nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒08‒21
six papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Risk Aversion and Physical Prowess: Prediction, Choice and Bias By Sheryl Ball; Catherine C. Eckel; Maria Heracleous
  2. Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap By Fosgerau, Mogens
  3. An Economic Model of the Planning Fallacy By Markus K. Brunnermeier; Filippos Papakonstantinou; Jonathan A. Parker
  5. Validating the Use of Vignettes for Subjective Threshold Scales By Liam Delaney; Colm Harmon; Arie Kapteyn; Arthur Van Soest; James P Smith
  6. Gender Differences in Mental Well-Being - A Decomposition Analysis By David Madden

  1. By: Sheryl Ball; Catherine C. Eckel; Maria Heracleous
    Abstract: This paper reports on experiments where individuals are asked to make risky decisions for themselves as well as predicting the risky decisions of others. Prior research has generally shown that people expect women to be more risk averse than men and that they, in fact are - a result we also find. We ask whether this is a pure gender effect or whether there is more to this result. In particular, both evolutionary and economic theories suggest that physically stronger decision makers should make riskier decisions, suggesting physical prowess as an underlying cause of gender differences. These experiments explore whether risk aversion is associated with a number of measures of real and perceived physical prowess. We find that forecasters consistently predict the types of risky decision produced by both gender and physical prowess, but often at magnitudes that significantly exaggerate than actual differences. Sources of bias are also examined, showing that specific characteristics of the target and predictor lead to over-estimation or under-estimation of risk preferences.
    Keywords: Risk Aversion, Physical Risk, Experiment, Gender, Stereotyping
    Date: 2008
  2. By: Fosgerau, Mogens
    Abstract: The results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion. Choice preferences are related to underlying hedonic preferences through the marginal rates of substitution (MRS) at the reference. Our issue is the identification of hedonic preferences relevant to welfare economic analysis. We show that the hedonic MRS is identified from reference-dependent choices if loss aversion exhibits a certain symmetry. Moreover, we show that this symmetry is rational in the sense that it leads to maximal expected hedonic utility when choices are made under reference-dependent choice preferences.
    Keywords: Behavioral public economics; valuation of non-market goods; prospect theory; loss aversion
    JEL: D01
    Date: 2008
  3. By: Markus K. Brunnermeier; Filippos Papakonstantinou; Jonathan A. Parker
    Abstract: People tend to underestimate the work involved in completing tasks and consequently finish tasks later than expected or do an inordinate amount of work right before projects are due. We present a theory in which people underpredict and procrastinate because the ex-ante utility benefits of anticipating that a task will be easy to complete outweigh the average ex-post costs of poor planning. We show that, given a commitment device, people self-impose deadlines that are binding but require less smoothing of work than those chosen by a person with objective beliefs. We test our theory using extant experimental evidence on differences in expectations and behavior. We find that reported beliefs and behavior generally respond as our theory predicts. For example, monetary incentives for accurate prediction ameliorate the planning fallacy while incentives for rapid completion aggravate it.
    JEL: D10 D80 E21
    Date: 2008–08
  4. By: Richard Freeman; Douglas Kruse; Joseph Blasi
    Abstract: Group incentive systems have to overcome the free rider or 1/N problem, which gives workers an incentive to shirk, if they are to succeed. This paper uses new questions on responses to shirking from the General Social Survey and a special NBER survey of workers at over 300 worksites in 14 companies that have some form of group incentive pay to examine how well workers can monitor their peers and what they do when the peers are not working up to speed. The paper finds that: 1) most workers say that they can detect fellow employees who shirk; 2) many report that they would speak to the shirker or report the behavior or a supervisor, and many report that they did so in the past; 3) the proportion that takes action against shirkers is greatest among workers paid under group incentive systems, in smaller companies, and in companies with good employee-management relations; 4) group incentives interact with high-performance human resource policies such as employee involvement teams, training, task variety, low levels of supervision, and good fixed wages to induce more workers to act against shirking; 5) workers in workplaces where there is more anti-shirking behavior report that co-workers work harder, encourage other workers more, and report that their workplace facility is more effective in ways that should raise productivity and profits.
    JEL: J33 J54 L23
    Date: 2008–08
  5. By: Liam Delaney (University College of Dublin); Colm Harmon (University College of Dublin); Arie Kapteyn (RAND Corporation); Arthur Van Soest (Tilburg University); James P Smith (RAND Corporation)
    Abstract: Comparing self-assessed indicators of subjective outcomes such as health, work disability, political efficacy, job satisfaction, etc. across countries or socio-economic groups is often hampered by the fact that different groups use systematically different response scales. Anchoring vignettes have been introduced as an effective tool to correct for such differences. This paper develops an integrated framework in which objective measurements are used to validate the vignette based corrections. The framework is applied to vignettes and objective and subjective self-assessments of drinking behavior by students in Ireland. Model comparisons using the Akaike information criterion favor a specification with response consistency and vignette corrected response scales. Put differently, vignette based corrections appear quite effective in bringing objective and subjective measures closer together.
    Keywords: anchoring vignettes, reporting bias, hopit model
    JEL: C81 I12
    Date: 2008–04–21
  6. By: David Madden (University College of Dublin)
    Abstract: The General Health Questionnaire (GHQ) is frequently used as a measure of mental well-being. A consistent pattern across countries is that women report lower levels of mental well-being, as measured by the GHQ. This paper applies decomposition techniques to Irish data for 1994 and 2000 to examine the factors lying behind the gender differences in GHQ score. For 1994 most of the difference is accounted for by characteristics while in 2000 most of the difference arises from returns to characteristics. The issue of path dependence, or choice of reference group, is shown to be important, mostly arising from the differing effect of principal economic status on men and women.
    Keywords: GHQ, decomposition, path dependence
    JEL: I12 I31 I32
    Date: 2008–01–21

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