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on Cognitive and Behavioural Economics |
| By: | Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Marina Schröder (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | We introduce the give-or-destroy game that allows us to fully elicit an individual's social preference schedule. We find that about one third of the population exhibits both pro-social and anti-social preferences that are independent of payoff comparisons with those who are affected. We call this type of preference a desire to influence others. The other two thirds of the population consist to almost equal parts of payoff maximizers and pro-socials. Furthermore, we find that full information and experimenter demand may increase the extent of pro-social preferences, but neither treatment affects the extent of anti-social preferences or the distribution of social types in the population. |
| Keywords: | altruism, joy of destruction, other-regarding behavior, giving and destruction, kindness, fairness, spite, envy |
| JEL: | A13 C90 D31 D63 D64 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120027&r=cbe |
| By: | Thomas Epper; Helga Fehr-Duda |
| Abstract: | Almost all important decisions in people’s lives entail risky and delayed consequences. Regardless of whether we make choices involving health, wealth, love or education, almost every choice involves costs and benefits that are uncertain and materialize over time. Because risk and delay often arise simultaneously, theories of decision making should be capable of explaining how behavior under risk and over time interacts. There is, in fact, a growing body of evidence indicating important interactions between behaviorally revealed risk tolerance and patience. Risk taking behavior is delay dependent, and time discounting is risk dependent. Here we show that the inherent uncertainty of future events conjointly with people’s proneness to weight probabilities nonlinearly generates a unifying framework for explaining time-dependent risk taking, risk-dependent time discounting, preferences for late resolution of uncertainty, and several other puzzling interaction effects between risk and time. |
| Keywords: | Risk taking, time discounting, probability weighting, decreasing impatience, increasing risk tolerance, preference for late resolution of uncertainty, preference for one-shot resolution of uncertainty |
| JEL: | D01 D81 D91 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:096&r=cbe |
| By: | Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper experimentally examines the relationship between self-reporting risk preferences and behavioral choices in the subsequently played dictator, ultimatum and investment games. The results from these experiments are used to discern the motivational bases of behavioral choices in the ultimatum and investment games. The focus is on investigating whether strategic considerations are important for strategy selection in the two games. We find that self-reporting risk preferences does not alter the dictators' offers and trusters' investments, while it significantly decreases the proposers' offers and leads to a substantial decrease in the amount trustees give back to their partners. We interpret these results as evidence that the decisions of proposers in the ultimatum game and trustees in the investment game are strategic. |
| Keywords: | coordination game, dictator game, ultimatum game, investment game, questionnaire, risk scale, risk preferences |
| JEL: | C7 C91 D8 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120021&r=cbe |
| By: | Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper presents a quantum model of risk preferences that seeks to provide an explanation of the experimental results reported in Berninghaus, Todorova & Vogt (2012). The finding that subjects choose the risk-dominant strategy in a 2× 2 coordination game, on the average, more often, when they have previously completed a risk questionnaire, is not anticipated by the standard economic theory. The model presented in this paper demonstrates that the coordination game and the risk questionnaire can be analyzed as two decisions situations that do not commute and predicts that the order in which decisions are made will influence behavioral choices. |
| Keywords: | quantum mechanics, uncertain preferences, coordination game, risk, questionnaire |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120025&r=cbe |
| By: | John Duffy (University of Pittsburgh); Huan Xie (Concordia University) |
| Abstract: | We study how group size affects cooperation in an infinitely repeated n-player Prisoner's Dilemma (PD) game. In each repetition of the game, groups of size n less than or equal to M are randomly and anonymously matched from a fixed population of size M to play the n-player PD stage game. We provide conditions for which the contagious strategy (Kandori, 1992) sustains a social norm of cooperation among all M players. Our main finding is that if agents are sufficiently patient, a social norm of society-wide cooperation becomes easier to sustain under the contagious strategy as n converges to M. |
| Keywords: | Cooperation, Social Norms, Group Size, Repeated Games, Random Matching, Prisoner's Dilemma |
| JEL: | C72 C73 C78 Z13 |
| Date: | 2012–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:crd:wpaper:12010&r=cbe |
| By: | Siegfried K. Berninghaus (Institute for Economic Theory and Statistics, Karlsruhe Institute of Technology); Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper presents the results of an experiment designed to study the effect produced on strategy choices when a subject reports risk preferences on a risk scale before engaging in a 2x2 coordination game. The main finding is that the act of stating one's own risk preferences significantly alters strategic behavior. In particular, subjects tend to choose the risk dominant strategy more often when they have previously stated their attitudes to risk. Within a best-response correspondence framework, this result can be explained by a change in either risk preferences or beliefs. We find that self-reporting risk preferences does not induce a change in subjects' beliefs. We argue that the behavioral arguments of strategy selection, such as focal points, framing and uncertain preferences can explain our results. |
| Keywords: | coordination game, questionnaire, risk scale, risk preferences, beliefs, focal points, framing, uncertain preferences |
| JEL: | D81 C91 C72 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120020&r=cbe |
| By: | Uwe Dulleck; Jonas Fooken; Cameron Newton; Andrea Ristl; Markus Schaffner; Benno Torgler |
| Abstract: | Although paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context. |
| Keywords: | tax compliance; psychic costs; stress; tax morale; cooperation; heart rate variability; biomarkers; experiment |
| JEL: | H26 H41 K42 D31 D63 C91 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2012-19&r=cbe |
| By: | Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper experimentally examines the efficiency of information aggregation in a simple asset market. Traders decide how to allocate an endowment of 1000 eurocent between two assets. Only one asset will be successful and that will pay back the amount invested in it. The experiment carried out here is original in that it considered a very rich action set. We find that when the action set is sufficiently rich, traders' actions, most of the time, perfectly reveal their private information. Further, the participants in the experiment performed probability matching and took such actions, which were broadly consistent with Bayesian learning. |
| Keywords: | information cascade, information aggregation, herding, probability matching, Bayes' rule |
| JEL: | G10 D8 C11 C92 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120022&r=cbe |
| By: | Campos-Ortiz, Francisco (Bank of Mexico); Putterman, Louis (Brown University); Ahn, T.K. (Seoul National University); Balafoutas, Loukas (University of Innsbruck); Batsaikhan, Mongoljin (Georgetown University); Sutter, Matthias (University of Innsbruck) |
| Abstract: | We study experimentally the protection of property in five widely distinct countries – Austria, Mexico, Mongolia, South Korea and the United States. Our main results are that the security of property varies with experimental institutions, and that our subject pools exhibit significantly different behaviors that correlate with country-level property security, trust and quality of government. Subjects from countries with higher levels of trust or perceptions of safety are more prone to abstain initially from theft and devote more resources to production, and subjects from countries with higher quality political institutions are more supportive of protecting property through compulsory taxation. This highlights the relevance of socio-political factors in determining countries' success in addressing collective action problems including safeguarding property rights. |
| Keywords: | experiment, efficiency, theft, property rights, socio-political factors |
| JEL: | C91 C92 D03 H41 P14 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6982&r=cbe |
| By: | Thomas A. Stephens (University of Vienna, Department of Economics); Jean-Robert Tyran (University of Copenhagen, Department of Economics) |
| Abstract: | Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal (monetary) values. Real losses may therefore loom larger in people’s minds when they lose money than when real losses are hidden by purely nominal gains. Using a survey experiment with a large and heterogeneous sample, we show that evaluations of housing transactions are systematically biased by purely nominal gains versus losses. |
| Keywords: | loss aversion, money illusion, bounded rationality, cognitive reflection, cognitive ability, survey experiment |
| JEL: | A10 C91 D00 |
| Date: | 2012–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1214&r=cbe |