nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒02‒05
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Psychological Pressure in Competitive Environments: Evidence from A Randomized Natural Experiment: Comment By Francesco Feri; Alessandro Innocenti; Paolo Pin
  2. Distributional Preferences and Competitive Behavior By Loukas Balafoutas; Rudolf Kerschbamer; Matthias Sutter
  3. To Give or Not To Give? Equity, Efficiency and Altruistic Behavior in a Survey-Based Experiment By Vittorio Pelligra; Luca Stanca
  4. Voluntary Contribution in the Field: An Experiment in the Indian Himalayas By Sujoy Chakravarty; Carine Sebi; E. Somanathan; E. Theophilus
  5. Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age By Luc Behaghel; David M. Blau
  6. How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors By Justine Hastings; Olivia S. Mitchell
  7. Cognitive Ability and Retiree Health Care Expenditure By Hanming Fang; Lauren Nicholas; Daniel Silverman
  8. Accountability and the fairness bias in the context of joint production: Effects of bonuses and opportunities By Alice Becker
  9. Affective decision making: a theory of optimism bias By Anat Bracha; Donald J. Brown
  10. Notes on Agents' Behavioral Rules Under Adaptive Learning and Studies of Monetary Policy By Seppo Honkapohja; Kaushik Mitra; George W. Evans
  11. Estimating risk attitudes in conventional and artefactual lab experiments By Drichoutis, Andreas; Koundouri, Phoebe
  12. Long-Term Antecedents and Outcomes of Perceived Control By Frank J. Infurna; Denis Gerstorf; Nilam Ram; Jürgen Schupp; Gert G. Wagner
  13. The importance of cognitive and social skills for the duration of unemployment By Niepel, Verena

  1. By: Francesco Feri; Alessandro Innocenti; Paolo Pin
    Abstract: In contrast with Apesteguia and Palacios{Huerta (2009), we provide laboratory evidence that strictly competitive environments are characterized by a second-mover advantage. This finding is obtained in a setting, a free-throw shooting competition among pairs of professional basket players, which overcomes the major limitations of Apesteguia and Palacios-Huerta's randomized natural experiment.
    Keywords: second-mover advantage, competitive environments, psychological pressure, experiment.
    JEL: C93
    Date: 2011–03
  2. By: Loukas Balafoutas; Rudolf Kerschbamer; Matthias Sutter
    Abstract: We study experimentally the relationship between distributional preferences and competitive behavior. We find that spiteful subjects react strongest to competitive pressure and win in a tournament significantly more often than efficiency-minded and inequality averse subjects. However, when given the choice between a tournament and a piece rate scheme, efficiency-minded subjects choose the tournament most often, while spiteful and inequality averse subjects avoid it. When controlling for distributional preferences, risk attitudes and past performance, the gender gap in the willingness to compete is no longer significant, indicating that gender-related variables explain why twice as many men as women self-select into competition.
    Keywords: Competition, distributional preferences, gender gap
    JEL: C91
    Date: 2011–04
  3. By: Vittorio Pelligra; Luca Stanca
    Abstract: This paper presents the results of a survey-based experiment on the role of equity and efficiency for altruistic behavior. Using simple binary decisions for a representative pool of subjects, we find that both equity and efficiency are relevant for the decision to give. However, contrary to the findings in several laboratory experiments, our results indicate that equity plays a major role for altruistic behavior. Differ- ences in relative payoffs have a significant effect on the decision to give. When giving is not costly, more than half of the subjects prefer equal payoffs to a socially efficient but unequal allocation. When giving is Pareto-improving, half the subjects choose to sacrifice a higher payoff in order to avoid payoff inequality. We also find that preferences, as revealed by experimental choices, are largely consistent with re- ported pro-social activities, while only weakly related to self-reported well-being.
    Keywords: Altruism, Inequality-Aversion, SocialWelfare, Envy, Large-Scale Experiment
    JEL: D63 C78 C91
    Date: 2010–12
  4. By: Sujoy Chakravarty; Carine Sebi; E. Somanathan; E. Theophilus
    Abstract: The public goods problem (Hardin, The Tragedy of the Commons,1968), either viewed as a problem of extraction and optimal use of a resource, or that of shared contributions to the cost of a resource, has had a long history in the social sciences. Our experimental design, using methods in experimental economics, uses a standard Voluntary Contributions Mechanism (VCM) game with a moderately large group of ten and face-to-face communication between the participants. The subjects, who are villagers in the Gori-Ganga Basin of the Central Himalayas, are not re-matched every period. Our results are somewhat different from laboratory experiments using a similar design such as Isaac and Walker (1988a, 1988b). [Occasional paper 29].
    Keywords: communication, participants, VCM, economics, public goods problems, INDIAN HIMALAYAS, villagers, resource, gori-ganga, social sciences
    Date: 2011
  5. By: Luc Behaghel (Paris School of Economics-INRA); David M. Blau (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. JEL: J26
    Date: 2010–12
  6. By: Justine Hastings (Brown University and NBER); Olivia S. Mitchell (The Wharton School and NBER)
    Abstract: Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement well-being would do well to consider the importance of these factors.
    Date: 2010–10
  7. By: Hanming Fang (University of Pennsylvania); Lauren Nicholas (University of Michigan); Daniel Silverman (University of Michigan)
    Abstract: Prior research indicates that retirees with less cognitive ability are at greater financial risk because they have lower incomes yet higher medical expenditures. Linking HRS data to administrative records, we evaluate two hypotheses about why this group spends more on health: (1) they are in worse health; (2) they receive more expensive or less effective care for the same conditions. We find that the bulk, but not all, of the cross-sectional relationship can be attributed to the poorer health of those with lower cognitive functioning. Much of this relationship appears to be driven by coincident declines in cognitive ability and health. While, in this respect, the data have important limitations, we find no evidence of substantial differences in care, conditional on observable health.
    Date: 2010–09
  8. By: Alice Becker (Max Planck Institute of Economics, Jena)
    Abstract: According to the accountability principle a person's fair allocation takes into account the input-relevant variables she can influence, like effort, but not the variables she cannot influence, like a randomly assigned exogenous factor. This study is based on a real effort-task experiment, where the exogenous influence is twofold: it comes either as a production factor or as a bonus. We confirm that in a base treatment, i.e in absence of exogenous factors, subjects base their allocation decisions largely on effort. When exogenous differences are present behavior changes. Whereas bonuses are largely ignored and subjects still mostly base their decisions on effort, production factors render allocations more selfish. Furthermore, we study whether accountability holds for decisions over opportunities. We apply the so-called lottery-points-method, where a binary lottery in the last experimental stage allocates the whole amount to one of the workers. We find that subjects claim more for themselves when allocating opportunities in all treatments.
    Keywords: Distributive justice, real effort task, procedural fairness
    JEL: C72 C92
    Date: 2011–01–27
  9. By: Anat Bracha; Donald J. Brown
    Abstract: Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision making, where decision weights—which we label affective or perceived risk—are endogenized. Affective decision making (ADM) is a strategic model of choice under risk where we posit two cognitive processes—the "rational" and the "emotional" process. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the result of a pure Nash equilibrium strategy in this game. We show that regular ADM potential games have an odd number of locally unique pure strategy Nash equilibria, and demonstrate this finding for ADM in insurance markets. We prove that ADM potential games are refutable by axiomatizing the ADM potential maximizers.
    Keywords: Insurance
    Date: 2010
  10. By: Seppo Honkapohja; Kaushik Mitra; George W. Evans
    Abstract: These notes try to clarify some discussions on the formulation of individual intertemporal behavior under adaptive learning in representative agent models. First, we discuss two suggested approaches and related issues in the context of a simple consumption-saving model. Second, we show that the analysis of learning in the NewKeynesian monetary policy model based on "Euler equations" provides a consistent and valid approach.
    Keywords: Euler equation, NewKeynesian, Adaptive learning
    JEL: E4 E5 E6 E52 E58
    Date: 2011–01
  11. By: Drichoutis, Andreas; Koundouri, Phoebe
    Abstract: We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and and Laury (2002). We find evidence suggesting that students have lower relative risk aversion than others.
    Keywords: Risk aversion; CRRA; expo-power; multiple price list
    JEL: D81 D01 C91
    Date: 2011–01
  12. By: Frank J. Infurna; Denis Gerstorf; Nilam Ram; Jürgen Schupp; Gert G. Wagner
    Abstract: Perceived control plays an important role in shaping development throughout adulthood and old age. Using data from the adult lifespan sample of the national German Socio-Economic Panel (SOEP; N > 10,000, covering 25 years of measurement), we explored long-term antecedents, correlates, and outcomes of perceived control and examined if associations differ with age. Targeting correlates and antecedents of control, findings indicated that higher concurrent levels of social participation, life satisfaction, and self-rated health as well as more positive changes in social participation over the preceding 11 years were each predictive of between-person differences in perceived control. Targeting health outcomes of control, survival analyses revealed that perceived control predicted 14-year hazard rates for disability (n = 996 became disabled) and mortality (n = 1,382 died). The effect for mortality, but not for disability, was independent of socio-demographic and psychosocial factors. Overall, we found very limited support for age-differential associations. Our results provide further impetus to thoroughly examine processes involved in antecedent-consequent relations among perceived control, facets of social life, well-being, and health.
    Keywords: Control, lifespan development, disability, mortality, psychosocial
    Date: 2011
  13. By: Niepel, Verena
    Abstract: This paper studies how cognitive and social skills in childhood are related to the duration of unemployment in adolescence and early adulthood. I estimate a flexible proportional hazard rate model for the probability of making a transition from unemployment to employment during an individual's first unemployment spell. The analysis is based on British cohort data from the National Child Development Study. Results show that higher cognitive and social skills at the age of 7 are associated with an increased probability of finding employment, even when controlling for educational attainment. For men, these effects are mostly driven by individuals with low social skills. The results are robust to controlling for family background, parenting activities and school characteristics. --
    Keywords: unemployment duration,social skills,noncognitive skills,cognitive skills,early skills
    JEL: C41 J24 J64
    Date: 2010

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