nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒01‒17
fifteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Uncertainty effect revisited using physical lottery format By Ondřej Rydval; Andreas Ortmann; Sasha Prokosheva; Ralph Hertwig
  2. Direct Evidence in Risk Attitudes and Migration By Jaeger David A.; Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe; Bonin Holger
  3. Do Strong Family Ties Inhibit Trust? By Ermisch J; Gambetta D
  4. On Reputation: A Microfoundation of Contract Enforcement and Price Rigidity By Fehr, Ernst; Brown, Martin; Zehnder, Christian
  5. Rule-Rationality versus Act-Rationality By Robert J. Aumann
  6. Vision and Flexibility By Junichiro Ishida
  7. Schools, Skills, and Synapses By James J. Heckman
  8. Project Work Uncertainties and the Boundaries of the Firm By Nigel Wadeson
  9. The Revelation Effect for Autobiographical Memory: A Mixture-Model Analysis By Bernstein, Daniel M.; Rudd, Michael E.; Erdfelder, Edgar; Godfrey, Ryan; Loftus, Elizabeth F.
  10. Induction, complexity, and economic methodology By Smith, Peter
  11. Identity and educational choice: a behavioral approach By Yuemei JI
  12. Symbolic Consumption and the Social Construction of Product Characteristics By Ulrich Witt
  13. Learning Foundation for the Cursed Equilibrium By Topi Miettinen
  14. Infinite Responsibility: An expression of Saintliness By Conceição Soares
  15. Find out how Much it Means to Me! The Importance of Interpersonal Respect in Work Values Compared to Perceived Organizational Practices By van Quaquebeke, N.; Zenker, S.; Eckloff, T.

  1. By: Ondřej Rydval (Max Planck Institute of Economics, Jena, Germany, and CERGE-EI, Prague, Czech Republic); Andreas Ortmann (CERGE-EI (a joint workplace of the Center for Economic Research and Graduate Education, Charles University, and the Economics Institute of the Academy of Sciences of the Czech Republic), Prague, Czech Republic); Sasha Prokosheva (CERGE-EI (a joint workplace of the Center for Economic Research and Graduate Education, Charles University, and the Economics Institute of the Academy of Sciences of the Czech Republic), Prague, Czech Republic); Ralph Hertwig (University of Basel, Switzerland)
    Abstract: We replicate three pricing tasks of Gneezy, List and Wu (2006) for which they document the so called uncertainty effect, namely that people value a binary lottery over non-monetary outcomes less than other people value the lottery’s worse outcome. Unlike the authors who implement a verbal lottery description, we use a physical lottery format which rules out any misinterpretation of the lottery structure. Contrary to Gneezy, List and Wu, we systematically observe that subjects’ willingness to pay for the lottery is significantly higher than other subjects' willingness to pay for the lottery’s worse outcome.
    Keywords: Risky choice, framing, experiments, task ambiguity
    JEL: C81 C91 C93 D83
    Date: 2009–01–06
  2. By: Jaeger David A.; Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe; Bonin Holger (ROA rm)
    Abstract: It has long been hypothesized that individuals'' migration propensities depend on their attitudes towards risk, but the empirical evidence, to the extent that it exists, has been indirect. In this paper, we use newly available data from the German Socio-Economic Panel to measure directly the relationship between migration propensities and attitudes towards risk. We find that individuals who are more willing to take risks are more likely to migrate between labor markets in Germany. This result is robust to stratifying by age, sex, education, national origin, and a variety of other demographic characteristics. The effect is substantial relative to the unconditional migration propensity and compared to the conventional determinants of migration. We find no evidence that these findings are the result of reverse causality.
    Keywords: education, training and the labour market;
    Date: 2009
  3. By: Ermisch J (Institute for Social and Economic Research); Gambetta D (Nuffield College, Oxfod)
    Abstract: We provide direct evidence that people with strong family ties have a lower level of trust in strangers than people with weak family ties, and argue that this association is causal. We also investigate the mechanisms that underlie this effect, and provide evidence that these revolve around the level of outward exposure: factors that limit exposure limit subjects’ experience as well as motivation to deal with strangers. Our findings are based on experimental data derived from a new design of the ‘trust game’ combined with panel survey data, both drawn from a near-representative sample of the British population.
    Date: 2008–11–18
  4. By: Fehr, Ernst (University of Zurich); Brown, Martin (Swiss National Bank); Zehnder, Christian (Harvard Business School)
    Abstract: We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the positive effects of social preferences on contract enforcement by increasing contract efficiency substantially. This effect is, however, associated with a considerable bilateralisation of market interactions, suggesting that it may aggravate price rigidities. Surprisingly, reputation in fact weakens the wage and price rigidities arising from social preferences. Thus, in markets characterized by moral hazard, reputational incentives unambiguously increase mutually beneficial exchanges, reduce rents, and render markets more responsive to supply and demand shocks.
    Keywords: Reputation; Reciprocity; Relational Contracts; Price Rigidity; Wage Rigidity
    JEL: C90 D82 E24 J30 J41
    Date: 2008–07–01
  5. By: Robert J. Aumann
    Date: 2008–12
  6. By: Junichiro Ishida (Osaka School of International Public Policy (OSIPP),Osaka University)
    Abstract: An effective leader must have a clear vision and a strong will to stand by it, even in turbulent times. At the same time, though, it is also equally important to be open-minded and flexible enough to respond objectively to new information without being prejudiced by prior information. This paper illustrates how these seemingly contradictory qualifications are related and determined in a model of intrapersonal conflicts. We consider a decision maker who is capable of deceiving herself and manipulating information in some particular way to construct a rosy view of the world. There is a cost of doing so, however, because a distorted belief leads to a distorted action which is in general less efficient. This tradeoff creates a tension within herself and constrains the extent of information manipulation, thereby allowing us to identify the determinants of vision and flexibility. Among other things, we show that vision and flexibility are substitutes, and their respective levels depend crucially on attributes such as self-confidence level and fragility as well as the strength of willpower.
    Keywords: Vision, Flexibility, Intrapersonal conflict, Confirmation bias, Willpower, Self-confidence.
    Date: 2009–01
  7. By: James J. Heckman (University of Chicago)
    Abstract: This paper discusses (a) the role of cognitive and noncognitive ability in shaping adult outcomes, (b) the early emergence of differentials in abilities between children of advantaged families and children of disadvantaged families, (c) the role of families in creating these abilities, (d) adverse trends in American families, and (e) the effective- ness of early interventions in offsetting these trends. Practical issues in the design and implementation of early childhood programs are discussed.
    Keywords: productivity, high school dropout, ability gaps, family influence, noncognitive skills, early interventions
    Date: 2008–12–15
  8. By: Nigel Wadeson (Department of Economics, University of Reading)
    Abstract: The effective use of resources in an economy requires both that they are available where and when most needed and that they are kept employed as fully and effectively as possible. A lack of certainty over future resource needs within firms brings these two requirements into conflict. It is argued that the firm and the market offer alternative means of handling this trade-off. The market switches resource services between customers to keep specialist resources employed. However, this does not guarantee the firm that a resource will always be available when needed. The firm may therefore internalise resources, switching them between different tasks to keep them employed and to make their specialist capabilities available where most needed. Idiosyncratic advantages form an important part of the theory, often severely exacerbating resource availability issues. A model of resource planning in a project with uncertain task durations is presented to illustrate the problem faced by the firm.
    Keywords: Project, Organisation, Uncertainty, Resources, Scheduling, Internalisation
    JEL: L22 L23 M21
    Date: 2008
  9. By: Bernstein, Daniel M. (Kwantlen Polytechnic University and University of Washington); Rudd, Michael E. (University of Washington); Erdfelder, Edgar (Universität Mannheim, Sonderforschungsbereich 504); Godfrey, Ryan (University of California, Riverside); Loftus, Elizabeth F. (University of California, Irvine)
    Abstract: Participants provided information about their childhood by rating the confidence that they had experienced various events (e.g., 'broke a window playing ball'). On some trials, participants unscrambled a key word from the event-phrase (e.g., wdinwo – window) or an unrelated word (e.g., gnutge – nugget) before seeing the event and giving their confidence rating. Unscrambling led participants to increase their confidence that the event occurred in their childhood, but only when the confidence rating immediately followed the act of unscrambling. This increase in confidence mirrors the “revelation effect” observed in word recognition experiments. We analyze our data using a new signal detection mixture distribution model which does not require that the researcher knows the veracity of memory judgments a priori. Our analysis reveals that unscrambling a key word or an unrelated word affects response bias and discriminability in autobiographical memory tests in ways that are very similar to those that have been previously found for word recognition tasks.
    Date: 2008–12–12
  10. By: Smith, Peter
    Abstract: This paper focuses on induction, because the supposed weaknesses of that process are the main reason for favouring falsificationism, which plays an important part in scientific methodology generally; the paper is part of a wider study of economic methodology. The standard objections to, and paradoxes of, induction are reviewed, and this leads to the conclusion that the supposed ‘problem’ or ‘riddle’ of induction is a false one. It is an artefact of two assumptions: that the classic two-valued logic (CL) is appropriate for the contexts in which induction is relevant; and that it is the touchstone of rational thought. The status accorded to CL is the result of historical and cultural factors. The material we need to reason about falls into four distinct domains; these are explored in turn, while progressively relaxing the restrictions that are essential to the valid application of CL. The restrictions include the requirement for a pre-existing, independently-guaranteed classification, into which we can fit all new cases with certainty; and non-ambiguous relationships between antecedents and consequents. Natural kinds, determined by the existence of complex entities whose characteristics cannot be unbundled and altered in a piecemeal, arbitrary fashion, play an important part in the review; so also does fuzzy logic (FL). These are used to resolve two famous paradoxes about induction (the grue and raven paradoxes); and the case for believing that conventional logic is a subset of fuzzy logic is outlined. The latter disposes of all questions of justifying induction deductively. The concept of problem structure is used as the basis for a structured concept of rationality that is appropriate to all four of the domains mentioned above. The rehabilitation of induction supports an alternative definition of science: that it is the business of developing networks of contrastive, constitutive explanations of reproducible, inter-subjective (‘objective’) data. Social and psychological obstacles ensure the progress of science is slow and convoluted; however, the relativist arguments against such a project are rejected.
    Keywords: induction; economics; methodology; complexity
    JEL: B41
    Date: 2009–01–12
  11. By: Yuemei JI
    Abstract: It is puzzling that socioeconomic background greatly affects educational choice. Distinguished from the explanations based on expected utility theory, this paper attempts to explore the psychological mechanisms of generating educational identity1 and schooling choice. It offers a self-signaling model where (1) it incorporates self-esteem concerns into the agent’s payoff function, (2) the investment in schooling not only signals her cognitive ability but also brings the agent into cognitive dissonance and reduction when the perceptions of ability are time-dependent. Using this model, I show a more discriminating analysis of educational choice which combines multi-dimensional factors including socioeconomic background, cognitive and non-cognitive abilities. I identify the conditions under which the high ability agent fails to invest in education. The quality of school and the preschooling are key variables. The model suggests that public policy can help poor children by improving both the early and later education quality at school.
    Keywords: identity, educational choice, poverty
    JEL: D81 I30
    Date: 2008–11
  12. By: Ulrich Witt
    Abstract: As recognized since long, consumption serving to signal social status, group membership, or self-esteem is a socially contingent activity. The corresponding expenditures are motivated mainly by the symbolic value they have for transmitting the signal. However, this presupposes some form of social coordination on what are valid, approved symbols. Unlike consumption not serving signaling purposes, the technological characteristics of the goods and services consumed may be secondary – what counts is their socially agreed capacity to function as a symbol. The paper discusses in detail the cognitive underpinnings of social agreement on consumption symbols and a model of their spontaneous emergence.
    Keywords: Length 16 pages
    Date: 2008–12
  13. By: Topi Miettinen (SITE, Stockholm School of Economics)
    Abstract: Recent literature has questioned the existence of a learning foundation for the partially cursed equilibrium. This paper closes the gap by showing that a partially cursed equilibrium corresponds to a particular analogy-based expectation equilibrium.
    Keywords: Analogy Expectations, Bounded Rationality, Curse, Learning
    JEL: C72 D82
    Date: 2008–12–20
  14. By: Conceição Soares (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto))
    Abstract: In this paper I will focus my attention in the distinctions embedded in standard moral philosophy, especially in the philosophy of Kant between, on the one hand, duty and supererogation on the other hand, with the aim to contrast them with the Levinas’s perspective, namely his notion of infinite responsibility. My account of Levinas’s philosophy will show that it challenges – breaking down – deeply entrenched distinctions in the dominant strands of moral philosophy, within which the theory of individual responsibility is rooted. Finally, I will argue that the notion of infinite responsibility to the Other could be viewed as an attempt to create an ethics, based on secular saintliness/holiness with individual and social consequences in our daily life.
    Keywords: Levinas, Kant, infinite responsibility, ethics
    Date: 2009–01
  15. By: van Quaquebeke, N.; Zenker, S.; Eckloff, T. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Two large online surveys were conducted among employees in Germany to explore the importance employees and organizations place on aspects of interpersonal respect in relation to other work values. The first study (N = 589) extracted a general ranking of work values, showing that employees rate issues of respect involving supervisors particularly high. The second study (N = 318) replicated the previous value ranking. Additionally, it is shown that the value priorities indicated by employees do not always match their perceptions of actual organizational practices. Particularly interpersonal respect issues that involve employees’ supervisors diverge strongly negative. Consequences and potentials for change in organizations are discussed.
    Keywords: work values;interpersonal respect;organizational culture;organizational practices
    Date: 2008–12–15

This nep-cbe issue is ©2009 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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