nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒12‒18
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Success: Talent, Intelligence or Beauty? By Olivier Gergaud; Victor Ginsburgh
  2. Trust among the Avatars: A Virtual World Experiment, with and without Textual and Visual Cues By Stephen Atlas; Louis Putterman
  3. Social preferences during childhood and the role of gender and age - An experiment in Austria and Sweden By Martinsson, Peter; Nordblom, Katarina; Rützler, Daniela; Sutter, Matthias
  4. As-if behavioral economics: Neoclassical economics in disguise? By Berg, Nathan; Gigerenzer, Gerd
  5. Behavioral Economics By Berg, Nathan
  6. Write your paper now: Procrastination, conscientiousness and welfare By Hendrik van Broekhuizen
  7. What is the Nature and Social Norm within the Context of In-Group Favouritism? By Harris, D.; Herrmann, B.; Kontoleon, A.
  8. Subjective beliefs formation and elicitation rules : experimental evidence By Guillaume Hollard; Sébastien Massoni; Jean-Christophe Vergnaud
  9. The Behavioural Consequences of Unfair Punishment By Michalis Drouvelis
  10. Equilibrium notions and framing effects By Christian Hilbe
  11. The role of emotional climates of joy and fear in team creativity and innovation By Véronique Tran

  1. By: Olivier Gergaud; Victor Ginsburgh
    Abstract: We analyze the Celebrity 100 annual list of the world's most “powerful celebrities” compiled and published by Forbes Magazine. The lists provide an interesting collection of people, that includes their earnings, and the perception of citizens concerning the attributes that made them become celebrities.We analyze the relationship between their earnings and the perceptions on their intelligence, talent, beauty and other attributes, and show that though beauty plays a role, intelligence and talent are more important.
    Keywords: Earnings, Economic success, Talent
    Date: 2010–12
  2. By: Stephen Atlas; Louis Putterman
    Abstract: We invited “residents” of a virtual world who vary in real-world age and occupation to play a trust game with stakes comparable to “in world” wages. In different treatments, the lab wall was adorned with an emotively suggestive photograph, a suggestive text was added to the instructions, or both a photo and text were added. We find high levels of trust and reciprocity that appear still higher for non-student and older subjects. Variation of results by treatment suggests that both photographic and textual cues influenced the level of trust but not that of trustworthiness.
    Keywords: trust; experiment; internet; virtual world; priming
    Date: 2010
  3. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University); Rützler, Daniela (Department of Public Economics, University of Innsbruck, Austria); Sutter, Matthias (Department of Public Economics, University of Innsbruck, Austria)
    Abstract: We examine social preferences of Swedish and Austrian children and adolescents using the experimental design of Charness and Rabin (2002). We find that difference aversion decreases while social-welfare preferences increase with age.<p>
    Keywords: social preferences; children; adolescents; distributional experiment; Austria; Sweden.
    JEL: C91 D63 D64
    Date: 2010–12–10
  4. By: Berg, Nathan; Gigerenzer, Gerd
    Abstract: For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.
    Keywords: bounded rationality; ecological rationality; as-if; fit; prediction; decision; process
    JEL: B1 B4
    Date: 2010
  5. By: Berg, Nathan
    Abstract: This article describes the emerging subfield known as behavioral economics, which borrows from psychology, empirically tests assumptions used elsewhere in economics, and provides theories that aim to be more realistic and closely tied to experimental and field data. Highlights from the experimental findings of behavioral economics are discussed. The article remarks critically on the role of empirical realism and continued use of as-if methodology in behavioral economics. Problems in normative behavioral economics are given special attention as debates arise concerning how to interpret empirical findings that contradict standard definitions of axiomatic rationality. Ecological rationality, methodological pluralism, and Simon's notion of bounded rationality are considered.
    Keywords: bounded rationality; ecological rationality; Herbert Simon; as-if; survey
    Date: 2010
  6. By: Hendrik van Broekhuizen (Department of Economics, University of Stellenbosch)
    Abstract: Procrastination is an almost archetypal phenomenon of human behaviour, the nature and prevalence of which may have severe implications for the foundations of Microeconomic theory and the rational actor model. This paper aims to assess why and how agents procrastinate in theory and what the implications of procrastination may be. It is argued that procrastination is a rational response to present-biased preferences and that the extent of procrastination, and the subsequent welfare implications thereof, depends on the degree of conscientiousness regarding one’s own expected future self-control problems and the nature and requirements of the task with which one is assigned. The theoretical model proposed to analyse procrastination therefore parameterises the temporal evolution of present-biased preferences as a function of agents’ levels of conscientiousness. It is found that less conscientious agents tend to procrastinate more than more conscientious agents, that uncertainty exacerbates the extent and compounds the implications of procrastinating behaviour, and, consequently, that procrastination is more likely to be welfare non-maximising the lower an agent’s level of conscientiousness and the greater the amount of uncertainty that exists regarding the nature and requirements of the task with which the agent is assigned.
    Keywords: procrastination, dynamic inconsistency, present-biased preferences, quasi-hyperbolic discounting, differential salience, conscientiousness, sophistication, naivety
    JEL: D01 D80 D91
    Date: 2010
  7. By: Harris, D.; Herrmann, B.; Kontoleon, A.
    Abstract: In-group favouritism behaviour is observed everywhere around the world and previous research has shown that this behaviour is also easily triggered in a laboratory in various contexts. However, little is known about why different magnitudes of in-group favouritism are observed across societies. In this paper, we use a new allocation experiment to examine the nature of social norms within the context of in-group favouritism behaviour. In this experiment, a decision-maker has to decide only once how to allocate a fixed amount of resource between each of the three members of her own group and each of the three members of the out-group, whilst the decision- maker's own payo is not aected by her decision. Three treatments are implemented: in the first treatment, only the members of the in-group can punish the decision-maker. In the second treatment, only the members of the out-group can punish the decision-maker. Finally, in the third treatment, only an independent third-party observer can punish the decision-maker. The aim of these treatments is to test whether there is a prevailing social norm which dominates the behavioural standard within the context of in-group favouritism and whether this mechanism varies across dierent subject pools, namely Thailand and the UK.<br><br> Compared to a baseline treatment with no punishment opportunity, we observed that among the Thai subjects in-group favouritism significantly increased once the in-group members were given the opportunity to punish the decision-maker. The threat of punishment from a third-party punisher also increased in-group favouritism in Thailand. However, when only the out-group members had the opportunity to punish, no change in in-group favouritism behaviour was observed. On the contrary, within the British subject pool, when the out-group members had the opportunity to punish the decision-maker, we observed a decline in in-group favouritism as well as a marked shift towards an equitable outcome. The threats of punishments from the in-group members and the third-party, on the other hand, did not have any impact on in-group favouritism behaviour in the UK. The results suggest that within the Thai subject pool, there appears to be a prevailing `in-group bias norm' which is strongly enforced within and outside the group. Within the UK subject pool, however, it is less clear what the prevailing norm is. Whilst the threat of punishment from the out-group members who directly lose out from favouritism behaviour appeared to significantly reduce this behaviour, an uninvolved third-party was not willing to incur a cost to punish this behaviour. This interesting result indicates two possible explanations: first, in-group favouritism, in contrast to selfish or opportunistic behaviour, may not considered as a strong enough violation of a social norm; and second, the norm of egalitarianism within the context of favouritism may still be `evolving'.
    Keywords: Social Norms, In-group Favouritism, Group Behaviour, In-group Punishment, Out-group Punishment, Third-party Punishment, Experimental Design
    JEL: D73 C92
    Date: 2010–12–13
  8. By: Guillaume Hollard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sébastien Massoni (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    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.
    Date: 2010–11
  9. By: Michalis Drouvelis
    Abstract: Experimental evidence from public good games with punishment suggests that punishment works when subjects assign it fairly by sanctioning non-cooperators. This paper reports an experiment in which punishment is assigned unfairly in the sense that it is not linked to individual behaviour and is melted out to all group members (irrespective of their prior behaviour). We test whether unfair punishment generates different contribution and punishment behaviour relative to the standard punishment game. Our findings suggest different dynamics of average contributions in the presence of unfair punishment relative to the standard punishment game. Contribution levels are significantly different only when subjects have obtained experience from both games. We also find that, although the assignment of punishment is unaffected after the experience of an environment with unfair punishment, a history of unfair punishment makes a difference regarding reactions to alleviation, reward and punishment received.
    Keywords: Recriprocity, Unfair punishment, Public good experiments
    JEL: C92 H41
    Date: 2010–11
  10. By: Christian Hilbe
    Abstract: Experimental economics has repeatedly demonstrated that the Nash equilibrium makes inaccurate predictions for a vast set of games. Instead, several alternative theoretical concepts predict behavior that is much more in tune with observed data, with the quantal response equilibrium as the most prominent example. However, here we show that this equilibrium notion itself, like any other concept that varies smoothly with the payoffs, is necessarily subject to framing effects: If the same economic problem is represented in a different but equivalent way, the predicted results will differ. As a consequence, we argue that tools and methods that are successful in explaining human behavior in laboratory experiments may be unsuitable for doing theory.
    Date: 2010–12
  11. By: Véronique Tran
    Abstract: This paper examines the role of an emotional climate of joy and of an emotional climate of fear on team creativity and innovation. First, a definition of emotional climate is proposed. Second, a model is proposed combining emotional climate and Farr, Sin, and Tesluk’s (2003) model of team creativity and innovation. Emotional climates of joy and fear are emergent states that will operate both as an input in interaction with non affective inputs, and as an outcome interacting with task-related outcomes, influencing transition, action, and interpersonal processes in a creativity and innovation context. Third, the role of the intensity of emotions composing the emotional climate is addressed. Implications for research and practice are discussed.
    Keywords: Emotional climate; creativity; innovation; teams
    Date: 2010–12

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