nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒02‒20
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. On the role of heuristics: Experimental evidence on inflation dynamics By Graf Lambsdorff, Johann; Schubert, Manuel; Giamattei, Marcus
  2. Sabotage in Tournaments: Evidence from a Natural Experiment By Balafoutas, Loukas; Lindner, Florian; Sutter, Matthias
  3. Testing Canonical Tournament Theory: On the Impact of Risk, Social Preferences and Utility Structure By Sheremeta, Roman M.; Wu, Steven Y.
  4. Price Discrimination and Fairness Concerns By Englmaier, Florian; Gratz, Linda; Reisinger, Markus
  5. Risk attitudes and Medicare Part D enrollment decisions By Vetter, Stefan; Heiss, Florian; McFadden, Daniel; Winter, Joachim
  6. Salience, Risky Choices and Gender By Alison Booth; Patrick Nolen
  7. Unhappiness and Job Finding By Gielen, Anne C.; van Ours, Jan C.
  8. Biases in Bias Elicitation By Giancarlo Manzi; Martin Forster
  9. Noncognitive skills in economics: Models, measurement, and empirical evidence By Thiel, Hendrik; Thomsen, Stephan L.
  10. Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device By Kast, Felipe; Meier, Stephan; Pomeranz, Dina
  11. Do Economists Lie More? By López-Pérez, Raúl; Spiegelman, Eli
  12. Do consumers prefer offers that are easy to compare? An experimental investigation By Crosetto, Paolo; Gaudeul, Alexia
  13. Trust, Reciprocity, and Guanxi in China: An Experimental Investigation By Fei Song; C. Bram Cadsby; Yunyun Bi
  14. Whom to Choose as a Team Mate? A Lab Experiment about In-Group Favouritism By Hammermann, Andrea; Mohnen, Alwine; Nieken, Petra
  15. Motives for sharing in social networks By Ligon, Ethan; Schechter, Laura
  16. Unhappiness and Job Finding By Gielen, A. C.; Ours, J.C. van

  1. By: Graf Lambsdorff, Johann; Schubert, Manuel; Giamattei, Marcus
    Abstract: We carry out an experiment on a macroeconomic price setting game where prices are complements. Despite relevant information being common knowledge and price flexibility we observe significant deviation from equilibrium prices and history dependence. In a first treatment we observe that equilibrium values were obtained in the long run but at the cost of a very slow adjustment and thus history dependence. By reporting a business indicator in a simpler form, subjects were given the chance to coordinate their prices by help of a heuristic in a second treatment. This option was widely taken, bringing about excess volatility and a deviation from equilibrium even in the long run. In a third treatment with staggered pricing we observe, contrary to theoretical predictions, the one-round ahead (publicly known) shock is significant, but future inflation is not. Our findings cast light on price dynamics when subjects have limited computational capacities. --
    Keywords: Inflation Persistence,Staggered Prices,Sticky Reasoning,New Keynesian Phillips Curve
    JEL: E31 C92
    Date: 2011
  2. By: Balafoutas, Loukas (University of Innsbruck); Lindner, Florian (University of Innsbruck); Sutter, Matthias (University of Innsbruck)
    Abstract: Many tournaments are plagued by sabotage among competitors. Typically, sabotage is welfare-reducing, but from an individual's perspective an attractive alternative to exerting positive effort. Yet, given its illegal and often immoral nature, sabotage is typically hidden, making it difficult to assess its extent and its victims. Therefore, we use data from Judo World Championships, where a rule change in 2009 basically constituted a natural experiment that introduced one costless opportunity for sabotage. In Judo, competitors can break an opponent's attack in an unsportsmanlike manner; these are seen as acts of sabotage. Based on a unique dataset of 1,422 fights, we find that the rule change in 2009 has led to a large increase in the use of sabotage. Moreover, sabotage is more likely to be employed by relatively less qualified individuals, and to be targeted at more qualified ones. From a survey among spectators, we show that sabotage is welfare-reducing.
    Keywords: tournaments, sabotage, Judo, natural experiment
    JEL: C93 D03 L83 M51 M52
    Date: 2012–01
  3. By: Sheremeta, Roman M. (Chapman University); Wu, Steven Y. (Purdue University)
    Abstract: We use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal and agent are populated by human subjects, allowing us to test predictions for both incentive responses and optimal tournament design. Consistent with theory, we observed an incentive effect from raising the winner's prize. However, we also observed several empirical puzzles that appeared to contradict theory. Controlling for social preferences did not resolve the puzzles, although social preferences do influence behavior. It turns out that the puzzles can be explained by the canonical model once the textbook assumption of separable agent utility is relaxed.
    Keywords: tournaments, experiment, social preferences, contract theory
    JEL: D03 D82 D86 M52 M55
    Date: 2012–01
  4. By: Englmaier, Florian; Gratz, Linda; Reisinger, Markus
    Abstract: We analyze the profitability of third degree price discrimination under consideration of consumers' fairness concerns within an experiment and explain the results within a theoretical framework. We find that with an increase in the price differential negative reciprocal reactions by disadvantaged consumers become stronger compared to positive reciprocal reactions by advantaged consumers. Consequently, the profit maximizing price differential lies below the one predicted to be optimal by standard theory. Further, profitability increases when consumers who are regarded as poorer are charged lower prices compared to when the wealth of the different consumer groups is unknown.
    Keywords: price discrimination; reciprocal fairness; inequity aversion; experimental economics
    JEL: D11 D12 E3
    Date: 2012–02
  5. By: Vetter, Stefan; Heiss, Florian; McFadden, Daniel; Winter, Joachim
    Abstract: The new Medicare Part D program provides prescription drug coverage for older Americans through highly subsidized and tightly regulated plans offered by private insurance firms. For most eligible individuals without coverage from other sources, obtaining Part D coverage would be rational, but it requires active enrollment and plan choice decisions. We investigate if non-enrollment in Medicare Part D can partly be explained by risk aversion. Data are taken from a national online survey conducted just after the introduction Part D. The survey included a context-free and a context-related hypothetical lottery to measure an individual’s attitude towards risk. Respondents who are risk tolerant according to these measures were significantly less likely to enroll in Part D. We also illustrate that hypothetical choice questions designed to elicit risk attitudes are subject to reference-point effects. Even minor differences in the priming of respondents can result in potentially misleading conclusions about the role of risk aversion in the insurance decisions.
    Keywords: Risk aversion; Medicare Part D; heterogeneous preferences; insurance demand; survey design
    JEL: D03 D81 H51 I1
    Date: 2012–02
  6. By: Alison Booth; Patrick Nolen
    Abstract: Risk theories typically assume individuals make risky choices using probability weights that differ from objective probabilities. Recent theories suggest that probability weights vary depending on which portion of a risky environment is made salient. Using experimental data we show that salience affects young men and women differently, even after controlling for cognitive and non-cognitive skills. Men are significantly more likely than women to switch from a certain to a risky choice once the upside of winning is made salient, even though the expected value of the choice remains the same.
    Keywords: gender, salience, risk-aversion, probability weights, cognitive ability
    JEL: D8 D81 J16
    Date: 2012–02
  7. By: Gielen, Anne C. (IZA); van Ours, Jan C. (Tilburg University)
    Abstract: It is puzzling that people feel quite unhappy when they become unemployed, while at the same time active labor market policies are needed to bring unemployed back to work more quickly. Using data from the German Socio-Economic Panel, we investigate whether there is indeed such a puzzle. First, we find that nearly half of the unemployed do not experience a drop in happiness, which might explain why at least some workers need to be activated. In addition to that, we find that even though unemployed who experience a drop in happiness search more actively for a job, it does not speed up their job finding. Apparently, there is no link between unhappiness and the speed of job finding. Hence, there is no contradiction between unemployed being unhappy and the need for activation policies.
    Keywords: happiness, unemployment duration
    JEL: I31 J64
    Date: 2012–01
  8. By: Giancarlo Manzi; Martin Forster
    Abstract: We consider the biases that can arise in bias elicitation when expert assessors make random errors. We illustrate the phenomenon for two sources of bias: that due to omitting important variables in a least squares regression and that which arises in adjusting relative risks for treatment effects using an elicitation scale. Results show that, even when assessors' elicitations of bias have desirable properties (such as unbiasedness and independence), the nonlinear nature of biases can lead to elicitations of bias that are, themselves, biased. We show the corrections which can be made to remove this bias and discuss the implications for the applied literature which employs these methods.
    Keywords: bias reduction, expert elicitation, elicitation scales, omitted cariable bias
    Date: 2012–01
  9. By: Thiel, Hendrik; Thomsen, Stephan L.
    Abstract: There is an increasing economic literature considering personality traits as a source of individual differences in labor market productivity and other outcomes. This paper provides an overview on the role of these skills regarding three main aspects: measurement, development over the life course, and outcomes. Based on the relevant literature from different disciplines, the common psychometric measures used to assess personality are discussed and critical assumptions for their application are highlighted. We sketch current research that aims at incorporating personality traits into economic models of decision making. A recently proposed production function of human capital which takes personality into account is reviewed in light of the findings about life cycle dynamics in other disciplines. Based on these foundations, the main results of the empirical literature regarding noncognitive skills are briefly summarized. Moreover, we discuss common econometric pitfalls that evolve in empirical analysis of personality traits and possible solutions. --
    Keywords: noncognitive skills,personality,human capital formation,psychometric measures
    JEL: I20 I28 J12 J24 J31
    Date: 2011
  10. By: Kast, Felipe (Pontificia Universidad Catolica de Chile); Meier, Stephan (Columbia University); Pomeranz, Dina (Harvard Business School)
    Abstract: While commitment devices such as defaults and direct deposits from wages have been found to be highly effective to increase savings, they are unavailable to the millions of people worldwide who not have a formal wage bill. Self-help peer groups are an alternative commitment device that is widespread and highly accessible, but there is little empirical evidence evaluating their effectiveness. We conduct two randomized field experiments among low-income micro-entrepreneurs in Chile. The first experiment finds that self-help peer groups are very potent at increasing savings. In contrast, a more classical measure, a substantially increased interest rate, has no effect on the vast majority of participants. A second experiment is designed to unbundle the key elements of peer groups as a commitment device, through the use of regular text messages. It finds that surprisingly, actual meetings and peer pressure do not seem to be crucial in making self-help peer groups an effective tool to encourage savings.
    Keywords: savings, commitment device, peer pressure, field experiment
    JEL: O16 D03 D14 D91
    Date: 2012–01
  11. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Spiegelman, Eli (Departement des sciences économiques, Université du Québec à Montréal, Montréal, Canada.)
    Abstract: Recent experimental evidence suggests that some people dislike telling lies, and tell the truth even at a cost. We use experiments as well to study the socio-demographic covariates of such lie aversion, and find gender and religiosity to be without predictive value. However, subjects’ major is predictive: Business and Economics (B&E) subjects lie significantly more frequently than other majors. This is true even after controlling for subjects’ beliefs about the overall rate of deception, which predict behavior very well: Although B&E subjects expect most others to lie in our decision problem, the effect of major remains. An instrumental variables analysis suggests that the effect is not simply one of selection: It seems that studying B&E has a causal impact on behavior.
    Keywords: Communication; honesty; lie aversion; major; norms.
    JEL: C70 C91 D03 D64
    Date: 2012–02
  12. By: Crosetto, Paolo; Gaudeul, Alexia
    Abstract: Abstract Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers disregard any offers that is difficult to compare with others then firms will adopt common ways to present their offers and thus make choice easier. We design an original experiment to identify consumers’ choice heuristics in the lab. Subjects are asked to choose from menus of offers and we measure the extent to which they favor those offers that are easy to compare with others in the menu. A sufficient number of subjects do so with sufficient intensity for offers presented in common terms to generate higher revenues than offers that are expressed in an idiosyncratic way.
    Keywords: Bounded Rationality; Cognitive Limitations; Standards; Consumer Choice; Experimental Economics; Heuristics; Pricing Formats; Spurious Complexity
    JEL: D18 D83 C25
    Date: 2012–03–08
  13. By: Fei Song (Ted Rogers School of Management, Ryerson University); C. Bram Cadsby (Department of Economics, University of Guelph); Yunyun Bi (Taiping Asset Management, Shanghai, China)
    Abstract: We examine the influence of social distance on levels of trust and reciprocity in China. Social distance, reflected in the indigenous concept of guanxi, is of central importance to Chinese culture. In Study 1, some participants participated in two financially salient trust games to measure behavior, one with an anonymous classmate and the other with an anonymous, demographically identical nonclassmate. Other participants, drawn from the same population, completed hypothetical surveys to gauge both hypothetical behavior and expectations of others. Social distance effects on actual and hypothetical behavior were statistically consistent. The results together corroborated the hypothesized negative relationship between trust and social distance. However, reciprocity was not responsive to social distance. Study 2 found that affect-based trust, but not cognition-based trust, played a mediating role in the relationship between social distance and interpersonal trust in a hypothetical scenario. We conclude that close guanxi ties in China engender affect-based trust, which is extended to shouren classmates. This is true despite the fact that no more cognition-based trust is placed nor reciprocity received or expected from classmates compared to demographically identical shengren nonclassmates.
    Keywords: Experiment; Affect-based Trust; China; Guano; Reciprocity; Trust; Social Distance
    JEL: C91 D03 D69
    Date: 2012
  14. By: Hammermann, Andrea (RWTH Aachen University); Mohnen, Alwine (Munich University of Technology); Nieken, Petra (University of Bonn)
    Abstract: The practical relevance of favouritism among students of the same study path is evident in lifelong memberships in fraternities or sororities or in high donations to faculties. In our study, we focus on the in-group favouritism of students by examining the trade-off of acting based on in-group favouritism or a performance signal when decisions are made about whom to choose as a team mate. The novel feature of your study is that the choice of a team mate is either benevolence or relevant to the own output. In the first scenario, only the payoff of the chosen subject changed, whereas in the second scenario, the decision affected the decider's own payoff as well as that of the chosen subject. The subjects ex ante knew the group type (path of study) of the pool of possible team mates and received a signal giving weak information about their ability regarding the task. Intuitively, one would expect more favouritism if the own payoff was not affected by the performance of the chosen team mate. However, we found the opposite. The subjects exerted more favouritism in the revenue sharing scenario. Possibly they expected reciprocal behaviour and less free riding if they selected a team mate belonging to their own group. Interestingly, groups formed based on favouritism did not perform significantly different from groups formed based on the performance signal.
    Keywords: lab experiment, favouritism, teams
    JEL: C92 D03 J71 M51
    Date: 2012–01
  15. By: Ligon, Ethan (University of California, Berkeley. Dept of agricultural and resource economics); Schechter, Laura (University of Wisconsin, Madison)
    Abstract: What motivates people in rural villages to share? We first elicit a baseline level of sharing using a standard, anonymous dictator game. Then using variants of the dictator game that allow for either revealing the dictator's identity or allowing the dictator to choose the recipient, we attribute variationin sharing to three different motives. The first of these, directed altruism, is related to preferences, while the remaining two are incentive-related(sanctions and reciprocity). We observe high average levels of sharing in ourbaseline treatment, while variation across individuals depends importantlyon the incentive-related motives. Finally, variation in measured reciprocity within the experiment predicts observed 'real-world' gift-giving, while other motives measured in the experiment do not predict behavior outside the experiment.
    Date: 2011–12
  16. By: Gielen, A. C.; Ours, J.C. van (Tilburg University, Center for Economic Research)
    Abstract: It is puzzling that people feel quite unhappy when they become unemployed, while at the same time active labor market policies are needed to bring unemployed back to work more quickly. Using data from the German Socio-Economic Panel, we investigate whether there is indeed such a puzzle. First, we find that nearly half of the unemployed do not experience a drop in happiness, which might explain why at least some workers need to be activated. In addition to that, we find that even though unemployed who experience a drop in happiness search more actively for a job, it does not speed up their job finding. Apparently, there is no link between unhappiness and the speed of job finding. Hence, there is no contradiction between unemployed being unhappy and the need for activation policies.
    Keywords: Happiness;Unemployment duration.
    JEL: I31 J64
    Date: 2012

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