nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒05‒29
seventeen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Does disclosure crowd out cooperation? By Martinsson, Peter; Villegas-Palacio, Clara
  2. Beliefs and actions in the trust game: creating instrumental variables to estimate the causal effect. By Costa-Gomes, M.A.; Huck, S.; Weizsäcker, G.
  3. The Ultimatum Game and Expected Utility Maximization – In View of Attachment Theory By Shaul Almakias; Avi Weiss
  4. Social Relationships and Trust By Christine Binzel; Dietmar Fehr
  5. Trust and Financial Trades: Lessons from an Investment Game Where Reciprocators Can Hide Behind Probabilities By Vranceanu, Radu; Sutan, Angela; Dubart, Delphine
  6. Coordination after gains and losses: Is prospect theoryâs value function predictive for games? By Schade, Christian; Schroeder, Andreas; Krause, Kai Oliver
  7. An Experimental Investigation of Intrinsic Motivations for Giving By Tonin, Mirco; Vlassopoulos, Michael
  8. Punishment Cannot Sustain Cooperation in a Public Good Game with Free-Rider Anonymity By Patel, Amrish; Cartwright, Edward; Mark, Van Vugt
  9. Group Composition and Conditional Cooperation By Alexander Smith
  10. We Are Not Alone: The Impact of Externalities on Public Good Provision By Christoph Engel; Bettina Rockenbach
  11. Holding on for too long? An experimental study on inertia in entrepreneursâ and non-entrepreneursâ disinvestment choices By Sandri, Serena; Schade, Christian; Musshoff, Oliver; Odening, Martin
  12. Can Positional Concerns Enhance the Private provision of Public Goods? By Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez
  13. Loss and risk aversion in games and decisions. By Driesen, Bram
  14. Learn Without Counterfactuals By Friederike Mengel; Javier Rivas
  15. Truly Non-Cooperative Games: A Unified Theory By Funk, Matt
  16. Coordination and Critical Mass in a Network Market: An Experimental Investigation By Bradley J. Ruffle; Avi Weiss; Amir Etziony
  17. Myopia and the global financial crisis: short-termism, context-specific reasoning, and market structure.. By Clark, Gordon L.

  1. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper investigates whether disclosure crowds out pro-social behavior using a public goods experiment. In a between-subject design, we investigate different degrees of disclosure. We find a small positive but insignificant effect of disclosure treatments on contributions to the public good. Thus, our empirical findings are consistent with crowding theory.<p>
    Keywords: Disclosure; image motivation; public goods experiment
    JEL: C91 H41
    Date: 2010–05–18
  2. By: Costa-Gomes, M.A.; Huck, S.; Weizsäcker, G.
    Abstract: In many economic contexts, an elusive variable of interest is the agent's expectation about relevant events, e.g. about other agents' behavior. Recent experimental studies as well as surveys have asked participants to state their beliefs explicitly, but little is known about the causal relation between beliefs and other behavioral variables. This paper discusses the possibility of creating exogenous instrumental variables for belief statements, by shifting the probabilities of the relevant events. We conduct trust game experiments where the amount sent back by the second player (trustee) is exogenously varied by a random process, in a way that informs only the …first player (trustor) about the realized variation. The procedure allows detecting causal links from beliefs to actions under plausible assumptions. The IV estimates indicate a signi…ficant causal effect, comparable to the connection between beliefs and actions that is suggested by OLS analyses.
    Date: 2010–02
  3. By: Shaul Almakias (Finance Ministry, Israel); Avi Weiss (Bar-Ilan University)
    Abstract: In this paper we import a mainstream psycholgical theory, known as attachment theory, into economics and show the implications of this theory for economic behavior by individuals in the ultimatum bargaining game. Attachment theory examines the psychological tendency to seek proximity to another person, to feel secure when that person is present, and to feel anxious when that person is absent. An individual's attachment style can be classified along two-dimensional axes, one representing attachment "avoidance" and one representing attachment "anxiety". Avoidant people generally feel discomfort when being close to others, have trouble trusting people and distance themselves from intimate or revealing situations. Anxious people have a fear of abandonment and of not being loved. Utilizing attachment theory, we evaluate the connection between attachment types and economic decision making, and find that in an Ultimatum Game both proposers' and responders' behavior can be explained by their attachment styles, as explained by the theory. We believe this theory has implications for economic behavior in different settings, such as negotiations, in general, and more specifically, may help explain behavior, and perhaps even anomalies, in other experimental settings.
    Keywords: Attachment Theory, Experimental Economics, Behavioral Economics, Ultimatum Game, Psychology and Economics
    JEL: C91 C78
    Date: 2010–01
  4. By: Christine Binzel; Dietmar Fehr
    Abstract: While social relationships play an important role for individuals to cope with missing market institutions, they also limit individuals' range of trading partners. This paper aims at understanding the determinants of trust at various social distances when information asymmetries are present. Among participants from an informal housing area in Cairo we find that the increase in trust following a reduction in social distance comes from the fact that trustors are much more inclined to follow their beliefs when interacting with their friend. When interacting with an ex-ante unknown agent instead, the decision to trust is mainly driven by social preferences. Nevertheless, trustors underestimate their friend's intrinsic motivation to cooperate, leading to a loss in social welfare. We relate this to the agents' inability to signal their trustworthiness in an environment characterized by strong social norms.
    Keywords: trust, hidden action, social distance, solidarity, reciprocity, economic development
    JEL: C72 C93 D82 O12
    Date: 2010–05
  5. By: Vranceanu, Radu (ESSEC Business School); Sutan, Angela (ESC Dijon Bourgogne); Dubart, Delphine (ESSEC Business School)
    Abstract: In this paper we show that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, reciprocators play more often the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do no not seem able to internalize the reciprocators' change in behavior. This could explain why trades involving an exogenous risk of value destruction, such as financial transactions, provide an unfavorable environment for trust-building
    Keywords: Experimental Economics; Financial Transactions; Investment Game; Objective Risk; Trust
    JEL: C90 D81 G00
    Date: 2010–05
  6. By: Schade, Christian; Schroeder, Andreas; Krause, Kai Oliver
    Abstract: We analyze the effects of prior gain and loss experiences on individualsâ behavior in two coordination games: battle of the sexes and simultaneous market entry. We propose subjectively transformed games that integrate elements of prospect theory, aggregation of prior and subsequent payoffs, and social projection. Mathematical predictions of behavior are derived based on equilibrium selection concepts. Malesâ behavior in our experimental studies is largely consistent with our predictions. However, the behavior of many female respondents appears to be rather consistent with interpreting the initial random lottery outcomes used to manipulate prior experiences as a signal for the playersâ abilities to compete. This could be related to femalesâ known uneasiness of competing against counterparts that might be male and thus, a generally higher salience of rivalry in our incentivized experiments. Females also chose to play far more mixed strategies than males indicating some uncertainty about what type of behavior is appropriate.
    Keywords: Prospect Game Theory, Prior Outcomes, Coordination, Equilibrium Selection, Economic Experiment, Agribusiness, Agricultural and Food Policy, Financial Economics, Institutional and Behavioral Economics, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2010–02
  7. By: Tonin, Mirco; Vlassopoulos, Michael
    Abstract: This paper presents results from a modified dictator experiment aimed at distinguishing and quantifying the two intrinsic motivations for giving: warm glow and pure altruism. In particular, we implemented a within-subject experimental design with three treatments: (i) one, where the recipient is the experimenters, which measures altruistic feelings towards the experimenters (T1), (ii) the Crumpler and Grossman (2008) design in which the recipient is a charity, and the dictator's donation crowds out one-for-one a donation by the experimenters, which aims at measuring warm glow giving (T2), (iii) a third one, with a charity recipient and no crowding out, which elicits both types of altruism (T3). We use T1 to assess to what extent altruistic feelings towards the experimenters are a potential confound for measuring warm glow in T2. We find giving in T1 not to be significantly different from T2, suggesting that the Crumpler and Grossman test is an upper bound estimate of warm glow giving. We provide a lower bound estimate based on the behavior of subjects whose estimate of warm glow giving in T2 is not confounded, that is, those who do not display altruistic feelings towards the experimenters in T1. We use these two estimates to decompose giving in T3 into warm glow and pure altruism and find them to be almost equally important. We also propose a new method of detecting warm glow motivation based on the idea that in a random-lottery incentive (RLI) scheme, such as the one employed here, warm glow benefits accumulate and may lead to satiation, whereas purely altruistic motivation does not. <br><br> Keynames; Dictator game, Warm glow, Pure altruism, Charitable giving <br><br> JEL Classification: C91, D03, D64
    Date: 2010–05–01
  8. By: Patel, Amrish (Department of Economics, School of Business, Economics and Law, Göteborg University); Cartwright, Edward (Department of Economics, Keynes College, University of Kent); Mark, Van Vugt (Department of Work and Organizational Psychology, VU University Amsterdam)
    Abstract: Individuals often have legitimate but publicly unobservable reasons for not partaking in cooperative social endeavours. This means others who lack legitimate reasons may then have the opportunity to behave uncooperatively, i.e. free-ride, and be indistinguishable from those with legitimate reasons. Free-riders have a degree of anonymity. In the context of a public good game we consider the e¤ect of free-rider anonymity on the ability of voluntary punishment to sustain cooperative social norms. Despite only inducing a weak form of free-rider anonymity, punishment falls and cannot sustain cooperation.<p>
    Keywords: Anonymity; free-riding; public goods experiment; punishment
    JEL: C92 D82 H41
    Date: 2010–05–19
  9. By: Alexander Smith
    Abstract: This paper examines how group composition affects conditional cooperation in a repeated voluntary contribution mechanism linear public good game. Identity was created using a team-building activity and subjects were assigned to groups of six consisting of a varying number of subjects from two teams. Contributions to the public good were decreasing in polarization within the group and were higher among majority members than minority members. Also, the relationships between contributions and beliefs about the contributions of others indicate that conditional cooperation was stronger among subjects from the same team than among subjects from different teams.
    JEL: C7 C9 H4
    Date: 2010–01–19
  10. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Bettina Rockenbach (University of Erfurt and Center for empirical research in economics and behavioral science (CEREB))
    Abstract: Public good provision is often local and also affects bystanders. Is provision harder if contributions harm bystanders, and is provision easier if outsiders gain a windfall profit? In an experiment we observe that both positive and negative externalities reduce provision levels whenever actors risk falling back behind bystanders. The mere presence of unaffected bystanders already dampens contributions. The explanation of observed behavior seems to be the interaction of conditional cooperation and concerns for comparative performance. Individual payoff comparisons to the other actors as well as to individual bystanders drive contributions down, as do unfavorable comparisons at the group level.
    Keywords: Public Good, Externality, Conditional Cooperation, Inequity Aversion
    JEL: C91 C92 D43 D62 H23 H41 L13
    Date: 2010–05
  11. By: Sandri, Serena; Schade, Christian; Musshoff, Oliver; Odening, Martin
    Abstract: Disinvestment, in the sense of project termination and liquidation of assets including the cession of a venture, is an important realm of entrepreneurial decision-making. This study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non-entrepreneurs. Our experimental results reject the standard net present value approach as an account of observed behavior. Instead, most individuals seem to understand the value of waiting. Their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real options reasoning. We also observe a pronounced âpsychological inertiaâ, i.e., most individuals hold on to a losing project for even longer than real options reasoning would predict. The study provides evidence for entrepreneurs and non-entrepreneurs being quite similar in their behavior.
    Keywords: Real-Options, Disinvestment, Exit Behavior, Experimental Economics, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Institutional and Behavioral Economics,
    Date: 2010–01
  12. By: Douadia Bougherara; Sandrine Costa; Gilles Grolleau; Lisette Ibanez
    Abstract: The social welfare effect of positional concerns over public goods is composed of two parts, a positional outcome and an outcome in terms of public goods provision. When agents have homogenous positional preferences over the public good, they overinvest in the positional public good, resulting in a zero-sum positional race with a higher provision of the public good. When agents differ in their positional preferences, the overall impact on social welfare is positive when endowments are homogenous and uncertain when endowments are heterogeneous. Given that the social loss from position-seeking is lower than the social gain from rank seeking, there is an increase of social welfare. If agents have different initial endowments, positional preferences might still be welfare enhancing as long as the positional loss does not exceed the gain in terms of public good provision.
    Date: 2010–04
  13. By: Driesen, Bram (Maastricht University)
    Date: 2010
  14. By: Friederike Mengel; Javier Rivas
    Abstract: In this paper we study learning procedures when counterfactuals (payo s of not-chosen actions) are not observed. The decision maker reasons in two steps: First, she updates her propensities for each action after every payo experience, where propensity is de ned as how much she prefers each action. Then, she transforms these propensities into choice probabilities. We introduce natural axioms in the way propensities are updated and the way propensities are translated into choice, and study the decision marker's behavior when such axioms are in place.
    Keywords: Adaptive Learning; Counterfactuals; Partial Information; Reinforcement Learning
    JEL: D83
    Date: 2010–02
  15. By: Funk, Matt
    Abstract: This dissertation introduces "Truly Non-Cooperative Games" – axioms and complimentary negotiation models developed to analyse the human "Struggle for Life" – and presents "The Principle of Relative Insularity", a unified theory of value which unites economics, astrophysics, and biology. In brief, we discover that, reductio ad absurdum, value is a derivative function of relative insularity.
    Keywords: non-cooperative games; theory of value; economic development strategy; systemic risks; global threat mitigation; national security; the problem of induction; relative insularity; international cooperation; human survival
    JEL: Y40 Q34 C72
    Date: 2010–04–05
  16. By: Bradley J. Ruffle (Ben-Gurion University); Avi Weiss (Bar-Ilan University); Amir Etziony (Hewlett-Packard Israel)
    Abstract: A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. We introduce an experimental paradigm to study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass.
    Keywords: Experimental economics, network goods, coordination game, critical mass
    JEL: C92 L19
    Date: 2010–02
  17. By: Clark, Gordon L.
    Abstract: Many people are unable or unwilling to spend the resources necessary to look beyond the short-term and integrate the local with the global. As illustrated by the global financial crisis, the costs of myopia for individual and collective welfare can be far-reaching. In the context of the global financial crisis, I survey the costs of myopia and move on to the experimental evidence on the nature and scope of time/space myopia referencing early work by Kahneman and Tversky. Having put the case for the importance of myopia against those who assume perfection and those who believe human beings are Bayesian by impulse or by training, I consider the interaction between human predilections and the market environment in which decisions must be made. Different levels of behavioural sophistication combined with being embedded in so-called "reinforcing" or "regulatory" environments can give rise to quite different expressions of myopia with implications for the governance of institutions and government policy. Looking forward, it is suggested that whether or not myopia can be in some sense managed will have enormous implications for how we cope with the prospect of increasing global financial market volatility over the coming decades.
    JEL: G14 G24
    Date: 2010

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