nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒09‒13
fifteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Spite and development By Fehr, Ernst; Hoff, Karla; Kshetramade, Mayuresh
  2. How to be kind? Outcomes versus Intentions as Determinants of Fairness By Luca Stanca
  3. Compliance by believing: an experimental exploration on social norms and impartial agreements By Marco Faillo; Stefania Ottone; Lorenzo Sacconi
  4. Persuasion in Experimental Ultimatum Games By Ola Andersson; Matteo M. Galizzi; Tim Hoppe; Sebastian Kranz; Karen van der Wiel; Erik Wengström
  5. Paradigmatic Experiments: the Dictator Game By Francesco Guala; Luigi Mittone
  6. Is the veil of ignorance only a concept about risk? An experiment By Hannah Hörisch
  7. The Framing of Games and the Psychology of Play By Heike Hennig-Schmidt
  8. Conformity, reciprocity and the sense of justice. How social contract-based preferences and beliefs explain norm compliance: the experimental evidence By Lorenzo Sacconi; Marco Faillo
  9. Positive Expectations Feedback Experiments and Number Guessing Games as Models of Financial Markets By Joep Sonnemans; Jan Tuinstra
  10. Emotion and reason in everyday risk perception By Robin Hogarth; Mariona Portell; Anna Cuxart; Gueorgui I. Kolev
  11. Trust and Adaptive Learning in Implicit Contracts By Christian Lukas; Jens Robert Schöndube
  12. Psychological and Biological Foundations of Time Preference: Evidence from a Day Reconstruction Study with Biological Tracking By Daly, Michael; Delaney, Liam; Harmon, Colm P.
  13. Interpersonal Relationships Moderate the Effect of Faces on Person Judgments By Tuk, M.A.; Verlegh, P.W.J.; Smidts, A.; Wigboldus, D.H.J.
  14. Personality on Social Network Sites: An Application of the Five Factor Model By Stefan Wehrli
  15. The appearance of homo rivalis: Social preferences and the nature of rent seeking By Benedikt Herrmann; Henrik Orzen

  1. By: Fehr, Ernst; Hoff, Karla; Kshetramade, Mayuresh
    Abstract: In a wide variety of settings, spiteful preferences would constitute an obstacle to cooperation, trade, and thus economic development. This paper shows that spiteful preferences - the desire to reduce another's material payoff for the mere purpose of increasing one's relative payoff - are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh). In a one-shot trust game, the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects. In experiments to study coordination and to measure social preferences, the findings reveal empirical patterns suggesting that the willingness to reduce another's material payoff - either for the sake of achieving more equality or for the sake of being ahead - is stronger among individuals belonging to high castes than among those belonging to low castes. Because extreme social hierarchies are typically accompanied by a culture that stresses status-seeking, it is plausible that the observed social preference patterns are at least partly shaped by this culture. Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development.
    Keywords: Economic Theory&Research,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Gender and Social Development
    Date: 2008–05–01
  2. By: Luca Stanca
    Abstract: This paper presents an experimental analysis of the role of out comes and intentions for fair behavior. We consider a symmetric version of the gift-exchange game in a 2x2 design with two treatment variables: intentionality (¯rst mover's choice is either intentional or randomly determined) and outcome (¯rst mover's choice is either costly or free, ie compensated by the experimenter). The four treatments differ with respect to the presence-absence of intentionality and cost for the ¯rst mover, whereas the outcome of the ¯rst mover's action for the second mover's payo® is kept constant across treatments. The results indicate that intentions do not matter for fair behavior, whereas outcomes do matter. In particular, the effect of outcomes is due to concerns for distributional fairness, whereas there is no evidence of an intention-based role for outcomes through signalling kindness.
    Keywords: Reciprocity, Export, Intentions, Laboratory Experiments
    JEL: D63 C78 C91
    Date: 2008–07
  3. By: Marco Faillo; Stefania Ottone; Lorenzo Sacconi
    Abstract: The main contribution of this paper is twofold. First of all, it focuses on the decisional process that leads to the creation of a social norm. Secondly, it analyses the mechanisms through which subjects conform their behaviour to the norm. In particular, our aim is to study the role and the nature of Normative and Empirical Expectations and their influence on people’s decisions. The tool is the Exclusion Game, a sort of ‘triple mini-dictator game’. It represents a situation where 3 subjects – players A - have to decide how to allocate a sum S among themselves and a fourth subject - player B - who has no decisional power. The experiment consists of three treatments. In the Baseline Treatment participants are randomly distributed in groups of four players and play the Exclusion Game. In the Agreement Treatment in each group participants are invited to vote for a specific non-binding allocation rule before playing the Exclusion Game. In the Outsider Treatment, after the voting procedure and before playing the Exclusion Game, a player A for each group (the outsider) is reassigned to a different group and instructed about the rule chosen by the new group. In all the treatments, at the end of the game and before players are informed about the decisions taken during the Exclusion Game by the other co-players, first order and second order expectations (both normative and empirical) are elicited through a brief questionnaire. The first result we obtained is that subjects’ choices are in line with their empirical (not normative) expectations. The second result is that even a non-binding agreement induces convergence of empirical expectations – and, consequently, of choices. The third results is that expectation of conformity is higher in the partner protocol. This implies that a single outsider breaks the ‘trust and cooperation’ equilibrium.
    Keywords: fairness, social norms, beliefs, psychological games, experimental games
    JEL: C72 C91 A13
    Date: 2008
  4. By: Ola Andersson (Department of Economics,Stockholm School of Economics); Matteo M. Galizzi (Department of Economics,University of Brescia); Tim Hoppe (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Sebastian Kranz (Department of Economics,University of Bonn); Karen van der Wiel (CentER,Tiburg University); Erik Wengström (Department of Economics,University of Copenhagen)
    Abstract: This paper experimentally studies persuasion effects in ultimatum games and finds that Proposers' payoffs significantly increase if, along with offers, they can send messages which Responders read before their acceptance decision. Higher payoffs are due to higher acceptance rates as well as more aggressive offers by Proposers.
    Keywords: Communication in Games; Cheap Talk
    JEL: C72 C91 D83
    Date: 2008–08
  5. By: Francesco Guala; Luigi Mittone
    Abstract: Recent experiments with the Dictator Game (and the ensuing discussions) have been affected by considerable confusion regarding the purpose of this design. A common complaint is that the design gives rise to fragile regularities and therefore is of little use for theory-testing. We take issue with this view, and instead argue that the Dictator Game is potentially a very useful tool for experimental game theory, if properly used. It is particularly useful for investigating social norms, but economists have failed to take advantage of the Dictator Game because they still lack an adequate theory of norms.
    Date: 2008
  6. By: Hannah Hörisch (University of Munich, Seminar for Economic Theory, Ludwigstraße 28 (Rgb.), 80539 Munich, Germany, email:
    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
  7. By: Heike Hennig-Schmidt
    Abstract: Psychological game theory can help provide a rational choice explanation of framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically, and explore the empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: Framing, psychological games, guilt aversion, reciprocity, public good games, voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2008–07
  8. By: Lorenzo Sacconi; Marco Faillo
    Abstract: Compliance with a social norm is a matter of self-enforceability and endogenous motivation to conform, which is relevant not just to social norm,s but also to a wide array of institutions. Here we consider endogenous mechanisms that become effective once the game description has been enriched with pre-play communication allowing impartial agreements on a norm (even if they remain not binding in any sense). Behavioral models understand conformity as the maximization of some “enlarged” utility function properly defined to make room for the individual’s “desire” to comply with a norm reciprocally adhered to by other participants – whose conformity in turn depends on the expectation that the norm will be in fact reciprocally adhered to. In particular this paper presents an experimental study on the “conformity-with-the-ideal preference theory” (Grimalda and Sacconi 2005), based of a simple experimental three person game called the “exclusion game”. If the players participate in a “constitutional stage” (under a veil of ignorance ) in which they decide the rule of division unanimously, the experimental data show a dramatic change in the participants’ behavior pattern. Most of them conform to the fair rule of division to which they have agreed in a pre-play communication stage, whereas in the absence of this agreement they behave egoistically. The paper also argues that this behavior is largely consistent with what John Rawls (1971) called the “sense of justice”, a theory of norm compliance unfortunately overlooked by economists and which should be reconsidered after the behaviorist turn in economics.
    Keywords: conformist preferences, reciprocity, veil of ignorance, psychological games, fairness, experiments
    JEL: C7 C9 D63 D64
    Date: 2008
  9. By: Joep Sonnemans (University of Amsterdam); Jan Tuinstra (University of Amsterdam)
    Abstract: In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new treatments in this paper. We conclude that the feedback strength (i.e. the ‘p-value’ in standard number guessing games) is essential for the results. Furthermore, positive expectations feedback experiments may provide good representations of highly speculative markets while standard number guessing games model financial markets with more emphasis on dividend yield and value stocks.
    Keywords: number guessing game; beauty contest game; expectations feedback systems
    JEL: C91 G12
    Date: 2008–08–27
  10. By: Robin Hogarth; Mariona Portell; Anna Cuxart; Gueorgui I. Kolev
    Abstract: The importance of emotion in risk perception has been well documented in field and experimental studies. However, little is known about its role in everyday life. On thirty occasions over ten consecutive working days, ninety-four participants were prompted at random – via mobile telephones – to report on their emotions and to assess perceived risks. Subsequently, risks associated with six occasions were re-assessed. Emotion was found to explain significant variance in risk perception over and above “reason” (assessed severity and possibility of risks) and to contribute to the tendency to assess risk lower in retrospect than when experienced. Our investigation illuminates the pervasive role of emotion in everyday risk perception and the value and feasibility of collecting meaningful samples of naturally occurring behavior with simple technology.
    Keywords: Experience sampling method, multilevel analysis, risk perception, self-assessment manikinds (SAM)
    JEL: C39 C93 M10
    Date: 2008–09
  11. By: Christian Lukas (Faculty of Law, Economics and Politics, University of Konstanz); Jens Robert Schöndube (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: We study e¤ects of trust in implicit contracts. Trust changes whenever the principal honors or dishonors an implicit contract. Usually a higher discount rate lowers the value of trade in an agency. We show that a su¢ ciently high level of (ex ante) trust can o¤set this ef- fect. Strategies of principals representing unique equilibria are endogenously derived given di¤erent levels of agents’bounded rationality. These strategies mirror a subset of the class of trigger strategies which is exogenously entered into previous implicit contracting models. Therefore our results o¤er some justi…cation for using that conventional approach. Implications for performance evaluation are discussed.
    Keywords: trust, implicit contracts, bounded rationality, adaptive learning, trigger strate- gies, game theory
    JEL: D8 D81 M12 M
    Date: 2008–06
  12. By: Daly, Michael (Trinity College, Dublin); Delaney, Liam (University College Dublin); Harmon, Colm P. (University College Dublin)
    Abstract: This paper considers the relationship between the economic concept of time preference and relevant concepts from psychology and biology. Using novel data from a time diary study conducted in Ireland that combined detailed psychometric testing with medical testing and real-time bio-tracking, we examine the distribution of a number of psychometric measures linked to the economic concept of time preferences and test the extent to which these measures form coherent clusters and the degree to which these clusters are related to underlying biological substrates. The paper finds that financial discounting is related to a range of psychological variables including consideration of future consequences, self-control, conscientiousness, extraversion, and experiential avoidance as well as being predicted by heart rate variability and blood pressure.
    Keywords: time preferences, day reconstruction study, economics and psychology, economics and biology
    JEL: C81 D84 D01 D91
    Date: 2008–08
  13. By: Tuk, M.A.; Verlegh, P.W.J.; Smidts, A.; Wigboldus, D.H.J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Previous research suggests that people form impressions of others based on their facial appearance in a very fast and automatic manner, and this especially holds for trustworthiness. However, as yet, this process has been investigated mostly in a social vacuum without taking interpersonal factors into account. In the current research, we demonstrate that both the relationship context that is salient at the moment of an interaction and the performed behavior, are important moderators of the impact of facial cues on impression formation. It is shown that, when the behavior of a person we encounter is ambiguous in terms of trustworthiness, the relationship most salient at that moment is of crucial impact on whether and how we incorporate facial cues communicating (un)trustworthiness in our final evaluations. Ironically, this can result in less positive evaluations of interaction partners with a trustworthy face compared to interaction partners with an untrustworthy face. Implications for research on facial characteristics, trust, and relationship theories are discussed.
    Keywords: trust;facial characteristics;person perception;word-of-mouth;relationship norms
    Date: 2008–09–08
  14. By: Stefan Wehrli
    Abstract: In this paper we explore how individual personality characteristics influence online social networking behavior. We use data from an online survey with 1560 respondents from a major Swiss technical university and their corresponding online profiles and friendship networks on a popular Social Network Site (SNS). Apart from sociodemographic variables and questions about SNS usage, we collected survey data on personality traits with a short question inventory of the Five Factor Personality Model (BFI-15). We show how these psychological network antecedents influence participation, adoption time, nodal degree and ego-network growth over a period of 4 months on the networking platform. Statistical analysis with overdispersed degree distribution models identifies extraversion as a major driving force in the tie formation process. We find a counter-intuitive positive effect for neuroticism, a negative influence for conscientiousness and no effects for openness and agreeableness.
    Keywords: online social networks, personality, Big Five, degree distribution
    JEL: D85
    Date: 2008–09–05
  15. By: Benedikt Herrmann (University of Nottingham); Henrik Orzen (University of Nottingham)
    Abstract: While numerous experiments demonstrate how pro-sociality can influence economic decision-making, evidence on explicitly anti-social economic behavior has thus far been limited. In this paper we investigate the importance of spite in experimental rent-seeking contests. Although, as we show, existing evidence of excessive rent-seeking is in theory compatible with fairness considerations, our social preference elicitations reveal that subjects’ investments are driven by spite, not fairness or reciprocity. We also observe a striking disconnect between individuals’ revealed social preferences in our contest game and in a standard prisoner’s dilemma, rejecting the idea that there are consistent pro-social, selfish or anti-social “types”. Moreover, we find that cooperation and reciprocity rates drop substantially after subjects have been exposed to rent-seeking competition.
    Keywords: Contests; Other-regarding preferences; Experiments
    JEL: A13 C9 D0 D72
    Date: 2008–08

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