish National Centre for Social Research and IZA); Marianne Simonsen (University of Aarhus)
    Abstract: Exploiting a rich panel data child survey merged with administrative records along with a pseudo-experiment generating variation in the take-up of pre-school across municipalities, we provide evidence of the effects on non-cognitive child outcomes of participating in large scale publicly provided universal pre-school programs and family day care vis-à-vis home care. We find that, compared to home care, being enrolled in pre-school at age three does not lead to significant differences in child outcomes at age seven no matter the gender or mother’s level of education. Family day care, on the other hand, seems to significantly deteriorate outcomes for boys whose mothers have a lower level of education. Finally, increasing hours in family day care from 30-40 hours per week to 40-50 hours per week and hours in pre-school from 20-30 hours per week to 30-40 hours per week leads to significantly poorer child outcomes.
    Keywords: non-cognitive outcomes, publicly provided universal child care, pseudo-experiment
    JEL: J13 J18
    Date: 2007–11
  7. By: Alan Mehlenbacher (Department of Economics, University of Victoria)
    Abstract: I have developed a multiagent system platform that provides a valuable complement to the alternative auction research methods. The platform facilitates the development of heterogeneous agents and provides an experimental environment that is under the experimenter's complete control. Simulations with alternative learning methods results in impulse balance learning as the most promising approach for auctions.
    Keywords: Axiomatic bargaining, resource monotonicity, transferable utility, risk aversion; Agent-based computational economics, agent learning
    JEL: C71 D13 D63 C15 C72 D83
    Date: 2007–11–19
  8. By: Coleman, Stephen
    Abstract: This research note reports the results of a follow-up experiment conducted to validate an earlier experiment showing that if taxpayers overestimate the prevalence of tax evasion, their voluntary compliance can be increased by informing them about the true rate of cheating. The result confirms that tax compliance is influenced partly by social conformity with perceived social norms against cheating. The experiments were done by the Minnesota Department of Revenue in 1995 and 1996, but only the first experiment has been publicly reported to date (Coleman, 1996).
    Keywords: Tax compliance; experiment; social norms; social conformity
    JEL: C9 Z1 H2 H26
    Date: 2007–11
  9. By: Kumagai, Satoru
    Abstract: Researchers have long believed the concept of “excitement†in games to be subjective and difficult to measure. This paper presents the development of a mathematically computable index that measures this concept from the viewpoint of an audience. One of the key aspects of the index is the differential of the probability of “winning†before and after one specific “play†in a given game. If the probability of winning becomes very positive or negative by that play, then the audience will feel the game to be “exciting.†The index makes a large contribution to the study of games and enables researchers to compare and analyze the “excitement†of various games. It may be applied to many fields especially the area of welfare economics, ranging from allocative efficiency to axioms of justice and equity.
    Keywords: Game, Game system, Excitement, Mathematics
    JEL: C69 D63
    Date: 2007–10
  10. By: Giuseppe De Nadai (Department of Applied Mathematics, University of Venice); Paolo Pianca (Department of Applied Mathematics, University of Venice)
    Abstract: In this note using the rules of stochastic dominance of the second order and the recent cumulative prospect theory for classified, according to their performance, a set of common funds. The criteria used are closely linked to the preferences of decision maker and refer to either hypothesis of aversion and of seeking to risk both hypothesis on the sign of derived second of the function which characterizes the losses and gains.
    JEL: G11 C44 C63
    Date: 2007–10
  11. By: Kin Chung Lo (Department of Economics, York University)
    Abstract: Machina (2007) formulates a number of experiments, and shows that they can be used to test the Choquet expected utility model. We show that one of them can also be used to test the class of maxmin expected utility preferences in Klibanoff (2001). Those preferences are not Choquet expected utility preferences, and they are not consistent with Choquet expected utility preferences in Machina’s experiment.
    Keywords: Choquet expected utility,Ellsberg Paradox,Maxmin expected utility,Stochastic independence,Uncertainty
    JEL: D81
    Date: 2007–11
  12. By: Anat Bracha; Donald J Brown
    Date: 2007–11–15
  13. By: Ingela Alger (Department of Economics, Carleton University); Jörgen W. Weibul
    Abstract: We analyze the effects of family ties - "the fetters of the sib" - on the incentives for productive effort. A family is here modelled as a pair of mutually altruistic siblings. Each sibling exerts effort, or makes an investment, to produce output under uncertainty, and siblings may transfer output to each other. We show that altruism has a non-monotonic effect on effort. Equilibrium effort decreases (increases) with altruism at low (high) levels of altruism. We study how this effect depends on climate,the magnitude and volatility of returns to effort. We also analyze the evolutionary robustness of family ties and how this robustness depends on climate. We find that family ties will be stronger in milder climates than in harsher climates, and that the evolutionarily robust degree of altruism is positive but less than one half. Decreased protection of property rights increases the evolutionarily robust degree of altruism.
    Date: 2007–11–13
  14. By: Avner Ben-Ner; Stephanie Lluis
    Abstract: What information do firms use when they design their organizational structure? How do they learn what direction they should take? Generally, firms may learn from their own experiences and outcomes, as well as those of other firms. In the economics literature, learning from these sources has been investigated in conjunction with three theoretical strands: learning-by-doing, matching theory, and social learning. We construct a conceptual framework that incorporates these three strands and develop hypotheses about the effects of various factors on learning about adjusting one important element of organizational structure, the human resources system. We concentrate on four systems: traditional (the simplest system), decision-making oriented, financial-incentives oriented, and high-performance (the most complex system). The hypotheses regard (1) the effects of learning-by-doing on adoption of more or less complex systems, (2) the shape of the performance-experience learning curves associated with different systems, (3) the match between perceived organizational capabilities and the degree of complexity of human resource systems, (4) the influence of other firms‘ systems and the performance associated with them on a firm‘s adjustment of its system, (5) the effect of a firm‘s location on its adjustment decisions, and (6) the effects of various factors on the speed with which firms adjust their systems. We use a unique panel dataset of firms in Minnesota and obtain a rich set of findings: organizational learning is multifaceted; learning by doing one system helps with other systems; we replicate the famous learning curve only for the complex human resources system; firms use changes in their performance as signals of their capabilities; and firms learn from other firms‘ experiences. Larger and higher-wage firms learn faster to cope with complex systems, older firms learn slower, and firms located near a major metropolitan center adjust faster to more complex systems. JEL classification: D83, L25, M54
    Keywords: Learning-by-doing, Matching, Social learning, Organizational Adjustments, Human Resources

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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