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on Cognitive and Behavioural Economics |
| By: | Weinberg, Bruce A. (Ohio State University) |
| Abstract: | People use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their own ability will choose tasks that are not sufficiently challenging. Overestimation of ability raises utility by deluding people into believing that they are more able than they are in fact. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output, however extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists have found that moderate overconfidence is both pervasive and advantageous and that people maintain such beliefs by underweighting new information about their ability. |
| Keywords: | overconfidence, behavioral economics, information processing |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4285&r=cbe |
| By: | Hopfensitz, Astrid |
| Abstract: | When investment is repeated, previous outcomes (winning/losing) as well as the current budget level (gain/loss domain) influence decisions. The first is related to the so-called "gamblers fallacy". The second to value function relative to some reference point. Both effects have been extensively studied, however not their interaction. We present a meta-study of five experiments initially conducted to investigate myopic-loss-aversion. We observe that investment is related to the number of previous winning rounds as well as to the current budget position relative to a reference point. These effects persist when the analysis is extended to settings with restricted flexibility concerning investment. |
| Keywords: | reference point; gamblers fallacy; meta study; experiment; risk taking; myopic loss aversion |
| JEL: | D81 G11 C91 |
| Date: | 2009–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16096&r=cbe |
| By: | Yamamura, Eiji |
| Abstract: | This paper used individual level data in Japan to explore how a complainant’s past trial experience influences their satisfaction and incentive to bring a future lawsuit. Controlling for kinds of incidents and a complainant’s individual characteristics, the major findings were; (1) there is a positive relationship between the experience and satisfaction for winners, whereas there is a significant negative relationship for losers, and (2) experience exerts a positive effect on the intention to bring a future lawsuit, not only for winners but also for losers. These results imply that, for losers, a past experience enhances the incentive to bring a future lawsuit, although the experience decreases a complainant’s satisfaction. |
| Keywords: | Trial experience; Lawsuit satisfaction; future lawsuit; winner |
| JEL: | K40 L52 K41 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16149&r=cbe |
| By: | Radosveta Ivanova-Stenzel (Department of Economics, Humboldt-University of Berlin); Timothy Salmon (Department of Economics, Florida State University) |
| Abstract: | Most prior theoretical and experimental work involving auction choice has assumed bidders only find out their value after making a choice of which auction to enter. In this paper we examine whether or not subjects knowing their value prior to making an auction choice impacts their choice decision and/or the outcome of the auctions. The results show a strong impact. Subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often. The average number of bidders in both formats ended up being on average the same, but due to the self-selection bias the ascending auction raised as much revenue on average as the first price sealed bid auction. The two formats also generate efficiency levels that are roughly equivalent though the earnings of bidders are higher in the ascending auction. |
| Keywords: | bidder preferences, private values, sealed bid auctions, ascending auctions, endogenous entry |
| JEL: | C91 D44 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2009_06_02&r=cbe |
| By: | Stefan Bauernschuster (University of Jena, Graduate College "The Economics of Innovative Change"; Max Planck Institute for Economics); Oliver Falck (Ifo Institute for Economic Research, Munich); Niels Daniel Grosse (University of Jena, Graduate College "The Economics of Innovative Change") |
| Abstract: | There is extensive literature, both theoretical and empirical, on the effects of social identity on a wide range of economic and non-economic outcomes. However, there is only scarce knowledge about how social identity is affected by policies or market structure. We address the question how competition among suppliers of finance interacts with trust and trustworthiness in a laboratory one-shot trust game. In order to disentangle pure effects of competition and effects of competition that concern social identity, we apply a 2 x 2 treatment design. We induce social identity by letting subjects play coordination games with clear focal points, which leads to higher investments and trustworthiness in the trust game. Our results show that competition has no significant effects on trust and trustworthiness of individuals in a strangers' framework. However, in a framework with competition of in-group and out-group investors we see that competition leads to crowding out of social identity by reducing trustworthiness. We suggest that once competition comes into play, trustees see in-group trustors' investments as the outcomes of a competitive bidding process rather than voluntary trust, which crowds out reciprocity. |
| Keywords: | Trust Game, Social Identity, Competition |
| JEL: | C92 G11 Z13 L14 |
| Date: | 2009–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-052&r=cbe |
| By: | Javier Rivas |
| Abstract: | We study a setting where players are matched into pairs to play a Prisoners' Dilemma game. In the model presented, players are not rational; they simply imitate the more successful actions they observe. Furthermore, a certain correlation is added to the matching process: players that belong to a pair were both parties cooperate repeat partner next period whilst all other players are randomly matched into pairs. Although cooperation vanishes for any initial interior condition under complete random matching, the correlation in the matching process considered in this paper makes a signi cant amount of cooperation the unique outcome under mild conditions. Furthermore, it is shown that no separating equilibrium, i.e. a situation where cooperators and defectors are not matched together, exits. |
| Keywords: | Cooperation; Correlated Matching; Imitation; Prisoners' Dilemma |
| JEL: | C71 C73 C78 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:09/12&r=cbe |
| By: | Dmitry Ryvkin (Department of Economics, Florida State University) |
| Abstract: | Employee overwork and fatigue are a concern of managers in many organizations, as they may increase health and safety risks and decrease productivity. The problem is especially severe in competitive environments where compensation and promotions are awarded, explicitly or implicitly, on the basis of relative performance. In this paper, we propose a theory for, and study experimentally, the phenomenon of fatigue in dynamic contests aimed to mimic such settings. Theoretically, we find that if managers wish to avoid overwork, for example due to its negative impact on productivity, they should let their employees compete for promotion longer, with multiple intermediate performance evaluation stages. Experimentally, we find that subjects react strongly to changes in the environment related to fatigue and follow the comparative statics of equilibrium predictions. At the same time, within a given environment subjects behave as if they are unaware of the deteriorating effect of fatigue on their competitiveness. The results suggest that nonspecific information on consequences of fatigue is more effective than targeted information on how fatigue affects an employee’s chances of winning the competition. |
| Keywords: | overwork, fatigue, dynamic contest, experiment |
| JEL: | C73 C90 D21 I10 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2009_06_03&r=cbe |
| By: | José Emilio Boscá (University of Valencia, Spain); Javier Ferri (University of Valencia, Spain); Rafa Doménech (BBVA Economic Research Department, Spain) |
| Abstract: | This paper analyses the effects of introducing typical Keynesian features, namely rule-of-thumb consumers and consumption habits, into a standard labour market search model. It is a well-known fact that labour market matching with Nash-wage bargaining improves the ability of the standard real business cycle model to replicate some of the cyclical properties featuring the labour market. However, when habits and rule-of-thumb consumers are taken into account, the labour market search model gains extra power to reproduce some of the stylised facts characterising the US labour market, as well as other business cycle facts concerning aggregate consumption and investment behaviour. |
| Keywords: | general equilibrium, labour market search, habits, rule-of-tumb consumers |
| JEL: | E24 E32 E62 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:iei:wpaper:0901&r=cbe |
| By: | Randall Reback (Barnard College, Columbia University) |
| Abstract: | Recent empirical research has found that children’s non-cognitive skills play a critical role in their own success, that young children’s behavioral and psychological disorders can severely harm their future outcomes, and that disruptive students harm the behavior and learning of their classmates. Yet relatively little is known about wide-scale interventions designed to improve children’s behavior and mental health. This is the first nationally representative study of the provision, financing, and impact of school-site mental health services for young children. Elementary school counselors are school employees who provide mental health services to all types of students, typically meeting with students one-on-one or in small groups. It is particularly challenging to estimate the impact of these counselors on student outcomes, given counselors’ non-random assignment to schools. First, cross-state differences in policies provide descriptive evidence that students in states with more aggressive elementary counseling policies make greater test score gains and are less likely to report internalizing or externalizing problem behaviors compared to students with similar observed characteristics in similar schools in other states. Next, difference-in-differences estimates exploiting both the timing and the targeted-grade-levels of states’ counseling policy changes provide evidence that elementary counselors substantially influence teachers’ perceptions of school climate. The adoption of state-funded counselor subsidies or minimum counselorstudent ratios reduces the fraction of teachers reporting that their instruction suffers due to student misbehavior and reduces the fractions reporting problems with students physically fighting each other, cutting class, stealing, or using drugs. These findings imply that there may be substantial public and private benefits derived from providing additional elementary school counselors. |
| Keywords: | education, counselors, student behavior, mental health |
| JEL: | I22 I10 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:brn:wpaper:0904&r=cbe |