nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2012‒11‒03
eleven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. The Effect of Social Fragmentation on Public Good Provision: an Experimental Study By Surajeet Chakravarty; Miguel A. Fonseca
  2. Life is Now! Time Discounting and Crime: Aggregate Evidence from the Italian Regions (2002-2007) By Sergio Beraldo; Raul Caruso; Gilberto Turati
  3. Psychology and behavioral economics lessons for the design of a green growth strategy By Weber, Elke U.; Johnson, Eric J.
  4. Naive Responses to Kind Delegation By Gerald Eisenkopf; Urs Fischbacher
  5. Loss Aversion and Consumption Choice: Theory and Experimental Evidence By Karle, Heiko; Kirchsteiger, Georg; Peitz, Martin
  6. How the Allocation of Children’s Time Affects Cognitive and Non-Cognitive Development By Michael P. Keane
  7. When do consumers indulge in luxury? Emotional certainty signals when to indulge to regulate affect By Francine Espinoza Petersen
  8. The Influence of Superstars on Organizational Identification of External Stakeholders: Empirical Findings from Professional Soccer By Daniel Högele; Sascha L. Schmidt; Benno Torgler
  9. Probably Not the Best Lager in the World: Effect of Brands on Consumers’ Preferences in a Beer Tasting Experiment By Matteo Maria Galizzi; Christian Garavaglia
  10. Risk taking, diversification behavior and financial literacy of individual investors By Elisa Cavezzali; Gloria Gardenal; Ugo Rigoni
  11. The Role of Seed Money and Threshold Size in Optimizing Fundraising Campaigns: Past Behavior Matters! By G. A. VERHAERT; D. VAN DEN POEL

  1. By: Surajeet Chakravarty (Department of Economics, University of Exeter); Miguel A. Fonseca (Department of Economics, University of Exeter)
    Abstract: We study the role of social identity in determining the impact of social frag- mentation on public good provision using laboratory experiments. We nd that as long as there is some degree of social fragmentation, increasing it leads to lower public good provision. This is mainly because the share of those who contribute fully to the public good diminishes with social fragmentation, while the share of free-riders is unchanged, which suggests social identity preferences drive our result, as opposed to self-interest. Importantly, socially homogeneous groups do not generate the highest contributions: some social diversity is actually welfare-improving. Finally, social fragmentation is felt differently for visible minorities, whose contributions are higher than minority groups whose actions are not identiable.
    Keywords: Social Identity, Public Goods, Social Fragmentation, Experiments.
    JEL: C92 D02 D03 H41
    Date: 2012
  2. By: Sergio Beraldo (Department of Theories and Methods of Social and Human Sciences, University of Napoli "Federico II", Italy); Raul Caruso (Institute of Economic Policy, Catholic University of the Sacred Heart, Milan, Italy); Gilberto Turati (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This paper tests the relationship between time preferences and crime rates as posited by Davis (1988), whose theoretical analysis suggests that individuals’ attitude towards the future significantly affect their propensity to commit crime. Our empirical analysis is based on a panel of Italian regions for the period 2002-2007. Various proxies for time preferences are considered: the consumer credit share out of the total amount of loans to households, the share of obese individuals out of the total population, and the rate of marriages out of the total population. In line with the theoretical prediction, our empirical analysis confirms that where people are more impatient and discount the future more heavily, property and violent crimes are higher. Results are robust to a number of alternative specifications including covariates drawn from the literature on the determinants of crime.
    Keywords: Time Preferences, Property Crime, Violent Crime, Italian Regions, Panel data
    JEL: D99 K42 Z13
    Date: 2012–10
  3. By: Weber, Elke U.; Johnson, Eric J.
    Abstract: A green growth agenda requires policy makers, from local to supranational levels, to examine and influence behavior that impacts economic, social, and environmental outcomes on multiple scales. Behavioral and social change, in addition or conjunction with technological change, is thus a crucial component of any green growth strategy. A better understanding of how and why people consume, preserve, or exploit resources or otherwise make choices that collectively impact the environment has important and far-reaching consequences for the predictive accuracy of more sophisticated models, both of future states of the world and of the likely impact of different growth strategies and potential risk management strategies. The prevailing characterization of human decision making in policy circles is a rational economic one. Reliance on the assumptions of rational choice excludes from consideration a wide range of factors that affect how people make decisions and therefore need to be considered in predictions of human reactions to environmental conditions or proposed policy initiatives. In addition, a more complete and more fully descriptive understanding of decision processes provide powerful tools for policy design that complement legal or economic instruments or may lead to more effective implementation of such policy instruments.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Knowledge for Development,Climate Change Economics,Climate Change Mitigation and Green House Gases
    Date: 2012–10–01
  4. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Urs Fischbacher (Department of Economics, University of Konstanz, Germany)
    Abstract: People do not like to delegate the distribution of favors. To explain this reluctance we disentangle reward motives in an experiment, in which an investor can directly transfer money to a trustee or delegate this decision to another investor. Varying the transfer values of investor and delegate, we find that the trustee’s rewards follow a rather simple pattern. In all situations, both investors are rewarded, but the person who ultimately decides gets a higher reward. Unlike studies on the punishment of delegated unkind decisions our results do not reveal sophisticated reward behavior that takes the responsibility of people into account.
    Keywords: Delegation, trust, reciprocity, intentions, experiment
    JEL: C91 D63
    Date: 2012–08–02
  5. By: Karle, Heiko; Kirchsteiger, Georg; Peitz, Martin
    Abstract: In this paper we analyze a consumer choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. We make use of the fact that participants differ in their reported taste difference between the two sandwiches and the degree of loss aversion which we measure separately. We find that more loss-averse participants are more likely to opt for the cheaper sandwich provided that their reported taste difference is below some threshold, confirming the model’s predictions.
    Keywords: Contextual Reference Points; Loss Aversion; Reference-Dependent Utility
    JEL: C91 D01 D11 D83
    Date: 2012–10
  6. By: Michael P. Keane (Nuffield College, University of Oxford)
    Abstract: The allocation of children’s time among different activities may be important for their cognitive and non-cognitive development. In our work we exploit time use diaries from the Longitudinal Study of Australian Children to study the effect of time allocation across a wide range of alternative activities. By doing so we characterize the trade-off between the activities to which a child is exposed. On the one hand, our results suggest that time spent in educational activities, particularly with parents, is the most productive input for cognitive skill development. On the other hand, non-cognitive skills appear insensitive to alternative time allocations. Instead, these skills are greatly affected by the mother’s parenting style.
    Date: 2012–10–16
  7. By: Francine Espinoza Petersen (ESMT European School of Management and Technology)
    Abstract: Current theorizing suggests that the valence of an affective state alone cannot explain indulgent consumption but that this is contingent on whether indulging can improve a negative state or will not hurt a positive state. This research shows that when an emotion is associated with the appraisal of uncertainty (certainty), consumers infer that their affective state can (cannot) change. As a result, people in a negative affective state will indulge more when their affect is associated with uncertainty because indulging can help repair the negative state, but people in a positive affective state will indulge more when their affective state is associated with certainty because indulging will not hurt their positive state. Reconciling earlier research reporting apparently inconsistent results linking emotional valence, affect regulation, and indulgence, these findings suggest that the certainty appraisal of specific emotions is important in predicting indulgent consumption to regulate one’s affect. Implications are discussed.
    Keywords: emotion, certainty, appraisal, affect regulation, indulgence, luxury consumption
    Date: 2012–10–22
  8. By: Daniel Högele; Sascha L. Schmidt; Benno Torgler
    Abstract: This paper examines the effect of superstars on external stakeholders’ organizational identification through the lens of sport. Drawing on social identity theory and the concept of organizational identification, as well as on role model theories and superstar economics, we develop several hypotheses regarding the influence of soccer stars on their fans’ degree of team identification. Using a proprietary dataset including archival data on professional German soccer players and clubs as well as survey data of more than 1,400 soccer fans, we find evidence for a positive effect of superstar characteristics and role model perception. We further find that players who measure up to the definition of a superstar are more important to fans of established teams than to fans of unsuccessful teams. The player’s club tenure, however, seems to have no influence on fans’ team identification. We argue that the effect of soccer stars on their fans is comparable to that of CEOs on their organizations’ external stakeholders and consequently apply our results to the business domain. Our results contribute to organizational identification research by extending the list of determinants related to individual persons.
    Keywords: Organizational identification; superstars; role model; fans; soccer
    JEL: L83 Z13
    Date: 2012–10
  9. By: Matteo Maria Galizzi; Christian Garavaglia
    Abstract: We investigate the role and impact of exposure to brands in consumers’ evaluations of lager beers, and explore its relation with exposure to intrinsic information. The first objective is to study the ability of young consumers to identify their preferred beer. The second is to explore the role played by brands, under two distinct perspectives: i) whether the effect of exposure to brands is either generalized or specific to preferred beers; ii) the ability of brands to induce perception of sensory characteristics. We propose a two-stage beer tasting experiment, exploiting information both on within-subject differences across different stages, and between-subjects differences across treatments. In each stage, participants’ evaluations for three beers was elicited using an incentive-compatible mechanism. The first stage was a blind tasting, while in the second stage beers were presented together with the bottles. Our main results are the following. Consumers seem unable to identify their preferred lager beer in a blind taste. Brands affect consumers’ evaluations: after brands are revealed, average evaluations change. Although they are stronger on most preferred brands, brand effects are generalized. Finally, extrinsic information on brands also affects and induces the description of sensorial perceptions of intrinsic characteristics of beers.
    Date: 2012–10
  10. By: Elisa Cavezzali (Department of Management, Università Ca' Foscari Venezia); Gloria Gardenal (Department of Management, Università Ca' Foscari Venezia); Ugo Rigoni (Department of Management, Università Ca' Foscari Venezia)
    Abstract: This research investigates whether the financial literacy of individuals influences risk taking decisions and diversification behavior. This issue is relevant in that investors are increasingly in charge of their own financial security, but they have to deal with financial instruments whose increasing complexity often eventually prevents them from making conscious investment decisions. Prior empirical evidence shows that people are unable to perform a ÒsophisticatedÓ portfolio diversification: what they do is to split equally their wealth among the asset classes available, in a na•ve way. We try to detect if the financial literacy is a driver of this kind of decisions. By submitting a questionnaire to 200 American individuals, we find that financial literacy plays a role in risk taking decisions, positively affecting how much risk individuals are willing to take. Moreover, only those who are literate in terms of diversification select less risky portfolios; the others merely increase their risk exposure, without managing it. Consistently with the previous literature, the strategy of diversification adopted by the literate ones is mainly na•ve. Instead, financial literacy turns out not being significant in explaining more sophisticated diversification strategies. As financial literacy affects positively the amount of risk taken by individuals, but only partially the diversification strategies pursued, there might be a dangerous pitfall in today's financial education programs promoted by governments and regulators, which, though they make investors more aware of their investment decisions, they eventually push them to assume more risks than they are able to manage. Two possible ways to tackle this issue could be: 1) to boost the financial literacy of the investors so as to make them able to use all the investment techniques required by the standard theory. This, however, seems difficult to obtain; 2) to promote advisory activity among investors. This may help them to apply the diversification principle in a sophisticated way.
    Keywords: risk taking, diversification behavior, financial literacy
    JEL: G11
    Date: 2012–09
    Abstract: Fundraising appeals often announce that some funds have already been raised in order to reach a certain threshold. This article reports results from a field experiment examining the role of seed money (i.e., no, 50%, and 67%) in combination with threshold size (i.e., low versus high) in fundraising appeals across different targets (i.e., prospects, low fidelity donors, and high fidelity donors). Based on a 2x3x3 between-subjects design we investigate charitable behavior of 25,617 households. Findings reveal a novel qualification of using seed contributions as well as the necessity of a communication differentiation by considering past behavior. We show that seed money works well if the threshold is high but with a low threshold it could have a baleful influence. More specifically, in campaigns targeted at prospects and low fidelity donors, the announcement of seed money increases donations regardless of the threshold level. However, in campaigns targeted at high fidelity donors, seed money is an effective strategy only when the threshold is rather high.
    Keywords: Charitable giving, Differentiated communication, Field experiments, Fundraising, Seed money, Threshold size
    Date: 2012–09

This nep-cbe issue is ©2012 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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