nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒05‒24
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Patience, Cognitive Skill and Coordination in the Repeated Stag Hunt By Omar Al-Ubaydli; Garett Jones; Jaap Weel
  2. Doing Well by doing good - or doing better by delegating? By Gerald Eisenkopf; Urs Fischbacher
  3. Unequal Opportunities and Distributive Justice By Gerald Eisenkopf; Urs Fischbacher; Franziska Föllmi-Heusi
  4. Virtual trust: Escalation Bargaining: Theoretical Analysis and Experimental Test By Swee-Hoon Chuah; Robert Hoffmann; Jeremy Larner
  5. Can we manage first impressions in cooperation problems? An experimental study on “Broken (and Fixed) Windows” By Christoph Engel; Sebastian Kube; Michael Kurschilgen
  6. The Effects of Personality Composition and Decision-Making Processes on Change Preferences of Self-Managing Teams By Muehlfeld K.; Van Doorn J.; Van Witteloostuijn A.
  7. Stability and Change of Personality across the Life Course: The Impact of Age and Major Life Events on Mean-Level and Rank-Order Stability of the Big Five By Jule Specht; Boris Egloff; Stefan C. Schmukle
  8. Does Gender Affect Investors' Appetite for Risk?: Evidence from Peer-to-Peer Lending By Nataliya Barasinska
  9. Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment By Cruces, Guillermo; Perez Truglia, Ricardo; Tetaz, Martin
  10. On the Positive Effects of Overcon fident Self-Perception in Teams By Ludwig, Sandra; Wichardt, Philip C.; Wickhorst, Hanke
  11. New Insights into Conditional Cooperation and Punishment from a Strategy Method Experiment By Cheung, Stephen L.
  12. Cognitive load in the multi-player prisoner's dilemma game By Duffy, Sean; Smith, John
  13. Efficiency, equality and reciprocity in social preferences: A comparison of students and a representative population. By Cappelen, Alexander W.; Nygaard, Knut; Sørensen, Erik Ø.; Tungodden, Bertil
  14. A Two-Stage Choice Experiment Approach to Elicit Consumer Preferences By Gao, Zhifeng; Yu, Xiaohua

  1. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Garett Jones (Department of Economics, George Mason University); Jaap Weel (Department of Economics, George Mason University)
    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: D02 D23 O12 O43
    Date: 2011–05
  2. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Urs Fischbacher (Department of Economics, University of Konstanz, Germany)
    Abstract: Machiavelli advises against delegating the distribution of favors. We test this claim in an experiment, in which an investor can directly transfer money to a trustee or delegate this decision to another investor. Varying the value of the transfers of the investor and the delegate, we find that the trustee’s rewards follow a rather simple pattern. In all situations, both investors are rewarded, but the person who actually decides gets a higher reward. Delegation only pays off for the initial decision maker if the value of the delegate’s transfer is much higher than the value of the investor’s transfer.
    Keywords: Delegation, trusts, reciprocity, intentions, experiment
    JEL: C91 D63
    Date: 2011–02–14
  3. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Urs Fischbacher (Department of Economics, University of Konstanz, Germany); Franziska Föllmi-Heusi (Thurgau Institute of Economics at the University of Konstanz, Germany)
    Abstract: We provide experimental evidence on how unequal access to performance enhancing education affects demand for redistribution. People earn money in a real effort experiment and can then decide how to distribute it among themselves and another subjects. We compare situations in which randomly chosen people get access to performance enhancing education with situations in which either only luck or only performance determines outcome. We find that unequal opportunities evoke a preference for redistribution that is comparable to the situation when luck alone determines the allocation. However, people with unequal access to education are more likely to disagree about the appropriate distribution.
    Keywords: Distribution, Inequality of opportunities, Negotiation, Education, Experiment
    JEL: D31 I20
    Date: 2011–04–06
  4. By: Swee-Hoon Chuah (Nottingham University Business School); Robert Hoffmann (Nottingham University Business School); Jeremy Larner (Nottingham University Business School)
    Abstract: The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.
    Keywords: Escalation, Brinkmanship, Chicken game, Experiments
    JEL: C72 C78 C91
    Date: 2011–05–13
  5. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kube (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Cooperation problems are at the heart of many everyday situations. In this paper, we propose a very simple and light-handed mechanism to sustain cooperation and test its performance in a rich laboratory environment. The mechanism moderates cooperation by controlling experiences, more specifically, it "manipulates" subjects’ initial beliefs by providing them with selective information about (un)cooperative behavior in other, unrelated, groups. We observe that contributions are considerably sensitive to such selective information. First impressions participants happen to make predict subsequent behavior. Our results, however, suggest an asymmetry in the strength of the reaction – which might pose a limit on the effectiveness of the mechanism in natural settings.
    Date: 2011–03
  6. By: Muehlfeld K.; Van Doorn J.; Van Witteloostuijn A.
    Abstract: Team decision-making on organizational and strategic changes is pervasive. Yet, little is known about determinants of teams’ change preferences. We analyze how composition with respect to personality traits associated with (pro-)active behavior (locus-of-control, type-A/B behavior) influences selfmanaging teams’ preferences for the likelihood and magnitude of changes, and whether participative decision-making and team monitoring as core features of group decision-making counteract or reinforce change tendencies. Results from a business simulation with 42 teams largely support predictions. Stronger type-A orientation increases the likelihood of (drastic) changes. Teams dominated by internal locus-of-control members are highly responsive performance feedback in their change preferences. Participative decision-making encourages while team monitoring restricts tendencies towards extreme magnitudes.
    Date: 2011–04
  7. By: Jule Specht; Boris Egloff; Stefan C. Schmukle
    Abstract: Does personality change across the entire life course, and are those changes due to intrinsic maturation or major life experiences? This longitudinal study investigated changes in the mean levels and rank order of the Big Five personality traits in a heterogeneous sample of 14,718 Germans across all of adulthood. Latent change and latent moderated regression models provided four main findings: First, age had a complex curvilinear influence on mean levels of personality. Second, the rank-order stability of Emotional Stability, Extraversion, Openness, and Agreeableness all followed an inverted U-shaped function, reaching a peak between the ages of 40 and 60, and decreasing afterwards, whereas Conscientiousness showed a continuously increasing rank-order stability across adulthood. Third, personality predicted the occurrence of several objective major life events (selection effects) and changed in reaction to experiencing these events (socialization effects), suggesting that personality can change due to factors other than intrinsic maturation.<br /> Fourth, when events were clustered according to their valence, as is commonly done,<br /> effects of the environment on changes in personality were either overlooked or<br /> overgeneralized. In sum, our analyses show that personality changes throughout the life<br /> span, but with more pronounced changes in young and old ages, and that this change is<br /> partly attributable to social demands and experiences.
    Keywords: personality development, Big Five, life events, stability, adulthood
    Date: 2011
  8. By: Nataliya Barasinska
    Abstract: This study investigates the role of gender in financial risk-taking. Specifically, I ask whether female investors tend to fund less risky investment projects than males. To answer this question, I use real-life investment data collected at the largest German market for peer-to-peer lending. Investors' utility is assumed to be a function of the projects expected return and its standard deviation, whereas standard deviation serves as a measure of risk. Gender differences regarding the responses to projects' risk are tested by estimating a random parameter regression model that allows for variation of risk preferences across investors. Estimation results provide no evidence of gender differences in investors' risk propensity: On average, male and female investors respond similarly to the changes in the standard deviation of expected return. Moreover, no differences between male and female investors are found with respect to other characteristics of projects that may serve as a proxy for projects' risk. Significant gender differences in investors' tastes are found only with respect to preferred investment duration, purpose of investment project and borrowers' age.
    Keywords: gender, investment choice, risk preferences
    JEL: G11 G21 J16
    Date: 2011
  9. By: Cruces, Guillermo (CEDLAS-UNLP); Perez Truglia, Ricardo (Harvard University); Tetaz, Martin (CEDLAS-UNLP)
    Abstract: Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals’ evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents’ biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.
    Keywords: perceptions of income distribution, limited information, preferences for redistribution, field experiment
    JEL: D31 D83 H24 H53 I30
    Date: 2011–05
  10. By: Ludwig, Sandra; Wichardt, Philip C.; Wickhorst, Hanke
    Abstract: In this paper, we study the individual payoff effects of overconfident self-perception in teams. In particular, we demonstrate that the welfare of an overconfident agent in a team of one rational and one overconfident agent or a team of two overconfident agents can be higher than that of the members of a team of two rational agents. This result holds irrespective of the assumption about the agents' awareness of their colleague's bias. Moreover, we show that an overcondent agent is always better of when he is unaware of a potential bias of his colleague.
    Keywords: Overconfidence; Team Production
    JEL: D21 D62 L23
    Date: 2011–04
  11. By: Cheung, Stephen L. (University of Sydney)
    Abstract: This paper introduces new experimental designs to enrich understanding of conditional cooperation and punishment in public good games. The key to these methods is to elicit complete contribution or punishment profiles using the strategy method. It is found that the selfish bias in conditional cooperation is made significantly worse when other players contribute more unequally. Contingent punishment strategies are found to increase with decreasing contributions by the target player and also increasing contributions by a third player. "Antisocial" punishments are not directed specifically toward high contributors, but may be motivated by pre-emptive retaliation against punishment a player expects to incur.
    Keywords: conditional cooperation, selfish bias, punishment, public good experiment, strategy method
    JEL: C72 C91 D70 H41
    Date: 2011–05
  12. By: Duffy, Sean; Smith, John
    Abstract: We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). We find that the individual behavior of the subjects in the low load condition converges to the Subgame Perfect Nash Equilibrium prediction at a faster rate than those in the high load treatment. However, we do not find the corresponding relationship involving outcomes in the game. Specifically, there is no evidence of a significantly different convergence of game outcomes across treatments. As an explanation of these two results, we find evidence that low load subjects are better able to adjust their choice in response to outcomes in previous periods.
    Keywords: cognitive resources; experimental economics; experimental game theory; public goods game
    JEL: C72 C91
    Date: 2011–05–11
  13. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Nygaard, Knut (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: The debate between Engelmann and Strobel (2004, 2006) and Fehr, Naef, and Schmidt (2006) highlights the important question of the extent to which lab experiments on student populations can serve to identify the motivational forces present in society at large. We address this question by comparing the lab behavior of a student group and a non-student group, where the non-student group on all observable factors is almost identical to the representative adult population in Norway. All participants take part in exactly the same lab experiment. Our study shows that students may not be informative of the role of social preferences in the broader population. We nd that the representative participants differ fundamentally from students both in their level of selfishness and in the relative importance assigned to different moral motives. It is also interesting to note that while we do not find any substantial gender differences among the students, males and females in the representative group differ fundamentally in their moral motivation.
    Keywords: Representative sample; Social preferences; Laboratory experiment.
    JEL: C91 D63
    Date: 2010–11–15
  14. By: Gao, Zhifeng; Yu, Xiaohua
    Abstract: Another version will replace the current draft
    Keywords: choice experiment, milk, attribute information, Agribusiness, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Marketing,
    Date: 2011

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