nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒06‒17
six papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. The Importance of Relative Performance Feedback Information: Evidence from a Natural Experiment using High School Students By Ghazala Azmat; Nagore Iriberri
  2. How Do Shocks to Non-Cognitive Skills Affect Test Scores? By Stefanie Behncke
  3. Testing alternative theories of financial decision making: an experimental study with lottery bonds By Patrick Roger
  4. Incentive Compatible Contracts? By Lisa Bruttel; Gerald Eisenkopf
  5. Risk-seeking behavior of preschool children in a gambling task By Moreira, Bruno; Matsushita, Raul; Da Silva, Sergio

  1. By: Ghazala Azmat; Nagore Iriberri
    Abstract: We study the effect of providing relative performance feedback information on performance underpiece-rate incentives. A natural experiment that took place in a high school offers an unusualopportunity to test this effect in a real-effort setting. For one year only, students received informationthat allowed them to know whether they were above (below) the class average as well as the distancefrom this average. We exploit a rich panel data set and find that the provision of this information ledto an increase of 5% in students' grades. Moreover, the effect was significant for the wholedistribution. However, once the information was removed the effect disappeared. To rule out theconcern that the effect may be driven by teachers within the school, we verify our results usingnational level exams (externally graded) for the same students, and the effect remains.
    Keywords: school performance, relative performance, piece-rate, feedback, natural experiment, socialcomparison, self-perception, competitive preferences
    JEL: I21 M52 C30
    Date: 2009–03
  2. By: Stefanie Behncke
    Abstract: This paper investigates the extent to which test performance is affected by shocks to noncognitive skills. 440 students took a low stakes mathematics test. About half of them were exposed to positive affirmation while being given test instructions, whereas the other half served as controls. The students were allocated to 14 tutorials and randomisation was conducted at the tutorial level. Mean comparisons suggest that test scores were raised by the intervention. In particular, students with low maths grades and with self-assessed difficulties in maths gained from the positive affirmation. Results suggest that teachers might increase their students' performance by interventions to their non-cognitive skills. Inference is obtained by four different methods that take into account that randomisation was clustered at the tutorial group level. These methods are evaluated in a Monte Carlo study for data generating processes which resemble actual data. We find that randomisation inference followed by the wild cluster bootstrap have superior size properties compared to conventional approaches.
    Keywords: test scores, non-cognitive skills, cluster randomised trial, wild cluster bootstrap, randomisation inference
    JEL: C15 C21 C93 I20
    Date: 2009–06
  3. By: Patrick Roger (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)
    Abstract: In this article, a simple paper-and-pencil experiment, based on lottery bonds, shows that financial decisions taken by participants are inconsistent with the traditional view of economic agents as risk averse expected utility maximizers. First, our results cast doubt on the relevance of variance as a measure of risk and put to light the importance of skewness in decision making. The decisions taken by participants are consistent with the optimal distortion of beliefs introduced in Brunnemeier and Parker (2005) and Brunnemeier et al. (2007). As a by-product of this study, we also illustrate the fact that people use heuristics when they choose numbers at random and have, in general, a poor opinion about the rationality of others.
    Keywords: Lottery bonds, optimal beliefs, probability distortion, risk aversion.
    JEL: D81
    Date: 2009
  4. By: Lisa Bruttel; Gerald Eisenkopf
    Abstract: Property rights theory suggests that vertical integration is a sensible solution to hold-up problems and therefore improves social welfare. Theories of reciprocity, in contrast, suggest that vertical integration can reduce social welfare if it implies an unfair distribution. Translating the hold-up situation into a simple prisoners’ dilemma game, we provide experimental evidence for social preferences at the individual level. Some individuals behave conditionally cooperative in the hold-up situation and some do not cooperate when they are offered an incentive compatible but unfair contract. Nevertheless, property rights theory correctly predicts that vertical integration increases aggregate welfare even in the case of unfair outcomes.
    Keywords: Prisoners’ Dilemma, Hold-up Problem, Experiment
    Date: 2009
  5. By: Moreira, Bruno; Matsushita, Raul; Da Silva, Sergio
    Abstract: A recent neurobiology study showed that monkeys systematically prefer risky targets in a visual gambling task. We set a similar experiment with preschool children to assess their attitudes toward risk and found the children, like the monkeys, to be risk seeking. This suggests that adult humans are not born risk averse, but become risk averse. Our experiment also suggests that this behavioral change may be due to learning from negative experiences in their risky choices. We also showed that though emotional states and predetermined prenatal testosterone can influence children’s preferences toward risk, these factors could not override learning experiences.
    Keywords: Risk; Children
    JEL: D81 C92 D87
    Date: 2008–11–01
  6. By: Ian McDonald
    Abstract: This paper argues that the theory of wage and price setting in macroeconomics should be broadened to include insights from behavioural economics, in particular prospect theory and loss aversion. The paper shows how broader microeconomic foundations can explain the main features of a realistic Phillips curve, which are the concurrence of a steep SRPC at low unemployment, a flat SRPC at high unemployment and speed-limit effects. The resulting macroeconomic model has the benefits of consistency with important properties of natural rate models, especially a crucial role for inflation expectations and, in determining the economy’s macroeconomic potential, for supply factors, plus the benefit of consistency with the standard IS/LM model. The paper also shows that the behavioural aspects of these broader microeconomic foundations were alluded to by Keynes and Robinson in 1936 when macroeconomics was created.
    JEL: E12 E24 E31
    Date: 2008–08

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