nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒09‒20
eight papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. The Concept of Institution: Context and Meaning By Piet Keizer
  2. Gift Exchange in the Workplace By Robert Dur
  3. Participation and Decision Making: A Three-person Power-to-take Experiment By Max Albert; Vanessa Mertins
  4. Is altruism bad for cooperation? By Sung Ha Hwang; Samuel Bowles
  5. Do Danes and Italians Rate Life Satisfaction in the Same Way? Using Vignettes to Correct for Individual-Specific Scale Biases. By Viola Angelini, Danilo Cavapozzi, Luca Corazzini, Omar Paccagnella.
  6. Satisficing and prior-free optimality in price competition: a theoretical and experimental analysis By Werner Güth; M. Vittoria Levatia; Matteo Ploner
  7. Against Applicability: A critique of Guala’s Methodology of Experimental Economics By Martin K. Jones
  8. Strategic Play and Risk Aversion in One-Shot Normal-Form Games: An Experimental Study By Asen Ivanov

  1. By: Piet Keizer
    Abstract: When trying to understand what is meant by the concept of institution we must analyse the context in which institutions are assumed to play their role. In a typical economic analysis institutions are rules that serve the interests of economic-rational actors, and must enhance the efficiency of their actions. In a typical sociological analysis institutions are rules that serve the interests of social actors, and must enhance the formation of stable systems of hierarchically ranked groups. In the real world human behaviour also has a psychic aspect. In a typical psychological analysis institutions must promote the integration of different parts of a personality. This article assumes that in real life humans are driven by a composite of three categories of forces, namely the economic, the social and the psychic motive. Real life institutions have the function to mould these drives in such a way that economic, social and psychic goals can be reached more effectively. As a matter of illustration of this moulding process a short sketch of the emergence of the Dutch welfare state is given.
    Keywords: economic, sociological, psychological, institution, welfare state
    JEL: A12 B15 B41 B52
    Date: 2008–08
  2. By: Robert Dur (Erasmus University Rotterdam, and CESifo)
    Abstract: We develop a model of manager-employee relationships where employees care more for their manager when they are more convinced that their manager cares for them. Managers can signal their altruistic feelings towards their employees in two ways: by offering a generous wage and by giving attention. Contrary to the traditional gift-exchange hypothesis, we show that altruistic managers may offer lower wages and nevertheless build up better social-exchange relationships with their employees than egoistic managers do. In such equilibria, a low wage signals to employees that the manager has something else to offer -- namely, a lot of attention -- which will induce the employee to stay at the firm and work hard. Our predictions are well in line with some recent empirical findings about gift exchange in the field.
    Keywords: manager-employee relationships; wages; extra-role behavior; sabotage; gift exchange; social exchange; conditional altruism; reciprocity; signaling game
    JEL: D86 J41 M50 M54 M55
    Date: 2008–09–03
  3. By: Max Albert (Justus Liebig University Giessen, Dept of Economics); Vanessa Mertins (Saarland University, Dept of Economics)
    Abstract: It is often conjectured that participatory decision making may increase acceptance even of unfavorable decisions. The present paper tests this conjecture in a three-person power-to-take game. Two takers decide which fraction of the responder's endowment to transfer to themselves; the responder decides which part of the endowment to destroy. Thus, the responder can punish greedy takers, but only at a cost to herself. We modify the game by letting the responder participate in takers' transfer decision and consider the eect of participation on the destruction rate. We nd that participation matters. Responders destroy more if they (1) had no opportunity to participate in the decision making process and (2) are confronted with highly unfavorable outcomes. This participation eect is highly signicant for those responders (the majority) who show negative reciprocity (i.e., destroy more when takers are greedier).
    Keywords: fairness, participatory decision making, power-to-take game, procedural fairness, reciprocity
    JEL: C72 C91 D72
    Date: 2008
  4. By: Sung Ha Hwang (University of Massachusetts, Amherst); Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts)
    Abstract: Some philosophers and social scientists have stressed the importance for good government of an altruistic citizenry that values the well being of one another. Others have emphasized the need for incentives that induce even the self interested to contribute to the public good. Implicitly most have assumed that these two approaches are complementary or at worst additive. But this need not be the case. Behavioral experiments find that if reciprocity-minded subjects feel hostility towards free riders and enjoy inflicting harm on them, near efficient levels of contributions to a public good may be supported when group members have opportunities to punish low contributors. Cooperation may also be supported if individuals are sufficiently altruistic that they internalize the group benefits that their contributions produce. Using a utility function embodying both reciprocity and altruism we show that unconditional altruism towards other members attenuates the punishment motive and thus may reduce the level of punishment inflicted on defectors, resulting in lower rather than higher levels of contributions. Increases in altruism may also reduce the level of benefits from the public project net of contribution costs and punishment costs. The negative effect of altruism on cooperation and material payoffs is greater the stronger is the reciprocity motive among the members. JEL Categories: D64 (altruism); H41 (public goods)
    Keywords: public goods, altruism, spite, reciprocity, punishment, cooperation
    Date: 2008–09
  5. By: Viola Angelini, Danilo Cavapozzi, Luca Corazzini, Omar Paccagnella.
    Abstract: Self-reported life satisfaction is highly heterogeneous across similar countries. We show that this phenomenon can by largely explained by the fact that individuals adopt different scales and benchmarks in evaluating themselves. Using a cross sectional dataset on individuals aged 50 and over in ten European countries, we compare estimates from an Ordered Probit in which life satisfaction scales are invariant across respondents with those from a Hopit model in which vignettes are used to correct for individual-specific scale biases. We find that variations in response scales explain a large part of the differences found in raw data. Moreover, the cross countries ranking in life satisfaction dramatically depends on scale biases.
    Keywords: Life satisfaction, scale biases, vignette, counterfactuals.
    JEL: C42 D12 I31 J14
  6. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levatia (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany; University of Trento, Italy)
    Abstract: On a heterogeneous experimental oligopoly market, sellers choose a price, specify a set-valued prior-free conjecture about the others' behavior, and form their own profit-aspiration for each element of their conjecture. We formally define the concepts of satisficing and prior-free optimality and check if seller participants behave in accordance with them. We find that seller participants are satisficers, but fail to be "prior-free" optimal.
    Keywords: Satisficing behavior, Bounded rationality, Triopoly
    JEL: C92 C72 D43
    Date: 2008–09–09
  7. By: Martin K. Jones
    Abstract: The methodology of experimental economics has developed rapidly over the last ten years with many exciting debates within the field. One of the main contributors to this debate has been Guala who has written several articles and a well- received book on the subject. This paper argues that, while much of what he argues is correct, his views on external validity are not justified and the conclusions which he draws from these views could fatally undermine the experimental economics enterprise. In rejecting the justification of these views, the paper reaffirms the importance of the experiments in economics.
    Keywords: Experiments, External Validity, Applicability
    JEL: B41
    Date: 2007–12
  8. By: Asen Ivanov (Department of Economics, VCU School of Business)
    Abstract: Based on subjects’ play and stated beliefs in ten one-shot normal-form games, we study behavior along the two general dimensions “naive vs. strategic” and “risk neutral vs. risk averse”. We also investigate how behavior varies depending on whether (A) subjects play without interference from belief elicitation, (B) subjects state beliefs while playing, or (C) subjects choose between lottery tickets instead of between actions in a game. With our games and graduate subjects, we find that under (A) a small minority of subjects is naive and a minority is risk neutral. However, these findings are not robust to changing the games or the subject population. Regarding the comparative statics across (A), (B) and (C), we find that naive behavior diminishes from (A) to (B) to (C) and that considerably more subjects are risk neutral under (B) than under (A) or (C). The latter is interpreted in terms of ambiguity aversion.
    Keywords: games, experiments, beliefs, risk aversion, ambiguity aversion
    JEL: C72 C92 C51 D81 D84
    Date: 2008–09

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