nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒09‒09
thirteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Nudges at the Dentist By Steffen Altmann; Christian Traxler
  2. Are groups more rational, more competitive or more prosocial bargainers? By Ulrike Vollstädt; Robert Böhm
  3. Everyone Wants a Chance: Initial Positions and Fairness in Ultimatum Games By Grimalday, Gianluca; Karz, Anirban; Proto, Eugenio
  4. The Influences of Economic and Psychological Factors on Energy-Saving Behavior: A Field Experiment in Matsuyama, Japan By Kenichi Mizobuchi; Kenji Takeuchi
  5. The Psychological Basis of Quality Decision Making By Nemeth, Charlan Jeanne
  6. When is the Risk of Cooperation Worth Taking? The Prisoner’s Dilemma as a Game of Multiple Motives By Christoph Engel; Lilia Zhurakhovska
  7. On attitude towards choice - Some experimental evidence of choice aversion By Fabrice Le Lec; Benoît Tarroux
  9. A Mind is a Terrible Thing to Change: Confirmation Bias in Financial Markets By Pouget, Sébastien; Villeneuve, Stéphane
  10. Promoting Cooperation: the Distribution of Reward and Punishment Power By Daniele Nosenzo; Martin Sefton
  11. Creativity, analytical skills, personality traits, and innovative capability: A lab experiment By Güth, Werner; Pull, Kerstin; Stadler, Manfred
  12. Self-Control, Financial Literacy and Co-Holding Puzzle By John Gathergood; Joerg Weber
  13. Heterogeneity and Cooperation in Privileged Groups: The Role of Capability and Valuation on Public Goods Provision By Felix Kolle

  1. By: Steffen Altmann (Institute for the Study of Labor (IZA)); Christian Traxler (Max Planck Institute for Research on Collective Goods, Bonn and University of Marburg, Department of Economics)
    Abstract: We implement a randomized field experiment to study the impact of reminders on dental health prevention. Patients who are due for a check-up receive no reminder, a neutral reminder postcard, or reminders including additional information on the benefits of prevention. Our results document a strong impact of reminders. Within one month after receiving a reminder, the fraction of patients who make a check-up appointment more than doubles. The effect declines slightly over time, but remains economically and statistically significant. Including additional information in the reminders does not increase response rates. In fact, the neutral reminder has the strongest impact for the overall population as well as for important subgroups of patients. Finally, we document that being exposed to reminders repeatedly does neither strengthen nor weaken their effectiveness.
    Keywords: Field Experiment, Reminders, Nudges, Memory Limitations, Prevention, Dental Health, Framing
    JEL: D03 I11 C93
    Date: 2012–07
  2. By: Ulrike Vollstädt (Jena Graduate School "Human Behaviour in Social and Economic Change", University of Jena); Robert Böhm (Center for Empirical Research in Economics and Behavioral Scienes (CEREB), University of Erfurt)
    Abstract: In reality, it is often groups rather than individuals that make decisions. In previous experiments, groups have frequently been shown to act differently from individuals in several ways. It has been claimed that inter-group interactions may be (1) more competitive, (2) more rational, or (3) more prosocial than inter-individual interactions. While some of these observed differences may be due to differences in the experimental designs, it is still not clear which of the three motivations is prevailing as they have often been behaviorally confounded in previous experiments. We use Rubinstein's alternating offers bargaining game to compare inter-individual with inter-group behavior since it allows separating the predictions of competitive, rational and prosocial behavior. We find that groups are, on average, more rational bargainers than individuals.
    Keywords: alternating offers bargaining experiment, inter-group behavior, inter-individual behavior
    JEL: C78 D70
    Date: 2012–08–23
  3. By: Grimalday, Gianluca (Universitat Jaume I); Karz, Anirban (Delhi School of Economics, University of Delhi); Proto, Eugenio (University of Warwick)
    Abstract: Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position ñ arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We Önd that: (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given o§er; consequently, o§ers increase; (2) Being assigned a mere 1% chance of occupying the proposer role compared to none, significantly increases acceptance rates and decreases o§ers; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness both static and dynamic - has clear relevance for individuals.
    Date: 2012
  4. By: Kenichi Mizobuchi (Department of Economics, Matsuyama University); Kenji Takeuchi (Graduate School of Economics,Kobe University)
    Abstract: This study examines the influences of economic and psychological factors on electricity conservation behavior. A random selection of 236 Japanese households participated in the field experiment, and they were offered two interventions, such as monetary rewards depending on their reduction in electricity consumption and comparative feedback. The average saving rates of the (i) economic incentive group (5.9%) and (ii) economic incentive with comparative feedback group (8.2%) are statistically larger than those of the (iii) control group (1.6%). Our econometric analysis confirmed that economic and psychological factors have a positive influence on the decision concerning whether to save electricity, and a reward combined with comparative feedback is most effective. Psychological factors also affect the decision about how much to save electricity, while economic incentive factors do not influence this decision. In particular, social norms, which are psychological factors, have a consistent effect on both the whether and how decisions. Responses to the questionnaire before and after the experiment suggest that participants may have underestimated the marginal costs of the electricity saving.
    Keywords: Comparative feedback; Economic incentive, Electricity saving, Field experiment, Household energy use, Social norm
    Date: 2012–04
  5. By: Nemeth, Charlan Jeanne
    Abstract: Effective strategic management requires analysis, decisions and actions by an organization to create and sustain competitive advantage. Gooddecisions are obviously desirable but whether the decision is good is a judgment call, often after the fact, and is itself subject to bias. What is less subject to debate is the process that leads to accuracy or quality decision making. This requires not just access to available information but proper processing, interpretation and integration of that data. Critical is the consideration of multiple options and perspectives at all stages and there are a myriad of reasons why people do not do that. Defective decisions come from poor information search, selective bias in processing the information, a lack of considering alternatives, a failure to examine the risks of the preferred choice and a rush to judgment (Janis and Mann 1977). In short, the selection, interpretation and integration of information is “biasedâ€.  In this brief overview, we consider “bias†both at the individual and the group level. The overarching perspective is that there are psychological reasons that constrain and bias thought and there are also psychological antidotes that can improve it.  The former are more numerous and well documented than the latter but in both individual and group decision making, the influences are predictable, pervasive and profound, leading at times to defective decision making and at other times to better and even creative decision making.
    Keywords: Psychology, decisions, biases, creativity, dissent, divergent thought
    Date: 2012–08–28
  6. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Both in the field and in the lab, participants frequently cooperate, despite the fact that the situation can be modelled as a simultaneous, symmetric prisoner’s dilemma. This experiment manipulates the payoff in case both players defect, and explains the degree of cooperation by a combination of five motives: the size of gains from cooperation, expectations about cooperativeness in the population in question, the degree of risk and loss aversion, and the degree by which a participant is tempted to inflict harm on another participant if this gives her a chance for an even higher payoff. Information about these motivational forces stems from additional within subjects tests. All five factors are significant only if one controls for all the other motives, which suggests that a prisoner’s dilemma is a game jointly characterised by these five motives. The need to control for the remaining explanations seems to be the reason why earlier attempts at explaining choices in the prisoner’s dilemma with personality have not been
    Keywords: efficiency, Risk aversion, Conditional Cooperation, prisoner’s dilemma, Belief, Loss Aversion, Risky Dictator Game
    JEL: H41 C72 C91 D03
    Date: 2012–08
  7. By: Fabrice Le Lec (Catholic University of Lille and LEM, UMR CNRS 8179); Benoît Tarroux (University of Rennes 1 - CREM, UMR CNRS 6211 - IDEP)
    Abstract: This paper investigates how people value choice. The experiment consists of eliciting subjects' willingness to accept for various choice sets. This approach allows us to assess whether prior to making their decision, people appreciate a wider set of options or not. In contrast with the existing literature, our experimental protocol controsl for several parameters usually left aside and provides an environment where usual explanations are unlikely to hold, e.g., complexity of task. Our results suggest that on average individuals are choice averse: the value of a choice set is significantly and robustly lower than the one of its preferred element.
    Keywords: Choice Aversion, Choice Attitude, Hyperchoice, Freedom of Choice, Choice Overload
    JEL: C91 D03 D63
    Date: 2012–08
  8. By: Nazaria Solferino (Dipartimento di Economia e Statistica, Università della Calabria)
    Abstract: Often people procrastinate unpleasant tasks for immediate gratification in doing nothing today. Therefore many scholars have been engaged in designing incentive schemes to avoid it. We think the process is very complicated and many features need to be analyzed, as the subjective evaluations of the probability of success and rewards. In this paper we explore these factors and analyse under what conditions procrastination is a bad decision, with negative consequences or, on the contrary, it is the better choice. We also analyse a particular case of good procrastination, that is when procrastination may have positive consequences because people spend their time in alternative activities, useful for other ex post best rewarded tasks. We define this case as “productive procrastination”.
    Keywords: Time-Inconsistent Preferences, Procrastination, Inter-temporal Choice
    JEL: D03 D74 D91
    Date: 2012–03
  9. By: Pouget, Sébastien; Villeneuve, Stéphane
    Abstract: This paper proposes a dynamic model of financial markets where some investors are prone to the confirmation bias. Following insights from the psychological literature, these agents are assumed to amplify signals that are consistent with their prior views. In a model with public information only, this assumption provides a rationale for the volume-based price momentum documented by Lee and Swaminathan (2000). Our results are also consistent with a variety of other empirically documented phenomena such as bubbles, crashes, reversals and excess price volatility and volume. Novel empirical predictions are derived: i) return continuation should be stronger when biased traders' beliefs are more extreme, and ii) return continuation should be stronger after an increase in trading volume. The implications of our model for short-term quantitative investments are twofold: i) optimal trading strategies involve riding bubbles, and that ii) contrarian trading can be optimal in some market circumstances.
    Keywords: financial markets, psychological biases, confirmation bias, momentum, reversal, bubbles, trading strategies
    Date: 2012–03
  10. By: Daniele Nosenzo (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: Recent work in experimental economics on the effectiveness of rewards and punishments for promoting cooperation mainly examines decentralized incentive systems where all group members can reward and/or punish one another. Many self-organizing groups and societies, however, concentrate the power to reward or punish in the hands of a subset of group members (‘central monitors’). We review the literature on the relative merits of punishment and rewards when the distribution of incentive power is diffused across group members, as in most of the extant literature, and compare this with more recent work and new evidence showing how concentrating reward/punishment power in one group member affects cooperation.
    Keywords: rewards,punishment, discretionary incentives, decentralized incentives, peer-to-peer incentives, centralized incentives, experiment
    Date: 2012–08
  11. By: Güth, Werner; Pull, Kerstin; Stadler, Manfred
    Abstract: Innovation economics is usually neglecting the psychological tradition of creativity research. Our study is an attempt to experimentally collect behavioral data revealing in how far personality characteristics like creativity, analytical skills and personality traits on the one hand and innovative capability, the topic of innovation economics, on the other hand are interrelated. We find that participants' performance in innovation games is related to their creativity, risk tolerance and self-control. Other personality traits such as participants' anxiety, independence, tough-mindedness, analytical skills and extraversion at best play a minor role. --
    Keywords: Creativity,Personality traits,Innovation games,Experiments
    JEL: C91 L13 O31
    Date: 2012
  12. By: John Gathergood (School of Economics, University of Nottingham); Joerg Weber (School of Economics, University of Nottingham)
    Abstract: We use UK household survey data incorporating measures of financial literacy and behavioural characteristics to analyse the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we term the ‘co-holding puzzle’. Approximately 20% of households in our sample co-hold, on average, £6,500 of revolving consumer credit alongside £8,000 of liquid savings. Co-holders are typically more financially literate, with above average income and education. However, we show co-holding is also associated with impulsive spending behaviour on the part of the household. Our results lend empirical support to theoretical models in which sophisticated households co-hold as a means of managing a self-control problem.
    Keywords: consumer credit, self-control, financial literacy
    Date: 2012–02
  13. By: Felix Kolle (Cologne Graduate School in Management, Economics and Social Sciences)
    Abstract: We experimentally investigate cooperation in privileged groups which according to Olson (1965) are groups in which at least one member has an incentive to supply a positive amount of the public good. More specifically, we analyze group member heterogeneity with respect to two dimensions: capability and valuation. Our results reveal that with and without punishment opportunities, heterogeneity crucially aects cooperation and coordination within groups. Compared to non-privileged groups, asymmetric valuations for the public good have negative eects, and asymmetric capabilities in providing the public good have positive eects on voluntary contributions. The main reason for these results are the dierent externalities contributions have on the other group members’ payos affecting individuals’ willingness to cooperate. Hence, whether heterogeneity facilitates or impedes collective action, and whether privileged groups are as privileged as they initially seem is subject to the nature of their asymmetry.
    Keywords: public goods, heterogeneity, privileged groups, inequality, cooperation, punishment
    Date: 2012–07

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