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on Cognitive and Behavioural Economics |
| By: | David Colander; Andrew Qi Lin Chong |
| Abstract: | This The goal of nudge policy is generally presented as assisting people in finding their “true” preferences. Supporters argue that nudge policies meet a libertarian paternalism criterion. This claim has provoked complaints that nudge policies are unacceptably paternalistic. This paper suggests that by changing the explicit goal of nudge policy to a goal of making the choice of choice mechanism an explicit decision variable of the subgroup being affected by the nudge one can have a non-paternalistic nudge policy that better fits with the values inherent in Classical liberalism. The goal of non-paternalistic nudge policy is not to achieve a better result as seen by government or by behavioral economists. The goal of non-paternalistic nudge policy is to achieve a better result as seen by the agents being nudged as revealed through their choices of choice mechanisms. Examples are given of how nonpaternalistic nudge policy will and will not differ from paternalistic nudge policy. |
| Keywords: | libertarian, paternalism, nudge policy, choice architecture, behavioral economics |
| JEL: | D02 D60 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:0916&r=cbe |
| By: | Damiano Fiorillo (-) |
| Abstract: | The paper studies the determinants of regular volunteering departing from previous literature on extrinsic and intrinsic motivations. It contributes to the literature investigating the role of monetary rewards to influence intrinsic motivation. Using a simple framework that allows me to study the effect of monetary rewards on intrinsic motivation, the paper shows, controlling for endogenous bias, that monetary rewards crowd-out intrinsic motivation. |
| Keywords: | Monetary rewards, Intrinsic motivation, Crowd-out effect |
| JEL: | C13 C21 C31 D12 Z13 |
| Date: | 2009–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:prt:dpaper:3_2009&r=cbe |
| By: | Nathalie Colombier; David Masclet; Daniel Mirza; Claude Montmarquette |
| Abstract: | The World Trade Center attack has shed light on the urgent need to implement preventing measures against terrorism and to enhance cooperation in the global security system for all countries. However, international coordination cannot be taken for granted. It is often ineffective and likely to fail for several reasons. Perhaps the more prominent reason to explain failure in coordination is that collective actions against terrorism may suffer from the well known free riding problem (Sandler and Enders, 2004). In this paper we experimentally investigate cooperation dilemma in counterterrorism policies by measuring to what extent international deterrence policy may suffer from free riding. In our game, contributions to the group account do not aim to increase the production of the public good but instead seek to decrease the probability that a stochastic event destroys the good. A country could choose to free ride by investing nothing in the international deterrence policy and instead invest all its resources in its own national protection or even choose to ignore totally terrorism by investing on alternative projects. We also look at the effects of institutions that allow sanctioning and rewarding of other countries to facilitate coordination on deterrence policy. We find that, in absence of institutional incentives and after controlling for risk aversion, most of countries defect by investing very weakly in collective actions against terrorism while largely investing to protect themselves. In contrast, the introduction of punishment/reward incentive systems improves significantly the contribution level to the collective security account. <P>L’attentat qui a frappé le World Trade Center a fait la lumière sur l’urgence de mettre en œuvre des mesures préventives contre le terrorisme et d’améliorer la collaboration au sein du système de sécurité mondial en faisant intervenir tous les pays. Toutefois, on ne peut tenir la coordination internationale pour acquise car elle est souvent inefficace et risque d’échouer pour plusieurs raisons. L’échec de la coordination s’explique peut-être de façon plus marquée par le fait que les actions collectives contre le terrorisme sont susceptibles de souffrir d’un problème bien connu appelé resquillage (Sandler et Enders, 2004). Dans le présent document, nous examinons au moyen d’expériences le dilemme au sujet de la collaboration qui est posé par les politiques contre le terrorisme et nous tentons d’établir dans quelle mesure la politique internationale de dissuasion peut souffrir du phénomène de resquillage. Dans le cadre de notre jeu, les contributions au compte collectif ne visent pas à augmenter la production du bien public, mais plutôt à diminuer la probabilité qu’un événement stochastique détruise le bien en question. Un pays pourrait choisir de resquiller, soit en n’investissant pas dans la politique internationale de dissuasion, mais en utilisant plutôt toutes ses ressources pour sa protection nationale. Il pourrait aussi choisir d’ignorer totalement le terrorisme et d’investir dans certains autres projets. Nous nous penchons aussi sur l’influence qu’exercent les organismes qui permettent de sanctionner ou de récompenser les autres pays dans le but de faciliter la coordination en matière de politique de dissuasion. Nous constatons que, en l’absence d’encouragements institutionnels et une fois l’aversion à l’égard du risque maîtrisée, la plupart des pays font défection en investissant très peu dans les actions collectives contre le terrorisme et beaucoup dans leur propre protection. Par contre, l’introduction de mécanismes d’encouragement axés sur les punitions ou les récompenses améliore considérablement l’ampleur de la participation au compte collectif pour la sécurité. |
| Keywords: | Design of experiments, experimental economics, terrorism, conflicts,public economics., Structure des expériences, économie expérimentale, terrorisme, conflits, économie du secteur public. |
| JEL: | D72 C91 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2009s-44&r=cbe |
| By: | Simon Gaechter (University of Nottingham); Daniele Nosenzo (University of Nottingham); Elke Renner (University of Nottingham); Martin Sefton (University of Nottingham) |
| Abstract: | We report an experiment comparing sequential and simultaneous contributions to a public good in a quasi-linear two-person setting. In one parameterization we find that overall provision is lower under sequential than simultaneous contributions, as predicted, but the distribution of contributions is not as extreme as predicted and first movers do not attain their predicted firstmover advantage. In another parameterization we again find that the distribution of contributions is not as predicted when the first mover is predicted to free ride, but we find strong support for equilibrium predictions when the second mover is predicted to free ride. These results can be explained by second movers' willingness to punish first movers who free ride, and unwillingness to reward first movers who contribute. |
| Keywords: | Public Goods; Voluntary Contributions; Sequential Moves; Experiment |
| JEL: | C92 H41 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2009-17&r=cbe |
| By: | Daniel Houser; Daniel Schunk; Joachim Winter |
| Abstract: | The role of trust in promoting economic activity and societal development has received considerable academic attention by social scientists. A popular way to measure trust at the individual level is the so-called “investment game” (Berg, Dickhaut, and McCabe, 1995). It has been widely noted, however, that risk attitudes can also affect decisions in this game, and thus in principle confound inferences about trust. We provide novel evidence shedding light on the role of risk attitudes for trusting decisions. To the best of our knowledge our data are the first rigorous evidence that (i) aggregate investment distributions differ significantly between trust and risk environments, and (ii) risk attitudes predict individual investment decisions in risk games but not in the corresponding trust games. Our results are convergent evidence that trust decisions are not tightly connected to a person’s risk attitudes, and they lend support to the “trust” interpretation of decisions in investment games. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:450&r=cbe |
| By: | Robin P. Cubitt (School of Economics, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia) |
| Abstract: | This paper presents a new iterative procedure for solving finite noncooperative games, the reasoning-based expected utility procedure (RBEU), and compares this with existing iterative procedures. RBEU deletes more strategies than iterated deletion of strictly dominated strategies, while avoiding the conceptual problems associated with iterated deletion of weakly dominated strategies. It uses a sequence of “accumulation” and “deletion” operations to categorise strategies as permissible and impermissible; strategies may remain uncategorised when the procedure halts. RBEU and related “categorisation procedures” can be interpreted as tracking successive steps in players’ own reasoning. |
| JEL: | C72 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2009-16&r=cbe |
| By: | Kota Saito |
| Abstract: | This paper investigates a general relationship between risk and time preferences. I consider a decision maker who chooses between consumption of a particular prize in one period and a different prize in another period. The individual believes that today’s good is certain, and that, as the promised date for a future good becomes increasingly distant, the probability of his consuming the good decreases. Under these assumptions, this paper shows that the individuals exhibits the common ratio effect, the certainty effect, and the expected utility if and only if he discounts hyperbolically, quasi-hyperbolically and exponentially, respectively. |
| Keywords: | Allais paradox, hyperbolic discounting |
| JEL: | D11 D81 D91 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1477&r=cbe |
| By: | Markus Pasche (Friedrich Schiller University Jena, School of Economics and Business Administration) |
| Abstract: | One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more boundedly rational approach to portfolio choice between liquidity and risky assets. The choice is made on the basis of individual beliefs which are subject to mental representations of the underlying economic structure. Self-consciousness arises when the agent is aware of the fact that beliefs are dispersed among agents due to the absence of a "true" model. Responding to this fact by increasing liquidity preference is rationalized by the higher ex post performance of choice. Moreover, we analyze the case that the portfolio is partially financed by debt. It is explored how fundamental uncertainty affects the volume of the portfolio and hence money and credit demand as well as the probability of debt failures. |
| Keywords: | liquidity preference, portfolio choice, self-con?dence, self-consciousness, fundamental uncertainty, bounded rationality, Keynes, Knight |
| JEL: | G11 D81 E41 B31 |
| Date: | 2009–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-085&r=cbe |
| By: | Park, A.; Sgroi, D. |
| Abstract: | Herding and contrarian behavior are often-cited features of real-world financial markets. Theoretical models of continuous trading that study herding and contrarianism, however, usually do not allow traders to choose when to trade or to trade more than once. We present a large-scale experiment to explore these features within a tightly controlled laboratory environment. Herding and contrarianism are significantly more pronounced than in compa- rable studies that do not allow traders to time their decisions. Traders with extreme information tend to trade earliest, followed by those with information conducive to contrarianism, while those with the theoretical potential to herd delay the most. |
| Keywords: | Herding, Contrarianism, Endogenous-time Trading, Experiments |
| JEL: | C91 D82 G14 |
| Date: | 2009–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0941&r=cbe |
| By: | Park, A.; Sgroi, D. |
| Abstract: | We are the first paper to analyze and confirm the existence and extent of rational informational herding and rational informational contrarianism in a financial market experiment, and to compare and contrast these with the equivalent irrational phenomena. In our study, subjects generally behave according to benchmark rationality. Traders who should herd or be contrarian in theory are the significant source of both within the data. Correcting for subjects who chose not to trade at least once (an irrational action in itself), increases our ability to predict herding or contrarian behavior considerabl. |
| Keywords: | Herding, Contrarianism, Informational Efficiency, Experiments |
| JEL: | C91 D82 G14 |
| Date: | 2009–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0938&r=cbe |
| By: | Alexia Gaudeul (Jena Graduate School, Friedrich Schiller University Jena); Robert Sugden (Centre for Competition Policy and School of Economics, University of East Anglia) |
| Abstract: | It has been argued that cognitively constrained consumers respond sub-optimally to complex decision problems, and that firms can exploit these limitations by introducing spurious complexity into tariff structures, weakening price competition. We model a countervailing force. Restricting one's choices to the most easily comparable options is a psychologically well-attested heuristic. Consumers who use this heuristic favour firms that follow common conventions about tariff structures. Because a 'common standard' promotes price competition, a firm's use of it signals that it offers value for money, validating the heuristic. This allows an equilibrium in which firms use common standards and set competitive prices. |
| Keywords: | common standard, spurious complexity, cognitive limitations |
| JEL: | D83 L13 L51 |
| Date: | 2009–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-084&r=cbe |
| By: | Ariel Rubinstein; Yuval Salant |
| Date: | 2009–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:814577000000000374&r=cbe |
| By: | Sabourian, H.; Sibert, A.C. |
| Abstract: | Confirmation bias refers to cognitive errors that bias one towards one's own prior beliefs. A vast empirical literature documents its existence and psychologists identify it as one of the most problematic aspects of human reasoning. In this paper, we present three related scenarios where rational behaviour leads to outcomes that are observationally equivalent to different types of conformation bias. As an application, the model provides an explanation for how the reward structure in the financial services industry led to the seemingly irrational behaviour of bankers and other employees of financial institutions prior to the credit crisis of that erupted in the summer of 2007. |
| Keywords: | confirmation bias, belief persistence, overconfidence, signalling, credit crisis |
| JEL: | D81 D82 D83 G21 |
| Date: | 2009–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0940&r=cbe |
| By: | Hitoshi Matsushima (Faculty of Economics, University of Tokyo) |
| Abstract: | This paper incorporates social psychology into implementation theory, where an uninformed principal manipulates a dynamic decision-making process without employing any tailored contractual device. We demonstrate the principal's mind-control method through which he can effectively utilize social psychology tactics to incentivize informed agents to announce their information in keeping with his wishes. We show that with incentive compatibility, the principal can implement any alternative that he wishes as the unique Nash equilibrium outcome, even if the psychological cost of each agent from disobeying the principal's wishes is small as compared to his total material benefits. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2009cf673&r=cbe |
| By: | Kelvin Balcombe; Iain Fraser; Salvatore Di Falco |
| Abstract: | In this paper we investigate how consumers respond to the UK food label Traffic Light System (TLS). Employing a Choice Experiment (CE) we find that consumers appear to behave in a manner consistent with our expectations regarding the impact of the TLS nutrition label. In particular, we identify a strong preference on the part of respondents to avoid a basket of goods containing a mix of foods with any "Red" lights. We have also found that consumers have a hierarchy of importance in terms of perception of the various nutrients examined and clear behavioural differences associated with particular socio-economic characteristics confirming early research on the use of nutrition labels. Overall our results indicate significant heterogeneity in the attitudes and responses of consumers to food labels within and across socioeconomic strata in terms of the magnitude of WTP. |
| Keywords: | Nutrients; Traffic Light System; Choice Experiment; Bayesian Mixed Logit |
| JEL: | C72 D01 H41 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:0915&r=cbe |
| By: | Carl Andreas Claussen (Sveriges Riksbank and Norges Bank (Central Bank of Norway)); Egil Matsen (Norwegian University of Science and Technology and Norges Bank); Øistein Røisland (Norges Bank (Central Bank of Norway)); Ragnar Torvik (Norwegian University of Science and Technology and Norges Bank) |
| Abstract: | We suggest that overconfidence among policymakers explains why formal decision power over monetary policy is given to committees, while much of the real power to set policy remains with central bank chairmen. Overconfidence implies that the chairman underweights advice from his staff, increasing policy risk if he alone decides. A committee with decision power reduces this risk, because it induces moderation from the chairman. Overconfidence also yields disagreement and dissent in the committee, consistent with evidence from monetary policy committees. As the chairman is on average better informed, through his wider access to the staff, this would give him a suboptimal influence if policy is set through simple majority voting. Giving the chairman extra decision power, through e.g. agenda-setting rights, restores his influence. A monetary policy committee with a strong chairman balances the risks and influence distortions that occur if policymakers are overconfident. |
| Keywords: | Central Bank Governance, Monetary Policy Committees, Overcon?dence, Agenda-setting |
| JEL: | D02 D71 E58 |
| Date: | 2009–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2009_17&r=cbe |