nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒11‒25
eleven papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Power, hierarchy and social preferences By Bosco, Luigi
  2. Policymaking and Learning Actors, or Is A ’Double Movement’ In Cognition Possible? By Paolo Ramazzotti
  3. Socioeconomic Complexity and the Sociological Tradition: New Wine in Old Bottles By João Carlos Graça; João Carlos Lopes
  4. More information isn’t always better: the case of voluntary provision of environmental quality By Owen, Ann L.; Videras, Julio; Wu, Stephen
  5. Organizational capabilities and industry dynamics: a computational model. By Marco Corsino; Roberto Gabriele; Enrico Zaninotto
  6. Do investors optimize, follow heuristics, or listen to experts? By Thomas Gehrig; Werner Güth; Rene Levinsky; Vera Popova
  7. Automatically Activated Stereotypes and Differential Treatment Against the Obese in Hiring By Rooth, Dan-Olof
  8. Downsizing the Labor Force by Low and High Proïfit Firms - An Experimental Analysis1 By Werner Güth; Christian Paul
  9. Sick Pay Provision in Experimental Labor Markets By Dürsch, Peter; Oechssler, Jörg; Vadovic, Radovan
  10. What Do Firms Learn? Production, Distribution and the Division of Labour By Paolo Ramazzotti
  11. Feedback; Punishment and Cooperation in Public Good Experiments By Nikos Nikiforakis

  1. By: Bosco, Luigi
    Abstract: I ran an experiment in order to evaluate the relationship, if any, between power, or the search for power, and the degree of altruism. In particular I experimentally tested whether an organization structured in a strictly hierarchical way was able to reduce the degree of altruism of a group of experimental subjects. The subjects were divided into groups and played a series of dictator and ultimatum games with the members of other groups; for each experimental euro that they earned, the experimenter assigned half of it to the group. Two different settings were analyzed according to how this group surplus was distributed among group members. In the control setting (treatment A) the group surplus was distributed equally among group members, while in the power setting (treatment B) there was a ranking of the earnings in the group, and the subject who earned the higher sum was given the power to decide the distribution scheme of the group different from her own. It was found that the introduction of a hierarchical structure generated a significant decrease in the rate of altruism, measured in terms of the allocation given to the receiver in the dictator game. In this case the tournament among group members for leadership and the competition for power was a very strong means to induce behaviour more in line with the classical assumption of economics. A remarkable gender effect emerges, suggesting that women seem less attracted and trapped by competition for power.
    Keywords: Altruism; Dictator game; Ultimatum game; Hierarchy
    JEL: C92 D64 C91
    Date: 2008–09
  2. By: Paolo Ramazzotti (University of Macerata)
    Abstract: <p> </p><p>One of the key issues in K. Polanyi’s (1944, 1957) work is that capitalist markets may</p><div align="left">be inconsistent with societal values. This (external) inconsistency eventually leads to a</div><div align="left">reaction against the rationale of the market, what Polanyi refers to with the notion of the</div><div align="left">double movement. The double movement, in turn, may disrupt the (internal) consistency</div><div align="left">of the market, thereby leading to dramatic consequences for society, as was the case with</div><div align="left">fascism and nazism. A crucial question therefore is how to achieve a protective response</div><div align="left">without undermining society. The paper contends that the two types of (in)consistency</div><div align="left">basically depend on the shared knowledge available in a given society. It therefore discusses</div><div align="left">how that knowledge arises and how actors may favor or prevent change by acting on</div><div align="left">learning processes. The aim is to stress that a policy for change not only requires a</div><div align="left">scientific perspective that is not restricted within disciplinary boundaries, it also requires</div><div align="left">a dialogue between social scientists, policy-makers and all those sections of society who</div><div align="left">can be affected by a change in the status quo.</div>
    JEL: O1 O11
    Date: 2005–10
  3. By: João Carlos Graça; João Carlos Lopes
    Abstract: Complexity is a purposeful integrating framework for interdisciplinary dialogue, namely between sociologists and economists. After presenting some properties of complex (social) systems, we consider the crucial role of the economic complexity research agenda in challenging the mainstream economic paradigm. This endeavor, we suggest, can greatly benefit from a neglected but relevant aspect, the concern regarding social complexity implicit in the sociological tradition, particularly the emphasis given by Durkheim to the idea of interdependence, a keystone of complexity studies nowadays. As we underline, instead of assuming interdependence/complexity and autonomy/simplicity in a tradeoff relationship, the French sociologist takes interdependence and autonomy as fundamentally complementary and positively correlated characteristics of modern societies. This fact suggests the convenience to conceptualize complexity as a broad socioeconomic, and not just a strict economic, phenomenon. Such a purpose is certainly more damaged than benefited by the existence of the economics/sociology academic divide.
    Keywords: Socioeconomic complexity; interdependence; autonomy; sociological tradition; Durkheim
    Date: 2008–10
  4. By: Owen, Ann L.; Videras, Julio; Wu, Stephen
    Abstract: This paper adds to the literature on the voluntary provision of public goods by showing that the warm glow that individuals gain depends on the perceived relative effectiveness of contributions. We use a new survey on pro-environment behaviors, attitudes, and knowledge and find that individuals act in accordance with their beliefs, regardless of whether or not these beliefs are accurate, and engage more frequently in activities that have a higher perceived impact on environmental quality. We find that low provision of the public good is greater among people who believe they cannot do much for the environment and do not consider themselves environmentalists.
    Keywords: warm glow; environmental quality; public goods contributions
    JEL: Q50 H41
    Date: 2008–09
  5. By: Marco Corsino; Roberto Gabriele; Enrico Zaninotto (DISA, Faculty of Economics, Trento University)
    Abstract: In this paper we propose a model of bounded rational organizations that addresses the role of organizational capabilities in shaping firm size, growth rates and profitability. Our approach aims at reconciling the logic behind stochastic models of firm growth with the notion of organizational capabilities as drivers of economic performance. We extend the stochastic framework by incorporating behavioural assumptions on: (a) the interactions between the firm and the business environment; and (b) the mechanism by which firms sense and seize business opportunities. In our perspective, the degree of concurrence between the substance and organization of the firm and the context in which it operates will directly influence its profitability and indirectly (through costly mutations of the organizational structure) drive its growth. Despite its simple nature the model is able to capture well known regularities about industry dynamics. It generates firm size distributions that are skewed and heterogeneous across different scenarios. Moreover, our results suggest that the higher the selective power of the firm's organizational capabilities, the more the steady state distribution deviates from a log normal. Besides, the distribution of growth rates has a tent-shaped form which is consistent with the pattern described in empirical studies. The distribution of opportunities per firm is also skewed suggesting that a very few entities account for a large fraction of business opportunities arising throughout the simulation period. Finally, the interaction between the external environment and the internal structure of the firms also influences the heterogeneity in the value of the opportunities they capture.
    Keywords: organizational capabilities; firm size distribution; growth rates; simulation model
    Date: 2008–11
  6. By: Thomas Gehrig (Institut zur Erforschung der wirtschaftlichen Entwicklung, Albert-Ludwigs-Universität Freiburg i. Br.); Werner Güth (Max Planck Institute of Economics, Jena); Rene Levinsky (Max Planck Institute of Economics, Jena); Vera Popova (Max Planck Institute of Economics, Jena)
    Abstract: In the experimental scenario several agents repeatedly invest in n (n >= 2) state-speciïfic assets. The evolutionarily stable and equilibrium (Blume and Easley, 1992) portfolio for this situation requires to distribute funds according to the constant probabilities of the various states. The different treatments endow none, one, three, or all subjects in groups of eight investors each with probability information. Will investments follow the theoretical benchmark or the 1/n-heuristic of equal investments in all assets? Further, will agents with probability information be asked and paid for advice on how to invest? Although investment does not converge as predicted, portfolios of informed agents reflect the probabilities of states, and even uninformed agents do not invest according to the 1/n-heuristic. Advice is demanded and readily paid for. Surprisingly, clients do not always follow the recommendation. Competition among advisors reduces their fees as expected.
    Keywords: portfolio selection, evolution of expertise, advice, heuristics, evolutionary finance, experiments
    JEL: G11 C73
    Date: 2008–11–12
  7. By: Rooth, Dan-Olof (Kalmar University)
    Abstract: This study provides empirical support for automatically activated associations inducing unequal treatment against the obese among recruiters in a real-life hiring situation. A field experiment on differential treatment against obese job applicants in hiring is combined with a measure of employers' automatic/implicit performance stereotype toward obese relative to normal weight using the implicit association test. We find a strong and statistically significant obesity difference in the correlation between the automatic stereotype of obese as being less productive and the callback rate for an interview. This suggests that automatic processes may exert a significant impact on employers' hiring decisions, offering new insights into labor market discrimination.
    Keywords: implicit stereotypes, obese job applicants, differential treatment
    JEL: J64 J71
    Date: 2008–10
  8. By: Werner Güth (Max Planck Institute of Economics, Jena); Christian Paul (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe)
    Abstract: One may hope to capture the behavioral and emotional effects of downsizing the labor force in rather abstract settings as an ultimatum game (see Fischer et al. (2008)), or try to explore downsizing in its more natural principal-agent scenario with a labor market background. We pursue the latter approach and test experimentally whether downsizing occurs whenever (game) theoretically predicted and whether effort reactions question its proïfitability. Our main findings are that downsizing seems to happen less often than predicted and that its frequency does not depend on whether, theoretically, its gains are rather large or small. Interestingly, we also find strong evidence that piece-rate offers are used in a suboptimal way.
    Keywords: downsizing, experimental economics, principal-agent model, labor economics
    JEL: C72 C91 D21 J01
    Date: 2008–11–12
  9. By: Dürsch, Peter (Department of Economics, University of Heidelberg); Oechssler, Jörg (Department of Economics, University of Heidelberg); Vadovic, Radovan (ITAM)
    Abstract: Sick pay is a common provision in most labor contracts. This paper employs an experimental gift-exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate sick pay in the same way as they reciprocate wage payments? Second, do firms benefit from offering sick pay? Firms may benefit in two different ways: directly, from workers reciprocating higher sick pay with higher efforts; and indirectly, from self-selection of reciprocal workers into contracts with higher sick pay. Our main finding is that the direct effect is rather weak in terms of effort and negative in terms of profits. However, when there is competition among firms for workers, sick pay can become an important advantage. Consequently, competition leads to a higher provision of sick pay relative to a monopsonistic labor market.
    Date: 2008–10–08
  10. By: Paolo Ramazzotti (University of Macerata)
    JEL: O1 O11
    Date: 2002–10
  11. By: Nikos Nikiforakis
    Abstract: A number of studies have shown that peer punishment can sustain cooperation in public good games. This paper shows that the format used to give subjects feedback is critical for the e¢ cacy of punishment. Providing subjects with infor- mation about the earnings of their peers leads to lower contributions and earnings compared to a treatment in which subjects receive information about the contri- butions of their peers even though the feedback format does not a¤ect incentives. The data suggest that this is because the feedback format acts as a coordination device, which in?uences the contribution standards that groups establish
    Keywords: feedback format; peer punishment; public good game; altruistic pun-ishment; cooperation
    JEL: C92 D70 H41
    Date: 2008

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