nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒05‒15
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Reflexive self-organization and path dependency in institutionalization processes By Bobrova, Maria; Kümpel, Arndt
  2. Reconciling Pro-Social vs. Selfish Behavior - Evidence for the Role of Self-Control By Martinsson, Peter; Myrseth, Kristian Ove R.; Wollbrant, Conny
  3. Do religious contexts elicit more trust and altruism? An experiment on Facebook By Bradley J. Ruffle; Richard Sosis
  4. Social Preferences and Perceived Intentions. An experiment with Normally Developing and Autistic Spectrum Disorders Subjects By V.Pelligra; A.Isoni; R.Fadda; I.Doneddu
  5. Evolution of Theories of Mind By Mohlin, Erik
  6. An experimental analysis of team production in networks By Enrique Fatas; Miguel A. Melendez Jimenez; Hector Solaz
  7. Social Comparison and Risky Choices By Jona Linde; Joep Sonnemans
  8. ‘Let me dream on!’ Anticipatory Emotions and Preference for Timing in Lotteries By Martin Kocher; Michal Krawczyk; Frans van Winden
  9. Implications of behavioral research for the use and regulation of consumer credit products By Gregory Elliehausen
  10. Bounding Preference Parameters under Different Assumptions about Beliefs: a Partial Identification Approach By Charles Bellemare; Luc Bissonnette; Sabine Kröger
  11. Grosswage illusion in a real effort experiment By Martin Fochmann; Joachim Weimann; Kay Blaufus; Jochen Hundsdoerfer; Dirk Kiesewetter
  12. Slipping Anchor? Testing the Vignettes Approach to Identification and Correction of Reporting Heterogeneity By Teresa Bago d'Uva; Maarten Lindeboom; Owen O'Donnell; Eddy van Doorslaer
  13. When Judgments and Preferences Fail to Conform: Research on Preference Reversals for Product Purchases By Holger Müller; Eike Benjamin Kroll; Bodo Vogt
  14. Gift-Exchange, Incentives, and Heterogeneous Workers By Arjan Non
  15. Do People Make Strategic Commitments? Experimental Evidence on Strategic Information Avoidance By Anders Poulsen; Michael Roos
  16. In praise of ambidexterity: How a continuum of handedness predicts social adjustment By Kevin Denny; Wen Zhang

  1. By: Bobrova, Maria; Kümpel, Arndt
    Abstract: The purpose of this paper is to work toward developing evolutionary reasoning in the social sciences. Along with that, we argue to overcome the artificial divide of natural and social science for the sake of understanding behaviour. We make the case for an evolutionary and culturally sensitive view on longsurviving institutions and its base - individual behaviour. By taking into consideration the unsatisfying answers in the debate on structure and agency, we emphasize the importance of resonance for evolution and stability. We use case studies to make the point for an evolutionary understanding of institutions and to reflect on institutional path dependency.
    Keywords: Institutionalizion; behavioural and institutional path dependancy; reflexive self-organization; historic institutionalism; methodological individualism
    JEL: A13 Z13 B25
    Date: 2010–03–31
  2. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Myrseth, Kristian Ove R. (ESMT European School of Management and Technology); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We test the proposition that individuals may experience a self-control conflict between short-term temptation to be selfish and better judgment to act pro-socially. Using a dictator game and a public goods game, we manipulated the likelihood that individuals identified self-control conflict, and we measured their trait ability to implement self-control strategies. Consistent with our hypothesis, we find that trait self-control exhibits a positive and significant correlation with pro-social behavior in the treatment that raises likelihood of conflict identification, but not in the treatment that reduces likelihood of conflict identification.<p>
    Keywords: self-control; pro-social behavior; altruism; experiment.
    JEL: D01 D64 D70
    Date: 2010–05–10
  3. By: Bradley J. Ruffle (Department of Economics, Ben-Gurion University of the Negev); Richard Sosis (Department of Anthropology, University of Connecticut)
    Abstract: We design a decision-making scenario experiment on Facebook to measure subjects’ altruism and trust toward attendees of a religious service, a fitness class and a local music performance. Secular and religious subjects alike display significantly more altruism and trust toward the synagogue attendees than participants at the other two venues. By all measures of religiosity, even the most secular subjects behave more prosocially in the religious venue than in the comparable non-religious settings. We also find that secular subjects are just as altruistic toward synagogue and prayer group members as religious subjects are. These findings support recent theories that emphasize the pivotal role of religious context in arousing high levels of prosociality among those who are religious. Finally, our results offer startlingly little evidence for the widely documented religious-secular divide in Israel.
    Keywords: religion, trust, altruism, religious context, religious-secular conflict
    Date: 2010
  4. By: V.Pelligra; A.Isoni; R.Fadda; I.Doneddu
    Abstract: Models of social preferences explain departures from pure self-interest as a consequence of either outcome-based or intention-based other-regarding motives. Various experimental studies lend support to the conclusion that subjects behave as if they conditioned their behaviour on the perceived intentions of others. We present a new experiment that explores this as if clause by making the ability to detect intentions a treatment variable. We compare normally developing children with autistic children – typically unable to perceive intentions – and find differences consistent with the hypothesis that behaviour responds to intentions, especially if unkind.
    Keywords: Social Preferences; Theory of Mind; Intentionality; Autism
    JEL: C72 C91
    Date: 2010
  5. By: Mohlin, Erik (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper studies evolution of peoples' models of how other people think -- their theories of mind. For the case of games that are played for the first time, people are assumed to form beliefs according to the level-k model. This model postulates a hierarchy of types, such that an individual of type k plays a k times iterated best response to the uniform distribution. For the case of learning, it is assumed that the lowest type behaves in accordance with fictitious play, and that there is a hierarchy of more sophisticated types, which play iterated best responses to this. The models are also extended to allow for partial observability, in the sense that a higher type recognize and best respond to lower types, but not vice versa. Evolution according to the replicator dynamic is studied both across and within games. It is found that evolution may lead to stable states where different types, including low types, co-exist. This holds even when types are not observed.
    Keywords: Theory of Mind; Evolution; Learning; Level-k; Fictitious Play; Cognitive Hierarchy
    JEL: C73 D83
    Date: 2010–05–04
  6. By: Enrique Fatas (ERI-CES); Miguel A. Melendez Jimenez (University of Malaga); Hector Solaz (ERI-CES)
    Abstract: Experimental and empirical evidence highlights the role of networks on social outcomes. In this paper we test the properties of exogenously fixed networks in team production. Subjects make the same decisions in a team-work environment under four different organizational networks: The line, the circle, the star, and the complete network. In all the networks, links make information available to neighbors. This design allows us to analyze decisions across networks and a variety of subjects’ types in a standard linear team production game. Contribution levels differ significantly across networks and the star is the most efficient incomplete one. Moreover, our results suggest that subjects act as conditional cooperators with respect to the information received from the network.
    Keywords: public goods, networks, experiments
    JEL: H41 C92
    Date: 2010–05
  7. By: Jona Linde (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: This study attempts to combine two traditional fields in microeconomics: individual decision making under risk and decision making in an interpersonal context. The influence of social comparison on risky choices is explored in an experiment in which participants make a series of choices between lotteries with only positive outcomes. Three kinds of choice situations are employed. In the loss and gain context the social referent receives a fixed payoff that is respectively higher and lower than all possible payoffs of the decision maker. In the neutral context social referent and decision maker will always earn the same amount. In the gain and loss contexts the decision maker has no influence on the earnings of the social referent so strategic behavior or social preferences can play no role. We find that decision makers are more risk-averse in the loss context than in the gain context, with the behavior in the neutral context in between. This result is in opposition to the predictions of prospect theory extrapolated to a social context.
    Keywords: Social comparison; social preferences; decision making under risk; experiment
    JEL: C91 C92 D63
    Date: 2009–11–11
  8. By: Martin Kocher (University of Munich); Michal Krawczyk (Warsaw University); Frans van Winden (CREED, University of Amsterdam)
    Abstract: We analyze one of the explanations why people participate in lotteries. Our hypothesis stipulates that part of the value that a unit of money buys in lotteries is consumed before the actual resolution in the form of emotions such as hope. In other words, a person holding a lottery ticket may prefer a delayed resolution of risk due to positive anticipatory emotions. This conjecture is tested in an experiment with real lottery tickets. We show that our theoretical considerations may contribute to explaining empirical puzzles associated with lottery participation, timing of resolution and the spreading of drawings. More specifically, we find that a substantial number of participants prefer delayed resolution, that anticipated thrill is the main variable explaining this choice, that emotions actually experienced during the waiting period are indeed predominantly positive and correlated with predictions. Finally, we find that a great majority prefers to 'spread' chances, that is, to obtain one ticket for each of two drawings rather than two for the same drawing.
    Keywords: lotteries; anticipation; experiment
    JEL: C93 D81
    Date: 2009–11–12
  9. By: Gregory Elliehausen
    Abstract: This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals. While most economists and psychologists agree that cognitive errors and time inconsistent behavior occur, the extent to which these phenomena impair actual decisions in markets is not at all clear. At this time, neither existing behavioral evidence nor conventional economic evidence supports a general conclusion that consumers' credit decisions are not rational or that markets do not work reasonably well. Empirical evidence suggests that behavioral research can help improve required information disclosures and contribute to more effective regulation, which enhances the performance of markets and improves individual outcomes.
    Date: 2010
  10. By: Charles Bellemare; Luc Bissonnette; Sabine Kröger
    Abstract: We show how bounds around preferences parameters can be estimated under various levels of assumptions concerning the beliefs of senders in the investment game. We contrast these bounds with point estimates of the preference parameters obtained using non-incentivized subjective belief data. Our point estimates suggest that expected responses and social preferences both play a significant role in determining investment in the game. Moreover, these point estimates fall within our most reasonable bounds. This suggests that credible inferences can be obtained using non-incentivized beliefs.
    Keywords: Partial identification, preferences, beliefs, decision making under uncertainty
    JEL: C81
    Date: 2010
  11. By: Martin Fochmann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Joachim Weimann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Kay Blaufus (Free University of Frankfurt (Oder)); Jochen Hundsdoerfer (Free University Berlin); Dirk Kiesewetter (Faculty of Economics and Management, JUlius-Maximilians University Würzburg)
    Abstract: In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25% and 50%. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is due to a ‘gross-wage illusion effect’. The existence of this effect demonstrates that not only the tax rate and the tax base are of importance for work incentives, but also the perception of a tax.
    JEL: H2 C91
    Date: 2010–02
  12. By: Teresa Bago d'Uva (Erasmus University Rotterdam, and Netspar); Maarten Lindeboom (VU University Amsterdam, and Netspar); Owen O'Donnell (University of Macedonia, University of Lausanne, and Netspar); Eddy van Doorslaer (Erasmus University Rotterdam)
    Abstract: Anchoring vignettes are increasingly used to identify and correct heterogeneity in the reporting of health, work disability, life satisfaction, political efficacy, etc. with the aim of improving interpersonal comparability of subjective indicators of these constructs. The method relies on two assumptions: vignette equivalence – the vignette description is perceived by all to correspond to the same state; and, response consistency - individuals use the same response scales to rate the vignettes and their own situation. We propose tests of these assumptions. For vignette equivalence, we test a necessary condition of no systematic variation with observed characteristics in the perceived difference in states corresponding to any two vignettes. To test response consistency we rely on the assumption that objective indicators fully capture the covariation between the construct of interest and observed individual characteristics, and so offer an alternative way to identify response scales, which can then be compared with those identified from the vignettes. We also introduce a weaker test that is valid under a less stringent assumption. We apply these tests to cognitive functioning and mobility related health problems using data from the English Longitudinal Survey of Ageing. Response consistency is rejected for both health domains according to the first test, but the weaker test does not reject for cognitive functioning. The necessary condition for vignette equivalence is rejected for both health domains. These results cast some doubt on the validity of the vignettes approach, at least as applied to these health domains.
    Keywords: Reporting heterogeneity; Survey methods; Vignettes; Health; Cognition
    JEL: C35 C42 I12
    Date: 2009–11–04
  13. By: Holger Müller (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Eike Benjamin Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In this paper, the preference reversal phenomenon known from risk research is investigated according to which subjects prefer gamble A over B in competitive decisions although they reveal higher valuations in terms of a cash equivalent (CE) or a willingness to pay (WTP) for the latter when gambles are assessed separately in monadic judgments. In contrast to the experimental settings of research on risky choices, our studies observed unforced and binding purchase decisions of experienced consumers between real products in natural shopping environments. Results confirm robustness of preference reversals in risk-free purchase decisions indicating that orderings of product preferences reverse significantly between evaluations in monadic and competitive designs. While recent pricing research has been largely focused on monadic designs and suggested BDM mechanisms or second-price auctions for elicitations of consumers’ true willingness to pay, results of our studies indicate a substantial discrepancy between preference orders based on monadic judgments and preferences that consumers reveal in competitive purchase decisions.
    Keywords: Preference Reversals, Willingness to Pay, Monadic Designs, Competitive Designs, Pricing Research, Procedure Invariance
    Date: 2010–01
  14. By: Arjan Non (Erasmus University Rotterdam)
    Abstract: Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents do not reciprocate the principal's altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation.
    Keywords: reciprocity; gift-exchange; signaling game; incentive contracts; screening
    JEL: D86 J41 M52 M55
    Date: 2010–01–06
  15. By: Anders Poulsen (School of Economics, University of East Anglia); Michael Roos (Ruhr-Universitaet Bochum; School of Economics, University of East Anglia)
    Abstract: Game theory predicts that players make strategic commitments that may appear counter-intuitive. We conducted an experiment to see if people make a counter-intuitive but strategically optimal decision to avoid information. The experiment is based on a sequential Nash demand game in which a responding player can commit ahead of the game not to see what a proposing player demanded. Our data show that subjects do, but only after substantial time, learn to make the optimal strategic commitment. We find only weak evidence of physical timing effects.
    Keywords: Strategic commitment, commitment, bargaining, strategic value of information, physical timing effects, endogenous timing, experiment
    JEL: J3 J6 M5
    Date: 2010–04–23
  16. By: Kevin Denny (University College Dublin); Wen Zhang (University of Cardiff)
    Abstract: This paper estimates the relationship between handedness and social adjustment. In addition to binary measures of hand preference, we also use a continuous measure of hand skill. Outcomes at ages 7, 11 and 16 are studied. Using a semi-parametric estimator it is shown that non-righthandedness (as hand-preference) is associated with poorer social adjustment but this effect disappears as the individuals age. The continuous measure of hand skill has a non-monotonic effect on social adjustment with poorer social adjustment at the extreme values of the continuum. Poorer social adjustment in childhood has been shown to predict poorer socio-economic outcomes later in life.
    Keywords: handedness, non-cognitive ability, delinquency, laterality
    Date: 2010–03–22

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