nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒10‒09
fifteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Climate Change and Individual Decision Making: An Examination of Knowledge, Risk Perception, Self-interest and Their Interplay By Francesca Pongiglione
  2. Social Approval, Competition and Cooperation By Xiaofei (Sophia) Pan; Daniel Houser
  3. The Causal Effect of Market Participation on Trust: An Experimental Investigation Using Randomized Control By Omar Al-Ubaydli; Daniel Houser; John V.C. Nye; Maria Pia Paganelli; Xiaofei (Sophia) Pan
  4. Testing the Framework of Other-Regarding Preferences By M. Vittoria Levati; Aaron Nicholas; Birendra Rai
  5. Overconfidence and team-performance: An analysis of NBA-players' self-perception By Geyer, Hannah; Wickhorst, Hanke
  6. Overconfident for real? Proper scoring for confidence intervals By Michał Krawczyk
  7. The 'logic of gift' in business By Argandoña, Antonio
  8. Why without pay? Intrinsic motivation in unpaid labour supply By Bruna Bruno; Damiano Fiorillo
  9. Punish and Perish? By Angelo Antoci; Luca Zarri
  10. (Bad) Luck or (Lack of) Effort?: Comparing Social Sharing Norms between US and Europe. By Pedro Rey-Biel; Roman M. Sheremeta; Neslihan Uler
  11. Risk Aversion in the Large and in the Small By Haug, Jørgen; Hens, Thorsten; Wöhrmann, Peter
  12. Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs? By Congleton, Roger D.
  13. Double or Nothing!? Small Groups Making Decisions Under Risk in “Quiz Taxi” By Klemens Keldenich; Marcus Klemm
  14. Economic Sociology or Economic Imperialism? The Case of Gary C. Becker By Tittenbrun, Jacek S.
  15. A model of psychological ownership in next-generation members of family-owned firms: A qualitative study By Ceja, Lucia; Tapies, Josep

  1. By: Francesca Pongiglione (, Post-doctoral fellow, Università di Bologna, Visiting fellow, FEEM)
    Abstract: In this essay, three separate yet interconnected components of pro-environmental decision making are considered: (a) knowledge, in the form of basic scientific understanding and procedural knowledge, (b) risk perception, as it relates to an individual’s direct experience of climate change and (c) self-interest, either monetary or status-driven. Drawing on a variety of sources in public policy, psychology, and economics, I examine the role of these concepts in inducing or discouraging pro-environmental behavior. Past researches have often overemphasized the weight of just one of those variables in the decision making. I argue, instead, that none of them alone is capable of bringing about the behavioral change required by the environmental crisis. Evidence shows that increasing the public’s scientific knowledge of climate change cannot unilaterally bring about a strong behavioral change. The same can be noticed even when knowledge is joined by risk-perception: deep psychological mechanisms may steer people towards inaction and apathy, despite their direct experience of the detrimental effects of climate change on their lives. Focusing on self-interest alone is similarly unable to induce pro-environmental behavior, due to a host of psychological factors. Instead, in all of the above cases an important missing ingredient may be found in providing the public with locally contextualized procedural knowledge in order to translate its knowledge and concern into action. The importance of this kind of practical knowledge has solid empirical and theoretical underpinnings, and is often overlooked in the climate-change debate that tends to focus on more high-level issues. Yet, for all its essential simplicity, it may carry important public-policy implications.
    Keywords: Individual Behavior, Climate-Change, Psychology, Uncertainty
    JEL: D80 Q00
    Date: 2011–09
  2. By: Xiaofei (Sophia) Pan (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: HollŠnder (1990) argued that when non-monetary social approval from peers is sufficiently valuable, it works to promote cooperation. HollŠnder, however, did not define the characteristics of environments in which high valued approval is likely to occur. This paper provides evidence from a laboratory experiment indicating that people under competition value approval highly, but only when winners earn visible rewards through approval. The evidence implies that approvalÕs value is tied to signaling motives. Our findings point to new institutions that rely on reward, rather than punishment, to efficiently promote generosity in groups.
    Keywords: social approval, cooperation, signaling, competition
    JEL: D02 D64 H4
    Date: 2011–09
  3. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); John V.C. Nye (Department of Economics, George Mason University); Maria Pia Paganelli (Department of Economics, Trinity University); Xiaofei (Sophia) Pan (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: In randomized control laboratory experiments, we find that those primed to think about markets exhibit more trusting behavior. We randomly and unconsciously prime experimental participants to think about markets and trade. We then ask them to play a trust game involving an anonymous stranger. We compare the behavior of these individuals with that of a group who are not primed to think about anything in particular. Priming for market participation affects positively the beliefs about the trustworthiness of anonymous strangers, increasing trust.
    Keywords: trust, markets, institutions, belief, priming
    JEL: D02 D23 D64 D84 O12 O43 P10
    Date: 2011–09
  4. By: M. Vittoria Levati (Max Planck Institute of Economics, Jena, and Department of Economics, University of Verona); Aaron Nicholas (Graduate School of Business, Deakin University); Birendra Rai (Department of Economics, Monash University)
    Abstract: We assess the empirical validity of the overall theoretical framework of other-regarding preferences by focusing on those preference axioms that are common to all the prominent theories of outcome-based other-regarding preferences. This common set of preference axioms leads to a testable implication: the strict preference ranking of self over a finite number of alternatives lying on any straight line in the space of material payoffs to self and other will be single-peaked. The extent of single-peakedness varies from a high of 79% to a low of 54% across our treatments that are based on dictator and trust games. Positively and/or negatively other-regarding subjects are significantly less likely to report single-peaked rankings relative to self-regarding subjects. We delineate the potential reasons for violations of single-peakedness and discuss the implications of our findings for theoretical modeling of other-regarding preferences.
    Keywords: Other-regarding preferences, social preferences, decision making under risk, single-peaked preferences, experiments
    JEL: C70 C91 D63 D81
    Date: 2011–09–30
  5. By: Geyer, Hannah; Wickhorst, Hanke
    Abstract: We analyse the effect of overconfidence in a model of team-production with effort complementarities. We show that overconfidence may not only enhance an overconfident agent's effort but also that of a rational one. Focusing the agents' payoffs we see that this increase in effort can be to the agents' benefit, regardless whether they are rational or overconfident. We take this notion to NBA-data which we have gained from the season 2009/10 and see that players who have been identified as overconfident have a significantly positive effect on their team's success. -- Wir betrachten den Effekt von Overconfidence mit Hilfe eines intuitiven Modells einer Team-Produktion mit komplementären Arbeitseinsätzen. Es zeigt sich, dass Overconfidence nicht nur den Arbeitseinsatz des betroffenen Agenten erhöht, sondern gleichzeitig den eines rationalen Teammitglieds. Hieraus resultiert ein Nutzenvorteil für die Agenten, unabhängig davon, ob sie selbst rational oder overconfident sind. Daten der NBA-Saison von 2009/10 zeigen, dass Spieler, welche als overconfident identifiziert wurden, einen signifikant positiven Effekt auf den Erfolg ihres Teams haben.
    JEL: D21 D62 L23
    Date: 2011
  6. By: Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Studies show that people tend to provide overly narrow confidence intervals for unknown values. Such a form of overconfidence would have an important impact on financial markets, among other domains, leading i.a. to excessive trading. The present study is one of the very few that try to incentivize reporting correct confidence intervals. To this end, a reward scheme is proposed, based on a combination of asymmetric loss functions minimized by appropriate quantiles of a probability distribution. In the experiment I find that incentivized subjects provide wider confidence intervals, obtaining a higher hit rate than the control group. The effect is stronger than that of feedback and explicit warning. These findings suggest that the overly narrow confidence intervals reported elsewhere are partly due to an insufficient mental effort that subjects exert and that they can be induced to do so by the proposed incentive scheme.
    Keywords: overconfidence, calibration, confidence intervals, proper scoring rules
    JEL: C44 C91 D84
    Date: 2011
  7. By: Argandoña, Antonio (IESE Business School)
    Abstract: Traditionally, the Social Doctrine of the Church was founded on principles and virtues. Then, the Encyclical Letter Caritas in veritate introduced the "logic of gift" and the "principle of gratuitousness" as essential ingredients of economic life. In contrast, the traditional theory of the firm, based on contracts, has no place for love; and likewise, the economics of altruism and gift is inspired in self-interest, a paradigm that is alien to behavior ruled by love. This paper discusses the relationship between Benedict XVI's ideas on love and gift and the "logic of virtues", which has already been incorporated into the theory of the firm. Following an analysis of the concepts of love, gift and gratuitousness and of the role of virtues in management, a parallel is developed between acting in a virtuous way and "donating goods", material or otherwise, including developing virtues and "giving love". This argument is developed in three areas: the market (exchange of equivalents), the State (duty), and civil society (fraternity). The Encyclical underlines that the "logic of gift" should be present in all three, not only in the third sector.
    Keywords: Love; gift; gratuity/gratuitousness; virtue; theory firm;
    Date: 2011–07–15
  8. By: Bruna Bruno; Damiano Fiorillo (-)
    Abstract: Economic theory explains the supply of volunteering alternatively as an ordinary consumer good or an investment one. This paper provides a simultaneous approach considering both the objectives, by using the psychological distinction between intrinsic and extrinsic motivations, in order to reconcile conflicting results reported in the literature. According to the simultaneity approach, the paper develops a theoretical model of unpaid labour supply within an agent’s two-period utility maximization problem, taking into account the role of psychological motivation. The theoretical findings are tested with a sample selection model for Italy, by using 1997 Multipurpose Households Survey on everyday life issues of Istat. Robustness analysis and endogeneity test for intrinsic motivation are also performed. Empirical analysis rejects the hypothesis that only a consumption or investment motive could explain Italian volunteers’ behaviour, supporting the hypothesis that both motives interact in shaping regular unpaid labour supply, with a stronger impact of consumption motives. The relevant variables for frequently supplied unpaid labour are intrinsic motivation, age, household income, family responsibilities and activity sector.
    Keywords: Intrinsic motivation, investment and consumption motives, volunteering.
    JEL: C21 J22 Z13
    Date: 2011–03–31
  9. By: Angelo Antoci (DEIR, University of Sassari); Luca Zarri (Economics Department, University of Verona)
    Abstract: The evolution of large-scale cooperation among genetic strangers is a fundamental unanswered question in the social sciences. Behavioral economics has persuasively shown that so called ‘strong reciprocity’ plays a key role in accounting for the endogenous enforcement of cooperation. Insofar as strongly reciprocal players are willing to costly sanction defectors, cooperation flourishes. However, experimental evidence unambiguously indicates that not only defection and strong reciprocity, but also unconditional cooperation is a quantitatively important behavioral attitude. By referring to a prisoner’s dilemma framework where punishment (‘stick’) and rewarding (‘carrot’) options are available, here we show analytically that the presence of cooperators who don’t punish in the population makes altruistic punishment evolutionarily weak. We show that cooperation breaks down and strong reciprocity is maladaptive if costly punishment means ‘punishing defectors’ and, even more so, if it is coupled with costly rewarding of cooperators. In contrast, punishers don’t perish if cooperators, far from being rewarded, are sanctioned. These results, based on an extended notion of strong reciprocity, challenge evolutionary explanations of cooperation that overlook the ‘dark side’ of altruistic behavior.
    Keywords: Cooperation, Strong Reciprocity, Altruistic Punishment, Altruistic Rewarding, Heterogeneous Types
    JEL: C7 D7 Z1
    Date: 2011–08
  10. By: Pedro Rey-Biel (Universitat Autònoma de Barcelona, Departmento de Economía e Historia Económica); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University, USA); Neslihan Uler (Research Center for Group Dynamics, Institute for Social Research, University of Michigan)
    Abstract: We compare the determinants of individual giving between two countries, Spain and the US, which differ in their redistribution policies and their beliefs over the causes of poverty. By varying the information about the determinants of income, we find that, although overall giving is similar in both countries when subjects know the actual role of luck and effort, Spanish subjects give more when they are uninformed compared to American subjects. Using elicited beliefs, we find that this is due to Spanish subjects associating poverty with bad luck and Americans believing that low performers did not work hard enough.
    Keywords: individual giving, cross-cultural, beliefs, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2011
  11. By: Haug, Jørgen (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Hens, Thorsten (Dept. of Banking and Finance, University of Zurich); Wöhrmann, Peter (Dept. of Management Science and Engineering, Stanford University)
    Abstract: Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk aversion is similar whenever similar degrees of narrow framing is assumed in either setting.
    Keywords: Risk aversion; narrow framing; background wealth; laboratory experiments; market studies; equity premium puzzle
    JEL: D81 G11 G12
    Date: 2011–06–28
  12. By: Congleton, Roger D.
    Abstract: This paper provides a rational choice-based analysis of the causes and consequences of surprise events. The paper argues that ignorance may be rational, but nonetheless produce systematic mistakes, inconsistent behavior, and both pleasant and unpleasant surprises. If ignorance and unpleasant surprises are commonplace and relevant for individual and group decisionmaking, we should observe standing institutions for dealing with them - and we do. Insofar as surprises are consistent with rational choice models, but left outside most models, it can be argued that these methodological choices mistakenly limit the scope of rational choicebased research. --
    Keywords: Ignorance,Rational Ignorance,Natural Ignorance,Bounded Rationality,Rational Choice,Biased Expectations,Crisis Management,Social Insurance,Bailouts,Economics of Information
    JEL: D8 D6
    Date: 2011
  13. By: Klemens Keldenich; Marcus Klemm
    Abstract: This paper investigates the behavior of contestants in the game show “Quiz Taxi” when faced with the decision whether to bet the winnings they have acquired on a fi nal “double or nothing” question. The decision is made by groups of two or three persons. This set-up enables the decision making process to be studied by observing group communication. There is a strong correlation between communication content and the fi nal choice, indicating that, from the contestant‘s perspective, the decisions are rational and that the context is an important factor in the fi nal decision. This is particularly so for individual valuations of the money at stake. More extensive discussions help to make the right decision. As contestants do not apply to go on the show, they represent a less selected sample than those in previous game show studies. Overall, the contestants show risk averse behavior, suggesting CRRA-parameters larger than 1. The study also shows some heterogeneity in attitude to risk. Contestants who do better in the show are more likely to go for the risky option, because they are more knowledgeable and more confi dent. All-female groups are less likely and three-person groups more likely to choose the risky option.
    Keywords: Risk attitude; game show; communication; group decision
    JEL: C93 D70 D81
    Date: 2011–08
  14. By: Tittenbrun, Jacek S.
    Abstract: The paper is devoted to a critical analysis of a number of key theories by Gary S. Becker. It is commonly believed that his main accomplishment lies in the extension of the scope of an economic analysis to include numerous traditionally considered as non-economic phenomena. This extension, however, is only feasible at the expense of another extension – this time of the scope of the concepts used. This over-inclusiveness , in turn, makes his theories impossible to falsify, thus calling into question their scientific quality. In the process of considering particular Becker’s conceptions, i.e. human and social capital, the family, marriage and household and the polity a host of other specific drawbacks of Becker’s economic approach to social processes, often related to his ideological bias are indicated.
    Keywords: Becker; human capital; social capital; marriage; altruism; self-interest family
    JEL: A12
    Date: 2011–09–25
  15. By: Ceja, Lucia (IESE Business School); Tapies, Josep (IESE Business School)
    Abstract: The present research study is intended to provide further insights into the psychological ownership experienced by next-generation members in relation to their family firms. As this is still a very young area of research, explorative research is needed. Therefore, a mixed-methods qualitative investigation, using a sample of 20 next-generation members of family-owned firms of different sizes, generational stages and business sectors, was performed. Through interpretative phenomenological and ethnographic analyses, the origin, transmission and manifestations of psychological ownership towards the family business were studied. The study also explored the factors that foster or undermine the development of a healthy and fulfilling relationship between next-generation members and the family business. Our findings suggest that next-generation members generally experience strong levels of psychological ownership. The development of positive psychological ownership is associated with factors including shared experiences, well-functioning governance bodies, structured and planned entry to the business, psychological empowerment, and share ownership, among others.
    Keywords: next generation; psychological ownership; family-owned firms; qualitative research;
    Date: 2011–07–01

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