nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒07‒10
eight papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Cooperation norms in multiple-stage punishment By Andreas Nicklisch; Irenaeus Wolff
  2. The econometric modeling of social Preferences By Andrea Conte; Peter G. Moffatt
  3. Limited Liability, Moral Hazard and Risk Taking - A Safety Net Game Experiment By Tibor Neugebauer; Sascha Füllbrunn
  4. Social Influence in Stockmarkets: A Conceptual Analysis of Social Influence Processes in Stock Markets By Biel, Anders; Andersson, Maria; Hedesström, Martin; Jansson, Magnus; Sundblad, Eva-Lotta; Gärling, Tommy
  5. On the Acceptance of Apologies By Urs Fischbacher; Verena Utikal
  6. Experiencing Simulated Outcomes By Robin Hogarth; Emre Soyer
  7. Fairness Ex Ante & Ex Post – The Benefits of Renegotiation in Media Markets By Christoph Engel; Michael Kurschilgen
  8. The causal effect of breastfeeding on children’s cognitive development: A quasi-experimental design By Kevin Denny; Orla Doyle

  1. By: Andreas Nicklisch; Irenaeus Wolff
    Abstract: We analyze the interplay between cooperation norms and people's punishment behavior in a social-dilemma game with multiple pun- ishment stages. By combining multiple punishment stages with self- contained episodes of interaction, we are able to disentangle the e ects of retaliation and norm-related punishment. An additional treatment provides information on the norms bystanders use in judging punish- ment actions. Partly con rming previous ndings, punishment behav- ior and bystanders' opinions are guided by an absolute norm. This norm is consistent over decisions and punishment stages and requires full contributions. In the rst punishment stage, our results suggest a higher personal involvement of punishers, leading to a non-linearity de ned by the punishers' contribution. In later punishment stages, the personal-involvement e ect vanishes and retaliation kicks in. By- standers generally apply the same criteria in all stages, also favoring retaliation in response to harsh punishment actions.
    Keywords: Experiment, public-good, punishment, social norms, volun- tary cooperation
    Date: 2010
  2. By: Andrea Conte (Strategic Interaction Group, Max-Planck-Institut für Okonomik, Jena, Germany); Peter G. Moffatt (School of Economics, University of East Anglia, Norwich, UK)
    Abstract: Experimental data on social preferences present a number of features that need to be incorporated in econometric modelling. We explore a variety of econometric modelling approaches to the analysis of such data. The approaches under consideration are: the random utility approach (in which it is assumed that each possible action yields a utility with a deterministic and a stochastic component, and that the individual selects the action yielding the highest utility); the random behavioural approach (which assumes that the individual computes the maximum of a deterministic utility function, and that computational error causes their observed behaviour to depart stochastically from this optimum); and the random preference approach (in which all variation in behaviour is attributed to stochastic variation in the parameters of the deterministic component of utility). These approaches are applied in various ways to an experiment on fairness conducted by Cappelen et al. (2007). At least two of the models that we estimate succeed in capturing the key features of the data set.
    Keywords: Econometric modelling and estimation, model evaluation, individual behaviour, fairness
    JEL: C51 C52 C91 D63
    Date: 2010–06–29
  3. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg); Sascha Füllbrunn (Luxembourg School of Finance, University of Luxembourg)
    Abstract: Safety nets may reduce incentives to mitigate risks, and adversely affect people’s behavior. We model the safety net problem as a social dilemma game involving moral hazard, risk taking and limited liability. Individuals take costly measures to avoid a likely loss which, if incurred, is collectively indemnified. The situation is compared to a situation with full liability and the deterministic benchmark, i.e. the public goods game. We report experimental results. The data show that limited liability leads to higher risk taking in comparison to full liability; however, the difference is much smaller than predicted by theory. In comparison to the deterministic benchmark, individuals take higher loss avoidance levels. We attribute this effect to social responsibility since subjects behave as if they were liable for the losses they impose on the group. With repetition, the experimental data indicate a gradual emergence of the moral hazard problem in safety nets.
    Keywords: Experiment, social safety net, moral hazard, linear public goods game, hidden action
    JEL: C9 D7 D8 H4 I1 I3
    Date: 2010
  4. By: Biel, Anders (Department of Psychology, University of Gothenburg, Gothenburg, Sweden); Andersson, Maria (Department of Psychology, University of Gothenburg, Gothenburg, Sweden); Hedesström, Martin (Department of Psychology, University of Gothenburg, Gothenburg, Sweden); Jansson, Magnus (Department of Psychology, University of Gothenburg, Gothenburg, Sweden); Sundblad, Eva-Lotta (Department of Psychology, University of Gothenburg, Gothenburg, Sweden); Gärling, Tommy (Department of Psychology, University of Gothenburg, Gothenburg, Sweden)
    Abstract: This paper focuses on the role of social factors for booms-bubbles-busts cycles in stock markets. It is argued that indirect and direct social influences are important contributors by reinforcing stock investors’ cognitive biases exaggerated by affective influences. A review of herding research primarily undertaken by financial economists is followed by a demonstration that psychological theories of direct social influence (imitation) have bearings on the understanding of the herding phenomenon in stock markets. How to continue this research with relevance for regulations of stock markets is discussed.
    Keywords: Social influence; stock investments; conceptual analysis
    Date: 2010–07–01
  5. By: Urs Fischbacher; Verena Utikal
    Abstract: An apology is a strong and cheap device to restore social or economic relationships that have been disturbed. In a laboratory experiment we find that harmdoers use apologies in particular if they fear punishment and when their intentions cannot be easily inferred. After offenses with ambiguous intentionality apologizers are punished less often than nonapologizers. Victims expect an apology and punish if they do not receive one. If an apology is possible, harmdoers who apologize are punished with lower probability. An apology only affects the event of punishment but not the level of punishment. An apology does not help at all after clearly intentionally committed offenses. On the contrary, after such offenses harmdoers do better not to apologize since sending an apology in this situation strongly increases punishment compared to remaining silent.
    Keywords: Apology, Intentions, Experiment
    Date: 2010
  6. By: Robin Hogarth; Emre Soyer
    Abstract: Whereas much literature has documented difficulties in making probabilistic inferences, it has also emphasized the importance of task characteristics in determining judgmental accuracy. Noting that people exhibit remarkable efficiency in encoding frequency information sequentially, we construct tasks that exploit this ability by requiring people to experience the outcomes of sequentially simulated data. We report two experiments. The first involved seven well-known probabilistic inference tasks. Participants differed in statistical sophistication and answered with and without experience obtained through sequentially simulated outcomes in a design that permitted both between- and within-subject analyses. The second experiment involved interpreting the outcomes of a regression analysis when making inferences for investment decisions. In both experiments, even the statistically naïve make accurate probabilistic inferences after experiencing sequentially simulated outcomes and many prefer this presentation format. We conclude by discussing theoretical and practical implications.
    Keywords: probabilistic reasoning; natural frequencies; experiential sampling; simulation.
    JEL: C00 C11 C15 C91
    Date: 2010–06
  7. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The market for copyrights is characterised by a highly skewed distribution of profits: very few movies, books and songs generate huge profits, whereas the great bulk barely manages to recover production cost. At the moment when the owner of intellectual property grants a licence ("ex ante"), neither party knows the true value of the traded commodity. A seemingly odd norm from German copyright law, the so-called "bestseller provision", stipulates that the seller of a licence has a legally enforceable right to a bonus in case the work ("ex post") turns out a blockbuster. We experimentally explore the effect of the provision on market prices, on the number of deals struck and on perceived fairness. Our results show that the provision leads to lower prices for copyrights. More copyrights trade. The buyers perceive less ex-post unfairness.
    Keywords: experiment, fairness, Copyright, Uncertainty
    JEL: C91 K12
    Date: 2010–06
  8. By: Kevin Denny (University College Dublin); Orla Doyle (University College Dublin)
    Abstract: Objective: To estimate the causal effect of breastfeeding on children’s cognitive skills as measured at ages 3, 5, 7 and 11. Design: An instrumental variable (IV) strategy which provides a correction method for dealing with selection bias. Standard linear regression models are compared to two-stage least squares models to test for the presence of endogeneity. The consistency of the results across multiple sources is also tested using data from two prospective longitudinal studies collected 40-years apart. Setting: The 1958 National Child Development Study (NCDS) and the 2000 UK Millennium Cohort Study (MCS). Participants: Data on 11,792 (age 3) and 9117 (age 5) children in MCS and 4923 (age 7 and 11) children in NCDS. Main outcome measures: Cognitive ability is measured by the Bracken School Readiness Assessment (age 3); Foundation Stage Profile (age 5); and tests of general ability including mathematics, comprehension, verbal and non-verbal skills (ages 7 and 11). Results: The duration of breastfeeding has a small, but significant, effect on children’s cognitive skills in the linear regression models at ages 3, 5, 7 and 11, but no effect in the IV models. However, in all cases, the hypothesis that breastfeeding is endogenous is rejected, indicating that the results of the linear regressions are valid. Conclusion: The relationship between breastfeeding and cognitive ability is not driven by selection bias once a rich set of confounders are included. IV methods can therefore be used to test for the presence of selection bias and are a useful alternative for identifying causal relationships when randomised control trials are not feasible. Showing that the size of the effect is similar for two cohorts born over 40 years apart, and using different measures of ability, are further indications that the relationship between breastfeeding and cognitive ability is not a statistical artefact.
    Keywords: parental investment, cognitive ability, endogeneity, breastfeeding
    Date: 2010–03–22

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