nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒10‒23
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Are smarter people really less risk averse? By Sergio Sousa
  3. Is There Selection Bias in Laboratory Experiments? By Blair L. Cleave; Nikos Nikiforakis; Robert Slonim
  4. The Framing of Games and the Psychology of Play By Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
  5. Feature-based Choice and Similarity in Normal-form Games: An Experimental Study By Giovanna Devetag; Sibilla Di Guida
  6. Gains and losses in intertemporal preferences: a behavioural study By Valeria Faralla; Francesca Benuzzi; Paolo Nichelli; Nicola Dimitri
  7. Consumer Ethics: The Role of Self-Regulatory Focus By T. DE BOCK; P. VAN KENHOVE
  8. Weight of argument and economic decisions By Alessandro Vercelli
  9. Fungibility, Labels and Consumption By Johannes Abeler; Felix Marklein
  10. Favor Trading in Grassroots Fundraising: The Girl Scout Cookie Phenomenon By Sarah Jacobson; Ragan Petrie
  11. Exploring the Impact of Fear Appeals on the Prevention of Shoplifting. By T. DE BOCK; I. VERMEIR; M. PANDELAERE; P. VAN KENHOVE

  1. By: Sergio Sousa (University of Nottingham)
    Abstract: Using hypothetical lottery choices to measure risk preferences, Frederick (2005) finds that higher cognitive ability is associated with less risk aversion. This paper documents, however, that when using an incentive compatible measure of risk preference, attitudes towards risk are not associated to cognitive ability as measured by Frederick’s (2005) three-item cognitive reflection test. This is a new finding that adds weight to the claim that lack of proper financial incentives can sometimes be a source of bias. In addition, we show that this lack of association between risk preferences and cognitive ability is robust to using a broader measure of cognitive ability that takes into account both verbal and non-verbal reasoning skills. Our results suggest the possibility that whether cognitive ability relates to attitudes towards risk is sensitive to instruments used to measure both of them.
    Keywords: cognitive ability, risk preferences, financial incentives, cognitive reflection test
    JEL: C91 D01 D80 D00
    Date: 2010–10
  2. By: Daniele Nosenzo (University of Nottingham); Martin Sefton (University of Nottingham)
    Abstract: In this paper we examine voluntary contributions to a public good, embedding Varian (1994)’s voluntary contribution game in extended games that allow players to choose the timing of their contributions. We show that predicted outcomes are sensitive to the structure of the extended game, and also to the extent to which players care about payoff inequalities. We then report a laboratory experiment based on these extended games. We find that behavior is similar in the two extended games: subjects avoid the detrimental move order of Varian’s model, where a person with a high value of the public good commits to a low contribution, and instead players tend to delay contributions. These results suggest that commitment opportunities may be less damaging to public good provision than previously thought.
    Keywords: Public Goods, Voluntary Contributions, Sequential Contributions, Endogenous Timing, Action Commitment, Observable Delay, Experiment
    JEL: H41 C72 C92
    Date: 2010–08
  3. By: Blair L. Cleave; Nikos Nikiforakis; Robert Slonim
    Abstract: Do the social and risk preferences of participants in laboratory experiments represent the preferences of the population from which they are recruited? To answer this question, we conducted a classroom experiment with a population of 1,173 students using a trust game and a lottery choice task to measure individual preferences. Separately, all 1,173 students were invited to participate in a laboratory experiment. To determine whether selection bias exists, we compare the preferences of the individuals who eventually participated in a laboratory experiment to those in the population. We find that the social and risk preferences of the students participating in the laboratory experiment are not significantly different from the preferences of the population from which they were recruited. We further show that participation decisions across most subgroups (e.g., men vs. women) do not differ significantly. We therefore fail to find selection bias based on social and risk preferences.
    Keywords: selection bias; laboratory experiments; external validity; social preferences; risk preferences
    JEL: C90
    Date: 2010
  4. By: Martin Dufwenberg (University of Arizona); Simon Gaechter (University of Nottingham); Heike Hennig-Schmidt (University of Bonn)
    Abstract: Psychological game theory can provide rational-choice-based framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically and explore empirical relevance experimentally. In a 2?2 design of one-shot public good games we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological gametheoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: framing; psychological game theory; guilt aversion; reciprocity; public good games; voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2010–09
  5. By: Giovanna Devetag; Sibilla Di Guida
    Abstract: In this paper we test the effect of descriptive "features" on initial strategic behavior in normal form games, where "descriptive" are all those features that can be modified without altering the (Nash) equilibrium structure of a game. We observe that our experimental subjects behave according to some simple heuristics based on descriptive features, and that these heuristics are stable even across strategically different games. This suggests that a categorization of games based on features may be more accurate in predicting agents' initial behavior than the standard categorization based on Nash equilibria, as shown by the analysis of individual behavior. Anaysis of choice patterns and individual response times suggests that non-equilibrium choices may be due to the use of incorrect and simplified mental representations of the game structure, rather than to beliefs in other players' irrationality. Of the four stationary concepts analyzed (Nash equilibrium, QRE, action sampling, and payoff sampling), QRE results the best in fitting the observed data.
    Keywords: normal form games, one-shot games, response times, similarity, categorization, focal points
    JEL: C72 C91 C92
    Date: 2010–10–09
  6. By: Valeria Faralla; Francesca Benuzzi; Paolo Nichelli; Nicola Dimitri
    Abstract: According to recent evidence (Frederick, Loewenstein, & O’Donoghue, 2002), the traditional Discounted Utility model (Samuelson, 1937) has a limited ability to describe realistic models of behaviour and indeed there are several documented empirical regularities that seem to contradict this statement both in certainty and uncertainty conditions. This study focused on one of the best documented anomalies: sign effect or gain-loss asymmetry (Frederick et al., 2002; Loewenstein & Prelec, 1992; Read, 2004). Specifically, the study investigated the intertemporal preference for symmetric monetary rewards and punishments in certain conditions, and the no wealth effects hypothesis (Dimitri, 2007) by asking subjects to choose between two positive or two negative euro amounts available at different points in time. The experimental design applied here followed the same behavioural pattern of the neuroeconomics’ study on monetary rewards realized by McClure et al. (2004). The results confirmed a gain-loss asymmetry at least for medium and large euro amount and suggested new directions of research.
    Keywords: intertemporal preferences; gains; losses; certainty; sign effect .
    JEL: D90 D91
    Date: 2010–06
    Abstract: The present study investigates the influence of self-regulatory focus on consumer ethical beliefs (i.e., consumers’ judgment of various unethical consumer practices). The self-regulatory focus framework is highly influential and applies to an impressively wide spectrum of topics across a diverse array of domains. However, previous research has not yet examined the link between this personality construct and the consumer ethics field. Findings indicate that promotion affects one’s attitude toward questionable consumer practices with those having a stronger (versus weaker) promotion focus being more likely to believe these consumer misbehaviors to be acceptable. Further, this study shows that prevention influences one’s perception of morally dubious consumer practices with those having a stronger (versus weaker) prevention focus being more inclined to believe these questionable consumer activities to be unacceptable.
    Keywords: demography consumer ethical beliefs, consumer ethics, consumer ethics scale, personal characteristics, self-regulatory focus
    Date: 2010–09
  8. By: Alessandro Vercelli
    Abstract: This paper aims to clarify the controversial concept of “weight of argument” as introduced by Keynes in the Treatise of Probabilities and explicitly resumed in crucial passages of the General Theory (GT), in order to assess its influence on the theoretical framework and methodological approach of the GT. To this end the paper carries on a preliminary examination whether, and for what reason, we should expect that the weight of argument has a significant impact on economic decisions. A few recent development in epistemology and decision theory under uncertainty have reopened the issue, providing at the same time new analytical instruments capable to translate Keynes’s intuitions in rigorous and operational instruments. We suggest an interpretation of the concept of weight of argument that we believe consistent with the spirit of Keynes’s approach and that vindicates its substantial correctness and analytical potential in the light of the recent advances in decision theory under hard uncertainty. This interpretation confirms the practical relevance of the concept getting over the doubts expressed by Keynes himself, as well as its crucial role as a foundation of the theoretical and policy message of Keynes. It is thus possible and opportune to resume the research programme, suggested by Keynes with some timidity, meant to analyze the role of the weight of argument in economic decisions.
    Keywords: weight of argument, decision theory under hard uncertainty
    JEL: B2 B4
    Date: 2010–09
  9. By: Johannes Abeler (University of Nottingham); Felix Marklein (University of Bonn)
    Abstract: Fungibility of money is a central assumption in the theory of consumer choice: any unit of money is substitutable for another. This implies that the composition of income or wealth is irrelevant for consumption. We find in a field experiment that even in a simple, incentivized setup many subjects do not treat money as fungible. When a label is attached to a part of their budget, subjects change consumption according to the label. A controlled laboratory experiment confirms this result and further shows that subjects with lower cognitive abilities are more likely to violate fungibility. The findings lend support to behavioral models of narrow bracketing and mental accounting. One implication of our result is that in-kind benefits distort consumption more strongly than usually assumed.
    Keywords: Fungibility, In-kind Benefits, Mental Accounting, Narrow Bracketing, Field Experiment, Laboratory Experiment
    JEL: C91 C93 D01 H31 I38
    Date: 2010–07
  10. By: Sarah Jacobson (Williams College); Ragan Petrie (George Mason University)
    Abstract: Grassroots fundraising leverages favor trading within social networks to support the provision of a public good. We use a laboratory experiment to study the elements and dynamics of this type of fundraising institution. Peer-to-peer reciprocity is an important component of grassroots fundraising, and the ability to practice this targeted reciprocity in our experiment increases contributions to the public good by 14%. Subjects discriminate by rewarding group members who have been generous and withholding rewards from ungenerous group members. At least some of this reciprocal behavior is rooted in other-regarding preferences. When someone is rendered unable to benefit from favor trading, he gives much less to the public good than he does in other settings. People thus excluded from the "circle of reciprocity" thus provide a clean and strict test of indirect reciprocity, since they cannot benefit from a norm of cooperation. We do not observe indirect reciprocity.
    Keywords: public goods, reciprocity, experiment, peer-to-peer fundraising
    JEL: C91 H41 D01
    Date: 2010–10
    Abstract: The present study investigates the effectiveness of fear appeals in preventing shoplifting among adolescents. We study the effects of type of punishment (social disapproval versus fines), probability of getting caught when shoplifting and severity of the punishment. Results show that social punishment messages should stress severe levels of social disapproval when the chance of getting caught is low. When social disapproval messages imply a high probability of apprehension, the severity of social rejection makes no difference for the shoplifting intentions. Finally, messages focusing on fines should depict large instead of small fines, irrespective of the communicated probability of getting caught
    Keywords: demography prediction, demographic targeting, web advertising, Random Forests, web user profiling, clickstream analysis
    Date: 2010–09

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