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on Cognitive and Behavioural Economics |
| By: | Paulina Granados Zambrano |
| Abstract: | The recognition that information is, most of the time, incomplete and imperfect is essential in understanding the nature of the formation of beliefs. To understand human behavior in the area of (academic) performance, the beliefs individuals sustain about their ability become crucial. Before performing a certain task, the agent never knows his/her true ability. He/she only has an ex-ante notion of his/her believed ability and the truth is only revealed ex-post. Once the true ability is known and the payoffs realized, we observe different reactions that range from disappointment to happiness. The logical question is then, who would have preferred not to know the truth? This paper deals with the information acquisition decisions of individuals who face uncertainty about their own ability. At a theoretical level (Bénabou and Tirole, 2002), it has been shown that overconfident individuals (people with beliefs about themselves higher than reality) with time inconsistent preferences have more at stake when they face the decision of learning the truth about themselves than more pessimistic agents. To test this prediction, a field experiment is designed and implemented, where students face the decision of learning, or not, their true ability before performing a test. It will be shown that overconfident students indeed more often decide not to learn their true ability. |
| Keywords: | overconfidence; beliefs; ability; information acquisition; field experiment |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2012/04&r=cbe |
| By: | Dohmen, Thomas (ROA, Maastricht University); Falk, Armin (University of Bonn); Huffman, David (Swarthmore College); Sunde, Uwe (University of St. Gallen) |
| Abstract: | We compare different designs that have been used to test for an impact of time horizon on discounting, using real incentives and two representative data sets. With the most commonly used type of design we replicate the typical finding of declining (hyperbolic) discounting, but with other designs find constant or increasing discounting. As a whole, the data are not consistent with any of these usual candidate discounting assumptions, and they also imply a violation of transitivity. The results have implications for interpreting previous evidence, and pose an important puzzle for understanding inter-temporal choice. |
| Keywords: | time preference, hyperbolic discounting, self-control, dynamic inconsistency, intransitivity |
| JEL: | D01 D90 D03 E21 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6385&r=cbe |
| By: | Kocher, Martin G.; Luhan, Wolfgang J.; Sutter, Matthias |
| Abstract: | Empirical work on Akerlof’s theory of gift exchange in labor markets has concentrated on the fair wage-effort hypothesis. In fact, however, the theory also contains a social component that stipulates that homogenous agents that are employed for the same wage level will exert more effort, resulting in higher rents and higher market efficiency, than agents that receive different wages. We present the first test of this component, which we call the fair uniform-wage hypothesis. In our laboratory experiment, we establish the existence of a significant efficiency premium of uniform wages. However, it is not the consequence of a stronger level of reciprocity by agents, but of the retrenchment of sanctioning options on the side of principals with uniform wages. Hence, implementing limitations to contractual freedom can have efficiency-enhancing effects. |
| Keywords: | gift exchange; multiple agents; uniform contracts; collective wage; experiment |
| JEL: | C72 C91 C92 D21 J31 J50 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12816&r=cbe |
| By: | Ana Conte (University of Westminster, London, UK, and Max-Planck-Institute of Economics, Jena); John D. Hey (University of York, UK) |
| Abstract: | The recent spate of theoretical models of behaviour under ambiguity can be partitioned into two sets : those involving multiple priors (in which the probabilities of the various events are not known but probabilities can be attached to the various possible values for the probabilities) and those not involving multiple priors. This paper concentrates on the first set and provides an experimental investigation into recently proposed theories. Using an appropriate experimental interface, in which the probabilities on the various possibilities are explicitly stated, we examine the fitted and predictive power of the various theories. We first estimate subject-by-subject, and then we estimate and predict using a mixture model over the contending theories. The individual estimates suggest that 25% of our 149 subjects have behaviour consistent with Expected Utility, 54% with the Smooth Model (of Klibanoff et al, 2005), 12% with Rank Dependent Expected Utility and 9% with the Alpha Model (of Ghirardato et al 2004); these figures are very close to the mixing proportions obtained from the mixture estimates. However, if we classify our subjects through the posterior probabilities (given all the evidence) of each of them being of the various types: using the estimates we get 36%, 19%, 28% and 11% (for EU, Smooth, Rank Dependent and Alpha); while using the predictions 36%, 19%, 33% and 16%. Interestingly the older models (EU and RD) seem to fare relatively better, suggesting that representing ambiguity through multiple priors is not perceived as the correct representation by subjects. |
| Keywords: | Alpha Model, Ambiguity, Expected Utility, Mixture Models, Rank Dependent Expected Utility, Smooth Model |
| JEL: | D81 C91 C23 |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-068&r=cbe |
| By: | James C. Cox; Maroš Servátka; Radovan Vadovic |
| Abstract: | Both the law and culture make a central distinction between acts of commission that overturn the status quo and acts of omission that uphold it. In everyday life acts of commission often elicit stronger reciprocal responses than do acts of omission. In this paper we compare reciprocal responses to both types of acts and ask whether behavior of subjects in two experiments is consistent with existing theory. The design of the experiments focuses on the axioms of revealed altruism theory (Cox, Friedman, and Sadiraj, 2008) that make it observationally distinct from other theories, Axiom R (for reciprocity) and Axiom S (for status quo). We find support for this theory in both experiments. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2012-03&r=cbe |
| By: | Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton) |
| Abstract: | We conduct an experiment in which subjects make a series of decisions of allocating an endowment of £10 between themselves and a passive recipient that is either a charity or the experimenter. When making these decisions subjects are informed that one of them will be chosen randomly at the end to determine payoffs. After all decisions have been made and it has been revealed which decision will determine payoffs we offer subjects an opportunity to opt out from their initial decision and receive £10 instead. We find that around one third of subjects choose to opt out. The fact that a subject decides to revise a decision to give and chooses instead to exit and keep the whole amount – an option that was available when she made the first decision and was not exercised – indicates that giving in the first instance was not motivated solely by altruism toward the recipient. We argue that opting out indicates that giving is also motivated by self-image concerns. |
| Keywords: | dictator game, charitable giving, opting-out, self-image |
| JEL: | C91 D03 D64 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6388&r=cbe |
| By: | Miriam Krieger; Thomas Mayrhofer |
| Abstract: | We study risk aversion and prudence in medical treatment decisions. In a laboratory experiment, we investigate the frequency and intensity of second- and third-order risk preferences, as well as the effect of the medical decision context. Risk preferences are assessed through treatment thresholds (the indifference point between not treating and treating). Under diagnostic risk, medical decision theory predicts lower thresholds for risk-averse than risk-neutral decision makers. Given a comorbidity risk, prudent individuals have an even lower threshold. Our results demonstrate risk-averse and prudent behavior in medical decisions, which reduce the (average) treatment threshold by 41% relative to risk neutrality (from 50.0% to 29.3% prevalence rate). Risk aversion accounts for 3/4 of this effect, prudence for 1/4. The medical decision framing does not affect risk aversion, but is associated with more and stronger prudent behavior. These findings have consequences for treatment thresholds, diagnostics, and QALYs, and thus for clinical guidelines. |
| Keywords: | Medical decision making; treatment thresholds; risk aversion; prudence; laboratory experiment |
| JEL: | I10 C91 D81 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0321&r=cbe |
| By: | Marco Faillo (Department of Economics, University of Trento); Daniela Grieco (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona)) |
| Abstract: | Is culture an important variable to explain whether groups can successfully provide public goods? A wealth of empirical evidence on both industrialized and developing countries shows that cooperation levels decrease in the presence of ethnic divisions. Although several laboratory works deal with cultural differences, so far most studies restrict their attention to cross-cultural comparisons among internally homogeneous societies. We depart from these contributions and conduct an intercultural public goods game with punishment experiment in Italy, a country where immigration is a quite recent, but politically hot phenomenon. We investigate the effects of introducing a varying number of foreign participants within a homogeneous pool of native subjects. Our results indicate that foreigners contribute significantly less than natives, natives react lowering their own contribution levels, and, consequently, the degree of cultural diversity negatively affects the overall level of cooperation. In terms of sanctioning, we observe no difference in the overall amount of assigned and received punishment points; however, behaving mostly as free-riders, foreigners are more likely to use anti-social punishment. In the absence of institutional restrictions ruling out anti-social punishment, this might amplify the documented detrimental effect on cooperation. |
| Keywords: | Experimental Economics; Public Good Games; Cooperation; Cultural Diversity; Anti-social Punishment. |
| JEL: | C72 C91 C92 D64 D71 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:09/2012&r=cbe |
| By: | Booth, Alison L. (Australian National University); Nolen, Patrick J. (University of Essex) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6400&r=cbe |
| By: | Neri, Claudia; Manski, Charles |
| Abstract: | We study first- and second-order subjective expectations (beliefs) in strategic decisionmaking.We propose a method to elicit probabilistically both first- and second-order beliefs and apply the method to a Hide-and-Seek experiment. We study the relationship between choice and beliefs in terms of whether observed choice coincides with the optimal action given elicited beliefs. We study the relationship between first- and second-order beliefs under a coherence criterion. Weak coherence requires that if an event is assigned, according to first-order beliefs, a probability higher/lower/equal to the one assigned to another event, then the same holds according to second-order beliefs. Strong coherence requires the probability assigned according to first- and second-order beliefs to coincide. Evidence of heterogeneity across participants is reported. Verbal comments collected at the end of the experiment shed light on how subjects think and decide in a complex environment that is strategic, dynamic and populated by potentially heterogeneous individuals. |
| Keywords: | Decision-making, beliefs, subjective expectations, experiments |
| JEL: | D81 D83 D84 C92 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2012:06&r=cbe |
| By: | Dean Karlan (Economic Growth Center, Yale University); Margaret A. McConnell (Harvard School of Public Health) |
| Abstract: | Theories abound for why individuals give to charity. We conduct a field experiment with donors to a Yale University service club to test the impact of a promise of public recognition on giving. Some may claim that they respond to an offer of public recognition not to improve their social standing, but rather to motivate others to give. To tease apart these two theories,we conduct a laboratory experiment with undergraduates, and found no evidence to support the alternative, altruistic motivation. We conclude that charitable gifts increase in response to the promise of public recognition primarily because of individuals' desire to improve their social image. |
| Keywords: | endowments, prosocial behavior, experiments, voluntary contributions, social image |
| JEL: | D64 C90 L30 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1006&r=cbe |
| By: | John E. Roemer (Dept. of Political Science, Yale University) |
| Abstract: | Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate an interdependent kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view the Kantian behavior as utopian, there is some -- perhaps much -- evidence that it exists. If cultures evolve through group selection, the hypothesis that Kantian behavior is more prevalent than we may think is supported by the efficiency results here demonstrated. |
| Keywords: | Kantian equilibrium, Social ethos, Implementation |
| JEL: | D60 D62 D64 C70 H30 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1854&r=cbe |
| By: | Federica Alberti (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Edward J. Cartwright (School of Economics, University of Kent, Canterbury); Anna Stepanova (School of Economics, University of Kent, Canterbury) |
| Abstract: | We propose and develop a model of behavior in threshold public good games. The model draws on learning direction theory and impulse balance theory. We find good support for the model and demonstrate that it can explain the success rates observed in threshold public good experiments. The model is applied in a variety of dierent settings : we compare games with a full refund to those with no refund, consider changes in relative endowment, and consider changes in the step return and net reward. |
| Keywords: | Public good, threshold, learning direction theory, impulse balance theory, counterfactual thinking |
| JEL: | C72 H41 C92 |
| Date: | 2012–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-062&r=cbe |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the UK Supreme Court. |
| Keywords: | Consumer protection; retail banking; bounded rationality; economics of contracts |
| JEL: | D18 G14 G21 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37239&r=cbe |
| By: | Felix Bierbrauer; Nick Netzer |
| Abstract: | We introduce intentions-based social preferences into a Bayesian mechanism design framework. If social preferences are observable, any tension between material efficiency, incentive compatibility, and voluntary participation can be resolved. Hence, the classical impossibility results that the conventional mechanism design literature has established are turned into possibility results. We also investigate different possibilities how to incorporate kindness sensations into assessments of welfare. For the case of unobservable social preferences, we suggest a notion of psychological robustness. Psychologically robust mechanisms can be implemented without any need to acquire information about the intensity of social preferences. We show that the mechanisms which have been the focus of the conventional mechanism design literature need to be modified only slightly to achieve psychological robustness. |
| Keywords: | Mechanism design, psychological games, social preferences, intentions, reciprocity, revelation principle |
| JEL: | C70 C72 D02 D03 D82 D86 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:066&r=cbe |
| By: | Fletcher, Jason M (Yale University) |
| Abstract: | While large literatures have shown that cognitive ability and schooling increases employment and wages, an emerging literature examines the importance of so-called "non-cognitive skills" in producing labor market outcomes. However, this smaller literature has not typically used causal methods in estimating the results. One source of heterogeneity that may play an important role in producing both personality and other non-cognitive skills and labor market outcomes is family background, including genetic endowments. This paper is the first to use sibling differences to estimate the effects of personality on employment and wages and is also able to control for many other sources of heterogeneity, including attractiveness, cognitive ability, schooling, occupation, and other factors. Overall, the findings suggest that personality measures are important determinants of labor market outcomes in adulthood and that the results vary considerably by demographic group. The findings also highlight the potential role of extraversion in leading to favorable labor market outcomes, which has not been documented in many other studies. |
| Keywords: | personality, wages, sibling fixed effects |
| JEL: | J24 J31 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6391&r=cbe |
| By: | Katja Görlitz; Marcus Tamm |
| Abstract: | This paper addresses the question to which extent the complementarity between education and training can be attributed to differences in observable characteristics, i.e. to individual, job and firm specific characteristics. The novelty of this paper is to analyze previously unconsidered characteristics, in particular, personality traits and tasks performed at work which are taken into account in addition to the standard individual specific determinants. Results show that tasks performed at work are strong predictors of training participation while personality traits are not. Once working tasks and other job related characteristics are controlled for, the skill gap in training participation drops considerably for off-the-job training and vanishes for on-the-job training. |
| Keywords: | Training; personality traits; working tasks; Oaxaca decomposition |
| JEL: | I21 J24 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0307&r=cbe |
| By: | Geoffroy de Clippel (Dept. of Economics, Brown University); Kareen Rozen (Cowles Foundation, Yale University) |
| Abstract: | Theories of bounded rationality are typically characterized over an exhaustive data set. This paper aims to operationalize some leading theories when the available data is limited, as is the case in most practical settings. How does one tell if observed choices are consistent with a theory of bounded rationality if the data is incomplete? What information can be identified about preferences? How can out-of-sample predictions be made? Our approach is contrasted with earlier attempts to examine bounded rationality theories on limited data, showing their notion of consistency is inappropriate for identifiability and out-of-sample prediction. |
| Keywords: | Bounded rationality, Limited datasets |
| JEL: | D01 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1853&r=cbe |
| By: | Vanessa Hartlaub; Thorsten Schneider |
| Abstract: | According to sociological theories on educational choice, risk aversion is the main driving force for class-specific educational decisions. Families from upper social classes have to opt for the academically most demanding, long-lasting courses to avoid an intergenerational status loss. Families from lower social classes by contrast, tend instead to opt for shorter tracks to reduce the risk of failing in a long-lasting and costly education and, as a consequence, entering the labor market without a degree. This argument is deeply rooted in the social structure. Yet, the importance of individual risk preferences for educational choice has been neglected in sociology of education. We discuss these different forms of risk in the context of social inequalities in educational decision-making and demonstrate how they influence the intentions for further education of students attending the most demanding, academically orientated secondary school type in Germany. According to our argument, children from upper social classes are structurally almost compelled to opt for the academically most demanding educational courses, virtually without having a choice in the matter. In contrast, working class children do have to make an active decision and, thus, individual risk aversion comes into play for these students.<br /> For our empirical analyses, we rely on data from the youth questionnaire of the German Socio-Economic Panel Study (SOEP) collected in the years 2003 to 2010, and estimate multinomial logit models. Our empirical findings underline the importance of the structural risk aversion. Students with a higher social background are not only less sensitive to their school performance, but individual risk aversion is also completely irrelevant to their educational plans. The opposite applies to students with a lower social background: the more risk-averse they are, the more likely they are to opt for a double qualification rather than just a purely academic university degree course. |
| Keywords: | Educational inequality, educational decision-making, risk aversion, tertiary education, vocational training |
| JEL: | I24 D81 Z13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp433&r=cbe |
| By: | Felix Bierbrauer; Nick Netzer |
| Abstract: | We introduce intentions-based social preferences into a Bayesian mechanism design framework. If social preferences are observable, any tension between material efficiency, incentive compatibility, and voluntary participation can be resolved. Hence, the classical impossibility results that the conventional mechanism design literature has established are turned into possibility results. We also investigate different possibilities how to incorporate kindness sensations into assessments of welfare. For the case of unobservable social preferences, we suggest a notion of psychological robustness. Psychologically robust mechanisms can be implemented without any need to acquire information about the intensity of social preferences. We show that the mechanisms which have been the focus of the conventional mechanism design literature need to be modified only slightly to achieve psychological robustness. |
| Keywords: | Mechanism Design, Psychological Games, Social Preferences, Intentions, Reciprocity, Revelation Principle |
| JEL: | C70 C72 D02 D03 D82 D86 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0053&r=cbe |
| By: | Thorbjørn Knudsen; Kannan Srikanth |
| Abstract: | The integration of specialists’ search efforts is one of the principal purposes of organization. Integration mechanisms enable joint search by allowing interdependent others to form shared mental models of the joint task. However, apart from the formation of shared mental models, organization also impacts the locus of search and specialization in innovative conditions. This interplay between the emergence of self (specialized) knowledge and shared knowledge is likely to significantly impact joint search outcomes. In this paper we propose a computational model that examines the trade-off in the development of specialized vs. shared knowledge and how it impacts joint search for different innovation landscapes and different levels of agent ability. Our results point to the importance of not generalizing from single searcher problems for joint searcher problems. |
| Keywords: | Organization Design ; Coordination ; Joint Search; Shared Mental Models |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:aal:abbswp:11-16&r=cbe |
| By: | Martin G. Kocher; Wolfgang J. Luhan; Matthias Sutter |
| Abstract: | Empirical work on Akerlof’s theory of gift exchange in labor markets has concentrated on the fair wage-effort hypothesis. In fact, however, the theory also contains a social component that stipulates that homogenous agents that are employed for the same wage level will exert more effort, resulting in higher rents and higher market efficiency, than agents that receive different wages. We present the first test of this component, which we call the fair uniform-wage hypothesis. In our laboratory experiment, we establish the existence of a significant efficiency premium of uniform wages. However, it is not the consequence of a stronger level of reciprocity by agents, but of the retrenchment of sanctioning options on the side of principals with uniform wages. Hence, implementing limitations to contractual freedom can have efficiency-enhancing effects. |
| Keywords: | gift exchange, multiple agents, uniform contracts, collective wage, experiment |
| JEL: | C72 C91 C92 D21 J31 J50 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2012-02&r=cbe |
| By: | Faillo, Marco (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Grieco, Daniela (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Zarri, Luca (Associazione Italiana per la Cultura della Cooperazione e del Non Profit) |
| Abstract: | Is culture an important variable to explain whether groups can successfully provide public goods? A wealth of empirical evidence on both industrialized and developing countries shows that cooperation levels decrease in the presence of ethnic divisions. Although several laboratory works deal with cultural differences, so far most studies restrict their attention to cross-cultural comparisons among internally homogeneous societies. We depart from these contributions and conduct an intercultural public goods game with punishment experiment in Italy, a country where immigration is a quite recent, but politically hot phenomenon. We investigate the effects of introducing a varying number of foreign participants within a homogeneous pool of native subjects. Our results indicate that foreigners contribute significantly less than natives, natives react lowering their own contribution levels, and, consequently, the degree of cultural diversity negatively affects the overall level of cooperation. In terms of sanctioning, we observe no difference in the overall amount of assigned and received punishment points; however, behaving mostly as free-riders, foreigners are more likely to use anti-social punishment. In the absence of institutional restrictions ruling out anti-social punishment, this might amplify the documented detrimental effect on cooperation. |
| Keywords: | Experimental Economics; Public Good Games; Cooperation; Cultural Diversity; Anti-social Punishment |
| JEL: | C72 C91 C92 D64 D71 |
| Date: | 2012–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:aiccon:2012_102&r=cbe |