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

  1. On the Independence of Observations between Experiments By Astrid Matthey; Tobias Regner
  2. Sharing the pie: the Lutheran is neither opportunistic nor generous By Migheli, Matteo
  3. Does Religiosity Promote or Discourage Social Trust? Evidence from Cross-Country and Cross-State Comparisons By Berggren, Niclas; Bjørnskov, Christian
  4. Inequity and Risk Aversion in Sequential Public Good Games By Sabrina Teyssier
  5. On Inequity Aversion A Reply to Binmore and Shaked By Ernst Fehr; Klaus M. Schmidt
  6. Risk Aversion, Over-Confidence and Private Information as Determinants of Majority Thresholds. By Giuseppe Attanasi, Luca Corazzini, Nikolaos Georgantzis, Francesco Passarelli.
  7. The hot stove effect in repeated-play decision making under ambiguity By Fujikawa, Takemi
  8. Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model By James M. Malcomson
  9. Choices under Risk in Rural Peru By Galarza, Francisco
  10. Individual and couple decision behavior under risk: Evidence on the dynamics of power balance By André De Palma; Nathalie Picard; Anthony Ziegelmeyer
  11. Public Sector Employees: Risk Averse and Altruistic? By Buurman, Margaretha; Dur, Robert; van den Bossche, Seth
  12. Making the World a better Place: Experimental evidence from the generosity Game By Werner Güth; M. Vittoria Levati; Matteo Ploner
  13. The Right Amount of Trust By Butler, Jeffrey V.; Giuliano, Paola; Guiso, Luigi
  14. On reciprocal Behavior in Prisoner Dilemma game By Ahmed Doghmi; Miloudi Kobiyh
  15. An Experimental study on the information structure in teams By Sandra Ludwig; Christina Strassmair
  16. Mandatory Sick Pay Provision: A Labor Market Experiment By Stefan Bauernschuster; Jörg Oechssler; Peter Duersch; Radovan Vadovic
  17. What difference do beliefs make? Gender job associations and work climate By Simon Janssen; Uschi Backes-Gellner
  18. Context-Dependent Forward Induction Reasoning By Pierpaolo Battigalli; Amanda Friedenberg
  19. Do All Material Incentives for Prosocial Activities Backfire? The Response to Cash and Non-Cash Incentives for Blood Donations By Lacetera, Nicola; Macis, Mario

  1. By: Astrid Matthey (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Tobias Regner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany)
    Abstract: In experimental economics there exists a lively debate about the independence of observations. Although opinions on the issue differ widely, all concerns regard the independence of subjects' behavior within one session or experiment. This paper attempts to shed some light on the independence of observations between experiments, if they are generated by the same subjects. We analyze experiments with an allocation decision and find that participation in previous experiments tends to increase the amount subjects allocate to themselves. Hence, independence between experiments cannot be presumed if subjects participate repeatedly. The finding has implications for the interpretation of previous allocation decision results and deserves attention when running future experiments.
    Keywords: experimental methods, independence of observations, social preferences, conditional cooperation
    JEL: C90 D84
    Date: 2009–09–25
  2. By: Migheli, Matteo
    Abstract: This paper studies how individual religiosity affects people's behaviour. In particular here I study the behaviour of the second players in a standard trust game. They have the possibility of sharing some resources between themselves and their game mates. It results that more religious people tend to choose an even allocation of these resources, whilst the less religious participants are either opportunistic or generous.
    Keywords: religiosity, distribution of resources, inequity aversion
    JEL: C93 D30 Z12
    Date: 2009–09
  3. By: Berggren, Niclas (The Ratio Institute); Bjørnskov, Christian (Aarhus School of Business, Aarhus University)
    Abstract: We look at the effect of religiosity on social trust, defined as the share of a population that thinks that people in general can be trusted. This is important since social trust is related to many desired outcomes, such as growth, education, democratic stability and subjective well-being. The effect of religiosity is theoretically unclear: while all major religions call for behaving well to others, religious groups may primarily trust people in their own groups and distrust others, as well as cause division in the broader population. We make use of new data from the Gallup World Poll for 105 countries and the U.S. states, measuring religiosity by the share of the population that answers yes to the question “Is religion an important part of your daily life?”. Our empirical results, making use of regression analysis whereby we control for other possible determinants of social trust and, by using instrumental variables, for the risk of reverse causality, indicate a robust, negative effect of religiosity, both internationally and within the US.
    Keywords: Trust; Religiosity; Religion; Social Capital
    JEL: O57 Z12 Z13
    Date: 2009–09–25
  4. By: Sabrina Teyssier (Thurgau Institute of Economics, Kreuzlingen, Switzerland; University of Konstanz, Department of Economics, Germany)
    Abstract: This paper analyzes which type of intrinsic preferences drive an agent’s behavior in a sequential public good game depending on whether the agent is ï¬rst or second mover. Theoretical predictions are based on heterogeneity of individuals in terms of social and risk preferences. We modelize preferences according to the inequity aversion model of Fehr and Schmidt (1999) and to the assumption of constant relative risk aversion. Risk aversion is signiï¬cantly and negatively correlated with the contribution decision of ï¬rst movers. Second movers with sufficiently high advantageous inequity aversion free-ride less and reciprocate more than others. Both results are predicted by our model. Nevertheless, no effect of disadvantageous inequity aversion of ï¬rst movers is found in the data while theory predicted it. Our results underline the importance of taking into account the order of agents’ play to correctly understand which type of preferences influences cooperation in voluntary contribution mechanisms. They suggest that individuals’ behavior can be consistent between different experimental games.
    Keywords: inequity aversion, risk aversion, public good game, conditional contribution
    JEL: C72 C91 D63 D81 H41
    Date: 2009
  5. By: Ernst Fehr (University of Zurich); Klaus M. Schmidt (University of Munich)
    Abstract: In this paper we reply to Binmore and Shaked’s criticism of the Fehr-Schmidt model of inequity aversion. We put the theory and their arguments into perspective and show that their criticism is not substantiated. Finally, we briefly comment on the main challenges for future research on social preferences
    Keywords: Experiments, other-regarding preferences, inequity aversion
    JEL: B41 C90
    Date: 2009–02
  6. By: Giuseppe Attanasi, Luca Corazzini, Nikolaos Georgantzis, Francesco Passarelli.
    Abstract: We study, both theoretically and experimentally, the relation between preferred majority thresholds and behavioral traits such as the degree of risk aversion and the subjective confidence on others' preferences over the alternatives to vote. The main theoretical findings are supported by experimental data. The majority threshold chosen by a subject is positively and significantly correlated with her degree of risk aversion while it is negatively and significantly associated to her confidence on others' votes. Moreover, in a treatment in which each subject can privately observe the distribution of preferences over a sub-group of participants, we find that the quality of information crowds-out subject's confidence.
    Keywords: majority threshold, risk aversion, (over-)confidence, laboratory experiment.
    JEL: C91 D72 H11 D81
    Date: 2009–10
  7. By: Fujikawa, Takemi
    Abstract: The ''hot stove effect'' has been studied for repeated-play decision making under uncertainty (also referred to as experience-based decision making) in which the decision makers repeatedly face the Allais-type binary choice problems, and have to learn about the outcome distributions through sampling as the decision makers are not explicitly provided with prior information on the payoff structure. The previous studies have found mixed evidence: some studies have found that the hot stove effect is strong in repeated-play decision making under uncertainty, while other studies have found that the effect is weak. Thus, the evidence is inconsistent. This paper reports an experimental investigation of the hot stove effect in repeated-play decision making under ambiguity. The current experiment involves an ambiguity treatment in which (1) the participants perform two binary repeated-play choice problems, each involving 400-fold choice between a risky option and a riskless option; and (2) in each problem, there are two states of nature available: a favourable state and an unfavourable state, but only one of them obtains on any given trial. The realisation of the actual state is not disclosed to the participants, thus they would be expected to discover the actual state through sampling with immediate feedback. The current results suggest that the magnitude of the hot stove effect is significantly different between repeated-play decision making under uncertainty and repeated-play decision making under ambiguity. I shall show that the hot stove effect is attenuated in repeated-play decision making under ambiguity.
    Keywords: Allais-type choices; decisions from experience; risk; uncertainty
    JEL: D83 C91
    Date: 2009–10–03
  8. By: James M. Malcomson
    Abstract: Risk-neutral individuals take more risky decisions when they have limited liability. Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire informatin before taking decisions. Limited liability makes it optimal to increase the reward for outcomes relatively more likely to arise from desirable than from undesirable actions. The resulting decisions may be less, rather than more, risky. Making a decision after acquiring information provides an additional reason to those in the classic principal-agent literature for using contracts with pay increasing in the return. Further results on the form of contracts are also derived.
    Keywords: Managers, Risky decisions, Limited liability, Principal-agent contracts, Asymmetric information
    JEL: D82 D86 J33 M52
    Date: 2009
  9. By: Galarza, Francisco
    Abstract: This paper estimates the risk preferences of cotton farmers in Southern Peru, using the results from a multiple-price-list lottery game. Assuming that preferences conform to two of the leading models of decision under risk--Expected Utility Theory (EUT) and Cumulative Prospect Theory (CPT)--there is strong evidence of moderate risk aversion. Once we include individual characteristics in the estimation of risk parameters, we observe that farmers use subjective nonlinear probability weighting, a behavior consistent with CPT. Interestingly, when we allow for preference heterogeneity via the estimation of mixture models--where the proportion of subjects who behave according to EUT or to CPT is endogenously determined--we see that the majority of farmers’ choices are best explained by CPT. We further hypothesize that the multiple switching behavior observed in our sample can be explained by nonlinear probability weighting made in a context of large random calculation mistakes; the evidence found on this regard is mixed. Finally, we find that attaining higher education is the single most important individual characteristic correlated with risk preferences, a result that suggests a connection between cognitive abilities and behavior towards risk.
    Keywords: risk aversion; probability weighting; mixture models; experimental economics; Peru
    JEL: C9 D81
    Date: 2009–08
  10. By: André De Palma (ENS Cachan - Ecole Normale Supérieure de Cachan - Ecole Normale Supérieure de Cachan, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Nathalie Picard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise); Anthony Ziegelmeyer (Max Planck Institut, Strategic Interaction Group - (-))
    Abstract: This paper reports results of an experiment designed to analyze the link between risky decisions made by couples and risky decisions made separately by each spouse. We estimate both the spouses and the couples' degrees of risk aversion, we assess how the risk preferences of the two spouses aggregate when they make risky decisions and we shed light on the dynamics of the decision process that takes place when couples make risky decisions. We find that, far from being fixed, the balance of power within the household is malleable. In most couples, men have, initially, more decision-making power than women but women who ultimately implement the joint decisions gain more and more power over the course of decision making.
    Keywords: Balance of power; Experiments; Household decision-making; Risk.
    Date: 2009–09–22
  11. By: Buurman, Margaretha (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam); van den Bossche, Seth (TNO Work and Employment)
    Abstract: We assess whether public sector employees have a stronger inclination to serve others and are more risk averse than employees in the private sector. A unique feature of our study is that we use revealed rather than stated preferences data. Respondents of a large-scale survey were offered a substantial reward and could choose between a widely redeemable gift certificate, a lottery ticket, or making a donation to a charity. Our analysis shows that public sector employees are significantly less likely to choose the risky option (lottery) and, at the start of their career, significantly more likely to choose the pro-social option (charity). However, when tenure increases, this difference in pro-social inclinations disappears and, later on, even reverses. Our results further suggest that quite a few public sector employees do not contribute to charity because they feel that they already contribute enough to society at work for too little pay.
    Keywords: public service motivation, risk aversion, revealed preferences data
    JEL: H1 J45 M52
    Date: 2009–09
  12. By: Werner Güth (Max Planck Institute of Economics); M. Vittoria Levati (Max Planck Institute of Economics); Matteo Ploner (Max Planck Institute of Economics)
    Abstract: We study ultimatum and dictator experiments where the first mover chooses the amount of money to be distributed between the players within a given interval, knowing that her own share is ?xed. Thus, the first mover is faced with scarcity, but not with the typical trade-off between her own and the other's payoff. Removing the trade-off inspires significant generosity, which is not affected by the second mover's veto power. On the whole our results con?rm heterogeneity in behavior, but point to efficiency concerns as the predominant motive.
    Keywords: Ultimatum, Dictator, Social Preferences
    JEL: C70 C91 D63
    Date: 2009–09–25
  13. By: Butler, Jeffrey V. (Einaudi Institute for Economics and Finance); Giuliano, Paola (University of California, Los Angeles); Guiso, Luigi (European University Institute)
    Abstract: A vast literature has investigated the relationship between trust and aggregate economic performance. We investigate the relationship between individual trust and individual economic performance. We find that individual income is hump-shaped in a measure of intensity of trust beliefs available in the European Social Survey. We show that heterogeneity of trust beliefs in the population, coupled with the tendency of individuals to extrapolate beliefs about others from their own level of trustworthiness, could generate the non-monotonic relationship between trust and income. Highly trustworthy individuals think others are like them and tend to form beliefs that are too optimistic, causing them to assume too much social risk, to be cheated more often and ultimately perform less well than those who happen to have a trustworthiness level close to the mean of the population. On the other hand, the low-trustworthiness types form beliefs that are too conservative and thereby avoid being cheated, but give up profitable opportunities too often and, consequently, underperform. Our estimates imply that the cost of either excessive or too little trust is comparable to the income lost by foregoing college. Furthermore, we find that people who trust more are cheated more often by banks as well as when purchasing goods second hand, when relying on the services of a plumber or a mechanic and when buying food. We complement the survey evidence with experimental evidence showing that own trustworthiness and expectations of others' trustworthiness in a trust game are strongly correlated and that performance in the game is hump-shaped.
    Keywords: economic performance, trustworthiness, trust, culture, false consensus
    JEL: A1 A12 D1 O15 Z1
    Date: 2009–09
  14. By: Ahmed Doghmi (Strategic Interaction Group, Max Planck Institute of Economics, Jena, Germany); Miloudi Kobiyh (Center for Research in Economics and Management, University of Caen, France)
    Abstract: In this paper, we introduce the concept of payoffi distortion in the standard prisoner's dilemma game when strategies are driven by psychological behaviors. This concept enables to take account each player's assessment of the other player's behavior and the asymmetry of information. We determine the conditions which allow that mutual cooperation constitutes the equilibrium. we particularly focus on the reciprocity in case of complete and incomplete information about the payoffi distortion. We show that mutual cooperation is a Nash equilibrium with complete information and is a Bayesian equilibrium when each player believes that his opponent behaves with "large" reciprocity in incomplete information environment.
    Keywords: Reciprocity, Behavior, Cooperation, prisoner's dilemma game.
    JEL: C7 A13
    Date: 2009–09–25
  15. By: Sandra Ludwig (University of Munich); Christina Strassmair (University of Munich)
    Abstract: Is free-riding in teams reduced when one member receives a signal on his colleagueís performance? And how does free-riding depend on the signal's type? We address these questions in experimental teams in which two agents sequentially exert effort to contribute to the team output. We vary the type of information the second mover receives prior to his effort choice and find that agents work more when signals are available. Overall, behavior differs from predictions of standard theory. Signals that are predicted to have no effect are, in fact, influential and signals that are predicted to have an effect are redundant.
    Keywords: Team production, Free-riding, Experiment, Information, Signal
    JEL: C92 J30 M50 D82
    Date: 2009–09
  16. By: Stefan Bauernschuster (University of Jena); Jörg Oechssler (Department of Economics, University of Heidelberg, Germany); Peter Duersch (University of Heidelberg); Radovan Vadovic (ITAM, Mexico City)
    Abstract: The question whether a minimum rate of sick pay should be mandated is much debated. We study the effects of this kind of intervention in an experimental labor market that is rich enough to allow for moral hazard, adverse selection, and crowding out of good intentions to occur. We find that higher sick pay is reciprocated by workers through higher effort but only if sick pay is not mandated. We also study adverse selection effects when workers have different probabilities of getting sick and can reject the hypothesis that this leads to market breakdown. Overall, we find that mandating sick pay actually leads to a higher voluntary provision of sick pay by ?rms.
    Keywords: sick pay, sick leave, experiment, gift exchange
    JEL: J3 C7 C9
    Date: 2009–09–25
  17. By: Simon Janssen (Institute for Strategy and Business Economics, University of Zurich); Uschi Backes-Gellner (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper investigates how women and men value their work climate if performing jobs with stereotypical male or female tasks. Using a special variable from a big data set we are able to address whether tasks or jobs are considered as more appropriate for males or females by society. We find that women report lower satisfaction with their work climate if performing jobs with stereotypical male tasks and vice versa. We argue that our results are in line with a recent study of Akerlof and Kranton (2000) considering identity based utility outcomes. The results indicate that the work climate might lead to gender specific utility outcomes and trade-off decisions. Thus, the results might help to enlarge the understanding of occupational segregation by gender. We apply a simultaneous equation model to model the selection into the job alongside our ordered probit model for work climate to cope with the endogeneity of the job choice.
    Keywords: Identity, Discrimination, IV O-Probit
    JEL: J7 J2
    Date: 2009–09
  18. By: Pierpaolo Battigalli; Amanda Friedenberg
    Abstract: This paper studies the case where a game is played in a particular context. The context influences what beliefs players hold. As such, it may affect forward induction reasoning: If players rule out specific beliefs, they may not be able to rationalize observed behavior. The effects are not obvious. Context-laden forward induction may allow outcomes precluded by context-free forward induction. At the formal level, forward induction and contextual reasoning are defined within an epistemic structure. In particular, we represent contextual forward induction reasoning as rationality and common strong belief of rationality”(RCSBR) within an arbitrary type structure. (The concept is due to Battigalli-Siniscalchi [6, 2002].) We ask: What strategies are consistent with RCSBR (across all type structures)? We show that the RCSBR is characterized by a solution concept we call Extensive Form Best Response Sets (EFBRS’s). We go on to study the EFBRS concept in games of interest.
    Date: 2009
  19. By: Lacetera, Nicola (Case Western Reserve University); Macis, Mario (University of Michigan)
    Abstract: Experimental studies document that financial rewards discourage the performance of altruistic activities, because they destroy intrinsic altruistic motivations. We set up a randomized-controlled experiment, through a survey administered to 467 blood donors in an Italian town, and find that donors are not reluctant to receive compensation in general: A substantial share of respondents declared they would stop being donors if paid a small amount of cash, but we do not find such effects when a voucher of the same nominal value is offered instead. The aversion to direct cash payments is particularly marked among women and older respondents, while there are neither gender nor age differences in the response to the voucher. Implications for research and public policy are discussed.
    Keywords: incentives, altruism, public good provision, pro-social behavior, public health
    JEL: D12 D64 I18
    Date: 2009–09

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