nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒04‒04
seventeen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. The Role of Surprise in Hindsight Bias – A Metacognitive Model of Reduced and Reversed Hindsight Bias By Müller, Patrick A.; Stahlberg, Dagmar
  2. Ambiguity By Eichberger, Jürgen; Kelsey, David
  3. Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives By Samuel Bowles; Sung Ha Hwang
  4. Risky Punishment and Reward in the Prisoner By Dürsch, Peter; Servátka, Maros
  5. How People perceive the Welfare State. A real effort experiment By Ottone, Stefania; Ponzano, Ferruccio
  6. Social Decision Theory: Choosing within and between Groups By Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
  7. The role of power for distributive fairness By Rode, Julian; Le Menestrel, Marc
  8. Self-Productivity in Early Childhood By Coneus, Katja; Pfeiffer, Friedhelm
  9. Can Auditors Be Independent? - Experimental Evidence By Koch, Christopher; Weber, Martin; Wüstemann, Jens
  10. Satisficing in sales competition: experimental evidence By Berninghaus, Siegfried K.; Gueth, Werner; Levati, M. Vittoria; Qiu, Jianying
  11. Determinants of Risk Taking Behavior: The role of Risk Attitudes, Risk Perceptions and Beliefs By Nosic, Alen; Weber, Martin
  12. Promoting help for victims of child abuse: which emotions are most appropriate to motivate donation behavior. By T. FASEUR; M. GEUENS
  13. Objective and Subjective Rationality in a Multiple Prior Model By Itzhak Gilboa; Fabio Maccheroni; Massimo Marinacci; David Schmeidler
  14. Volunteering and image concerns By Linardi, Sera; McConnell, Margaret A.
  15. Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds By James J Choi; David Laibson; Brigitte C Madrian
  16. Network Architecture, Salience and Coordination By Syngjoo Choi; Douglas Gale; Shachar Kariv; Thomas Palfrey
  17. Estimating Ambiguity Aversion in a Portfolio Choice Experiment By David Ahn; Syngjoo Choi; Douglas Gale; Shachar Kariv

  1. By: Müller, Patrick A. (Department of Social and Organizational Psychology, Utrecht University); Stahlberg, Dagmar (Lehrstuhl fuer Sozialpsychologie, Sonderforschungsbereich 504)
    Abstract: Hindsight bias is the well researched phenomenon that people falsely believe that they would have correctly predicted the outcome of an event once it is known. In recent years, several authors have doubted the ubiquity of the effect and have reported a reversal under certain conditions. This article presents an integrative model on the role of surprise as one factor explaining the malleability of the hindsight bias. Three ways in which surprise influences the reconstruction of pre-outcome predictions are assumed: (1) Surprise is used as direct metacognitive heuristic to estimate the distance between outcome and prediction. (2) Surprise triggers a deliberate sense-making process, and (3) also biases this process by enhancing the retrieval of surprise-congruent information and expectancy-based hypothesis testing.
    Date: 2007–06–21
  2. By: Eichberger, Jürgen (Sonderforschungsbereich 504); Kelsey, David (Department of Economics, The University of Birmingham)
    Abstract: Ambiguity refers to a decision situation under uncertainty when there is incomplete information about the likelihood of events. Different formal models of this notion have been developed with differing implications about the representation of ambiguity and ambiguity aversion.
    Date: 2007–07–11
  3. By: Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts); Sung Ha Hwang (University of Massachusetts, Amherst)
    Abstract: Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these conditions. We identify cases in which a sophisticated planner cognizant of these non-additive effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent. JEL Categories: D52, D64, H21. H41
    Keywords: Social preferences, implementation theory, incentive contracts, incomplete contracts, framing, motivational crowding out, ethical norms, constitutions
    Date: 2008–03
  4. By: Dürsch, Peter (Department of Economics, University of Heidelberg); Servátka, Maros (Department of Economics, University of Canterbury)
    Abstract: We conduct a prisoner’s dilemma experiment with a punishment/reward stage, where punishments and rewards are risky. This is compared with a risk free treatment. We find that subjects do not change their behavior in the face of risky outcomes. Additionally, we measure risk attitude and the emotions of subjects. While we find a strong influence of emotions, individual risk aversion has no effect on the decision to punish or reward. This is good news for lab experiments who abstract from risky outcomes. From the perspective of social preferences, our results provide evidence for risk neutral inclusion of other player’s payoffs in the decisionmaker’s utility function.
    Date: 2007–09–05
  5. By: Ottone, Stefania; Ponzano, Ferruccio
    Abstract: The main activity of a welfare state is to impose taxes in order to collect money to provide services. In this paper we want to test subjects’ perception of these two steps in the lab. In particular, using a real effort experiment as a tool, we aim at measuring both the labour supply and the consensus as the level of taxation and the efficiency of the welfare state vary.
    Date: 2008–03
  6. By: Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
    Abstract: We introduce a theoretical framework in which to study interdependent preferences, where the outcome of others affects the preferences of the decision maker. The dependence may take place in two conceptually different ways, depending on how the decision maker evaluates what the others have. In the first he values his outcome and that of others on the basis of his own utility. In the second, he ranks outcomes according to a social value function. These two different views of the interdependence have separate axiomatic foundations. We then characterize preferences according to the relative importance assigned to social gains and losses, or in other words to pride and envy. Finally, we study a two period economy in which agents have our social preferences. We show how envy leads to conformism in consumption behavior and pride to diversity.
    Keywords: Social preferences, social economics.
    JEL: D81 E21
    Date: 2008
  7. By: Rode, Julian (Sonderforschungsbereich 504); Le Menestrel, Marc (Universitat Pompeu Fabra)
    Abstract: We employ an experimental labour setting to study fairness in the division of gains from productive activity. The focus is on the impact of power structures on allocation decisions and on fairness perceptions. Two types of actors are involved in generating a gain, but only one contributes actively by completing a real-effort task. In three treatments, decision power to divide the gain is assigned (1) to the inactive, (2) jointly to the inactive and the active, and (3) to the active. Results show that the impact of power goes beyond changing final allocations: it also significantly alters fairness perceptions. Decision power - in particular absolute power – mediates and significantly enhances self-serving biases. Results complement studies on the psychology of fairness perceptions. Moreover, the paper discusses implications for organizational design.
    Date: 2007–12–12
  8. By: Coneus, Katja; Pfeiffer, Friedhelm
    Abstract: Self-productivity is a crucial feature in the process of skill formation. It means that skills and health acquired at one stage in the life cycle enhance skills and health formation at later stages. This paper presents an empirical investigation of self-productivity in early childhood in Germany. The data are drawn from the mother-child questionnaire of the German Socio-Economic Panel for the birth cohorts 2002-2005. The magnitude of self-productivity varies between skills and over time. A one percent increase in birth weight increase child’s noncognitive skills by 0.34 percent and child’s health by 0.64 percent at the age of 3-18 months. Until the age of 42 months a one percent increases in child’s noncognitive skills enhances child’s verbal skills by 0.57 percent and child’s everyday skills by 1.04 percent. Furthermore, our estimates suggest synergies between child’s health and child’s noncognitive skills.
    Keywords: self-productivity, early childhood, skill formation, birth weight, health
    JEL: I20 J13 J24
    Date: 2007
  9. By: Koch, Christopher (Sonderforschungsbereich 504); Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre); Wüstemann, Jens (Lehrstuhl für ABWL und Wirtschaftsprüfung/Sonderforschungsbereich 504)
    Abstract: The Sarbanes-Oxley Act of 2002 has transformed the institutional environment in the US by making the audit committee responsible for the appointment, compensation and oversight of the auditor. We examine whether this institutional change successfully resolves the alleged problem of an unconscious favoring of the management (Bazerman et al. 1997, 2002, 2006) by changing the effects of auditors’ economic incentives and psychological pressure. In our experimental design, we make use of the particular features of the German institutional setting as it enables us to manipulate the client of the auditor in a realistic and clear-cut way. 72 German auditors with at least two years of job experience participated in our experiment. Following Turner (2001), we distinguish in our analyses between belief tasks (e.g. evidence evaluation) and action tasks (e.g. audit opinion). Our findings imply that certain institutional features seem to be helpful in ensuring auditor independence. First, we find that auditors demonstrate professional scepticism in belief tasks. This seems to counteract any potentially negative effect of the acceptability heuristic in actions tasks. Second, experience helped auditors in coping with psychological pressure. Third, making the auditor accountable to a supervisory board was helpful in reducing the risk that financial considerations would impair auditor independence.
    Date: 2007–08–09
  10. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Gueth, Werner (Max Planck Institute for Research into Economic Systems, Strategic Interaction Group); Levati, M. Vittoria (Max Planck Institute of Economics, Strategic Interaction Group); Qiu, Jianying (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: In a duopoly market, aspirations express how much sellers want to earn given their expectations about the other's behavior. We define individually and mutually satisficing sales behavior for given individual beliefs and aspirations. In a first experimental phase, whenever satisficing is not possible, beliefs, aspirations, or sales have to be adapted. In a second phase, testing the absorption of satisficing, participants are free to select nonsatisficing sales profiles. The results reveal that most people are satisficers who, either mandatorily or deliberately, tend to adjust aspiration levels if they cannot be satisfied.
    Date: 2007–05–16
  11. By: Nosic, Alen (Sonderforschungsbereich 504); Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)
    Abstract: Our study analyzes determinants of investors' risk taking behavior. We find that investors' risk taking behavior, i.e. portfolio choices can be predicted using risk attitudes, risk perceptions and belief measures such as optimism and overconfidence. However, the predictive power of these determinants heavily depends on the domain in which it was elicited. More specifically, risk attitudes, risk perceptions and beliefs only allow us to predict investors' risk taking behavior if they are elicited in an investment related context. We think that our results could also benefit practitioners who could incorporate some of the determinants we have used in their investment advisory process.
    Date: 2007–07–31
  12. By: T. FASEUR; M. GEUENS
    Abstract: This study investigated the effectiveness of two cognitive appraisal dimensions of emotions, valence and certainty, in advertisements promoting a socially oriented organization. Furthermore, the moderating impact of showing multiple unidentified victims versus showing one identified victim and donation history of the respondents was investigated in 239 adult citizens. Certain emotions proved to be more effective (compatible) than uncertain ones for (with) advertisements with multiple unidentified victims and regular donors, whereas the opposite holds true for advertisements with one identified victim and non-regular donors. Surprisingly, positive emotions were found to be more or equally effective than negative ones under all conditions.
    Date: 2008–02
  13. By: Itzhak Gilboa; Fabio Maccheroni; Massimo Marinacci; David Schmeidler
    Abstract: A decision maker is characterized by two binary relations. The first reflects decisions that are rational in an “objective” sense: the decision maker can convince others that she is right in making them. The second relation models decisions that are rational in a “subjective” sense: the decision maker cannot be convinced that she is wrong in making them. We impose axioms on these relations that allow a joint representation by a single set of prior probabilities. It is “objectively rational” to choose f in the presence of g if and only if the expected utility of f is at least as high as that of g given each and every prior in the set. It is “subjectively rational” to choose f rather than g if and only if the minimal expected utility of f (relative to all priors in the set) is at least as high as that of g.
    Keywords: Rationality, Multiple Priors.
    JEL: D81
    Date: 2008
  14. By: Linardi, Sera; McConnell, Margaret A.
    Date: 2008–03
  15. By: James J Choi; David Laibson; Brigitte C Madrian
    Date: 2008–03–21
  16. By: Syngjoo Choi; Douglas Gale; Shachar Kariv; Thomas Palfrey
    Date: 2008–03–21
  17. By: David Ahn; Syngjoo Choi; Douglas Gale; Shachar Kariv
    Date: 2008–03–21

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