nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒12‒19
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Naturalizing institutions: Evolutionary principles and application on the case of money By Herrmann-Pillath, Carsten
  3. See No Evil: Information Chains and Reciprocity in Teams By Roi Zultan; Eva-Maria Steiger
  4. Poverty and Aspirations Failure By Dalton, P.S.; Ghosal, S.
  5. Towards an Incentive Salience Model of Intertemporal Choice By Leonhard K. Lades
  6. Household finances and the 'Big Five' personality traits By Sarah Brown; Karl Taylor
  7. Economic literacy and inflation expectations: evidence from a laboratory experiment By Mary A. Burke; Michael Manz
  8. Games with synergistic preferences By Julian C. Jamison
  9. Managing self-confidence: theory and experimental evidence By Markus Mobius; Muriel Niederle; Paul Niehaus; Tanya S. Rosenblat
  10. Truth, trust, and sanctions: On institutional selection in sender-receiver games By Ronald Peeters; Marc Vorsatz; Markus Walzl
  11. Alcohol Myopia and Risk Taking By Alejandro T. Moreno-Okuno; Emiko Masaki
  12. Higher-Order Risk Preferences – Consequences for Test and Treatment Thresholds and Optimal Cutoffs By Stefan Felder; Thomas Mayrhofer
  13. Is it a good idea to optimise question format for mode of data collection? Results from a mixed modes experiment By Nicolaas, Gerry; Campanelli, Pamela C.; Hope, Steven; Jäckle, Annette; Lynn, Peter

  1. By: Herrmann-Pillath, Carsten
    Abstract: In recent extensions of the Darwinian paradigm into economics, the replicator-interactor duality looms large. I propose a strictly naturalistic approach to this duality in the context of the theory of institutions, which means that its use is seen as being always and necessarily dependent on identifying a physical realization. I introduce a general framework for the analysis of institutions, which synthesizes Searle's and Aoki's theories, especially with regard to the role of public representations (signs) in the coordination of actions, and the function of cognitive processes that underly rule-following as a behavioral disposition. This allows to conceive institutions as causal circuits that connect the population-level dynamics of interactions with cognitive phenomena on the individual level. Those cognitive phenomena ultimately root in neuronal structures. So, I draw on a critical restatement of the concept of the meme by Aunger to propose a new conceptualization of the replicator in the context of institutions, namely, the replicator is a causal conjunction between signs and neuronal structures which undergirds the dispositions that generate rule-following actions. Signs, in turn, are outcomes of population-level interactions. I apply this framework on the case of money, analyzing the emotions that go along with the use of money, and presenting a stylized account of the emergence of money in terms of the naturalized Searle-Aoki model. In this view, money is a neuronally anchored metaphor for emotions relating with social exchange and reciprocity. Money as a meme is physically realized in a replicator which is a causal conjunction of money artefacts and money emotions. --
    Keywords: Generalized Darwinism,institutions,replicator/interactor,Searle,Aoki,naturalism,memes,emotions,money
    JEL: B52 D02 D87 E40 Z1
    Date: 2011
  2. By: Roi Zultan (Department of Economics, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel)
    Abstract: Pre-play face-to-face communication is known to facilitate cooperation. Various explanations exist for this effect, varying in their dependence on the strategic content of the communication. Previous studies have found similar communication effects regardless of whether strategic communication is available. These results were so far taken to support a social-preferences based explanation of the communication effects. The current experiment provides a replication and extension of previous results to show that different processes come into play, depending on the communication protocol. Specically, pre-play communication in an ultimatum game was either restricted to nongame- related content or unrestricted. The results show that strategic, but not social, communication affects responders' strategies. Thus, the existing results are cast in a new light. I conclude that pre-play communication effects may be mediated by qualitatively dierent processes, depending on the social context.
    JEL: C90 Z13
    Date: 2011
  3. By: Roi Zultan (Department of Economics, Ben-Gurion University of the Negev, Beer-Sheva 84105, Israel); Eva-Maria Steiger
    Abstract: Transparency in teams can facilitate cooperation. We study contribution decisions by agents when previous decisions can be observed. We find that an information chain, in which each agent directly observes only the decision of her immediate predecessor, is at least as effective as a fully-transparent protocol in inducing cooperation under increasing returns to scale. In a comparable social dilemma, the information chain leads to high cooperation both in early movers when compared to a non-transparent protocol and in late movers when compared to a fully-transparent protocol. we conclude that information chains facilitate cooperation by balancing positive and negative reciprocity.
    Keywords: team production, public goods, incentives, externality, information, transparency, conditional cooperation
    JEL: C72 C92 D21 J31 M52
    Date: 2011
  4. By: Dalton, P.S.; Ghosal, S. (Tilburg University, Center for Economic Research)
    Abstract: We develop a theoretical framework to study the psychology of poverty and 'aspirations failure'. In our framework, the rich and the poor share the same preferences - and also a behavioral bias in setting aspirations. Greater downside risks imposed by poverty exacerbates the effects of this behavioral bias: the poor are more susceptible to both an aspirations failure and pessimism about the likelihood of achieving success. Poverty limits the set of people whose life experiences the poor consider relevant for forming their own beliefs and aspirations. Mitigating behavioral poverty traps require policies which go beyond reducing material deprivation.
    Keywords: Reference-dependent Preferences;Aspirations;Persistent Poverty;Locus of control;Simillarity and Belief Formation.
    JEL: O10 O15 O12 D03
    Date: 2011
  5. By: Leonhard K. Lades
    Abstract: This theoretical paper presents an incentive salience model of intertemporal choice. The model is a variation of the quasi-hyperbolic discounting model. Based on the distinction between 'wanting' and 'liking', the paper presents one possible explanation of impulsive choices of smaller sooner rewards instead of larger later ones. These impulsive choices are induced by cues that trigger strong motivational 'wanting' to obtain smaller sooner rewards, but do not necessarily influence the degree to which the rewards are 'liked'. Cue-triggered 'wanting' can occur when an individual is in a specific need deprivation state, perceives a cue previously associated with an immediately obtainable reward, knows that the cued reward can reduce the current deprivation state, and lacks self-control. By integrating cue-triggered 'wanting' into an intertemporal choice model, the incentive salience model allows to predict which rewards elicit impulsive choices of smaller sooner rewards, thus offering an explanation for the domain effect.
    Keywords: Intertemporal Consumer Choice, Impulsivity, 'Wanting' versus 'Liking'
    JEL: C62 C72 C73
    Date: 2011–12–15
  6. By: Sarah Brown; Karl Taylor (Department of Economics, The University of Sheffield)
    Abstract: We explore the relationship between household finances and personality traits from an empirical perspective. Specifically, using individual level data drawn from the British Household Panel Survey, we analyse the influence of personality traits on financial decision-making at the individual level focusing on decisions regarding unsecured debt acquisition and financial assets. Personality traits are classified according to the ‘Big Five’ taxonomy: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. We find that certain personality traits such as extraversion and openness to experience exert relatively large influences on household finances in terms of the levels of debt and assets held. In contrast, personality traits such as conscientiousness and neuroticism appear to be unimportant in influencing levels of unsecured debt and financial asset holding. Our findings also suggest that personality traits have different effects across the various types of debt and assets held. For example, openness to experience does not appear to influence the probability of having national savings but is found to increase the probability of holding stocks and shares, a relatively risky financial asset.
    Keywords: big five personality traits, financial assets, unsecured debt
    JEL: C24 D03 D14
    Date: 2011–12
  7. By: Mary A. Burke; Michael Manz
    Abstract: We present new experimental evidence on heterogeneity in the formation of inflation expectations and relate the variation to economic literacy and demographics. The experimental design allows us to investigate two channels through which expectations-formation may vary across individuals: (1) the choice of information and (2) the use of given information. Subjects who are more economically literate perform better along both dimensions—they choose more-relevant information and make better use of given information. Compared with survey data on inflation expectations, fewer demographic factors are associated with variation in inflation expectations, and economic literacy in most cases accounts for demographic variation in expectations.
    Keywords: Inflation (Finance) ; Financial literacy
    Date: 2011
  8. By: Julian C. Jamison
    Abstract: In economic situations a player often has preferences regarding not only his or her own outcome but also regarding what happens to fellow players, concerns that are entirely apart from any strategic considerations. While this can be modeled directly by simply writing down a player's final preferences, these are commonly unknown a priori. In many cases it is therefore both helpful and instructive to explicitly model these interactions. This paper, building on a model due to Bergstrom (1989, 1999), presents a simple structure in the context of game theory that incorporates the "synergies" between players. It is powerful enough to cover a wide range of such interactions and model many disparate experimental and empirical results, yet it is straightforward enough to be used in many applied situations where altruism, or a baser motive, is implied.
    Keywords: Human behavior ; Game theory ; Altruism
    Date: 2011
  9. By: Markus Mobius; Muriel Niederle; Paul Niehaus; Tanya S. Rosenblat
    Abstract: Evidence from social psychology suggests that agents process information about their own ability in a biased manner. This evidence has motivated exciting research in behavioral economics, but also garnered critics who point out that it is potentially consistent with standard Bayesian updating. We implement a direct experimental test. We study a large sample of 656 undergraduate students, tracking the evolution of their beliefs about their own relative performance on an IQ test as they receive noisy feedback from a known data-generating process. Our design lets us repeatedly measure the complete relevant belief distribution incentive-compatibly. We find that subjects (1) place approximately full weight on their priors, but (2) are asymmetric, over-weighting positive feedback relative to negative, and (3) conservative, updating too little in response to both positive and negative signals. These biases are substantially less pronounced in a placebo experiment where ego is not at stake. We also find that (4) a substantial portion of subjects are averse to receiving information about their ability, and that (5) less confident subjects are more likely to be averse. We unify these phenomena by showing that they all arise naturally in a simple model of optimally biased Bayesian information processing.
    Keywords: Human behavior ; Bayesian statistical decision theory
    Date: 2011
  10. By: Ronald Peeters; Marc Vorsatz; Markus Walzl
    Abstract: We conduct a laboratory experiment to investigate the impact of institutions and institutional choice on truth-telling and trust in sender-receiver games. We find that in an institution with sanctioning opportunities, receivers sanction predominantly after having trusted lies. Individuals who sanction are responsible for truth-telling beyond standard equilibrium predictions and are more likely to choose the sanctioning institution. Sanctioning and non-sanctioning institutions coexist if their choice is endogenous and the former shows a higher level of truth-telling but lower material payoffs. It is shown that our experimental findings are consistent with the equilibrium analysis of a logit agent quantal response equilibrium with two distinct groups of individuals: one consisting of subjects who perceive non-monetary lying costs as senders and non-monetary costs when being lied to as receivers and one consisting of payoff maximizers.
    Keywords: Experiment, Sender-receiver games, Strategic information transmission, Institutional selection
    JEL: C91 C92
    Date: 2011–12
  11. By: Alejandro T. Moreno-Okuno (Department of Economics and Finance, Universidad de Guanajuato); Emiko Masaki (Asian Development Bank)
    Abstract: The aim of this paper is to develop a model that explains how the consumption of some additive substances a¤ects an individual?s choice between risky alternatives. We do this by assuming that some additives substances, speci?cally alcohol, increase individual?s present bias. As individuals that consume alcohol show greater preference for the present and less for the future, they would ?nd risky choices with rewards in the present and costs in the future more attractive. Theferore, an individual that wouldn´t have accepted a lottery may do so after consuming alcohol and he regret his decision after the alcohol in his blood is eliminated. We analyze the e¤ect of two taxes in discouraging a risky activity: a tax on the consumption of alcohol and a tax (or penalty) if the future costs of the lottery are realized.
    Keywords: habit-formation, risk taking, alcohol consumption
    JEL: D11 D60 D81 D91
    Date: 2011–10
  12. By: Stefan Felder; Thomas Mayrhofer
    Abstract: Higher-order risk attitudes include risk aversion, prudence, and temperance. This paper analyzes the effects of such preferences on medical test and treatment decisions, represented either by test and treatment thresholds or – if the test characteristics are endogenous – by the optimal cutoff value for testing. For a risk-averse decision maker, treatment is a risk reducing strategy since it prevents the low health outcome that forgoing treatment yields in the sick state. As compared to risk neutrality, risk aversion thus reduces both the test and the treatment threshold and decreases the optimal cutoff. Prudence is relevant if a comorbidity risk applies in the sick state. It leads to even lower thresholds and a lower optimal cutoff. Finally, temperance plays a role if the comorbidity risk is left-skewed. It lowers the thresholds and the optimal cutoff even further. These findings suggest that diagnostics in low prevalence settings (e.g. screening) are considered more beneficial when higher-order risk preferences are taken into account.
    Keywords: Medical decision making; diagnostic risk; test and treatment thresholds; optimal cutoff; risk aversion; prudence
    JEL: D81 I10
    Date: 2011–10
  13. By: Nicolaas, Gerry; Campanelli, Pamela C.; Hope, Steven; Jäckle, Annette; Lynn, Peter
    Abstract: It is common practice to adapt the format of a question to the mode of data collection. Multi-coded questions in self-completion and face-to-face modes tend to be transformed for telephone into a series of yes/no questions. Questions with response scales are often branched in telephone interviews, that is, converted into two or more questions, each with shorter response lists. There has been limited research into the impact of these format differences on measurement, particularly across modes. We analyse data from an experiment that contrasted these question formats in face-to-face, telephone and web surveys. The study also included a cognitive interviewing follow-up to further explore the quantitative findings.
    Date: 2011–12–09

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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