nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒03‒30
eight papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Empathy, Sympathy, and Tax Compliance By Roberta Calvet; James Alm
  2. Time preference and health behaviour: A review By Lawless, Lydia J.R.; Nayga, Rodolfo; Drichoutis, Andreas
  3. The Impact of Individual Risk Preferences on Valuing Preservation of Threatened Species: an Application to Lynx Populations in Poland By Anna Bartczak; Susan Chilton; Jürgen Meyerhoff
  4. The effect of socio-economic and emotional factors on gambling behaviour By A. Bussu; Claudio Detotto
  5. Expanding the Theory of Tax Compliance from Individual to Group Motivations By James Alm
  6. Testing for Fictive Learning in Decision-Making under Uncertainty By Oliver Bunn; Caterina Calsamiglia; Donald J. Brown
  7. Subsidies vs. Nudges: Which Policies Increase Saving the Most? By Raj Chetty; John N. Friedman; Soren Leth-Petersen; Torben Heien Nielsen; Tore Olsen
  8. Relative Performance of Liability Rules: Experimental Evidence By Vera Angelova; Olivier Armantier; Giuseppe Attanasi; Yolande Hiriart

  1. By: Roberta Calvet (Department of Business Management and Communication, Lesley University); James Alm (Department of Economics, Tulane University)
    Abstract: This paper examines the effect of "empathy" and "sympathy" on tax compliance. We run a series of laboratory experiments in which we observe the subjects' decisions in a series of one-shot tax compliance games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects' sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects' empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior.
    Keywords: Tax evasion; Emotions; Morality; Identity; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013–02
  2. By: Lawless, Lydia J.R.; Nayga, Rodolfo; Drichoutis, Andreas
    Abstract: Time preferences indicate preferences over streams of future consumption which significantly shape individual decision making including the health domain. In this paper, we review published studies to assess the influence of time preferences on human health behaviour. We first discuss the theoretical background of time preferences; ascertain the differences between private and social discount rates; identify the impact of time preferences on governments of developing nations; and then assess how time preferences influence risky behaviour such as being overweight, smoking, and engaging in risky sexual behaviour. The issue of whether to use proxies or experimental time preference elicitation methods in time preference studies is also addressed.
    Keywords: time preference; health domain; risk aversion; discount rate; behaviour
    JEL: D90 I0
    Date: 2013–03–21
  3. By: Anna Bartczak (Faculty of Economic Sciences, University of Warsaw); Susan Chilton (Newcastle University Business School); Jürgen Meyerhoff (Technische Universität Berlin, Institute for Landscape and Environmental Planning)
    Abstract: A recent innovation in environmental valuation surveys has been to acknowledge the inherent uncertainties surrounding the provision of environmental goods and services and to incorporate it into non-market survey designs. So far, little is known about how people assimilate and respond to such uncertainty, particularly in terms of how it affects their stated valuations. In this paper we focus on the impact of risk preferences on people’s investments in environment. Individual risk preferences are elicited through a standard, incentivized multiple price list mechanism and used as a independent variable in the analysis of a choice experiment valuing the preservation of two threatened lynx populations in Poland. We find that risk-seeking respondents were more likely to choose the status quo option, which was the riskiest option in terms of the survival of the two distinct lynx populations. Risk seekers revealed also a significantly lower willingness to pay for lynx preservations.
    Keywords: choice experiment, environmental good, lottery experiment, lynx preservation, risk preferences, status quo effect
    JEL: Q23 Q51 Q56 Q57
    Date: 2013
  4. By: A. Bussu; Claudio Detotto
    Abstract: Gambling represents a channel through which some relevant aspects of our social life, such as audacity, competition and risk, manifest themselves. Gambling is both a pleasing diversion and a way of socialisation, where gratification and problematic issues alternate. Most gamblers are social players who participate in games without any relevant implications on their life, regardless of how frequently they engage in the activity. Unfortunately, in some cases gaming activities can have a dramatic impact on the player to the point that he/she has little control over them. In such cases, the approach to gaming can be defined as critical or even pathological. Pathological gambling is a serious form of addiction that causes gamblers to suffer from social and financial problems as they constantly look for ways to increase their “dose”. This study proposes a bivariate ordered probit approach aimed at examining the emotional factors of gambling expenditures and problematic behaviour or addiction while also controlling for socio-economic determinants. It is based on a survey among 1,315 gamblers in Sardinia (Italy) in the time span from June 2004 to March 2005. To measure gambling-related problems and gaming addiction we use survey responses on the existence of problems caused by game participation (in terms of psychological, relational, economic, labour difficulties directly linked to gambling) and on the need for help and/or the intention to stop the gambling experience. The findings show that women bet less than men and that income and gambling frequency are positively correlated with the amount of money allocated to gambling. Furthermore, having a sense of omnipotence and being willing to replay in case of a win increase the propensity to bet more money. Notably, women have a higher probability to be problematic gamblers after controlling for all other characteristics. Income is negatively associated with problematic gamblers while those who experience guilt or frustration after a loss and bet a higher amount of money have a higher probability of exhibiting gambling-related problems. Those who have other players in their family (wife/husband, children, brother/sister, parents and grandparents), do not play alone and gamble for many hours a day have a higher probability to become pathological gamblers. In addition, income positively affects the probability to have pathological consequences while education is negatively correlated to it. Finally, experiencing satisfaction in case of a win, disappointment in case of loss and excitement in the middle of the game is negatively associated with pathological players.
    Keywords: problem gambling; risk factors; emotional factors; gambling behaviour
    JEL: D01 D81 C35
    Date: 2013
  5. By: James Alm (Department of Economics, Tulane University)
    Abstract: Taxpayers face well-known and well-identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax evasion in which financial incentives are shaped by audit, penalty, and tax rates. However, there is growing evidence that these individual incentives, while important, are not always decisive. Individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of social norms, morality, altruism, fairness, or the like, factors that I broadly and no doubt imprecisely lump together as group motivations. I argue that the compliance puzzle can be explained, at least in part, by expanding the standard analysis of individual compliance behavior to incorporate the important ways in which individual decisions are shaped by group motivations. I also provide empirical and experimental evidence to support these arguments, and, I suggest – and predict – some promising lines of future research.
    Keywords: tax evasion, behavioral economics, experimental economics
    JEL: H2 H26 D03 C9
    Date: 2013–02
  6. By: Oliver Bunn (Dept. of Economics, Yale University); Caterina Calsamiglia; Donald J. Brown (Dept. of Economics, Yale University)
    Abstract: We conduct two experiments where subjects make a sequence of binary choices between risky and ambiguous binary lotteries. Risky lotteries are defined as lotteries where the relative frequencies of outcomes are known. Ambiguous lotteries are lotteries where the relative frequencies of outcomes are not known or may not exist. The trials in each experiment are divided into three phases: pre-treatment, treatment and post-treatment. The trials in the pre-treatment and post-treatment phases are the same. As such, the trials before and after the treatment phase are dependent, clustered matched-pairs, that we analyze with the alternating logistic regression (ALR) package in SAS. In both experiments, we reveal to each subject the outcomes of her actual and counterfactual choices in the treatment phase. The treatments differ in the complexity of the random process used to generate the relative frequencies of the payoffs of the ambiguous lotteries. In the first experiment, the probabilities can be inferred from the converging sample averages of the observed actual and counterfactual outcomes of the ambiguous lotteries. In the second experiment the sample averages do not converge. If we define fictive learning in an experiment as statistically significant changes in the responses of subjects before and after the treatment phase of an experiment, then we expect fictive learning in the first experiment, but no fictive learning in the second experiment. The surprising finding in this paper is the presence of fictive learning in the second experiment. We attribute this counterintuitive result to apophenia: "seeing meaningful patterns in meaningless or random data." A refinement of this result is the inference from a subsequent Chi-squared test, that the effects of fictive learning in the first experiment are significantly different from the effects of fictive learning in the second experiment.
    Keywords: Uncertainty, Counterfactual outcomes, Apophenia
    JEL: C23 C35 C91 D03
    Date: 2013–03
  7. By: Raj Chetty; John N. Friedman; Soren Leth-Petersen; Torben Heien Nielsen; Tore Olsen
    Abstract: The federal government provides generous tax subsidies for retirement saving in 401(k)s and IRAs. The subsidies are designed to increase household saving and retirement income security, important national goals. The estimated cost, however, exceeds $100 billion a year in lost revenue to the Treasury. Given the nation’s severe budgetary pressures, it is critical to know how effective these subsidies are in raising household saving and whether other approaches would be more cost-effective. The ability to answer these questions has been limited by inadequate U.S. data on household saving. In particular, it is hard to know whether tax subsidies encourage families to save more, or simply shift money they would otherwise save into tax-advantaged retirement accounts. The same is true for “automatic” saving, such as defaults in 401(k) plans, which increase retirement saving if individuals take no action. While defaults have been shown to increase retirement saving, is this increase offset by reduced saving in taxable accounts or an increase in debt, leav-ing total household saving unchanged? This brief, based on a recent study, uses high-quality Danish data to address these questions. It assesses the effect of tax subsidies and automatic contributions on retirement saving and total household saving. The Danish retirement system and patterns of retirement saving are similar to those in the United States. The effect of retirement saving policies on total household saving should be similar as well, making the findings relevant to current U.S. policy discussions. This brief proceeds as follows. The first section introduces the problem of evaluating policies designed to increase retirement saving. The second section describes the data and basic methodology used in the analysis. The third section presents findings on the effect of tax subsidies on retirement saving. The fourth section presents findings on the effect of automatic saving. The fifth section offers an explanation of these findings based on how these policies affect two types of individuals – “active” and “passive” savers. The final section concludes that an expansion of automatic saving could produce much larger increases in household saving, at lower fiscal cost, than current tax subsidies for retirement saving.
    Date: 2013–03
  8. By: Vera Angelova (Technical University Berlin); Olivier Armantier (Federal Reserve Bank of New York); Giuseppe Attanasi (University of Strasbourg and Toulouse School of Economics); Yolande Hiriart (CRESE, Université de Franche-comté)
    Abstract: We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. The presence of externalities and asymmetric information call for public intervention in order to define rules aimed at increasing prevention. We determine the investments in safety under No Liability, Strict Liability and Negligence rules, and compare these to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damage affects the firm's behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher, and liability is much less effective, than predicted.
    Keywords: Risk Regulation, Liability Rules, Incentives, Insolvency, Experiment
    JEL: D82 K13 K32 Q58
    Date: 2013–03

This nep-cbe issue is ©2013 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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