nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒03‒19
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Abandon Hope All Ye Who Enter Here? By Rowena Pecchenino;
  2. Economists as Worldly Philosophers By Robert J. Shiller; Virginia M. Shiller
  3. Near and Generous? Gift Propensity and Chosen Emotional Distance By H. Eika, Kari
  4. More risk - less solidarity? An experimental investigation By Costard, Jano
  5. Equity judgments and context dependence: Knowledge, efficiency and incentives By Schilizzi, Steven
  6. Economic Rationality, Risk Presentation, and Retirement Portfolio Choice. By Bateman, Hazel; Ebling, Christine; Geweke, John; Jordan, Louviere; Stephen, Satchell; Susan, Thorp
  7. Learning the optimal buffer-stock consumption rule of Carroll By Murat YILDIZOGLU (GREQAM, CNRS, UMR 6579); Marc-Alexandre SENEGAS (GREThA, CNRS, UMR 5113); Isabelle SALLE (GREThA, CNRS, UMR 5113); Martin ZUMPE (GREThA, CNRS, UMR 5113)
  8. The “more is less” phenomenon in Contingent and Inferred valuation By Stachtiaris, Spiros; Drichoutis, Andreas; Klonaris, Stathis
  9. The Incentive Structure of Impure Public Good Provision – The Case of International Fisheries By Michael Finus; Raoul Schneider; Pedro Pintassilgo
  10. Self Control and Support for Anti Smoking Policies Among Smokers, Ex Smokers and Non Smokers By Amador, L.B;; Nicolas, A.L;
  11. The impact of peer ability and heterogeneity on student achievement: Evidence from a natural experiment By Kiss, David

  1. By: Rowena Pecchenino (Department of Economics Finance and Accounting, National University of Ireland, Maynooth);
    Abstract: Hope plays an important role in all individuals’ lives both today and in the future. While hope and hopelessness are important concepts and the subjects of much theorizing in psychology, theology, philosophy, political science, nursing, as well as in literature and the arts, it is absent from economics. This silence on hope is notable since hope is fundamentally at the centre of choice, especially intertemporal choice, which is at the centre of economic analysis. To place hope at the centre of intertemporal choice, it is important to clearly define what hope is and what it is not. What hope is not is constant. Hope is not optimism; hope is not unfounded dreams divorced from reality; hope is not irrational. I distil what hope is from its characterization in a number of different disciplines. A comparison of characterizations identifies a number of commonalities and common definitions. Using the derived set of definitions, I incorporate hope into economic analysis, consider what implications hope has for the modelling of choice and for economic behaviour, and discuss whether hope is implicitly imbedded in or has been abandoned, to our eternal cost, by economics.
    Keywords: Hope, rational choice, goal orientation, expectations, faith
    JEL: B40
    Date: 2011
  2. By: Robert J. Shiller (Cowles Foundation, Yale University); Virginia M. Shiller (Child Study Center, Yale University)
    Abstract: While leading figures in the early history of economics conceived of it as inseparable from philosophy and other humanities, there has been movement, especially in recent decades, towards its becoming an essentially technical field with narrowly specialized areas of inquiry. Certainly, specialization has allowed for great progress in economic science. However, recent events surrounding the financial crisis support the arguments of some that economics needs to develop forums for interdisciplinary interaction and to aspire to broader vision.
    Keywords: Economic methodology, Specialization, Behavioral economics, Psychology, Rational expectations, Economics as a moral science, Pareto criterion, Interdisciplinary, Journal of Economic Perspectives
    JEL: B4 B41
    Date: 2011–03
  3. By: H. Eika, Kari (Ministry of Health and Care Services)
    Abstract: This experimental study asks whether generosity decreases emotional distance, a question pertinent to human service quality. Highly vulnerable service recipients may not enforce quality standards. Quality can then be viewed as an act of generosity, a gift from the provider to the recipient. For a human service provider that sympathizes with the recipient, delivering poor quality is psychologically costly. To reduce this cost she may increase emotional distance. Since human service quality presupposes social interaction and involvement, quality is reduced further. The mechanism – which can account for vicious and virtuous circles in the provision of quality – is explored in a binary dictator game where the recipients pay-off is uncertain. The dictator decides whether to know the recipients pay-off and how. Subjects are more eager to inquire about their recipients pay-off when they themselves have been generous, and to do so by contacting the recipient when the recipient correctly perceives that action to be kind.
    Keywords: human services; emotional distance; cognitive dissonance; generosity; dictator game
    JEL: C90 D23 D64 I11 I21
    Date: 2010–07–10
  4. By: Costard, Jano
    Abstract: A solidarity game was conducted where participants were able to choose between two lotteries with same expected values. However, in one lottery, the risky one, participants faced a higher probability to receive no endowment. The winners were then able to discriminate between subjects risk attitude when it came to voluntary transfers from winners to losers in randomly formed three person groups. The results indicated that risk takers were not fully held responsible for their self-inflicted neediness, although they received on average fewer transfers than non-risk-takers. In fact, group favoritism is observed, where non-risk-takers transferred more to loosing non-risk-takers and risk-takers transferred more to loosing risk-takers. This behavioral pattern was stable across different versions of group compounding, profession and gender. Nevertheless, a gender effect was found with regard to lottery choice and the amount of money transferred. Furthermore, similarities can be seen between the results of the experiment and certain aspects of the current financial crisis. Among them borrowing in non-recourse states in the USA, the role of rating agencies and the hiring of failed CEOs. -- Es wurde ein Solidaritätsspiel durchgeführt, in dem die Teilnehmer aus zwei Lotterien mit gleichen Erwartungswerten wählen konnten. Allerdings war die Wahrscheinlichkeit zu verlieren und keinen Gewinn zu erhalten bei der riskanten Lotterie höher. In Dreiergruppen, bestehend aus Gewinnern und Verlierern, hatten die Gewinner die Möglichkeit freiwillig etwas von ihrem Gewinn an die Verlierer abzugeben. Dabei konnten sie zwischen dem Risikoverhalten der Verlierer unterscheiden. Die Ergebnisse offenbaren, dass risikoreiche Verlierer nicht komplett für ihre selbstverschuldete "Armut" verantwortlich gemacht wurden, obwohl sie im Durchschnitt weniger Transfers erhielten als Verlierer die kein Risiko eingegangen sind. Vielmehr ist ein Favorisieren der eigenen Gruppe zu beobachten, wobei "risikolose Gewinner" mehr an "risikolose Verlierer" transferiert haben und "risikoreiche Gewinner" mehr an "risikoreiche Verlierer" transferierten. Dieses Verhaltensmuster ist stabil über verschiedene Gruppenzusammensetzungen, die fachliche Ausrichtung und das Geschlecht der Teilnehmer des Experiments. Im Gegensatz dazu wurde ein geschlechtsspezifischer Effekt bei der Wahl der Lotterie und bei der Höhe der Transfers beobachtet.
    Date: 2011
  5. By: Schilizzi, Steven
    Abstract: Distributional equity concerns are often at least as important as economic efficiency and ecological sustainability in environmental and natural resource management policies. Until recently, however, economists have shied away from tackling equity issues, primarily because equity appeared as a slippery concept, varying across people and circumstances. This study takes this context-dependence of equity judgments as a starting point and shows that such dependence, far from being random, is systematic. A series of controlled laboratory treatments with University students were designed to investigate the role on distributional equity judgments of such context factors as knowledge of oneâs position in society, how the existence of equity-efficiency tradeoffs can affect equity judgments, and the importance of material incentives compared with hypothetical situations, where âin principleâ judgments are called for. Key results include the relative discriminating power of context factors, the hierarchy of context-dependence, the dissymmetry between support and opposition to equity principles, and the impact of different wealth endowments on equity judgments. A number of common beliefs are found not to be substantiated by our experimental findings.
    Keywords: Equity, fairness, resource allocation, environmental policy, experimental economics, welfare economics, public choice, Institutional and Behavioral Economics, Public Economics, C92, D03, D63, H23, Q56, Q58,
    Date: 2011–02–23
  6. By: Bateman, Hazel; Ebling, Christine; Geweke, John; Jordan, Louviere; Stephen, Satchell; Susan, Thorp
    Abstract: This research studies the propensity of individuals to violate implications of expected utility maximization in allocating retirement savings within a compulsory de- …ned contribution retirement plan. The paper develops the implications and describes the construction and administration of a discrete choice experiment to almost 1200 members of Australias mandatory retirement savings scheme. The experiment …nds overall rates of violation of roughly 25%, and substantial variation in rates, depend- ing on the presentation of investment risk and the characteristics of the participants. Presentations based on frequency of returns below or above a threshold generate more violations than do presentations based on the probability of returns below or above thresholds. Individuals with low numeracy skills, assessed as part of the ex-periment, are several times more likely to violate implications of the conventional expected utility model than those with high numeracy skills. Older individuals are substantially less likely to violate these restrictions, when risk is presented in terms of event frequency, than are younger individuals. The results pose significant questions for public policy, in particular compulsory de…ned contribution retirement schemes, where the future welfare of participants in these schemes depends on quantitative decision-making skills that a signi…cant number of them do not possess.
    Keywords: discrete choice; retirement savings; investment risk; household finance; financial literacy
    JEL: G23 G28 D14
    Date: 2011–12
  7. By: Murat YILDIZOGLU (GREQAM, CNRS, UMR 6579); Marc-Alexandre SENEGAS (GREThA, CNRS, UMR 5113); Isabelle SALLE (GREThA, CNRS, UMR 5113); Martin ZUMPE (GREThA, CNRS, UMR 5113)
    Abstract: This article questions the rather pessimistic conclusions of Allen et Carroll (2001) about the ability of consumer to learn the optimal buffer-stock based consumption rule. To this aim, we develop an agent based model where alternative learning schemes can be compared in terms of the consumption behaviour that they yield. We show that neither purely adaptive learning, nor social learning based on imitation can ensure satisfactory consumption behaviours. By contrast, if the agents can form adaptive expectations, based on an evolving individual mental model, their behaviour becomes much more interesting in terms of its regularity, and its ability to improve performance (which is as a clear manifestation of learning). Our results indicate that assumptions on bounded rationality, and on adaptive expectations are perfectly compatible with sound and realistic economic behaviour, which, in some cases, can even converge to the optimal solution. This framework may therefore be used to develop macroeconomic models with adaptive dynamics.
    Keywords: Consumption decisions; Learning; Expectations; Adaptive behaviour, Computational economics
    JEL: E21 D91 D83 D84
    Date: 2011
  8. By: Stachtiaris, Spiros; Drichoutis, Andreas; Klonaris, Stathis
    Abstract: We examine inconsistencies in preference orderings of the “more is less” kind (Alevy et al. 2011) using the Contingent valuation (CV) and the Inferred valuation (IV) method (Lusk and Norwood 2009a, 2009b). We find that when moving in a familiar market for consumers (i.e., the food market) we only observe weak effects of inconsistencies. In addition, we find that the IV method is no better than the CV method in generating more consistent preference orderings. Surprisingly, we also find that the IV method generates higher valuations than CV, rendering one of its advantages of mitigating social desirability bias questionable.
    Keywords: willingness-to-pay (WTP); Contingent Valuation (CV); Inferred Valuation(IV); preference reversals
    JEL: D12 C90 Q51 C93
    Date: 2011–03
  9. By: Michael Finus (Department of Economics, University of Exeter); Raoul Schneider (Department of Economics, Ulm University); Pedro Pintassilgo (Faculty of Economics, University of Algarve)
    Abstract: We argue that international fisheries are a prime example to study the impact of multiple characteristics on the incentive structure of impure public good provision. The degree of technical excludability is related to the pattern of fish migration, the degree of socially constructed excludability is captured by the design of international law and the degree of rivalry is reflected by the growth rate of the resource. We construct a bioeconomic model, including the high seas and exclusive economic zones in order to study the incentives to form stable fully or partially cooperative agreements. We show that the spatial allocation of property rights is crucial for the success of cooperation as long as technical excludability is sufficiently high. Moreover, we show how economic and ecological factors influence the success of cooperation.
    Keywords: pure and impure public goods, technical and socially constructed nonexcludability, property rights, coalition formation, free-riding, bioeconomic model, shared fish stocks, regional fisheries management organizations.
    JEL: Q34 C72 H87 F53
    Date: 2011
  10. By: Amador, L.B;; Nicolas, A.L;
    Abstract: In this paper we sustain that non smokers who might be at risk of starting to smoke or relapsing can benefit from anti smoking policies such as tax hikes and smoking bans because these are mechanisms that enhance their self control with regard to tobacco consumption. We formalise this conjecture by proposing a model where starting/relapsing might result from time inconsistent preferences in a way that mirrors the inability of some smokers to carry out the decision to quit. We test the implications of this model using rich information on smoking behaviour from the Catalan Health Survey of 2006. The empirical results support our hypothesis and suggest that the welfare gains derived from the reinforcement of self control caused by tax hikes and smoking bans will accrue not only to smokers but also to the rest of the population.
    Keywords: time inconsistencies; smoking bans; tobacco taxes; Spain
    Date: 2011–02
  11. By: Kiss, David
    Abstract: This paper estimates the impact of peer achievement and variance on math achievement growth. It exploits exogenous variation in peer characteristics generated at the transition to upper-secondary school in a sample of Berlin fifth graders. Parents and schools are barely able to condition their decisions on peer characteristics since classes are newly built up from a large pool of elementary school pupils. I find positive peer effects on achievement growth and no effects for peer variance. Lower-achieving pupils benefit more from abler peers. Results from simulations suggest that pupils are slightly better off in comprehensive than in ability-tracked school systems. --
    Keywords: peer effects in secondary school,comparison between ability-tracked and comprehensive school,natural experiment
    JEL: I21 I28
    Date: 2011

This nep-cbe issue is ©2011 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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