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on Cognitive and Behavioural Economics |
| By: | Gabriele Camera; Marco Casari; Maria Bigoni |
| Abstract: | Social norms of cooperation are studied under several forms of communication. In an experiment, strangers could make public statements before playing a prisoner’s dilemma. The interaction was repeated indefinitely, which generated multiple equilibria. Communication could be used as a tool to either signal intentions to coordinate on Pareto-superior outcomes, to deceive others, or to credibly commit to actions. Some forms of communication did not promote the incidence of efficient Nash play, and sometimes reduced it. Surprisingly, cooperation suffered when subjects could publicly commit to actions. |
| Keywords: | coordination, cheap-talk, deception, indefinitely repeated game, social norms |
| JEL: | C90 C70 D80 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1236&r=cbe |
| By: | Gabriele Camera; Marco Casari |
| Abstract: | A new behavioral foundation is uncovered for why money promotes impersonal exchange. In an experiment, subjects could cooperate by intertemporally exchanging goods with anonymous opponents met at random. Indefinite repetition supported multiple equilibria, from full defection to the efficient outcome. Introducing the possibility to hold and exchange intrinsically worthless tickets affected outcomes and cooperation patterns. Tickets resembled fiat money, which emerged as a tool for equilibrium selection in the economy. Monetary exchange facilitated coordination on cooperation and redistributed surplus from defectors to cooperators. Treatments where subjects could develop a reputation revealed a limited record-keeping role for monetary exchange. |
| Keywords: | money, cooperation, information, trust, folk theorem, repeated games |
| JEL: | C90 C70 D80 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1239&r=cbe |
| By: | Jianying Qiu (Department of Economics, University of Innsbruck); Eva-Maria Steiger (Strategic Interaction Group, Max Planck Institute of Economics, Jena) |
| Abstract: | Cumulative Prospect Theory (PT) introduced the weighting of probabilities as an additional component to capture risk attitudes. However, this addition would be a less significant challenge to expected utility theory (EU) if utility curvature and probability weighting showed strong positive correlation. In that case the utility curvature in EU alone, while not properly describing risky behavior in general, would still capture most of the variance of individual risk aversion. This study provides experimental evidence that such a strong and positive correlation does not exist. Although most individuals exhibit concave utility and convex probability weighting, the two components show no strong positive correlation. |
| Keywords: | risk attitudes, cumulative prospect theory, experimental study |
| JEL: | C91 D81 |
| Date: | 2010–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-053&r=cbe |
| By: | Alexander Sebald (Department of Economics, University of Copenhagen); Markus Walzl (Bamberg University) |
| Abstract: | We conduct a laboratory experiment with agents working on and principals benefiting from a real effort task in which the agents’ effort/performance can only be evaluated subjectively. Principals give subjective performance feedback to agents and agents have an opportunity to sanction principals. We find that agents sanction whenever the feedback of principals is below their subjective self-evaluations even if the agents’ payoff is independent of the principals’ feedback. Based on our experimental analysis we propose a principal-agent model with subjective performance evaluations that accommodates this finding. We analyze the agents’ (optimal) behavior, optimal contracts, and social welfare in this environment. |
| Keywords: | contracts; subjective performance evaluations; self-esteem; ego-threats |
| JEL: | D01 D02 D82 D86 J41 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1018&r=cbe |
| By: | Matthias Uhl (Max Planck Institute of Economics, IMPRS "Uncertainty", Jena, Germany) |
| Abstract: | Weak paternalism commits protégés to their own plans. This experiment addresses the question of whether protégés judge weakly paternalistic acts primarily by means of their consequences or on principle grounds. Subjects receive a reward for showing up to the laboratory early the next morning which decreases in time. Protégés can either self-commit to a planned time or self-liberate by preserving spontaneity. By making this binary choice protégés express their preference regarding liberty. Simultaneously, another subject is either paternalistic or liberal by making an analogous choice for them. We analyze protégés' attitudes toward both policy styles via costly reward choices. If only consequences matter, self-committers should appreciate paternalism while self-liberators should condemn it. A deontological aversion against paternalism would negate a difference between both groups. Differing judgments constitute a consequentialist pattern. However, this pattern is driven by self-liberators' clear judgments. For self-committers also a norm of non-interference into others' liberty can be identified. |
| Keywords: | Self-commitment, weak paternalism, freedom of choice, agency, moral judgments |
| JEL: | D63 I31 |
| Date: | 2010–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-055&r=cbe |
| By: | Stephan Dickert (Max Planck Institute for Research on Collective Goods, Bonn); Britta Herbig (Institute for Occupational, Social and Environmental Medicine, Ludwig-Maximilians-University, Munich, Germany); Andreas Glöckner (Max Planck Institute for Research on Collective Goods, Bonn); Christina Gansen (University of Bonn); Roman Portack (University of Bonn) |
| Abstract: | In an experimental study we investigated effects of information amount and legal training on the judgment accuracy in legal cases. In a two (legal training: yes vs. no) x two (information amount: high vs. low) between-subjects design, 90 participants judged the premeditation of a perpetrator in eight real-world cases decided by the German Federal Court of Justice. Judgment accuracy was assessed in comparison with the Court’s ruling. Legal training increased judgment accuracy, but did not depend on the amount of information given. Furthermore, legal training corresponded with higher confidence. Interestingly, emotional reactions to the legal cases were stronger when more information was given for individuals without legal training but decreased for individuals with training. This interaction seems to be caused by fundamental differences in the way people construct their mental representations of the cases. We advance an information processing perspective to explain the observed differences in legal judgments and conclude with a discussion on the merits and problems of offering more information to lay people participating in legal decision making. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2010_34&r=cbe |
| By: | Gabriele Camera; Marco Casari; Maria Bigoni |
| Abstract: | We study cooperation in four-person economies of indefinite duration. Subjects interact anonymously playing a prisoner’s dilemma. We identify and characterize the strategies employed at the aggregate and at the individual level. We find that (i) grim trigger well describes aggregate play, but not individual play; (ii) individual behavior is persistently heterogeneous; (iii) coordination on cooperative strategies does not improve with experience; (iv) systematic defection does not crowd-out systematic cooperation. |
| Keywords: | repeated games, equilibrium selection, prisoners’ dilemma, random matching |
| JEL: | C90 C70 D80 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1237&r=cbe |
| By: | Gerlinde Fellner (WU Vienna, Department of Economics, Institute of Economic Policy and Industrial Economics); Sebastian Krügel (Max Planck Institute of Economics, IMPRS "Uncertainty", Jena) |
| Abstract: | Overweighting private information is often used to explain various detrimental decisions. In behavioral economics and finance, it is usually modeled as a direct consequence of misperceiving signal reliability. This bias is typically dubbed overconfidence and linked to the judgment literature in psychology. Empirical tests of the models often fail to find evidence for the predicted effects of overconfidence. These studies assume, however, that a specific type of overconfidence, i.e., "miscalibration," captures the underlying trait. We challenge this assumption and borrow the psychological methodology of single-cue probability learning to obtain a direct measure for overweighting private information. We find that overweighting private information and measures of "miscalibration" are unrelated, indicating that different kinds of misperceptions are at work. Thus, in order to test the theoretical predictions of the overconfidence literature in economics and finance, one cannot rely on the well-established "miscalibration" bias. We find no gender differences in overconfidence for our measures except for one, where women are more overconfident than men. |
| Keywords: | overconfidence, miscalibration, signal perception, cognitive bias |
| JEL: | C91 D83 |
| Date: | 2010–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-058&r=cbe |
| By: | Carsten S. Nielsen (Department of Economics, University of Copenhagen); Alexander Sebald (Department of Economics, University of Copenhagen) |
| Abstract: | Building on Battigalli and Dufwenberg (2009)'s framework of dynamic psychological games and the recent progress in the modeling of dynamic unawareness, we provide a general framework that allows for `unawareness' in the strategic interaction of players motivated by belief-dependent psychological preferences like reciprocity and guilt. We show that unawareness has a pervasive impact on the strategic interaction of psychologically motivated players. Intuitively, unawareness influences players' beliefs concerning, for example, the intentions and expectations of others which in turn impacts their behavior. Moreover, we highlight the strategic role of communication concerning feasible paths of play in these environments. |
| Keywords: | unawareness; extensive-form games; communication; belief-dependent preferences; sequential equilibrium |
| JEL: | C72 C73 D80 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1019&r=cbe |
| By: | Harvey S. Rosen (Princeton University); Stephen T. Sims (STS Associates) |
| Abstract: | This paper examines whether altruistic behavior is habit forming. We take advantage of a data set that includes a rich set of information concerning individuals’ donations of cash and time as adults as well as information about whether they were involved with charitable activities when they were young. The basic premise is that if altruistic behavior when young is a good predictor of such behavior in adulthood, then this is consistent with the notion that altruistic behavior is habit forming. Using U.S. data, we examine both donations of money and time, and find that engaging in charitable behavior when young is a strong predictor of adult altruistic behavior, ceteris paribus. A major issue in the interpretation of this result is that the correlation between youthful and adult altruistic behavior may be due to some third variable that affects both. While it is impossible to rule out such a possibility, we are able to control for family influences that likely could affect lifetime attitudes toward altruism. We find that, even taking this factor into account, altruistic behavior as a youth plays a significant role in explaining adult behavior. This result applies to donations of money and time to a variety of types of non-profit organizations. |
| Keywords: | altruistic behavior, donations, nonprofit fundraising |
| JEL: | D19 D83 L31 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1244&r=cbe |
| By: | Donja Darai (Socioeconomic Institute, University of Zurich); Silvia Grätz (Socioeconomic Institute, University of Zurich) |
| Abstract: | We analyze cooperative behavior in a prisoner's dilemma game with high stakes, face-to-face communication, and two rounds of pre-play in which the two final contestants are endogenously selected via a voting process. Using data from the British television game show "Golden Balls", we find a unilateral cooperation rate of 55% and a mutual cooperation rate of 33%. The stake size is on average $13,300 and ranges from $3 to $100,150. Our analysis shows that both stake size and communication have a significant impact on the player's likelihood to cooperate. In particular, we observe a negative correlation between stake size and cooperation. Also certain gestures, as handshakes, decrease the likelihood to cooperate. But, if players mutually promise each other to cooperate and in addition shake hands on it, the cooperation rate increases. We also show that a player's expectation about the stake size matters. Further, we find a strong link between contestant's pre-play behavior and the outcome of the prisoner's dilemma. Players who contribute more to the stake size are less likely to cooperate, even though each player's contribution is determined by a random process. Apart from that, it matters whether a player has lied in the pre-play and whether she experienced her opponent's goodwill. Addressing the partner selection process, we find that contestant's voting decisions are based on objective criteria, i.e., their opponent's monetary contribution to the stake size, as well as subjective personal characteristics, i.e., the opponents' trustworthiness. |
| Keywords: | prisoner's dilemma, cooperative behavior, communication, promises, voting |
| JEL: | C72 C93 H41 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:1006&r=cbe |
| By: | Timothy N. Cason; Daniel Friedman; Ed Hopkins |
| Abstract: | We report experiments designed to test between Nash equilibria that are stable and unstable under learning. The “TASP” (Time Average of the Shapley Polygon) gives a precise prediction about what happens when there is divergence from equilibrium under a wide class of learning processes. We study two versions of Rock-Paper-Scissors with the addition of a fourth strategy, Dumb. The unique Nash equilibrium places a weight of 1/2 on Dumb in both games, but in one game the NE is stable, while in the other game the NE is unstable and the TASP places zero weight on Dumb. Consistent with TASP, we find that the frequency of Dumb is lower and play is further from Nash in the high payoff unstable treatment than in the other treatments. However, the frequency of Dumb is substantially greater than zero in all treatments. |
| Keywords: | games, experiments, TASP, learning, unstable, mixed equilibrium, fictitious play |
| JEL: | C72 C73 C92 D83 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1233&r=cbe |
| By: | Paolo Spada; Raymond Vreeland |
| Abstract: | Many believe that deliberative democracy, where individuals discuss alternatives before voting on them, should result in collectively superior outcomes because voters become better informed and decisions are justified using reason. These deliberations typically involve a moderator, however, whose role has been under-examined. We conduct a field experiment to test the effects moderators may have. Participants in a class of 107 students voted on options over their writing and exam requirements. Before voting, they participated in group discussions of about five people each with one moderator. Some (randomly assigned) moderators remained neutral throughout, while others made limited interventions, supporting a specific option. We find a substantial moderator effect. Our experiment is structured like deliberations used world-wide to make community decisions and thus should have some external validity. The results indicate that if organized interest groups had influence over moderators, they might be able to hijack a deliberative decision-making process. |
| Keywords: | Participatory Decision Making, Field Experiment, Voting. |
| JEL: | G10 G30 G34 G38 K20 K22 |
| Date: | 2010–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2010_19&r=cbe |