nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒09‒11
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Overconfidence and the Attainment of Status in Groups By Anderson, Cameron; Brion, Sebastien
  2. How (Not) To Decide: Procedural Games By Gani Aldashev; Georg Kirchsteiger; Alexander Sebald
  3. Characterizing Risk Attitudes of Industrial Managers By Glenn W. Harrison; Sebastian Moritz; Richard Pibernik
  4. "Context effects in a negative externality experiment" By Kent D. Messer; Jordan F. Suter; Jubo Yan
  5. Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods By Blumkin, Tomer; Ruffle, Bradley; Ganun, Yosef
  6. Age Effects and Heuristics in Decision Making By Tibor Besedes; Cary Deck; Sudipta Sarangi; Mikhael Shor
  7. Strategic Ignorance and the Robustness of Social Preferences By Grossman, Zachary
  8. Deception and confession: Experimental evidence from a deception game in Japan By Keiko Aoki, Kenju Akai, Kenta Onoshiro
  9. Experimental Evidence of Tax Framing Effects on the Work/Leisure Decision By Gamage, David; Hayashi, Andrew; Nakamura, Brent K
  10. Latent Process Heterogeneity in Discounting Behavior By Maribeth Coller; Glenn W. Harrison; E. Elisabet Rutström
  11. Windfall vs. Earned Money in the Laboratory: Do They Affect the Behavior of Men and Women Differently? By Carlsson, Fredrik; He, Haoran; Martinsson, Peter
  12. When Are Preferences Consistent? The Effects of Task Familiarity and Contextual Cues on Revealed and Stated Preferences By Felix Schlaepfer; Baruch Fischhoff
  13. Intra-household Resource Allocation: Do Parents Reduce or Reinforce Child Cognitive Ability Gaps? By Frijters, Paul; Johnston, David W.; Shah, Manisha; Shields, Michael A.

  1. By: Anderson, Cameron; Brion, Sebastien
    Abstract: Individuals who occupy positions of high status and authority tend to engage in overconfidence more than others. While prior work suggests that this excessive overconfidence is partly a product of their elevated status, the current research tested whether overconfidence can also lead to status: Are individuals with overly positive self-perceptions of ability more likely to attain status in the first place? Three studies of task-focused dyads and groups involving laboratory and field settings found support for this hypothesis. Further, the relation between overconfidence and status was consistently mediated by peer-perceived competence: overconfident individuals attained status because others inaccurately perceived them as more competent. An experimental manipulation established the causal priority of overconfidence, and a longitudinal study found the effects of overconfidence endured over time. This research contributes to our understanding of status distribution systems in groups and organizations, the consequences of overconfidence, and the psychology of status.
    Date: 2010–04–14
  2. By: Gani Aldashev; Georg Kirchsteiger; Alexander Sebald
    Abstract: Psychologists and experimental economists …nd that peoples behavior is shaped not only by outcomes but also by the procedures through which these outcomes are reached. Using Psychological Game Theory we develop a general framework allowing players to be motivated by procedural concerns. We present two areas in which procedural concerns play a key role. First, we apply our framework to policy experiments and show that if subjects exhibit procedural concerns, the way in which researchers allocate subjects into treatment and control groups influences the experimental results. The estimate of the treatment e¤ect is always biased as compared to the e¤ect of a general introduction of the treatment. In our second application we analyze the problem of appointing agents into jobs that di¤er in terms of their desirability. Because of procedural concerns the principals choice of appointment procedure a¤ects the subsequent e¤ort choice of agents. We test this theoretical hypothesis in a …eld experiment. The results are consistent with our predictions.
    Keywords: Procedural concerns; Psychological game theory; Policy experiments; Appointment procedures
    JEL: A13 C70 C93 D63
    Date: 2010–08
  3. By: Glenn W. Harrison; Sebastian Moritz; Richard Pibernik
    Abstract: We study the risk attitudes of an important segment of the economy: managers. We conduct artefactual field experiments with 130 managers from 12 industrial companies. Our analysis is particularly careful to evaluate alternative models of decision-making under risk. In general, we find that the managers in our sample are moderately risk averse. Assuming a standard EUT model they exhibit similar risk attitudes as other sample populations. However, we find some differences within our sample. Superiors exhibit a higher level of risk aversion than team members that work for them in their department. Comparing purchasing managers with a random sample of non-purchasing managers from different corporate functions such as controlling, sales, engineering and so on, we cannot conclude that they differ from each other. We show that alternative theories of risky behavior provide complementary information on the risk attitude of industrial managers. While an expected utility theory model only characterizes managers as globally risk averse, we learn from a prospect theory model that the managers in our sample are only risk averse for a certain range of payoffs. For other payoffs, they even exhibit risk-seeking behavior. The reference point that determines which outcomes are to be viewed as losses and which as gains is not that induced by the task frame. We show that subjects had implicit expectations about their earning in the experiment, and used these expectations to evaluate the lotteries presented to them. Remarkably, the managers in our sample did not weigh probabilities and they did not exhibit a hypothetical bias in their decisions.
    Date: 2010–09
  4. By: Kent D. Messer (Department of Food & Resource Economics,University of Delaware); Jordan F. Suter (Department of Economics and Environmental Studies,Oberlin College); Jubo Yan (Graduate Student, Cornell University)
    Abstract: This study investigates the degree to which framing and context influence observed rates of free-riding behavior in a negative externality laboratory experiment. Building on the work of Andreoni (1995a) and Messer et al. (2007) we frame the decision not to contribute to a public fund as generating a negative externality on other group members. The experimental treatments involving 252 subjects vary communication, voting, and the status quo of the initial endowment. Results indicate that allowing groups the opportunity to communicate and vote significantly reduces rates of free-riding, and this effect is especially pronounced when initial endowments are placed in the private as opposed to the public fund.
    Keywords: Negative externality; voluntary contribution mechanism; cheap talk; voting; status quo bias; experimental economics
    JEL: C91 C92 H4
    Date: 2010
  5. By: Blumkin, Tomer (Ben Gurion University); Ruffle, Bradley (Ben Gurion University); Ganun, Yosef (Ben Gurion University)
    Abstract: The public finance literature demonstrates the equivalence between consumption and labor-income (wage) taxes. We introduce an experimental paradigm in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this paradigm to test whether a labor-income tax and an equivalent consumption tax lead to identical labor-leisure allocations. Despite controlling for subjects’ work ability and inherent labor-leisure preferences and disallowing saving, subjects reduce their labor supply significantly more in response to an income tax than to an equivalent consumption tax. We discuss the economic implications of a policy shift to a consumption tax.
    Keywords: experimental economics, tax equivalence, income tax, consumption tax, behavioral economics
    JEL: C91 H22 H31
    Date: 2010–08
  6. By: Tibor Besedes; Cary Deck; Sudipta Sarangi; Mikhael Shor
    Abstract: Using controlled experiments, we examine how individuals make choices when faced with multiple options. Choice tasks are designed to mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects.
    Keywords: experiments, decision making, optimal choice, age effects, heuristics
    JEL: C91 I18
    Date: 2010
  7. By: Grossman, Zachary
    Abstract: How robust are social preferences to variations in the environment in which a decision is made? By varying the elicitation method and default choice in the `moral wiggle-room' game of Dana, Weber, and Kuang (2007), I examine the robustness and nature of the pattern of information avoidance in which many dictators in experiments-- if initially uncertain-- avoid learning whether their choice will help or hurt another person and choose selfishly. When ignorance is not the default choice, participants choose it much less frequently. However, when dictators express their outcome choice using the strategy method, most are willing to overcome the default choice and reveal the payoff state ex post. I conclude that people will employ strategic ignorance to avoid a morally-fraught decision if they can do so passively, but having to actively choose ignorance betrays its usefulness and leads to behavior largely consistent with models of preferences over outcomes. Thus while opportunities to create and exploit moral wiggle-room limit fair-minded behavior, environmental or psychological variables may reinforce the motivation that leads people to choose fair outcomes.
    Keywords: social preferences, strategic ignorance, moral wiggle-room, default effects, status quo bias, self- deception, self-signaling, dictator games
    Date: 2010–08–12
  8. By: Keiko Aoki, Kenju Akai, Kenta Onoshiro
    Abstract: This study investigated lying behavior and the behavior of people who were deceived by using a deception game (Gneezy, 2005) in both anonymity and face-to-face conditions, and in two different monetary payoffs between senders and receivers. Moreover, subjects were used to investigate lying behavior in students as well as in people from a variety of different socioeconomic backgrounds. Wealso explored how liars feel about lying by using new messages sent from the senders to the receivers after the receivers selected the option on which the earnings in the experiment depended. The following results are obtained: i) lying behavior in the senders significantly differed between students and non-students at a payoff in the anonymity treatment, but did not significantly differ between students in the anonymity and face-to-face treatments; ii) lying behavior was not influenced by gender; iii) liars’ feelings about lying were influenced more in the face-to-face treatment than in the anonymity treatment; and iv) the receivers who were deceived were more likely to believe a sender’s message tobe true in the anonymity treatment. This study implies that having face-to-face contact prompts liars to confess their behavior because they mayfeel remorse orguilt. In addition, people who are deceived overestimate the chances of not being deceived by a stranger.
    Date: 2010–08
  9. By: Gamage, David; Hayashi, Andrew; Nakamura, Brent K
    Abstract: The choice between a set of alternatives often depends on how those alternatives are described, as well as their actual economic costs and benefits. We report results from an experiment designed to evaluate the impact of different descriptions of the after-tax wage on both (1) subjects’ willingness to perform a work task rather than an alternative leisure option, and (2) the amount of work performed by those subjects selecting the work task. Utilizing an experimental design that facilitates both within and between-subject comparisons, we find that that subjects’ willingness to work varies with the framing of the after-tax wage and that, in particular, subjects are much less willing to work when the returns to work are framed as a low wage plus a bonus than when the returns are described as a high wage minus a tax. Along the intensive margin we find suggestive evidence that subjects stop working just before their wage becomes subject to a significantly higher marginal tax rate, but we do not observe similar clustering when gross wages become subject to an equivalent wage decrease that is not described as a tax increase.
    Keywords: Experiment, Framing, Labor Supply, Taxation
    Date: 2010–06–18
  10. By: Maribeth Coller; Glenn W. Harrison; E. Elisabet Rutström
    Abstract: We show that observed choices in discounting experiments are consistent with roughly one-half of the subjects using exponential discounting and one-half using quasi-hyperbolic discounting. We characterize the latent data generating process using a mixture model which allows different subjects to behave consistently with each model. Our results have substantive implications for the assumptions made about discounting behavior, and also have significant methodological implications for the manner in which we evaluate alternative models when there may be complementary data generating processes.
    JEL: D91 C91
    Date: 2010–09
  11. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); He, Haoran (School of Economics and Business Administration, Beijing Normal University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We experimentally investigate, using a dictator game, if the effects of windfall and earned endowments on behavior differ between men and women genders. In line with previous studies, we find that windfall endowments significantly increase the amount donated. The impact of moving from earned to windfall endowment on behavior is larger for females, yet the gender difference is statistically insignificant. Thus, we do not find evidence that the change in how the endowment is obtained in a laboratory experiment affects male and female behavior differently.<p>
    Keywords: dictator game; experiment; earned endowment; gender; windfall gain
    JEL: C91 C93 D64
    Date: 2010–09–02
  12. By: Felix Schlaepfer (Socioeconomic Institute, University of Zurich); Baruch Fischhoff (Department of Social and Decision Sciences, Department of Engineering and Public Policy, Carnegie Mellon University)
    Abstract: Traditionally, economists make a sharp distinction between stated and revealed preferences, viewing the latter as more fully meeting the assumptions of economic analysis. Here, we consider one form of empirical evidence regarding this belief: the consistency of choices in stated and revealed preference tasks. We show that both kinds of task can produce consistent choices, suggesting that both can measure underlying preferences, if necessary conditions are met. We propose that a necessary condition is that task be either familiar to those facing it or offer contextual cues that substitute for familiarity, such as prices in competitive markets or recommendations from trusted, knowledgeable sources. We show that how well decision makers achieve such understanding is often confounded with the method that researchers use. Considering task familiarity not only clarifies some of the conflicting evidence regarding revealed and stated preference methods, but raises potentially productive questions regarding the roles of social institutions in shaping preferences.
    Keywords: Consistency, contingent valuation, framing, public goods, revealed preferences, stated preferences, validity
    JEL: D01 Q51
    Date: 2010–08
  13. By: Frijters, Paul (University of Queensland); Johnston, David W. (Queensland University of Technology); Shah, Manisha (University of California, Irvine); Shields, Michael A. (University of Melbourne)
    Abstract: Do parents invest more or less in their high ability children? We provide new evidence on this question by comparing observed ability differences and observed investment differences between siblings in the NLSY. To overcome endogeneity issues we use sibling differences in handedness as an instrument for cognitive ability differences, since handedness is a strong determinant of cognitive ability. We find that parents invest more in high ability children, with a one standard deviation increase in child cognitive ability increasing parental investments by approximately one-third of a standard deviation. Consequently, differences in child cognitive ability are enhanced by differential parental investments. This finding has important implications for education policy.
    Keywords: children, cognitive ability, parental investment, handedness
    JEL: D13 J1
    Date: 2010–08

This nep-cbe issue is ©2010 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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