nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒03‒08
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Negative publicity on the endorsement process does it influence for-profit and not for-profit print advertisements? By Roozen, Irene
  2. Telecommunications Consumers: A Behavioural Economic Analysis By Lunn, Pete
  3. What Are Over-the-Road Truckers Paid For? Evidence from an Exogenous Regulatory Change on the Role of Social Comparisons and Work Organization in Wage Determination By Burks, Stephen V.; Guy, Frederick
  4. Optimization, Path Dependence and the Law: Can Judges Promote Efficiency? By Marciano, Alain; Khalil, Elias L.
  5. Self Centred Beliefs: An Empircal Approach By Proto, Eugenio; Sgroi, Daniel
  6. Run For Fun: Intrinsic Motivation and Physical Performance By Filippin, A.; Ours, J.C. van
  7. Subjective Performance Evaluations and Employee Careers By Frederiksen, Anders; Lange, Fabian; Kriechel, Ben
  8. Cash Transfers, Behavioral Changes, and Cognitive Development in Early Childhood: Evidence from a Randomized Experiment By Karen Macours; Norbert Schady; Renos Vakis
  9. Age differences in the reaction to incentives – do older people avoid competition? By Sproten, Alec N.; Schwieren, Christiane
  10. Impulsive Consumption and Reflexive Thought: Nudging Ethical Consumer Behavior By Leonhard K. Lades
  11. From the lab to the field: envelopes, dictators and manners By Stoop, Jan
  12. Risk preferences over small stakes: Evidence from deductible choice By Janko Gorter; Paul Schilp
  13. What Awareness? Consumer Perception of Bank Risk and Deposit Insurance By Michiel Bijlsma; Karen van der Wiel
  14. A Three-Stage Experimental Test of Revealed Preference By Hammond, Peter; Traub, Stefan

  1. By: Roozen, Irene (Hogeschool-Universiteit Brussel)
    Abstract: This paper describes an experiment which tested the effectiveness of warm and cold appearance endorsers for for-profit and not-for-profit print advertisements. Moreover, the effects of positive/negative publicity surrounding the endorser have also been evaluated. The research results show that the use of relatively warm appearance female endorsers is significantly more effective for for-profit products whilst ‘warm’ appearance male endorsers are more effective for not-for-profit products. The gap between positive-negative publicity of the same endorser is significantly bigger for the for-profit products than for the not-for-profit. This suggests that the risk of negative publicity is more important for the endorsement process of for-profit products than for not-for-profit products.
    Keywords: Celebrity endorsement, negative publicity, not for-profit products
    Date: 2012–01
  2. By: Lunn, Pete
    Abstract: This paper argues that telecommunications markets present the consumer with a decision-making environment that is particularly likely to be prone to established biases in consumer decision-making. The analysis identifies four properties of telecommunications markets, which in combination are probably unique and which may make the sector prey to biases identified by behavioural economics. The analysis offers a range of known behavioural phenomena that, first, may help to explain the generally low levels of switching between telecommunications providers and, second, could result in failure to select optimum contracts, because of inaccurate expectations of usage or time inconsistent preferences. While more research is required to assess the merit of these hypotheses, they raise the possibility that telecommunications markets may be inefficient and prone to less effective competition than many other consumer markets. Potential policy responses are also discussed.
    Keywords: Policy/Telecommunications/Decision-making biases/Behavioural economics/Regulation
    Date: 2011–12
  3. By: Burks, Stephen V. (University of Minnesota, Morris); Guy, Frederick (Birkbeck College, University of London)
    Abstract: Using evidence from recent work on truckers and disaggregated older data prior researchers did not have, we revisit a classic topic and find some new answers. We focus on differentials in average annual earnings at the firm level among mileage-paid over-the-road tractor-trailer drivers ("road drivers") employed by US for-hire trucking companies, before and after economic deregulation. Road driver output is individualized, and pay is on the basis of a piece rate (mileage). However, road drivers work under two distinct logistical systems – less-than-truckload [LTL], and truckload [TL] – associated with two different forms of work organization. We find that – contrary to the predictions of Rose (1987) – not only are road drivers for LTL companies paid more than those for TL companies, but in LTL the union earnings premium was maintained following deregulation and union coverage fell slowly, while in TL both the union differential and union coverage fell sharply. We review relevant theoretical explanations: payment for cognitive abilities or non-pecuniary disamenities; standard efficiency wage models based on independent utilities; sharing of product market rents; equity concerns resulting from social comparisons between employee groups; and differences in work organization as a source of union rents or quasi-rents. Only equity concerns, for the LTL earnings differential, and quasi rents (but not a union threat effect, contrary to Henrickson and Wilson (2008)), for union coverage and premium in LTL, are consistent with our empirical results. Both earnings differentials are based on differences in work organization, rather than differences in the workers or the work itself.
    Keywords: fair wage, equity, compensating differential, cognitive ability, quasi-rent, rent-sharing, work organization, trucking, trucker, less-than-truckload (LTL), truckload (TL), regulation, deregulation, union premium
    JEL: J31 J42 L92
    Date: 2012–02
  4. By: Marciano, Alain; Khalil, Elias L.
    Abstract: The thesis that judges could (voluntarily or not) promote efficiency through their decisions has largely been discussed since Posner put it forward in the early 1970s. There nonetheless remains a methodological aspect that has never (to our knowledge) been analyzed and that we address in this paper. We thus show that both promoters and critics of the judge-and-efficiency thesis similarly use a definition of optimization in which history, constraints and path-dependency are viewed as obstacles that must be removed to reach the most efficient outcome. This is misleading. Efficiency cannot be defined in absolute terms, as a “global ideal” that would mean being free from any constraint, including historically deposited ones. That judges are obliged to refer to the past does not mean that they are unable to make the most efficient decision because constraints are part of the optimization process; or optimization is necessarily path- dependent. Thus, the output of legal systems cannot be efficient or inefficient per se. This is what we argue in this paper.
    Keywords: Judicial decision making; Historical inertia; Inefficiency; Adaptationism; Spandrelism; Global ideal; Rationality; Lock-in institutions.
    JEL: B40 B52 K00
    Date: 2012–02
  5. By: Proto, Eugenio (University of Warwick); Sgroi, Daniel (University of Warwick)
    Abstract: We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We nd a powerful and ubiquitous bias in perceptions that is \self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias
    Keywords: subjective beliefs, attitudes, observable characteristics, self-centered bias
    Date: 2012
  6. By: Filippin, A.; Ours, J.C. van (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We use data from the 24-hours Belluno run which has the unique characteristic that participants are affiliated with teams and run for an hour. This allows us not only to study the individual relationship between age and performance but also to study group dynamics in terms of accessions to and separations from teams in a manner that closely resembles workers and firms when individual productivity would have been perfectly observable. From our analysis we conclude that individual performance goes down with age, although the speed-age gradient is rather at. Group performance goes down with age as well, but interestingly a counterbalancing force emerges, namely team dynamics that are driven by performance of runners who enter and leave.
    Keywords: Age;performance;attrition.
    JEL: J14 J24 J31
    Date: 2012
  7. By: Frederiksen, Anders (Aarhus School of Business); Lange, Fabian (Yale University); Kriechel, Ben (ROA, Maastricht University)
    Abstract: Firms commonly use supervisor ratings to evaluate employees when objective performance measures are unavailable. Supervisor ratings are subjective and data containing supervisor ratings typically stem from individual firm level data sets. For both these reasons, doubts persist on how useful such data are for evaluating theories in personnel economics and whether findings from such data generalize to the labor force at large. In this paper, we examine personnel data from six large companies and establish how subjective ratings, interpreted as ordinal rankings of employees within narrowly defined peer-groups, correlate with objective career outcomes. We find many similarities across firms in how subjective ratings correlate with earnings, base pay, bonuses, promotions, demotions, separations, quits and dismissals and cautiously propose these as empirical regularities.
    Keywords: subjective performance ratings, personnel data, employee careers, career outcomes, incentives, employer learning
    JEL: M5
    Date: 2012–02
  8. By: Karen Macours; Norbert Schady; Renos Vakis
    Abstract: Cash transfer programs have become extremely popular in the developing world. There is a large literature on the effects of these programs on schooling, health and nutrition, but relatively little is known about possible impacts on child development. This paper analyzes the impact of a cash transfer program on cognitive development in early childhood in rural Nicaragua. Identification is based on random assignment. We show that children in households assigned to receive benefits had significantly higher levels of development nine months after the program began. There is no fadeout of program effects two years after the program had ended and transfers were discontinued. We show that the changes in child development we observe are unlikely to be a result of the cash component of the program alone.
    Keywords: Social Development :: Poverty, Social Development :: Youth & Children
    JEL: D12 I2 I3
    Date: 2012–02
  9. By: Sproten, Alec N.; Schwieren, Christiane
    Abstract: The “aging employee” has recently become a hot topic in many fields of behavioural research. With the aim to determine the effects of different incentive schemes (competition, social or increased monetary incentives) on performance of young and older subjects, we look at behaviour of a group of younger and older adults on a well-established real effort task. We show that older adults differ from younger adults in their performance in all conditions, but not in the improvement between conditions. The age difference in performance is however driven by women. While we replicate the gender difference in competitiveness found in the literature, we do not find a significant age difference in competitiveness. Social incentives have an at least as strong or even stronger effect on performance than increased monetary incentives. This effect is driven by men; women do not show an increase in performance with social incentives.
    Keywords: aging; competition; social production functions; experiment; incentives
    JEL: C72 C91 J10 J33
    Date: 2012–02–17
  10. By: Leonhard K. Lades
    Abstract: The paper deals with impulsive consumption and highlights the roles that cognitive and motivational aspects of reflexive thought (namely self-control and self-image motives, respectively) play in intertemporal decisions. While self-control inhibits individuals from consuming impulsively, self-image motives can induce impulsive consumption. Based on recent neuroscientific findings about 'wanting'–'liking' dissociations, the paper presents a potential motivational mechanism underlying such impulsive consumption decisions. Utilizing the knowledge of this mechanism and acknowledging both cognitive and motivational aspects of reflexive thought, the paper expands on three libertarian paternalistic means to foster an ethical way of impulsive consumption: strengthening willpower, reducing impulsive desires to consume, and guiding impulsive behavior in ethical directions by making salient certain self-images that favor ethical consumption.
    Keywords: Impulsive Consumption, 'Wanting' versus 'Liking', Ethical Consumption, Libertarian Paternalism subjective well-being, happiness, welfare economics, preference learning
    JEL: B B52 D03 D91 K2 Q3
    Date: 2012–03–01
  11. By: Stoop, Jan
    Abstract: Results are reported of the first natural field experiment on the dictator game, where subjects are unaware that they participate in an experiment. In contrast to predictions of the standard economic model, dictators show a large degree of pro-social behavior. This paper builds a bridge from the laboratory to the field to explore how predictive findings from the laboratory are for the field. External validity is remarkably high. In all experiments, subjects display an equally high amount of pro-social behavior, whether they are students or not, participate in a laboratory or not, or are aware that they participate in an experiment or not.
    Keywords: altruism; natural field experiment; external validity
    JEL: D63 D64 C70 C93 C91
    Date: 2012–03–02
  12. By: Janko Gorter; Paul Schilp
    Abstract: This paper provides new field evidence on risk preferences over small stakes. Using unique population and survey data on deductible choice in Dutch universal health insurance, we find that risk preferences are a dominant factor in decision aking. In fact, our results indicate that risk preferences are both statistically and quantitatively more significant in explaining deductible choice behavior than risk type. This finding contrasts with classical expected utility theory, as it implies risk neutrality over small stakes. More recently developed reference-dependent utility models, however, can rationalize risk aversion over small stakes, on account of loss aversion and narrow framing.
    Keywords: consumer preferences; insurance; deductible; decision making; loss aversion
    JEL: D12 D81 G22
    Date: 2012–02
  13. By: Michiel Bijlsma; Karen van der Wiel
    Abstract: <p>This paper provides unique survey evidence on consumer awareness about deposit insurance and on consumer perception of the stability of small and systemic banks. </p><p>It turns out that systemic banks are perceived as less risky compared to non-systemic banks and that respondents’ own bank is considered safer than other banks. We also find that knowledge on the eligibility for deposit insurance is limited, in particular when it concerns small banks. In addition, consumers generally expect an associated payback time that well exceeds the time it has taken to pay back depositors in the past, expecting a higher as well as faster payback for large, systemic banks. This confirms that households’ awareness of the coverage and operations of deposit insurance are suboptimal. We also find that awareness about and trust in the deposit insurance system has only a marginal effect on deposit behavior in “normal” and “crisis” times. Thus, while the evidence suggests that there is ample scope to improve awareness about deposit insurance, it is far from sure that such policies will affect household behavior.</p>
    JEL: D83 D84 G21 G28
    Date: 2012–02
  14. By: Hammond, Peter (University of Warwick); Traub, Stefan (University of Bremen)
    Abstract: A powerful test of Varian's (1982) generalised axiom of revealed preference (GARP) with two goods requires the consumer's budget line to pass through two demand vectors revealed as chosen given other budget sets. In an experiment using this idea, each of 41 student subjects faced a series of 16 successive grouped portfolio selection problems. Each group of selection problems had up to three stages, where later budget sets depended on that subject's choices at earlier stages in the same group. Only 49% of subjects' choices were observed to satisfy GARP exactly, even by our relatively generous nonparametric test.
    Keywords: Rationality, revealed preference, uncertainty
    Date: 2012

This nep-cbe issue is ©2012 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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