nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒04‒04
twelve papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Econometrics and Decision Making: Effects of Presentation Mode By Robin Hogarth; Emre Soyer
  2. Loss Aversion and Intertemporal Choice: A Laboratory Investigation By Robert Oxoby; William G. Morrison
  3. Overconfidence is a Social Signaling Bias By Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz; Rustichini, Aldo
  4. Let me sleep on it: Delay reduces rejection rates in Ultimatum Games By Grimm Veronika; Mengel Friederike
  5. Good girl–bad boy. Making identity statements when answering a questionnaire By Bente Halvorsen
  6. The Santa Fe Perspective on Economics: emerging patterns in the science of complexity By Fontana Magda
  7. Why do People Punish the Rule Breakers?: The Sustainability of Social Norms By Singh, Indervir
  8. Is Fairness Blind? - The effect of framing on preferences for effort-sharing rules By Carlsson,, Fredrik; Kataria, Mitesh; Lampi, Elina; Löfgren, Åsa; Sterner, Thomas
  9. Inconsistency of fairness evaluation in simulated labot market. By Ch'ng , Kean Siang; Loke, Yiing Jia
  10. An Egalitarian Regime Breeds Generosity: The Effect of Endowment Allocation Procedures on Social Preferences By Riyanto, Yohanes Eko; Zhang, Jianlin
  11. Risk-taking middle-borns: A study on birth-order and risk preferences By Lampi, Elina; Nordblom, Katarina
  12. The causal effect of breastfeeding on children's cognitive development: A quasi-experimental design By Orla Doyle; Kevin Denny

  1. By: Robin Hogarth; Emre Soyer
    Abstract: Much of empirical economics involves regression analysis. However, does the presentation of results affect economists’ ability to make inferences for decision making purposes? In a survey, 257 academic economists were asked to make probabilistic inferences on the basis of the outputs of a regression analysis presented in a standard format. Questions concerned the distribution of the dependent variable conditional on known values of the independent variable. However, many respondents underestimated uncertainty by failing to take into account the standard deviation of the estimated residuals. The addition of graphs did not substantially improve inferences. On the other hand, when only graphs were provided (i.e., with no statistics), respondents were substantially more accurate. We discuss implications for improving practice in reporting results of regression analyses.
    Keywords: Regression analysis; presentation formats; probabilistic predictions; graphs.
    JEL: C01 C20 C53 Y10
    Date: 2010–02
  2. By: Robert Oxoby; William G. Morrison
    Abstract: We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.
    JEL: C91 D91
    Date: 2010–01–26
  3. By: Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Rustichini, Aldo (University of Minnesota)
    Abstract: Evidence from psychology and economics indicates that many individuals overestimate their ability, both absolutely and relatively. We test three different theories about observed relative overconfidence. The first theory notes that simple statistical comparisons (for example, whether the fraction of individuals rating own skill above the median value is larger than half) are compatible (Benoît and Dubra, 2007) with a Bayesian model of updating from a common prior and truthful statements. We show that such model imposes testable restrictions on relative ability judgments, and we test the restrictions. Data on 1,016 individuals' relative ability judgments about two cognitive tests rejects the Bayesian model. The second theory suggests that self-image concerns asymmetrically affect the choice to get new information about one’s abilities, and this asymmetry produces overconfidence (Kőszegi, 2006; Weinberg, 2006). We test an important specific prediction of these models: individuals with a higher belief will be less likely to search for further information about their skill, because this information might make this belief worse. Our data also reject this prediction. The third theory is that overconfidence is induced by the desire to send positive signals to others about one’s own skill; this suggests either a bias in judgment, strategic lying, or both. We provide evidence that personality traits strongly affect relative ability judgments in a pattern that is consistent with this third theory. Our results together suggest that overconfidence in statements is most likely to be induced by social concerns than by either of the other two factors.
    Keywords: IQ, field experiment, social signaling, self-image, Bayesian updating, overconfidence, numeracy, personality, MPQ
    JEL: D83 C93
    Date: 2010–03
  4. By: Grimm Veronika; Mengel Friederike (METEOR)
    Abstract: We show that delaying acceptance decisions in the Ultimatum Game drastically increases acceptance rates of low offers. While in standard treatments without delay less than 20% of low offers are accepted, these numbers increase to around 65-75% as we delay the acceptance decisions by around 10 minutes. Our findings provide precise evidence for familiar notions such as ''sleeping on it'' and show that there may be a good reason why public administrations often communicate bad news on Friday afternoons. They shed new light on recent evidence in Neuroscience on brain activation after receiving bad news and raise questions about the extent to which decisions reveal the preferences of a decision-maker.
    Keywords: microeconomics ;
    Date: 2010
  5. By: Bente Halvorsen (Statistics Norway)
    Abstract: Environmental policy analyses often draw on stated preferences, with most humans having strong preferences with respect to how we view ourselves and how we would like others to perceive us. This may create systematic differences between reported and real behavior, making policy analysis based on stated preferences difficult. In this paper, we model how social and moral norms and the image we would like to project affect reported and actual behavior. We illustrate the model using data from a stated preference survey reporting environment-related household behavior in ten OECD countries. We find clear evidence of how norms and identity statements affect reported behavior. We also find evidence of the misrepresentation of preferences, both among respondents complying with and protesting the norm. Over- and understatements appear to be evenly distributed, and is thus not expected to significantly bias the mean results.
    Keywords: Household behavior; Environment; Norms; Stated preferences.
    JEL: B41 D1 Q28 Q38 Q48
    Date: 2010–03
  6. By: Fontana Magda
    Date: 2009–12
  7. By: Singh, Indervir
    Abstract: This paper attempts to provide reasons for sustainability of social norms by considering internalization as the basic motivation behind the punishment behavior. A society requires people to implant the social norms in others, and punishing the rule breaker provides a person utility by letting him feel good through fulfilling his responsibility. The responsibility increases with closeness of relationship, therefore relatives and friends tend to punish the rule breaker harder. The breaking of a norm also acts as a 'bad name' for rule breaker's relatives and friends, which, further, prompts them to punish him. Since, punishing the rule breaker also benefits non-punishers, some people may start selling the punishment activity, if the benefited people, due to their internalization of the norm, pay punishers in the form of money, support etc.
    Keywords: social norms; internalization; bad name; power asymmetry
    JEL: D02 Z13
    Date: 2010
  8. By: Carlsson,, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Kataria, Mitesh (Max Planck Institute of Economics, Germany); Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: By using a choice experiment, this paper focuses on citizens’ preferences for effort-sharing rules of how carbon abatement should be shared among countries. We find that Swedes do not rank the rule favoring their own country highest. Instead, they prefer the rule where all countries are allowed to emit an equal amount per person, a rule that favors Africa at the expense of high emitters such as the U.S. The least preferred rule is reduction proportional to historical emissions. Using two different treatments, one where the respondents were informed about the country names and one where the country names were replaced with anonymous labels A-D, we also test whether people’s preferences for effort-sharing rules depend on the framing of the problem. We find that while the ranking of the principles is the same in both treatments, the strength of the preferences is significantly increased when the actual names of the countries are used.<p>
    Keywords: climate change; fairness; framing; ethics; effort-sharing rules
    JEL: Q54
    Date: 2010–03–29
  9. By: Ch'ng , Kean Siang; Loke, Yiing Jia
    Abstract: Reciprocal behavior was often explained by perception of fairness derived from either agents’ intention or distributional outcome. In this paper, we demonstrated that fairness perception depended on the evaluability of the partner’s type. We conducted experiments to investigate how workers formed fairness perception on the employers. We found inconsistency in fairness evaluation in the two simulated worker-employer relations; workers derived fairness by comparing own wage with market wage in a one shot interaction, but workers derived fairness based on current and previous wage when interacting with same employer. The reversal of fairness perception suggested the role of evaluability of partners’ attribute in effort decision among workers.
    Keywords: Preference reversal; reciprocity; gift exchange; evaluability hypothesis;experiment.
    JEL: D86 B21 C92
    Date: 2010–01
  10. By: Riyanto, Yohanes Eko; Zhang, Jianlin
    Abstract: We experimentally investigate the effect of endowment allocation procedures on social preferences using a two-stage dictator game. In the first stage, participants who were randomly selected as allocators had to perform a task in order to earn money. Better performance on the task resulted in higher earnings. In our baseline meritocratic treatment, the allocators' initial endowment was set equal to their individual earnings. We compared this with an egalitarian treatment whereby the allocators' initial endowment was set equal to the average earnings of all allocators. Essentially, high performers were taxed and under performers were subsidized by the high performers. In the second stage, the allocators had to divide their endowment with the recipients. We show that the allocators were more generous in the egalitarian treatment than in the meritocratic treatment. Interestingly, being taxed did not reduce the high performers' generosity but being subsidized did significantly increase the under performers' generosity. Thus, being treated kindly induced the under performers to reciprocate forward to other people.
    Keywords: Other-regarding Behavior; Dictator Game; Endowment Allocation Procedures; Meritocratic; Egalitarian; Forward Reciprocity
    JEL: D63 D64 C91
    Date: 2010–01
  11. By: Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We analyze the impacts of birth order and presence/absence of siblings on risk preferences with respect to economic, health/safety, and sport/lifestyle related risks. We study both the answer to a hypothetical lottery question and stated risky behavior and find that middle-borns are consistently less risk averse than others irrespective of the type of risk. Moreover, the answer to the lottery question is strongly correlated with economic and sport/lifestyle related risky behavior.<p>
    Keywords: siblings; birth-order; middle-born; different risks; lottery
    JEL: D89 J10
    Date: 2010–03–29
  12. By: Orla Doyle (School of Economics & Geary Institute, University College Dublin); Kevin Denny (School of Economics & Geary Institute, University College Dublin)
    Abstract: To estimate the causal effect of breastfeeding on children's cognitive skills as measured at ages 3, 5, 7 and 11.
    Date: 2010–03–03

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