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on Cognitive and Behavioural Economics |
| By: | Kiridaran Kanagaretnam; Stuart Mestelman; S. M. Khalid Nainar; Mohamed Shehata |
| Abstract: | In a laboratory-controlled environment characterized by uncertainty and incomplete information we provide experimental evidence on the effects of transparency and empowerment on trust (investment by a principal) and trustworthiness (reciprocal behavior of an agent) in a simple two-person investment game. We find that when principals are empowered by being able to punish agents who may not act in a way the principal believes is in the principal’s best interest, trust and investment increases over that which is realized in the absence of empowerment. We also find that when asymmetric or incomplete information characterizes the investment game the levels of trust (investment) are lower than when information is complete (the environment is transparent). In transparent environments the effect of empowerment is about the same regardless of whether empowerment is introduced or removed. However, in opaque environments, the loss of empowerment has a substantially greater negative effect on trust that the positive effect associated with the introduction of empowerment. While this environment is substantially abstracted from the naturally occurring environment, these results suggest that practical public policies designed to increase transparency in financial transactions are likely to have positive effects on investment. Furthermore, public policies designed to empower principals, such as the Say on Pay practices, are likely to increase investment while the limitation of the empowerment of principals with respect to their agents (consistent with deregulation) will have a much more dramatic negative impact on trust (and investment). |
| Keywords: | investment, empowerment, veto, trust, trustworthiness, reciprocity, say on pay |
| JEL: | C70 C91 D63 D81 D82 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2012-12&r=cbe |
| By: | Nabanita Datta Gupta (Department of Economics and Business, Aarhus University, Denmark); Mette Lausten (SFI, Copenhagen, Denmark); Dario Pozzoli (Department of Economics and Business, Aarhus University, Denmark) |
| Abstract: | We investigate the degree of correspondence between parents’ reports on child behavioral and educational outcomes using the most recent available wave of a rich Danish longitudinal survey of children (the DALSC). All outcomes are measured at age 11 when the children are expected to be in fifth grade. Once discrepancies are detected, we analyze whether they are driven by noisy evaluations or by systematic bias, focusing on the role of parental characteristics and response heterogeneity. We then explicitly assess the relative importance of the mother’s versus the father’s assessments in explaining child academic performance and diagnosed mental health to investigate whether one parent is systematically a better informant of their child’s outcomes than the other. |
| Keywords: | Child development, informant discrepancies, reporting bias |
| JEL: | I12 J13 |
| Date: | 2012–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2012-24&r=cbe |
| By: | Herweg, Fabian; Schmidt, Klaus M. |
| Abstract: | We propose a theory of ex post inefficient renegotiation that is based on loss aversion. When two parties write a long-term contract that has to be renegotiated after the realization of the state of the world, they take the initial contract as a reference point to which they compare gains and losses of the renegotiated transaction. We show that loss aversion makes the renegotiated outcome sticky and materially inefficient. The theory has important implications for the optimal design of long-term contracts. First, it explains why parties often abstain from writing a beneficial long-term contract or why some contracts specify transactions that are never ex post efficient. Second, it shows under what conditions parties should rely on the allocation of ownership rights to protect relationshipspecific investments rather than writing a specific performance contract. Third, it shows that employment contracts can be strictly optimal even if parties are free to renegotiate. |
| Keywords: | Renegotiation; Incomplete Contracts; Reference Points; Employment Contracts; Behavioral Contract Theory |
| JEL: | C78 D03 D86 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14191&r=cbe |
| By: | Lucifora, Claudio (Università Cattolica del Sacro Cuore); Tonello, Marco (Catholic University Milan) |
| Abstract: | We analyze students' cheating behavior during a national evaluation test. We model the mechanisms that trigger cheating interactions between students and show that, when monitoring is not sufficiently accurate, a social multiplier may magnify the effects on students' achievements. We exploit a randomized experiment, which envisaged the presence of an external inspector in the administration and marking of the tests, to estimate a structural (endogenous) social multiplier in students' cheating. The empirical strategy exploits the Excess-Variance approach (Graham, 2008). We find a strong amplifying role played by social interactions within classrooms: students' cheating behaviors more than double the class average test scores results. The effects are found to be larger when students are more homogeneous in terms of parental background characteristics and social ties. |
| Keywords: | social multiplier, students' cheating, randomized experiment |
| JEL: | C31 D62 I21 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6967&r=cbe |
| By: | Sebastian Goerg (Florida State University, Department of Economics); Sebastian Kube (University of Bonn, Department of Economics) |
| Abstract: | In a randomized field experiment, we investigate the connection between work goals, monetary incentives, and work performance. Employees are observed in a natural work environment where they have to do a simple, but effort-intense task. Output is perfectly observable and workers are paid for performance. While a regular piece-rate contract serves as a benchmark, in some treatments workers are paid a bonus conditional on reaching a pre-specified goal. We observe that the use of personal work goals leads to a significant output increase. The positive effect of goals not only prevails if they are self-chosen by the workers, but also if goals are set exogenously by the principal – although in the latter case, the exact size of the goal plays a crucial role. Strikingly, the positive effect of self-chosen goals persists even if the goal is not backed up by monetary incentives. We propose a novel incentive contract where – through the choice of a personal work goal – workers themselves determine the risk and the size of their bonus payment at the same time. |
| Keywords: | Field experiment, Goal setting, monetary incentives, bonus payments, pay-for-performance contracts, workplace behavior |
| JEL: | J33 C93 D01 A12 M52 D03 D24 J24 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2012_19&r=cbe |
| By: | Jérôme Hergueux (LaRGE Research Center, Université de Strasbourg); Nicolas Jacquemet |
| Abstract: | Internet is a very attractive technology for experiments implementation, both in order to reach more diverse and larger samples and as a field of economic research in its own right. This paper reports on an experiment performed both online and in the laboratory, designed so as to strengthen the internal validity of decisions elicited over the Internet. We use the same subject pool, the same monetary stakes and the same decision interface, and randomly assign two groups of subjects between the Internet and a traditional University laboratory to compare behavior in a set of social preferences games. This comparison concludes in favor of the reliability of behaviors elicited through the Internet. Our behavioral results contradict the predictions of social distance theory, as we find that subjects allocated to the Internet treatment behave as if they were more altruistic, more trusting, more trustworthy and less risk averse than laboratory subjects. Those findings have practical importance for the growing community of researchers interested in using the Internet as a vehicle for social experiments and bear interesting methodological lessons for social scientists interested in using experiments to research the Internet as a field. |
| Keywords: | Social Experiment, Field Experiment, Internet, Methodology, Randomized Assignment. |
| JEL: | C90 C93 C70 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2012-10&r=cbe |
| By: | Emmanuel PETIT (GREThA, CNRS, UMR 5113); Anna TCHERKASSOF (Laboratoire Interuniversitaire de Psychologie. Personnalité, Cognition et Changement Social (LIP/PC2S), Université Pierre Mendès France); Xavier GASSMANN (Institut National de la Recherche Agronomique, Université de Rennes) |
| Abstract: | Our experiment aims at examining the impact of induced shame on altruism in a dictator game context with exit option. Using an Internet design, we collect a large battery of psychological and demographic variables which enables us to investigate dispositional and social characteristics likely to influence subjects’ altruistic behaviour. Using the emotional induction technique, we induce either shameful or neutral emotions to the participants before they play the dictator game. We then measure the evaluation that subjects give of their own emotions, and subsequently observe their altruistic behaviour. We find that imagined shame-induction is able to increase significantly altruistic behaviour. We observe that forty-one percent of participants are willing to choose to exit the game and do not observe any difference in exiting between the two emotion conditions. Our data show that women are significantly more eager to take the exit option than males. Economics students are, to a large extent, more prone to adopt greedy choices patterns than other social sciences students. |
| Keywords: | Shame; Induction procedure; Altruism; Internet experiment; Gender differences |
| JEL: | C91 D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2012-25&r=cbe |
| 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. |
| JEL: | M5 J3 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14193&r=cbe |
| By: | Justine Burns (School of Economics, University of Cape Town); Simon Halliday; Malcolm Keswell |
| Abstract: | We examine whether differences in risk preferences explain gender differentials in test scores amongst a large class of undergraduate microeconomics students, where students were evaluated using multiple choice questions. In each of five class tests, the negative penalty associated with an incorrect answer was randomly varied across questions. We show that female students exhibit lower risk propensities on average, and that they are more responsive than males to an increase in the penalty for an incorrect answer. Controlling for dierences in risk preferences, we show that the gender differential in relation to answering any given question correctly reduces by a third, and that the gender differential in overall test scores becomes statistically insignicant. This result is robust to a variety of distributional assumptions. |
| Keywords: | Experimental Economics, Risk Aversion, Economics Education |
| JEL: | A2 A20 A22 C90 D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ldr:wpaper:87&r=cbe |
| By: | Fairley, Kim; Sanfey, Alan; Vyrastekova, Jana; Weitzel, Utz |
| Abstract: | Despite intensive research there is no clear evidence for a link between lottery risk preferences and risk involved in trusting others. We argue that this is partially due to a misalignment of the underlying sources of risk. Trusting is giving up control to a human source of risk while lottery risk has a mechanistic source. We propose a risky trust game that experimentally elicits social risk preferences that pertain to the same underlying human source. Our results show that transfers in the classic trust game are indeed best explained by social risk preferences and not by lottery risk preferences with an underlying mechanistic source. In addition, we argue that the type of uncertainty also plays a role. In the absence of objectively known probabilities of trustworthiness, trust also has an ambiguous component. We therefore decompose uncertainty in the trust game into social risk and an ambiguous component. Our results provide evidence that, when accounting for social risk, subjects who score high on ambiguity tolerance explain some of the remainder of trusting behavior. |
| Keywords: | Trust; trust game; decision making under uncertainty; risk; ambiguity; source of uncertainty |
| JEL: | C9 C7 D8 |
| Date: | 2012–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42302&r=cbe |
| By: | Cueva, Carlos (Univeristy Cambridge); Dessi, Roberta (IDEI, Toulouse School of Economics) |
| Abstract: | We provide an experimental test of the role of self-signaling in decisions to do- nate to charity. Our data strongly supports the theoretical prediction of a non- monotonic, hill-shaped relationship between self-confidence, proxied by the Social Potency personality trait, and prosocial behavior motivated by image concerns. Making self-image concerns more salient can more than double donations by indi- viduals with medium self-confidence. |
| Keywords: | charity, donations, prosocial behavior, self-signaling, self-image, personality, leadership, social norms, social potency. |
| JEL: | D01 D03 D64 |
| Date: | 2012–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26357&r=cbe |
| By: | Himmler, Oliver; Koenig, Tobias |
| Abstract: | A positive view of the self is often portrayed as a valuable asset in the sense that it can have performance enhancing properties. Using data on self-esteem - the most fundamental manifestation of positive self evaluations - and high school grade point averages of American students we produce results in line with this idea and find a positive link between favorable self-evaluations and higher levels of educational performance. However, when we exploit exogenous variation in self-esteem due to adolescent skin problems in order to account for the possible endogeneity of self-esteem, this finding is reversed and we obtain a negative effect on performance. We discuss mechanisms that may generate such an adverse causal effect of positive self-evaluations, and conclude that self-esteem and effort need not always be complements but can actually be substitutes. |
| Keywords: | Self-evaluations, Self-esteem, Non-cognitive Skills, Human Capital, Performance |
| JEL: | I2 J24 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-507&r=cbe |
| By: | Kirsten Häger (Friedrich Schiller University Jena); Bastiaan Oud (University of Zurich); Daniel Schunk (University of Zurich and University of Mainz) |
| Abstract: | While envy has been studied extensively in adults, the question how envy develops during childhood has not received much attention. To address this gap, we report the results of an artefactual field experiment that investigates and compares the prevalence and development of destructive envy in children aged seven to ten. The experiment took place in the children's natural environment - their schools. We also checked for cultural variability of our results by conducting our study with German children and with children from a highly egalitarian society: the Eastern Penan of northern Borneo. We found that envious behavior was prevalent already at a young age, even when it was costly. An egalitarian upbringing did not appear to mitigate this prevalence. Furthermore, we found strong evidence of cultural variability in the development of envy in children. For instance, in contrast with the German sample, gender was not associated with envy in the Penan sample and the age pattern of envy differed across our two groups. Together, this suggests that there does not appear to be a straightforward relationship between the development of envy and the natural development of the human mind with age, e.g. through better mentalizing ability. Rather, the acquisition pattern of envy is modulated by socio-cultural context. Further research is needed to identify what, then, drives the development of envy during childhood. |
| Keywords: | artefactual field experiment, children, envy, egalitarianism, Germany, Penan, Malaysia |
| JEL: | C91 C99 |
| Date: | 2012–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-059&r=cbe |
| By: | Becker Anke; Deckers Thomas; Dohmen Thomas; Falk Armin; Kosse Fabian (ROA rm) |
| Abstract: | Although both economists and psychologists seek to identify determinants ofheterogeneity in behavior, they use different concepts to capture them. In this reviewwe first analyze the extent to which economic preferences and psychological conceptsof personality - such as the Big Five and locus of control - are related. We analyze datafrom incentivized laboratory experiments and representative samples and find onlylow degrees of association between economic preferences and personality. We thenregress life outcomes - such as labor market success, health status and life satisfaction- simultaneously on preference and personality measures. The analysis reveals that thetwo concepts are rather complementary when it comes to explaining heterogeneity inimportant life outcomes and behavior. |
| Keywords: | labour economics ; |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umaror:2012012&r=cbe |
| By: | Butler, Jeffrey V. (Einaudi Institute for Economics and Finance); Giuliano, Paola (University of California, Los Angeles); Guiso, Luigi (Einaudi Institute for Economics and Finance) |
| Abstract: | When we take a cab we may feel cheated if the driver takes an unnecessarily long route despite the lack of a contract or promise to take the shortest possible path. Is our decision to take the cab affected by our belief that we may end up feeling cheated? Is the behavior of the driver affected by his beliefs about what we consider cheating? We address these questions in the context of a trust game by asking participants directly about their notions of cheating. We find that: i) both parties to a trust exchange have implicit notions of what constitutes cheating even in a context without promises or messages; ii) these notions are not unique – the vast majority of senders would feel cheated by a negative return on their trust/investment, whereas a sizable minority defines cheating according to an equal split rule; iii) these implicit notions affect the behavior of both sides to the exchange in terms of whether to trust or cheat and to what extent. Finally, we show that individuals’ notions of what constitutes cheating can be traced back to two classes of values instilled by parents: cooperative and competitive. The first class of values tends to soften the notion while the other tightens it. |
| Keywords: | trust, trustworthiness, social norms, culture, cheating |
| JEL: | A1 A12 D1 O15 Z1 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6961&r=cbe |
| By: | Jérôme Hergueux (LaRGE - Université de Strasbourg et Sciences Po); Nicolas Jacquemet (Paris School of Economics - Centre d'Economie de la Sorbonne et Université de Lorraine - BETA) |
| Abstract: | Internet is a very attractive technology for experiments implementation, both in order to reach more diverse and larger samples and as a field of economic research in its own right. This paper reports on an experiment performed both online and in the laboratory, designed so as to strengthen the internal validity of decisions elicited over the Internet. We use the same subject pool, the same monetary stakes and the same decision interface, and randomly assign two group of subjects between the Internet and a traditional University laboratory to compare behavior in a set of social preferences games. This comparison concludes in favor of the reliability of behaviors elicited through the Internet. Our behavioral results contradict the predictions of social distance theory, as we find that subjects allocated to the Internet treatment behave as if they were more altruistic, more trusting, more trustworthy and less risk averse than laboratory subjects. Those findings have practical importance for the growing community of researchers interested in using the Internet as a vehicle for social experiments and bear interesting methodological lessons for social scientists interested in using experiments to research the Internet as a field. |
| Keywords: | Social experiment, field experiment, internet, methodology, randomized assignment. |
| JEL: | C90 C93 C70 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:12070&r=cbe |
| By: | Cueva, Carlos (Univeristy Cambridge); Dessi, Roberta (IDEI, Toulouse School of Economics) |
| Abstract: | We provide an experimental test of the role of self-signaling in decisions to do- nate to charity. Our data strongly supports the theoretical prediction of a non- monotonic, hill-shaped relationship between self-confidence, proxied by the Social Potency personality trait, and prosocial behavior motivated by image concerns. Making self-image concerns more salient can more than double donations by indi- viduals with medium self-confidence. |
| JEL: | D01 D03 D64 |
| Date: | 2012–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:26358&r=cbe |