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on Cognitive and Behavioural Economics |
| By: | Giuseppe Attanasi; Luca CORAZZINI; Nikolaos GEORGANTZIS; Francesco PASSARELLI |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:09.26.302&r=cbe |
| By: | Lovo, Stefno; Bisière, Christophe; Décamps, Jean-Paul |
| Abstract: | In this paper, the authors conduct a series of experiments that simulate trading in financial markets and which allows them to identify the different effects that subjects’ risk attitudes and belief updating rules have on the information content of the order flow. They find that there are very few risk-neutral subjects and that subjects displaying risk aversion or risk-loving tend to ignore private information when their prior beliefs on the asset fundamentals are strong. Consequently, private information struggles penetrating trading prices. The authors find evidence of non-Bayesian belief updating (confirmation bias and under-confidence). This reduces (improves) market efficiency when subjects’ prior beliefs are weak (strong). |
| Keywords: | risk attitude; financial market; information; belief; risk-neutral information |
| JEL: | F16 F17 F18 |
| Date: | 2009–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0917&r=cbe |
| By: | Christian Wolff (Luxembourg School of Finance, University of Luxembourg); Thorsten Lehnert (Luxembourg School of Finance, University of Luxembourg); Cokki Versluis (DSM Corporate Technology) |
| Abstract: | It is a well known empirical fact that actual option prices show persistent and systematic deviations from Black-Scholes option values. While a substantial number of enhancements have been proposed in the literature, these approaches typically leave investors’ preferences towards risk unmodified. In this paper we study option prices in an economy where investors are valuing call options according to the cumulative prospect theory of Kahneman and Tversky. We distinguish two prospect option pricing models, based on whether cash flows are either considered to be segregated or aggregated over time. These models are compared with the Black-Scholes model and the stochastic volatility model of Heston. Empirical analysis of European call options on the S&P 500 index shows that prospect option pricing models significantly improve the fitting performance compared with the Black-Scholes model and that especially the aggregated version’s performance is at least equivalent to the Heston model. |
| Keywords: | Prospect Theory, Framing, Mental Accounting, Risk Attitude, Loss Aversion, Probability Perception, Weighting Function, Stochastic Volatility, Option Pricing. |
| JEL: | D01 G11 G12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:09-03&r=cbe |
| By: | Bauman, Yoram (University of Washington); Rose, Elaina (University of Washington) |
| Abstract: | A substantial body of research suggests that economists are less generous than other professionals and that economics students are less generous than other students. We address this question using administrative data on donations to social programs by students at the University of Washington. Our data set allows us to track student donations and economics training over time in order to distinguish selection effects from indoctrination effects. We find that economics majors are less likely to donate than other students and that there is an indoctrination effect for non-majors but not for majors. Women majors and non-majors are less likely to contribute than comparable men. |
| Keywords: | altruism, public goods |
| JEL: | A13 D64 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4625&r=cbe |
| By: | Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez |
| Abstract: | A usual explanation to low levels of contribution to public goods is the fear of getting the sucker’s payoff (cooperation by the participant and defection by the other players). In order to disentangle the effect of this fear from other motives, we design a public good game where people have an insurance against getting the sucker’s payoff. We show that contributions to the public good under this ‘protective’ design are significantly higher and interact with expectations on other individuals' contribution to the public good. Some policy implications and extensions are suggested. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:09-27&r=cbe |
| By: | Blanco, Mariana (Universidad del Rosario); Engelmann, Dirk (Royal Holloway, University of London); Koch, Alexander K. (University of Aarhus); Normann, Hans-Theo (Goethe University Frankfurt) |
| Abstract: | Within-subject data from sequential social dilemma experiments reveal a correlation of first-and second-mover decisions for which two channels may be responsible, that our experiment allows to separate: i) a direct, preference-based channel that influences both first- and second-mover decisions; ii) an indirect channel, where second-mover decisions influence beliefs via a consensus effect, and the first-mover decision is a best response to these beliefs. We find strong evidence for the indirect channel: beliefs about second-mover cooperation are biased toward own second-mover behavior, and most subjects best respond to stated beliefs. But when first movers know the true probability of second-mover cooperation, subjects' own second moves still have predictive power regarding their first moves, suggesting that the direct channel also plays a role. |
| Keywords: | experimental economics, consensus effect, social dilemmas |
| JEL: | C72 C90 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4624&r=cbe |
| By: | Sabrina Teyssier |
| 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 contribution |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0047&r=cbe |
| By: | Shchetinin, Oleg (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | I show that a simple formal model of reciprocal altruism is able to predict human behavior in contracting situations, puzzling when considered within selfishness assumption. For instance, motivation and performance crowding-out are explained by a signaling mechanism in which provision of an extrinsic incentive signals non-generosity of the Principal and decreases Agent’s intrinsic motivation. The model’s equilibrium predicts behavior in the Control Game of Falk and Kosfeld and in a variant of Trust Game by Fehr and Rockenbach. This suggests that reciprocal altruism modeling could be fruitful more generally in applications of contract theory.<p> |
| Keywords: | Reciprocal Altruism; Extrinsic and intrinsic motivation; Contract Theory; Behavioral Economics. |
| JEL: | D82 M54 |
| Date: | 2009–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0421&r=cbe |
| By: | López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Vorsatz, Marc (Fundación de Estudios de Economía Aplicada–FEDEA) |
| Abstract: | Prior studies have shown that selfish behavior is reduced when co–players have the opportunity to approve/disapprove a player’s choice, even if that has no consequences on the player’s material payoff. Using a prisoner’s dilemma, we experimentally study the causes of this phenomenon, which seems crucial to understand compliance with social norms. Our data is consistent with a model based on the assumption that people feel badly if they expect to be disapproved by others. Furthermore, we find suggestive evidence in line with the following assumptions: (i) People become more aware about the others opinion if feedback is available, and (ii) even if the feedback is ex post and has no effect on their ex ante expectations about disapproval, people prefer not to receive negative feedback. |
| Keywords: | Approval; disapproval; non–material rewards/sanctions; social norms. |
| JEL: | A13 C72 D64 Z13 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:200908&r=cbe |
| By: | Nisvan Erkal; Lata Gangadharan; Nikos Nikiforakis |
| Abstract: | This paper investigates the relationship between relative earnings and giving in a twostage, real-effort experiment. In the first stage, four players compete in a tournament that determines their earnings. In the second stage, they decide whether they wish to transfer part of their earnings to one or more of their group members. Our main finding is that those who are ranked first are significantly less likely to give than those who are ranked second. This non-monotonic relationship between earnings and likelihood of giving disappears if individual earnings are randomly determined or if individuals learn about the second (transfer) stage only after they earn their income. These results suggest that the non-monotonic relationship detected may be driven by differences in individuals’ expectations about others’ behavior in the second stage, which are correlated with their own willingness to give. |
| Keywords: | Relative income; Altruism; Real effort; Self-selection; Luck |
| JEL: | C91 D3 D64 I3 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1067&r=cbe |
| By: | Leonardo Becchetti (University of Rome Tor Vergata); Pierluigi Conzo (University of Rome Tor Vergata) |
| Abstract: | Creditworthiness and trustworthiness are almost synonyms since the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower. We test the creditworthiness-trustworthiness nexus in an investment game experiment on a sample of participants/non participants to a microfinance program in Argentina and find that trustors give significantly more to (and believe they will receive more from) microfinance borrowers. Trustees’ first and second order beliefs are also consistent with this picture. Our findings identify a “horizontal trustworthiness externality” which creates a direct (loan-performance) causality nexus since the mere loan provision increases the borrower’s attractiveness as a business partner. |
| Keywords: | field experiment, microfinance, investment game, trust, trustworthiness |
| JEL: | O16 C93 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:ent:wpaper:wp17&r=cbe |
| By: | Hannes Koppel (Max-Planck-Institute of Economics, Jena); Günther G. Schulze (Albert-Ludwigs-University Freiburg) |
| Abstract: | We conduct a natural field experiment on direct and indirect transfer mechanisms for small donations. Charitable contributions are significantly higher if made indirectly, i.e. if they are tied to the purchase of a good sold at a premium, than if they are made directly. Donations are signficantly higher under both transfer mechanisms if people are given a suggested reference donatio |
| Keywords: | Tied versus untied transfers, charitable donations, charity, willingness to give, pro social behavior |
| JEL: | D64 C93 H41 |
| Date: | 2009–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-102&r=cbe |
| By: | Nick Netzer (Socioeconomic Institute, University of Zurich); Armin Schmutzler (Socioeconomic Institute, University of Zurich) |
| Abstract: | We examine a “Rotten Kid” model (Becker 1974) where a player with social preferences interacts with an egoistic player. In contrast to previous models, we assume that social preferences are intention-based rather than outcome-based. In a very general multi-stage setting we show that any sequential reciprocity equilibrium must involve mutually unkind behavior of both players, endogenously generating negative emotions rather than positive altruism. In a large class of two-stage games that includes principalagent and gift-giving games, this prevents equilibrium from being materially Pareto efficient. Compared to the subgame-perfect equilibrium without social preferences, efficiency is still generally increased. On the other hand, the materialistic player has lower whereas the reciprocal player has higher material payoffs, so that reciprocity does not increase equity: For sufficiently strong reciprocity concerns, the materialistic player ends up with a negligible share of the gains from trade. |
| Keywords: | Reciprocity, Psychological Games, Moral Hazard, Gift Giving |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0919&r=cbe |
| By: | Mathieu Désolé; Stefano Farolfi; Fioravante Patrone; Patrick Rio |
| Abstract: | A role-playing game (RPG), KatAware, was developed in the Kat River catchment of South Africa to support the negotiation process among water users on the allocation rules of the resource. Playing the RPG with local stakeholders exhibited some regularity in the behaviour of players, particularly on their attitude of defining binding agreements. These regularities were first formalized through a model of cooperative game theory (CGT), and then, to confirm the results of the model, tested by an experimental protocol. Both the model and the protocol were based and calibrated on the results of the RPG. The progressive simplification (decontextualization) required to bring the RPG into the laboratory suggested to explore the role of context (in our case water related issues) on players’ behaviour. The objective of this paper is to illustrate the process that conducted the research team from the experience in the Kat River to the first experiments to test the hypotheses exhibited in the experience and then to analyze the influence of context on players’ behaviour. Terms and concepts are clarified in order to provide a clear research framework in this new field at the border between experiences and experiments in social sciences for commons management. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:09-24&r=cbe |
| By: | Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | We discuss the design of stated preference (SP) surveys in light of findings in behavioral economics such as context dependence of preferences, learning, and differences between revealed and normative preferences. More specifically, we discuss four different areas: (i) revealed and normative preferences, (ii) learning and constructed preferences, (iii) context dependence, and (iv) hypothetical bias. We argue that SP methods would benefit from adapting to some of the findings in behavioral economics, but also that behavioral economics may gain insights from studying SP methods.<p> |
| Keywords: | stated preferences; behavioral economics |
| JEL: | C91 H40 Q51 |
| Date: | 2009–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0418&r=cbe |
| By: | Paola Tubaro |
| Abstract: | This paper is an overview of "Agent-based Computational Economics (ACE)", an emerging approach to the study of decentralized market economies, in methodological perspective. It summarizes similarities and differences with respect to conventional economic models, outlines the unique methodological characteristics of this approach, and discusses its implications for economic methodology as a whole. While ACE rejoins the reflection on the unintended social consequences of purposeful individual action which is constitutive of economics as a discipline, the paper shows that it complements state-of the-art research in experimental and behavioral economics. In particular, the methods and techniques of ACE have reinforced the laboratory finding that fundamental economic results rely less on rational choice theory than is usually assumed, and have provided insight into the importance of market structures and rules in addition to individual choice. In addition, ACE has enlarged the range of inter-individual interactions that are of interest for economists. In this perspective, ACE provides the economist‘s toolbox with valuable supplements to existing economic techniques rather than proposing a radical alternative. Despite some open methodological questions, it has potential for better integration into economics in the future. |
| Keywords: | Agent-based Computational Economics, Economic Methodology, Experimental Economics. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2009-42&r=cbe |
| By: | Bouty, Isabelle (School of Business and Economics, University of Western Paris at Nanterre); Gomez, Marie-Léandre (ESSEC Business School) |
| Abstract: | This paper analyzes idea work in haute cuisine through three case studies. Mobilizing Bourdieu’s praxeology, we consider idea work as a practice, an activity that takes sense and meaning in the social world. Thus, idea work reflects the position of the agent in the field and the struggles to maintain or improve this position. In grand restaurants, the chefs play a key role in idea work, even if they involve other people. Idea work is rooted in their personal experience, but is also shaped by the restaurant’ style and haute cuisine rules. Idea work relates to chefs’ reflection as well as emotions and feelings. |
| Keywords: | Bourdieu; Creativity; Field; Habitus; Haute Cuisine; Gastronomy; Practice |
| JEL: | L83 M00 M10 |
| Date: | 2009–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-09010&r=cbe |