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on Cognitive and Behavioural Economics |
| By: | Elena Asparouhova; Peter Bossaerts; Jernej Copic; Brad Cornell; Jaksa Cvitanic; Debrah Meloso |
| Abstract: | We develop a new theory of delegated investment whereby managers compete in terms of composition of the portfolios they promise to acquire. We study the resulting asset pricing in the inter-manager market. We incentivize investors so that we obtain sharp predictions. Managers are paid a fixed fraction of fund size. In equilibrium, investors choose managers who offer portfolios that mimic Arrow-Debreu (state) securities. Prices in the inter-manager market are predicted to satisfy a weak version of the CAPM: state-price probability ratios implicit in prices of traded assets decrease in aggregate wealth across states. An experiment involving about one hundred participants over six weeks broadly supports the theoretical predictions. Pricing quality declines, however, when fund concentration increases because funds flow towards managers who offer portfolios closer to Arrow-Debreu securities (as in the theory) and who had better recent performance (an observation unrelated to the theory). |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:438&r=cbe |
| By: | Gao, Zhifeng; House, Lisa; Bi, Xiang |
| Abstract: | A survey with validation question was delivered to 3475 respondents to study the impact of using validation question to improve data quality. Results show that The respondents who passed the validation question had significantly older ages, higher median incomes and higher education levels. The WTP estimates with and without the respondents who fails the validation question differ significantly. |
| Keywords: | survey data quality, validation question, willingness to pay, seafood, choice experiment, Agribusiness, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics, Marketing, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123922&r=cbe |
| By: | Thunström, Linda; Nordström, Jonas; Shogren, Jason F.; Ehmke, Mariah |
| Abstract: | This paper analyzes if people use ignorance as an excuse to pursue immediate gratification, at the expense of future wellbeing, a behavior we label ‘strategic self-ignorance’. In a theoretical model we show that present-biased individuals benefit from choosing ignorance of the potentially negative impact of present consumption, and that ignorance leads to over consumption of harmful goods. In an experiment we empirically test for strategic self-ignorance. The experiment entails prepared meals, for which subjects may be familiar with the taste (immediate utility) but are uninformed of the calorie content (potential harm to future health). Subjects are offered costless information on the calorie content of the meal alternatives. A majority of subjects (58 percent) choose to remain ignorant of the calorie content, and ignorance leads to a significantly higher intake of calories. Our results imply that people are strategically self-ignorant and that such behavior may help explain over consumption of harmful goods. |
| Keywords: | strategic ignorance, harmful consumption, experiment, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Health Economics and Policy, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123949&r=cbe |
| By: | Hopkins, Ed |
| Abstract: | This paper investigates social influences on attitudes to risk and offers an evolutionary explanation of risk-taking by young low-ranked males. Becker, Murphy and Werning (2005) found that individuals about to participate in a status tournament may take fair gambles even though they are risk averse in both wealth and status. Here their model is generalised by use of the insight of Hopkins and Kornienko (2010) that in a tournament or status competition one can consider equality in terms of the status or rewards available as well as in initial endowments. While Becker et al. found that risk-taking is increasing in the equality of initial endowments, it is found here that it is increasing in the inequality of rewards in the tournament. Further, it is shown that the poorest will be risk loving if the lowest level of status awarded is sufficiently low. Thus, the disadvantaged in society rationally engage in risky behavior when social rewards are sufficiently unequal. Finally, as greater inequality in terms of social status induces gambling, it can cause greater inequality of wealth. |
| Keywords: | risk, status, inequality, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:270&r=cbe |
| By: | LAAJAJ, RACHID |
| Abstract: | This paper analyzes the impact of economic prospects on one’s time preference. Research in psychol- ogy has shown how individuals modify their preferences in order to reduce their cognitive dissonance, which is the uncomfortable tension felt when simultaneously holding conflicting thoughts. It occurs among the poor when simultaneously caring about their future welfare while having gloomy economic prospects. Hence closing their eyes on the future can reduce their psychological distress at the cost of worsening their future economic wellbeing. This paper offers a new theoretical approach that decom- poses time discounting and analyzes the endogenous determination of one’s time horizon. The model predicts that, below a certain wealth, the time horizon of an individual is decreasing in poverty, result- ing in a behavioral poverty trap. The prediction is tested using data from a randomized experiment in Mozambique, which confirms that the beneficiaries of an agro-input subsidy and a matched savings intervention increased their planning horizon as a result of their improved economic prospects. |
| Keywords: | Endogenous time preference, cognitive dissonance, time horizon, Community/Rural/Urban Development, Consumer/Household Economics, Institutional and Behavioral Economics, D91, O12, Q12, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123933&r=cbe |
| By: | M. Bigoni; G. Camera; M. Casari |
| Abstract: | We study individual behavior of students and workers in an experiment where they repeatedly faced with the same cooperative task. The data show that clerical workers differ from college students in overall cooperation rates, strategies adopted, and use of punishment opportunities. Students cooperate more than workers, and cooperation increases in both subject pools when a personal punishment option is available. Students are less likely than workers to adopt strategies of unconditional defection and more likely to select strategies of conditional cooperation. Finally, students are more likely than workers to sanction uncooperative behavior with decentralized punishment and also personal punishment when available. |
| JEL: | C90 C70 D80 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp828&r=cbe |
| By: | Tomas Otahal (Department of Economics, Faculty of Business and Economics, Mendel University in Brno); Radim Valencik (University of Finance and Administration) |
| Abstract: | How can errors in decision-making by rationally behaving individuals be explained? The concepts of bounded rationality proposed by H. Simon and of imperfect information in the complex reality by F. Hayek attack the over-restrictive assumption of perfectly informed individuals or organisms in neoclassical microeconomics. Since this assumption excludes erroneous decision-making, some results must be explained by questioning the rationality assumption. In this paper, we show that erroneous decision-making of individuals and organisms is not necessarily erroneous if we look at the contextual games which individuals and organisms play in the complex reality. This helps to explain errors in the decision-making of individuals or organisms, while maintaining the assumption of rational behavior. At the same time, we show that the errors observed in the contextual analysis of games in the decision-making of individuals or organisms can only be apparent. |
| Keywords: | Bounded rationality, complex systems, contextual games, erroneous behavior, rational decision-making |
| JEL: | D01 C73 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:21_2012&r=cbe |
| By: | Best, James A |
| Abstract: | In this paper, I look at the interaction between social learning and cooperative behavior. I model this using a social dilemma game with publicly observed sequential actions and asymmetric information about pay offs. I find that some informed agents in this model act, individually and without collusion, to conceal the privately optimal action. Because the privately optimal action is socially costly the behavior of informed agents can lead to a Pareto improvement in a social dilemma. In my model I show that it is possible to get cooperative behavior if information is restricted to a small but non-zero proportion of the population. Moreover, such cooperative behavior occurs in a finite setting where it is public knowledge which agent will act last. The proportion of cooperative agents within the population can be made arbitrarily close to 1 by increasing the finite number of agents playing the game. Finally, I show that under a broad set of conditions that it is a Pareto improvement on a corner value, in the ex-ante welfare sense, for an interior proportion of the population to be informed. |
| Keywords: | Asymmetric information, cooperation, effciency, social learning, social dilemmas, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:289&r=cbe |
| By: | de Magistris, Tiziana; Gracia, Azucena; Nayga, Rodolfo M., Jr. |
| Abstract: | We test whether the use of an honesty priming task from the social psychology literature can help mitigate hypothetical bias in stated preference choice experiments (CE). Using a between-sample design, we conducted experiments with five treatments: (1) hypothetical CE without cognitive task, (2) hypothetical CE with cheap talk script, (3) hypothetical CE with neutral priming task, (4) hypothetical CE with honesty priming task, and (5) non-hypothetical CE. Results generally suggest that marginal willingness to pay estimates from treatment 4 where subjects are given honesty priming task before the choice experiment are not statistically different from marginal valuations from treatment 5 where subjects are in a non-hypothetical choice experiment. Values from both these treatments are significantly lower than those from other three hypothetical treatments (treatments 1-3). Using hold out tasks, our results also suggest that one could get higher percentage of correct predictions of participants’ choices in treatments 4 and 5 than in treatments 1-3 and that there is no significant difference in percentage of correct predictions between treatments 4 and 5. |
| Keywords: | hypothetical bias, cheap talk, priming, Willingness-to-pay, Marketing, Research Methods/ Statistical Methods, C23, D12, Q18, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123639&r=cbe |
| By: | Andrey Zaikin; Ana Espinola-Arredondo (School of Economic Sciences, Washington State University) |
| Abstract: | Irrigation water is a constrained common-pool resource in Uzbekistan that leads to an increasing competition over its allocation among farmers. We examine how the management of the commons in this region affects individual strategic behavior. We conduct an experiment with farmers from Uzbekistan in which two policies are analyzed, a penalty and a bonus. The paper studies a non-cooperative game and identifies the efficient use of water for irrigation. We compare our theoretical results with the experimental observations. Our findings suggest that the penalty and bonus mechanisms are effective in reducing individual water appropriation compared to the benchmark case in which these mechanisms are absent. Finally, we identify two different effects that drive subjects’ opportunistic behavior. |
| Keywords: | Common-pool resources; Experiment; Non-Cooperative Games; Uzbekistan; Water |
| JEL: | Q25 C72 C93 H41 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-12&r=cbe |
| By: | Antoni Bosch-Domènech; Joaquim Silvestre (Department of Economics, University of California Davis) |
| Abstract: | Various experimental procedures aimed at measuring individual risk aversion involve a list of pairs of alternative prospects. We first study the widely used method by Holt and Laury (2002), for which we find that the removal of some items from the lists yields a systematic decrease in risk aversion. This bias is quite distinct from other confounds that have been previously observed in the use of the Holt and Laury method. It may be related to empirical phenomena and theoretical developments where better prospects increase risk aversion. Nevertheless, we have also found that the more recent elicitation method due to Abdellaoui et al. (2011), also based on lists, does not display any statistically significant bias when the corresponding items of the list are removed. Our results suggest that methods other than the popular Holt and Laury one may be preferable for the measurement of risk aversion. |
| Keywords: | Risk aversion, risk attitudes, experiments, lists, elicitation method, Holt, Laury, Abdellaoui, Driouchi, l’Haridon, independence axiom |
| JEL: | C |
| Date: | 2012–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:12-10&r=cbe |
| By: | Aldo Rustichini (Department of Economics, University of Minnesota, 1925 4th Street South, 4-101 Hanson Hall, Minneapolis, MN 55455-0462, U.S.); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | We show with a laboratory experiment that individuals adjust their moral principles to the situation and to their actions, just as much as they adjust their actions to their principles. We first elicit the individuals’ principles regarding the fairness and unfairness of allocations in three different scenarios (a Dictator game, an Ultimatum game, and a Trust game). One week later, the same individuals are invited to play those same games with monetary compensation. Finally in the same session we elicit again their principles regarding the fairness and unfairness of allocations in the same three scenarios. Our results show that individuals adjust abstract norms to fit the game, their role and the choices they made. First, norms that appear abstract and universal take into account the bargaining power of the two sides. The strong side bends the norm in its favor and the weak side agrees : Stated fairness is a compromise with power. Second, in most situations, individuals adjust the range of fair shares after playing the game for real money compared with their initial statement. Third, the discrepancy between hypothetical and real behavior is larger in games where real choices have no strategic consequence (Dictator game and second mover in Trust game) than in those where they do (Ultimatum game). Finally the adjustment of principles to actions is mainly the fact of individuals who behave more selfishly and who have a stronger bargaining power. The moral hypocrisy displayed (measured by the discrepancy between statements and actions chosen followed by an adjustment of principles to actions) appears produced by the attempt, not necessarily conscious, to strike a balance between self-image and immediate convenience. |
| Keywords: | Moral hypocrisy, fairness, social preferences, power, self-deception |
| JEL: | D03 D63 C91 C7 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1216&r=cbe |
| By: | Uschi Backes-Gellner (Department of Business Administration, University of Zurich); Yvonne Oswald (Department of Business Administration, University of Zurich) |
| Abstract: | This paper investigates the effect of financial incentives on student performance and analyzes for the first time how the incentive effect in education is moderated by students’ risk and time preferences. To examine this interaction we use a natural experiment that we combine with data from surveys and economic experiments on risk and time preferences. We not only find that students who are offered financial incentives for better grades have on average better first- and second-year grade point averages, but more importantly, we find that highly impatient students respond more strongly to financial incentives than less impatient students. This finding suggests that financial incentives are most effective if they solve educational problems of myopic students. |
| Keywords: | Student performance; Financial incentive; Time preference; Risk preference |
| JEL: | I20 C91 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0079&r=cbe |
| By: | Benndorf, Volker; Rau, Holger A. |
| Abstract: | We analyze competition between workers in a gift-exchange experiment where two workers are hired by the same employer. In the competition treatment the two employees simultaneously choose their effort whereas in the baseline treatment competition cannot occur since there is only one employee per employer. We find that in the competition treatment employers implicitly set tournament incentives by rewarding employees who choose higher effort levels than their co-workers. Here, employees' effort levels increase significantly faster, which can be explained by imitation learning. Furthermore we find that employers decrease their wage payments per unit of effort exerted over time when employing two workers. -- |
| Keywords: | Gift Exchange,Competition,Internal Organization,Multiple Employees |
| JEL: | C91 J41 L22 M52 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:53&r=cbe |
| By: | Ehmke, Mariah D.; Schroeter, Christiane; Morgan, Kari; Larson-Meyer, Enette; Ballenger, Nicole |
| Abstract: | Researchers working in the fields of family studies and psychology show motherchild relationship dynamics affect the occurrence of childhood overweight and obesity. Many of the significant behaviors they identify relate to negotiation and generosity norms in the household. The primary objective of this study is to test the value of altruistic and collective models of household behavior using the dictator and ‘carrotstick’ laboratory experiments. We also test exploratory hypotheses relating mother’s generosity and child’s punitive behavior and mother-child weight and fitness outcomes using dictator and ‘carrot-stick’ games. The data were collected from 50 mother-child pairs in Laramie, Wyoming. The children were all eight to 10 years old. The mother’s completed a survey to measure family attitudes and beliefs around food and fitness. All of the mothers and children completed a fitness assessment and blood draw to measure their cholesterol, triglyceride, and hemoglobin levels in addition to the economic experiments. The data do not support altruistic models of familial utility maximization as suggested by Becker’s Rotten Kid Theorem. We do find children overwhelmingly influence mothers’ allocations to maximize child, not household, welfare or utility. Results also indicate there is a positive relationship between mother generosity for child junk food the child’s waist circumference. Children who demand punitive behavior in the ‘carrot-stick’ game were less fit and more likely to be overweight and obese. The results of this study offer insights into household allocation processes which effect both mother and child weight and health outcomes. |
| Keywords: | Food Consumption/Nutrition/Food Safety, |
| Date: | 2012–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaeafe:123516&r=cbe |
| By: | Miguel Manjón (Universitat Rovira i Virgili); Juan A. Mañez (Universitat de València); María E. Rochina-Barrachina (Universitat de València); Juan A. Sanchis-Llopis (Universitat de València) |
| Abstract: | Self-selection and learning-by-exporting are the main explanations for the higher productivity of exporting firms. But, whereas evidence on self-selection is largely undisputed, results on learning-by-exporting are mixed and far from conclusive. However, recent research (De Loecker, 2010) has shown that the conclusions from previous learning-by-exporting studies may have been driven by strong assumptions about the evolution of productivity and the role of export status. Relaxing these assumptions turns out to be critical to find evidence of learning-byexporting in a representative sample of Spanish manufacturing firms. Our results indicate that the yearly average gains in productivity are around 3% for at least four years. |
| Keywords: | learning-by-exporting, productivity |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1208&r=cbe |
| By: | Justine Burns; Malcolm Keswell (SALDRU, School of Economics, University of Cape Town) |
| Abstract: | This paper utilises techniques in experimental economics to investigate the impact of racial identity on the provision of public goods. A large sample of Black and White undergraduate University students were recruited to participate in public goods games, where the racial composition of the groups was varied to include All White groups, All Black groups and mixed race groups (comprising Black and White students). The results show that contrary to predictions from social identity theory, racial homogeneity in a group does not uniformly predict higher contributions to the public pool. Rather, it would appear that observable racial identity may convey information about extensive heterogeneity as opposed to homogeneity, especially where race is highly correlated with diversity in other dimensions, such as ethnolinguistic diversity. In accordance with the established macroeconometric literature on the provision of public goods, the results presented in this study show that contributions to the public good are indeed increasing in the level of trust in a group, and declining in the extent of ethnolinguistic diversity and socio-economic need in the group. Moreover, while communication has a large and significant effect on contributions to the public pool, patterns of communication are a ected by the racial composition of the group, with Black students appearing to be more responsive to communications made by White colleagues as opposed to Black colleagues. Hence, communication is not effective at sustaining co-operation in racially homogenous Black groups, possibly because communication in these groups allows participants to verify the greater diversity on other dimensions amongst group members. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ldr:wpaper:72&r=cbe |
| By: | Thierry Madiès (University of Fribourg, Bd de Pérolles 90, CH-1700 Fribourg, Switzerland); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Malgorzata Wasmer (University of Fribourg, Bd de Pérolles 90, CH-1700 Fribourg, Switzerland) |
| Abstract: | We study the attitudes of junior and senior employees towards strategic uncertainty and competition, by means of a market entry game inspired by Camerer and Lovallo (1999). Seniors exhibit higher entry rates compared to juniors, especially when earnings depend on relative performance. This difference persists after controlling for attitudes towards non-strategic uncertainty and for beliefs on others’ competitiveness and ability. Social image matters, as evidenced by the fact that seniors enter more when they predict others enter more and when they are matched with a majority of juniors. This contradicts the stereotype of risk averse and less competitive older employees. |
| Keywords: | Aging, risk, ambiguity, competitiveness, self-image, confidence, experiment |
| JEL: | C91 D83 J14 J24 M5 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1217&r=cbe |