nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒10‒17
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Testing Enforcement Strategies in the Field: Legal Threat, Moral Appeal and Social Information By Gerlinde Fellner; Rupert Sausgruber; Christian Traxler
  2. Are Academics Messy? Testing the Broken Windows Theory with a Field Experiment in the Work Environment By João Ramos; Benno Torgler
  3. Dressed for Success: Do School Uniforms Improve Student Behavior, Attendance, and Achievement? By Scott Imberman; Elisabetta Gentile
  4. Sibling and birth-order effects on time-preferences and real-life decisions By Lampi, Elina; Nordblom, Katarina
  5. Evolutionary Stability of Prospect Theory Preferences By Marc Oliver Rieger
  6. How to adapt to changing markets: experience and personality in a repeated investment game By Hopfensitz, Astrid; Wranik, Tanja
  7. Confusion and Reinforcement Learning in Experimental Public Goods Games By Ralph-C. Bayer; Elke Renner; Rupert Sausgruber
  8. Risk, Credit, and Insurance in Peru: Field Experimental Evidence By Galarza, Francisco
  9. Inequity and Risk Aversion in Sequential Public Good Games By Sabrina Teyssier
  10. Trust and Regulation: Addressing a Cultural Bias By Paolo Pinotti
  11. Technology and Economic Theory By Stan Metcalfe

  1. By: Gerlinde Fellner; Rupert Sausgruber; Christian Traxler
    Abstract: We run a large-scale natural field experiment to evaluate alternative strategies to enforce compliance with the law. The experiment varies the text of mailings sent to potential evaders of TV license fees. We find a strong alert effect of mailings, leading to a substantial increase in compliance. Among different mailing conditions a legal threat that stresses a high detection risk has a significant and highly robust deterrent effect. Neither appealing to morals nor imparting information about others' behavior enhances compliance. However, the information condition has a positive effect in municipalities where evasion is believed to be common. Overall, the economic model of crime performs remarkably well in explaining our data.
    Keywords: Field experiments; law enforcement; compliance; deterrence
    JEL: K42 C93
    Date: 2009–09
  2. By: João Ramos; Benno Torgler
    Abstract: We study the broken windows theory with a field experiment in a shared area of a workplace in academia (department common room). We explore academics' and postgraduate students' behaviour under an order condition (clean environment) and a disorder condition (messy environment). We find strong support that signs of disorderly behaviour triggers littering. In the disorder treatment 59% of the subjects litter compared to 18% in the order condition. The results remain robust when controlling compared to previous studies for a large set of factors in a multivariate analysis. When academic staff members and postgraduate students observe that others violated the social norm of keeping the common room clean the probability of littering increases ceteris paribus by around 40 percent.
    Keywords: broken windows theory; field experiment; littering
    JEL: Z13 C93 K42
    Date: 2009–09
  3. By: Scott Imberman (Department of Economics, University of Houston); Elisabetta Gentile (Department of Economics, University of Houston)
    Abstract: Concerns about safety in urban schools has led many school districts to require uniforms for their students. However, we know very little about what impact school uniforms have had on the educational environment. In this paper we use a unique dataset to assess how uniform adoption affects student achievement and behavior in a large urban school district in the southwest. Since each school in the district could decide independently about whether or not to adopt uniforms, we are able to use variation across schools and over time to identify the effects of uniforms. Using student and school fixed-effects along with school-specic linear time trends to address selection of students and schools into uniform adoption, we nd that uniforms had little impact on student outcomes in elementary grades but provided modest improvements in language scores and attendance rates in middle and high school grades. These effects appear to be concentrated in female students.
    Date: 2009–03
  4. By: Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Survey data is used to investigate whether siblings and birth order can explain differences in stated time preferences and in some real-life decisions of intertemporal nature, namely whether one obtains a university education, whether one moves in with a partner at an early age, and when one has children. We also study earnings. Middleborns are found to be the least patient in terms of stated time preferences. First-borns, on the other hand, are more patient in real-life decisions than later-borns: they are more likely to obtain a university education and have higher earnings. Interestingly, those who have siblings but did not grow up with them are the least patient in family related real-life decisions. We also find that the more siblings one grew up with, the more impatient one is in the studied real-life decisions. Moreover, stated time preferences are correlated with the studied real-life decisions: people with high discount rates make more impatient choices and have lower earnings than others.<p>
    Keywords: time preferences; education; earnings; birth order; siblings
    JEL: D99 I20 J10
    Date: 2009–10–05
  5. By: Marc Oliver Rieger (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We demonstrate that in simple 2 X 2 games (cumulative) prospect theory preferences can be evolutionarily stable, i.e. a population of players with prospect theory preferences can not be invaded by more rational players. This holds also if probability weighting is applied to the probabilities of mixed strategies. We also show that in a typical game with infinitely many strategies, the "war of attrition", probability weighting is evolutionarily stable. Finally, we generalize to other notions of stability. Our results may help to explain why probability weighting is generally observed in humans, although it is not optimal in usual decision problems.
    Keywords: prospect theory, existence of Nash equilibria, evolutionary stability
    JEL: C70 C73 D81
    Date: 2009–10
  6. By: Hopfensitz, Astrid; Wranik, Tanja
    Abstract: Investment behavior is traditionally investigated with the assumption that risky investment is on average advantageous. However, this may not always be the case. In this paper, we experimentally studied investment choices made by students and financial professionals under favorable and unfavorable market conditions in a multi-round investment game. In particular, the probability of winning was set so that investment in one condition was advantageous, and in one condition was disadvantageous. To investigate who is more likely to adapt their investment behaviors to the changing market conditions, we also measured personality and self-efficacy. We expected that investment behavior in changing markets could be predicted by a combination of experience (students, professionals), personality (anxiety, optimism, impulsivity, and Openness to Experience), and self-efficacy (belief in one’s ability to make good decisions in an investment task). Results indicate that professionals do not significantly differ from students in their decisions. Personality and self-efficacy both predicted investment behavior. In particular, we found that optimism and anxiety were a liability in unfavorable markets, leading to unreasonable levels of risk. Impulsivity was a liability in both favorable and unfavorable markets, leading to high risk on unfavorable markets, and low risk in favorable markets. Openness to experience was an asset in unfavorable markets, leading to adjusted risk taking. Finally, self-efficacy was generally related to higher levels of risk.
    Keywords: risk taking; field experiment; personality; unfavorable conditions; professionals
    JEL: D53 D81 G11 C93 C91 D14
    Date: 2009–09–30
  7. By: Ralph-C. Bayer; Elke Renner; Rupert Sausgruber
    Abstract: We use a limited information environment to mimic the state of confusion in an experimental, repeated public goods game. The results show that reinforcement learning leads to dynamics similar to those observed in standard public goods games. However, closer inspection shows that individual decay of contributions in standard public goods games cannot be fully explained by reinforcement learning. According to our estimates, learning only accounts for 41 percent of the decay in contributions in standard public goods games. The contribution dynamics of subjects, who are identified as conditional cooperators, differ strongly from the learning dynamics, while a learning model estimated from the limited information treatment tracks behavior for subjects, who cannot be classified as conditional cooperators, reasonably well.
    Keywords: public goods experiments, learning, limited information, confusion, conditional cooperation
    JEL: C90 D83 H41
    Date: 2009–09
  8. By: Galarza, Francisco
    Abstract: This paper reports the results of behavioral economic experiments conducted in Peru to examine the relationship amongst risk preferences, loan take-up, and insurance purchase decisions. This area-based yield insurance can help reduce people's vulnerability to large scale covariate shocks, and can also lower the loan default probability under extreme negative covariate shocks. In a context of collateralized formal credit markets, we provide suggestive evidence that insurance may help reduce the fear of losing collateral that prevents potential borrowers from taking loans. Framing these experiments to recreate a real life situation, we started with a Baseline Game where subjects had to choose between a fallback production project and an uninsured loan.We then introduced a third project choice--loan with yield insurance (Insurance Game)--which allows us to measure the effect of introducing insurance on the demand for loans. Overall, more than 50 percent of the subjects are willing to buy insurance in this insurance game. Further, controling for choices made in the baseline game, covariate shocks experienced earlier, and previous rounds' winnings, we find that the decision to take the insured loan (uninsured loan) rather than any of the other two projects is predicted by wealth and lower (higher) levels of risk aversion. Interestingly, this relationship with risk aversion continues to hold when we control for the overweighting of low-probability events observed in the data.
    Keywords: area-yield insurance; credit; covariate risk; idiosyncratic risk; risk aversion; probability weighting; experimental economics; Peru
    JEL: D81 C93
    Date: 2009–08
  9. By: Sabrina Teyssier (Thurgau Institute of Economics - Universität Konstanz, GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    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 first 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 significantly and negatively correlated with the contribution decision of first 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 first 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 contribu- tion
    Date: 2009
  10. By: Paolo Pinotti (Bank of Italy JEL classification:L51, Z10, D02, K42)
    Abstract: Cultural traits shape both the scope and the consequences of government intervention. Failing to account for cultural differences may therefore bias the estimated effects of regulation. This paper investigates the direction and the magnitude of this bias, from both a theoretical and an empirical point of view. It presents a simple model in which agents differ in terms of trust and trustworthiness, and average trust predicts average trustworthiness across countries. Entrepreneurial activity by the untrustworthy imposes negative externalities on the whole economy and burdensome entry regulations may lower these externalities at the cost of limiting economic activity by all agents. The model delivers two main predictions: within each country, preferences for regulations depend negatively on individual trust; across countries, lower trustworthiness drives higher levels of unofficial activity, negative externalities and government regulation, thus inducing a positive spurious correlation between all these variables. Evidence from individual level and cross-country data is consistent with these implications of the model. In particular, it suggests that a large part of the previously estimated negative effects of regulation can be attributed to omitted variation in cultural traits.
    Keywords: trust, regulations, unofficial economy, externalities
    Date: 2009–09
  11. By: Stan Metcalfe
    Abstract: Technology and technological change play a central role in economics, whether in the theory of resource allocation or in the theory of growth and development. Yet the nature of technology is largely ignored in economic theory, it being considered sufficient to treat technology as a constraint on productive opportunities. This short essay delves a little deeper into the nature of technology and the material, energy and information transformation processes that it represents. A deeper understanding of technology leads to a deeper understanding of the main currents of technological advance and to the reasons why the development of technology and its application are so uneven over time and place.
    Keywords: Length 27 pages
    Date: 2009–08

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