nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒11‒27
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Beauty Queens and Battling Knights: Risk Taking and Attractiveness in Chess By Dreber Almenberg, Anna; Gerdes, Christer; Gränsmark, Patrik
  2. Network Architecture and Mutual Monitoring in Public Goods Experiments By Carpenter, Jeffrey P.; Kariv, Shachar; Schotter, Andrew
  3. Is There Selection Bias in Laboratory Experiments?* By Cleave, Blair L.; Nikiforakis, Nikos; Slonim, Robert
  4. An Unlucky Feeling: Overconfidence and Noisy Feedback By Grossman, Zachary; Owens, David
  5. Overconfidence Can Improve an Agent's Relative and Absolute Performance in Contests By Ludwig, Sandra; Wichardt, Philipp C.; Wickhorst, Hanke
  6. The size and distribution of donations: effects of numbers of potential recipients By Robin Hogarth; Emre Soyer
  7. History-Dependent Risk Attitude By David Dillenberger; Kareen Rozen
  8. Term structure of psychological interest rates: A behavioral test By Hubert De La Bruslerie
  10. Subjective beliefs formation and elicitation rules : experimental evidence. By Guillaume Hollard; Sébastien Massoni; Jean-Christophe Vergnaud
  11. Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age By Behaghel, Luc; Blau, David M.
  12. Charity as a Signal of Trustworthiness By Fehrler, Sebastian
  13. Rational Inattention and Employer Learning By Habermalz, Steffen
  14. Heterogeneous Economic Evolution: A Different View on Darwinizing Evolutionary Economics By Jack Vromen

  1. By: Dreber Almenberg, Anna (Institute for Financial Research (SIFR)); Gerdes, Christer (SOFI, Stockholm University); Gränsmark, Patrik (SOFI, Stockholm University)
    Abstract: We explore the relationship between attractiveness and risk taking in chess. We use a large international panel dataset on chess competitions which includes a control for the players' skill in chess. This data is combined with results from a survey on an online labor market where participants were asked to rate the photos of 626 expert chess players according to attractiveness. Our results suggest that male chess players choose significantly riskier strategies when playing against an attractive female opponent, even though this does not improve their performance. Women's strategies are not affected by the attractiveness of the opponent.
    Keywords: risk taking, attractiveness, chess, gender differences
    JEL: J16
    Date: 2010–11
  2. By: Carpenter, Jeffrey P. (Middlebury College); Kariv, Shachar (University of California, Berkeley); Schotter, Andrew (New York University)
    Abstract: Recent experiments show that public goods can be provided at high levels when mutual monitoring and costly punishment are allowed. All these experiments, however, study monitoring and punishment in a setting where all agents can monitor and punish each other (i.e., in a complete network). The architecture of social networks becomes important when individuals can only monitor and punish the other individuals to whom they are connected by the network. We study several non-trivial network architectures that give rise to their own distinctive patterns of behavior. Nevertheless, a number of simple, yet fundamental, properties in graph theory allow us to interpret the variation in the patterns of behavior that arise in the laboratory and to explain the impact of network architecture on the efficiency and dynamics of the experimental outcomes.
    Keywords: experiment, networks, public good, monitoring, punishment
    JEL: D82 D83 C92
    Date: 2010–11
  3. By: Cleave, Blair L.; Nikiforakis, Nikos; Slonim, Robert
    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: risk preferences; social preferences; external validity; laboratory experiments; selection bias
    Date: 2010–10
  4. By: Grossman, Zachary; Owens, David
    Abstract: How does overconfidence arise and how does it persist in the face of experience and feedback? In an experimental setting, we examine how individuals’ beliefs about their own performance on a quiz react to noisy, but unbiased feedback. In a control treatment, each participant expresses her beliefs about another participant’s performance, rather than her own. On average, they express accurate posteriors about others’ scores, but they overestimate their own score, believing themselves to have received ‘unlucky’ feedback. However, this driven by overconfident priors, as opposed to biased information processing. We also find that, while feedback improves estimates about the performance on which it is based, this learning does not translate into improved estimates of related performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, which may contribute to the persistence of overconfidence.
    Keywords: overconfidence, overestimation, learning, Bayes rule, biased updating, learning transfer, experiments, quadratic scoring rule
    Date: 2010–11–11
  5. By: Ludwig, Sandra; Wichardt, Philipp C.; Wickhorst, Hanke
    Abstract: This paper suggests a potential rationale for the recent empirical finding that overconfident agents tend to self-select into more competitive environments (e.g. Dohmen and Falk, forthcoming). In particular, it shows that moderate overconfidence in a contest can improve the agent's performance relative to an unbiased opponent and can even lead to an advantage for the overconfident agent in absolute terms.
    Keywords: Overconfidence; Contests
    JEL: D21 D44 D82
    Date: 2010–07–05
  6. By: Robin Hogarth; Emre Soyer
    Abstract: Whereas much literature exists on “choice overload,” little is known about effects of numbers of alternatives in donation decisions. How do these affect both the size and distribution of donations? We hypothesize that donations are affected by the reputation of recipients and increase with their number, albeit at a decreasing rate. Allocations to recipients reflect different concepts of fairness – “equity” and “equality.” Both may be employed but, since they differ in cognitive and emotional costs, numbers of recipients are important. Using a cognitive (emotional) argument, distributions become more uniform (skewed) as numbers increase. In a survey, respondents indicated how they would donate lottery winnings of 50 Euros. Results indicated that more was donated to NGO’s that respondents knew better. Second, total donations increased with the number of recipients albeit at a decreasing rate. Third, distributions of donations became more skewed as numbers increased. We comment on theoretical and practical implications.
    Keywords: choice overload; donation decisions; fairness; equality; equity.
    JEL: D63 D71 L31
    Date: 2010–11
  7. By: David Dillenberger; Kareen Rozen
    Date: 2010–11–17
  8. By: Hubert De La Bruslerie (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
    Abstract: A lot of empirical and behavioral studies underline the idea of a non-flat term structure of subjective interest rates with a decreasing slope. Using an empirical test, this paper aims at identifying in individual behaviors whether agents see their psychological value of time decreasing or not. We show that the subjective interest rate follows a negatively sloped term structure. It can be parameterized using two variables, one specifying the instantaneous time preference, the other characterizing the slope of the term structure. A trade-off law called “balancing pressure law” is identified between these two parameters. We show that the term structure of psychological rates depends strongly on gender, but appears not to be linked with life expectancy. We also question the cross relationship between risk aversion and time preference. From a theoretical point of view, these two variables stand as two different and independent dimensions of choice. However, empirically, both time preference attitude and slope seem directly influenced by risk attitude.
    Keywords: hyperbolic discounting, time preference, behavioral economics, psychological time value, risk aversion
    Date: 2011–11
  9. By: Lacetera, Nicola; Macis, Mario; Slonim, Robert
    Abstract: We present evidence from observational data on nearly 14,000 American Red Cross blood drives and from a randomized natural field experiment showing that economic incentives have a positive effect on blood donations without increasing the fraction of donors who come to a drive but are ineligible to donate. We also show that the effect of incentives on donations increases with the incentive's economic value. However, we further show that a substantial proportion of the increase in donations due to incentives may be explained by donors leaving neighboring drives without incentives to attend the drive with incentives, and the likelihood of this substitution is higher the higher the monetary value of the incentive offered. We conclude that extrinsic incentives stimulate pro-social behavior, but, unless substitution effects are also considered, the effect of incentives may be overesti mated.
    Date: 2010–10
  10. By: Guillaume Hollard (Centre d'Economie de la Sorbonne); Sébastien Massoni (Centre d'Economie de la Sorbonne); Jean-Christophe Vergnaud (Centre d'Economie de la Sorbonne)
    Abstract: Since they have been increasingly used in economics, elicitation rules for subjective beliefs are under scrutiny. In this paper, we propose an experimental design to compare the performance of such rules. Contrary to previous works in which elicited beliefs are compared to an objective benchmark, we consider a pure subjective belief framework (confidence in own performance in a cognitive task and a perceptual task). The performances of elicitation rules are assessed according to the accuracy of stated beliefs in predicting success. For the perceptual task we also compare stated beliefs to Signal Detection Theory predictions. We find consistent evidence in favor of the Lottery Rule which provides more accurate beliefs and is not sensitive to risk aversion. Furthermore the Free Rule, a simple rule with no incentives, elicits relevant beliefs and even outperforms the Quadratic Scoring Rule. Beside this comparison, we propose a belief formation model where we distinguish between two stages in the beliefs : beliefs for decision making and confidence beliefs. Our results give support to this model.
    Keywords: Belief elicitation, confidence, signal Detection Theory, methodology, incentives, experimental economics.
    JEL: D81 D84 C60 C91
    Date: 2010–11
  11. By: Behaghel, Luc (CREST-INSEE); Blau, David M. (Ohio State University)
    Abstract: We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.
    Keywords: retirement, social security, loss aversion
    JEL: J26
    Date: 2010–11
  12. By: Fehrler, Sebastian (University of Zurich)
    Abstract: Being perceived as trustworthy comes with substantial economic benefits in many situations. Making other people think you are a trustworthy person may, therefore, be an important motive for charity and other forms of prosocial behavior, provided these activities work as signals of trustworthiness. This paper shows that donating money to an NGO substantially raises the other players' beliefs about the donors’ trustworthiness in a simple trust game. Consequently, donors receive higher transfers. The magnitude of these benefits is substantial.
    Keywords: charity, signaling, trust, trustworthiness
    JEL: C72 C92 H41
    Date: 2010–11
  13. By: Habermalz, Steffen (Northwestern University)
    Abstract: Research on employer learning has provided important insights into the dynamic process that determines individual wages, especially during the early part of a worker's career. However, the recent evidence on the absence of employer learning for college graduates by Arcidiacono et al. (2008) and results that economic conditions at labor market entry have persistent effects on wages (for example Oreopoulos et al. (2008)) cast doubt on the model’s validity. This paper extends the employer learning model with the theory of rational inattention introduced by Sims (2006). In the model firms optimally allocate attention (=information processing capacity) to learning about the productivity of different worker groups. I find that firms allocate more attention to learning about the productivities of workers who have a higher impact on profits. Furthermore, firms learn about workers’ productivities as quickly as possible. Taken together these results resolve the discrepancy between the data and the employer learning model.
    Keywords: employer learning, rational inattention, endogenous information
    JEL: D21 J21 J24
    Date: 2010–11
  14. By: Jack Vromen
    Abstract: Inspired by Peter Godfrey-Smith’s book Darwinian Populations and Natural Selection (2009), the paper seeks to develop a view on Darwinizing evolutionary economics that differs from the view espoused in Hodgson and Knudsen project of Generalized Darwinism. It is argued that on Hodgson and Knudsen’s view "Darwinism" is understood on such a high level of abstraction and generality that it is emptied from virtually all content and substance. Only on the basis of a very abstract, general and broad understanding of the Darwinian principles of variation, selection and replication can Hodgson and Knudsen’s claim be defended that any acceptable explanation must invoke the three Darwinian principles. The price they have to pay for this, however, is that the Darwinian principles provide little, if any, heuristic guidance to further theory construction. By contrast, on the alternative view developed in the paper "Darwinism" has a definite content. On the alternative view not all economic processes are Darwinian in kind: some economic processes appear as paradigmatically Darwinian, others only as minimally Darwinian and yet others as not Darwinian at all.
    Keywords: Length 24 pages
    Date: 2010–11

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