nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒01‒26
eleven papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Attitude polarization By Alexander Zimper; Alexander Ludwig
  2. Yesterday's expectation of tomorrow determines what you do today: The role of reference-dependent utility from expectations By Astrid Matthey
  3. Is Emulation Good for You? The Ups and Downs of Rivalry By Daniel Léonard; Ngo Van Long
  4. Training Without Certification: An Experimental Study By Nadège Marchand; Claude Montmarquette
  5. Causes, consequences, and cures of myopic loss aversion - An experimental investigation By Gerlinde Fellner; Matthias Sutter
  6. Choice or No Choice: What explains the Attractiveness of Default Options? By Maarten van Rooij; Federica Teppa
  7. The evolution of costly displays, cooperation, and religion. Inferentially potent displays and their implications for cultural evolution By J. Heinrich
  8. Don’t aim too high: the potential costs of high aspirations By Astrid Matthey; Nadja Dwenger
  9. Is observed other-regarding behavior always genuine? By Astrid Matthey; Tobias Regner
  10. An Explanation to Individual Knowledge and Behavior Based on Empirical Substrates By zhao, liang; zhu, xian chen
  11. The widow’s offering: inheritance, family structure, and the charitable gifts of women By Leslie McGranahan

  1. By: Alexander Zimper; Alexander Ludwig (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Psychological evidence suggests that people’s learning behavior is often prone to a “myside bias”or “irrational belief persistence”in contrast to learning behav- ior exclusively based on objective data. In the context of Bayesian learning such a bias may result in diverging posterior beliefs and attitude polarization even if agents receive identical information. Such patterns cannot be explained by the standard model of rational Bayesian learning that implies convergent beliefs. As our key contribution, we therefore develop formal models of Bayesian learning with psychological bias as alternatives to rational Bayesian learning. We derive condi- tions under which beliefs may diverge in the learning process and thus conform with the psychological evidence. Key to our approach is the assumption of am- biguous beliefs that are formalized as non-additive probability measures arising in Choquet expected utility theory. As a speci…c feature of our approach, our models of Bayesian learning with psychological bias reduce to rational Bayesian learning in the absence of ambiguity.
    JEL: C79 D83
    Date: 2007–12–31
  2. By: Astrid Matthey (Max-Planck-Institute of Economics)
    Abstract: The paper introduces the concept of adjustment utility, that is, reference-dependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple explanation for, e.g., why people are reluctant to change their plans even when these turn out to be unexpectedly costly; people's aversion towards positive but false information, which cannot be explained with previous models; and the increasing acceptance of risks when people get used to them.
    Keywords: utility, expectations, reference-dependent preferences, anticipation, prospect theory, experiments
    JEL: D11 D81 D84 C99
    Date: 2008–01–15
  3. By: Daniel Léonard; Ngo Van Long
    Abstract: We model the emulation between two athletes whose goals are fixed by their coaches. The coaches in turn engage in a game of goal setting. We analyze the equilibriums of that game. For some range of parameter values, there are only mixed equilibriums, where one coach randomizes his goals while the other coach uses a pure strategy. We show that it is in an athlete’s interest to have a stronger rival. Both athletes can gain if there is not a big gap between their ability levels. A very big gap, however, result in poorer performance of both. <P>Nous étudions un phénomène d’émulation entre deux athlètes pour qui des objectifs sont axés par leur entraîneur. Cela conduit à un jeu stratégique entre les entraîneurs qui aboutit à un équilibre de Nash. Pour certaines valeurs des paramètres l’un joue une stratégie mixte tandis que l’autre joue une stratégie pure. On montre qu’il est très utile pour une athlète de se confronter à une autre athlète plus forte. Cela améliore la performance des deux. Si l’écart est trop grand, les conséquences sont très mauvaises pour les deux. Le vieil adage « Qui se ressemble s’assemble » se trouve validé.
    Keywords: Emulation, Goal Setting, Émulation
    JEL: I20 D01 D02
    Date: 2008–01–01
  4. By: Nadège Marchand; Claude Montmarquette
    Abstract: Our study considers the question of training in firms using an experimental laboratory approach. We investigate the following questions : What conditions, excluding external certification, will bring workers and employers to cooperate and share a rent generated by the workers' training? What conditions will induce workers to accept the training offer, for employers to initially offer the training and to reward the trained workers in the last stage of the game? We analyse the impact of the size of the rent created by training and the existence of an information system on employer reputation rewarding trained employees. Reputation does matter to induce cooperation, but in the absence of external institutions, coordination on the optimal outcome remains difficult. <P>Nous étudions les déterminants de la formation des travailleurs en entreprises en mobilisant l’économie expérimentale. Nous voulons répondre aux questions suivantes : Sous quelles conditions, excluant la formule d’une accréditation externe, les travailleurs et les employeurs acceptent de collaborer dans la formation des travailleurs? Sous quelles conditions une offre de formation est proposée par l’employeur, acceptée par le travailleur, et honorée par l’employeur dans la dernière phase du jeu? L’étude montre l’impact du niveau des gains générés par la formation sur la coopération entre employeurs et travailleurs. Elle montre également qu’un système d’information qui révèle aux travailleurs la réputation de l’employeur à honorer ses promesses, favorise la coopération et la formation des travailleurs. Mais, néanmoins, sans institution externe validant la formation reçue, la coopération optimale demeure difficile à réaliser.
    Keywords: general and specific training in firms, accreditation, cooperation and reputation, experimental economics., formation générale et spécifique en entreprises, accréditation, coopération et réputation, économie expérimentale.
    JEL: C91
    Date: 2008–01–01
  5. By: Gerlinde Fellner (Department of Economics, Vienna University of Economics & B.A.); Matthias Sutter (University of Innsbruck, Deparment of Public Finance, and University of Goeteborg)
    Abstract: We examine in an experiment the causes, consequences and possible cures of myopic loss aversion (MLA) for investment behaviour under risk. We find that both, investment horizons and feedback frequency contribute almost equally to the effects of MLA. Longer investment horizons and less frequent feedback lead to higher investments. However, when given the choice, subjects prefer on average shorter investment horizons and more frequent feedback. Exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention that increases investment levels.
    JEL: C91 D80 G11
    Date: 2008–01
  6. By: Maarten van Rooij; Federica Teppa
    Abstract: The default option in individual decision making has proved to be a major attractor in a large number of situations, but we still have little information on the reasons why decision makers so often stick to the default choice. We have devised a new module for the Dutch DNB Household Survey to learn about default behavior and to discriminate between potential explanations. The main contributions of this paper are as follows. First, we identify potential explanations for default choices (including procrastination, inertia, illiteracy, obedience and regret aversion). Second, we provide empirical evidence on their relative importance in a large number of situations. Third, our survey data allow us to analyze the entire population distribution instead of selected groups (like workers, or students) and to control for a rich set of personal characteristics, as well as for labor market status, income, and wealth. Our findings confirm that the default choice plays a key role in individual decision making. Inaddition, we show that its relevance differs across domains: the default option attracts the majority of preferences in situations where the marginal disutility associated with postponing the decision is relatively low, or where the choice problem is increasingly complex. Moreover, we find that even though choice behavior is principally driven by different reasons across different situations overall procrastination and financial illiteracy provide the mostpowerful explanations for why people stick to the default.
    Keywords: default options; individual preferences; individual decision making; behavioral economics; procrastination; financial literacy
    JEL: D12 D80
    Date: 2008–01
  7. By: J. Heinrich
    Abstract: This paper lays out an evolutionary theory for the cognitive foundations and cultural emergence of the extravagant displays (e.g., ritual mutilation, animal sacrifice, and martyrdom) that have so often tantalized social scientists, as well as more mundane actions that influence cultural learning and historical processes. In Part I, I use the logic of natural selection to build a theory for how and why seemingly costly displays influence the cognitive processes associated with cultural learning—why do “actions speak louder than words.†The core idea is that cultural learners can avoid being manipulated by their potential models (those they are inclined to learn from) if they are biased toward models whose actions/displays would seem costly to the model if he held beliefs different from those he expresses verbally. I call these actions inferentially potent displays. Predictions are tested with experimental work from psychology. In Part II, I examine the implications for cultural evolution of this evolved bias in human cultural learning. The formal analytical model shows that this learning bias creates evolutionarily stable sets of interlocking beliefs and individually-costly practices. Part III explores how cultural evolution, driven by competition among groups or institutions stabilized at alternative sets of these interlocking belief-practice combinations, has led to the association of costly acts, often in the form of rituals, with deeper commitments to group beneficial ideologies, higher levels of cooperation within groups, and greater success in competition with other groups or institutions. Predictions are explored with existing cross-cultural, ethnographic, ethnohistorical and sociological data. I close by briefly sketching some further implications of these ideas for the study of religion and ritual.
    Keywords: Length 51 pages
    Date: 2007–12
  8. By: Astrid Matthey; Nadja Dwenger
    Abstract: The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We first develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on the factor found to be crucial: the adjustment of reference states to changes in expectations. The results suggest that the costs of high aspirations can be significant, since reference states do not adjust quickly. We use a novel, indirect approach that allows us to infer the determinants of the reference state from observed behavior, rather than to rely on cheap talk.
    Keywords: aspirations, reference state, expectations, individual utility, experiments
    JEL: D11 D84 C91
    Date: 2008–01
  9. By: Astrid Matthey (Max Planck Institute of Economics, Jena, Germany); Tobias Regner (Friedrich Schiller University, Jena, Germany)
    Abstract: We investigate to what extent genuine social preferences can explain observed other-regarding behavior. In a social dilemma situation (a dictator game variant), people can choose whether to learn about the consequences of their choice for the receiver. We ï¬nd that a majority of the people that show other-regarding behavior when the payoffs of the receiver are known chose to ignore them if possible. This behavior is inconsistent with genuine other-regarding preferences. Our model explains other-regarding behavior as avoiding cognitive dissonance: People do not behave fairly because they genuinely care for others, but because they like to think of themselves as being fair. The model can explain our data as well as earlier experimental data.
    Keywords: social preferences, experiments, social dilemma, cognitive dissonance
    JEL: C9 C7 D8
    Date: 2007–12–21
  10. By: zhao, liang; zhu, xian chen
    Abstract: Using recent findings from modern empirical disciplines and mainly building on F.A.Hayek’s thoughts, the paper gives a definition of knowledge in accord with the Austrian School’s tradition, and basing on the definition, it sums up three behavior assumptions and a framework on explaining individual behavior and expounds ideas on hierarchical knowledge and its change in real situations. By this way, the paper believes that the Austrian School can be greatly advanced with the help of modern empirical findings.
    Keywords: knowledge; shared knowledge; hierarchy; behavioral assumption; reduced framework; empirical foundation
    JEL: B31 A12 B25 B41 B53
    Date: 2008–01–18
  11. By: Leslie McGranahan
    Abstract: This paper aims to explain disparities in the charitable bequest behavior of men and women. I use data on charitable bequests in wills from 17th Century Suffolk, England to investigate whether women or men were more generous to the poor when they died. Because of the difference in the legal restrictions faced by married men and married women, I choose to compare unmarried individuals. Higher proportions of unmarried men make charitable donations and men make higher average donations. I find that differences in the wealth, circumstances and family status of women can explain between 58% and 99% of the gap in the donation rate. In addition, I find that women’s attributes serve to depress their average donations. Based on these finding I conclude that women were not less generous than men despite the fact that a low proportion of total donations came from women.
    Date: 2007

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