nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒10‒03
ten papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Beautiful Politicians By Amy King; Andrew Leigh
  2. A neurolinguistic approach to performativity in economics By Herrmann-Pillath, Carsten
  3. How Certain Is the Uncertainty Effect? By Ondrej Rydval; Andreas Ortmann; Sasha Prokosheva; Ralph Hertwig
  4. Do People Plan? By John Bone; John D Hey; John Suckling
  5. When a risky prospect is valued more than its best possible outcome By Andreas C. Drichoutis; Rodolfo M. Nayga, Jr.; Jayson L. Lusk; Panagiotis Lazaridis
  6. Do risk attitudes differ within the group of entrepreneurs? By Block, Joern; Sandner, Philipp; Spiegel, Frank
  7. Wise crowds or wise minorities? By Christoph Brunner; Jacob K. Goeree
  8. Can behavioral finance models account for historical asset prices? By ap Gwilym, Rhys
  9. A Coordination Game Model of Charitable Giving and Seed Money Effect By Kentaro Hatsumi;
  10. Feeling guilty and redistributive politics By Gilles le Garrec

  1. By: Amy King; Andrew Leigh
    Abstract: Are beautiful politicians more likely to be elected? To test this, we use evidence from Australia, a country in which voting is compulsory, and in which voters are given ‘How to Vote’ cards depicting photos of the major party candidates as they arrive to vote. Using raters chosen to be representative of the electorate, we assess the beauty of political candidates from major political parties, and then estimate the effect of beauty on voteshare for candidates in the 2004 federal election. Beautiful candidates are indeed more likely to be elected, with a one standard deviation increase in beauty associated with a 1½ – 2 percentage point increase in voteshare. Our results are robust to several specification checks: adding party fixed effects, dropping well-known politicians, using non-Australian beauty raters, omitting candidates of non-Anglo Saxon appearance, controlling for age, and analyzing the ‘beauty gap’ between candidates running in the same electorate. The marginal effect of beauty is larger for male candidates than for female candidates, and appears to be approximately linear. Consistent with the theory that returns to beauty reflect discrimination, we find suggestive evidence that beauty matters more in electorates with a higher share of apathetic voters.
    Keywords: economics of beauty, elections, voter rationality, information shortcuts, thin slices
    JEL: D72 J45 J71
    Date: 2009–08
  2. By: Herrmann-Pillath, Carsten
    Abstract: In recent sociological studies of markets, especially financial markets, researchers have argued that economics is performative (MacKenzie, Callon et al.). By this they refer to the observation that theories such as the Black-Scholes formula do not simply describe reality, but contributed to the regulatory creation of financial markets in which the agents started to adopt behavioral patterns that correspond to the theory, also relying on artefacts that have been created by the originators of the theory. This notion of performativity fits also other recent uses of language theory in economics, such as the theory of organizational forms in organizational ecology (Carroll and Hannan) or John Searle's theory of institutions. The paper builds on this, especially Searle's approach, and explores the underlying cognitive operations. It is argued that performativity builds on the human capacity to generate new meanings from existing concepts. This is elaborated in the theory of conceptual blending that has been developed by Fauconnier and Turner. For example, blends are a typical phenomenon in the emergence of new business models, such as in the dotcom bubble. The theory of conceptual blending can be based on neuroscientific insights into the operations of the human brain, corresponding to Searle's proposal to ground institutions in neurophysiological dispositions.
    Keywords: Searle's theory of institutions,financial markets,emergence of novelty,conceptual blending,neural theory of metaphor
    JEL: B41 D02 D87
    Date: 2009
  3. By: Ondrej Rydval; Andreas Ortmann; Sasha Prokosheva; Ralph Hertwig
    Abstract: We replicate three pricing tasks of Gneezy, List and Wu (2006) for which they document the so-called uncertainty effect, namely, that people value a binary lottery over non-monetary outcomes less than other people value the lottery’s worse outcome. While the authors implemented a verbal lottery description, we use a physical lottery format which makes misinterpretation of the lottery structure highly unlikely. We also provide subjects with complete information about the goods they are to value (book gift certificates and one-year deferred payments). Contrary to Gneezy et al. (2006), we observe for all three pricing tasks that subjects’ willingness to pay for the lottery is significantly higher than other subjects’ willingness to pay for the lottery’s worse outcome.
    Keywords: Decision under risk, framing, experiments, task ambiguity.
    JEL: C81 C91 C93 D83
    Date: 2009–07
  4. By: John Bone; John D Hey; John Suckling
    Abstract: We report the results of an experimental investigation of a key axiom of economic theories of dynamic decision making – namely, that agents plan. Inferences from previous investigations have been confounded with issues concerning the preference functionals of the agents. Here, we present an innovative experimental design which is driven purely by dominance- if preferences satisfy dominance, we can infer whether subjects are planning or not. We implement three sets of experiments: the first two (the Individual Treatments) in which the same player takes decisions both in the present and the future; and the third (the Pairs Treatment) in which different players take decisions at different times. The two Individual treatments differed in that, in one, the subjects played sequentially, while, in the other, the subjects had to pre-commit to their future move. In all contexts, according to economic theory, the players in the present should anticipate the decision of the player in the future. We find that over half the participants in all three experimental treatments do not appear to be planning ahead; moreover, their ability to plan ahead does not improve with experience, except possibly when we force subjects to pre-commit to their future decision. These findings identify an important lacuna in economic theories, both for individual behaviour and for behaviour in games.
    Date: 2007–11
  5. By: Andreas C. Drichoutis (Department of Agricultural Economics & Rural Development, Agricultural University of Athens); Rodolfo M. Nayga, Jr. (Department of Agricultural Economics & Agribusiness, University of Arkansas); Jayson L. Lusk (Department of Agricultural Economics, Oklahoma State University); Panagiotis Lazaridis (Department of Agricultural Economics & Rural Development, Agricultural University of Athens)
    Abstract: In this paper, we document a violation of normative and descriptive models of decision making under risk. In contrast to uncertainty effects found by Gneezy, List and Wu (2006), some subjects in our experiments valued certain lotteries more than the best possible outcome. We show that the likelihood of observing this effect is positively related to the probability of winning the lottery and negatively related to the value of the maximum outcome. We also demonstrate that this effect can be partially attributed to subjects’ competitiveness and level of comprehension of the lottery mechanism; the competitiveness effects far outweighing comprehension effects.
    Keywords: lottery, risk, competitiveness, Vickrey auctions
    JEL: D81 D44
    Date: 2009
  6. By: Block, Joern; Sandner, Philipp; Spiegel, Frank
    Abstract: The notion of risk and entrepreneurship has been widely discussed in the entrepreneurship literature. Starting a business involves risk and requires a risk-taking attitude. Most studies have com-pared entrepreneurs with non-entrepreneurs such as managers or bankers. So far, little research exists on the risk attitudes of different types of entrepreneurs. This study aims to fill this gap. Our particular focus is on the entrepreneurs’ motivations to start their business. The results show that opportunity entrepreneurs are more willing to take risks than necessity entrepreneurs. In addition, entrepreneurs who are motivated by creativity are more risk-tolerant than other entrepreneurs. The study contributes to the literature about risk attitudes of entrepreneurs and to the literature about necessity and opportunity entrepreneurship.
    Keywords: Entrepreneurship; Self-employment; Risk attitude; Necessity entrepreneurship; Creativity entrepreneurship
    JEL: L26 M13 J23
    Date: 2009–09–29
  7. By: Christoph Brunner; Jacob K. Goeree
    Abstract: This paper reports results from social learning experiments where subjects choose between two options and each subject has a small chance of being perfectly informed about which option is correct. In treatment "sequence", subjects observe the entire sequence of predecessors' choices while in treatment "no-sequence" they only observe the number of times each option has been chosen. The theoretical predictions are that subjects follow their immediate predecessors in treatment sequence and follow the minority in treatment no-sequence (Callander and Hörner, 2009). The former prediction is borne out in the data, but subjects tend to follow the majority in treatment no-sequence. We observe substantial heterogeneity in levels of strategic thinking, as predicted by level-k and Cognitive Hierarchy. While these models reproduce some features of our data, their fit is poor because of the assumed best-response behavior. Allowing for some degree of "trembling" improves the fit significantly, especially if subjects are aware that others tremble, as in logit-QRE. The "noisy introspection" model proposed by Goeree and Holt (2004), which combines different levels of thinking with error-prone behavior, best describes the data.
    Keywords: Social learning, experiments, quantal response equilibrium, level-k models, noisy introspection
    JEL: C92
    Date: 2009–09
  8. By: ap Gwilym, Rhys
    Abstract: I construct a behavioral model of asset pricing in which agents choose whether to base their expectations on chartist or fundamental forecasts. I simulate the model in order to test its efficacy in explaining the moments and time series properties of the FTSE All-Share index, and find that the model cannot be rejected as the data generating process.
    Keywords: Behavioral finance; Asset pricing
    JEL: G12
    Date: 2009–09
  9. By: Kentaro Hatsumi;
    Abstract: If potential donors for a charity project possess the warm-glow properties in their preferences, we can represent their behavior with a coordination game. Accordingly, we construct a simultaneous incomplete information game model of charitable giving based on a simple global coordination game. We demonstrate that merely by the effect of seed money to shift the threshold requirement of the donations for project success downwards, the proportion of donors and the total amount of donations strictly and continuously increase with the amount of seed money. This result is compatible with the field experimental evidence in List and Lucking-Reiley [List, J. A., Lucking-Reiley, D., 2002. The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign. Journal of Political Economy 110 (1), 215-233].
    Date: 2009–04
  10. By: Gilles le Garrec
    Date: 2009

This nep-cbe issue is ©2009 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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