nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒09‒18
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Self-control and debt: evidence from data on credit counselling By Nur Ata Nurcan; Alena Bicakova
  2. Growing pains with information overload. By Rutkowski, A.F.; Saunders, C.
  3. Fatalism and Savings By Stephen, Wu; Joel, Shapiro
  4. When Less is More: Rationing and Rent Dissipation in Stochastic Contests By Marco Faravelli; Luca Stanca
  5. The emergence of reciprocally beneficial cooperation By Sergio Beraldo; Robert Sugden
  6. Influential Listeners: An Experiment on Persuasion Bias in Social Networks By Luca Corazzini; Filippo Pavesi; Beatrice Petrovich; Luca Stanca
  7. Thinking in Chinese vs. Thinking in English: Social Preference and Risk Attitudes of Multicultural Minds By Li King King
  8. A class of evolutionary models for participation games with negative feedback By Pietro Dindo; Jan Tuinstra
  9. Partnership, Reciprocity and Team Design By Giuseppe De Marco; Giovanni Immordino
  10. Cultural Formation of Preferences and Assimilation of Cultural Groups By Michael M. Pichler
  11. Promoting Rule Compliance in Daily-Life: Evidence from a Randomized Field Experiment in the Public Libraries of Barcelona By Jose Apesteguia; Patricia Funk; Nagore Iriberri
  12. Nature or Nurture: What Determines Investor Behavior? By Barnea, Amir; Cronqvist, Henrik; Siegel, Stephan
  13. Why Do Low-Educated Workers Invest Less in Further Training? By Fouarge, Didier; Schils, Trudie; de Grip, Andries

  1. By: Nur Ata Nurcan; Alena Bicakova
    Abstract: Counselling agencies assist borrowers in financial difficulties by administering repayment plans, the so-called debt management plans (DMPs). In this paper, we use unique administrative data from a major credit counselling agency in the UK to analyze the determinants of debt repayment performance of approximately 60,000 borrowers who are enrolled on a DMP. Employing survival analysis, we estimate that borrowers who smoke and who reported poor financial management as the reason for their repayment difficulties at the enrollment stage are significantly more likely to fail on a DMP even when controlling for a rich set of covariates including monthly DMP payments, income, expenditures, self-reported experiences of negative shocks prior to DMP (illness, job loss, divorce, pregnancy), gender, age, marital status, having a mortgage, and whether the consumer is self or full time employed. In particular, smoking increases the probability of failing on a DMP by 31 percent and admitting bad financial management increases by 12 percent. Our findings lend considerable support to the view that self-control considerations play a role in households’ indebtedness and consequent repayment difficulties.
    Keywords: Self-control and debt: evidence from data on credit counselling
    JEL: G2 G21 D14 D91
    Date: 2010
  2. By: Rutkowski, A.F. (Tilburg University); Saunders, C.
    Date: 2010
  3. By: Stephen, Wu; Joel, Shapiro
    Abstract: We examine the impact of fatalism, the belief that one has little or no control over future events, on the decision of whether or not to save. We develop a model that predicts that fatalism decreases savings for moderately risk averse individuals, increases savings for highly risk averse individuals, and otherwise has no impact. Furthermore, fatalism decreases effort in learning about savings and investment options. We use data from National Longitudinal Survey of Youth (NLSY) and find general support for the theoretical predictions of the model. The results are robust to the inclusion of a number of additional control variables.
    Keywords: fatalism; savings; risk aversion
    JEL: D80 H00
    Date: 2010–07
  4. By: Marco Faravelli; Luca Stanca
    Abstract: This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest with proportional probabilities, where all bidders value the prize equally. We show that by ¯xing the number of tickets, thus setting a limit to total expenditures, it is possible to maximize the auctioneer's revenue and obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is signi¯cantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery.
    Keywords: Stochastic Contests; Rent Seeking; Laboratory Experiments
    JEL: C91 D44
    Date: 2010–09
  5. By: Sergio Beraldo; Robert Sugden
    Abstract: This paper offers a new and robust model of the emergence and persistence of cooperation. In the model, interactions are anonymous, the population is well-mixed, and the evolutionary process selects strategies according to material payoffs. The cooperation problem is modelled as a game similar to Prisoner’s Dilemma, but there is an outside option of nonparticipation and the payoff to mutual cooperation is stochastic; with positive probability, this payoff exceeds that from cheating against a cooperator. Under mild conditions, mutually beneficial cooperation occurs in equilibrium. This is possible because the non-participation option holds down the equilibrium frequency of cheating.
    Keywords: Cooperation; voluntary participation; random payoffs.
    JEL: C73
    Date: 2010–07
  6. By: Luca Corazzini; Filippo Pavesi; Beatrice Petrovich; Luca Stanca
    Abstract: This paper presents an experimental investigation of persuasion bias, a form of bounded rationality whereby agents communicating through a social network are unable to account for possible repetitions in the information they receive. The results indicate that network structure plays a significant role in determining social influence. How- ever, the most influential agents are not those with more outgoing links, as predicted by the persuasion bias hypothesis, but those with more incoming links. We show that a boundedly rational updating rule that takes into account not only agents' outdegree, but also their inde- gree, provides a better explanation of the experimental data. In this framework, consensus beliefs tend to be swayed towards the opinions of influential listeners. We then present an effort-weighted updating model as a more general characterization of information aggregation in social networks.
    Date: 2010–08
  7. By: Li King King (Strategic Interaction Group, Max Planck Institute of Economics, Jena)
    Abstract: This paper investigates whether language priming activates different cultural identities and norms associated with the language communicated; bilingual subjects are given Chinese instructions in the Chinese treatment and English instructions in the English treatment. The main findings are: (1) in social preference games involving strategic interactions, e.g., the trust game, subjects in the Chinese treatment are more trusting and trustworthy than in the English treatment. However, (2) in individual choice games about social preference, such as the dictator game, while there is no treatment difference, subjects exhibit in-group favoritism only in the Chinese treatment. Further, (3) subjects in the Chinese treatment expect others to be more risk seeking, and prefer to pick Chinese lucky numbers in a lottery game. These findings support the hypothesis that languages are associated with cultural frames and that communicating in a particular language increases the cognitive accessibility of norms associated with that language.
    Keywords: Identity, cross-cultural differences, language, bilingual, biculture, social preference, risk attitudes
    JEL: C91 D81 Z10
    Date: 2010–09–13
  8. By: Pietro Dindo; Jan Tuinstra
    Abstract: We introduce a framework to analyze the interaction of boundedly rational heterogeneous agents repeatedly playing a participation game with negative feedback. We assume that agents use different behavioral rules prescribing how to play the game conditionally on the outcome of previous rounds. We update the fraction of the population using each rule by means of a general class of evolutionary dynamics based on imitation, which contains both replicator and logit dynamics. Our model is analyzed by a combination of formal analysis and numerical simulations and is able to replicate results from the experimental and computational literature on these types of games. In particular, irrespective of the specific evolutionary dynamics and of the exact behavioral rules used, the dynamics of the aggregate participation rate is consistent with the symmetric mixed strategy Nash equilibrium, whereas individual behavior clearly departs from it. Moreover, as the number of players or speed of adjustment increase the evolutionary dynamics typically becomes unstable and leads to endogenous fluctuations around the steady state. These fluctuations are robust with respect to behavioral rules that try to exploit them.
    Keywords: Participation games, Heterogeneous behavioral rules, Revision protocol, Replicator Dynamics Logit Dynamics, Nonlinear dynamics
    JEL: C72 C73
    Date: 2010–09–02
  9. By: Giuseppe De Marco (Università di Napoli Parthenope); Giovanni Immordino (Università di Salerno and CSEF)
    Abstract: This paper studies the impact of intention-based reciprocity preferences on the free-riding problem arising in partnerships. Our results suggest a tendency of efficient partnerships to consist of members whose sensitivity to reciprocity is -- individually or jointly -- sufficiently high. Sufficient conditions for the implementation of the efficient strategy profile require a reciprocity based sharing rule such that each partner gets a fraction of the output that is a percentage of his own reciprocity with respect to the overall reciprocity in the team. Finally, we introduce the concept of psychological strong Nash equilibrium and show that it allows for the unique and collusion-proof implementation of the efficient strategy profile.
    Keywords: Reciprocity, partnership, psychological games
    JEL: C72 J41
    Date: 2010–07–31
  10. By: Michael M. Pichler (Institute of Mathematical Economics, Bielefeld University)
    Abstract: Based on the cultural formation of continuous preferences framework of Pichler (IMW Working Paper No. 431, 2010), this paper analyzes the evolution of preferences and behavior in a two cultural groups setting. We show that the qualitative dynamic properties depend crucially on what parents perceive as the optimal preferences for their children to adopt. Under inter– generationally fixed optimal preferences, the preferences of the cultural groups will always stay distinct. If the optimal preferences coincide with those derived from the representative group behavior, then a multitude of convergence path types can realize. These contain both an inter–generational assimilation process toward the same preference point, as well as inter–generational dissimilation.
    Keywords: Continuous Preferences, Assimilation, Cultural Groups, Endogenous Preferences, Preference Evolution, Socialization
    JEL: C72 J13 Z13
    Date: 2010–08
  11. By: Jose Apesteguia; Patricia Funk; Nagore Iriberri
    Abstract: We study how to promote compliance with rules in everyday situations. Having access to unique data on the universe of users of all public libraries in Barcelona, we test the effect of sending email messages with different contents. We find that users return their items earlier if asked to do so in a simple email. Emails reminding users of the penalties associated with late returns are more effective than emails with just a generic reminder. We find differential treatment effects by user types. The characteristics we analyze are previous compliance, gender, age, and nationality.
    Keywords: Rule Compliance, Pro-Social Behavior, Field Experiment, Public Libraries.
    JEL: C93 D01 D63 K42
    Date: 2010–08
  12. By: Barnea, Amir (Claremont McKenna College); Cronqvist, Henrik (Claremont McKenna College); Siegel, Stephan (University of Washington)
    Abstract: Using data on identical and fraternal twins' complete financial portfolios, we decompose the crosssectional variation in investor behavior. We find that a genetic factor explains about one third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experiences. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation - the relative amount invested in equities and the portfolio volatility - to genetic variation in risk preferences.
    Keywords: Portfolio choice; Investor heterogeneity; Behavioral genetics
    JEL: D10 G11
    Date: 2010–09–15
  13. By: Fouarge, Didier (ROA, Maastricht University); Schils, Trudie (Maastricht University); de Grip, Andries (ROA, Maastricht University)
    Abstract: Several studies document the fact that low-educated workers participate less often in further training than high-educated workers. The economic literature suggests that there is no significant difference in employer willingness to train low-educated workers, which leaves the question of why the low educated invest less in training unanswered. This paper investigates two possible explanations: Low-educated workers invest less in training because of 1) the lower economic returns to these investments or 2) their lower willingness to participate in training. Controlling for unobserved heterogeneity that can affect the probability of enrolling into training, we find that the economic returns to training for low-educated workers are positive and not significantly different from those for high-educated workers. However, low-educated workers are significantly less willing to participate in training. This lesser willingness to participate in training is driven by economic preferences (future orientation, preference for leisure), as well as personality traits (locus of control, exam anxiety, and openness to experience).
    Keywords: returns to training, preferences, non-cognitive skills
    JEL: J24 J31 C21
    Date: 2010–09

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