nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒01‒16
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. How Payment Systems Affect Physicians´ Provision Behaviour – An Experimental Investigation By Heike Henning-Schmidt; Reinhard Selten; Daniel Wiesen
  2. Real-time search in the laboratory and the market By Meta Brown; Christopher J. Flinn; Andrew Schotter
  3. On the Truly Noncooperative Game of Life on Earth: Darwin, Hardin, & Ostrom's Nontrivial Errors By Funk, Matt
  4. Human Foibles or Systemic Failure -- Lay Perceptions of the 2008-09 Financial Crisis By Sacha Bourgeois-Gironde; David Leiser; Rinat Benita
  5. Are beliefs a matter of taste ? A case for objective imprecise information. By Raphaël Giraud; Jean-Marc Tallon
  6. Do Human Values Explain Economic Behaviour? An Experimental Study By Swee-Hoon Chuah
  7. Altruism and Social Integration. By Pablo Brañas-Garza; Ramón Cobo-Reyes; María Paz Espinosa; Natalia Jiménez; Jaromír Kovárík; Giovanni Ponti
  8. Patience or Fairness? Analyzing Social Preferences in Repeated Games By John Duffy; Felix Munoz-Garcia
  9. Voting on Thresholds for Public Goods: Experimental Evidence By Julian Rauchdobler; Rupert Sausgruber; Jean-Robert Tyran
  10. Leading by Words: A Voluntary Contribution Experiment With One-Way Communication By Anastasios Koukoumelis; M. Vittoria Levati; Johannes Weisser
  11. Behavioral Social Learning By Christoph March; Anthony Ziegelmeyer
  12. When Allais meets Ulysses: Dynamic Consistency and the Certainty Effect By Antoine Nebout; Dimitri Dubois
  13. Attitudes towards Uncertainty and Randomization: An Experimental Study By Dominiak, Adam; Schnedler, Wendelin
  14. Exploring the Effects of Unequal and Secretive Pay By Sven Fischer; Eva-Maria Steiger
  15. A Test of the Rational Expectations Hypothesis using data from a Natural Experiment By Anna Conte; Peter G. Moffatt; Fabrizio Botti; Daniela T. Di Cagno; Carlo D'Ippoliti
  16. Welfare Notions for Soft Paternalism By Till Grüne-Yanoff

  1. By: Heike Henning-Schmidt; Reinhard Selten; Daniel Wiesen
    Abstract: A central concern in health economics is to understand the influence of commonly used physician payment systems. We introduce a controlled laboratory experiment to analyze the influence of fee-for-service (FFS) and capitation (CAP) payments on physicians' behaviour. Medical students decide as experimental physicians on the quantity of medical services. Real patients gain a monetary benefit from their choices. Our main findings are that patients are overserved in FFS and underserved in CAP. Financial incentives are not the only motivation for physicians' quantity decisions, though. The patient benefit is of considerable importance as well. Patients are affected differently by the two payment systems. Those patients in need of a low level of medical services are better off under CAP, whereas patients with a high need of medical services gain more health benefit when physicians are paid by FFS.
    Keywords: Physician payment system; laboratory experiment; incentives; fee-for-service; capitation
    JEL: C91 I11
    Date: 2009–07
  2. By: Meta Brown; Christopher J. Flinn; Andrew Schotter
    Abstract: While widely accepted models of labor market search imply a constant reservation wage policy, the empirical evidence strongly suggests that reservation wages decline in the duration of search. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment that subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1) searchers respond to the stock of accruing search costs, and 2) searchers experience nonstationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically.
    Keywords: Labor market ; Job hunting ; Wages ; Employment
    Date: 2009
  3. By: Funk, Matt
    Abstract: This paper introduces a game-theoretical framework for The Problem of Sustainable Economic Development, axioms which help clarify the problem itself, and, reductio ad absurdum, falsify many widely-held economic, evolutionary, and ecological principles. This brief communiqué lays the foundation for evolutionary stable economic development and survival strategies – strategies which foster international cooperation, global threat mitigation, food & energy security, long-distance dispersibility, and thus, ultimately, the long-term survival of the human species.
    Keywords: sustainable economic development; tragedy of the commons; noncooperative games; natural selection; global threats; food security; national security; human survival
    JEL: B40 Q57 C72
    Date: 2009–12–18
  4. 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)); David Leiser (Ben Gurion University - Commencez à saisir le nom d'un établissement); Rinat Benita (Ben Gurion University - Commencez à saisir le nom d'un établissement)
    Abstract: We examined lay perceptions of the recent financial and economic crisis through 1707 questionnaires, administered via internet, to a varied group of volunteers in a range of countries: France, the US, Russia, Germany, Israel, and sub-Saharan Africa. Respondents graded the contribution of a large number of possible factors to the crisis, and answered several complementary questions. We were able to identify two major conceptions, one seeing the economy as comprised of individuals, with failings of moral or cognitive character, and the other seeing the economy as a complex system, endowed with some resilience, functioning in cycles. Support for the former view was stronger than for the latter. Several demographic variables were found to affect these perspectives significantly, including SES, economic training, religious beliefs, and the extent to which the respondent was personally affected by the crisis.
    Keywords: financial crisis; naive economic cognition; intentional bias; globalization.
    Date: 2010
  5. By: Raphaël Giraud (CRESE - Université de Franche Comté); Jean-Marc Tallon (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We argue, in the spirit of some of Jean-Yves Jaffray's work, that explicitly incorporating the information, however imprecise, available to the decision marker is relevant, feasible and fruitful. In particular, we show that it can lead us to know whether the decision maker has wrong beliefs and whether it matters or not, that it makes it possible to better model and analyze how the decision maker takes into account new information, even when this information is not an event and finally that it is crucial when attempting to identify and measure the decision maker's attitude toward imprecise information.
    Keywords: Beliefs, imprecision, information.
    JEL: B41 D80
    Date: 2009–12
  6. By: Swee-Hoon Chuah (Nottingham University Business School)
    Abstract: In contrast to current literature which mainly identifies relationships between particular economic behaviours and specific attitudes suggestive of those behaviours, we explore the potential of general human values for explaining economic behaviour. In particular, we investigate whether behaviours observed in binary-choice lotteries, time discounting, public good, ultimatum, dictator and trust game experiments can be explained by Schwartz’s theory of universal human values. We find that the values have explanatory power in relation to strategic, but not parametric, behaviours. We discuss this finding in terms of the sociology of values and suggest that situations involving human interactions provide the most conducive context for the expression of values. We also find that different subsets of the values relate to different strategic behaviours, indicating that there is no redundancy in their explanatory power.
    Keywords: Values, behaviour, survey, experiments
    JEL: C72 C91 D81
    Date: 2010–01–04
  7. By: Pablo Brañas-Garza (Universidad de Granada); Ramón Cobo-Reyes (Universidad de Granada); María Paz Espinosa (Universidad del País Vasco); Natalia Jiménez (Universidad de Granada); Jaromír Kovárík (Universidad del País Vasco); Giovanni Ponti (Universidad de Alicante; Università di Ferrara)
    Abstract: We report on a two-stage experiment in which i) we first elicit the social network within a section of undergraduate students and ii) we then measure their altruistic attitudes by means of a standard Dictator game. We observe that more socially integrated subjects are also more altruistic, as betweenness centrality and reciprocal degree are positively correlated with the level of giving, even after controlling for framing and social distance, which have been shown to signicantly affect giving in previous studies. Our findings suggest that social distance and social integration are complementary determinants of altruistic behavior.
    Keywords: Altruism, centrality, social network experiments
    JEL: C93 D85
    Date: 2009–12–21
  8. By: John Duffy; Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: This paper investigates how the introduction of social preferences affects players’ equilibrium behavior in both one-shot and infinitely repeated versions of the Prisoner’s Dilemma game. We first show that defection survives as the unique equilibrium of the stage game if at least one player is not too concerned about inequity aversion. Second, we demonstrate that in the infinitely repeated version of the game, fairness concerns operate as a “substitute: for time discounting, as fairness helps sustain cooperation for lower discount factors. We then extend our results to more general simultaneous-move games, and more general preferences. Furthermore, we examine how the introduction of incomplete information about players’ social preferences can help in the selection of the efficient cooperative outcome. Finally, we point out the implications of our findings for the design and analysis of experiments involving repeated games. In particular, repeated game equilibria which are thought to be supported by sufficiently large discount factors, may in fact be sustained by a combination of discounting and social preference parameters, an observation that may help rationalize recent experimental findings.
    Keywords: Prisoner’s dilemma; Repeated games; Inequity aversion; Time discounting; Time discounting; Social Preferences
    JEL: C72 C73 H43 D91
    Date: 2009–05
  9. By: Julian Rauchdobler (Department of Public Economics, University of Innsbruck); Rupert Sausgruber (Department of Public Economics, University of Innsbruck); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: Introducing a threshold in the sense of a minimal project size transforms a public goods game with an inefficient equilibrium into a coordination game with a set of Pareto-superior equilibria. Thresholds may therefore improve efficiency in the voluntary provision of public goods. In our one-shot experiment, we find that coordination often fails and exogenously imposed thresholds are ineffective at best and often counter-productive. This holds under a range of threshold levels and refund rates. We test if thresholds perform better if they are endogenously chosen, i.e. if a threshold is approved in a referendum, because voting may facilitate coordination due to signaling and commitment effects. We find that voting does have signaling and commitment effects but they are not strong enough to significantly improve the efficiency of thresholds.
    Keywords: provision of public goods; threshold; voting; experiments
    JEL: H41 D72 C92
    Date: 2009–12
  10. By: Anastasios Koukoumelis (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Johannes Weisser (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany)
    Abstract: In this paper, we study a voluntary contribution mechanism with one-way communication. The relevance of one person's words is assessed by assigning exogenously the role of the "communicator" to one group member. Contrary to the view that the mutual exchange of promises is necessary for the cooperation-enhancing effect of communication, we ï¬nd that, compared to a standard voluntary contribution mechanism with no communication, one-way communication signiï¬cantly increases contributions and renders them stable over time. Moreover, the positive effects of one-way communication persist even when communication is one-shot.
    Keywords: Public goods experiment, Computer-mediated communication, Cheap-talk, Cooperation
    JEL: C72 C92 H41
    Date: 2009–12–21
  11. By: Christoph March (Max Planck Institute of Economics, IMPRS "Uncertainty", Jena (Germany)); Anthony Ziegelmeyer (Max Planck Institute of Economics, Strategic Interaction Group, Jena (Germany) and Technical University of Berlin, Faculty of Economics and Management, Berlin (Germany))
    Abstract: We revisit the economic models of social learning by assuming that individuals update their beliefs in a non-Bayesian way. Individuals either overweigh or underweigh (in Bayesian terms) their private information relative to the public information revealed by the decisions of others and each individual's updating rule is private information. First, we consider a setting with perfectly rational individuals with a commonly known distribution of updating rules. We show that introducing heterogeneous updating rules in a simple social learning environment reconciles equilibrium predictions with laboratory evidence. Additionally, a model of social learning with bounded private beliefs and sufficiently rich updating rules corresponds to a model of social learning with unbounded private beliefs. A straightforward implication is that heterogeneity in updating rules is efficiency-enhancing in most social learning environments. Second, we investigate the implications of heterogeneous updating rules in social learning environments where individuals only understand the relation between the aggregate distribution of decisions and the state of the world. Unlike in rational social learning, heterogeneous updating rules do not lead to a substantial improvement of the societal welfare and there is always a non-negligible likelihood that individuals become extremely and wrongly conï¬dent about the state of the world.
    Keywords: Social learning, Non-Bayesian updating, Herding, Informational cascades
    JEL: D82 D83
    Date: 2009–12–21
  12. By: Antoine Nebout; Dimitri Dubois
    Abstract: We report experimental findings about subjects’ behavior in dynamic decision problems involving multistage lotteries with different timings of resolution of uncertainty. Our within subject design allows us to study violations of the independence axiom in the light of the dynamic axioms' ones : dynamic consistency, consequentialism and reduction of compound lotteries.
    Date: 2009–12
  13. By: Dominiak, Adam; Schnedler, Wendelin
    Abstract: Individuals exhibit a randomization preference if they prefer random mixtures of two bets to each of the involved bets. Such preferences provide the foundation of various models of uncertainty aversion. However, it has to our knowledge not been empirically investigated whether uncertainty-averse decision makers indeed exhibit such preferences. Here, we examine the relationship experimentally. We find that uncertainty aversion is not positively associated with randomization preferences. Moreover, we observe choices that are not consistent with the prevailing theories of uncertainty aversion: a non-negligible number of uncertain-averse subjects seem to dislike randomization.
    Keywords: uncertainty aversion; randomization preference; ambiguity; Choquet expected utility model; maxmin expected utility model; experiment
    Date: 2010–01–07
  14. By: Sven Fischer (Max Planck Institute for Research on Collective Goods); Eva-Maria Steiger (Stratigic Interaction Group, Max Planck Institute of Economics, Jena)
    Abstract: We experimentally test whether intentional and observable discriminatory pay of symmetric agents in the Winter (2004) game causes low paid agents to reduce effiort. We control for intentionality of wages by either allowing a principal to determine wages or by implementing a random process. Our main observations are that discrimination has no negative effiect on effiorts and principals do not shy away from using discriminatory pay if it is observable. Rather, with experience discrimination enhances efficiency as it facilitates coordination among agents. The only evidence for reciprocity is that subjects receiving a low payment from a principal (discriminatory or not) exert signiï¬cantly less effort.
    Keywords: wage discrimination, experimental study, envy, reciprocity, pay secrecy
    JEL: C72 C91 D21 J31
    Date: 2009–12–21
  15. By: Anna Conte (Strategic Interaction Group, Max-Planck Institute of Economics, Jena); Peter G. Moffatt (School of Economics, University of East Anglia); Fabrizio Botti (University of Rome I "La Sapienza"); Daniela T. Di Cagno (LUISS Guido Carli); Carlo D'Ippoliti (University of Rome "La Sapienza")
    Abstract: Data on contestants' choices in Italian Game Show Affari Tuoi are analysed in a way that separates the effect of risk attitude (preferences) from that of beliefs concerning the amount of money that will be offered to contestants in future rounds. The most important issue addressed in the paper is what belief function is actually being used by contestants. The parameters of this function are estimated freely along with the parameters of a choice model. Separate identification of the belief function and preferences is possible by virtue of the fact that at a certain stage of the game, beliefs are not relevant, and risk attitude is the sole determinant of choice. The rational expectations hypothesis is tested by comparing the estimated belief function with the "true" offer function which is estimated using data on offers actually made to contestants. We find that there is a significant difference between these two functions, and hence we reject the rational expectations hypothesis. However, when a simpler "rule-of-thumb" structure is as- sumed for the belief function, we find a correspondence to the function obtained from data on actual offers. Our overall conclusion is that contestants are rational to the extent that they make use of all available relevant information, but are not fully rational because they are not processing the information in an optimal way. The importance of belief-formation is confirmed by the estimation of a mixture model which establishes that the vast majority of contestants are forward-looking as opposed to myopic.
    Keywords: Beliefs, Discrete choice models, Method of simulated likelihood, Natural Experiments, rational expectations, risky choice
    JEL: C15 C23 C25 D81
    Date: 2009–12–21
  16. By: Till Grüne-Yanoff
    Abstract: Recently, evidence from behavioural research has given rise to new arguments against anti-paternalism. This anti-anti-paternalism argues that certain kinds of paternalism - interventions in people's choices that improve their own good - are indeed permissible even when people's liberty is an important objective. These permissible kinds of paternalism are distinguished from non-permissible kinds by their characterisation as 'soft','weak', 'libertarian' or 'asymmetric'. In this paper, I argue that this distinction is based on the way 'people's good' is characterised: soft paternalists seek to respect the internalist intuition that for something to be a good to someone, she must be capable of caring about it. I show that this commitment conflicts with the behavioural evidence, if the welfare notion is not carefully specified. First, I review a number of possible welfare concepts and show that they do not resolve this conflict. Second, I discuss a welfare notion that respects the internalist intuition and does not conflict with the behavioural evidence. Soft paternalists, for better or worse, are committed to welfare notions of this form; the plausibility of the anti-anti-paternalist argument thus depends on the workability of such a concept.
    Keywords: Length 20 pages
    Date: 2009–12

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