nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒03‒07
ten papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Market Frictions: A Unified Model of Search and Switching Costs By Wilson, Chris M
  2. Can Integrity Replace Institutions? Theory and Evidence By Gilad Aharonovitz; Nathan Skuza; Faysal Fahs
  3. The Role of Role Uncertainty in Modified Dictator Games By Nagore Iriberri; Pedro Rey-Biel
  4. Reasons behind public goods provision By M. Raimondi
  5. Payment Choice, Image Motivation and Contributions to Charity By Adriaan R. Soetevent
  6. The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition By Dulleck, Uwe; Rudolf, Kerschbamer; Matthias, Sutter
  7. Matching, Aspiration and Long-Term Relationship By In-Koo Cho; Akihiko Matsui
  8. Do Experience Make Better Doctors? By Juan M. Contreras; Beomsoo Kim; Ignez M. Tristao
  9. The Importance of Relative Performance Feedback Information: Evidence from a Natural Experiment using High School Students By Ghazala Azmat; Nagore Iriberri
  10. Past success and present overconfidence By Novarese, Marco

  1. By: Wilson, Chris M
    Abstract: Despite the existence of two vast literatures, very little is known about the potential differences or interactions between search and switching costs. This paper demonstrates the benefits of examining the two frictions in unison. First, the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour and market prices. In many cases, policymakers may prefer to reduce search costs rather than switching costs. Second, the paper illustrates a simple methodology for estimating the magnitude of both costs while demonstrating the potential bias that can arise from a single-cost approach.
    Keywords: Search costs; Switching Costs; Market Friction
    JEL: L10
    Date: 2009–02
  2. By: Gilad Aharonovitz; Nathan Skuza; Faysal Fahs (School of Economic Sciences, Washington State University)
    Abstract: Institutions are important for proper economic performance, but can be somewhat replaced by trust or other social norms. This study shows that institutions and trust can be replaced by integrity of the individual agents in the economy, regardless of any social arrangement. We construct a model of a transactions-based economy in which transactions are preceded by contracts, and show that any one of (1) institutions, (2) trust, or (3) integrity, can foster economic growth, while the absence of all three will lead to economic decay. The model also predicts that in the absence of institution and trust, dishonest agents may gain higher payoffs than honest agents. We construct data of economic performance of different social groups in Lebanon, measure integrity and other values of these groups, and support the latter conclusion with this data.
    Keywords: economic development, institutions, integrity, Lebanon, social norms, trust.
    JEL: A13 C73 E19 O43
    Date: 2008–12
  3. By: Nagore Iriberri; Pedro Rey-Biel
    Abstract: We compare behavior in modified dictator games with and without role uncertainty. Costly surplus creating actions are most frequent with role uncertainty while selfish behavior is most frequent without role uncertainty. A classification of subjects into four different types of preferences (Selfish, Social Welfare maximizing, Inequity Averse and Competitive) shows that role uncertainty overestimates (underestimates) the prevalence of Social Welfare maximizing (Selfish and Inequity Averse) preferences in the subject population. Our results have important methodological implications for experiments used to measure the prevalence of interdependent preferences.
    Keywords: Role uncertainty, role reversal, interdependent preferences, social welfare, maximizing, inequity aversion, mixture-of-types models, strategy method, experiments, LeeX
    JEL: C72 C91 D81
    Date: 2008–05
  4. By: M. Raimondi
    Abstract: In order to examine the role of non-economically measurable factors into the models of voluntary provision of public goods, Experimental Economics showed two systematic findings: (a) in early rounds of game, individual contributions are surprisingly high and increasing, but they tend to decrease progressively for all the agents and to reach a level of cooperation close to zero and (b) complete free riding is never observed. In explaining these evidences, experimental economists have pointed out the importance of factors such as kindness, confusion and strategic cooperation and most laboratory experiments have used clever designs to control for particular factors in order to isolate the effects of others. However, attempts to disentangle and measure the relevant variables of voluntary cooperation are partially and mainly realised comparing pairs of variables, which leaves one of the three hypotheses unexplained. In particular, there are at least two aspects left to be explained: (1) which has more influence in determining the level of contributions: kindness or confusion? (2) What is the role of strategic cooperation? Earlier experiments appear not able to include kindness, confusion and strategic cooperation in the same model and it seems to be very important to separate strategic cooperation from other altruistic motivations. In this work I aim at providing evidence on the way that kindness, confusion and strategic cooperation all affect contributions and to discuss new findings in the measurement and in the disentanglement of these variables made by using a new experimental design with the Voluntary Contribution Mechanism (VCM). I will adopt the same approach as Andreoni (1995), subtracting one component in each treatment and leaving other components as reasonable (and measurable) explanations for cooperation.
    Keywords: Experimental Economics; Social Dilemmas; Collective Action; Public Goods
    JEL: C92 D64 D80 H41
    Date: 2009
  5. By: Adriaan R. Soetevent (Faculty of Economics & Business, University of Amsterdam)
    Abstract: This study uses a door-to-door fundraising field experiment to examine the impact of different payment options on charitable giving. Households are randomly divided into three treatments, distinguished by the possibility for respondents to donate cash, by debit card, or both. I find that due to dwindling participation, revenues are significantly lower in the debit-only treatment than in the baseline cash-only treatment. In the combined treatment, the vast majority of donors uses cash, participation decreases and especially small donors drop out. This indicates that the option to donate electronically crowds out the image motivation of cash donations.
    Keywords: Payment choice; field experiment; image motivation
    JEL: C93 D64 H41 E42
    Date: 2009–02–19
  6. By: Dulleck, Uwe (Queensland University of Technology); Rudolf, Kerschbamer (University of Innsbruck and CEPR); Matthias, Sutter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market break-down. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that either liability or verifiability yields efficiency, we find that liability has a crucial, but verifiability only a minor effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated.<p>
    Keywords: Credence goods; Experiment; Liability; Verifiability; Reputation; Competition
    JEL: C72 C91 D40 D82
    Date: 2009–03–02
  7. By: In-Koo Cho; Akihiko Matsui
    Date: 2009–02–21
  8. By: Juan M. Contreras (Congressional Budget Office); Beomsoo Kim (Department of Economics, Korea University, Seoul, South Korea); Ignez M. Tristao (Congressional Budget Office)
    Abstract: In this paper, we examine the ¡°learning-by-doing¡± hypothesis in medicine using a longitudinal census of laser in situ keratomileusis (LASIK) eye surgeries collected directly from patient charts. LASIK surgery has precise measures of presurgical condition and postsurgical outcomes. Unlike other types of surgery, the impact of unobservable underlying patient conditions on outcomes is minimal. Individual learning-bydoing is identified through observations of surgical outcomes over time based on the cumulative number of surgeries each surgeon has performed. Collective learning is identified separately through changes in a group adjustment rule determined jointly by all the surgeons through a structured internal review process. Our unique data set overcomes some of the measurement problems in patient outcomes encountered in other studies, and improves the possibility of identifying the impact of learning-by-doing separate from other effects. Our results do not support the hypothesis that the surgeon¡¯s individual learning improves outcomes, but we find strong evidence that experience accumulated by surgeons as a group in a clinic significantly improves outcomes.
    Keywords: learning, experience, LASIK
    JEL: I10 I12 I18
    Date: 2009
  9. By: Ghazala Azmat; Nagore Iriberri
    Abstract: We study the effect of providing relative performance feedback information on performance under piece-rate incentives. A natural experiment that took place in a high school offers an unusual opportunity to test this effect in a real-effort setting. For one year only, students received information that allowed them to know whether they were above (below) the class average as well as the distance from this average. We exploit a rich panel data set and find that the provision of this information led to an increase of 5% in students’ grades. Moreover, the effect was significant for the whole distribution. However, once the information was removed the effect disappeared. To rule out the concern that the effect may be driven by teachers within the school, we verify our results using national level exams (externally graded) for the same students, and the effect remains.
    Keywords: School performance, relative performance, piece-rate, feedback, natural experiment, social comparison, self-perception, competitive preferences
    JEL: I21 M52 C30
    Date: 2009–02
  10. By: Novarese, Marco
    Abstract: According to a wide literature persons are not able to evaluate their own skills and knowledge, but the discussion on the nature, extension and determinants of this phenomenon is still open. This paper aims at proposing new empirical evidence on overconfidence and its determinants, trying to find out the possible effect of past performance on present optimism. I test my students' calibration and confidence in predicting their future results, comparing their expectations and real grades. My analysis allows showing the existence of overconfidence, its reduction in two following tests, and its non linear relation with students' capacities. Besides, I focus my attention on the effect of the grade my students got at the end of high school. This is used a proxy of their past experience and habit to get good or bad grades. Past success determined overconfidence. This idea is connected to the literature on heuristics and rule based perception.
    Keywords: overconfidence; expectations; learning; inertia; rule based behavior; economic education
    JEL: D83
    Date: 2009–03

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.