nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒01‒05
sixteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Deception and Incentives: How Dishonesty Undermines Effort Provision By Florian Ederer; Ernst Fehr
  2. From Group Selection to Organizational Interactors By Geoffrey M. Hodgson; Thorbjørn Knudsen
  3. The effects of expectations on perception: experimental design issues and further evidence By Tyler Williams
  4. Self-Reputation and Perception of Reputation By Jung Hun Cho
  5. Cooperation, reciprocity and self-esteem: A theoretical approach By Marcello Basili; Maurizio Franzini
  6. Active decisions and pro-social behavior By Alois Stutzer; Lorenz Goette; Michael Zehnder
  7. Allais for All: Revisiting the Paradox By Huck, S.; Muller, W.
  8. Fear of the Unknown: Familiarity and Economic Decisions By Cao , Henry; Han, Bing; Hirshleifer, David; Zhang, Harold
  9. Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods By Blumkin, Tomer; Ruffle , Bradley J.; Ganun , Yosef
  10. Risk Aversion and Reservation Wages By Markus Pannenberg
  11. Selection into financial literacy programs: evidence from a field study By Stephan Meier; Charles Sprenger
  12. Coordination in the History of Economics By Klein, Daniel B.; Orsborn, Aaron
  13. Reducing intergroup prejudice and conflict with the media: A field experiment in Rwanda By Elizabeth Levy Paluck
  14. Social networks and vaccination decisions By Neel Rao; Markus M. Möbius; Tanya Rosenblat
  15. Lead Users as Facilitators of Knowledge Sharing in a Community Setting By Lars Bo Jeppesen; Keld Laursen
  16. “Parallel Worlds“. Clusters for a Theory of Concepts of Communications. Historical Intercultural and Cultural Comparative Studies in Perspectives of National and Transnational Constitutions, Values, Concepts, and Terms of ‘Communication’ - ‘Orality’ - ‘Literacy’ - ‘Rhetoric’ - ‘Media’. By Haase, Fee-Alexandra

  1. By: Florian Ederer (MIT); Ernst Fehr (University of Zurich and IZA)
    Abstract: In this paper we show that subtle forms of deceit undermine the effectiveness of incentives. We design an experiment in which the principal has an interest in underreporting the true performance difference between the agents in a dynamic tournament. According to the standard approach, rational agents should completely disregard the performance feedback of self-interested principals and choose their effort level as if they had not been given any information. However, despite substantial underreporting many principals seem to exhibit lying aversion which renders their feedback informative. Therefore, the agents respond to the feedback but discount it strongly by reducing their effort relative to fully truthful performance feedback. Moreover, previous experiences of being deceived exacerbate the problem and eventually reduce average effort even below the level that prevails in the absence of any feedback. Thus, both no feedback and truthful feedback are better for incentives than biased feedback.
    Keywords: deception, dishonesty, communication, cheap talk, dynamic tournaments
    JEL: D83 C92 M12
    Date: 2007–12
  2. By: Geoffrey M. Hodgson; Thorbjørn Knudsen
    Abstract: This paper builds on previous work within the conceptual framework of a generalized Darwinism that clarifies such concepts as selection and replication. One of its aims is to refine the concept of the interactor. An overview of the conditions under which group selection may occur helps us identify factors such as structural coherence that are useful in defining the interactor. This in turn leads to the question of selection on multiple levels. An additional level of replication emerges when we consider routines within organizations and the social positions related to them. The analysis here establishes that social organizations including business firms are often interactors. Such organizations are more than simply groups because of the existence of routines and social positions. Accordingly, to understand firms and other organizations, we need more that a “dual inheritance” theory; we have to consider the replication of social positions and routines as well.
    Keywords: group selection, interactors, organizations, firms, cultural evolution Length 30 pages
    Date: 2007–12
  3. By: Tyler Williams
    Abstract: Numerous studies have found that top-down processes can affect perceptions. This study examines some of the issues involved in designing field experiments aimed at discovering whether top-down mental processes affect perceptions, and, if so, how the influence takes place. Lee, Frederick, and Ariely (2006) (LFA) attempt to go further by testing whether expectations affect perception directly, by altering how sensory receptors and/or the brain’s processing centers interpret a outside stimulus—or indirectly, for example, by changing the amount of attention paid to the outside stimulus. In order to test the robustness of the findings in LFA, this paper reports the results of a field experiment similar to the one analyzed in LFA. The field experiment, designed to address some potential confounding factors in this type of research, confirms that expectations can alter perceptions. However, it also shows that heterogeneity across individuals can play a role in determining the nature of this effect, a finding that complicates the interpretation of results such as those in LFA. To frame the analysis, this paper discusses the difficulties in designing this type of experiment, makes some improvements to existing designs, and suggests some ways of eliminating the confounding influences that remain.
    Keywords: Uncertainty
    Date: 2007
  4. By: Jung Hun Cho
    Abstract: This paper examines how the belief of decision maker regarding his ability to keep a resolution and his belief regarding what others think of him affect his actions. Higher self-reputation increases future payoff but higher perception of reputation can either increase or decrease it for an individual who has a strong ability to keep a resolution. However, both higher self-reputation and higher perception of reputation may not help increase future payoff for a decision maker who has a weak ability to resist temptation if he makes a resolution relatively easily in the second period. These results help to explain why some people ask for help or do not ask for help from friends to keep a resolution and why some people can or cannot sustain the resolution in the short run.
    Keywords: Self-control; self-reputation; time inconsistency.
    JEL: D71 D82 D83
    Date: 2007–11
  5. By: Marcello Basili; Maurizio Franzini
    Abstract: Cooperation occurs even where it is not predicted by economic theory, owing to what is widely recognized as too narrow a conception of self-interest. In particular, relying on plenty of experimental evidence, it has been maintained that agents adopt such a strong reciprocity rules in their behavior as make it worthwhile to punish those who defect or do not act fairly, costly though as this may be. We propose to lay the analytical foundation of such behavior – and more generally to cooperation-proneness – by considering self-esteem. Agents may include self-esteem in their utility (or goal) function and actually produce or destroy self-esteem through their behavior. This amounts to introducing a moral system in individual behavior in such a way as to make it amenable to rational maximization. We also show how the impact of self-esteem on the best contract in Principal-Agents situations and how such impact differs in Moral Hazard and Adverse Selection situations.
    Keywords: self-esteem, reciprocity, motivation, incentive, agency.
    JEL: J41 D64
    Date: 2007–11
  6. By: Alois Stutzer; Lorenz Goette; Michael Zehnder
    Abstract: In this paper, we propose a decision framework where people are individually asked to either actively consent to or dissent from some pro-social behavior. We hypothesize that confronting individuals with the choice of whether to engage in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences, while simultaneously involving a commitment. The hypothesis is tested in a large-scale field experiment on blood donations. We find that this “active-decision” intervention substantially increases the actual donation behavior of people who had not fully formed preferences beforehand.
    Keywords: Human behavior ; Altruism
    Date: 2007
  7. By: Huck, S.; Muller, W. (Tilburg University, Center for Economic Research)
    Date: 2007
  8. By: Cao , Henry; Han, Bing; Hirshleifer, David; Zhang, Harold
    Abstract: Evidence indicates that people fear change and the unknown. We offer a model of familiarity bias in which individuals focus on adverse scenarios in evaluating defections from the status quo. The model explains the endowment effect, portfolio underdiversification, home and local biases. Equilibrium stock prices reflect an unfamiliarity premium. In an international setting, our model implies that the absolute pricing error of the standard CAPM is positively correlated with the amount of home bias. It also predicts that a modified CAPM holds wherein the market portfolio is replaced with a portfolio of the stock holdings of investors not subject to familiarity bias.
    JEL: G12 G11 F30 G15
    Date: 2007
  9. By: Blumkin, Tomer; Ruffle , Bradley J.; Ganun , Yosef
    Abstract: The public finance literature demonstrates the equivalence between consumption and labor income (wage) taxes. We construct an environment in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this experimental framework to test whether a labor income tax and an equivalent consumption tax lead to an identical labor-leisure allocation. Despite controlling for subjects' work ability and inherent labor-leisure preferences and not allowing for saving, subjects reduce their labor supply significantly more in response to an income tax than they do in response to an equivalent consumption tax. We discuss the economic implications of a policy shift from an income to a consumption tax.
    Keywords: experimental economics; tax equivalence; income tax; consumption tax; behavioral economics
    JEL: H22 H31 C91
    Date: 2007–12–28
  10. By: Markus Pannenberg
    Abstract: This study examines the relationship between individual risk aversion and reservation wages using a novel set of direct measures of individual risk attitudes from the German Socio-Economic Panel (SOEP). We find that risk aversion has a significantly negative impact on the level of reservation wages. Moreover, we show that the elasticity of the reservation wage with respect to unemployment benefits is remarkably lower for risk-averse job seekers than for risk-loving job seekers. The results are consistent with an interpretation that risk-averse job seekers set their reservation wage levels sufficiently low, so that they accept almost every job offer.
    Keywords: Risk Aversion, Reservation Wages, Survey Data
    JEL: J64 J65
    Date: 2007
  11. By: Stephan Meier; Charles Sprenger
    Abstract: As financial literacy has been shown to correlate with good financial decisions, policymakers promote educational programs to improve individuals’ financial decisions. But who selects into educational programs and who acquires information about personal finance? This paper, in a field study with more than 870 individuals, offers individuals free information about their credit reports (and credit scores). About 55 percent choose to participate in this small counseling program. To test whether those who self-select to acquire information about personal finance differ from those who do not on (normally) unobservable characteristics, we elicit time preferences, using incentivized choice experiments. Our results show that the two groups differ sharply in their discount factors: those who choose to acquire information do not discount the future as much as those who choose not to acquire information. This result has implications for financial education programs.
    Keywords: Financial literacy ; Human behavior
    Date: 2007
  12. By: Klein, Daniel B. (George Mason University); Orsborn, Aaron (George Mason University)
    Abstract: We tell of the evolving meaning of the term coordination as used by economists. The paper is based on systematic electronic searches (on “coord,” etc.) of major works and leading journals. The term coordination first emerged in professional economics around 1880, to describe the directed productive concatenation of factors or activities within a firm. Also, transportation economists used the term to describe the concatenation of routes and trips of a transportation system. These usages represent what we term concatenate coordination. The next major development came in the 1930s from several LSE economists (Hayek, Plant, Hutt, and Coase), who extended that concept beyond the eye of any actual coordinator. That is, they wrote of the concatenate coordination of a system of polycentric or spontaneous activities. These various applications of concatenate coordination prevailed until the next major development, namely, Thomas Schelling and game models. Here coordination referred to a mutual meshing of actions. Game theorists developed crisp ideas of coordination games (like “battle of the sexes”), coordination equilibria, convention, and path dependence. This “coordination” was not a refashioning, but rather a distinct concept, one we distinguish as mutual coordination. As game models became more familiar to economists, it was mutual coordination that economists increasingly had in mind when they spoke of “coordination.” Economists switched, so to speak, to a new semantic equilibrium. Now, mutual coordination overshadows the older notion of concatenate coordination, although “Austrian” economists have sustained discussion of concatenate coordination (with unfortunate confusion, we suggest). The two senses of coordination are conceptually distinct and correspond neatly to the two dictionary definitions of the verb to coordinate. Both are crucial to economics. We suggest that distinguishing between the two senses can help to clarify “coordination” talk. Also, compared to talk of “efficiency” and “optimality,” concatenate coordination allows for a richer, more humanistic, and more openly aesthetic discussion of social issues. The narrative is backed up by Excel worksheets that report on systematic content searches of the writings of economics using the worldwide web and, using JSTOR, of Quarterly Journal of Economics, Economic Journal, Journal of Political Economy, American Economic Review, and Economica.
    Keywords: coordination; concatenation; planning; coordination equilibrium; focal point
    JEL: A10 B00 C70 D20
    Date: 2008–01–03
  13. By: Elizabeth Levy Paluck (Harvard University)
    Abstract: Can the media reduce intergroup prejudice and conflict? Despite the high stakes of this question, understanding of the mass media’s role in shaping prejudiced beliefs, norms, and behaviors is very limited. A yearlong field experiment in Rwanda tested the impact of a radio soap opera about two Rwandan communities in conflict, which featured messages about reducing intergroup prejudice, violence, and trauma. Compared to communities who listened to a control radio soap opera, listeners’ perceptions of social norms and their behaviors changed concerning some of the most critical issues for Rwanda’s post conflict society, namely intermarriage, open dissent, trust, empathy, cooperation and discussion of personal trauma. However, the radio program did little to influence listeners’ personal beliefs. Group discussion was a notable feature of the listening experience. Taken together, the results suggest that radio can communicate social norms and influence behaviors that contribute to intergroup tolerance and reconciliation.
    Keywords: Education-entertainment, prejudice reduction, conflict reduction, trauma, field experiment, mass media, radio, social norms
    Date: 2007–10
  14. By: Neel Rao; Markus M. Möbius; Tanya Rosenblat
    Abstract: We combine information on social networks with medical records and survey data in order to examine how friends affect one’s decision to get vaccinated against the flu. The random assignment of undergraduates to residential halls at a large private university allows us to estimate how peer effects influence health beliefs and vaccination choices. Our results indicate that social exposure to medical information raises people’s perceptions of the benefits of immunization. The average student’s belief about the vaccine’s health value increases by $5.00 when an additional 10 percent of her friends are assigned to residences that host inoculation clinics. Among students with no recent flu experience, a 10 percent rise in the number of friends living in residences with clinics raises cumulative valuations of the vaccine by $10.92, with 85 percent of this increase attributable to heightened perceptions about the medical benefits of immunization. We also find evidence of positive peer effects on individuals’ vaccination decisions. A student becomes up to 8.3 percentage points more likely to get immunized if an additional 10 percent of her friends receive flu shots. Furthermore, the excess clustering of friends at inoculation clinics suggests that students coordinate their vaccination decisions with their friends.
    Keywords: Stochastic analysis ; Human behavior ; Altruism ; Medical care
    Date: 2007
  15. By: Lars Bo Jeppesen; Keld Laursen
    Abstract: This paper introduces a model of knowledge sharing of lead users located in a public and unrestricted community of users. While existing literature on knowledge sharing focuses on allocation and collaboration processes inside or among companies we extend this to the community level. We then focus on how key agents — lead users — facilitate knowledge sharing in this setting and the features that moderate such sharing. Our results show that lead users are central to search and integration of knowledge from different external sources of relevance to their communities. Inside the community lead users are active in both “giving and taking” knowledge. Further, as users build up experience they tend to give more knowledge, thus suggesting a dynamic pattern of knowledge sharing in which increases in experience make way for important knowledge diffusion processes in the community.
    Keywords: Lead users; knowledge sharing; innovation; on-line community
    JEL: D83 O31
    Date: 2007
  16. By: Haase, Fee-Alexandra
    Abstract: This is a study regarding the history of communication based on several clusters traced back from ancient time to the 21st century. It contains also in the second part chapers on the specific conditions of communications in different cultures.
    Keywords: Communication communications media rhetoric
    JEL: Z12 Z13 Z11
    Date: 2008–01–01

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