nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒10‒30
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Living in the garden of Eden: Mineral resources foster individualism By Mathieu Couttenier; Marc Sangnier
  2. The Minority of Three-Game: An Experimental and Theoretical Analysis By Thorsten Chmura; Werner Güth; Thomas Pitz; Anthony Ziegelmeyer
  3. Perfect and Imperfect Real-Time Monitoring in a Minimum-Effort Game By Cary Deck; Nikos Nikiforakis
  4. The Role of Impulses in Shaping Decisions By Judith Avrahami; Yaakov Kareev
  5. Other-regarding behaviour: Testing guilt- and reciprocity-based models By Tobias Regner; Nicole S. Harth
  6. Biaised Information and Effort By Julie Rosaz
  7. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches To Agency and Labor Markets" By James B. Rebitzer; Lowell J. Taylor
  8. Personality and the Consistency of Risk Taking Behavior: Experimental Evidence By Cary Deck; Jungmin Lee; Javier Reyes
  9. Do people invest in local public goods with long-term benefits: Experimental evidence from a shanty town in Peru By De Hoop, Thomas; Van Kempen, Luuk; Fort, Ricardo
  10. A Simple Impossibility Result in Behavioral Contract Theory By Annamaria Menichini; Giovanni Immordino; Maria Grazia Romano
  11. Attention, Memory, and Evaluation of Schema Incongruent Brand Messages. An Empirical Study By Georgios Halkias; Flora Kokkinaki

  1. By: Mathieu Couttenier; Marc Sangnier
    Abstract: Using mineral resources discoveries in the United States since 1800, we argue that mineral mining fosters individualism. Measuring individualism and the demand for redistribution by questions of the General Social Survey (GSS), we show that: (i) individuals living in states with mineral resources are more individualistic and support less redistribution by the government ; (ii) the higher the number of mines in a states, the lower the support for governmental redistribution and the higher the individualism ; (iii) individuals that experienced mineral discoveries during their early adulthood are more individualistic and support less redistribution ; (iv) this effect vanishes over time. These results are robust to the introduction of various explanatory variables that may explain the formation of individualistic values.
    Date: 2010
  2. By: Thorsten Chmura (Department of Economics, University of Munich); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Thomas Pitz (Nottingham University Business School China); Anthony Ziegelmeyer (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: We report experimental and theoretical results on the minority of three-game where three players have to choose one of two alternatives independently and the most rewarding alternative is the one chosen by a single player. This coordination game has many asymmetric equilibria in pure strategies that are non strict and payoff-asymmetric, and a unique symmetric mixed strategy equilibrium in which each player's behavior is based on the toss of a fair coin. We show that such a straightforward behavior is predicted by Harsanyi and Selten's (1988) equilibrium selection theory as well as alternative solution concepts like impulse balance equilibrium and sampling equilibrium. Our results indicate that participants rely on various decision rules, and that only a quarter of them decide according to the toss of a fair coin. Reinforcement learning is the most successful decision rule as it describes best the behavior of about a third of our participants.
    Keywords: Coordination, Minority game, Mixed strategy, Learning models, Experiments
    JEL: C72 C91 D83
    Date: 2010–10–19
  3. By: Cary Deck (University of Arkansas and Economic Science Institute); Nikos Nikiforakis (Department of Economics, University of Melbourne)
    Abstract: This paper presents the results from a minimum-effort game in which individuals can observe the choices of others in real time. We find that under perfect monitoring almost all groups coordinate at the payoff-dominant equilibrium. However, when individuals can only observe the actions of their immediate neighbors in a circle network, monitoring improves neither coordination nor efficiency relative to a baseline treatment without real-time monitoring. We argue that the inefficiency of imperfect monitoring is due to information uncertainty, that is, uncertainty about the interpretation of the information available regarding the actions of others.
    Keywords: minimum effort game, information uncertainty, real time monitoring, circle network, cheap talk
    JEL: C72 C92 D82
    Date: 2010
  4. By: Judith Avrahami; Yaakov Kareev
    Abstract: This article explores the extent to which decision behavior is shaped by short-lived reactions to the outcome of the most recent decision. We inspected repeated decision-making behavior in two versions of each of two decision-making tasks, an individual task and a strategic one. By regressing behavior onto the outcomes of recent decisions, we found that the upcoming decision was well predicted by the most recent outcome alone, with the tendency to repeat a previous action being affected both by its actual outcome and by the outcomes of actions not taken. Because the goodness of predictions based on the most recent outcome did not diminish as participants gained experience with the task, we conclude that repeated decisions are continuously affected by impulsive reactions.
    Date: 2010–05
  5. By: Tobias Regner (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Nicole S. Harth (International Graduate College, Friedrich Schiller University, Jena)
    Abstract: Intentions-based models of social preferences use the framework of psychological games and incorporate higher order beliefs and actions into the utility function. We test the robustness of two types of intentions-based models (guilt aversion and reciprocity). In addition to incentivised elicitation of first- and second-order action beliefs, we assess participants' sensitivity to feel guilt, and their attitude towards acting reciprocal. The data confirm the predictions of intentions-based models. Both second-order beliefs and the weighting factor that depends on a participant's sensitivity to guilt/reciprocity are relevant for the decisions taken. Second-order beliefs appear to have an inverse U-shaped effect on the amount returned.
    Keywords: social preferences, other-regarding behaviour, experiments, trust game, guilt aversion, beliefs, psychological game theory, emotions
    JEL: C91 D84
    Date: 2010–10–20
  6. By: Julie Rosaz (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France)
    Abstract: We study the impact of information manipulation by a principal on the agent’s effort. In a context of asymmetric information at the principal’s advantage, we test experimentally the principal’s willingness to bias (overestimate or under-estimate) the information she gives to her agent on his ability in order to motivate him to exert more effort. We find that i) principals do bias information, ii) agents trust the cheap-talk messages they receive and adjust their effort accordingly. Therefore, biased messages improve both the agent’s performance and thus the principal’s profit. This, however, does not increase efficiency. We also find that over-estimation occurs much more often than under-estimation. Making the signal costly in an additional treatment reduces this effect.
    Keywords: information, feedback, bias, motivation, experiment
    JEL: D83 C92 M12
    Date: 2010
  7. By: James B. Rebitzer; Lowell J. Taylor
    Abstract: Employers structure pay and employment relationships to mitigate agency problems. A large literature in economics documents how the resolution of these problems shapes personnel policies and labor markets. For the most part, the study of agency in employment relationships relies on highly stylized assumptions regarding human motivation, e.g., that employees seek to earn as much money as possible with minimal effort. In this essay, we explore the consequences of introducing behavioral complexity and realism into models of agency within organizations. Specifically, we assess the insights gained by allowing employees to be guided by such motivations as the desire to compare favorably to others, the aspiration to contribute to intrinsically worthwhile goals, and the inclination to reciprocate generosity or exact retribution for perceived wrongs. More provocatively, from the standpoint of standard economics, we also consider the possibility that people are driven, in ways that may be opaque even to themselves, by the desire to earn social esteem or to shape and reinforce identity.
    Keywords: Agency; Motivation; Employment Relationships; Behavioral Economics
    JEL: D2 J0 M5
    Date: 2010–08
  8. By: Cary Deck (University of Arkansas and Economic Science Institute); Jungmin Lee (Florida International University); Javier Reyes (University of Arkansas)
    Abstract: Researchers have found that an individual’s risk attitude is not stable across elicitation methods. Results reported by Deck et al. (2009) suggest that personality may help explain the apparent inconsistency, offering support to Borghans et al.’s (2008) argument that economists should consider a multi-domain approach to measuring risk attitudes. This paper uses laboratory methods to compare risk attitudes as measured by the Holt and Laury (2002) procedure under two different frames. We find that, as in Deck et al. (2009), one’s willingness to take financial risks (as measured by Weber et al. 2002) significantly affects behavior; however the effect is significantly greater when the task is framed as a financial decision. This paper also asks whether personality can explain the well documented behavioral difference between first price and Dutch auctions. While one’s gambling attitude (as measured by Weber et al. 2002) affects bidding behavior, it does not do so differentially between auction formats.
    Keywords: Risk Attitudes, Personality, Auctions, Framing Effects, Laboratory Experiments
    JEL: C9 D4 D8
    Date: 2010
  9. By: De Hoop, Thomas; Van Kempen, Luuk; Fort, Ricardo
    Abstract: This paper discusses voluntary contributions to health education in a shanty town in Peru, using a new experimental setup to identify voluntary contributions to local public goods. The experiment enables individuals to contribute to a health education meeting facilitated by an NGO, which they know will only be organised if the cumulative investment level exceeds a certain threshold value. In contrast to expectations of aid distributors, individuals contributed a substantial amount of money, despite the long-term nature of the health benefits from health education. High discount rates only seem to have had a detrimental effect on investment in a poorer subsample. Results from a complementary experiment, which identifies donations to a nutrition program, suggest that positive beliefs about short-term benefits from health education in the form of learning effects have played an important role in the investment decision. The results indicate that channelling decision-making power about public good provision to beneficiaries not necessarily implies a crowding out of investment in local public goods with long-term benefits. Hence, particular attention is given to the potential role of cash transfers in the financing of local public goods.
    Keywords: Health education; Field Experiment; Public Good; Peru
    JEL: H41 C93 I1
    Date: 2010–07
  10. By: Annamaria Menichini (CSEF, Università di Salerno); Giovanni Immordino (Università di Salerno and CSEF); Maria Grazia Romano (University of Salerno and CSEF)
    Abstract: The paper analyses, within a moral hazard scenario, a contract between an agent with anticipatory emotions and a principal who responds strategically to those emotions. The agent receives a private signal on the profitability of the task he was hired for. If the signal is informative about the return from effort, the agent would benefit from knowing accurate news. However, if the agent derives utility from the anticipation of his final payoff, the suppression of a bad signal may induce a positive interim emotional effect. We show that it may be impossible to achieve the first-best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written.
    Keywords: Hidden action, anticipatory utility.
    JEL: D86
    Date: 2010–10–18
  11. By: Georgios Halkias; Flora Kokkinaki
    Abstract: A widely held conception in the marketing literature is to develop consistency and relevancy when communicating brand meaning to consumers. The underlying idea behind traditional theories of persuasive communication suggests that matching the message to consumers’ perceptions and experiences increases the effectiveness of communication. Based on the implications of schema theory in cognitive psychology, the present research challenges the above hypothesis and proposes that moderately incongruent brand messages may lead to more favorable results. An empirical study was conducted that investigated consumers’ cognitive and affective responses to advertising information that varied in terms of incongruity (i.e., congruent, moderately incongruent, and extremely incongruent) with their existing brand schemata. As predicted, the results supported a non-monotonic, inverted-U relationship across the degree of incongruity. Advertisements featuring moderately incongruent brand information resulted in more ad processing, better recall and recognition memory, as well as more favorable ad and brand attitude, compared to congruent and extremely incongruent advertisements. The practical implications and the theoretical relevance of these findings for future consumer research are discussed.
    Keywords: Schema incongruent brand messages.
    JEL: D90
    Date: 2010–09

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