nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒07‒13
fifteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment By T. Brenner; G. Devetag; F. Pancotto
  2. Paradoxes and Mechanisms for Choice under Risk By James C. Cox; Vjollca Sadiraj; Ulrich Schmidt
  3. The Persistence of "Bad" Precedents and the Need for Communication: A Coordination Experiment By Dietmar Fehr
  4. The Experimental Economics of Religion By Robert Hoffmann
  5. When Do Groups Perform Better than Individuals? A Company Takeover Experiment By M. Casari; J. Zhang; C. Jackson
  6. Motivational Cherry Picking By Tobias Regner; Gerhard Riener
  7. A Novel Computerized Real Effort Task Based on Sliders By Gill, David; Prowse, Victoria L.
  8. Moral Emotions and Partnership By Jürgen Bracht; Tobias Regner
  9. Fair Wages When Employers Face the Risk of Losing Money By Karina Gose; Abdolkarim Sadrieh
  10. Which Measures of Time Preference Best Predict Outcomes? Evidence from a Large-Scale Field Experiment By Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz; Rustichini, Aldo
  11. Corporate Social Responsibility in the work place - Experimental evidence on CSR from a gift-exchange game By Hannes Koppel; Tobias Regner
  12. Goals and Psychological Accounting By Koch, Alexander K.; Nafziger, Julia
  13. On Individual Cursedness - How personality shapes individuals' sensitivity to incur a winner's curse - By Nadine Chlaß
  14. A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts By Gautier, Pieter; van Vuuren, Aico
  15. Mattresses versus Banks - The Effect of Trust on Portfolio Composition By Tom Coupe

  1. By: T. Brenner; G. Devetag; F. Pancotto
    Abstract: While in the literature participants' behavior in minority games has been extensively studied, nobody so far has made the eort to open the black box of strategic arguments and considerations laying behind this behavior. To this aim we use an experimental setting in which decisions behind behaviors are analyzed tracking down decisional processes and participants reasoning as the result of transcribed video recorded sessions of teams that constitute decisional units. Such discussions are then analyzed with Content Analysis. Results show the relevance of others' behavior as well as the own history of choices and payoffs, while theoretical solutions based on game understanding as well as randomization as hypothesized by game theoretical solutions, are rare. Secondly, co-evolution between arguments is present: teams that tend to be more strategic, induce the opposite attitude in opponent teams.
    JEL: C72 C91 C92
    Date: 2011–07
  2. By: James C. Cox; Vjollca Sadiraj; Ulrich Schmidt
    Abstract: Experiments on choice under risk typically involve multiple decisions by individual subjects. The choice of mechanism for selecting decision(s) for payoff is an essential design feature that is often driven by appeal to the isolation hypothesis or the independence axiom. We report two experiments with 710 subjects. Experiment 1 provides the first simple test of the isolation hypothesis. Experiment 2 is a crossed design with six payoff mechanisms and five lottery pairs that can elicit four paradoxes for the independence axiom and dual independence axiom. The crossed design discriminates between: (a) behavioral deviations from postulated properties of payoff mechanisms; and (b) behavioral deviations from theoretical implications of alternative decision theories. Experiment 2 provides tests of the isolation hypothesis and four paradoxes. It also provides data for tests for portfolio effect, wealth effect, reduction, adding up, and cross-task contamination. Data from Experiment 2 suggest that a new mechanism introduced herein may be less biased than random selection of one decision for payoff
    Keywords: isolation, mechanisms, paradoxes, independence, dual independence, cross-task contamination, portfolio effect, wealth effect, reduction, adding-up
    JEL: C91 D81
    Date: 2011–06
  3. By: Dietmar Fehr
    Abstract: Precedents can facilitate successful coordination within groups by reducing strategic uncertainty, but they may lead to coordination failure when two groups with diverging precedents have to interact. This paper describes an experiment to explore how such coordination failure can be mitigated and whether subjects are aware of it. In an initial phase, groups were able to establish a precedent in a repeated weakest-link game, and in a second phase two groups with dierent precedents are merged into a larger group. As expected, this leads to coordination failures. Unlike most of the previous literature, subjects could endogenously choose to communicate in the merged group for a small fee. The results suggest that communication can mitigate the coordination failure in the merged group and, in most cases, leads to efficient coordination. However, subjects in particular from groups with an efficient precedent in the initial phase are inattentive to the potential coordination failure and choose not to communicate. This can have profound consequences since groups who fail to implement communication are unable to achieve efficient coordination in the second phase. The results may be useful for the understanding of how groups learn to solve coordination problems from past coordination success or failure.
    Keywords: coordination, precedent, costly communication, cheap talk
    JEL: C72 C92 D23 L23
    Date: 2011–06
  4. By: Robert Hoffmann (Nottingham University Business School)
    Abstract: This article surveys the experimental economics approach to the study of religion. The field has a place in the context of the scientific study of religion generally and the social psychology of religion in particular, but employs distinct economic methods which promise new and different insights. In particular, certain features of the experimental approach as used by economists such as incentive compatibility are particularly appropriate for studying the effect of religion on individual behaviour. The paper discusses results obtained so far in terms of two roles of religion in shaping individual behaviour, i.e. as a social group identifier and as a set of values.
    Keywords: Religion, Religiosity, Experiments
    Date: 2011–06–28
  5. By: M. Casari; J. Zhang; C. Jackson
    Abstract: It is still an open question when groups will perform better than individuals in intellectual tasks. We report that in a company takeover experiment, groups placed better bids than individuals and substantially reduced the winner’s curse. This improvement was mostly due to peer pressure over the minority opinion and to group learning. Learning took place from interacting and negotiating consensus with others, not simply from observing their bids. When there was disagreement within a group, what prevailed was not the best proposal but the one of the majority. Groups underperformed with respect to a “truth wins” benchmark although they outperformed individuals deciding in isolation.
    JEL: C91 C92 D81
    Date: 2011–06
  6. By: Tobias Regner (Max Planck Institute of Economics, Jena, Germany); Gerhard Riener (Friedrich Schiller University and Max Planck Institute of Economics, Jena, Germany)
    Abstract: We construct a simple three person trust game with one trustor and two trustees. The trustor has the possibility to either trust both trustees or none, while the trustees make their decisions either sequentially or simultaneously, depending on the treatment. When trustees play sequentially, follower trustees who are informed about the leader's choice are significantly less kind than in the simultaneous move treatment as well as the leader trustees. These findings can not be explained by models of inequity aversion, pure guilt aversion, or conformity. Instead, follower trustees cherry pick the motivation that serves them best. When the leader trustee played unkind, they tend to conform and play unkind, too. When the leader made a kind choice, followers seem to perceive the duty of reciprocating to the trustor as already fulfilled by the leader. While guilt works well as a motivational force in a dyadic situation, it gets alleviated easily when there is someone to shift responsibility to, like the leader in our three person game.
    Keywords: Team production, Trust, Principal Agent, Guilt, Guilt alleviation, Conformity, False consensus effect, Lab experiment, Cherry picking
    JEL: D71 C79 C92
    Date: 2011–06–28
  7. By: Gill, David (University of Southampton); Prowse, Victoria L. (University of Oxford)
    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 (American Economic Review, 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 behavior 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.
    Keywords: real effort task, slider task, design of laboratory experiments, learning and time effects, Individual heterogeneity
    JEL: C90 C91
    Date: 2011–06
  8. By: Jürgen Bracht (University of Aberdeen, United Kingdom); Tobias Regner (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Actual behaviour is influenced in important ways by moral emotions, for instance guilt or shame (see among others Tangney et al., 2007). Belief-dependant models of social preferences using the framework of psychological games aim to consider such emotions to explain other-regarding behaviour. Our study links recent advances in psychological theory on moral emotions to belief-dependant models in economics. We find that - in addition to the positive effect of second-order beliefs and promises - individuals' disposition to guilt (their proneness to respond in an evaluative way to personal transgressions) is an important determinant of kind behaviour. This applies to private as well as public settings.
    Keywords: social preferences, other-regarding behaviour, experiments, psychological game theory, guilt aversion, shame, beliefs, emotions, partnership
    JEL: C70 C91 D82
    Date: 2011–06–28
  9. By: Karina Gose (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: We study the behavior of employers and employees in a gift exchange game and find that employers offer lower wages when there is the risk of losing money. This, however, does not lead to lower effort level choices. In fact, effort per wage unit is significantly higher in the treatment with potential employer losses. This result can be in line with social comparison theories that are based on relative payoff differences. Alternatively, this result is also in line with the hypothesis that the risk of losing money increases the credibility of the employer's trust signal and, thus, the employee's reciprocity.
    Keywords: fair wage, efficiency wage, social comparison, loss aversion
    JEL: C92 J41
    Date: 2011–04
  10. By: Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Rustichini, Aldo (University of Minnesota)
    Abstract: Economists and psychologists have devised numerous instruments to measure time preferences and have generated a rich literature examining the extent to which time preferences predict important outcomes; however, we still do not know which measures work best. With the help of a large sample of non-student participants (truck driver trainees) and administrative data on outcomes, we gather four different time preference measures and test the extent to which they predict both on their own and when they are all forced to compete head-to-head. Our results suggest that the now familiar (β, δ) formulation of present bias and exponential discounting predicts best, especially when both parameters are used.
    Keywords: time preference, impatience, discounting, present bias, field experiment, trucker
    JEL: C93 D90
    Date: 2011–06
  11. By: Hannes Koppel (Max Planck Institute of Economics, Jena); Tobias Regner (Max Planck Institute of Economics, Jena)
    Abstract: We analyze the effect of investments in corporate social responsibility (CSR) on workers' motivation. In our experiment, a gift exchange game variant, CSR is captured by donating a certain share of profits to a charity. We are testing for CSR effects by varying the possible share of profits given away. Additionally, we investigate the effect of a mission match, i.e., a worker prefering the same charity the firm is actually donating to. Our results show that on average workers reciprocate investments into CSR with increased effort. A mission match does result in higher effort, but only when investment into CSR is high.
    Keywords: Corporate Social Responsibility, gift-exchange game, experiment, labor market, incentives
    JEL: C73 C91 J01 M14 M52
    Date: 2011–06–30
  12. By: Koch, Alexander K. (University of Aarhus); Nafziger, Julia (University of Aarhus)
    Abstract: We model how people formulate and evaluate goals to overcome self-control problems. People often attempt to regulate their behavior by evaluating goal-related outcomes separately (in narrow psychological accounts) rather than jointly (in a broad account). To explain this evidence, our theory of endogenous narrow or broad psychological accounts combines insights from the literatures on goals and mental accounting with models of expectations-based reference-dependent preferences. By formulating goals the individual creates expectations that induce reference points for task outcomes. These goal-induced reference points make substandard performance psychologically painful and motivate the individual to stick to his goals. How strong the commitment to goals is depends on the type of psychological account. We provide conditions when it is optimal to evaluate goals in narrow accounts. The key intuition is that broad accounts make decisions or risks in different tasks substitutes and thereby create incentives to deviate from goals. Model extensions explore the robustness of our results to different timing assumptions and goal and account revision.
    Keywords: quasi-hyperbolic discounting, reference-dependent preferences, loss aversion, self-control, mental accounting, goals
    JEL: A12 C70 D81 D91
    Date: 2011–06
  13. By: Nadine Chlaß (School of Economics and Business Administration FSU Jena)
    Abstract: The winner's curse is a well-known deviation from rational self-interest in decision-making under asymmetric information. Yet, most prominent explanations for the curse have experimentally been ruled out so far. In particular, the curse did neither seem to emanate from a lack of experience with a given task (Grosskopf et al. 2007), nor from the complexity of the decision task, nor level-k thinking, nor a disability to infer information from others' actions (Charness and Levin 2009), (Ivanov et al. 2010). This paper elicits individuals' sensitivity to incur a winner's curse in a common-value auction where the explanations above do not apply, tracks down the potential source of the curse, and tests to what extent individuals' cursedness evolves (Fudenberg 2006). It finds that the curse is tightly associated with a relatively stable individual characteristic - individuals' personality traits. Personality traits explain individuals' initial cursedness, and also govern whether individuals unlearn, or instead, acquire the curse. I review biological evidence on how personality influences individuals' handling of information to explain why personality matters here.
    Keywords: asymmetric information, winner's curse, personality traits
    JEL: D82 D83
    Date: 2011–06–28
  14. By: Gautier, Pieter (VU University Amsterdam); van Vuuren, Aico (VU University Amsterdam)
    Abstract: When agents have present bias, they discount more between now and the next period than between period t (> 1) and t + 1. How fast the future discount rate (evaluated today) decays is an empirical question. We show that the discount function can be non-parametrically identified with contracts that specify payments that take place at various points in time in the future and which are traded and priced in a competitive market. We use a unique land lease-contract data set for Amsterdam, which has the above properties, to test for present bias in a flexible way. We find no evidence for present bias in this market. Even though we allow for a general-hyperbolic specification (which has exponential discounting as a special case), our estimates converge to an exponential discount function with a corresponding discount rate (in our baseline specification) of 8 %.
    Keywords: present bias, hyperbolic discounting, discount rate, hedonic estimation
    JEL: C52 D12
    Date: 2011–06
  15. By: Tom Coupe (Kyiv School of Economics, Kyiv Economic Institute)
    Abstract: This paper adds to the growing literature that studies whether trust affects the financial decisions of people. More specifically, we investigate whether lack of trust in banks can explain why people save their savings in cash, ‘under the mattress’, rather than deposit their savings at the bank. We find a significant effect of lack of trust on the likelihood that a person saves money in cash but also that lack of trust can only provide part of the explanation for the ‘money under the mattress’ phenomenon. Other factors that matter are the financial awareness and access to bank services.
    Keywords: trust, bank deposits, cash savings, financial awareness
    JEL: G21 O16
    Date: 2011–06

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