nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒03‒01
eleven papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. No harm, no foul: The outcome bias in ethical judgments By Francesca Gino; Don A. Moore; Max H. Bazerman
  2. Jekyll and Hyde By Marie-Edith Bissey, John D Hey and Stefania Ottone
  3. A Test of the Rational Expectations Hypothesis using data from a Natural Experiment By Anna Conte; Peter G. Moffatt; Fabrizio Botti; Daniela Di Cagno; Carlo D'Ippoliti
  4. Rational Reasoning or Adaptive Behavior? Evidence from Two-Person Beauty Contest Games By Brit Grosskopf; Rosemarie Nagel
  5. Rationality and Personality in a Restaurant Entry Game: Is there an Entrepreneurial Personality Type? By Ted Bergstrom; Jon Sonstelie
  6. Decisiveness By Junichiro Ishida
  7. Differences in Social Preferences - Profitable for the Firm? By Küpper, Hans-Ulrich; Sandner, Kai
  8. Does Resorting to Online Dispute Resolution Promote Agreements? Experimental Evidence By Yannick Gabuthy; Nicolas Jacquemet; Nadège Marchand
  9. One Chance in a Million: Altruism and the Bone Marrow Registry By Ted Bergstrom; Rod Garratt; Damien Sheehan-Connor
  10. A Behavioural Approach To Financial Puzzles By Marie-Hélène Broihanne; Maxime Merli; Patrick Roger
  11. What's in a name? An inquiry on the cognitive and entrepreneurial profile of the social entrepreneur By Cools, E.; Vermeulen, S.

  1. By: Francesca Gino (Tepper School of Business, Carnegie Mellon University); Don A. Moore (Tepper School of Business, Carnegie Mellon University); Max H. Bazerman (Harvard Business School, Negotiation, Organizations & Markets Unit)
    Abstract: Two studies investigated the influence of outcome information on ethical judgment. Participants read a series of vignettes describing ethically-questionable behaviors. We manipulated whether those behaviors were followed by a negative or positive consequence. As hypothesized, participants judged behavior as less ethical when it was followed by a negative consequence. In addition, they judged the behavior as more blameworthy and to be punished more harshly. Participants’ ethical judgments mediated their judgments of both blame and punishment. The results of the second experiment showed again that participants rated behavior as less ethical when it led to undesirable consequences, even if they saw that behavior as acceptable before they knew its consequences. Implications for both research and practice are discussed.
    Keywords: outcome bias, unethical behavior, judgment
    Date: 2008–02
  2. By: Marie-Edith Bissey, John D Hey and Stefania Ottone
    Abstract: Jekyll and Hyde were in fact two people inside the same person – an obviously dynamically inconsistent person. In the book and in the movie, the dynamic inconsistency was resolved in arather dramatic way. We investigate its resolution in the laboratory.
    Keywords: dynamic inconsistency, saving, consumption, naïve, resolute, sophisticated, dual selves
    JEL: C92 D9
    Date: 2008–01
  3. By: Anna Conte (Department of Economic and Business Sciences, LUISS Guido Carli); Peter G. Moffatt (School of Economics, University of East Anglia); Fabrizio Botti (Department of Economic and Business Sciences, LUISS Guido Carli); Daniela Di Cagno (Department of Economic and Business Sciences, LUISS Guido Carli); Carlo D'Ippoliti (Department of Economic and Business Sciences, LUISS Guido Carli)
    Abstract: Data on contestantsÕ choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. The importance of belief-formation is confirmed by the estimation of a mixture model which establishes that the vast majority of contestants are forward-looking as opposed to myopic. The most important issue addressed in the paper is what belief function is actually being used by contestants. This function is estimated in an unconstrained way as a component of the choice model, which is estimated using maximum simulated likelihood. Separate identification of the belief function and preferences is possible by virtue of the fact that at a certain stage of the game, beliefs are not relevant, and risk attitude is the sole determinant of choice. The rational expectations hypothesis is tested by comparing the estimated belief function with the ÒtrueÓ offer function which is estimated using data on offers actually made to contestants. We find that there is a significant difference between these two functions, and hence we reject the rational expectations hypothesis. However, when a simpler Òrule-of-thumbÓ structure is assumed for the belief function, we find a correspondence to the function obtained from data on actual offers. Our overall conclusion is that contestants are rational to the extent that they make use of all available relevant information, but are not fully rational because they are not processing the information in an optimal way. The importance of allowing the choice data to convey the belief function without prejudice is emphasised.
    Keywords: beliefs, discrete choice models, simulated likelihood, natural experiments, rational expectations, risky choices
    JEL: C15 C23 C25 D81
    Date: 2007–08
  4. By: Brit Grosskopf; Rosemarie Nagel
    Abstract: Many experiments have shown that human subjects do not necessarily behave in line with game theoretic assumptions and solution concepts. The reasons for this non-conformity are multiple. In this paper we study the argument whether a deviation from game theory is because subjects are rational, but doubt that others are rational as well, compared to the argument that subjects, in general, are boundedly rational themselves. To distinguish these two hypotheses, we study behavior in repeated 2-person and many-person Beauty- Contest-Games which are strategically different from one another. We analyze four different treatments and observe that convergence toward equilibrium is driven by learning through the information about the other player’s choice and adaptation rather than self-initiated rational reasoning.
    Keywords: Beauty contest, Guessing game, Bounded rationality, Weak dominance, Learning
    JEL: C7 C9
    Date: 2007–06
  5. By: Ted Bergstrom (University of California, Santa Barbara); Jon Sonstelie (University of California, Santa Barbara)
    Abstract: Students in a large principles class participated in a market experiment in which they had opportunities to take entrepreneurial action. These students had also taken the Meyers-Briggs personality test. We explore the relation between personality characteristics and participation decisions.
    Keywords: entrepreneurship, personality test,
    Date: 2006–08–01
  6. By: Junichiro Ishida (Osaka School of International Public Policy (OSIPP))
    Abstract: This paper investigates how the presence of strong leadership influences an organization's ability to acquire and process information. The key concept is the leader's decisiveness. A decisive leader can make a bold move in response to a large change in the underlying landscape, whereas an indecisive leader biases her position excessively towards the status quo. An organization led by an indecisive leader needs to accumulate unrealistically strong evidence before it changes the course of action, thereby hindering the organization's ability to adapt to a changing environment. The analysis identifies several attributes and environmental factors that impair one's decisiveness and illuminates how leadership emerges or fades in organizations. The paper also sheds light on a classical issue of whether leaders can be made, rather than are born: our answer is partially `yes' in that mutual trust among members of the organization is a critical ingredient of effective leadership.
    Keywords: Decisiveness, Transformational leadership, Charismatic leadership, Information acquisition, Career concerns.
    JEL: D23 D82
    Date: 2008–02
  7. By: Küpper, Hans-Ulrich; Sandner, Kai
    Abstract: This paper analyzes the impact of heterogeneous (social) preferences on the weighing and the combination of performance measures as well as on firm profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show, that the principal normally can exploit both altruistic as well as rivalistic behavior of his agents. Firm profits reach their maximum value, if the agents differentiate as much as possible in their individual characteristics. We provide further insights that in order to realize these gains in profitability, reallocations of participations in performance measures are necessary, where competitive agents have to be privileged compared to altruistic agents. In this context, stochastic interdependencies are of importance since they yield overlapping functions of the share parameters causing additional adaptions in the optimal design of the wage compensation system.
    Keywords: Social Preferences; Rivalry; Altruism; Egoism; Team Composition; Performance Measurement
    JEL: D23 D82 D86 M41 M52
    Date: 2008–02–21
  8. By: Yannick Gabuthy (BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université Louis Pasteur - Strasbourg I); Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Nadège Marchand (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: This paper presents an experiment performed to test the properties of an innovative<br />bargaining mechanism (called automated negotiation) used to resolve disputes arising from<br />Internet-based transactions. The main result shows that the settlement rule tends to chill<br />bargaining as it creates incentives for individuals to misrepresent their true valuations, which<br />implies that automated negotiation is not able to promote agreements. However, this perverse<br />effect depends strongly on the conflict situation. When the threat that a disagreement occurs is<br />more credible, the strategic effect is reduced since defendants are more interested in<br />maximizing the efficiency of a settlement than their own expected profit. The implications of<br />these results are then used to discuss the potential role of public regulation and reputation<br />mechanisms in Cyberspace
    Keywords: : Online Dispute Resolution, Electronic Commerce, Bargaining, Arbitration,<br />Experimental Economics
    Date: 2008
  9. By: Ted Bergstrom (University of California, Santa Barbara); Rod Garratt (University of California, Santa Barbara); Damien Sheehan-Connor (UCSB)
    Abstract: Transplants of donated stem cells save the lives of many patients with blood diseases. Donation is somewhat painful, but rarely has lasting adverse effects. Patients can accept transplants only from donors with compatible immune systems. Those lacking a sibling match must seek donations from the population at large. The probability that two persons of the same race are compatible is less than 1/10,000. Health authorities maintain a registry of several million genetically-tested potential donors who have agreed to donate if asked. We study the peculiar structure of voluntary public good provision represented by the registry, and compare the marginal benefits and marginal costs of expanding the registry.
    Keywords: altruism, voluntary contributions of public goods, value of statistical life, benefit-cost analysis, donations, bone marrow registry, genetics,
    Date: 2007–08–20
  10. By: Marie-Hélène Broihanne; Maxime Merli; Patrick Roger (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur)
    Abstract: Many financial puzzles have been solved, at least partially, by the introduction of alternative assumptions on the behaviour of investors. Cumulative prospect theory and mental accounting are two such approaches which are used in this paper to analyze some of the most important financial puzzles. We first focus our attention on anomalies (or considered as such in the standard expected utility model) at the individual level, for example the disposition effect or the low diversification puzzle. We then address two aggregate puzzles, namely the equity premium puzzle and the return predictability puzzle. We show how recent behavioral models allow to explain these anomalies in a very natural way.
    Date: 2008
  11. By: Cools, E.; Vermeulen, S. (Vlerick Leuven Gent Management School)
    Abstract: Given the rise of social enterprises, the aim of this study is to get more insight into what typifies social entrepreneurs. Although entrepreneurship research has a long tradition in the study of the individual entrepreneur, there are not many studies on the profile of the social entrepreneur. Our research wants to extend the existing knowledge about who the entrepreneur is by comparing the cognitive and entrepreneurial profile of different types of entrepreneurs. Our inquiry addresses two main questions: (1) Does the cognitive style of social entrepreneurs differ significantly from the profile of commercial entrepreneurs? (2) Is there a significant difference between the entrepreneurial orientation (EO) of commercial and social firms? The data for this research are collected in two phases using two online surveys. For the cognitive styles (as measured with the Cognitive Style Indicator), we find no significant differences between commercial entrepreneurs (n = 152) and social entrepreneurs (n = 41). Looking at the entrepreneurial orientation of commercial and social enterprises, we find that commercial enterprises score significantly higher on EO than social enterprises. Interestingly, significant differences are found for the innovativeness and risk-taking dimensions of EO, but not for the proactiveness dimension. To conclude, we found that the cognitive-based approach is inadequate to capture the behavioral characteristics of social entrepreneurs within their organization. However, in the environment in which they operate, social entrepreneurs seem to behave differently than commercial entrepreneurs. Implications for further research and for practitioners and policy makers are discussed.
    Keywords: cognitive styles, entrepreneurial orientation, types of entrepreneurs, social entrepreneurship
    Date: 2008–02–11

This nep-cbe issue is ©2008 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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