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on Cognitive and Behavioural Economics |
| By: | Alain Cohn; Ernst Fehr; Lorenz Goette |
| Abstract: | The presence of workers who reciprocate higher wages with greater effort can have important consequences for labor markets. Knowledge about the determinants of reciprocal effort choices is, however, incomplete. We investigate the role of fairness perceptions and social preferences in workers’ performance in a field experiment in which workers were hired for a one-time job. We show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, while those who feel adequately paid or overpaid at the base wage do not change their performance. Moreover, we find that only workers who display positive reciprocity in a lab experiment show reciprocal performance responses in the field, while workers who lack positive reciprocity in the lab do not respond to the wage increase even if they feel underpaid at the base wage. Our findings suggest that fairness perceptions and social preferences are key in workers’ performance response to a wage increase. They are the first direct evidence of the fair-wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature. |
| Keywords: | Fairness perception, positive reciprocity, field experiment, wage increase |
| JEL: | C93 J31 M52 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:107&r=cbe |
| By: | Adriana Cornea (University of Exeter); Cars Hommes (University of Amsterdam); Domenico Massaro (University of Amsterdam) |
| Abstract: | In this paper we develop and estimate a behavioral model of inflation dynamics with monopolistic competition, staggered price setting and heterogeneous firms. In our stylized framework there are two groups of price setters, fundamentalists and naive. Fundamentalists are forward-looking in the sense that they believe in a present-value relationship between inflation and real marginal costs, while naive are backward-looking, using the simplest rule of thumb, naive expectations, to forecast future inflation. Agents are allowed to switch between these different forecasting strategies conditional on their recent relative forecasting performance. The estimation results support behavioral heterogeneity and the evolutionary switching mechanism. We show that there is substantial time variation in the weights of forward-looking and backward-looking behavior. Although on average the majority of firms use the simple backward-looking rule, the market has phases in which it is dominated by either the fundamentalists or the naive agents. |
| Keywords: | Inflation; Phillips Curve; Heterogeneous Expectations; Evolutionary Selection |
| JEL: | E31 E52 C22 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130015&r=cbe |
| By: | Alger, Ingela (TSE (LERNA, CNRS) Univesité Toulouse 1 Capitole); Cox, Donald (Boston College) |
| Abstract: | What can evolutionary biology tell us about male-female differences in preferences concerning family matters? Might mothers be more solicitous toward offspring than fathers, for example? The economics literature has documented gender differences—children benefit more from money put in the hands of mothers rather than fathers, for example—and these differences are thought to be partly due to preferences. Yet for good reason family economics is mostly concerned with how prices and incomes affect behavior against a backdrop of exogenous preferences. Evolutionary biology complements this approach by treating preferences as the outcome of natural selection. We mine the well-developed biological literature to make a prima facie case for evolutionary roots of parental preferences. We consider the most rudimentary of traits—sex differences in gamete size and internal fertilization—and explain how they have been thought to generate malefemale differences in altruism toward children and other preferences related to family behavior. The evolutionary approach to the family illuminates connections between issues typically thought distinct in family economics, such as parental care and marriage markets. |
| Date: | 2012–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:26675&r=cbe |
| By: | Di Bartolomeo Giovanni; Papa Stefano |
| Abstract: | Our paper aims to investigate conditional and unconditional motivations in investment games by using a counterfactual methodology and attitudinal survey and self-reported information about participants’ behavior. We have combined different methodologies to verify the coherence between participants’ actions, beliefs and perceptions |
| Keywords: | Conditional and unconditional other-regarding preferences, triadic approach, investment game, frame effect |
| JEL: | D03 C91 D83 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0099&r=cbe |
| By: | Gianandrea Staffiero (Universitat Pompeu Fabra, Department of Economics and Business); Filippos Exadaktylos (BELIS, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University); Antonio M. Espín (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | The rejection of unfair proposals in ultimatum games is often quoted as evidence of other-regarding preferences. In this paper we focus on those responders who accept any proposals, setting the minimum acceptable offer (MAO) at zero. While this behavior could result from the randomization between the two payoff-maximizing strategies (i.e. setting MAO at zero or at the smallest positive amount), it also implies that the opponent’s payoff is maximized and the “pie” remains intact. We match subjects’ behavior as ultimatum responders with their choices in the dictator game, in two large-scale experiments. We find that those who set MAO at zero are the most generous dictators. Moreover, they differ substantially from responders whose MAO is the smallest positive offer, who are the greediest dictators. Thus, an interpretation of zero MAOs in terms of selfish, payoff-maximizing behavior could be misleading. Our evidence indicates that the restraint from punishing others can be driven by altruism and by the desire to maximize social welfare. |
| Keywords: | ultimatum game, dictator game, altruism, social welfare, costly punishment, selfishness, social preferences. |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:13/01&r=cbe |
| By: | Ernst Fehr; Holger Herz; Tom Wilkening |
| Abstract: | Authority and power permeate political, social, and economic life, but empirical knowledge about the motivational origins and consequences of authority is limited. We study the motivation and incentive effects of authority experimentally in an authority- delegation game. Individuals often retain authority even when its delegation is in their material interest - suggesting that authority has non-pecuniary consequences for utility. Authority also leads to over-provision of effort by the controlling parties, while a large percentage of subordinates under-provide effort despite pecuniary incentives to the contrary. Authority thus has important motivational consequences that exacerbate the inefficiencies arising from suboptimal delegation choices. |
| Keywords: | Organizational behavior, incentives, experiments and contracts |
| JEL: | C92 D83 D23 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:099&r=cbe |
| By: | Mare Sarr and Mintewab Bezabih |
| Abstract: | To the extent that diversifying income portfolio is used as a strategy for shielding against production risk, both individual risk preferences and weather uncertainty could affect crop diversification decisions. This paper is concerned with empirically assessing the effects of risk preferences and rainfall variability on farm level diversity. Unique panel data from Ethiopia consisting of experimentally generated risk preference measures combined with rainfall data are employed in the analysis. The major contribution of this study is its explicit treatment of individual risk preferences in the decision to diversify, simultaneously controlling for environmental risk in the form of rainfall variability. Covariate shocks from rainfall variability are found to positively contribute to an increased level of diversity with individual risk aversion having a positive but less significant role. We find that rainfall variability in spring has a greater effect than rainfall variability summer—the major rainy season. This finding is in line with similar agronomic-meteorological studies. These results imply that in situ biodiversity conservation could be effective in areas with high rainfall variability. However, reduction in risk aversion, which is associated with poverty reduction, is likely to reduce in situ conservation. |
| Keywords: | Crop diversity, Experimental risk preferences, Rainfall, Uncertainty |
| JEL: | Q57 Q56 C33 C35 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:322&r=cbe |
| By: | Holger Herz; Daniel Schunk; Christian Zehnder |
| Abstract: | Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that different forms of overconfidence may have opposing effects on innovative activity. While overoptimism leads to an innovation enhancing effect, judgmental overconfidence inhibits innovation. Our results indicate that future research is well advised to take into account that the relationship between innovation and overconfidence may crucially depend on what type of overconfidence is most prevalent in a particular context. |
| Keywords: | Innovation, entrepreneurship, overconfidence, experiment |
| JEL: | C92 D83 D23 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:106&r=cbe |
| By: | Tiziana Assenza (Catholic University of Milan); Peter Heemeijer (University of Amsterdam, and ABN AMRO); Cars Hommes (University of Amsterdam); Domenico Massaro (University of Amsterdam) |
| Abstract: | The way in which individual expectations shape aggregate macroeconomic variables is crucial for the transmission and effectiveness of monetary policy. We study the individual expectations formation process and the interaction with monetary policy, within a standard New Keynesian model, by means of laboratory experiments with human subjects. Three aggregate outcomes are observed: convergence to some equilibrium level, persistent oscillatory behavior and oscillatory convergence. We fit a heterogeneous expectations model with a performance-based evolutionary selection among heterogeneous forecasting heuristics to the experimental data. A simple heterogeneous expectations switching model fits individual learning as well as aggregate macro behavior and outperforms homogeneous expectations benchmarks. Moreover, in accordance to theoretical results in the literature on monetary policy, we find that an interest rate rule that reacts more than point for point to inflation has some stabilizing effects on inflation in our experimental economies, although convergence can be slow in presence of evolutionary learning. |
| Keywords: | Experiments; New Keynesian Macro Model; Monetary Policy; Expectations; Heterogeneity |
| JEL: | C91 C92 D84 E52 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130016&r=cbe |
| By: | Fabio Tramontana (Department of Economics and Management, University of Pavia) |
| Abstract: | We analyze the consequences of the presence of imitators in a financial market populated by boundedly rational speculators. We consider imitators that only look at the recent success of the available trading rules. We show that the introduction of this kind of imitators makes the results more complicated but even more realistic. In particular, under some specific circumstances, imitators may stabilize an otherwise unstable market or, at the opposite, make unstable an otherwise stable scenario. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:029&r=cbe |
| By: | Björn Bartling; Ernst Fehr; Klaus M. Schmidt |
| Abstract: | Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz’s (1972) critique of the Coasian approach. |
| Keywords: | Theory of the firm, transaction cost economics, authority, power abuse, employment relation, fairness, reputation |
| JEL: | C91 D23 D86 M5 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:098&r=cbe |
| By: | Judith Offerhaus |
| Abstract: | Personality traits drive behaviors and attitudes, and determine socio-economic life outcomes for individuals. This paper investigates the relationship of six personality traits, the Big Five and Locus of Control, to individual participation in employment-related further education and training (FET) in a longitudinal perspective. Initial research suggests that training is a crucial determinant of life chances. Taking this a step further, I ask what sorts of individual personality traits characterize the type to train. I attempt to answer this question using data from the German Socio-Economic Panel from the time period 2000-2008. Applying random-effects logistic regression models to 39,833 observations of 4,981 individuals over a period of nine years reveals that those who are open to new experiences and have high internal control beliefs are more likely to participate in FET, and this holds true for different model specifications. Contrary to the hypotheses, Agreeableness, Extraversion and Neuroticism do not impact FET, whereas the training effect of Conscientiousness is more complex. It shows that in addition to the classical determinants of FET such as education and occupational status, there are personality traits which characterize the type to train. Practical implications of this finding are discussed. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp531&r=cbe |
| By: | Cars Hommes (University of Amsterdam); Mei Zhu (Shanghai University of Finance and Economics) |
| Abstract: | We propose behavioral learning equilibria as a plausible explanation of coordination of individual expectations and aggregate phenomena such as excess volatility in stock prices and high persistence in inflation. Boundedly rational agents use a simple univariate linear forecasting rule and correctly forecast the unconditional sample mean and first-order sample autocorrelation. In the long run, agents learn the best univariate linear forecasting rule, without fully recognizing the structure of the economy. The simplicity of behavioral learning equilibria makes coordination of individual expectations on such an aggregate outcome more likely. In a first application, an asset pricing model with AR(1) dividends, a unique behavioral learning equilibrium exists characterized by high persistence and excess volatility, and it is stable under learning. In a second application, the New Keynesian Phillips curve, multiple equilibria co-exist, learning exhibits path dep endence and inflation may switch between low and high persistence regimes. |
| Keywords: | Bounded rationality; Stochastic consistent expectations equilibrium; Adaptive learning; Excess volatility; Inflation persistence |
| JEL: | E30 C62 D83 D84 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130014&r=cbe |
| By: | Alex Dickson (Department of Economics, University of Strathclyde); Colin Jennings (Department of Economics, University of Strathclyde); Gary Koop (Department of Economics, University of Strathclyde) |
| Abstract: | Much research suggests that sporting events can trigger domestic violence with recent evidence suggesting that pre-match expectations (which can be interpreted as reference points) play an especially important role in this relationship. In particular, unexpectedly disappointing results have been associated with large increases in domestic violence. This paper contributes to this literature using a new data set containing every domestic violence incident in Glasgow over a period of more than eight years. We find that Old Firm matches, where Glasgow rivals Celtic and Rangers play, are associated with large increases in domestic violence (regardless of the timing or the outcome of the match). Non-Old Firm matches tend to have little impact on domestic violence. Furthermore, we find little evidence for the importance of reference points. Matches with disappointing outcomes, relative to pre-match expectations, are found to be associated with unusual increases in domestic violence only in a very limited set of matches. |
| Keywords: | domestic abuse; Scottish football; Old Firm; reference points; loss aversion |
| JEL: | D03 J12 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1301&r=cbe |