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on Cognitive and Behavioural Economics |
| By: | Ondrej Rydval,; Andreas Ortmann; Michal Ostatnicky |
| Abstract: | We study experimentally the nature of dominance violations in three minimalist dominancesolvable guessing games. We examine how subjects’ reported reasoning processes translate into their stated choices and beliefs about others’ choices, and how both reasoning processes and choices relate to their measured cognitive and personality characteristics. Only about a third of subjects reason in line with dominance; they all make dominant choices and almost all expect others to do so. By contrast, nearly two-thirds of subjects reason inconsistently with dominance, yet a quarter of them actually make dominant choices and half of those expect others to do so. Reasoning errors are more likely for subjects with lower ability to maintain and allocate attention, as measured by working memory, and for subjects with lower intrinsic motivation and premeditation attitude. Dominance-incompatible reasoning arises mainly from subjects misrepresenting the strategic nature (payoff structure) of the guessing games. |
| Keywords: | Cognition, bounded rationality, beliefs, guessing games, experiment. |
| JEL: | C72 C92 D83 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp347&r=cbe |
| By: | Mandler, Michael (Royal Holloway, University of London); Manzini, Paola (University of London); Mariotti, Marco (Queen Mary, University of London) |
| Abstract: | Many decision models in marketing science and psychology assume that a consumer chooses by proceeding sequentially through a checklist of desirable properties. These models are contrasted to the utility maximization model of rationality in economics. We show on the contrary that the two approaches are nearly equivalent. Moreover, the length of the shortest checklist as a proportion of the number of an agent’s indifference classes shrinks to 0 (at an exponential rate) as the number of indifference classes increases. Checklists therefore provide a rapid procedural basis for utility maximization. |
| Keywords: | utility maximization, procedural rationality, bounded rationality, choice behavior |
| JEL: | D01 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3377&r=cbe |
| By: | Brown, Martin (Swiss National Bank); Falk, Armin (University of Bonn); Fehr, Ernst (University of Zurich) |
| Abstract: | When unemployment prevails, relations with a particular firm are valuable for workers. As a consequence, a worker may adhere to an implicit agreement to provide high effort, even when performance is not third-party enforceable. But can implicit agreements – or relational contracts – also motivate high worker performance when the labor market is tight? We examine this question by implementing an experimental market in which there is an excess demand for labor and the performance of workers is not third-party enforceable. We show that relational contracts emerge in which firms reward performing workers with wages that exceed the going market rate. This motivates workers to provide high effort, even though they could shirk and switch firms. Our results thus suggest that unemployment is not a necessary device to motivate workers. We also discuss how market conditions affect relational contracting by comparing identical labor markets with excess supply and excess demand for labor. Long-term relationships turn out to be less frequent when there is excess demand for labor compared to a market characterized by unemployment. Surprisingly though, this does not compromise market performance. |
| Keywords: | relational contracts, involuntary unemployment |
| JEL: | D82 J3 J41 E24 C9 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3345&r=cbe |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Wolf Singer (Max Planck Institute for Brain Research, Frankfurt/Main) |
| Abstract: | The title of this chapter is deliberately provocative. Intuitively, many will be inclined to see conscious control of mental process as a good thing. Yet control comes at a high price. The consciously not directly controlled, automatic, parallel processing of information is not only much faster, it also handles much more information, and it does so in a qualitatively different manner. This different mental machinery is not adequate for all tasks. The human ability to consciously deliberate has evolved for good reason. But on many more tasks than one might think at first sight, intuitive decision-making, or at least an intuitive component in a more complex mental process, does indeed improve performance. This chapter presents the issue, offers concepts to understand it, discusses the effects in terms of problem solving capacity, contrasts norms for saying when this is a good thing, and points to scientific and real world audiences for this work. |
| JEL: | C70 C91 D01 D81 K41 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2007_24&r=cbe |
| By: | Andreas Glöckner (Max Planck Institute for Research on Collective Goods, Bonn); Tilmann Betsch (University of Erfurt) |
| Abstract: | We claim that understanding human decisions requires that both automatic and deliberate processes be considered. First, we sketch the qualitative differences between two hypothetical processing systems, an automatic and a deliberate system. Second, we show the potential that connectionism offers for modeling processes of decision making and discuss some empirical evidence. Specifically, we posit that the integration of information and the application of a selection rule are governed by the automatic system. The deliberate system is assumed to be responsible for information search, inferences and the modification of the network that the automatic processes act on. Third, we critically evaluate the multiple-strategy approach to decision making. We introduce the basic assumption of an integrative approach stating that individuals apply an all-purpose rule for decisions but use different strategies for information search. Fourth, we develop a connectionist framework that explains the interaction between automatic and deliberate processes and is able to account for choices both at the option and at the strategy level. |
| Keywords: | System 1, Intuition, Reasoning, Control, Routines, Connectionist Model, Parallel Constraint Satisfaction |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2008_2&r=cbe |
| By: | Andreas Glöckner (Max Planck Institute for Research on Collective Goods, Bonn); Tilmann Betsch (University of Erfurt) |
| Abstract: | Brandstätter, Gigerenzer and Hertwig (2006) put forward the priority heuristic (PH) as a fast and frugal heuristic for decisions under risk. According to the PH, individuals do not make trade-offs between gains and probabilities, as proposed by expected utility models such as cumulative prospect theory (CPT), but use information in a non-compensatory manner and ignore information. We conducted three studies to test the PH empirically by analyzing individual choice patterns, decision times and information search parameters in diagnostic decision tasks. Results on all three dependent variables conflict with the predictions of the PH and can be better explained by the CPT. The predictive accuracy of the PH was high for decision tasks in which the predic-tions align with the predictions of the CPT but very low for decision tasks in which this was not the case. The findings indicate that earlier results supporting the PH might have been caused by the selection of decision tasks that were not diagnostic for the PH as compared to CPT. |
| Keywords: | Decision Strategy, Fast and Frugal Heuristics, Bounded Rationality, Decision Latency, Process Tracing, Cumulative Prospect Theory |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2008_5&r=cbe |
| By: | James Andreoni; Ray D Madoff |
| Date: | 2008–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000001929&r=cbe |
| By: | Martin Diewald; Karl Ulrich Mayer |
| Abstract: | The psychology of the life span and the sociology of the life course share the same object of scientific inquiry - the lives of women and men from birth to death. Both are part of an interdisciplinary field focused on individual development and life course patterns which also includes social demography and human capital economics. However, a closer look shows that life span psychology and life course sociology now to stand further apart than in the seventies. In this paper we reassess how this divergence can be understood in terms of necessary and legitimate strengths of both approaches, as well as avoidable weaknesses which could be overcome in the future by more re-combination and integration. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp772&r=cbe |
| By: | Dasgupta, Indraneel (University of Nottingham); Kanbur, Ravi (Cornell University) |
| Abstract: | Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditure. We examine the normative logic of this exemption. We show that, rather than reducing it, philanthropy may aggravate absolute inequality in welfare achievement, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, the general normative case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious. |
| Keywords: | community, public goods, inequality, distribution, philanthropy, egalitarianism |
| JEL: | D31 D63 D74 Z13 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3317&r=cbe |
| By: | Abraham Neyman |
| Date: | 2008–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000001945&r=cbe |
| By: | Antonio Cabrales (Universidad Carlos III de Madrid); Raffaele Miniaci (Università di Brescia); Marco Piovesan (Department of Economics, University of Copenhagen); Giovanni Ponti (Universidad de Alicante) |
| Abstract: | This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the first two phases, P1 and P2; agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, P3; four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he "chooses to work" for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-off between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences. |
| Keywords: | social preferences; team incentives; mechanism design; experimental economics |
| JEL: | C90 D86 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0806&r=cbe |
| By: | L. Bagnoli; G. Negroni |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:627&r=cbe |
| By: | Hannah Hörisch (University of Munich, Seminar for Economic Theory, Ludwigstraße 28 (Rgb.), 80539 Munich, Germany, email: hannah.hoerisch@lrz.uni-muenchen.de.) |
| Abstract: | We implement the Rawlsian veil of ignorance in the laboratory. Our experimental design allows separating the effects of risk and social preferences behind the veil of ignorance. Subjects prefer more equal distributions behind than in front of the veil of ignorance, but only a minority acts according to maximin preferences. Men prefer more equal allocations mostly for insurance purposes, women also due to social preferences for equality. Our results contrast the Utilitarian's claim that behind the veil of ignorance maximin preferences necessarily imply infinite risk aversion. They are compatible with any degree of risk aversion as long as social preferences for equality are sufficiently strong. |
| Keywords: | deterrence, law and economics, incentives, crowding out, experiment |
| JEL: | D64 C99 D63 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:229&r=cbe |
| By: | Itzhak Gilboa |
| Date: | 2008–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000001959&r=cbe |