nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒01‒16
seven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Subject-specific Performance Information can worsen the Tragedy of the Commons: Experimental Evidence By Villena, Mauricio G.; Zecchetto, Franco
  2. Learning (Not) To Yield: An Experimental Study of Evolving Ultimatum Game Behavior By Judith Avrahami; Werner Güth; Ralph Hertwig; Yaakov Kareev; Hironori Otsubo
  3. Patience, cognitive skill and coordination in the repeated stag hunt By Al-Ubaydli, Omar; Jones, Garett; Weel, Jaap
  4. A Novel Computerized Real Effort Task Based on Sliders By Gill. D., Prowse; V.,
  5. On the Crowding-Out Effects of Tax-Financed Charitable Contributions by the Government By Alan Krause
  6. Identifying Strategies and Beliefs without Rationality Assumptions By Amos Golan; James Bono
  7. Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events By Tilman Brück; Fernanda Llussá; José Tavares

  1. By: Villena, Mauricio G.; Zecchetto, Franco
    Abstract: The main aim of this article is to investigate the behavioral consequences of the provision of subject-specific information in the group effort levels chosen by players in an experimental CPR game. We examine two basic treatments, one with incomplete information and the other with complete information. In the former, subjects are informed only about their own individual payoffs and the aggregate extraction effort level of the group, and in the latter they are also informed about the individual effort levels and payoffs of each subject. Given this setting, the basic question we attempt to answer is: Will the provision of subject-specific performance information (i.e. individual’s effort levels and payoffs) improve or worsen the tragedy of the commons (i.e. an exploitation effort level greater than the socially optimum level)? In order to motivate our hypotheses and explain our experimental results at the individual level, we make use of the theory of learning in games, which goes beyond standard non-cooperative game theory, allowing us to explore the three basic benchmarks in the commons context: Nash equilibrium, Pareto efficient, and open access outcomes. We use several learning and imitation theoretical models that are based on contrasting assumptions about the level of rationality and the information available to subjects, namely: best response, imitate the average, mix of best response and imitate the average, imitate the best and follow the exemplary learning rules. Finally, in order to econometrically test the hypotheses formulated from the theoretical predictions we use a random-effects model to assess the explanatory power of the different selected behavioral learning and imitation rules.
    Keywords: Common Property Resources; Information; Learning and Imitation; Experimental Economics.
    JEL: D83 C72 C91 Q2
    Date: 2010–01–09
  2. By: Judith Avrahami (The Hebrew University of Jerusalem, Center for the Study of Rationality and School of Education); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Ralph Hertwig (University of Basel, Department of Psychology); Yaakov Kareev (The Hebrew University of Jerusalem, Center for the Study of Rationality and School of Education); Hironori Otsubo (Max Planck Institute of Economics, Strategic Interaction Group, Jena)
    Abstract: Whether behavior converges toward rational play or fair play in repeated ultimatum games depends on which player yields first. If responders concede first by accepting low offers, proposers would not need to learn to offer more, and play would converge toward unequal sharing. By the same token, if proposers learn fast that low offers are doomed to be rejected and adjust their offers accordingly, pressure would be lifted from responders to learn to accept such offers. Play would converge toward equal sharing. Here we tested the hypothesis that it is regret-both material and strategic-which determines how players modify their behavior. We conducted a repeated ultimatum game experiment with random strangers, in which one treatment does and another does not provide population feedback in addition to informing players about their own outcome. Our results show that regret is a good predictor of the dynamics of play. Specifically, we will turn to the dynamics that unfold when players make repeated decisions in the ultimatum game with randomly changing opponents, and when they learn not only about their own outcome in the previous round but also find out how the population on average has adapted to previous results (path dependence).
    Keywords: Ultimatum bargaining game, Reputation, Regret, Learning, Experiment
    JEL: C78 C92
    Date: 2010–12–15
  3. By: Al-Ubaydli, Omar; Jones, Garett; Weel, Jaap
    Abstract: Coordination games have become a critical tool of analysis in fields such as development and institutional economics. Understanding behavior in coordination games is an important step towards understanding the differing success of teams, firms and nations. This paper investigates the relationship between personal attributes (cognitive ability, risk-aversion, patience) and behavior and outcomes in coordination games, an issue that, to the best of our knowledge, has never been studied before. For the repeated coordination game that we consider, we find that: (1) cognitive ability has no bearing on any aspect of behavior or outcomes; (2) pairs of players who are more patient are more likely to coordinate well and earn higher payoffs; and (3) risk-aversion has no bearing on any aspect of behavior or outcomes. These results are robust to controlling for personality traits and demographic characteristics.
    Keywords: Coordination; IQ; personality; discount rate; patience; risk-aversion
    JEL: D23 D02 O12
    Date: 2010–12–29
  4. By: Gill. D., Prowse; V.,
    Abstract: In this note, we present a novel computerized real effort task based on moving sliders across a screen which overcomes many of the drawbacks of existing real effort tasks. The task was first developed and used by us in Gill and Prowse (forthcoming). We outline the design of our “slider task”, describe its advantages compared to existing real effort tasks and provide a statistical analysis of the behaviour of subjects undertaking the task. We believe that the task will prove valuable to researchers in designing future real effort experiments, and to this end we provide z-Tree code and guidance to assist researchers wishing to implement the slider task. <br><br> Keywords; Real effort task, Slider task, Design of laboratory experiments, Learning and time effects, Individual heterogeneity. <br><br> JEL Classification: C90, C91
    Date: 2011–01–01
  5. By: Alan Krause
    Abstract: An important question in the literature on charitable contributions is the extent to which tax-financed contributions by the government crowd out private contributions. This paper examines a simple model of charitable contributions in which there exist both warm-glow and public good motives for giving, but where the warm-glow motive is competitive in the sense that individuals evaluate their own contribution relative to that of their peers. It is shown that the competitive element of the warm-glow motive may exacerbate or attenuate the crowding-out effect, depending upon certain preference and income parameters. However, as the warm-glow motive for giving becomes purely competitive, crowding out is exacerbated and is almost dollar-for-dollar.
    Keywords: Charitable contributions, warm-glow, crowding out, public goods
    JEL: H23 H41
    Date: 2011–01
  6. By: Amos Golan; James Bono
    Abstract: In this paper we formulate a solution concept without making assumptions about expected utility maximization, common knowledge or beliefs. Beliefs, strate- gies and the degree to which players are expected utility maximizers are endoge- nously determined as part of the solution. To achieve this, rather than solving the game from the players' point of view, we analyze the game as an "observer" who is not engaged in the process of the game. Our approach is an information theoretic one in which the observer utilizes an observation of play and the Maximum Entropy principle. We compare our solution concept with Bayesian Nash equilibrium and over the entropy ratio test as a method for determining the appropriateness of common modeling assumptions. We also demonstrate that the QRE concept can be signicantly generalized when viewed from the observer's perspective. For games of incomplete information we discover that alternative uses of the observer's information lead to alternative interpretations of rationality. These alternative in- terpretations of rationality may prove useful, especially in the context of ex post arbitration, as they indicate who is motivating whom.
    Keywords: incomplete information, entropy, information theory, pairwise rationality, QRE, endogenous rationality JEL Codes: C70, C79
    Date: 2010–05
  7. By: Tilman Brück; Fernanda Llussá; José Tavares
    Abstract: We provide, for the first time, comparative evidence of the impact of various types of extreme events - natural disasters, terrorism, and violent conflicts - on the perceptions of entrepreneurs concerning some key entrepreneurial issues - such as fear of failure in starting a business venture, whether individuals expect that good opportunities are likely to emerge in the next six months, and the expected level of competition stemming from creating new ventures. The occurrence of extreme events is likely to be exogenous to the perceptions affecting it so that we can identify a causal link from events to entrepreneurs and their perceptions. Using individual-level data from 43 countries from the period 2002 to 2005, we find that neither indicator of the intensity of extreme events has a significant impact on entrepreneurial activity, when country characteristics are not controlled for. Once invariant country characteristics are taken into account, we find that Terrorist Attacks have a positive and significant impact on business creation, Natural Disasters have a positive and negative impact on entrepreneurial activity, and Violent Conflict has no significant effect. These results are consistent with differential impacts of extreme events on perception variables such as Fear of Failure, Expected Business Opportunities, and Expected Level of Competition. Our results suggest that extreme events, while costly at the aggregate level, may induce a positive response in terms of entrepreneurial activity in specific circumstances. There is hence scope for entrepreneurs, and policies supporting them, to create growth from the ruins of extreme events.
    Keywords: Perceptions, expectations, entrepreneurship, extreme events
    JEL: D84 M13 L26 O12
    Date: 2010

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