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on Cognitive and Behavioural Economics |
| By: | Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews) |
| Abstract: | If choices depend on the decision maker's mood, is the attempt to derive any consistency in choice doomed? In this paper we argue that, even with full unpredictability of mood, the way choices from a menu relate to choices from another menu exhibits some structure. We present two alternative models of 'moody choice' and show that, in either of them, not all choice patterns are possible. Indeed, we characterise both models in terms of consistency requirements of the observed choice data. |
| Keywords: | bounded rationality, procedural rationality, utility maximization, choice behavior |
| JEL: | D01 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5005&r=cbe |
| By: | Florian Artinger (Max Planck Institute for Human Development, Berlin); Fillipos Exadaktylos (University of Granada); Lauri Sääksvuori (Max Planck Institute of Economics, Jena); Hannes Koppel (Max Planck Institute of Economics, Jena) |
| Abstract: | Economists have been theorizing that other-regarding preferences influence decision making. Yet, what are the corresponding psychological mechanisms that inform these preferences in laboratory games? Empathy and Theory of Mind (ToM) are dispositions considered to be essential in social interaction. We investigate the connection between an individual's preference type and her disposition to engage in empathy and ToM in neutrally framed Dictator and Ultimatum Game. For that purpose, cognitive and emotional psychometric scales are applied to infer the dispositions of each subject. We find that a disposition for empathy does not influence the behavior in the games. ToM positively correlates with offers in the Dictator Game. Integral to ToM are beliefs about others. Both, other-regarding and selfish types, show a strong correlation between what they belief others do and their own action. These results indicate that expectations about the prevalent social norm might be central in informing behavior in one-shot games. |
| Keywords: | Altruism, Inequality, Empathy, Theory of Mind, Behavioral Economics |
| JEL: | C91 C72 D01 D64 |
| Date: | 2010–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-037&r=cbe |
| By: | Basit Zafar |
| Abstract: | A pervasive concern with the use of subjective data in choice models is that the data are biased and endogenous. This paper examines the extent to which cognitive biases plague subjective data, specifically addressing 1) whether cognitive dissonance affects the reporting of beliefs, and 2) whether individuals exert sufficient mental effort when probed about their subjective beliefs. For this purpose, I collect a unique panel data set of Northwestern University undergraduates that contains their subjective expectations about outcomes specific to different majors in their choice set. I do not find evidence of cognitive biases systematically affecting the reporting of beliefs: By analyzing patterns of belief updating, I can rule out cognitive dissonance being a serious concern in the current setting. Moreover, there seems to be no systematic (nonclassical) measurement error in the reporting of beliefs. In the reported beliefs for the various majors, I find no systematic patterns in mental recall of previous responses or in the extent of rounding. Comparison of subjective beliefs with objective measures suggests that students have well-formed expectations. Overall, the results paint a favorable picture for the use of subjective expectations data in choice models. |
| Keywords: | Bayesian statistical decision theory ; Human behavior ; Social choice ; Universities and colleges |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:454&r=cbe |
| By: | Fujikawa, Takemi; Kobayashi, Yohei |
| Abstract: | This paper experimentally studies the effects of background music and sound on the preference of the decision makers for rewards in pairwise intertemporal choice tasks and lottery choice tasks. The participants took part in the current experiment, involving four treatments: (1) the familiar music treatment; (2) the unfamiliar music treatment; (3) the noise treatment and (4) the no music treatment. The experimental results confirm that background noise affects human performance in decision making under risk and intertemporal decision making, though the results do not indicate the significant familiarity effect that is a change of the preference in the presence of familiar background music and sound. |
| Keywords: | Allais-type preferences; choice under risk; intertemporal choice; the familiarity effect |
| JEL: | C91 |
| Date: | 2010–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23374&r=cbe |
| By: | Ole Bonnichsen (Institute of Food and Resource Economics, University of Copenhagen); Jacob Ladenburg (Danish Institute of Governmental Research) |
| Abstract: | In stated preference literature, the tendency to choose the alternative representing the status quo situation seems to exceed real life status quo effects. Accordingly, status quo bias can be a problem. In Choice Experiments, status quo bias is found to be strongly correlated with protest attitudes toward the cost attribute. If economic values are to be elicited, this problem is difficult to remedy. In a split sample framework we test a novel ex-ante entreaty aimed specifically at the cost attribute and find that it effectively reduces status quo bias and improves the internal validity of the hypothetical preferences. |
| Keywords: | Choice Experiment, Status Quo Bias, Entreaty, Stated Preference, |
| JEL: | C10 C51 C52 C90 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2010_07&r=cbe |
| By: | Fernando Aguiar (Spanish Council for Scientific Research (IESA-CSIC)); Alice Becker (Max Planck Institute for Economics, Jena); Luis Miller (Nuffield Centre for Experimental Social Sciences, University of Oxford) |
| Abstract: | This article defines in a precise manner three different mechanisms to achieve impartiality in distributive justice and studies them experimentally. We consider a first-person procedure, the Rawlsian veil of ignorance, and two third-party procedures, the impartial spectator and the ideal observer. As a result, we find striking differences in the chosen outcome distributions by the three methods. Ideal observers that do not have a stake in the allocation problem nor information about their position in society propose significantly more egalitarian distributions than veiled stakeholders or impartial spectators. Risk preferences seem to explain why participants that have a stake in the final allocation propose less egalitarian distributions. Impartial spectators that are informed about their position in society tend to favor stakeholders holding the same position. |
| Keywords: | impartiality, veil of ignorance, impartial spectator, distributive justice |
| JEL: | C72 C92 D63 A13 |
| Date: | 2010–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-040&r=cbe |
| By: | Kota Saito |
| Date: | 2010–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:661465000000000094&r=cbe |
| By: | Erixon, Lennart (Dept. of Economics, Stockholm University); Johannesson, Louise (Dept. of Economics, Stockholm University) |
| Abstract: | The theory of transformation pressure sheds light on the importance of negative driving forces for economic growth and the countercyclical movement in innovations and productivity growth. The theory suggests that firms have a status-quo bias in periods of increasing profits leading to lower productivity growth. Firm agents are governed by changes in current profits through historical relativism, the peak-end rule and overconfidence. They will first abandon a status-quo bias after an actual decline in profits though both under- and overreaction is possible. On the other hand Schumpeterian economics stress that firm renewal is speeded up during recoveries, e.g. by psychological reasons. The two contradicting hypotheses were tested by a role play where a group of university students in economics completed a questionnaire acting as managers for an established company. The students had the opportunity to choose between different growth strategies and define the underlying psychological mechanism. The questionnaire also provided room for rational considerations. The role play confirmed the theory of transformation pressure more than Schumpeterian economics but primarily that the students expected that they would have reacted rationally as managers. |
| Keywords: | Transformation pressure; Schumpeterian economics; peak-end rule; historical relativism; productivity growth; overconfidence; bounded rationality; the business cycle; heuristic decision rules; role play |
| JEL: | C23 C99 D21 D92 E32 |
| Date: | 2010–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2010_0013&r=cbe |
| By: | Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews) |
| Abstract: | We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a 'consideration set' prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can affect their own salience (salience games). Such implications are relevant to assess the link between 'revealed' preferences and 'true' preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents. |
| Keywords: | discrete choice, random utility, logit model, consideration sets, bounded rationality |
| JEL: | D0 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5006&r=cbe |
| By: | A. Magi |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:706&r=cbe |
| By: | Arnold, S |
| Abstract: | The daily commute is an important element of transport and travel behaviour in the UK, and as such is relevant to discussions about the environment and sustainability, as well as social well-being. Economic research on the matter focuses on cost and structural factors, with preferences being given, whilst the psychological literature looks at how preferences are formed from attitudes and values, but tends to underplay the role of structural variables. This paper develops a simple structure of how attitudes, values and behaviours are linked, and tests them with multinomial and ordered regressions using data from Defra’s 2007 Survey of Attitudes and Behaviours in Relation to the Environment. The results found that attitudes towards cars and driving were a significant factor in transport choices, but environmental beliefs were only mildly significant, and only for some travel choices. Structural variables, here proxied by distance to work, were influential in most travel choices, as was age. Stated environmental behaviours however, were almost entirely insignificant. The results were robust, and suggest that policies aimed at structural or attitudinal change would be more effective than policies aimed at changing people’s environmental values. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:07/10&r=cbe |
| By: | Myong-Il Kang; Shinsuke Ikeda |
| Abstract: | By combining our broad panel survey of Japanese adults from 2005 to 2008 and actual cigarette tax data, we investigate how smoking behavior including responses to tax hikes depends on time discounting and its biases, such as hyperbolic discounting and the sign effect. Cigarette consumption displays significantly positive correlations with discount rates and the procrastinating tendency, and negative correlations with the sign effect. Hyperbolic, procrastinating, andnaïve respondents decrease their after-tax-hike cigarette consumption more than the others, implying that, irrespective of the preannouncement of a future tax hike, they postpone smoking moderation until the tax hike actually takes place. Finally, the government's revenue from cigarette tax peaks at a JPY 29.92 (around USD 0.28 using the conversion rate [107.16] in February 2008) higher tax per cigarette than the present actual level. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0782&r=cbe |
| By: | Venkat Venkatasubramanian |
| Abstract: | The excessive compensation packages of CEOs of U.S. corporations in recent years have brought to the foreground the issue of fairness in economics. The conventional wisdom is that the free market for labor, which determines the pay packages, cares only about efficiency and not fairness. We present an alternative theory that shows that an ideal free market environment also promotes fairness, as an emergent property resulting from the self-organizing market dynamics. Even though an individual employee may care only about his or her salary and no one else's, the collective actions of all the employees, combined with the profit maximizing actions of all the companies, in a free market environment under budgetary constraints, lead towards a more fair allocation of wages, guided by Adam Smith's invisible hand of self-organization. By exploring deep connections with statistical thermodynamics, we show that entropy is the appropriate measure of fairness in a free market environment which is maximized at equilibrium to yield the lognormal distribution of salaries as the fairest inequality of pay in an organization under ideal conditions. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1006.4382&r=cbe |