nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒12‒11
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Common reason to believe and framing effect in the team reasoning theory: an experimental approach By Leonardo Becchetti; Giacomo Degli Antoni; Marco Faillo
  2. Interpersonal Comparisons of Utility in Bargaining : Evidence from a Transcontinental Ultimatum Game By Romina Boarini; Jean-François Laslier; Stéphane Robin
  3. Underweighting Rare Events in Experience Based Decisions: Beyond Sample Error By Greg Barron; Giovanni Ursino
  4. Incentive to discriminate? An experimental investigation of teacher incentives in India By Jain, Tarun; Narayan, Tulika
  5. A Reexamination of the House Money Effect: Rational Behavior or Irrational Exuberance? By Sugato Chakravarty; Yongjin Ma
  6. Income Redistribution and Public Good Provision: an Experiment By Jonathan Maurice; Marc Willinger; Agathe Rouaix
  7. Desert and Tangibility: Decomposing House Money Effects in a Charitable Giving Experiment By David Reinstein; Gerhard Reiner
  8. Third-party Punishment is more effective on Women: Experimental Evidence By Pablo Brañas-Garza; Stefania Ottone
  9. Framing effects of risk communication in health-related decision making. Learning from a discrete choice experiment By Florence Nguyen; Marie-Odile Carrère; Nora Moumjid
  10. Adaptive Experimental Design Using the Propensity Score By Hahn, Jinyong; Hirano, Keisuke; Karlan, Dean
  11. Legal Liability when Individuals Have Moral Concerns By Bruno Deffains; Claude Fluet
  12. Pleasure and belief in Hume's decision process By Marc-Arthur Diaye; André Lapidus
  13. Le tournant cognitif en économie de la décision et des comportements By Sacha Bourgeois-Gironde; Raphaël Giraud

  1. By: Leonardo Becchetti (University of Rome Tor Vergata); Giacomo Degli Antoni (EconomEtica); Marco Faillo (University of Trento - Faculty of Economics)
    Abstract: The present paper is aimed at empirically verifying the role of the “common reason to believe” (Sugden 2003) and of framing (Bacharach 1999 and 2006) within the theory of team reasoning. The analysis draws on data collected trough a Traveler’s Dilemma experiment. To study the role of the common reason to believe, players’ belief in their counterpart’s choice are elicited and the correlation between the endorsement of team reasoning and beliefs is considered. With respect to the idea of frame proposed by Bacharach, we study the effect of the reduction of social distance on the probability that the “we-frame” comes to players’ mind. Social distance is decreased by introducing a meeting between the two players after the game. It is shown that the common reason to believe appropriately explains the internal logic of team reasoning and that the reduction of social distance makes the “we-frame” more likely.
    Keywords: Team Reasoning, Common Reason to Believe, Framing, Traveler’s Dilemma; Social Distance
    JEL: C72 C91 A13
    Date: 2009–11
  2. By: Romina Boarini (OFCE - Observatoire Français des Conjonctures économiques - Observatoire Français des Conjonctures économiques); Jean-François Laslier (Département d'Economie, Ecole Polytechnique - Ecole Polytechnique); Stéphane Robin (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: This paper presents the experimental results of a “Transcontinental Ultimatum Game” implemented between India and France. The bargaining took the form of standard ultimatum games, but in one treatment Indian subjects made offers to French subjects and, in another treatment, French subjects made offers to Indian subjects. We observed that French→Indian bargaining mostly ended up with unequal splits of money in favour of French, while nearly equal splits were the most frequent outcome in Indian→French interactions. The experimental results are organized through a standard social reference model, modified for taking into account the different marginal value of money for bargainers. In our model bargaining is driven by relative standings comparisons between players, occurring in terms of real earnings (that is monetary earnings corrected for a purchasing power factor) obtained in the game. The norm of equity behind the equalization of real earnings is called local equity norm, and contrasted to a global equity norm which would encompass the wealth of players beyond the game. According to what we observed, no beyond-game concern seems to be relevantly endorsed by subjects.
    Keywords: Interpersonal Comparisons of Utility; Fairness; Bargaining experiment; Ultimatum Game
    Date: 2009
  3. By: Greg Barron (Harvard Business School); Giovanni Ursino (DISCE, Università Cattolica)
    Abstract: Recent research has focused on the "description-experience gap": While rare events are overweighted in description based decisions, people tend to behave as if they underweight rare events in decisions based on experience. Barron and Erev (2003) and Hertwig, Barron, Weber, and Erev (2004) argue that such findings are substantive and call for a theory of decision making under risk other than Prospect Theory for decisions form experience. Fox and Hadar (2006) suggest that the discrepancy is due to sampling error: people are likely to sample rare events less often than objective probability implies, especially if their samples are small. The current paper examines the necessity of sample error in the underweighting of rare events. The first experiment shows that the gap persists even when people sample the entire population of outcomes and make a decision under risk rather than under uncertainty. A reanalysis of Barron and Erev (2003) further reveals that the gap persists even when subjects observe the expected frequency of rare events. The second experiment shows that the gap exists in a repeated decision making paradigm that controls for sample biases and the "hot stove" effect. Moreover, while underweighting persists in actual choices, overweighting is observed in judged probabilities. The results of the two experiments strengthen the suggestion that descriptive theories of choice that assume overweighting of small probabilities are not useful in describing decisions from experience. This is true even when there is no sample error, for both decisions under risk and for repeated choices.
    Keywords: experience-based decisions, Prospect Theory, rare event, overweighting, underweighting
    JEL: D81 C91
    Date: 2009–10
  4. By: Jain, Tarun; Narayan, Tulika
    Abstract: We address the challenge of designing performance-based incentive schemes for schoolteachers. When teachers specialize in different subjects in the presence of social prejudice, performance based pay which depends on the average of student performance can cause teachers to coordinate their effort in high status students and away from low status students. Laboratory experiments conducted in India with future teachers as subjects show that performance-based pay causes teachers to decrease effort in low caste Hindu students compared to upper caste Hindu or Muslim students. We observe greater effort and lower intra-class variation when teachers are penalized if students receive zero scores.
    Keywords: Teacher incentives; Laboratory experiments; Coordination games; Discrimination
    JEL: I28 J15 C91 I22
    Date: 2009–10–31
  5. By: Sugato Chakravarty (Purdue University); Yongjin Ma (Purdue University)
    Abstract: We reexamine the presence of the house money effect (HME) within the context of a dynamic financial experiment. Our specific innovation lies in introducing the Becker-DeGroot-Marschak (1964) bidding mechanism within our experimental design in order to ameliorate, or altogether eliminate, the peer pressure effect. In doing so, we find weak evidence, at best, of the HME. In fact, our results overwhelmingly support rational behavior by our experimental subjects. Our findings stand in contrast to extant research, and one study in particular, that has reported the existence of the HME using Vickrey auctions within a dynamic financial context. Our findings survive robustness tests and imply that subjects are mostly rational in their risk attitudes.
    Keywords: House money effect; expected utility theory; experimental economics; Becker-DeGroot-Marschak procedure; Vickrey auction
    Date: 2009–05
  6. By: Jonathan Maurice; Marc Willinger; Agathe Rouaix
    Abstract: We provide a new experimental investigation of the neutrality theorem of Warr (1983), who states ”when a single public good is provided at positive levels by private individuals, its provision is unaffected by a redistribution of income”. Instead of comparing different income distributions across groups as Chan et al. (1996), in our experiment the total group endowment is redistributed after a 10 rounds sequence. We compare an unequalizing redistribution (EI) and an equalizing redistribution (IE), to two benchmark treatments for which the 10 rounds sequence is repeated, either with an equal distribution (EE) or an unequal distribution (II). The constituent game has a unique interior dominant strategy equilibrium. Our data support the neutrality theorem (after controlling for the restart effect): redistribution has no effect on the total amount of public good in none of the tested treatments. However, the analysis of individual behavior shows that ”poor” subjects over-contribute with respect to their Nash-contribution, while ”rich” subjects tend to play their Nash-contribution or under-contribute slightly. Furthermore, after a redistribution, subjects react asymetrically: subjects who get poorer reduce their contribution of a larger amount than the amount of contribution added by subjects who become richer. And it is shown that the latter do not react enough to the redistribution.
    Date: 2009–11
  7. By: David Reinstein; Gerhard Reiner
    Abstract: Several papers have documented that when subjects play with standard laboratory “endowments” they make less self-interested choices then when they use money they have either earned through a laboratory task or brought from outside the lab. In the context of a charitable giving experiment we decompose common "house money" effects into two components: the tangibility of cash in hand relative to money (or ecu's) promised on a computer screen, and the desert of earned money relative to random windfall gains. While both components are found to be significant in non-parametric tests, the former effect, which has been neglected in previous studies, has a stronger effect on total donations. These results have clear implications for experimental design, and also suggest that the availability of less tangible payment methods may increase charitable donations.
    Date: 2009–12–04
  8. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Stefania Ottone (Department of Economics, University of Milano-Bicocca)
    Abstract: Existing experimental studies mainly focus on motivations and choices of thirdparty punishers, but only few of them detect sanction efficacy contradictory results. Our paper wants to shed light on this point. In particular, we want to detect whether the threat of being punished for unfair actions is credible and affects subjects’ choices thus, making it rational to behave fairly. To disentangle the effect of expected punishment on behaviour, we implement in the lab two experimental games - the standard Dictator Game, that is used as baseline, and the Third-Party Punishment Game that incorporates a third player who observes and may punish the Dictator. The idea is that, if the Dictator in treatment TPP believes punishment is a credible threat, s/he may decide to change her/his behaviour, that is, to behave generously in order to avoid sanctions. We find a clear gender bias: women reacted to the punishment threat by increasing their transfer to the Recipient, while men did exactly the opposite.
    Date: 2009–11–20
  9. By: Florence Nguyen (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines, Centre Léon Bérard - CRLCC Léon Bérard); Marie-Odile Carrère (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines, Centre Léon Bérard - CRLCC Léon Bérard); Nora Moumjid (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines, Centre Léon Bérard - CRLCC Léon Bérard)
    Abstract: Background How to communicate uncertainty is a major concern in medicine and in health economics. We aimed at studying the framing effects of risk communication on stated preferences in a discrete choice experiment (DCE) performed to elicit women's preferences for Hormone Replacement Therapy. Methods Two versions of the questionnaire were randomly administered to respondents. Multiple risks were expressed as natural frequencies using either a constant reference class (Design 1) or variable reference classes (Design 2). We first tested whether Design 1 would impose a lower cognitive burden than Design 2. We then examined whether the two designs resulted in different utility model estimates. Results Design 1 improved consistency (monotonicity and stability). However, rates of dominance or intransitive responses did not differ across designs. Design 1 decreased women's sensitivity to the risk of fractures and increased their sensitivity to the risk of breast cancer as compared to all other attributes. Discussion Framing effects of risk communication on stated preferences may be a major problem in the design of DCEs. More research is needed to determine whether our findings are replicable and to further investigate the normative question of how to improve risk communication in health-related decision-making.
    Keywords: Framing effects; Risk communication; Discrete choice experiment
    Date: 2009
  10. By: Hahn, Jinyong (UCLA); Hirano, Keisuke (U AZ); Karlan, Dean (Yale University and MIT Jameel Poverty Action Lab)
    Abstract: Many social experiments are run in multiple waves, or are replications of earlier social experiments. In principle, the sampling design can be modified in later stages or replications to allow for more efficient estimation of causal effects. We consider the design of a two-stage experiment for estimating an average treatment effect, when covariate information is available for experimental subjects. We use data from the first stage to choose a conditional treatment assignment rule for units in the second stage of the experiment. This amounts to choosing the propensity score, the conditional probability of treatment given covariates. We propose to select the propensity score to minimize the asymptotic variance bound for estimating the average treatment effect. Our procedure can be implemented simply using standard statistical software and has attractive large-sample properties.
    JEL: C10 C13 C14 C90 C93
    Date: 2009–01
  11. By: Bruno Deffains; Claude Fluet
    Abstract: We incorporate normative motivations into the economic model of accidents and tort rules. The social norm is that one should avoid harming others and should compensate if nevertheless harm is caused. To some extent, this is internalized through intrinsic moral concerns; moreover, those thought not to adhere to the norm are met with social disapproval. Moral and reputational concerns are not strong enough, however, for injurers to willingly compensate their victims. Absent legal liability, normative concerns induce precautions to prevent harm but precautions are then socially inefficient. By contrast, perfectly enforced legal liability crowds out informal incentives completely (e.g., individuals causing harm suffer no stigma) but precautions are then socially efficient. Under imperfectly enforced legal liability, formal legal sanctions and normative concerns are complements and interact to induce more precautions than under no-liability.
    Keywords: Intrinsic motivations, social norms, esteem, strict liability, negligence, crowding out
    JEL: D8 K4 Z13
    Date: 2009
  12. By: Marc-Arthur Diaye (Centre d'Etude de l'Emploi - Université d'Evry-Val d'Essonne); André Lapidus (PHARE - Pôle d'Histoire de l'Analyse et des Représentations Economiques - CNRS : FRE2541 - Université Panthéon-Sorbonne - Paris I - Université de Paris X - Nanterre)
    Abstract: The purpose of this paper is to introduce explicitly pleasure and belief in what aims at being a Humean theory of decision, like the one developed in Diaye and Lapidus (2005a). Although we support the idea that Hume was in some way – evidently different from Bentham's or Jevons' way – a hedonist, we lay emphasis less on continuity than on the specific kind of hedonism encountered in Hume's writings (chiefly the Treatise, the second Enquiry, the Dissertation, or some of his Essays). Such hedonism clearly contrasts to its standard modern inheritance, expressed by the relation between preferences and utility. The reason for such a difference with the usual approach lies in the mental process that Hume puts to the fore in order to explain the way pleasure determines desires and volition. Whereas pleasure is primarily, in Hume's words, an impression of sensation, it takes place in the birth of passions as reflecting an idea of pleasure, whose “force and vivacity” is precisely a “belief”, transferred to the direct passions of desire or volition which come immediately before action. As a result, from a Humean point of view, “belief” deals as well with decision under risk or uncertainty, as with intertemporal decision and indiscrimination problems. The latter are explored within a formal framework, and it is shown that the relation of pleasure is transformed by belief into a relation of desire, which belongs to a non-empty class of relations, among which at least one is a preorder.
    Keywords: Hume, decision, pleasure, belief, passion, desire, preference, rationality, discrimination, will, choice
    Date: 2009–06
  13. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS)); Raphaël Giraud (CRESE - Université de Franche-Comté : EA)
    Abstract: Parler d'un tournant cognitif de la théorie économique de la décision suppose que celle-ci s'est mise, à un moment donné, à prendre davantage et mieux en compte les processus mentaux – voire neuronaux – qui président au traitement de l'information pertinente pour la prise de décision et qui accompagnent, déterminent et expliquent la prise de décision. Cette prise en compte suppose, bien entendu, la modification des modèles de décision, mais sans doute également un changement dans la démarche ui préside à la modélisation, moins tributaire de l'approche instrumentale inspirée de l'irréalisme méthodologique de Milton Friedman (1953) d'après laquelle le caractère réaliste des hypothèses d'un modèle importe peu du moment qu'il prédit correctement les comportements, et plus préoccupée d'une description fidèle des processus mentaux effectifs qui conduisent aux décisions. La tâche qui nous attend est donc double. Il s'agit d'abord de repérer chronologiquement un éventuel tournant. Il s'agit ensuite de caractériser l'avant et l'après. Il est assez facile de repérer les éléments d'un tournant cognitif en théorie économique de la décision dans au moins deux domaines : la théorie de la décision dans l'incertain, où les conséquences de l'action choisie au terme du processus de décision dépendent de la réalisation de certains événements, et la théorie de la décision comportant une dimension temporelle. Nous nous concentrerons ici sur l'analyse du tournant cognitif dans le premier domaine.
    Keywords: théorie de la décision, biais cognitifs, incertain, espérance d'utilité, tournant cognitif.
    Date: 2008

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