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

  1. Attitudes toward Uncertainty among the Poor: Evidence from Rural Ethiopia By Akay, Alpaslan; Martinsson, Peter; Medhin, Haileselassie; Trautmann, Stefan T.
  2. Is Behavioral Economics Doomed? By David K Levine
  4. Rule-Rationality and the Evolutionary Foundations of Hyperbolic Discounting By Hillel Bavli
  5. The Interaction between Explicit and Relational Incentives: An Experiment By Randolph Sloof; Joep Sonnemans
  6. Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction By Steven Carter; Michael McBride
  7. Trust and Reciprocity among International Groups: Experimental Evidence from Austria and Japan By Kenju Akai; Robert J. Netzer
  8. Strategic behavior in repeated voluntary contribution experiments By Mengel Friederike; Peeters Ronald
  9. A Missing Link in Behavioural Economics? A Portmanteau Experiment on the Relevance of Individual Decision Anomalies for Households. By Alistair Munro; Danail Popov
  10. Building Trust One Gift at a Time By Maroš Servátka;; Steven Tucker; Radovan Vadovic
  11. Engineering Trust - Reciprocity in the Production of Reputation Information By Gary E. Bolton; Ben Greiner; Axel Ockenfels
  12. The Impact of Social Value Orientation and Risk Attitudes on Trust and Reciprocity By Kiridaran Kanagaretnam; Stuart Mestelman; Khalid Nainar; Mohamed Shehata
  13. Decision to get influenza vaccination: A behavioral economic approach By Yoshiro Tsutsui; Uri Benzionb; Shosh Shahrabanic; Gregory Yom Din
  14. The Red Mist? Red Shirts, Aggression and Team Sports By David A.Savage; Benno Torgler; Marco Piatti
  15. Writers’ Shift Between Error Correction and Sentence Composing: Competing Processes and the Executive Function By Quinlan Th.; Loncke M.; Leijten M.; Van Waes L.

  1. By: Akay, Alpaslan (IZA); Martinsson, Peter (University of Gothenburg); Medhin, Haileselassie (University of Gothenburg); Trautmann, Stefan T. (Tilburg University)
    Abstract: We looked at risk and ambiguity attitudes among Ethiopian peasants in one of the poorest regions of the world and compared their attitudes to a standard Western university student sample elicited by the same decision task. Strong risk aversion and ambiguity aversion were found with the Ethiopian peasants. Ambiguity aversion was similar for peasants and students, but peasants were more risk averse. Testing for the effect of socio-economic variables on uncertainty attitudes showed that poor health increased both risk and ambiguity aversion.
    Keywords: risk attitudes, ambiguity attitudes, poverty, cultural differences
    JEL: D81 C93 O12
    Date: 2009–06
  2. By: David K Levine
    Date: 2009–06–20
  3. By: POPESCU, Ion (Universitatea Spiru Haret, Facultatea de Finante si Banci); Bondrea, Aurelian (Universitatea Spiru Haret, Facultatea de Finante si Banci); Constantinescu, Madalina (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: Our article offers a survey of behavioral economics and in its actual directions such neuroeconomics, including his historical origins, results, and methods. Our central thesis is that the development of behavioral economics in important respects parallels the development of cognitive science. Neuroeconomics has further bridged the once disparate fields of economics and psychology. Such convergence is almost exclusively attributable to changes within economics. Neuroeconomics has inspired more change within economics than within psychology because the most important findings in Neuroeconomics have posed more of a challenge to the standard economic perspective. The single most important source of inspiration for behavioral economists has been behavioral decision research, which can, in turn, be seen as an integration of ideas from cognitive science and economics. Neuroeconomics has primarily challenged the standard economic assumption that decision making is a unitary process a simple matter of integrated and coherent utility maximization suggesting instead that it is driven by the interaction between automatic and controlled processes. This article reviews neuroeconomic research in areas of interest to both economists and psychologists: decision making under risk and uncertainty, intertemporal choice, and social decision making.
    Keywords: neuroeconomics; behavioural economics; affect; behavioral welfare economics; decision making; caeteris paribus
    JEL: D84 D87 I38
    Date: 2009–06–16
  4. By: Hillel Bavli
    Abstract: Recent studies involving intertemporal choice have prompted many economists to abandon the classical exponential discount utility function in favor of one characterized by hyperbolic discounting. Hyperbolic discounting, however, implies a reversal of preferences over time that is often described as dynamically inconsistent and ultimately irrational. We analyze hyperbolic discounting and its characteristic preference reversal in the context of rule-rationality, an evolutionary approach to rationality that proposes that people do not maximize utility in each of their acts; rather, they adopt rules of behavior that maximize utility in the aggregate, over all decisions to which an adopted rule applies. In this sense, people maximize over rules rather than acts. Rule-rationality provides a framework through which we may examine the rational basis for hyperbolic discounting in fundamental terms, and in terms of its evolutionary foundations. We conclude that although aspects of hyperbolic discounting may contain a certain destructive potential, it is likely that its evolutionary foundations are sound -- and its application may well be as justified and rational today as it was for our foraging ancestors.
    Date: 2009–06
  5. By: Randolph Sloof (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. We also explicitly test how game choice is affected by the length of the repeated game.
    Keywords: relational contracts; explicit incentives; crowding out; experiments
    JEL: C91 M52 J41
    Date: 2009–04–14
  6. By: Steven Carter (Department of Economics, University of California-Irvine); Michael McBride (Department of Economics, University of California-Irvine)
    Abstract: Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.
    Keywords: Happiness; Utility; Experiment; Value function; Prospect theory
    JEL: C91 D70 I30
    Date: 2009–06
  7. By: Kenju Akai; Robert J. Netzer
    Abstract: This paper aimed to compare the trust and reciprocity levels among international groups by adopting a modified trust game played among groups from Austria and Japan. Our results were as follows: (i) When the groups interacted intranationally, the trust and reciprocity levels among the Austrian and Japanese groups were identical. (ii) When they interacted internationally, the groups tended to display the same trust levels, and the Japanese groups tended to reciprocate more than the Austrian groups as the trust levels of their respective interacting group increased. These results suggest that a heterolytic group norm exists across nationalities. In other words, the trust between groups is identical across nationality, whereas reciprocity between groups differs. The fact that the Japanese display less in-group favoritism only in terms of reciprocity has an important implication in terms of a comparative analysis of group norms, not only between the EU and Japan but also between individualism and collectivism in larger sense.
    Date: 2009–05
  8. By: Mengel Friederike; Peeters Ronald (METEOR)
    Abstract: We conduct a repeated VCM (voluntary contribution mechanism) experiment using thestrategy method. We compare a partner and a stranger design and find that participantsin the partner treatment provide (i) higher initial contributions, (ii) higher contributionson average over all periods, and (iii) contributions that do not vary more strongly withpast contributions than participants in the stranger treatment. We conclude from ourevidence that strategic motives can account for a large share of the treatment differencestypically observed in this literature.
    Keywords: public economics ;
    Date: 2009
  9. By: Alistair Munro (National Graduate Institute for Policy Studies, Tokyo, Japan); Danail Popov (Department of Economics, Royal Holloway University of London)
    Abstract: Although households are responsible for many important decisions, they have rarely been the subject of economics experiments. We conduct a series of linked and incentivized experiments on decision-making, designed to see if the anomalies typically found in individual choice experiments are found when the subjects are couples from long-term relationships. Specifically we investigate the endowment effect, the compromise effect, asymmetric dominance and the ‘more is less’ phenomena. Comparing the results with two control groups (students and non-student individuals) we find broadly the same pattern of anomalies in individuals as we do in couples. Thus behavioural patterns that appear in individual choices appear relevant for decisions made by established couples.
    Keywords: Household choice, Experiment, Family, Anomalies, Endowment Effect, Compromise Effect, Asymmetric Dominance, ‘More is less’.
    JEL: C92 D13 D80
    Date: 2009–06
  10. By: Maroš Servátka; (University of Canterbury); Steven Tucker (University of Canterbury); Radovan Vadovic
    Abstract: This paper reports an experiment evaluating the effect of gift giving on building trust in a relationship. We have nested our explorations in the standard version of the investment game. Our gift treatment includes a dictator stage in which the trustee decides whether to give a gift to the trustor before both of them proceed to play the investment game. We observe that in such case the majority of trustees offer their endowment to trustors. Consequently, receiving a gift significantly increases the amounts sent by trustors when controlling for the differences in payoffs created by it. Trustees are, however, not better off by giving a gift as the increase in the amount sent by trustors is not large enough to offset the trustees’ loss associated with the cost of giving a gift. Our results indicate that a relationship which is initiated by gift giving leads to higher trust and efficiency but at the same time is probably not stable.
    Keywords: Experimental economics; gift; investment game; trust; trustworthiness
    JEL: C70 C90
    Date: 2009–06–17
  11. By: Gary E. Bolton (Department of Supply Chain & Information Systems, Pennsylvania State University); Ben Greiner (School of Economics, The University of New South Wales); Axel Ockenfels (Department of Economics, University of Cologne)
    Abstract: Reciprocal feedback distorts the production and content of reputation information, hampering trust and trade efficiency. Data from eBay and other sources combined with laboratory data provide a robust picture of how reciprocity can be guided by changes in the way feedback information flows through the system, leading to more accurate reputation information, more trust and more efficient trade.
    Keywords: market design; reputation; trust; reciprocity; eBay
    JEL: C73 C9 D02 L14
    Date: 2009–03
  12. By: Kiridaran Kanagaretnam; Stuart Mestelman; Khalid Nainar; Mohamed Shehata
    Abstract: Prior experimental studies provide evidence that the levels of trust and reciprocity are highly susceptible to individuals’ preferences towards payoffs, prior experience, capacity to learn more about personal characteristics of each other and social distance. The objective of this study is to examine whether social value orientation as developed by Griesinger and Livingstone (1973) and Liebrand (1984) and risk preferences can help to account for the variability of trust and trustworthiness. We use the Berg et al. (1995) investment game to generate indices of trust and reciprocity. Prior to their participation in the investment game, all subjects participated in two other games. One is used to measure their social value orientation (a measure of other regarding behavior) and the second to measure risk attitudes. These variables are introduced as treatments in the analysis of the trust and reciprocity data. In addition to these preference related variables, gender is introduced to capture any differences between men and women which may not be encompassed by value orientation and risk attitudes. The statistical analysis indicates that the social value orientation measure significantly accounts for variation in trust and reciprocity. As well, the level of trust exhibited by an investor significantly affects the reciprocity of the responders and this measure of trust interacts with social value orientation. Individuals who are highly pro-social reciprocate more as the sender’s trust increases, while those who are highly pro-self reciprocate less as the sender’s trust increases. For this sample of participants, the gender variable does not capture any differences in the behavior of men and women that is not already reflected by the differences captured by their value orientations. Risk attitudes do not significantly account for variation in trusting behavior, except for the case where individuals have neither strongly pro-social nor pro-self social value orientations. In this case, more riskseeking individuals are more trusting.
    Keywords: Trust, Reciprocity, Social Value Orientation, Risk Attitudes, Gender
    JEL: C92 D81 Z13
    Date: 2009–05
  13. By: Yoshiro Tsutsui (Graduate School of Economics, Osaka University); Uri Benzionb (Department of Economics, Ben Gurion University); Shosh Shahrabanic (Economics and Management Department, Max Stern Academic College of Emek Yezreel); Gregory Yom Din (Golan Research Institute, University of Haifa,Ohalo College)
    Abstract: The aims of this study were to identify predictors regarding peoplefs willingness to be vaccinated against influenza and to determine how to improve the inoculation rate using our original large-scale survey in the USA in 2005. The main results are (a) a model of bounded rationality explains vaccination behavior fairly well, i.e., people evaluate the costs and benefits of vaccination by applying risk aversion and time preference, while the estatus quo biasf of those who received vaccinations in the past affect their decision to be vaccinated in the future, (b) it is recommended to increase peoplefs knowledge regarding flu vaccination, but not regarding influenza illness, (c) reducing the vaccination fee may be ineffective in raising the rate of vaccination.
    Keywords: Influenza, Inoculation, Health belief model, Survey, Time preference.
    JEL: I19
    Date: 2009–06
  14. By: David A.Savage; Benno Torgler; Marco Piatti
    Abstract: Baron von Richthofen (aka the Red Baron) arguably the greatest fighter pilot of all time painted his plane in the vividest of red hues, making him visible and identifiable at great distance. An aggressive pronouncement of dominance to other pilots, but is it the colour that inspires greater performance or coincidence that red appears to perform better? This study explores the effect of the colour red on sporting performances in a team sport, through empirical analysis of match results from the Australian Rugby League spanning a period of 30 years. The results do not provide empirical evidence that teams with predominately red jerseys enjoy a ceteris paribus advantage over those wearing other colours. On the contrary, our multivariate analysis shows that teams wearing red experience a large negative relationship with victories.
    JEL: L83
    Date: 2009–06–26
  15. By: Quinlan Th.; Loncke M.; Leijten M.; Van Waes L.
    Abstract: Moment to moment, the skilled writer faces a myriad of potential issues. Different types of problem-solving compete for limited cognitive resources, with executive function presumably coordinating and thereby resolving this competition. In two experiments, we examined the coordination of two common writing tasks, editing and sentence composing. In Experiment 1, participants could approach the tasks in either order. For most items (88%), participants finished the sentence first, and less frequently (12%) corrected the error first. The error-first approach occurred significantly more often under the low-load condition than the high-load condition. For Experiment 2, we asked participants to adopt the less-preferred, error first approach. Success on completing the assigned task-order was affected by both factors, sentence load and error type. These results suggest executive function schedules tasks to mitigate direct competition over working memory resources.
    Date: 2009–06

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