nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒07‒28
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Random behavior and the as-if defense of rational choice theory in demand experiments By Ivan Moscati; Paola Tubaro
  2. The Power of Apology By Johannes Abeler; Juljana Calaki; Kai Andree; Christoph Basek
  3. The Moral Costs of Nastiness By Klaus Abbink; Benedikt Herrmann
  4. Prospect Theory and Inflation Perceptions - An Empirical Assessment By Lena Vogel; Jan-Oliver Menz; Ulrich Fritsche
  5. Punishment – and beyond By Bruno S. Frey
  6. Gift Exchange and Workers' Fairness Concerns - When Equality Is Unfair By Johannes Abeler; Stefen Altmann; Sebastian Kube; Matthias Wibral
  7. Role thinking: Standing in other people’s shoes to forecast decisions in conflicts By Green, Kesten C.; Armstrong, J. Scott
  8. Improvements and Future Challenges for the Research Infrastructure in the Field “Experimental Economics” By Simon Gächter
  9. Gender Differences in Risk Behaviour: Does Nurture Matter? By Alison L. Booth; Patrick Nolen
  10. Religious Participation and Risky Health Behaviors among Adolescents By Jennifer M. Mellor; Beth A. Freeborn
  11. Tit-for-tat Strategies in Repeated Prisoner's Dilemma Games: Evidence from NCAA Football By Humphreys, Brad; Ruseski, Jane

  1. By: Ivan Moscati; Paola Tubaro
    Abstract: Rational choice theory (RCT) models decision makers as utility maximizers and is often defended via an as-if argument. According to this argument, although real individuals do not consciously maximize their utility function, their choices can be explained as if they were generated by utility maximization. An alternative model is random-choice, which assumes that decision makers pick up an element from a given set according to a uniform distribution on the set. In this paper we examine a series of experiments that compare RCT and the random-choice model as alternative explanations of consumer demand, and investigate how these experiments contribute to clarifying the actual scope of RCT and the shortcomings of the standard as-if defense of it.
    Date: 2009
  2. By: Johannes Abeler (University of Nottingham); Juljana Calaki (University of Bonn); Kai Andree (University of Potsdam); Christoph Basek (University of Bonn)
    Abstract: After an unsatisfactory purchase, many firms are quick to apologize to customers. It is, however, not clear why they should do that. As the apology is costless, it should be regarded as cheap talk and thus ignored by the customer. In this paper, we test in a controlled field experiment whether apologizing inuences customers' subsequent behavior. We find that apologizing yields much better outcomes for the firm than offering a monetary compensation.
    Keywords: Apology, Credulity, Natural Field Experiment
    JEL: C93 D82 L81
    Date: 2009–06
  3. By: Klaus Abbink (CREED, University of Amsterdam); Benedikt Herrmann (School of Economics, The University of Nottingham)
    Abstract: We introduce two variants of the one-shot joy-of-destruction minigame (mini-JOD). Two players are endowed with the same amount of money. They simultaneously decide whether or not to reduce the payoff of the other player at an own cost. In one treatment there was a probability that Nature would destroy the opponent’s money anyway. We test whether this feature reduces the moral costs of being nasty, and find that destruction rates rise significantly, despite the absence of strategic reasons.
    Date: 2009–06
  4. By: Lena Vogel (Department for Economics and Politics, University of Hamburg); Jan-Oliver Menz (Department for Economics and Politics, University of Hamburg); Ulrich Fritsche (Department for Economics and Politics, University of Hamburg)
    Abstract: Building on the hypotheses of loss aversion with respect to price increases and availability of frequently bought goods, Brachinger (2006,2008) constructs an alternative index of perceived inflation (IPI), which can reproduce the jump in the measure for perceived inflation after the Euro introduction in Germany that was not observable in standard HICP inflation. We test the hypotheses of Prospect Theory with regard to households’ inflation perceptions underlying Brachinger’s IPI in a panel estimation for 12 European countries. There is evidence that perceptions react more strongly to ‘losses’ in inflation than to ‘gains’ before the Euro cash changeover, but not afterwards. Moreover, we find empirical support for the availability hypothesis, stating that frequently bought goods have a stronger influence on inflation perceptions than the overall price index.
    Keywords: Inflation Perceptions, Prospect Theory, Dynamic Panel
    JEL: D81 D82 E52 C33
  5. By: Bruno S. Frey
    Abstract: This paper argues that the “Economics of Crime” concentrates too much on punishment as a policy to fight crime, which is unwise for several reasons. There are important instances in which punishment simply cannot reduce crime. Several feasible alternatives to punishment exist, such as offering positive incentives or handing out awards for law abiding behavior. These alternative approaches tend to create a positive sum environment. When people appreciate living in a society that is to a large extent law abiding, they are more motivated to observe the law.
    Keywords: Crime; Punishment; Incentives; Motivation; Framing; Broken Window Theory
    JEL: K42 O31
    Date: 2009–06
  6. By: Johannes Abeler (University of Bonn); Stefen Altmann (IZA Bonn); Sebastian Kube (Max Planck Institute for Research on Collective Goods); Matthias Wibral (University of Bonn)
    Abstract: We study how different payment modes inuence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how horizontal fairness concerns affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference instead seems to be driven by the fact that the norm of equity is violated far more frequently in the equal wage treatment. After having suffered from violations of the equity principle, agents withdraw effort. These findings hold even after controlling for the role of intentions, as we show in a third treatment. Our results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations.
    Keywords: wage setting, wage equality, equity, gift exchange, reciprocity, incomplete contracts
    JEL: J33 D63 M52 C92 J41
    Date: 2009–06
  7. By: Green, Kesten C.; Armstrong, J. Scott
    Abstract: Better forecasts of decisions in conflict situations, such as occur in business, politics, and war, can help protagonists achieve better outcomes. It is common advice to “stand in the other person’s shoes” when involved in a conflict, a procedure we refer to as “role thinking.” We tested this advice in order to assess the extent to which it can improve accuracy. Improvement in accuracy is important because prior research found that unaided judgment produced forecasts that were little better than guessing. We obtained 101 role-thinking forecasts from 27 Naval postgraduate students (experts) and 107 role-thinking forecasts from 103 second-year organizational behavior students (novices) of the decisions that would be made in nine diverse conflicts. The accuracy of the forecasts from the novices was 33% and of those from the experts 31%. The accuracy of the role-thinking forecasts was little different from chance, which was 28%. In contrast, when we asked groups of participants to each act as if they were in the shoes one of the protagonists, accuracy was 60%.
    Keywords: combining; group decision-making; simulated interaction; unaided judgment
    JEL: D81 C53 D7 Q34 F51 M51
    Date: 2009–05–30
  8. By: Simon Gächter
    Abstract: Experimental economics is an established method of generating controlled and replicable empirical knowledge. It is complementary to other empirical methods in the social sciences. The research infrastructure for laboratory experiments is very good in Europe and also in Germany. One useful instrument would be to develop a short socio-economic questionnaire with questions already used in surveys that experimental economists could use to administer to their participants. The analyses of the selectivity of subject pools would then be an easy task. However, among experimental economists no standard exists yet, which limits the comparability of respective data sets. An effort shall be undertaken to “create” such a common questionnaire. The status quo with regard to data reporting is that no standard has emerged yet. There exists one data repository (in the United States) where data of experiments are collected and are freely available. Building up a data archive that integrates (merges) existing data is very laborious and requires substantial scientific inputs of interested researchers.
    Keywords: Experimental economics, data archives, selectivity of subject pools
    JEL: C81 C9
    Date: 2009
  9. By: Alison L. Booth; Patrick Nolen
    Abstract: Women and men may differ in their propensity to choose a risky outcome because of innate preferences or because pressure to conform to gender-stereotypes encourages girls and boys to modify their innate preferences. Single-sex environments are likely to modify students' risk-taking preferences in economically important ways. To test this, we designed a controlled experiment in which subjects were given an opportunity to choose a risky outcome - a real-stakes gamble with a higher expected monetary value than the alternative outcome with a certain payoff - and in which the sensitivity of observed risk choices to environmental factors could be explored. The results of our real-stakes gamble show that gender differences in preferences for risk-taking are indeed sensitive to whether the girl attends a single-sex or coed school. Girls from single-sex schools are as likely to choose the real-stakes gamble as boys from either coed or single sex schools, and more likely than coed girls. Moreover, we found that gender differences in preferences for risk-taking are sensitive to the gender mix of the experimental group, with girls being more likely to choose risky outcomes when assigned to all-girl groups. This suggests that observed gender differences in behaviour under uncertainty found in previous studies might reflect social learning rather than inherent gender traits.
    Date: 2009–07–20
  10. By: Jennifer M. Mellor (Department of Economics, College of William and Mary); Beth A. Freeborn (Department of Economics, College of William and Mary)
    Abstract: Previous studies have shown that adolescent religious participation is negatively associated with risky health behaviors like cigarette smoking, alcohol consumption, and illicit drug use. One explanation for these findings is that religion directly reduces risky behaviors because churches provide youths with moral guidance or with strong social networks that reinforce social norms. An alternative explanation is that both religious participation and risky health behaviors are driven by some common unobserved individual trait. We use data from the National Longitudinal Study of Adolescent Health and implement an instrumental variables approach to identify the effect of religious participation on smoking, binge drinking and marijuana use. Following Gruber (2005), we use a county-level measure of religious market density as an instrument. Religious market density has a strong positive association on adolescent religious participation, but not on secular measures of social capital. Upon accounting for unobserved heterogeneity, we find that religious participation continues to have a negative effect on illicit drug use.
    Keywords: Substance Abuse, Religion, Tobacco, Youth
    JEL: I1 Z12
    Date: 2009–07–20
  11. By: Humphreys, Brad (University of Alberta, Department of Economics); Ruseski, Jane (University of Alberta, Department of Economics)
    Abstract: Defection in every period is the dominant strategy Nash equilibrium in finitely repeated prisoner's dilemma games with complete information. However, in the presence of incomplete information, players may have an incentive to cooperate in some periods, leading to tit-for-tat strategies. We describe the decision to comply with recruiting regulations or cheat made by NCAA Division IA football programs as a finitely repeated prisoner's dilemma game. The game includes incomplete information about the resources devoted to football programs, the recruiting effort made by rival programs, and the behavior of rival programs. We test for evidence that NCAA Division IA football programs follow tit-for-tat strategies in terms of complying with or defecting from NCAA recruiting rules using panel data from NCAA Division IA football over the period 1976-2005. We find anecdotal and empirical evidence that is consistent with tit-for-tat strategies in this setting. The presence of in-conference rivals under NCAA sanctions increases the probability of a team being placed under sanctions.
    Keywords: noncooperative behavior; cartels; NCAA football; tit-for-tat strategies
    JEL: C72 L13 L83
    Date: 2009–07–01

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