nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒03‒28
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Does Conflict Affect Preferences? Results from Field Experiments in Burundi By M. Voorst; E. Nillesen; Philip Verwimp; E. Bulte; R. Lensink; D. van Soest
  2. Fairness and Desert in Tournaments By Gill, David; Stone, Rebecca
  3. Limited Attention and Choice By Karen Kaiser
  4. A reasoning approach to introspection and unawareness By Gossner Olivier; Tsakas Elias
  5. The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics By Angrist, Joshua; Pischke, Jörn-Steffen
  6. Can We Measure Individual Risk Attitudes in a Survey? By Ding, Xiaohao; Hartog, Joop; Sun, Yuze
  7. Gambling and the Use of Credit: An Individual and Household Level Analysis By Brown, Sarah; Dickerson, Andy; McHardy, Jolian; Taylor, Karl
  8. Risk Taking Behavior in Tournaments: Evidence from the NBA By Grund, Christian; Höcker, Jan; Zimmermann, Stefan
  9. When the Cat's Away, the Mice Will Play: Gambling Behaviour of Visitors in Australia By Bin Dong; Benno Torgler
  10. Co-employment of permanently and temporarily employed agents By Werner Güth; Martin G. Kocher; Vera Popova
  11. Measuring the Willingness to Pay to Avoid Guilt: Estimation Using Equilibrium and Stated Belief Models By Bellemare, Charles; Sebald, Alexander; Strobel, Martin
  12. Guilt from Promise-Breaking and Trust in Markets for Expert Services – Theory and Experiment By Beck, Adrian; Kerschbamer, Rudolf; Qiu, Jianying; Sutter, Matthias
  13. Simulations and agent-based modelling By Jacopo A. Baggio; Rodolfo Baggio
  14. Towards an alternative paradigm of consumer behavior By Viviana Di Giovinazzo

  1. By: M. Voorst; E. Nillesen; Philip Verwimp; E. Bulte; R. Lensink; D. van Soest
    Abstract: We use experimental data from 35 randomly selected communities in Burundi to examine the impact of exposure to conflict on social-, risk- and time preferences. These types of preferences are important as they determine people’s propensity to invest and their ability to overcome social dilemmas, so that changes therein foster or hinder economic growth. We find that conflict affects preferences. Individuals that have been exposed to greater levels of violence display more altruistic behavior towards their neighbors, are more risk seeking, and have higher discount rates. Adverse, but temporary, shocks can thus alter savings and investments decisions, and potentially have long-run consequences.
    Keywords: civil war, preferences, field experiments, Africa.
    Date: 2010
  2. By: Gill, David; Stone, Rebecca
    Abstract: We model the behavior of agents who care about receiving what they feel they deserve in a two-player rank-order tournament. Perceived entitlements are sensitive to how hard an agent has worked relative to her rival, and agents are loss averse around their meritocratically determined endogenous reference points. In a fair tournament sufficiently large desert concerns drive identical agents to push their effort levels apart in order to end up closer to their reference points on average. In an unfair tournament, where one agent is advantaged, the equilibrium is symmetric in the absence of desert, but asymmetric in the presence of desert. We find that desert concerns can undermine the standard conclusion that competition for a fixed supply of status is socially wasteful and explain why, when the distribution of output noise is fat-tailed, an employer might use a rank-order incentive scheme.
    Keywords: Desert; Equity; Tournament; Loss Aversion; Reference-Dependent Preferences; Reference Point; Psychological Game Theory; Status; Relative Performance Evaluation
    JEL: D63 J33
    Date: 2010–01–12
  3. By: Karen Kaiser
    Abstract: This paper analyzes a boundedly rational decision maker who is uncertain about his preference and faces the following trade-off: adding a good to the choice set has a positive option value but increases the complexity of the choice problem. The increased complexity is modeled as a reduction of the information available for each good. Because of this trade-off there is an optimal number of goods that the decision maker wants to analyze before making his final choice. The choice of the optimal set can be interpreted as the choice among stores. Stores maximize profits and choose a quality, an assortment, and a price. A lower cost of providing quality implies higher price and higher quality. Assortment will be small for very high levels of quality. Better quality of information implies greater variety and higher price. Greater variety combined with good consumer service can be a signal for high quality of the store.
    Keywords: Decision making, Bounded rationality, Choice set, Stores, Quality.
    JEL: D01 D11 D21
    Date: 2010–03
  4. By: Gossner Olivier; Tsakas Elias (METEOR)
    Abstract: We introduce and study a unified reasoning process which allows to represent the beliefs of both a fully rational agent and of an unaware one. This reasoning process provides natural properties to introspection and unawareness. The corresponding model for the rational or boundedly rational agents is both easy to describe and to work with, and the agent’s full system of beliefs has natural descriptions using a reduced number of parameters.
    Keywords: Economics (Jel: A)
    Date: 2010
  5. By: Angrist, Joshua (MIT); Pischke, Jörn-Steffen (London School of Economics)
    Abstract: This essay reviews progress in empirical economics since Leamer's (1983) critique. Leamer highlighted the benefits of sensitivity analysis, a procedure in which researchers show how their results change with changes in specification or functional form. Sensitivity analysis has had a salutary but not a revolutionary effect on econometric practice. As we see it, the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate. Design-based studies are most often found in the microeconomic fields of Development, Education, Environment, Labor, Health, and Public Finance, but are still rare in Industrial Organization and Macroeconomics. We explain why IO and Macro would do well to embrace a design-based approach. Finally, we respond to the charge that the design-based revolution has overreached.
    Keywords: structural models, research design, natural experiments, quasi-experiments
    JEL: C01
    Date: 2010–03
  6. By: Ding, Xiaohao (Peking University); Hartog, Joop (University of Amsterdam); Sun, Yuze (Peking University)
    Abstract: We combine a survey and an experiment with real pay-out among Peking University students to measure and validate individual risk attitudes. The experiment involves choosing between a cash payment and playing a lottery. The survey questions ask for the reservation price of a hypothetical lottery and self-assessment of risk attitude on a 0-10 scale. We confirm familiar findings: risk aversion dominates, women are more risk averse than men, risk aversion decreases with increasing parental income, risk attitudes are domain-specific. Correlations between survey measures and experimental measures, are in the right direction, but not very high. The survey measures are valid indicators of experimentally measured risk attitude, but with substantial noise remaining. Heterogeneity in levels and structures of risk attitude is large.
    Keywords: risk attitude, survey question, experimental validation
    JEL: D12
    Date: 2010–03
  7. By: Brown, Sarah (University of Sheffield); Dickerson, Andy (University of Sheffield); McHardy, Jolian (University of Sheffield); Taylor, Karl (University of Sheffield)
    Abstract: We explore the relationship between gambling and other forms of risk-taking behaviour, i.e. exposure to debt and the use of credit, at the individual and household level using representative pooled cross-section data drawn from the UK Expenditure and Food Surveys (EFS), 2001 to 2007. Gambling and the use of credit are shown to be positively correlated at the household level. While both the incidence and amount of gambling vary according to household income, the positive association between gambling and the use of credit is remarkably stable across household income. In addition to our household level analysis, we also explore the prevalence of intra-household gambling, which has attracted relatively limited attention in the existing literature. It is apparent that there is strong intra-household correlation in both gambling activity and in the use of credit, with somewhat stronger relationships in lower income households.
    Keywords: risk-taking, gambling, credit, debt
    JEL: D14 D81 L83
    Date: 2010–03
  8. By: Grund, Christian (University of Würzburg); Höcker, Jan (University of Würzburg); Zimmermann, Stefan (University of Würzburg)
    Abstract: We empirically explore the relevance of risk taking behavior in tournaments. We make use of data from the NBA season 2007/2008 and measure risk taking by the fraction of three-point shots. Current heterogeneity of teams is taken into account by intermediate results. It turns out that indeed teams who are behind increase the risk in terms of more three-point attempts. We additionally analyze the consequences of this change in behavior. Enhanced risk taking is inefficient for the vast majority of cases and only beneficial in terms of a higher winning probability if a team is behind with a rather large amount of points. We discuss possible explanations for these decision errors.
    Keywords: basketball, NBA, risk taking, tournaments
    JEL: M5
    Date: 2010–03
  9. By: Bin Dong; Benno Torgler
    Abstract: What happens if national legal laws or enforcements and social norms are no longer able to directly regulate individual behaviour? According to our knowledge, not much empirical evidence has emerged answering such a seemingly simple question. The challenge is to distinguish between the effects of social norm and of legal enforcement. One way to explore such a question in an almost natural quasi-experimental setting is to focus on tourists’ behaviour. Tourists are visiting another country for a relatively short period of time and are acting in a different (legal) environment where formal and informal rules are different to those found in their own country. Using data from Australia we focus on gambling activities since these are prohibited in some countries. We find that tourists from countries where gambling is prohibited spend a significantly larger share of their entertainment expenditure on gambling than those who come from countries where gambling is legalized. Thus, gambling increases ("mice play") without legal enforcement ("when the cat is away"). It is also noteworthy that there seems to be a lack of internalized social norms that would prevent tourists from partaking in these gambling activities.
    Keywords: gambling; legal enforcement; social norms
    JEL: A13 K42 L82
    Date: 2010–03
  10. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Martin G. Kocher (University of Munich, Department of Economics); Vera Popova (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: One-shot interaction and repeated interaction often co-exist in the real world. We study possible behavioral effects of this co-existence in a principal-agent setting, in which a principal simultaneously employs a permanent and a temporary agent. Our experimental results indicate that there is "discrimination" between the two agents and that the available information for agents determines the extent of this discrimination, even though the theoretical solution of the game implies equal treatment of agents. Discrimination is, thus, a consequence of reciprocity. Agents that are discriminated against react negatively by withholding effort.
    Keywords: principal-agent problem, permanent and temporary employment, fairness, wage discrimination
    JEL: C72 C91 D21 J31
    Date: 2010–03–16
  11. By: Bellemare, Charles (Université Laval); Sebald, Alexander (University of Copenhagen); Strobel, Martin (Maastricht University)
    Abstract: We estimate structural models of guilt aversion to measure the population level of willingness to pay (WTP) to avoid feeling guilt by letting down another player. We compare estimates of WTP under the assumption that higher-order beliefs are in equilibrium (i.e. consistent with the choice distribution) with models estimated using stated beliefs which relax the equilibrium requirement. We estimate WTP in the later case by allowing stated beliefs to be correlated with guilt aversion, thus controlling for a possible source of a consensus effect. All models are estimated using data from an experiment of proposal and response conducted with a large and representative sample of the Dutch population. Our range of estimates suggests that responders are willing to pay between 0.40 and 0.80 Euro to avoid letting down proposers by 1 Euro. Furthermore, we find that WTP estimated using stated beliefs is substantially overestimated (by a factor of two) when correlation between preferences and beliefs is not controlled for. Finally, we find no evidence that WTP is significantly related to the observable socio-economic characteristics of players.
    Keywords: guilt aversion, willingness to pay, equilibrium and stated beliefs models
    JEL: C93 D63 D84
    Date: 2010–03
  12. By: Beck, Adrian (Department of Economics, University of Innsbruck); Kerschbamer, Rudolf (Department of Economics, University of Innsbruck); Qiu, Jianying (Department of Economics, University of Innsbruck); Sutter, Matthias (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We examine the influence of guilt and trust on the performance of credence goods markets. An expert can make a promise to a consumer first, whereupon the consumer can express her trust by paying an interaction price before the expert's provision and charging decisions. We argue that the expert's promise induces a commitment that triggers guilt if the promise is broken, and guilt is exacerbated by higher interaction prices. An experiment qualitatively confirms our predictions: (1) most experts make the predicted promise; (2) proper promises induce consumer-friendly behavior; and (3) higher interaction prices increase the commitment value of proper promises.<p>
    Keywords: Promises; Guilt; Trust; Credence Goods; Experts; Reciprocity
    JEL: C72 C91 D82
    Date: 2010–03–17
  13. By: Jacopo A. Baggio; Rodolfo Baggio
    Abstract: Agent-based modelling and numerical simulations are means that facilitate exploring the structural and dynamic characteristics of systems which may prove intractable with analytical methods. This contribution examines the issues related to them with a particular attention to their use in the study of social economic and ecological systems. Besides a general description, the possibilities, limitations and their relationship with other more traditional investigation methods are examined. Special focus is put on the assessment of their validation and reliability. Finally an application example is provided. A simple model is built to analyse the movements of tourists and the relationship between these and the attractiveness of a tourism destination. The results are discussed along with possible future developments.
    Keywords: agent-based models, simulations, complex systems, tourism destination
    Date: 2009–10
  14. By: Viviana Di Giovinazzo
    Abstract: This paper explores Scitovsky’s contribution to behavioral economics and examines in particular the changes his theory based on the findings of human brain psychophysiologists has brought to choice theory. The evidence here gathered points out how Scitovsky was making his suggestions for an alternative to the rationalist-based theory of choice model as far back in the early 1970s. The same evidence singles out Scitovsky as one of the most influential forerunners of a successful program of psychologically-based economic research which has only recently been acknowledged as a promising field for further investigation.
    Keywords: Scitovsky, behavioral economics, arousal, comfort, pleasure, satisfaction, rational-choice theory
    JEL: A12 B59 D11
    Date: 2010–03

This nep-cbe issue is ©2010 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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