nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒04‒13
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Regret once, think twice: the impact of experienced regret on risk choice By Daniela Raeva; Eric van Dijk
  2. Taking Chances: The Effect of Growing Up on Welfare on the Risky Behaviour of Young People By Deborah A. Cobb-Clark; Chris Ryan; Ana Sartbayeva
  3. How does simplified disclosure affect individuals' mutual fund choices? By John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
  4. An Experiment on Learning in a Multiple Games Environment By Grimm, Veronika; Mengel, Friederike
  5. On the Problem of Breathing, Eating, & Drinking Poison: An introduction to problem solving, nobility of purpose under adverse circumstances, and the search for truth with Sir Karl Popper on Prince Edward Island By Funk, Matt
  6. Do People Make Strategic Moves? Experimental Evidence on Strategic Information Avoidance By Anders U. Poulsen; Michael V. M. Roos
  7. Preferences for Redistribution By Alesina, Alberto; Giuliano, Paola
  8. Do the Selfish Mimic Cooperators? Experimental Evidence from Finitely-Repeated Labor Markets By Roe, Brian E.; Wu, Steven Y.
  9. Measuring Trust: Experiments and Surveys in Contrast and Combination By Naef, Michael; Schupp, Jürgen
  10. What can facilitate cooperation: Fairness, ineaulity aversion, punishment, norms or trust? By Urs Steiner Brandt
  11. Sequential versus simultaneous contributions to public goods: Experimental evidence By Simon Gaechter; Daniele Nosenzo; Elke Renner; Martin Sefton
  12. Other-Regarding Preferences and Leadership Styles By Kocher, Martin G.; Pogrebna, Ganna; Sutter, Matthias
  13. A Mathematical Analysis of the Long-run Behavior of Genetic Algorithms for Social Modeling By Waltman, L.R.; Eck, N.J.P. van

  1. By: Daniela Raeva; Eric van Dijk
    Abstract: We examine the behavioral consequences of experienced regret on subsequent choice. Previous experimental research findings suggest that the impact of experienced regret on repeating subsequent choice is mediated by the anticipation of experiencing regret again. We argue that this impact is due to a mechanism linked to the subjective probability to regret in the subsequent choice. We conducted an experiment to test whether this hypothesis can be generalized to the case where the subsequent choice is different than the preceding one. Participants were presented with a sequence of two different decision tasks: a choice between two risky gambles followed by a matching task. To induce experienced regret, we provided two different types of feedback on the gambles: non-regret and regret feedbacks. To gain insights to the role of anticipated regret in mediating the effect of experienced regret, we also introduced two different types of feedback on the matching task: partial and complete feedback. We found that prior experienced regret and complete feedback on the subsequent choice should be both present for a change in behavior in the subsequent different choice. To interpret our results, we provide analytical considerations based on our hypothesis of changed subjective probability to regret, consistent with the observed behavior.
    Keywords: risk choice, regret theory
    JEL: A12 C91
    Date: 2009
  2. By: Deborah A. Cobb-Clark; Chris Ryan; Ana Sartbayeva
    Abstract: We analyze the effect of growing up on welfare on young people’s involvement in a variety of social and health risks. Young people in welfare families are much more likely to take both social and health risks. Much of the apparent link between family welfare history and risk taking disappears, however, once we account for family structure and mothers’ decisions regarding their own risk taking and investment in their children. Interestingly, we find no significant effect of socio-economic status per se. Overall, we find no evidence that growing up on welfare causes young people to engage in risky behavior.
    Keywords: youths, welfare, risky behaviour, socio-economic disadvantage
    JEL: J13 I38 J18
    Date: 2009–03
  3. By: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
    Abstract: We use an experiment to estimate the effect of the SEC’s Summary Prospectus, which simplifies mutual fund disclosure. Our subjects chose an equity portfolio and a bond portfolio. Subjects received either statutory prospectuses or Summary Prospectuses. We find no evidence that the Summary Prospectus affects portfolio choices. Our experiment sheds new light on the scope of investor confusion about sales loads. Even with a one-month investment horizon, subjects do not avoid loads. Subjects are either confused about loads, overlook them, or believe their chosen portfolio has an annualized log return that is 24 percentage points higher than the load-minimizing portfolio.
    JEL: C93 D14 D18 G11 G28
    Date: 2009–04
  4. By: Grimm, Veronika; Mengel, Friederike (METEOR)
    Abstract: We study experimentally how players learn to make decisions if they face many different (normal-form) games. Games are generated randomly from a uniform distribution in each of 100 rounds. We find that agents do extrapolate between games but learn to play strategically equivalent games in the same way. If either there are few games or if explicit information about the opponent''s behavior is provided (or both) convergence to the unique Nash equilibrium generally occurs. Otherwise this is not the case and play converges to a distribution of actions which is Non-Nash. Action choices, though, that cannot be explained by theoretical models of either belief-bundling or action bundling are never observed. Estimating different learning models we find that Nash choices are best explained by finer categorizations than Non-Nash choices. Furthermore participants scoring better in the "Cognitive Reflection Test" choose Nash actions more often than other participants.
    Keywords: microeconomics ;
    Date: 2009
  5. By: Funk, Matt
    Abstract: This paper introduces Karl Popper's approach to problem solving in the social sciences. These methods fundamentally represent the scientific method of the natural sciences. Popper's problem solving technique is outlined in six steps, including an introductory treatment of his solution to Hume's Problem of Induction. These six steps are then applied in the form of a test and logical deduction of our illustrative theory: Cancer rates on Prince Edward Island have dramatically increased as a result of an extraordinary increase (900% in the past decade) in potato production, and a corollary increase of secondary agricultural inputs, namely an increase of chlorothalonil (trade name: Bravo) applications in less than ten years. We conclude our theory is true and, in order to complete our demonstration of Popper's methods, open this theory to criticism and refutations. APPENDIX A offers a brief review of relevant literature on the philosophy of science, and APPENDIX B offers readers a brief introduction to the fundamentals of relevant island-based methods.
    Keywords: scientific method; karl popper; truth; falsity; probability theory; the problem of induction; industrial agriculture; prince edward island; insularity; manufacture of consent; the tragedy of the commons
    JEL: B0 D80 B41
    Date: 2008–11–01
  6. By: Anders U. Poulsen (School of Economics, University of East Anglia); Michael V. M. Roos (Fakultät für Wirtschaftswissenschaft, Ruhr-Universität Bochum)
    Abstract: The strategic commitment moves that game theory predicts players make may sometimes seem counter-intuitive. We therefore conducted an experiment to see if people make the predicted strategic move. The experiment uses a simple bargaining situation. A player can make a strategic move of committing to not seeing what another player will demand. Our data show that subjects do, but only after substantial time, learn to make the predicted strategic move. We find only weak evidence of physical timing effects.
    Keywords: strategic moves; commitment; bargaining; strategic value of information; physical timing effects; endogenous timing; experiment
    JEL: C72 C78 C90 C92 D63 D80
    Date: 2009–02
  7. By: Alesina, Alberto (Harvard University); Giuliano, Paola (University of California, Los Angeles)
    Abstract: This paper discusses what determines the preferences of individuals for redistribution. We review the theoretical literature and provide a framework to incorporate various effects previously studied separately in the literature. We then examine empirical evidence for the US, using the General Social Survey, and for a large set of countries, using the World Values Survey. The paper reviews previously found results and provides several new ones. We emphasize, in particular, the role of historical experiences, cultural factors and personal history as determinants of preferences for equality or tolerance for inequality.
    Keywords: preferences for redistribution
    JEL: H1
    Date: 2009–03
  8. By: Roe, Brian E. (Ohio State University); Wu, Steven Y. (Purdue University)
    Abstract: Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the existence of other-regarding preferences is typically used to justify experimental outcomes, we are unaware of empirical studies that explicitly examine the interaction between cooperators (those with other-regarding preferences) and selfish subjects in sustaining cooperation. In this paper, we classify subjects as either selfish or cooperative using simple social preference games and then test for behavioral differences between the two types in a finitely-repeated labor market with unenforceable worker effort. Theory predicts, and our data confirms, that (1) selfish players mimic the actions of cooperators when trading partners can track the individual reputation of past partners and (2) selfish and cooperative types act differently when individual reputations cannot be tracked.
    Keywords: contracts, relational contracts, implicit contracts, market interaction, experimental economics, repeated transaction, social preferences, reputation, firm latitude, finitely-repeated games
    JEL: C91 D31 D86 K12
    Date: 2009–03
  9. By: Naef, Michael (University of London); Schupp, Jürgen (DIW Berlin)
    Abstract: Trust is a concept that has attracted significant attention in economic theory and research within the last two decades: it has been applied in a number of contexts and has been investigated both as an explanatory and as a dependent variable. In this paper, we explore the questions of what exactly is measured by the diverse survey-derived scales and experiments claiming to measure trust, and how these different measures are related. Using nationally representative data, we test a commonly used experimental measure of trust for robustness to a number of interferences, finding it to be mostly unsusceptible to stake size, the extent of strategy space, the use of the strategy method, and the characteristics of the experimenters. Inspired by criticism of the widespread trust question used in many surveys, we created a new, improved survey trust scale consisting of three short statements. We show that the dimension of this scale is distinct from trust in institutions and trust in known others. Our new scale is a valid and reliable measure of trust in strangers. The scale is valid in the sense that it correlates with trusting behaviour in the experiment. Both survey and experimental measure correlate with related factors such as risk aversion, being an entrepreneur or a shareholder. Furthermore, we demonstrate that the survey measure's test-retest reliability (six weeks) is high. The experimental measure of trust is, on the other hand, not significantly correlated with trust in institutions nor with trust in known others. We conclude that the experimental measure of trust refers not to trust in a general sense, but specifically to trust in strangers.
    Keywords: representativity, survey, experiment, trust, SOEP
    JEL: C91 D63 Z13
    Date: 2009–03
  10. By: Urs Steiner Brandt (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: Almost all economic and public choice models assume that all people are exclusively pursuing their own material self-interests and do not care about "social" goals per se. Several (laboratory) experiments address the question of the general validity of this assumption. A consistent conclusion emerges that a significant number of people deviate from the assumption of selfish rational behaviour; this conclusion is robust with respect to the design of the experiments. Therefore, public choice comes with a price: the conclusions are based on the stylized stereotype of economic man, an assumption that is not fully satisfied. The purpose of this paper is to show how to incorporate otherregarding preferences into an otherwise traditional utility approach without losing predicting power or compromising the rationality assumption. On the contrary, since other-regarding preferences are based on observed behaviour, the predicting power increases; this is demonstrated at the end of this paper, where it is shown how other-regarding preferences can explain the existence and persistence of a welfare state and why people might act sustainably.
    Date: 2008–11
  11. By: Simon Gaechter (University of Nottingham); Daniele Nosenzo (University of Nottingham); Elke Renner (University of Nottingham); Martin Sefton (University of Nottingham)
    Abstract: We report an experiment comparing sequential and simultaneous contributions to a public good in a quasi-linear two-person setting (Varian, Journal of Public Economics, 1994). Our findings support the theoretical argument that sequential contributions result in lower overall provision than simultaneous contributions. However, the distribution of contributions is not as predicted: late contributors are sometimes willing to punish early low contributors by contributing less than their best response. This induces early contributors to contribute more than they otherwise would. A consequence of this is that we fail to observe a predicted first mover advantage.
    Keywords: Public Goods; Voluntary Contributions; Sequential Moves; Experiment
    JEL: C92 H41
    Date: 2009–03
  12. By: Kocher, Martin G. (University of Munich); Pogrebna, Ganna (Columbia University); Sutter, Matthias (University of Innsbruck)
    Abstract: We use a laboratory experiment to examine whether and to what extent other-regarding preferences of team leaders influence their leadership style in choice under risk. We find that leaders who prefer efficiency or report high levels of selfishness are more likely to exercise an autocratic leadership style by ignoring preferences of the other team members. Yet, inequity aversion has no significant impact on leadership styles. Elected leaders have a higher propensity than exogenously assigned leaders to use a democratic leadership style by reaching team consensus. Male leaders and leaders influenced by group membership tend to employ a democratic leadership style.
    Keywords: leadership style, other-regarding preferences, unobserved heterogeneity
    JEL: C91 C92 D70 D81
    Date: 2009–03
  13. By: Waltman, L.R.; Eck, N.J.P. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We present a mathematical analysis of the long-run behavior of genetic algorithms that are used for modeling social phenomena. The analysis relies on commonly used mathematical techniques in evolutionary game theory. Assuming a positive but infinitely small mutation rate, we derive results that can be used to calculate the exact long-run behavior of a genetic algorithm. Using these results, the need to rely on computer simulations can be avoided. We also show that if the mutation rate is infinitely small the crossover rate has no effect on the long-run behavior of a genetic algorithm. To demonstrate the usefulness of our mathematical analysis, we replicate a well-known study by Axelrod in which a genetic algorithm is used to model the evolution of strategies in iterated prisoner’s dilemmas. The theoretically predicted long-run behavior of the genetic algorithm turns out to be in perfect agreement with the long-run behavior observed in computer simulations. Also, in line with our theoretically informed expectations, computer simulations indicate that the crossover rate has virtually no long-run effect. Some general new insights into the behavior of genetic algorithms in the prisoner’s dilemma context are provided as well.
    Keywords: genetic algorithm;long-run behavior;social modeling;economics;evolutionary game theory
    Date: 2009–03–09

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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