nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒07‒01
seven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. How do people cope with an ambiguous situation when it becomes even more ambiguous? By Eichberger, Jürgen; Oechssler, Jörg; Schnedler, Wendelin
  2. Risk experiments in gains and losses: A case study for Benin By Gheyssens, Jonathan; Gunther, Isabel
  3. Choice by sequential procedures By Jose Apesteguia; Miguel A. Ballester
  4. Work and family decision-making framework: A motivational perspective By Chinchilla, Nuria; Moragas, Maruja; Kim, Sowon
  5. Variation in risk seeking behavior in a natural experiment on large losses induced by a natural disaster By Lionel Page; David Savage; Benno Torgler
  6. Hierarchy, Coercion, and Exploitation: An Experimental Analysis By Nikiforakis, Nikos; Oechssler, Jörg; Shah, Anwar
  7. In Dubio Pro Reo. Behavioral explanations of pro-defendant bias in procedures By Antonio Nicita; Matteo Rizzolli

  1. By: Eichberger, Jürgen; Oechssler, Jörg; Schnedler, Wendelin
    Abstract: As illustrated by the famous Ellsberg paradox, many subjects prefer to bet on events with known rather than with unknown probabilities, i.e., they are ambiguity averse. In an experiment, we examine subjects’ choices when there is an additional source of ambiguity, namely, when they do not know how much money they can win. Using a standard independence assumption, we show that ambiguity averse subjects should continue to strictly prefer the urn with known probabilities. In contrast, our results show that many subjects no longer exhibit such a strict preference. This should have important ramifications for modeling ambiguity aversion.
    Keywords: ambiguity aversion; uncertainty; minmax-expected utility
    JEL: D81 C91
    Date: 2012–06–21
  2. By: Gheyssens, Jonathan; Gunther, Isabel
    Abstract: The aim of this paper is to expand our knowledge on risk aversion among the poor by conducting experiments that do not only test risk aversion in small and large stakes but also in risky gains and risky losses. To our knowledge, this is the first attempt
    Keywords: risk aversion; loss aversion; religion
    Date: 2012
  3. By: Jose Apesteguia; Miguel A. Ballester
    Abstract: We propose a rule of decision-making, the sequential procedure guided by routes, and show that three influential boundedly rational choice models can be equivalently understood as special cases of this rule. In addition, the sequential procedure guided by routes is instrumental in showing that the three models are intimately related. We show that choice with a status-quo bias is a refinement of rationalizability by game trees, which, in turn, is also a refinement of sequential rationalizability. Thus, we provide a sharp taxonomy of these choice models, and show that they all can be understood as choice by sequential procedures.
    Keywords: Individual rationality, Bounded rationality, Behavioral economics.
    JEL: D01
    Date: 2012–02
  4. By: Chinchilla, Nuria (IESE Business School); Moragas, Maruja (IESE Business School); Kim, Sowon (IESE Business School)
    Abstract: We introduce motivation theory as a way of understanding the decision-making process in the work and family context. We use core concepts from motivation theory - extrinsic, intrinsic and prosocial motivation - and link them to motivational learning to build our framework. We then propose a framework illustrating motivational factors that influence work-family decision-making and offer propositions focusing on the motivational consequences for individuals which will impact their future decision-making processes.
    Keywords: decision-making; motivational learning; motivational structure; work-family;
    Date: 2012–06–01
  5. By: Lionel Page; David Savage; Benno Torgler
    Abstract: This study explores people's risk attitudes after having suffered large real-world losses following a natural disaster. Using the margins of the 2011 Australian oods (Brisbane) as a natural experimental setting, we find that homeowners who were victims of the floods and face large losses in property values are 50% more likely to opt for a risky gamble - a scratch card giving a small chance of a large gain ($500,000) - than for a sure amount of comparable value ($10). This finding is consistent with prospect theory predictions of the adoption of a risk-seeking attitude after a loss.
    Keywords: Decision under risk; large losses; natural experiment
    JEL: D03 D81 C93
    Date: 2012–06
  6. By: Nikiforakis, Nikos; Oechssler, Jörg; Shah, Anwar
    Abstract: The power to coerce workers is important for the efficient operation of hierarchically structured organizations. However, this power can also be used by managers to exploit their subordinates for their own benefit. We examine the relationship between the power to coerce and exploitation in a laboratory experiment where a senior and a junior player interact repeatedly for a finite number of periods. We find that senior players try repeatedly to use their power to exploit junior workers. These attempts are successful only when junior workers have incomplete information about how their effort impacts on the earnings of senior players, but not when they have complete information. Evidence from an incentive-compatible questionnaire indicates that the social acceptability of exploitation depends on whether the junior worker can detect she is being exploited. We also show how a history of exploitation affects future interactions.
    Keywords: coercion; exploitation; disobedience; hierarchy; social norms.
    Date: 2012–06–21
  7. By: Antonio Nicita; Matteo Rizzolli
    Abstract: The standard model of optimal deterrence predicts that the probability of wrongful conviction of the innocent is, at the margin, as detrimental to deterrence as the wrongful acquittal of guilty individuals. We extend the model in several directions: using expected utility as well as nonexpected utility to consider the role of risk aversion, non-linear probability weighting and loss aversion. We also consider how relevant emotions such as guilt, shame and indignation play out. Several of these factors support the intuition that wrongful convictions of the innocent do have a larger detrimental impact on deterrence and thus the policy implications are reconciled with the widely shared maxim in dubio pro reo. We then draw some theoretical implications such as a novel justification for the different standards of proof in criminal vs civil law as well as other policy implications.
    Keywords: wrongful convictions, Type I errors, wrongful acquittals, Type II errors, evidence, optimal under-deterrence, behavioral economics, risk aversion, loss aversion, prospect theory, prelec function
    JEL: K14 K41 K42
    Date: 2012–05

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