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on Cognitive and Behavioural Economics |
| By: | Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Qin, Ping (Department of Economics, School of Business, Economics and Law, Göteborg University); Sutter, Matthias (Department of Public Finance, University of Innsbruck) |
| Abstract: | We study household decision making in a high-stakes experiment with a random sample of households in rural China. Spouses have to choose between risky lotteries, first separately and then jointly. We find that spouses’ individual risk preferences are more similar the richer the household and the higher the wife’s relative income contribution. A couple’s joint decision is typically determined by the husband, but women who contribute relatively more to the household income, women in high-income households, women with more education than their husbands, and women with communist party membership have a stronger influence on the joint decision.<p> |
| Keywords: | Household decision making; Risk; Field experiment; China |
| JEL: | C91 C92 C93 D10 |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0356&r=cbe |
| By: | Almenberg, Johan (Dept. of Economics, Stockholm School of Economics); Dreber, Anna (Dept. of Economics, Stockholm School of Economics) |
| Abstract: | We designed an experiment that examines how knowledge about the price of a good, and the time at which the information is received, affects how the good is experienced. The good in question was wine, and the price was either high or low. Our results suggest that hosts offering wine to guests can safely reveal the price: much is gained if the wine is expensive, and little is lost if it is cheap. Disclosing the high price before tasting the wine produces considerably higher ratings, although only from women. Disclosing the low price, by contrast, does not result in lower ratings. Our finding indicates that price not only serves to clear markets, it also serves as a marketing tool; it influences expectations that in turn shape a consumer’s experience. In addition, our results suggest that men and women respond differently to attribute information. |
| Keywords: | Price-Quality Heuristic; Attribute Information; Role of Expectations; Marketing; Blind Tasting; Wine. |
| JEL: | C91 D83 M31 |
| Date: | 2009–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0717&r=cbe |
| By: | Booij, Adam S. (University of Amsterdam); van Praag, Bernard M. S. (University of Amsterdam); van de Kuilen, Gijs (Tilburg University) |
| Abstract: | This paper presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1935 from the general public. The results confirm earlier findings in the lab, suggesting that utility is less pronounced than what is found in classical measurements where expected utility is assumed. Utility for losses is found to be convex, consistent with diminishing sensitivity, and the obtained loss aversion coefficient of 1.6 is moderate but in agreement with contemporary evidence. The estimated probability weighing functions have an inverse-S shape and they imply pessimism in both domains. These results show that probability weighting is also an important phenomenon in the general population. Women and lower educated individuals are found to be more risk averse, in agreement with common findings. Unlike previous studies that ascribed gender differences in risk attitudes solely to differences in the degree utility curvature, however, our results show that this finding is primarily driven by loss aversion and, for women, also by a more pessimistic psychological response towards the probability of obtaining the best possible outcome. |
| Keywords: | loss aversion, utility for gains and losses, prospect theory, subjective probability weighting |
| JEL: | D81 C91 C93 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4117&r=cbe |
| By: | Khan, Hayat |
| Abstract: | Taking note of the wide variety and growing list of models in the literature to explain patterns of behavior observed in laboratory experiments, this paper identifies two tests, the Variety Test (ability of a model to explain outcomes under variety or alternative scenarios) and the Psychological Test (ability of a model to conform to psychological intuition), that can be used to judge any model of other regarding preferences. It is argued that for a mathematical model to qualify as a social welfare function, it must simultaneously pass the two tests. It is shown that none of the models proposed to date passes these two tests simultaneously. The paper proposes a generalized model of inequity aversion which parsimoniously explains interior solution in the dictator game and dynamics of outcomes in other games. The paper postulates that ones idea of equitable distribution is state dependent where the state is determined by psychological and structural parameters. The state could be fair, superior or inferior. Individuals in a fair state have zero equity-bias and split the pie evenly. Those in a superior (inferior) state have positive (negative) equity-bias and value more (less) than fair distribution as equitable distribution. Given psychological tendencies of an individual, every experimental design/structure assigns one of the three states to players which lead to individual specific valuation of equity. Prediction about outcomes across different experiments and designs can be made through predicting its impact on equity-bias. All aspects of an individual’s behavior, such as altruism, fairness, reciprocity, self-serving bias, kindness, intentions etc, manifest itself in equity-bias. The model therefore is all-encompassing. |
| Keywords: | Experimental Economics; Social Preferences; Other Regarding Preferences; Inequity aversion |
| JEL: | D63 A13 C92 C0 D64 C91 |
| Date: | 2009–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14701&r=cbe |
| By: | Robert S. Gazzale (Williams College); Lina Walker |
| Abstract: | We conduct a neutral-context laboratory experiment to systematically investigate the role of the hit-by-bus concern in explaining the annuitization puzzle: the low rate of retirement-asset annuitization relative to the predictions of standard models. We vary endowed asset (annuity vs. stock of wealth vs. no explicit endowment), and find a strong endowment effect. Furthermore, we find that the ordering of survival risks matters. Compared to a frame in which a single draw from a known distribution determines survival outcome, annuity choice is lower when subjects must sequentially survive early periods to reach periods in which the annuity dominates. We conclude with policy implications. |
| Keywords: | experimental economics, behavioral, retirement, annuities |
| JEL: | C91 D14 D81 G22 J26 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2009-02&r=cbe |
| By: | Anderson, Anders (Stockholm University) |
| Abstract: | If individuals derive a small utility from gambling, we should observe high turnover in stock portfolios that are of only marginal importance to them. By the use of detailed individual financial data, as weIl as trades from a Swedish online broker, we measure the frequency and cost of online trading in the cross-section and reject this hypothesis. Investors who have online portfolios that constitute a large share of risky assets are more likely to trade, trade more aggressively when they do trade, have lower trading performance, and less wealth. Trading losses are therefore mainly carried by those who can afford to carry them the least. |
| Keywords: | Investor behavior; gambling; online trading; overconfidence |
| JEL: | C24 D14 G11 |
| Date: | 2008–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sifrwp:0062&r=cbe |
| By: | Robert S. Gazzale (Williams College); Julian Jamison (Yale University); Alexander Karlan (Williams College); Dean S. Karlan |
| Abstract: | We conduct a two-phase laboratory experiment, separated by several weeks. In the first phase, we conduct urn games intended to measure ambiguity aversion on a representative population of undergraduate students. In the second phase, we invite the students back with four different solicitation treatments, varying in the ambiguity of information regarding the task and the payout of the laboratory experiment. We find that those who return do not differ from the overall pool with respect to their ambiguity version. However, no solicitation treatment generates a representative sample. The ambiguous task treatment drives away the ambiguity averse disproportionally, and the detailed task treatment draws in the ambiguity averse disproportionally. |
| Keywords: | laboratory experimental methods, experimental economics, laboratory selection effects |
| JEL: | B40 C81 C90 C91 D80 D83 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2009-01&r=cbe |
| By: | Lindqvist, Erik (Research Institute of Industrial Economics (IFN)); Westman, Roine (New York University) |
| Abstract: | We use data from the military enlistment for a large representative sample of Swedish men to assess the importance of cognitive and noncognitive ability for labor market outcomes. The measure of noncognitive ability is based on a personal interview conducted by a psychologist. Unlike survey-based measures of noncognitive ability, this measure is a substantially stronger predictor of labor market outcomes than cognitive ability. In particular, we find strong evidence that men who fare badly in the labor market in the sense of long-term unemployment or low annual earnings lack noncognitive but not cognitive ability. We point to a technological explanation for this result. Noncognitive ability is an important determinant of productivity irrespective of occupation or ability level, though it seems to be of particular importance for workers in a managerial position. In contrast, cognitive ability is valuable only for men in qualified occupations. As a result, noncognitive ability is more important for men at the verge of being priced out of the labor market. |
| Keywords: | Personality; Noncognitive ability; Cognitive ability; Intelligence; Human capital |
| JEL: | J21 J24 J31 |
| Date: | 2009–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0794&r=cbe |
| By: | Nicolas R. Ziebarth |
| Abstract: | Sick leave payments represent a significant portion of public health expenditures and labor costs. Reductions in replacement levels are a commonly used instrument to tackle moral hazard and to increase the efficiency of the health insurance market. In Germany’s Statutory Health Insurance (SHI) system, the replacement level for periods of sickness of up to six weeks was reduced from 100 percent to 80 percent of an employee’s gross wage at the end of 1996. At the same time, the replacement level for individuals absent for a long-term period, i.e., from the seventh week onwards, was reduced from 80 to 70 percent. We show theoretically that the net reform effects on long-term absenteeism can be disentangled into a direct and an indirect effect. Using SOEP data, a natural control group, and two different treatment groups, we estimate the net and the direct effect on the incidence and duration of long-term absenteeism by difference-in-differences. Our findings suggest that, on population average, the reforms have not affected long-term absenteeism significantly, which is in accordance with our theoretical predictions, assuming that employees on long-term sick leave are seriously sick. However, we find some heterogeneity in the effects and a small but significant decrease in the duration of long-term absenteeism for the poor and middle-aged full-time employed persons. All in all, moral hazard and presenteeism seem to be less of an issue in the right tail of the sickness spell distribution. Finally, our calculations suggest that from 1997 to 2006, around five billion euros were redistributed from persons on long-term sick leave to the SHI insurance pool. |
| Keywords: | long-term absenteeism, sick pay, moral hazard, natural experiment, SOEP |
| JEL: | I18 J22 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp172&r=cbe |