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on Cognitive and Behavioural Economics |
| By: | Schlicht, Ekkehart |
| Abstract: | Internal organization relies heavily on psychological consistency requirements. This perspective has been emphasized in modern compensation theory, but has not been extended to organization theory. The idea is developed by starting from Williamson's discussion of idiosyncratic exchange. The perspective sheds new light on several topics in the theory of the firm, like the boundaries of the firm (“Williamson's puzzle”), the importance of fairness concerns within firms, the attenuation of incentives, or the role of routines. It implies a “perceptional” theory of the firm that is “realistic” in the sense advocated by Coase (1937). |
| Keywords: | theory of the firm; hierarchy; evolutionary theory of the firm; perceptional theory of the firm; consistency; small numbers; centralization paradox; Williamson's puzzle; compensation; boundaries of the firm; fairness; small numbers; idiosyncratic exchange; entitlements; obligations; routines; framing |
| JEL: | B52 D02 L2 |
| Date: | 2008–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:6569&r=cbe |
| By: | Gordon Menzies; Daniel Zizzo |
| Abstract: | We consider an experimental setting where traders in stock markets or exchange rate markets receive one stylized piece of information at a time about the value of an asset. We find that having limited knowledge about the prior distribution of true asset values does not hamper the decision making by traders and markets. There is empirical support for the common modeling assumption of simplifying agent heterogeneity into two types, a rational one and a less rational one. A correspondence exists between the average degree of belief conservatism found with individual buying and selling prices and that observed with market prices. |
| JEL: | C91 D83 D84 F31 G12 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2008-34&r=cbe |
| By: | Tor Eriksson (Department of economics - University of Aarhus); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | Variable pay links pay and performance but may also help firms in attracting more productive employees. Our experiment investigates the impact of performance pay on both incentives and sorting and analyzes the influence of repeated interactions between firms and employees on these effects. We show that (i) the opportunity to switch from a fixed wage to variable pay scheme increases the average effort level and its variance; (ii) high skill employees concentrate under the variable pay scheme; (iii) however, in repeated interactions, efficiency wages reduce the attraction of performance pay. Social motivation and reputation influence both the provision of incentives and their sorting effect. |
| Keywords: | performance pay ; incentives ; sorting ; social motivation ; experiment |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00331753_v1&r=cbe |
| By: | Arjen van Witteloostuijn; Katrin Muehlfeld |
| Abstract: | To date, the main source of inspiration for behavioral finance scholars has been cognitive psychology. Cognitive psychology offers a rich set of insights into human decision-making, and the biases that tend to influence it. Such biases provide important reasons as to why anomalies may characterize financial market behavior. This study builds on this tradition by merging in insights from yet another psychology sub-discipline: personality psychology. We argue that a human being’s personality is a key determinant of her behavior and performance. We illustrate, for a limited subset of six personality traits (locus of control, maximizing tendency, regret disposition, self-monitoring, sensation seeking and type-A/B behavior), how this logic can be applied in the context of the study of trader behavior and performance. We explore this line of reasoning in an illustrative asset market experiment, involving 34 economics students. The results suggest that different personality traits affect distinct components of trading behavior, and so trading performance. In particular, more relaxed types who are more susceptible to regret trade less frequently (a performance enhancing strategy). Impatient, urgency-driven types with low sensitivity for environmental cues tend towards the disadvantageous price-taker role (accepting limit orders posted by other traders) and exhibit a lower tendency towards exploiting arbitrage opportunities. |
| Keywords: | Upper echelon theories, Personality traits, Financial market experiments, Trader behavior |
| JEL: | C91 D8 G1 G11 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0828&r=cbe |
| By: | Bruno S. Frey; David A. Savage; Benno Torgler |
| Abstract: | This paper explored the determinants of survival in a life and death situation created by an external and unpredictable shock. We are interested to see whether pro-social behaviour matters in such extreme situations. We therefore focus on the sinking of the RMS Titanic as a quasi-natural experiment do provide behavioural evidence which is rare in such a controlled and life threatening event. The empirical results support that social norm such as “women and children first” survive in such an environment. We also observe that women of reproductive age have a higher probability of surviving among women. On the other hand, we observe that crew members used their information advantage and their better access to resources (e.g. lifeboats) to generate a higher probability of surviving. The paper also finds that passenger class, fitness, group size, and cultural background matter. |
| Keywords: | Decision under Pressure, Altruism, Social Norms, Interdependent Preferences, Excess of Demand |
| JEL: | D63 D64 D71 D81 |
| Date: | 2008–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:237&r=cbe |
| By: | Benno Torgler; Bruno S.Frey; Markus Schaffner; Sascha L.Schmidt |
| Abstract: | The risk of external interventions crowding-out intrinsic motivation has long been established in economics. This paper introduces a new dimension by arguing that a crowding-out effect does become possible if individuals receive higher relative compensation. Using a unique, large data set that focuses on 26 seasons in basketball (NBA) we find empirical support for a relative crowding-out effect. Performance is reduced as a reaction to a relative income advantage. |
| Keywords: | Crowding-out, relative income, positional concerns, motivation |
| JEL: | D00 D60 L83 |
| Date: | 2008–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:236&r=cbe |
| By: | Benno Torgler (QUT); Markus Schaffner (QUT); Bruno S. Frey (University of Zurich); Sascha L. Schmidt (European Business School, Oestrich Winkel, Germany); Uwe Dulleck (QUT) |
| Abstract: | The experimental literature and studies using survey data have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. Individuals are concerned about social comparisons. However, behavioral evidence in the field is rare. This paper provides an empirical analysis, testing the model of inequality aversion using two unique panel data sets for basketball and soccer players. We find support that the concept of inequality aversion helps to understand how the relative income situation affects performance in a real competitive environment with real tasks and real incentives. |
| Keywords: | Inequality aversion, relative income, positional concerns, envy, social comparison, performance, interdependent preferences |
| JEL: | D00 D60 L83 |
| Date: | 2008–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2008-25&r=cbe |
| By: | Yamagishi, Toshio; Horita, Yutaka; Takagishi, Haruto |
| Abstract: | Large scale cooperation among non-kin individuals is an evolutionary puzzle since it enhances other individuals’ fitness at a cost to oneself. One possible solution to this puzzle is evolution of strong reciprocity through group selection. Rejection choices of unfair offers in the ultimatum game has been considered a testimony to the operation of the social preferences of inequity aversion and reciprocity that underlie strong reciprocity. Across three studies using three different methodologies (strategy method, one-shot game, repeated one-shot game), we compared rejection behavior in the ultimatum, impunity, and private impunity games. Results showed that about 30-40% of responders who faced an unfair offer rejected it even when such behavior aggravated unfairness rather than reducing it (i.e., in the impunity and the private impunity games), though the rejection rates in these games were only about a half of that in the ultimatum game. It was also found, across three studies, that the rejection rate of unfair offers in the impunity game was about the same as that in the private impunity game, in which the responder’s decision was not informed to the propose |
| Keywords: | Reputation; Strong reciprocity |
| JEL: | C72 |
| Date: | 2008–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11235&r=cbe |
| By: | Korenok Oleg (Department of Economics, VCU School of Business); Edward L. Millner (Department of Economics, VCU School of Business); Laura Razzolini (Department of Economics, VCU School of Business) |
| Abstract: | We design an experiment to identify the motivation underlying dictators’ behavior. In the typical dictator game, the recipient’s payoff is completely determined by the amount passed. We give an endowment to the recipient as well as the dictator, breaking the equivalence between the amount passed and the recipient’s payoff. The majority of dictators behave as if recipients’ payoffs are normal goods. When we increased recipients’ endowments, dictators decreased the amounts passed. More than half of dictators are averse to inequality. They passed nothing when endowments were equalized. We conclude that in the standard dictator game most dictators pass because the recipients are given no endowments and inequality is at its maximum. |
| Keywords: | Other-regarding utility, dictator game |
| JEL: | C91 D63 D64 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:vcu:wpaper:0807&r=cbe |
| By: | Kris De Jaegher; Stephanie Rosenkranz; Utz Weitzel |
| Abstract: | This paper develops a framework for empirically testing several alternative game-theoretic rationales for Horn’s rule. It then presents an economic laboratory experiment where these rationales are empirically tested. Subjects seem to coordinate on Horn’s rule where efficiency acts as a focal point. Nevertheless, a weak interpretation of the evolutionary argument is not rejected: prior play does have an effect on future play. This suggests a hierarchy of effects, where the focal point effect dominates the evolutionary effect, with the latter being more pronounced in cheap talk situations. |
| Keywords: | Horn’s Rule, Signalling Theory, Pragmatics, Economic Laboratory |
| JEL: | C72 C92 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0827&r=cbe |
| By: | Jose Apesteguia; Ignacio Palacios-Huerta |
| Abstract: | Much like cognitive abilities, emotional skills can have major effects on perfor mance and economic outcomes. This paper studies the behavior of professional subjects involved in a dynamic competition in their own natural environment. The setting is a penalty shoot-out in soccer where two teams compete in a tournament framework taking turns in a sequence of five penalty kicks each. As the kicking order is determined by the random outcome of a coin flip, the treatment and control groups are determined via explicit randomization. Therefore, absent any psychological effects, both teams should have the same probability of winning regardless of the kicking order. Yet, we find a systematic first-kicker advantage. Using data on 2,731 penalty kicks from 262 shoot-outs for a three decade period, we find that teams kicking first win the penalty shoot-out 60.5% of the time. A dynamic panel data analysis shows that the psychological mechanism underlying this result arises from the asymmetry in the partial score. As most kicks are scored, kicking first typically means having the opportunity to lead in the partial score, whereas kicking second typically means lagging in the score and having the opportunity to, at most, get even. Having a worse prospect than the opponent hinders subjects' performance. Further, we also find that professionals are self-aware of their own psychological effects. When a recent change in regulations gives winners of the coin toss the chance to choose the kicking order, they rationally react to it by systematically choosing to kick first. A survey of professional players reveals that when asked to explain why they prefer to kick first, they precisely identify the psychological mechanism for which we find empirical support in the data: they want “to lead in the score in order to put pressure on the opponent." |
| Keywords: | LeeX |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1116&r=cbe |
| By: | Joan Esteban; Esther Hauk |
| Abstract: | We extend the model of collective action in which groups compete for a budged by endogenizing the group platform, namely the specific mixture of public/private good and the distribution of the private good to group members which can be uniform or performance-based. While the group-optimal platform contains a degree of publicness that increases in group size and divides the private benefits uniformly, a success-maximizing leader uses incentives and distorts the platform towards more private benefits - a distortion that increases with group size. In both settings we obtain the anti-Olson type result that win probability increases with group size. |
| Keywords: | collective contests, leadership, group platform, incentives, sharing rules |
| JEL: | D70 D72 D74 |
| Date: | 2008–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:756.08&r=cbe |
| By: | Maria Goltsman (University of Western Ontario); Gregory Pavlov (University of Western Ontario) |
| Abstract: | We analyze the performance of various communication protocols in a generalization of the Crawford-Sobel (1982) model of cheap talk that allows for multiple receivers. We find that whenever the sender can communicate informatively with both receivers by sending private messages, she can communicate informatively by sending public messages. In particular, it is possible that informative communication with one or both receivers is impossible in private, but possible in public. When the sender is allowed to send both public and private messages, it is possible for the sender to combine the commitment provided by public communication with the flexibility provided by private communication and transmit more information to the receivers than under either private or public communication scenarios. When the players can communicate through a mediator and the receivers are biased in the same direction, it is optimal for the sender to communicate with the receivers through independent private noisy communication channels. It is in general optimal to take advantage of pooling the sender’s truthtelling constraints across the receivers when they are biased in the opposite directions. |
| Keywords: | Communication; Information; Mechanism design; Cheap talk; Long Cheap talk; Multiple audiences |
| JEL: | C72 C78 D74 D82 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:uwowop:20081&r=cbe |
| By: | Giovanni Dosi; Giorgio Fagiolo; Andrea Roventini |
| Abstract: | This paper studies an agent-based model that bridges Keynesian theories of demand generation and Schumpeterian theories of technology-fueled economic growth. We employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply, demand and the "fundamentals" of the economy. We find that the complementarities between factors influencing aggregate demand and drivers of technological change affect both "short-run" fluctuations and long-term growth patterns. From a normative point of view, simulations show a corresponding complementarity between Keynesian and Schumpeterian policies in sustaining long-run growth paths characterized by mild fluctuations and acceptable unemployment levels. The matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct "regimes" of growth (or absence thereof) characterized by different short-run fluctuations and unemployment levels. |
| Keywords: | Endogenous Growth; Business Cycles; Growth Policies; Business Cycle Policies; Evolutionary Economics; Agent-Based Computational Economics; Post-Walrasian Economics; Empirical Validation; Monte-Carlo Simulations. |
| JEL: | E32 E6 O3 O4 |
| Date: | 2008–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2008/21&r=cbe |