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on Cognitive and Behavioural Economics |
| By: | Dan Ariely; Anat Bracha; Jean-Paul L'Huillier |
| Abstract: | This paper experimentally examines whether looking at other people's pricing decisions is a type of heuristic - a decisionmaking rule - that people use even when it is not applicable, as in the case of clearly private value goods. We find evidence that this is indeed the case - an individual's valuation of a purely subjective experience under full information, elicited using an incentive compatible mechanism, is highly influence by valuations made by others. This result can shed light on price behavior, price rigidities, and rents. |
| Keywords: | Pricing ; Human behavior |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-5&r=cbe |
| By: | Dan Marsh (University of Waikato); Bentry Mkwara (University of Waikato); Riccardo Scarpa (University of Waikato) |
| Abstract: | In environmental valuation studies with stated preference methods, researchers often provide descriptions of status quo conditions which may differ from those perceived by respondents. Ignoring this difference in utility baselines may affect the magnitude of utility changes and hence bias the implied estimates of benefits from the proposed environmental policies. We investigate this issue using data from a choice experiment on a community’s willingness to pay for water quality improvements in streams. More than 60 percent of respondents perceived the description of the quality of water in streams to be better than the one we provided in our scenario. Our results show that respondents who could provide details of their perception of the status quo displayed stronger preferences for water quality improvements - hence a higher marginal willingness to pay - than their counterparts. Respondents who opted for their own status quo description displayed a higher inclination to remain in the status quo, while their counterparts displayed the contrary. We argue this might be linked to the amount of knowledge each group displayed about the status quo: a kind of reluctance to leave what one knows well. |
| Keywords: | choice experiments; fixed status quo; people’s perceived status quo; status quo effect; willingness to pay. |
| JEL: | C51 Q25 Q51 |
| Date: | 2010–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:10/04&r=cbe |
| By: | Raphaël Giraud (CRESE - Centre de REcherches sur les Stratégies Economiques - Université de Franche-Comté : EA); Jean-Marc Tallon (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | We argue, in the spirit of some of Jean-Yves Jaffray's work, that explicitly incorporating the information, however imprecise, available to the decision maker is relevant, feasible, and fruitful. In particular, we show that it can lead us to know whether the decision maker has wrong beliefs and whether it matters or not, that it makes it possible to better model and analyze how the decision maker takes into account new information, even when this information is not an event and finally that it is crucial when attempting to identify and measure the decision maker's attitude toward imprecise information. |
| Keywords: | Decision under uncertainy ; Objective Information ; Belief Formation ; Methodology of Decision Theory |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00502781_v1&r=cbe |
| By: | Orazio Attansio; Abigail Barr; Juan Camilo Cardenas; Garance Genicot; Costas Mehgir |
| Abstract: | Using date from a field experiment conducted in seventy Colombian municipalities, we investigate who pools risk with whom when risk pooling arrangements are not formally enforced. We explore the roles played by risk attitudes and network connections both theoretically and empirically. We find that pairs of participants who share a bond of friendship or kinship are more likely to (1) join the same risk pooling group and to (2) group assortatively with respect to risk attitudes. Also, consistent with our theoretical finding that when there is a problem of trust the process of pooling assortativley with respect to risk preferences is perturbed, we find (3) only weak evidence of such assorting among unfamiliar individuals. |
| Keywords: | Field experiment; risk sharing; social sanctions; Insurance; Group formation: matching. |
| JEL: | C93 D71 D81 O12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:09-20&r=cbe |
| By: | Kosfeld, Michael (Goethe University Frankfurt); Neckermann, Susanne (ZEW Mannheim) |
| Abstract: | We study the impact of status and social recognition on worker performance in a field experiment. In collaboration with an international non-governmental organization we hired students to work on a database project. Students in the award treatment were offered a congratulatory card from the organization honoring the best performance. The award was purely symbolic in order to ensure that any behavioral effect is driven by non-material benefits. Our results show that students in the award treatment outperform students in the control treatment by about 12 percent on average. Our results provide strong evidence for the motivating power of status and social recognition in labor relations with major implications for theory and applications. |
| Keywords: | award, non-monetary incentives, status, social recognition, field experiment |
| JEL: | C93 M52 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5040&r=cbe |
| By: | Kontek, Krzysztof |
| Abstract: | This paper presents a nonparametric approach to classification of data from lottery experiments. Using very basic mathematical tools the paper endeavors to answer the questions: How to determine the “average” subject in a group? How to find a subject presenting the most similar behavior to a given one? How to detect outlier subject(s)? How to classify behaviors by their dissimilarity from the perfectly rational decision making? How to rank subjects by risk attitudes? How to cluster subjects? This paper demonstrates that the answer to all of these questions may be found non-parametrically, without the use of any specific model. |
| Keywords: | Lottery experiments, Certainty Equivalents, Risk Attitude, Cluster Analysis, Nonparametric Methods, Relative Utility Function. |
| JEL: | D81 C14 C02 C81 C91 |
| Date: | 2010–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23845&r=cbe |
| By: | Danila Serra; Pieter Serneels; Abigail Barr |
| Abstract: | Economists have traditionally assumed that individual behavior is motivated exclusively by extrinsic incentives. Social psychologists, in contrast, stress that intrinsic motivations are also important. In recent work, economic theorists have started to build psychological factors, like intrinsic motivations, into their models. Besley and Ghatak (2005) propose that individuals are differently motivated in that they have different “missions,” and their self-selection into sectors or organizations with matching missions enhances organizational efficiency. We test Besley and Ghatak’s model using data from a unique cohort study. We generate two proxies for intrinsic motivations: a survey-based measure of the health professionals philanthropic motivations and an experimental measure of their pro-social motivations. We find that both proxies predict health professionals’ decision to work in the non-profit sector. We also find that philanthropic health workers employed in the non-profit sector earn lower wages than their colleagues. |
| JEL: | C93 I11 J24 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:10-04&r=cbe |
| By: | Jeffrey Carpenter; Tyler Williams |
| Abstract: | Given the substantial amount of resources currently invested in microcredit programs, it is more important than ever to accurately assess the extent to which peer monitoring by borrowers faced with group liability contracts actually reduces moral hazard. We conduct a field experiment with women about to enter a group loan program in Paraguay and then gather administrative data on the members' repayment behavior in the six-month period following the experiment. In addition to the experiment which is designed to measure individual propensities to monitor under incentives similar to group liability, we collect a variety of the other potential correlates of borrowing behavior and repayment. Controlling for other factors, we find a very strong causal relationship between the monitoring propensity of one's loan group and repayment. Our lowest estimate suggests that borrowers in groups with above median monitoring are 36 percent less likely to have a problem repaying their portion of the loan. Besides confirming a number of previous results, we also find some evidence that risk preferences, social preferences, and cognitive skills affect repayment. |
| Keywords: | Loans ; Credit ; Human behavior |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-6&r=cbe |
| By: | Paloma Ubeda (ERI-CES) |
| Abstract: | In the last two decades, experimental papers on distributive justice have abounded. Two main results have been replicated Firstly, there is a multiplicity of fairness rules. Secondly, fairness decisions differ depending on the context. This paper studies individual consistency in the use of fairness rules, as well as the structural factors that lead people to be inconsistent. We use a within-subject design, which allows us to compare individual behavior when the context changes. In line with the literature, we find a multiplicity of fairness rules. However, when we control for consistency, the set of fairness rules is considerably smaller. Only selfishness and strict egalitarianism seem to survive the stricter requirement of consistency. We observe that this result is mainly explained by a self-serving bias. Participants select the rule that is individually optimal in each situation. |
| Keywords: | Justice, Fairness, Laboratory Experiments, Self-serving bias, Consistency |
| JEL: | D63 C91 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:1010&r=cbe |
| By: | Abigail Barr; Andrew Zeitlin |
| Abstract: | This paper tests the external validity of a simple Dictator Game as a laboratory analogue for a naturally occurring policy-relevant decision-making context. In Uganda, where teacher absenteeism is a problem, primary school teachers’ allocations to parents in a Dictator Game are positively but weakly correlated with their time allocations to teaching and, so, negatively correlated with their absenteeism. Guided by a simple theoretical model, we find that the correlation can be improved by allowing for (a) variations in behavioural reference points across teachers and schools and (b) the positive effect if some School Management Committees on teacher attendance . |
| Keywords: | Public service, Education, Experiments, Africa, external validity, Methodology |
| JEL: | C91 D64 I29 O15 O17 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:10-11&r=cbe |
| By: | María Paz Espinosa (Universidad del País Vasco); Jaromír Kovárík (Universidad del País Vasco); Giovanni Ponti (Universidad de Alicante and Università di Ferrara) |
| Abstract: | The scope of the paper is the literature that employs coordination games to study social norms and conventions from the viewpoint of game theory and cognitive psychology. We claim that those two alternative approaches are complementary, as they provide different insights to explain how people converge to a unique system of self-fulfilling expectations in presence of multiple, equally viable, conventions. While game theory explains the emergence of conventions relying on efficiency and risk considerations, the psychological view is more concerned with frame and labeling effects. The interaction between these alternative (and, sometimes, competing) effects leads to the result that coordination failures may well occur and, even when coordination takes place, there is no guarantee that the convention eventually established will be the most efficient. |
| Keywords: | Behavioral Game Theory, conventions, social norms |
| JEL: | C72 |
| Date: | 2010–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:201007&r=cbe |
| By: | Boris Maciejovsky; Matthias Sutter; David V. Budescu; Patrick Bernau |
| Abstract: | We study the impact of team decision making on market behavior and its consequences for subsequent individual performance in the Wason selection task, the single-most studied reasoning task. We reformulated the task in terms of “assets” in a market context. Teams of traders learn the task’s solution faster than individuals and achieve this with weaker, less specific, performance feedback. Some teams even perform better than the best individuals. The experience of team decision-making in the market also creates positive knowledge spillovers for post–market individual performance in solving new Wason tasks, implying that team experiences enhance individual problem-solving skills. |
| Keywords: | Wason selection task, rationality, team decision making, individual decision making, auction |
| JEL: | C91 C92 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2010-17&r=cbe |
| By: | Florian Herold (Kellogg School of Management, Northwestern University); Nick Netzer (Socioeconomic Institute, University of Zurich) |
| Abstract: | The economic concept of the second-best involves the idea that multiple simultaneous deviations from a hypothetical first-best optimum may be optimal once the first-best itself can no longer be achieved, since one distortion may partially compensate for another. Within an evolutionary framework, we translate this concept to behavior under uncertainty. We argue that the two main components of prospect theory, the value function and the probability weighting function, are complements in the second-best sense. Previous work has shown that an adaptive S-shaped value function may be evolutionary optimal if decision-making is subject to cognitive or perceptive constraints. We show that distortions in the way probabilities are perceived can further enhance fitness. The second-best optimum involves overweighting of small and underweighting of large probabilities. Behavior as described by prospect theory might therefore be evolution’s second-best solution to the fitness maximization problem. Our model makes empirically testable predictions about the relation between individuals’ value and probability weighting functions. |
| Keywords: | Probability Weighting, Prospect Theory, Evolution of Preferences |
| JEL: | D01 D81 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:1005&r=cbe |