nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒10‒16
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Discounts and Consumer Search Behavior: The Role of Framing By Ralph-C Bayer; Changxia Ke
  2. Awards as signals By Bruno S. Frey; Susanne Neckermann
  3. Field and Online Experiments on Procrastination and Willpower By Nicholas Burger; Gary Charness
  4. Time discounting (d) and pain anticipation: Experimental evidence By Pablo Brañas-Garza; María Paz Espinosa; María Repolles
  5. Self-Esteem, Shame and Personal Motivation By Dessi, Roberta; Zhao, Xiaojian
  6. How Does Voice Matter? Evidence from the Ultimatum Game By Qiyan Ong; Steven M. Sheffrin
  7. The Benefits of Believing in Chance or Fate: External Locus of Control as a Protective Factor for Coping with the Death of a Spouse By Jule Specht; Boris Egloff; Stefan C. Schmukle
  8. It's all about tax rates: An empirical study of tax perception By Blaufus, Kay; Bob, Jonathan; Hundsdoerfer, Jochen; Kiesewetter, Dirk; Weimann, Joachim
  9. Strategic Interaction and Conventions By María Paz Espinosa; Jaromír Kovárík; Giovanni Ponti
  10. Do Religious Beliefs Explain Preferences for Income Redistribution? Experimental Evidence By Ilja Neustadt
  11. Confusion and Learning in the Public Goods Game By Ralph-C Bayer; Elke Renner; Rupert Sausgruber
  12. Gender Differences in Economic Experiments By Selim Jürgen Ergun; Teresa García-Muñoz; M.Fernanda Rivas
  13. Bounded Rationality By Coralio Ballester; Penélope Hernández

  1. By: Ralph-C Bayer (School of Economics, University of Adelaide); Changxia Ke (Max Planck Institute)
    Abstract: We implement a simple two-shop search model in the laboratory with the aim to investigate if consumers behave differently in equivalent situations, where prices are displayed either as net prices or as gross prices with discounts. We compare treatments, where we either depict the known price of the first shop or the initially uncertain price of the second shop as a gross price with a discount, with treatments without discounts. We ind that subjects search less in both treatments with discounts. Hence, we conclude that retailers can use this framing effect in order to reduce the competitiveness in their market, since decreased search intensities dampen competitive pressure.
    Keywords: Consumer Search, Price Framing, Price discounts, Competition
    JEL: D82 D83 C91 L13
    Date: 2010–10
  2. By: Bruno S. Frey; Susanne Neckermann
    Abstract: Awards are widespread in all countries and are prevalent both in the public sphere and in the private sector. This paper argues, and empirically supports, that awards serve public functions and economists should take them seriously. Using a unique cross-country data set, we suggest that awards serve as signals. Awards are more prevalent the more difficult the position and status of an individual is to observe due to an anonymous and globalized setting.
    Keywords: Awards, signals, status, anonymity, globalization
    JEL: A13 D63 J33
    Date: 2010–10
  3. By: Nicholas Burger (Rand Corporation); Gary Charness (University of California at Santa Barbara, Econonmics Department)
    Abstract: Self-control problems have recently received considerable attention from economic theorists. We conducted two studies to test the benefits of externally imposed deadlines and how willpower depletion affects behavior, providing some of the first data in these areas. Each study involved a behavioral intervention designed to affect performance. We find that for a lengthy task, regular deadlines neither reduce procrastination nor increase completion rates. Second, a willpower-depleting task reduces initial effort but increases overall task-completion rates. Our results help to inform ongoing efforts to understand and model procrastination, willpower and commitment mechanisms.
    Keywords: Experiment, Behavioral Interventions, Procrastination, Willpower
    JEL: A13 B49 C91 C93 D00
    Date: 2010–05–18
  4. By: Pablo Brañas-Garza (GLOBE and Universidad de Granada); María Paz Espinosa (Universidad del País Vasco); María Repolles (GLOBE and Universidad de Granada and Virgen de las Nieves Hospital, Granada)
    Abstract: This paper deals with pain anticipation experienced before medical procedures. Our experimental results show that individuals with lower discount factors are more prone to suffer pain in advance. We provide a framework to rationalize the connection between pain anticipation and impatience. In this set up, more impatient subjects, who only value very near events, take into account mainly the negative effects of medical procedures (just the costs) whereas more patient individuals have a net positive valuation of medical events (given that they value both the cost incurred now and all the benefits accrued in the future).
    Date: 2010–10–01
  5. By: Dessi, Roberta (Toulouse School of Economics (GREMAQ and IDEI) and CEPR); Zhao, Xiaojian (Hong Kong University)
    Abstract: The available evidence from numerous studies in psychology suggests that overconfidence is a much more important phenomenon in North America than in Japan. Relatedly, North Americans appear to view high self-esteem much more positively than Japanese. The pattern is reversed when it comes to shame, a social emotion which appears to play a much more important role among Japanese than North Americans. We develop an economic model that endogenizes these observed differences, and relates them to differences in economic opportunities. A crucial tradeoff arises in the model between the benefits of encouraging self-improvement and the benefits of promoting initiative and new investments. In this context, self-esteem maintenance (self-enhancement) and high sensitivity to shame emerge as substitute mechanisms to induce efficient effort and investment decisions, generating a "North American" equilibrium with overconfidence and low sensitivity to shame, and a "Japanese" equilibrium with high sensitivity to shame and no overconfidence. The analysis identifies the key equilibrium costs as well as the benefits of reliance on each mechanism, and the implications for welfare.
    JEL: D82 D83 Z13
    Date: 2010–09–15
  6. By: Qiyan Ong; Steven M. Sheffrin (Department of Economics, Tulane University)
    Abstract: Prior research in economics and psychology has shown that process can matter in determining outcomes in many social situations. In particular, the opportunity to express ones opinion-voice-has been found to be highly influential. However, little is known about the channels through which voice may operate. In this paper, we develop a simple economic model of voice to explore these channels. We show that individuals value voice for: 1) its effect on outcomes, 2) its inherent value, or 3) its role in signalling one's social standing. Through the introduction of a hypothetical round in the standard ultimatum game, we were able to test the channels of voice directly by observing recipients' responses to offers which are lower than what they asked for. Our experimental results suggest that voice works primarily through its inherent value which appears to exceed its contribution to the perception of procedural fairness. Further, unlike voice which softens the impact of an unfair outcome, the possibility for voice may have dichotomous effects.
    Keywords: voice, ultimatum game
    JEL: D30 C91
    Date: 2010–09
  7. By: Jule Specht; Boris Egloff; Stefan C. Schmukle
    Abstract: The death of a spouse is an extremely stressful life event that consequently causes a large drop in life satisfaction. Reactivity to the loss, however, varies markedly, a phenomenon that is currently not well understood. Because lack of controllability essentially contributes to the stressful nature of this incident, we analyzed whether individual differences in the belief in external control influence the coping process. To examine this issue, widowed individuals (N = 414) from a large-scaled panel study were followed for the 4 years before and after the loss by using a latent growth model. Results showed that belief in external control led to a considerably smaller decline in life satisfaction and higher scores in the year of the loss. Thus, although usually regarded as a risk factor, belief in external control acts as a protective factor for coping with the death of a spouse.
    Keywords: Locus of control, life satisfaction, latent growth model, subjective well-being, subjective indicators, family and networks
    Date: 2010
  8. By: Blaufus, Kay; Bob, Jonathan; Hundsdoerfer, Jochen; Kiesewetter, Dirk; Weimann, Joachim
    Abstract: In this paper we apply conjoint analysis to study the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden, but rather use simple decision heuristics. This leads to the importance of the tax rate being significantly overestimated and the importance of the tax base being significantly underestimated. Furthermore we determine framing effects and show that under specific assumptions, a rise in the actual tax burden can lead to a electoral success. --
    Keywords: behavioral public finance,decision heuristics,framing effects,perceived tax burden,tax-cut-cum-base-broadening,tax complexity,tax illusion
    JEL: G11 H20 H30 K34 M41
    Date: 2010
  9. 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 to review 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
    Date: 2010–10–01
  10. By: Ilja Neustadt (Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)
    Abstract: Due to the mixed empirical evidence bearing on the economic determinants, beliefs have been at the center of attention of research into preferences for income redistribution. We elicit preferences for income redistribution through a Discrete Choice Experiment performed in 2008 in Switzerland and relate them to several behavioral determinants, in particular to religious beliefs. Estimated marginal willingness to pay (WTP) is positive among those who do not belong to a religious denomination, and negative otherwise. However, the marginal WTP is shown to increase with a higher degree of religiosity. Moreover, those who state that luck or connections play a crucial role in determining economic success exhibit significantly higher WTP values than those who deem e?ort to be decisive.
    Keywords: Income redistribution, beliefs, religiosity, welfare state, preferences, willingness to pay, discrete choice experiments
    JEL: C35 C93 D63 H29
    Date: 2010–09
  11. By: Ralph-C Bayer (School of Economics, University of Adelaide); Elke Renner (University of Nottingham); Rupert Sausgruber (University of Copenhagen)
    Abstract: We test if confusion and learning could potentially explain all the decay of contributions in the repeated public goods games by implementing a limited information environment to mimic the state of confusion. A comparison shows that the rate of decline is more than twice as high in a standard public goods game. Furthermore, we find that simple learning cannot generate the contribution dynamics, which are commonly attributed to the existence of conditional cooperators. We conclude that cooperative behavior observed in public goods games is not a pure artefact of confusion and learning.
    Keywords: public goods experiments, learning, limited information, confusion, conditional cooperation
    JEL: C90 D83 H41
    Date: 2010–10
  12. By: Selim Jürgen Ergun (Middle East Technical University - Northern Cyprus Campus. Economics Program and GLOBE); Teresa García-Muñoz (Departamento de Métodos Cuantitativos para la Economía y la Empresa - Universidad de Granada); M.Fernanda Rivas (Middle East Technical University - Northern Cyprus Campus. Economics Program and GLOBE)
    Abstract: This paper reviews the experimental economics literature on gender differences concerning four subjects: risk aversion, trust, deception and leadership. The vast majority of the articles we have revised document gender differences in behavior; differences which could be explained by sex-role stereotypes and/or hormonal differences
    Date: 2010–10–01
  13. By: Coralio Ballester (Universidad de Alicante); Penélope Hernández (Universidad de Valencia.)
    Abstract: The observation of the actual behavior by economic decision makers in the lab and in the field justifies that bounded rationality has been a generally accepted assumption in many socio-economic models. The goal of this paper is to illustrate the difficulties involved in providing a correct definition of what a rational (or irrational) agent is. In this paper we describe two frameworks that employ different approaches for analyzing bounded rationality. The first is a spatial segregation set-up that encompasses two optimization methodologies: backward induction and forward induction. The main result is that, even under the same state of knowledge, rational and non-rational agents may match their actions. The second framework elaborates on the relationship between irrationality and informational restrictions. We use the beauty contest (Nagel, 1995) as a device to explain this relationship.
    Date: 2010–10–01

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