nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒08‒09
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Why training older employees is less effective By Zwick, Thomas
  2. Detecting and Reacting to Change: The Effect of Exposure to Narrow Categorizations By Amitav Chakravarti; Christina Fang; Zur Shapira
  3. The Minority Game Unpacked: Coordination and Competition in a Team-based Experiment By Giovanna Devetag; Francesca Pancotto; Thomas Brenner
  4. Spectators versus stakeholders with or without veil of ignorance: the difference it makes for justice and chosen distribution criteria By Leonardo Becchetti; Giacomo Degli Antoni; Stefania Ottone; Nazaria Solferino
  5. Risk preferences under heterogeneous environmental risk By Roland Olbrich; Martin F. Quaas; Andreas Haensler; Stefan Baumgaertner
  6. What drives failure to maximize payoffs in the lab ? A test of the inequality aversion hypothesis By Nicolas Jacquemet; Adam Zylbersztejn
  7. Considerateness By Edna Ullmann-Margalit
  8. The importance of time series extrapolation for macroeconomic expectations By Michael W.M. Roos; Ulrich Schmidt
  9. Commitments to save : a field experiment in rural Malawi By Brune, Lasse; Gine, Xavier; Goldberg, Jessica; Yang, Dean
  10. Measuring aversion to debt: an experiment among student loan candidates By Caetano, Gregorio; Patrinos, Harry A.; Palacios, Miguel
  11. Overconfidence Increases Productivity By Yusuke Kinari; Noriko Mizutani; Fumio Ohtake; Hiroko Okudaira
  12. Surfing Alone? The Internet and Social Capital: Evidence from an Unforeseen Technological Mistake By Stefan Bauernschuster; Oliver Falck; Ludger Wößmann
  13. Bias in the Legal Profession: Self-Assessed versus Statistical Measures of Discrimination By Heather Antecol; Deborah Cobb-Clark; Eric Helland

  1. By: Zwick, Thomas
    Abstract: This paper shows that training of older employees is less effective. Training effectiveness is measured with respect to key dimensions such as career development, earnings, adoption of new skills, flexibility or job security. Older employees also pursue less ambitious goals with their training participation. An important reason for these differences during the life cycle might be that firms do not offer the 'right' training forms and contents. Older employees get higher returns from informal and directly relevant training and from training contents that can be mainly tackled by crystallised abilities. Training incidence in the more effective training forms is however not higher for older employees. Given that other decisive variables on effectiveness such as training duration, financing and initiative are not sensitive to age, the wrong allocation of training contents and training forms therefore is critical for the lower effectiveness of training. --
    Keywords: Training,Older Employees,Linked-Employer-Employee Data
    JEL: J10 J24 J28
    Date: 2011
  2. By: Amitav Chakravarti; Christina Fang; Zur Shapira
    Abstract: The ability to detect a change, to accurately assess the magnitude of the change, and to react to that change in a commensurate fashion are of critical importance in many decision domains. Thus, it is important to understand the factors that systematically affect people’s reactions to change. In this article we document a novel effect: Decision makers’ reactions to a change (e.g., a visual change, a technology change) were systematically affected by the type of categorizations they encountered in an unrelated prior task (e.g., the response categories associated with a survey question). We found that prior exposure to narrow, as opposed to broad, categorizations improved decision makers’ ability to detect change and led to stronger reactions to a given change. These differential reactions occurred because the prior categorizations, even though unrelated, altered the extent to which the subsequently presented change was perceived as either a relatively large change or a relatively small one.
    Date: 2011–08
  3. By: Giovanna Devetag; Francesca Pancotto; Thomas Brenner
    Abstract: In minority games, players in a group must decide at each round which of two available options to choose, knowing that only subjects who picked the minority option obtain a positive reward. Previous experiments on the minority and similar congestion games have shown that players interacting repeatedly are remarkably able to coordinate efficiently, despite not conforming to Nash equilibrium behavior. We conduct an experiment on a minority-of-three game in which each player is a team composed by three subjects. Each team can freely discuss its strategies in the game and decisions must be made via a majority rule. Team discussions are recorded and their content analyzed to detect evidence of strategy co-evolution among teams playing together. Our main results of team discussion analysis show no evidence supporting the mixed strategy Nash equilibrium solution, and support a low-rationality, backward-looking approach to model behavior in the game, more consistent with reinforcement learning models than with belief-based models. Showing level-2 rationality (i.e., reasoning about others' beliefs) is positively and significantly correlated with higher than average earnings in the game, showing that a mildly sophisticated approach pays off. In addition, teams that are more successful tend to become more egocentric over time, paying more attention to their own past successes than to the behavior of other teams. Finally, we find evidence of mutual adaptation over time, as teams that are more strategic (i.e., they pay more attention to other teams' moves) induce competing teams to be more egocentric instead. Our results contribute to the understanding of coordination dynamics resting on heterogeneity and co-evolution of decision rules rather than on conformity to equilibrium behavior. In addition, they provide support at the decision process level to the validity of modeling behavior using low-rationality reinforcement learning models.
    Keywords: coordination, minority game, market efficiency, information, self-organization, reinforcement learning
    JEL: C72 C91 C92
    Date: 2011
  4. By: Leonardo Becchetti (Department of Economics, Universitˆ Tor Vergata); Giacomo Degli Antoni (University of Milano-Bicocca); Stefania Ottone (University of Milano-Bicocca); Nazaria Solferino (University of Calabria-Unical)
    Abstract: We document with a randomized experiment that being spectators and, to a lesser extent, stakeholders with veil of ignorance on relative payoffs, induces subjects who can choose distribution criteria to prefer rewarding talent (vis à vis effort, chance or strict egalitarianism) after guaranteeing a minimal egalitarian base. The removal of the veil of ignorance reduces dramatically such choice since most players opt or revise their decision in favour of the criterion which maximizes their own payoff (and, by doing so, end up being farther from the maximin choice). Large part (but not all) of the stakeholders? choices before the removal of the veil of ignorance are driven by their performance beliefs since two thirds of them choose under the veil the criterion in which they assume to perform relatively better.
    Keywords: Distributive Justice; Perceived Fairness; Talent, Chance and Effort; Veil of Ignorance
    JEL: C91 D63
    Date: 2011–08
  5. By: Roland Olbrich (Department of Sustainability Sciences and Department of Economics, Leuphana University of Lueneburg, Germany); Martin F. Quaas (Department of Economics, University of Kiel, Germany); Andreas Haensler (Terrestrial Hydrology Group, Max-Planck-Institute for Meteorology, Hamburg, Germany); Stefan Baumgaertner (Department of Sustainability Sciences and Department of Economics, Leuphana University of Lueneburg, Germany)
    Abstract: We study risk preferences and their determinants for commercial cattle farmers in Namibia who are subject to high and heterogeneous precipitation risk, using data from questionnaire and field experiments, simulated data for on-farm precipitation risk and data on famers’ previous place of residence. We find that the relationship between risk preferences and precipitation risk is contingent on early-life experience with this risk. We also find that adult farmers self-select themselves onto farms according to their risk preferences. Results are not confounded by background risks or liquidity constraint.
    Keywords: risk preferences, environmental risk, experimental elicitation, endogenous preferences, self-selection, field experiment
    JEL: D81 Q12 Q57
    Date: 2011–08
  6. By: Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Adam Zylbersztejn (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In experiments based on the Beard and Beil (1994) game, second movers very often fail to select the decision that maximizes both players payoff. This note reports on a new experimental treatment, in which we neutralize the potential effect of inequality aversion on the likelihood of this behavior. We show this behavior is robust to this change, even after allowing for repetition-based learning.
    Keywords: Coordination failure, laboratory experiments, aversion to inequality.
    Date: 2011–06
  7. By: Edna Ullmann-Margalit
    Abstract: A stranger entering the store ahead of you may hold the door open so it does not slam in your face, or your daughter may tidy up the kitchen when she realizes that you are very tired: both act out of considerateness. In acting considerately one takes others into consideration. The considerate act aims at contributing to the wellbeing of somebody else at a low cost to oneself. Focusing on the extreme poles of the spectrum of human relationships, I argue that considerateness is the foundation upon which our relationships are to be organized in both the thin, anonymous context of the public space and the thick, intimate context of the family. The first part of the paper, sections I–III, explores the idea that considerateness is the minimum that we owe to one another in the public space. By acting considerately toward strangers we show respect to that which we share as people, namely, to our common humanity. The second part, sections IV–VIII, explores the idea that the family is constituted on a foundation of considerateness. Referring to the particular distribution of domestic burdens and benefits adopted by each family as its “family deal,” I argue that the considerate family deal embodies a distinct, family-oriented notion of fairness. The third part, sections IX–XV, takes up the notion of family fairness, contrasting it with justice. In particular I take issue with Susan Okin's notion of the just family. Driving a wedge between justice and fairness, I propose an idea of family fairness that is partial and sympathetic rather than impartial and empathic, particular and internal rather than generalizable, and based on ongoing comparisons of preferences among family members. I conclude by characterizing the good family as the not-unjust family that is considerate and fair.
    Date: 2011–07
  8. By: Michael W.M. Roos; Ulrich Schmidt
    Abstract: This paper presents a simple experiment on how laypeople form macroeconomic expectations. Subjects have to forecast inflation and GDP growth. By varying the information provided in different treatments, we can assess the importance of historical time-series information versus information acquired outside the experimental setting such as knowledge of expert forecasts. It turns out that the availability of historical data has a dominant impact on expectations and wipes out the influence of outside-lab information completely. Consequently, backward-looking behavior can be identified unambiguously as a decisive factor in expectation formation
    Keywords: expectations, macroeconomic experiment, use of information, inflation forecasts
    JEL: D83 D84 E37
    Date: 2011–08
  9. By: Brune, Lasse; Gine, Xavier; Goldberg, Jessica; Yang, Dean
    Abstract: This paper reports the results of a field experiment that randomly assigned smallholder cash crop farmers formal savings accounts. In collaboration with a microfinance institution in Malawi, the authors tested two primary treatments, offering either: 1)"ordinary"accounts, or 2) both ordinary and"commitment"accounts. Commitment accounts allowed customers to restrict access to their own funds until a future date of their choosing. A control group was not offered any account but was tracked alongside the treatment groups. Only the commitment treatment had statistically significant effects on subsequent outcomes. The effects were positive and large on deposits and withdrawals immediately prior to the next planting season, agricultural input use in that planting, crop sales from the subsequent harvest, and household expenditures in the period after harvest. Across the set of key outcomes, the commitment savings treatment had larger effects than the ordinary savings treatment. Additional evidence suggests that the positive impacts of commitment derive from keeping funds from being shared with one's social network.
    Keywords: Economic Theory&Research,Emerging Markets,Banks&Banking Reform,Debt Markets,Rural Poverty Reduction
    Date: 2011–08–01
  10. By: Caetano, Gregorio; Patrinos, Harry A.; Palacios, Miguel
    Abstract: This paper reports the results of an experiment designed to test for the presence of debt aversion. The population who participated in the experiment were recent financial aid candidates and the experiment focused on student loans. The goal is to shed new light on different aspects of the perceptions with respect to debt. These perceptions can prevent agents from choosing an optimal portfolio or from undertaking attractive investment opportunities, such as in education. The study design disentangles two types of debt aversion: one that is studied in the previous literature, which encompasses both framing and labeling effects, and another that controls for framing effects and identifies only what we denote labeling debt aversion. The results suggest that participants in the experiment exhibit debt aversion, and most of the debt aversion is due to labeling effects. Labeling a contract as a"loan"'decreases its probability of being chosen over a financially equivalent contract by more than 8 percent. The analysis also provides evidence that students are willing to pay a premium of about 4 percent of the financed value to avoid a contract labeled as debt.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution ofFinancial Distress,Economic Theory&Research,Tertiary Education
    Date: 2011–07–01
  11. By: Yusuke Kinari; Noriko Mizutani; Fumio Ohtake; Hiroko Okudaira
    Abstract: Recent studies report that productivity increases under tournament reward structures than under piece rate reward structures. We conduct maze-solving experiments under both reward structures and reveal that overconfidence is a significant factor in increasing productivity. Specifically, subjects exhibiting progressively higher degrees of overconfidence solve more mazes. This result shows a positive aspect of overconfidence, which usually has been examined in its negative aspect as an expectation bias.
    Date: 2011–08–01
  12. By: Stefan Bauernschuster; Oliver Falck; Ludger Wößmann
    Abstract: Does the Internet undermine social capital or facilitate inter-personal and civic engagement in the real world? Merging unique telecommunication data with geo-coded German individual-level data, we investigate how broadband Internet affects several dimensions of social capital. One identification strategy uses panel information to estimate value-added models. A second exploits a quasi-experiment in East Germany created by a mistaken technology choice of the state-owned telecommunication provider in the 1990s that still hinders broadband Internet access for many households. We find no evidence that the Internet reduces social capital. For some measures including children’s social activities, we even find significant positive effects.
    Keywords: Internet, social capital
    JEL: Z13 J24
    Date: 2011
  13. By: Heather Antecol (The Robert Day School of Economics and Finance, Claremont McKenna College; and Institute for the Study of Labor (IZA)); Deborah Cobb-Clark (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and Institute for the Study of Labor (IZA)); Eric Helland (The Robert Day School of Economics and Finance, Claremont McKenna College)
    Abstract: Legal cases are generally won or lost on the basis of statistical discrimination measures, but it is workers’ perceptions of discriminatory behavior that are important for understanding many labor-supply decisions. Workers who believe that they have been discriminated against are more likely to subsequently leave their employers and it is almost certainly workers' perceptions of discrimination that drive formal complaints to the EEOC. Yet the relationship between statistical and self-assessed measures of discrimination is far from obvious. We expand on the previous literature by using data from the After the JD (AJD) study to compare standard Blinder-Oaxaca measures of earnings discrimination to self-reported measures of (i) client discrimination; (ii) other work-related discrimination; and (iii) harassment. Overall, our results indicate that conventional measures of earnings discrimination are not closely linked to the racial and gender bias that new lawyers believe they have experienced on the job. Statistical earnings discrimination is only occasionally related to increases in self-assessed bias and when it is the effects are very small. Moreover, statistical earnings discrimination does not explain the disparity in self-assessed bias across gender and racial groups.
    Keywords: Labour market discrimination, lawyers, gender and racial bias, wages
    JEL: J71 J15 J16 J44
    Date: 2011–07
  14. By: Dave Valliere (Ted Rogers School of Management, Ryerson University)
    Abstract: This article is an investigation into the causes of entrepreneurial alertness, the ability of entrepreneurs to spot new business opportunities in the environment. By drawing from decision theory and schema theory, a model is developed to show how changes in the environment are mediated by entrepreneurial alertness and brought to the situated attention of entrepreneurs for evaluation. Entrepreneurial alertness is seen to be the application of unique schemata that allow the entrepreneur to impute meaning to environmental change that would not be imputed by other managers. It is argued that this arises from differences in schematic richness, schematic association, and schematic priming. These three antecedents may therefore form a basis on which enhanced entrepreneurial alertness can be developed
    Keywords: Entrepreneurship; Entrepreneurial alertness, Opportunity spotting; Growth and innovation; SME development
    JEL: M0
    Date: 2011–03

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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