nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒07‒29
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Why it matters what people think: Beliefs, legal origins and the deep roots of trust By Wahl, Fabian
  2. Social Influence in Trustors' Neighborhoods By Luigi Luini; Annamaria Nese; Patrizia Sbriglia
  3. Reducing deception through subsequent transparency - An experimental investigation By Sascha Behnk; Iván Barreda-Tarrazona; Aurora García-Gallego
  4. Ethnic Diversity and Team Performance: A Field Experiment By Hoogendoorn, Sander M.; van Praag, Mirjam
  5. Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment By Leonardo Bursztyn; Florian Ederer; Bruno Ferman; Noam Yuchtman
  6. Expected Behavior and Strategic Sophistication in the Dictator Game By Ismael Rodriguez-Lara; Pablo Brañas-Garza
  7. Discretion, Productivity and Work Satisfaction By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  8. Generosity across contexts By Alexander L. Davis; John H. Miller; Roberto A. Weber
  9. Security returns and tax aversion bias: Behavioral responses to tax labels By Blaufus, Kay; Möhlmann, Axel
  10. Cheating in the Workplace: An Experimental Study of the Impact of Bonuses and Productivity By Gill, David; Prowse, Victoria L.; Vlassopoulos, Michael
  11. Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment By Roland G. Fryer, Jr; Steven D. Levitt; John List; Sally Sadoff
  12. Selecting public goods institutions: who likes to punish and reward? By Michalis Drouvelis; Julian C. Jamison
  13. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Tonin, Mirco; Vlassopoulos, Michael
  14. Does the direct-response method induce guilt aversion in a trust game? By Amdur, David; Schmick, Ethan

  1. By: Wahl, Fabian
    Abstract: This paper analyses the connection between legal origins and generalized trust. Based on recent results of institutions and trust research it argues that legal origins and trust are connected via the beliefs of agents. Next, it develops hypotheses about a complex and self-reinforcing causal relation between both. It then shows empirically that indeed, legal origins and contemporary trust are robustly connected with each other. In a next step, it investigates the deep historical roots of trust to construct proxies for historical trust levels in 1500 AD. By making use of the historical trust scores and information about the exogenous or endogenous introduction of legal origins in certain countries it assess some of the claims about causality made before. Here, it found confirming evidence for the propositions of Aghion et al. (2010), namely that (i) countries for which legal origins are endogenous did develop other legal traditions depending on their ex-ante (historical) trust values and (ii) that the effects of an exogenous introduction of legal origins vary depending on ex-ante trust levels. --
    Keywords: Trust,Legal Origins,Colonization,Institutions,Causality,Deep Rooted Factors of Development
    JEL: K40 N10 O10 Z10
    Date: 2012
  2. By: Luigi Luini; Annamaria Nese; Patrizia Sbriglia
    Abstract: The aim of this paper is to ascertain whether trust is affected by contagion and herding in small groups of trustors who can observe each other’s choices over time. We account for three important factors of trustors’preferences, namely: risk attitude, generosity and expected trustworthiness. Using our data, we test the basic hypothesis that an individual's propensity to trust recipients in the Trust Game may be affected by the observed behavior of other trustors. Our results confirm that trust is affected by contagion effects. Furthermore, we find that specific types of agents (generous or untrusting) frequently imitate the same type when placed in the same group. Finally, we find that untrusting individuals are less affected by their peers compared to generous individuals, and that they are less prone to imitation when placed in groups of agents who have the same characteristics.
    Keywords: trust game, experiments, social influence, imitation.
    JEL: C72 C91
    Date: 2012–07
  3. By: Sascha Behnk (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Iván Barreda-Tarrazona (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Aurora García-Gallego (LEE and Economics Department, Universitat Jaume I, Castellón, Spain)
    Abstract: Asymmetric information is a common characteristic of economic relationships and often provides incentives to deceive. Being aware of previous findings showing that ex post transparency about conflicts of interest leads to even more deception, we hypothesize that the timing of disclosing a conflict of interest plays a role in this context. Using different scenarios of a sender-receiver game, we investigate if, instead of providing ex ante information, the effect of an ex post disclosure is to reduce treacherous advice. Our results show that timing actually matters: subsequent transparency significantly reduces deception when it is announced as a threat, which creates awareness of the presence of a whistleblower. An intrinsic motivation seems to play a certain role that goes beyond lying and guilt aversion: embarrassment. Furthermore, we examine if the provision of different alternatives to deception (honest vs. payoff-equalizing messages) has an important impact on individual behavior. We find that honesty is not the most favored alternative to deception. Subsequent transparency increases honest behavior only under particular conditions but strongly increases the tendency to equalize payoffs.
    Keywords: deception, transparency, disclosure, sender-receiver game, information transmission, behavior, experiment
    JEL: D03 C91 D82
    Date: 2012
  4. By: Hoogendoorn, Sander M. (University of Amsterdam); van Praag, Mirjam (University of Amsterdam)
    Abstract: One of the most salient and relevant dimensions of team heterogeneity is ethnicity. We measure the causal impact of ethnic diversity on the performance of business teams using a randomized field experiment. We follow 550 students who set up 45 real companies as part of their curriculum in an international business program in the Netherlands. We exploit the fact that companies are set up in realistic though similar circumstances and that we, as outside researchers, had the unique opportunity to exogenously vary the ethnic composition of otherwise randomly composed teams. The student population consists of 55% students with a non-Dutch ethnicity from 53 different countries of origin. We find that a moderate level of ethnic diversity has no effect on team performance in terms of business outcomes (sales, profits and profits per share). However, if at least the majority of team members is ethnically diverse, then more ethnic diversity has a positive impact on the performance of teams. In line with theoretical predictions, our data suggest that this positive effect could be related to the more diverse pool of relevant knowledge facilitating (mutual) learning within ethnically diverse teams.
    Keywords: ethnic diversity, team performance, field experiment, entrepreneurship, (mutual) learning
    JEL: J15 L25 C93 L26 M13 D83
    Date: 2012–07
  5. By: Leonardo Bursztyn; Florian Ederer; Bruno Ferman; Noam Yuchtman
    Abstract: Using a field experiment conducted with a financial brokerage, we attempt to disentangle channels through which a person’s financial decisions affect his peers’. When someone purchases an asset, his peers may also want to purchase it because they learn from his choice (“social learning”) and because his possession of the asset directly affects others’ utility of owning the same asset (“social utility”). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing possession of the asset. Then, we randomize whether the second member of the pair: 1) receives no information about his peer, or 2) is informed of his peer’s desire to purchase the asset and the result of the randomization determining possession. We thus estimate the effects of: (a) learning plus possession, and (b) learning alone, relative to a control group. In the control group, 42% of individuals purchased the asset, increasing to 71% in the “social learning only” group, and to 93% in the “social learning and social utility” group. These results suggest that herding behavior in financial markets may result from social learning, and also from a desire to own the same assets as one’s peers.
    JEL: C93 D03 D14 D83 G0 G11 M31
    Date: 2012–07
  6. By: Ismael Rodriguez-Lara (ERI-CES); Pablo Brañas-Garza (Universidad de Granada)
    Abstract: This paper provides novel results for the extensive literature on dictator games: recipients do not expect dictators to behave selfishly, but instead expect the equal split division. The predictions made by dictators are notably different: 45% predicted the zero contribution and 40% the equal split. These results suggest that dictators and recipients are heterogenous with regard to their degree of strategic sophistication and identify the dictator's decision power in a very different manner.
    Keywords: expectations, strategic sophistication, dictator game, equal, split, guessing
    JEL: C91 D63 D64
    Date: 2012–07
  7. By: Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
    Abstract: In Bartling, Fehr and Schmidt (2012) we show theoretically and experimentally that it is optimal to grant discretion to workers if (i) discretion increases productivity, (ii) workers can be screened by past performance, (iii) some workers reciprocate high wages with high effort and (iv) employers pay high wages leaving rents to their workers. In this paper we show experimentally that the productivity increase due to discretion is not only sufficient but also necessary for the optimality of granting discretion to workers. Furthermore, we report representative survey evidence on the impact of discretion on workers’ welfare, confirming that workers earn rents.
    Keywords: high-performance work systems; wages; discretion; gift exchange; job satisfaction
    JEL: M5 J3
    Date: 2012–06
  8. By: Alexander L. Davis; John H. Miller; Roberto A. Weber
    Abstract: Extensive research in economics explores generosity in monetary allocations, while generosity in non-laboratory contexts often involves the allocation of consumption goods or non-monetary harm. Psychological evidence suggests that generosity may be higher in such contexts. We compare generosity in decisions that vary whether allocations are monetary or non-monetary, and whether they involve utility gains or losses. In two experiments, generosity is higher in nonmonetary contexts. Thus, the typical monetary laboratory Dictator game may underestimate generosity in many non-laboratory contexts. We find a weak relationship between individuals’ allocation decisions in monetary and nonmonetary contexts, but a strong relationship within monetary contexts.
    Keywords: Altruism, generosity, harm, experiment
    JEL: D03 D64 C91
    Date: 2011–11
  9. By: Blaufus, Kay; Möhlmann, Axel
    Abstract: This paper studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices. --
    Keywords: Behavioral finance,Behavioral taxation,Investor psychology,Tax aversion,Experiment
    JEL: D03 G32 H20 H3
    Date: 2012
  10. By: Gill, David (Oxford University); Prowse, Victoria L. (Cornell University); Vlassopoulos, Michael (University of Southampton)
    Abstract: We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating. Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid. Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity. We also find that more productive workers behave more dishonestly. We explain how these results suggest that workers' cheating behavior responds to the perceived fairness of their employer's compensation scheme.
    Keywords: bonus, compensation, cheating, dishonesty, lying, employee crime, productivity, slider task, real effort, experiment
    JEL: C91 J33
    Date: 2012–07
  11. By: Roland G. Fryer, Jr; Steven D. Levitt; John List; Sally Sadoff
    Abstract: Domestic attempts to use financial incentives for teachers to increase student achievement have been ineffective. In this paper, we demonstrate that exploiting the power of loss aversion—teachers are paid in advance and asked to give back the money if their students do not improve sufficiently—increases math test scores between 0.201 (0.076) and 0.398 (0.129) standard deviations. This is equivalent to increasing teacher quality by more than one standard deviation. A second treatment arm, identical to the loss aversion treatment but implemented in the standard fashion, yields smaller and statistically insignificant results. This suggests it is loss aversion, rather than other features of the design or population sampled, that leads to the stark differences between our findings and past research.
    JEL: J24
    Date: 2012–07
  12. By: Michalis Drouvelis; Julian C. Jamison
    Abstract: The authors extend the standard public goods game in a variety of ways, in particular by allowing for endogenous preference over institutions and by studying the relationship between individual types, their preferences, and later behavior within the various institutional environments. They collect individual data on a variety of demographic factors, in addition to measuring levels of risk aversion and ambiguity aversion (over both gains and losses). The authors then elicit preferences in an incentive-compatible manner over voluntary contribution mechanisms with and without reward and punishment options. Finally, they randomly assign subjects to one of the four institutions and observe repeated play. They find that payoffs are significantly greater when punishment is allowed but that only a small minority of participants prefers such an environment. There is at most a weak link between individual characteristics and elicited preferences over environments. On the other hand, institutional preferences, as well as individual characteristics, are more strongly predictive of behavior in the public goods game. For instance, loss averse individuals preemptively reward more often when that option is available. This result suggests that when studying social interactions, especially if people can choose whether to participate in a sanctions-and-rewards mechanism, it is important to consider individual attitudes toward risk and uncertainty.
    Keywords: Human behavior ; Public goods ; Uncertainty ; Risk ; Reward (Psychology)
    Date: 2012
  13. By: Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: Contributing to a social cause can be an important driver for workers in the public and non-profit sector as well as in firms that engage in Corporate Social Responsibility activities. This paper compares the effectiveness of social incentives to financial incentives using an online real effort experiment. We find that social incentives lead to a 20% rise in productivity, regardless of their form (lump sum or related to performance) or strength. When subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation, with women more likely than men. Furthermore, social incentives do not attract less productive subjects, nor subjects that respond more to exogenously imposed social incentives. Our calculations suggest that a dollar spent on social incentives is equivalent to increasing private compensation by at least half a dollar.
    Keywords: private incentives, social incentives, sorting, prosocial behavior, real effort experiment, corporate social responsibility, gender
    JEL: D64 J24 J32 L3 M14 M52
    Date: 2012–07
  14. By: Amdur, David; Schmick, Ethan
    Abstract: We compare the strategy and direct-response methods in a one-shot trust game with hidden action. In our experiment, the decision elicitation method affects neither participants' behavior nor their beliefs about this behavior. We conclude that the direct-response method does not, by itself, induce guilt aversion.
    Keywords: Trust; guilt aversion; strategy method; direct-response method; behavioral economics; experimental economics
    JEL: D03 A13 C91
    Date: 2012–06

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