nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒02‒14
twelve papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Exploring the effects of real effort in a weak-link experiment By Stefania Bortolotti; Giovanna Devetag; Andreas Ortmann
  2. Common Fate, Game Harmony and Contributions to Public Goods: Experimental Evidence. By Luca Corazzini, Robert Sugden.
  3. Living in Two Neighborhoods – Social Interaction Effects in the Lab By Armin Falk; Urs Fischbacher; Simon Gaechter
  4. Optimistic, but not in Control: Life-Orientation and the Theory of mixed Control By Diemo Urbig; Erik Monsen
  5. Intergroup Emotion And Diversity By Patricia Garcia-Prieto; Diane Mackie; Eliot R. Smith
  6. Bringing Emotion To Strategic Issue Diagnosis: Contributions From Emotion Psychology And Social Psychology By Patricia Garcia-Prieto; Véronique Tran; Susan Schneider
  7. How do third parties matter? Theory and evidence in a dynamic psychological game By Loukas Balafoutas
  8. Self-serving Dictators By Asheim, Geir B.; Helland, Leif; Hovi, Jon; Hoyland, Bjorn
  9. The Power of Words: Why Communication fosters Cooperation and Efficiency By López-Pérez, Raúl
  10. Complexity and Bounded Rationality in Individual Decision Problems By Theodoros M. Diasakos
  11. Peer Pressure, Incentives, and Gender: an Experimental Analysis of Motivation in the Workplace By Charles Bellemare; Patrick Lepage; Bruce Shearer
  12. The Relationship of Economic Theory to Experiments By David K Levine

  1. By: Stefania Bortolotti; Giovanna Devetag; Andreas Ortmann
    Abstract: We report results from a weak-link – often also called minimum-effort – game experiment with multiple Pareto-ranked strict pure-strategy Nash equilibria, using a real-effort rather than a chosen-effort task: subjects have to sort and count coins and their payoff depends on the worst performance in the group. While in the initial rounds our subjects typically coordinate on inefficient outcomes, almost 80 percent of the groups are able to overcome coordination failure in the later rounds. Our results are in stark contrast to results typically reported in the literature.
    Keywords: real effort, weak-link game, coordination, laboratory experiments.
    JEL: C72 C92
    Date: 2009
  2. By: Luca Corazzini, Robert Sugden.
    Abstract: We experimentally study the effects of common fate on voluntary contributions to linear public goods. In each period, earnings are assigned to subjects according to the outcome of a lottery. We manipulate the level of common fate across treatments by varying the degree of harmony in the lottery structure. We observe higher contributions and stronger reciprocity in the most harmonious manipulation. Surprisingly, we find a positive relation between contributions and having experienced a favourable lottery outcome in the previous period, with the strength of this effect being inversely associated with the degree of harmony.
    Keywords: Public Goods, Common Fate, Laboratory Experiment.
    JEL: C91 C92 H40 H41
    Date: 2009–02
  3. By: Armin Falk (University of Bonn); Urs Fischbacher (University of Konstanz); Simon Gaechter (University of Nottingham)
    Abstract: Field evidence suggests that people belonging to the same group often behave similarly, i.e., behavior exhibits social interaction effects. We conduct a laboratory experiment that avoids the identification problem present in the field and allows us to study the behavioral logic of social interaction effects. Our novel design feature is that each subject is simultaneously a member of two randomly assigned and identical groups where only members (‘neighbors’) are different. We study behavior in a coordination game with multiple equilibria and a public goods game, which has only one equilibrium in material payoffs. We speak of social interactions if the same subject at the same time makes group-specific decisions that depend on their respective neighbors’ decisions. We find that a majority of subjects exhibits social interaction effects both when the game has multiple equilibria in material payoffs and when it only has one equilibrium.
    Keywords: Social interactions, identification, experiments, coordination, cooperation
    JEL: C91 H41 K42 H26
    Date: 2009–01
  4. By: Diemo Urbig (Max Planck Institute of Economics, Jena, Germany); Erik Monsen (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Why are some people more optimistic about their life than others? Literature on locus of control suggests that optimism is associated with the belief that one’s life outcomes are controlled by internal factors, such as ability, instead of external factors, such as powerful others or chance. Furthermore, some authors suggest that internal control beliefs interact with self-efficacy beliefs regarding their effects on outcome expectancies and thus optimism. We argue that it is not only self-efficacy that interacts, but efficacy beliefs about external factors, too. We further hypothesize that the effect of perceiving internal rather than external control on dispositional optimism depends on the difference between efficacy beliefs regarding internal and external factors. Since people can influence other people to be helpful, i.e., take proxy control, but are unlikely to influence chance, we extend this internal-versus-external view and suggest that the difference between perceived control by others and perceived control by chance affect dispositional optimism. In fact, we hypothesize that the effect of perceiving that it is other people who are in control, rather than chance, depends on the difference between efficacy beliefs regarding others and chance. A first empirical survey-based test produces substantial support for our theory. This is the first time control-efficacy interaction effects are shown for dispositional variables and for the three- dimensional construct of locus of control. We replicate a gender effect on correlations of dispositional optimism with self-reported risk taking and observe a gender effect for one of our new hypotheses.
    Keywords: Information, Knowledge, Uncertainty, Search, Learning, Information and Knowledge, Communication, Belief, Expectations, Speculations
    JEL: D8 D83 D84
    Date: 2009–02–02
  5. By: Patricia Garcia-Prieto (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Diane Mackie (Department of Psychology, University of California, Santa Barbara, US.); Eliot R. Smith (Department of Psychology, University of Indiana, US.)
    Abstract: Two studies were designed to investigate the relations among ethnic group membership, ethnic group identification, group based-appraisals, and group-based emotions in determining behavioral tendencies of support and opposition toward diversity initiatives. The two studies confronted participants with the hire of an ethnic minority under a diversity-based procedure. The first study assessed reactions of whites to the hire of an ethnic minority under a diversity-based or a merit-based policy. The second study compared reactions of white and ethnic minorities to the hire of an ethnic minority under a diversity-based policy. The results of the first study showed that white participants appraised a diversity-based hiring decision as significantly more harmful to the ingroup and unjust which in turn engendered greater feelings of anger toward and shame about the diversity policy rather than the merit based policy, and more stated intentional opposition to the policy. Study 2 revealed that whites’ appraisal of the diversity-based policy as unjust and as harmful to the ingroup lead to stronger intentions to oppose because whites felt angry about it. Minorities’ appraisals of the diversity-based policy as harmful to the ingroup lead to stronger intentional opposition because they felt ashamed about it, and appraisals of the policy as unjust also lead to intention to oppose because they felt low pride about it. In both studies we provide evidence that ethnic group identification acted as a moderator of the predictive effect of emotions on behavioral intentions toward the diversity-based hire. Results are discussed within an intergroup emotion theory framework.
    Keywords: intergroup emotion, diversity, whites, minorities
    Date: 2009–02
  6. By: Patricia Garcia-Prieto (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Véronique Tran (ESCP EAP, Paris, France); Susan Schneider (University of Geneva, Suisse.)
    Abstract: Managers analyze their environment in order to diagnose strategic issues, events which may have an important impact on the organizational performance. But to date little has been said about the role of emotion in the process of strategic issue diagnosis (SID). Our paper focuses on how emotions and social identities can influence SID, which has been primarily discussed from a purely cognitive perspective. First, we build on cognitive appraisal theory of emotion to better predict individual emotional and behavioral responses to strategic issues. Second, we integrate concepts from intergroup emotion theory to predict when these emotional and behavioral responses will be based on group membership. In this way, we can better understand how not only how individuals may personally respond but also how group memberships (or social identities) may influence the process of strategic issue diagnosis. After reviewing both theories of emotion we discuss how both cognitive appraisals and the cognitive dimensions identified by existing SID frameworks can predict specific “discrete emotion” responses to the issue (e.g., joy, anger) in turn predicting specific “behavioral responses” to the issue (e.g., support, reject). We then illustrate when individual-level SID processes become group membership-level and conclude by outlining implications for theory and research.
    Keywords: Emotion, Cognition, Social Group Membership, Strategic Issue Diagnosis
    Date: 2009–02
  7. By: Loukas Balafoutas
    Abstract: This paper analyses the impact of third party beliefs and payoffs on decision making, in the context of a three person repeated game. Two players can collude and increase their intertemporal payoffs, but doing so generates an externality for an inactive player (third party). The model assumes that some players are guilt averse and conditions their emotional responses on the perceived beliefs of the third party; this leads to a self-fulfilling mechanism, where beliefs tend to be confirmed through their impact on psychological payoffs. The experimental findings reveal that the third party’s beliefs are the dominant factor driving behaviour. On the contrary, third party payoffs do not seem to matter. These results are in line with the predictions of psychological game theory, extending them to third parties. Moreover, they give some insights on the relevant weight of different theories (social preferences, reciprocity, guilt) in the shaping of pro-social behaviour.
    Keywords: psychological games, guilt, third party, corruption
    JEL: C73 C91 D73
    Date: 2009–01
  8. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Helland, Leif (BI Norwegian School of Managment); Hovi, Jon (Department of Political Science); Hoyland, Bjorn (Department of Political Science)
    Abstract: We provide experimental evidence of self-serving fairness ideals in a dictator game design that includes treatments where funds can be transferred in two ways to the one player and in one way to the other. Two methods for transferring funds to the recipient produce the same results as the regular dictator game. However, two methods for transferring funds to the dictator reduce her generosity significantly. Hence, the fairness ideal adopted by dictators appears to be equal share per individual in the former case (as in the regular dictator game), and equal share per transfer method in the latter case.
    Keywords: Self-serving Bias; Experimental Economics; Dictator Game
    JEL: C91 D63
    Date: 2008–10–14
  9. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We present a game-theoretical model that accounts for abundant experimental evidence from games with non-binding communication (‘cheap talk’). It is based on two key ideas: People are conditionally averse to break norms of honesty and fairness (i.e., the emotional cost of breaking a norm is low if few people comply), and heterogeneous with regard to their concern for norms. The model explains (a) why cooperation in social dilemmas rises if players can previously announce their intended play, (b) why details of the communication protocol like the number of message senders and the order in which players communicate affect cooperation, (c) why players in sender-receiver games tend to transmit more information than a standard analysis would predict, and (d) why senders of false messages are often sanctioned if punishment is available.
    Keywords: Communication; Cooperation; Fairness; Heterogeneity; Honesty; Reciprocity; Social Norms
    JEL: C72 D01 D62 D64 Z13
    Date: 2008–11
  10. By: Theodoros M. Diasakos
    Abstract: I develop a model of endogenous bounded rationality due to search costs, arising implicitly from the decision problem's complexity. The decision maker is not required to know the entire structure of the problem when making choices. She can think ahead, through costly search, to reveal more of its details. However, the costs of search are not assumed exogenously; they are inferred from revealed preferences through choices. Thus, bounded rationality and its extent emerge endogenously: as problems become simpler or as the benefits of deeper search become larger relative to its costs, the choices more closely resemble those of a rational agent. For a fixed decision problem, the costs of search will vary across agents. For a given decision maker, they will vary across problems. The model explains, therefore, why the disparity, between observed choices and those prescribed under rationality, varies across agents and problems. It also suggests, under reasonable assumptions, an identifying prediction: a relation between the benefits of deeper search and the depth of the search. In decision problems with structure that allows the optimal foresight of search to be revealed from choices of plans of action, the relation can be tested on any agent-problem pair, rendering the model falsifiable. Moreover, the relation can be estimated allowing the model to make predictions with respect to how, in a given problem, changes in the terminal payoffs affect the depth of search and, consequently, choices. My approach provides a common framework for depicting the underlying limitations that force departures from rationality in different and unrelated decision-making situations. I show that it is consistent with violations of timing-independence in temporal framing problems, dynamic inconsistency and diversification bias in sequential versus simultaneous choice problems, and with plausible but contrasting risk attitudes across small- and large-stakes gambles.
    Keywords: bounded rationality, complexity, search
    JEL: D80 D83
    Date: 2008
  11. By: Charles Bellemare; Patrick Lepage; Bruce Shearer
    Abstract: We present results from a real-effort experiment, simulating actual work-place conditions, comparing the productivity of workers under fixed wages and piece rates. Workers, who were paid to enter data, were exposed to different degrees of peer pressure under both payment systems. The peer pressure was generated in the form of private information about the productivity of their peers. We have two main results. First, we find no level of peer pressure for which the productivity of either male or female workers is significantly higher than productivity without peer pressure. Second, we find that very low and very high levels of peer pressure can significantly decrease productivity (particularly for men paid fixed wages). These results are consistent with models of conformism and self-motivation.
    Keywords: Peer effects, fixed wages, piece rates, gender
    JEL: M52 C91
    Date: 2009
  12. By: David K Levine
    Date: 2009–02–03

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