nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒05‒30
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. The currency of reciprocity - gift-exchange in the workplace By Kube, Sebastian; Maréchal, Michel André; Puppe, Clemens
  2. History, Expectations, and Leadership in the Evolution of Cooperation By Daron Acemoglu; Matthew O. Jackson
  3. Health Effects on Children's Willingness to Compete By Bartling, Björn; Fehr, Ernst; Schunk, Daniel
  4. Cardiovascular Consequences of Unfair Pay By Falk, Armin; Menrath, Ingo; Verde, Pablo Emilio; Siegrist, Johannes
  5. Funding a New Bridge in Rural Vietnam: A field experiment on conditional cooperation and default contributions By Carlsson, Fredrik; Johansson-Stenman, Olof; Pham Khanh, Nam
  6. Path dependence in technologies and organizations: a concise guide By Carolina Castaldi; Giovanni Dosi; Evita Paraskevopoulou
  7. Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics By Abeler, Johannes; Altmann, Steffen; Goerg, Sebastian; Kube, Sebastian; Wibral, Matthias
  8. Size Matters - When it Comes to Lies By Gerald Eisenkopf; Ruslan Gurtoviy; Verena Utikal
  9. Time for behavioral political economy? An analysis of articles in behavioral economics By Berggren, Niclas
  10. Higher Order Risk Attitudes, Demographics, and Financial Decisions By Noussair, C.N.; Trautmann, S.T.; Kuilen, G. van de
  11. Framing Effects and Expected Social Security Claiming Behavior By Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
  12. Should Economists Listen to Educational Psychologists? : Some Economics of Student Motivation By Donze, Jocelyn; Gunnes, Trude
  13. False Consciousness in Financial Markets: Or is it in Ivory Towers? By Adi Schnytzer; Sara Westreich
  14. Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence By Tibor Neugebauer
  15. Public Good and Private Good Valuation for Waiting, Time Reduction: A Laboratory Study By Tibor Neugebauer; Stefan Traub
  16. Asymmetric obligations By Riedel, Nadine; Schildberg-Hörisch, Hannah

  1. By: Kube, Sebastian; Maréchal, Michel André; Puppe, Clemens
    Abstract: What determines reciprocity in employment relations? We conducted a controlled field experiment to measure the extent to which monetary and non-monetary gifts affect workers' performance. We find that nonmonetary gifts have a much stronger impact than monetary gifts of equivalent value. We also observe that when workers are offered the choice, they prefer receiving the money but reciprocate as if they received a nonmonetary gift. This result is consistent with the common saying, 'it's the thought that counts.' We underline this point by showing that also monetary gifts can effectively trigger reciprocity if the employer invests more time and effort into the gift's presentation. --
    Keywords: field experiment,reciprocity,gift exchange,non-monetary gifts,in-kind gifts
    JEL: C93 J30
    Date: 2011
  2. By: Daron Acemoglu; Matthew O. Jackson
    Abstract: We study the evolution of the social norm of "cooperation" in a dynamic environment. Each agent lives for two periods and interacts with agents from the previous and next generations via a coordination game. "History" matters because agents only receive noisy information about the play of the previous generation and their interpretation of these signals is shaped by history. We characterize the conditions under which history completely drives equilibrium play, leading to a social norm of high or low cooperation. The impact of history is potentially countered by "prominent" agents, whose actions are more visible (in our baseline model, observed by all future agents), and who can leverage their greater visibility to influence expectations of other agents and overturn social norms of low cooperation. We also show that in equilibria not completely driven by history, there is a pattern of "reversion" whereby play starting with high (low) cooperation reverts toward lower (higher) cooperation. We study the evolution of the social norm of "cooperation" in a dynamic environment. Each agent lives for two periods and interacts with agents from the previous and next generations via a coordination game. "History" matters because agents only receive noisy information about the play of the previous generation and their interpretation of these signals is shaped by history. We characterize the conditions under which history completely drives equilibrium play, leading to a social norm of high or low cooperation. The impact of history is potentially countered by "prominent" agents, whose actions are more visible (in our baseline model, observed by all future agents), and who can leverage their greater visibility to influence expectations of other agents and overturn social norms of low cooperation. We also show that in equilibria not completely driven by history, there is a pattern of "reversion" whereby play starting with high (low) cooperation reverts toward lower (higher) cooperation.
    JEL: C72 C73 D7 P16 Z1
    Date: 2011–05
  3. By: Bartling, Björn (University of Zurich); Fehr, Ernst (University of Zurich); Schunk, Daniel (University of Zurich)
    Abstract: The formation of human capital is important for a society’s welfare and economic success. Recent literature shows that child health can provide an important explanation for disparities in children's human capital development across different socio-economic groups. While this literature focuses on cognitive skills as determinants of human capital, it neglects non-cognitive skills. We analyze data from economic experiments with preschoolers and their mothers to investigate whether child health can explain developmental gaps in children's non-cognitive skills. Our measure for children's non-cognitive skills is their willingness to compete with others. Our findings suggest that health problems are negatively related to children's willingness to compete and that the effect of health on competitiveness differs with socio-economic background. Health has a strongly negative effect in our sub-sample with low socioeconomic background, whereas there is no effect in our sub-sample with high socio-economic background.
    Keywords: willingness to compete, non-cognitive skills, human capital, health, household survey studies
    JEL: C90 I10 J24
    Date: 2011–05
  4. By: Falk, Armin (University of Bonn); Menrath, Ingo (University of Duesseldorf); Verde, Pablo Emilio (University of Duesseldorf); Siegrist, Johannes (University of Duesseldorf)
    Abstract: This paper investigates physiological responses to perceptions of unfair pay. In a simple principal agent experiment agents produce revenue by working on a tedious task. Principals decide how this revenue is allocated between themselves and their agents. In this environment unfairness can arise if an agent's reward expectation is not met. Throughout the experiment we record agents' heart rate variability. Our findings provide evidence of a link between perceived unfairness and heart rate variability. The latter is an indicator of stress-related impaired cardiac autonomic control, which has been shown to predict coronary heart diseases in the long run. Establishing a causal link between unfair pay and heart rate variability therefore uncovers a mechanism of how perceptions of unfairness can adversely affect cardiovascular health. We further test potential adverse health effects of unfair pay using data from a large representative data set. Complementary to our experimental findings we find a strong and highly significant association between health outcomes, in particular cardiovascular health, and fairness of pay.
    Keywords: fairness, social preferences, inequality, heart rate variability, health, experiments, SOEP
    JEL: D63 C91
    Date: 2011–05
  5. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Pham Khanh, Nam (Faculty of Development Economics, University of Ho Chi Minh City)
    Abstract: The ability to provide public goods is essential for economic and social development, yet there is very limited empirical evidence regarding contributions to a real local public good in developing countries. This paper analyzes a field experiment where 200 households in rural Vietnam could make real contributions to an archetypical public good, a bridge. In particular, we study the role of two kinds of social influence: i) conditional cooperation, i.e., that people may be more willing to cooperate if others do, and ii) the effects of the default alternative, i.e., that people are influenced by the default alternative presented to them in the choice situation. We find significant and substantial effects of both kinds of influence. For example, by either giving the subjects the additional information that one of the most common contributions by others is 100,000 dong (a relatively low contribution) or introducing a zero-contribution default alternative, the average contribution decreases by about 20% compared to the baseline case.
    Keywords: voluntary contribution; local public goods; social influence; default contribution; conditional cooperation; field experiment
    JEL: C93 Q50
    Date: 2011–05–19
  6. By: Carolina Castaldi; Giovanni Dosi; Evita Paraskevopoulou
    Abstract: The note on which an entry for the Palgrave Encyclopedia of Strategic Management will draw offers a beginner's guide to path dependency in technologies and organizations. We address the very meaning of the concept and its centrality in various aspects of economic analysis. We outline the various levels of the ecomic system in which it is observable, its sources, concequences and different formal representations of path dependent processes.
    Keywords: Path dependence, lock-in, dynamic increasing returns, organizational inertias
    Date: 2011–05–19
  7. By: Abeler, Johannes (University of Nottingham); Altmann, Steffen (IZA); Goerg, Sebastian (Max Planck Institute for Research on Collective Goods); Kube, Sebastian (University of Bonn); Wibral, Matthias (University of Bonn)
    Abstract: In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance schemes maximize efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.
    Keywords: incentives, wage setting, equity, gift exchange, reciprocity, incomplete contracts, organizational economics, laboratory experiments
    JEL: J33 D63 M52 C92 J41
    Date: 2011–05
  8. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Ruslan Gurtoviy (Department of Business Administration, University of Trier, Germany); Verena Utikal (Department of Economics, University of Erlangen-Nürnberg, Germany)
    Abstract: A small lie appears trivial but it obviously violates moral commandments. We analyze whether the preference for others’ truth telling is absolute or depends on the size of a lie. In a laboratory experiment we compare punishment for different sizes of lies controlling for the resulting economic harm. We find that people are sensitive to the size of a lie and that this behavioural pattern is driven by honest people. People who lie themselves punish softly in any context.
    Keywords: Lying, norm violation, punishment, experiment
    JEL: C91 D82
    Date: 2011–05–17
  9. By: Berggren, Niclas (The Ratio Institute)
    Abstract: This study analyzes leading research in behavioral economics to see whether it contains advocacy of paternalism and whether it addresses the potential cognitive limitations and biases of the policymakers who are going to implement paternalist policies. The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers. This suggests that behavioral political economy, in which the analytical tools of behavioral economics are applied to political decision-makers as well, would offer a useful extension of the research program.
    Keywords: Behavioral economics; Anomalies; Rationality; Homo economicus; Public choice
    JEL: D78
    Date: 2011–05–19
  10. By: Noussair, C.N.; Trautmann, S.T.; Kuilen, G. van de (Tilburg University, Center for Economic Research)
    Abstract: We conduct an experiment to study the prevalence of the higher order risk attitudes of prudence and temperance, in a large demographically representative sample, as well as in a sample of undergraduate students. Participants make pairwise choices between lotteries of the form proposed by Eeckhoudt and Schlesinger (2006). The choices in these lotteries isolate prudent from imprudent, and temperate from intemperate, behavior. We relate individuals’ risk aversion, prudence, and temperance levels to demographics and financial decisions. We observe that the majority of individuals’ decisions are consistent with risk aversion, prudence, and temperance, in both the student and the demographically representative sample. An individual’s level of prudence is predictive of his wealth, saving, and borrowing behavior outside of the experiment, while temperance predicts the riskiness of portfolio choices. Our findings suggest that the coefficient of relative prudence for a representative individual is approximately equal to two.
    Keywords: prudence;temperance;saving;portfolio choice;experiment
    JEL: C91 C93 D14 D81 E21
    Date: 2011
  11. By: Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
    Abstract: Eligible participants in the U.S. Social Security system may claim benefits anytime from age 62-70, with benefit levels actuarially adjusted based on the claiming age. This paper shows that individual intentions with regard to Social Security claiming ages are sensitive to how the early versus late claiming decision is framed. Using an experimental design, the authors find that the use of a "break-even analysis" has the very strong effect of encouraging individuals to claim early. They also show that individuals are more likely to report they will delay claiming when later claiming is framed as a gain, and when the information provides an anchoring point at older, rather than younger, ages. Moreover, females, individuals with credit card debt, and workers with lower expected benefits are more strongly influenced by framing. They conclude that some individuals may not make fully rational optimizing choices when it comes to choosing a claiming date.
    Date: 2011–04
  12. By: Donze, Jocelyn; Gunnes, Trude
    Abstract: This paper sheds light on the role of student motivation in the success of schooling. We develop a model in which a teacher engages in the management of student motivation through the choice of the classroom environment. We show that the teacher is able to motivate high-ability students, at least in the short run, by designing a competitive environment. For students with low ability, risk aversion, or when engaged in a long-term relationship, the teacher designs a classroom environment that is more focused on mastery and self-referenced standards. In doing so, the teacher helps to develop the intrinsic motivation of students and their capacity to overcome failures.
    Keywords: Education; Student Achievement; Intrinsic and Extrinsic Motivation; Effort; Goal Theory.
    JEL: I21
    Date: 2011–05–22
  13. By: Adi Schnytzer (Bar-Ilan University); Sara Westreich (Bar-Ilan University)
    Abstract: In general, models in finance assume that investors are risk averse. An example of such a recent model is the pioneering work of Aumann and Serrano, which presents an economic index of riskiness of gambles which is independent of wealth and holds (as might be understood from the adjective “economic”) for exclusively risk averse investors. In their paper, they discuss gambles with positive expected returns which will be accepted or rejected by agents which different levels of risk aversion. The question never asked by the authors (and in most of the finance literature) is: Who is offering these attractive gambles? To arrive at an answer, we extend the Aumann-Serrano risk index in such a way that it accommodates gambles with either positive or negative expectations and is thus suitable for both the risk averse and risk lovers. Once we allow for the existence of risk lovers, it may be shown that in financial markets, many gambles with negative expectations are taken either knowingly or unknowingly so that there are always people that act as if they are risk lovers. The paper concludes with a brief discussion of the implications of our result, in particular that gambling is by no means restricted to the casino or the track.
    Date: 2011–03
  14. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg)
    Abstract: The Petersburg paradox has led to much thought for three centuries. This paper describes the paradox, discusses its resolutions advanced in the literature while alluding to the historical context, and presents experimental data. In particular, Bernoulli’s search for the level of moral impossibility in the Petersburg problem is stressed; beyond this level small probabilities are considered too unlikely to be relevant for judgment and decision making. In the experiment, the level of moral impossibility is elicited through variations of the gamble-length in the Petersburg gamble. Bernoulli’s conjecture that people neglect small probability events is supported by a statistical power analysis.
    Keywords: Petersburg paradox; economic history; bounded rationality; significance level; experimental economics
    JEL: B3 C44 C9 D8 G1 N0
    Date: 2010
  15. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg); Stefan Traub (University of Bremen)
    Abstract: In a laboratory experiment subjects were endowed with money and waiting time. Preferences for waiting time reduction were elicited with salient rewards both as a private good and as a public good. The allocations of the public good that were theoretically predicted by the Nash equilibrium and the Lindahl equilibrium, respectively, were computed from the individual private good valuations and compared with the subjects’ actual contributions. We found a significant positive correlation between private good valuations in terms of willingness-to-pay and public good valuations in terms of voluntary contributions. Group contributions to public waiting time reduction significantly exceeded the non-cooperative prediction and were close to the socially optimal level. However, for a majority of subjects, the Lindahl equilibrium was not able to predict the observed contributions.
    Keywords: Cartel Stability, Delegation, Relative Performance Evaluation
    JEL: H41 D61 C90
    Date: 2011
  16. By: Riedel, Nadine; Schildberg-Hörisch, Hannah
    Abstract: We use a laboratory experiment to investigate the behavioral effects of obligations that are not backed by binding deterrent incentives. To implement such expressive law' we introduce different levels of very weakly incentivized, symmetric and asymmetric minimum contribution levels (obligations) in a repeated public goods experiment. The results provide evidence for a weak expressive function of law: while the initial impact of high obligations on behavior is strong, it decreases over time. Asymmetric obligations are as effective as symmetric ones. Our results are compatible with the argument that expressive law affects behavior by attaching an emotional cost of disobeying the own obligation. --
    Keywords: Non-binding Obligations,Expressive law,Public goods,Experiment
    JEL: C92 H41 K40
    Date: 2011

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