nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒05‒02
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Imagination, illusion and delusion By Brian Loasby
  2. A Behavioural Perspective on Keynesian Decision Theory By Martin Jones
  3. Risk, Uncertainty and Expectation as language game categories: - what we can still learn from Keynes By Mário Gómez
  4. How Distinct are Intuition and Deliberation? An Eye-Tracking Analysis of Instruction-Induced Decision Modes By Nina Horstmann; Andrea Ahlgrimm; Andreas Glöckner
  5. Risk perception, risk attitude and decision : a Rank-Dependent approach. By Michèle Cohen
  6. How to explain the participation effect: is it a question of different expectations and communication? A preliminary investigation By Francesca Bortolami
  7. Incentives to learn calibration : a gender-dependent impact. By Marie-Pierre Dargnies; Guillaume Hollard
  8. Signaling Without Common Prior: An Experiment By Michalis Drouvelis; Wieland Muller; Alex Possajennikov
  9. "My Father was right": The transmission of values between generations By Luc Arrondel
  10. Education in Italy: is there any return? By Germana Bottone
  11. Voluntary Cooperation Based on Equilibrium Retribution - An Experiment Testing Finite-Horizon Folk Theorems By Lisa V. Bruttel; Werner Güth; Ulrich Kamecke; Vera Popova
  12. Cycles of conditional cooperation in a real-time voluntary contribution mechanism By M. Vittoria Levati; Ro'i Zultan
  13. How does labor supply react to different tax rates? A field inquiry By Migheli, Matteo; Scacciati, Francesco

  1. By: Brian Loasby (University of Stirling)
    Abstract: This paper is intended to explore the twin propositions that the ability to create new ideas is a crucial factor in human progress, but that there is no reason why what is imagined, either as an explanation of existing phenomena or as an innovation, should be correct or feasible; indeed most products of the imagination are illusions, for some fundamental reasons to be examined almost immediately. Therefore human progress depends on both the encouragement of imagination to generate variety and on efficient selection from the products of imagination. In addition I wish to argue that illusion is not merely the opportunity cost of imagination; some illusions may have important beneficial consequences, rather than, or as well as, the undesirable or even dangerous consequences which are implied in the word 'delusion'.
    Keywords: imagination, illusion, delusion
    JEL: B41
  2. By: Martin Jones (University of Dundee)
    Abstract: Keynes's theory of probability has been studied intensively in the past few years with much discussion of its relevance to modern economics. This paper examines Keynes's ideas in light of criticisms made by other authors and comes to the conclusion that Keynes's views on rationality are critically flawed. However, it is asserted that this actually allows more freedom for investigation when it is combined with insights from behavioural economics and gives examples where this could be fruitful. One of the side-effects of this is that there is a narrowing of the gap between Keynesian and mainstream behavioural views on decision-making.
    Keywords: uncertainty, Keynes, behavioral economics
    JEL: B41
  3. By: Mário Gómez
    Abstract: In this paper we will discuss the relation between the rationality of the agents, and the probability context that involves them in the decision process made by Keynes but considering categories such as expectation as language game, in the sense that Roger Koppl understand it as-if rationalizations. In this sense Keynes’s expectations can be understand and see as only a very particular category: cognitive expectation and the uncertain situation as a very specific circumstance in production process. If expectation theory is one of the crucial issues in economic theory, a language game theory of expectation provide a more general case that need to be re-examinate as a stimulating approach
    Keywords: history of the economic ideas in Latin America, economic theory, expectations, theory of expectations.
    JEL: B5 O3 O4
    Date: 2009–03
  4. By: Nina Horstmann (Max Planck Institute for Research on Collective Goods); Andrea Ahlgrimm (Max Planck Institute for Research on Collective Goods); Andreas Glöckner (Max Planck Institute for Research on Collective Goods)
    Abstract: In recent years, numerous studies comparing intuition and deliberation have been published. However, until now relatively little is known about the cognitive processes underlying the two decision modes. Therefore, we analyzed processes of information search and integration using eye-tracking technology. We tested hypotheses derived from dual-process models which postulate that intuition and deliberation are completely distinct processes against predictions of interventionist models. The latter assume that intuitive and deliberate decisions are based on the same basic process which is supplemented by additional processes in the deliberate decision mode. We manipulated decision mode between-participants by means of instructions and participants completed simple and complex city-size tasks as well as complex legal inference tasks. Our findings indicate that the instruction to deliberate does not necessarily increase levels of processing. We found no difference in mean fixation duration and the distribution of short, medium and long fixations. Instruction-induced deliberation led to a higher number of fixations, a more complete information search and more repeated information investigations. Overall, the data support interventionist models suggesting that decisions mainly rely on automatic processes which are supplemented by additional operations in the deliberate decision mode.
    Keywords: Decision Making, Decision Mode, Intuition, Deliberation, Eye-Tracking
    Date: 2009–04
  5. By: Michèle Cohen (Paris School of Economics - Centre d'Economie de la Sorbonne)
    Abstract: The classical expected utility model of decision under risk (von Neumann-Morgenstern, 1944) has been criticized from an experimental point of view (Allais' paradox) as well as for its restrictive lack of explanatory power. The Rank-Dependent Expected Utility model (RDU) model (Quiggin, 1982) attempts to answer some of these criticisms. The decision maker is characterized by two functions : a utility function on consequences measuring preferences over sure outcomes and a probability weighting function measuring the subjective weighting of probabilities. As we show and illustrate in this paper, this model allows for more diversified types of behavior : it is consistent with the behavior revealed by the Allais paradox ; the decision maker could dislike risk (prefer to any lottery its expectation) without necessarily avoiding any increase in risk ; diminishing marginal utility may coexists with "weak" risk seeking attitudes ; decision makers with the same utility function may differ in their choices between lotteries when they have different probability weighting functions ; furthemore, the same decision maker may have different, context-dependent, subjective beliefs on events.
    Keywords: Decision under risk, risk perception, risk aversion, Allais paradox, Rank-Dependent Expected Utility model.
    JEL: D81
    Date: 2008–12
  6. By: Francesca Bortolami
    Abstract: This experiment is a preliminary test to explain the participation effect observed in Bortolami and Mittone (2009). The aim of this new version is to test whether the contributory gap is more properly justifiable in terms of pure environmental choices, or, on the contrary, whether the gap is more strictly related to behavioural dynamics. To verify the former hypothesis, an environmental change regarding communication is introduced. To test the latter, empirical and normative expectations are explicitly considered.
    Keywords: public goods, participation effect, computer mediated communication, empirical and normative expectations.
    JEL: C92 H41
    Date: 2009
  7. By: Marie-Pierre Dargnies (Paris School of Economics - Centre d'Economie de la Sorbonne); Guillaume Hollard (Paris School of Economics - Centre d'Economie de la Sorbonne)
    Abstract: Miscalibration can be defined as the fact that people think that their knowledge is more precise than it actually is. In a typical miscalibration experiment, subjects are asked to provide subjective confidence intervals. A very robust finding is that subjects provide too narrow intervals at the 90% level. As a result a lot less than 90% of correct answers fall inside the 90% intervals provided. As miscalibration is linked with bad results on a experimental financial market (Biais et al., 2005) and entrepreneurial success is positively correlated with good calibration (Regner et al., 2006), it appears interesting to look for a way to cure or at least reduce miscalibration. Previous attempts to remove the miscalibration bias relied on extremely long and tedious procedures. Here, we design an experimental setting that provides several different incentives, in particular strong monetary incentives ; i.e. that make miscalibration costly. Our main result is that a thirty-minute training session has an effect on men's calibration but no effect on women's.
    Keywords: Miscalibration, overconfidence, incentives, gender effect.
    JEL: D81 C91
    Date: 2008–12
  8. By: Michalis Drouvelis; Wieland Muller; Alex Possajennikov
    Abstract: The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a common prior in a two-person signaling game. For a specific probability distribution of the sender's type, the long-run behavior without an induced common prior is shown to be different from the behavior when a common prior is induced, while for other distributions behavior is similar under both regimes. We also present a learning model that allows players to learn about the other players' strategies and the prior distribution of the sender's type. We show that this learning model accurately accounts for all main features of the data.
    Date: 2009–04
  9. By: Luc Arrondel
    Abstract: Research using French data has often found that parents' saving behaviour influences that of their children. This article attempts to explain this phenomenon using data from a unique French survey set up by Delta and TNS-Sofres in 2002. This survey contains information on both preference and saving information for two generations of respondents.Savings preferences of parents and children, concerning risk attitudes and time discounting, are significantly correlated. The correlation coefficient is 0.25, so that the concordance, while significant, is not complete. The analogous correlation between wealth levels is 0.22. This coefficient is corrected for the differences in age of the two generations, and concerns coexisting generations, i.e. before the most significant intergenerational transfers have taken place. Over 40% of this elasticity results (directly or indirectly) from the levels of permanent income of the two generations. Education and preferences further explain around 20% each, and intergenerational transfers that have already taken place around 13%. The contribution of savers' preferences is also around 13%, we control for the effect of permanent income. Even though it is only one of a number of channels of influence, the transmission of preferences therefore plays a non- negligible role in the transmission of wealth inequalities.
    Date: 2009
  10. By: Germana Bottone (ISAE - Institute for Studies and Economic Analyses)
    Abstract: The “return to education” issue has been widely investigated in the economic literature. However, how the social value of education can affect its economic return and individual decisions on “human capital” investments has been somewhat neglected. The paper criticises the traditional definition of human capital and the premises of Becker’s equation and considers the following questions: does education have a consistent return in Italy? If not, does education have any social value?. From an economic point of view and at a conceptual level, numerous difficulties arise when one seeks to define “human capital”. One may make a list of factors endogenous to an individual, such as education, training and ability, and of factors exogenous to him/her such as level of family education, social capital, system of relations, freedom of knowledge transmission, institutions. All of these factors may affect “human capital”. Moreover, the decision to invest in “human capital” may not be completely rational. Rationality would probably instead suggest on-the-job training and training. Education has a cultural, social and historical value; as a consequence, individuals may make decisions about the proper investment in education not only by considering marginal costs and future benefits of that investment, but for other reasons as well.
    Keywords: human capital, bounded rationality, institutional economics.
    JEL: J24 J31
    Date: 2009–03
  11. By: Lisa V. Bruttel (University of Konstanz, Department of Economics); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Ulrich Kamecke (Humboldt-University Berlin, Department of Business and Economics); Vera Popova (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: Unlike previous attempts to implement cooperation in a prisoners' dilemma game with an infinite horizon in the laboratory, we focus on extended prisoners' dilemma games in which a second (pure strategy) equilibrium allows for voluntary cooperation in all but the last round. Our four main experimental treatments distinguish long versus short horizon and strict versus non-strict additional equilibrium compared to the control treatment, a standard prisoners' dilemma. Quite surprisingly, according to our results, only a strict additional equilibrium increases cooperation rate for a given time horizon. As expected a longer time horizon promotes cooperation.
    Keywords: Folk theorem, Finite horizon, Prisoners' dilemma, Experiment
    JEL: C73 C91
    Date: 2009–04–21
  12. By: M. Vittoria Levati (Max Planck Institute of Economics, Jena); Ro'i Zultan (The Center for Rationality, The Hebrew University of Jerusalem)
    Abstract: This paper provides a new way to identify conditional cooperation in a real-time version of the standard voluntary contribution mechanism. Our approach avoids most drawbacks of the traditional procedures because it relies on endogenous cycle lengths, which are defined by the number of contributors a player waits before committing to a further contribution. Based on hypothetical distributions of randomly generated contribution sequences, we provide strong evidence for conditionally cooperative behavior. Moreover, notwithstanding a decline in contributions, conditional cooperation is found to be stable over time.
    Keywords: Public goods game, Real-time protocol, Information feedback, Conditional cooperation, Simulations
    JEL: C72 C92 H41
    Date: 2009–04–20
  13. By: Migheli, Matteo; Scacciati, Francesco
    Abstract: Participants (96 students) were divided into three groups. Subjects in Group 1 were asked their labor supply, being their income burdened by a 25% tax rate. Then they were asked their labor supply if the tax rate were 40%. Subjects in G2 were asked their labor supply with a 25% tax rate, and subjects in G3 with a 40% tax rate. We first compared labor supplies within G1; then we compared labor supplies between G2 and G3. Finally we compared the two comparisons. In G1, subjects' labor supply is different, negatively related with the tax rate: this is probably due to how the questions are put, which suggest different answers. In fact, comparing G2 and G3, the labor supply is almost the same. Students who are part-time workers and students who are not supply different amounts of labor. There is no difference at all when comparing G2 and G3 as for non-working students, being the whole difference between G2 and G3 due to working students, who probably compare the tax rate they pay on their real income to the ones suggested in the questionnaire. Singling out non-biased responders, i.e. non-working students in G2 and G3, the tax rate on income – if given, independently of its level – does not influence the labor supply.
    Keywords: labour supply, taxation, individual behaviour
    JEL: H39 J20
    Date: 2009–04

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