nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒04‒27
ten papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Demand effects of consumers’ stated and revealed preferences By Engström, Per; Forsell, Eskil
  2. Leadership and incentives. By Cappelen, Alexander W.; Reme, Bjørn-Atle; Sørensen, Erik Ø.; Tungodden, Bertil
  3. Compliant sinners, obstinate saints: How power and self-focus determine the effectiveness of social influences in ethical decision making By Marko Pitesa; Stefan Thau
  4. Risk Preferences and Pesticide Use by Cotton Farmers in China By Elaine Liu; JiKun Huang
  5. Delineating deception in experimental economics: Researchers' and subjects' views By Michał Krawczyk
  6. Disposition Effect and Loss Aversion: An Analysis Based on a Simulated Experimental Stock Market By Kohsaka Youki; Grzegorz Mardyla; Shinji Takenaka; Yoshiro Tsutsui
  7. The role of psychological and physiological factors in decision making under risk and in a dilemma By Jonas Fooken; Markus Schaffner
  8. Revealed Bounded rationality:Testing present bias in a Rational Addiction Equation By Pierpaolo Pierani; Silvia Tiezzi
  9. Does Social Judgment Diminish Rule Breaking? By Timothy C. Salmony; Danila Serra
  10. Risk Aversion Relates to Cognitive Ability: Fact or Fiction? By Andersson, Ola; Tyran, Jean-Robert; Wengström, Erik; Holm, Håkan J.

  1. By: Engström, Per (Department of Economics); Forsell, Eskil (Department of Economics)
    Abstract: Knowledge of how consumers react to different quality signals is fundamental for understanding how markets work. We study the online market- place for Android apps where we compare the causal effects on demand from two quality related signals; other consumers' stated and revealed preferences toward an app. Our main result is that consumers are much more responsive to other consumers' revealed preferences, compared to others' stated preferences. A 10 percentile increase in displayed average rating only increases downloads by about 3 percent, while a 10 percentile increase in displayed number of downloads increases downloads by about 20 percent.
    Keywords: peer effects; observational Learning; stated preferences; revealed preferences; eWOM; Google play; Android apps; regression discontinuity design; instrumental variable analysis
    JEL: C21 C26 D83 M31
    Date: 2013–04–19
  2. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Reme, Bjørn-Atle (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We study whether compensating people who volunteer to be leaders in a public goods game creates a social crowding-out effect of moral motivation among the others in the group. We report from an experiment with four treatments, where the base treatment is a standard public goods game with simultaneous contribution decisions, while the three other treatments allowed participants to volunteer to be an “early contributor” in their group. In the three leader treatments, we manipulate the level of compensation given to the leader. Our main finding is that a moderate compensation to the leader is highly beneficial, it increases the average contribution by almost 80%. A high compensation, however, is detrimental to public good provision. We show that paying a moderate compensation to the leaders strikes the right balance between the need for recruiting leaders and avoiding a large social crowding-out effect. We argue that the main findings of the paper are important in many real life settings where we would like to use economic incentives to encourage people to lead by example.
    Keywords: Voluntariness; Group behavior; Public goods; Laoratory.
    JEL: C72 C92 H41
    Date: 2013–04–12
  3. By: Marko Pitesa (GEM - Grenoble Ecole de Management - Grenoble École de Management (GEM)); Stefan Thau (LBS - London Business School - London Business School)
    Abstract: In this research, we examine when and why organizational environments influence how employees respond to moral issues. Past research proposed that social influences in organizations affect employees' ethical decision making, but did not explain when and why some individuals are affected by the organizational environment and some disregard it. To address this problem, we drew on research on power to propose that power makes people more self-focused, which, in turn, makes them more likely to act upon their preferences and ignore (un)ethical social influences. Using both experimental and field methods, we tested our model across the three main paradigms of social influence: informational influence (Study 1 and 2), normative influence (Study 3), and compliance (Study 4). Results offer converging evidence for our theory.
    Keywords: ethical decision making, power, social influences, self-focus
    Date: 2013–06–03
  4. By: Elaine Liu (University of Houston); JiKun Huang (Center for Chinese Agricultural Policy)
    Abstract: Despite insect-resistant Bt cotton has been lauded for its ability to reduce the use of pesticides, studies have shown that Chinese Bt cotton farmers continue to use excessive amounts of pesticides. Using results from a survey and an artefactual field experiment, we find that farmers who are more risk averse use greater quantities of pesticides. We also find that farmers who are more loss averse use lesser quantities of pesticides. This result is consistent with our conceptual framework and suggestive evidence where farmers behave in a loss averse manner in the health domain and place more weight on the importance of health over money in the loss domain.
    Keywords: Risk Preferences, Prospect Theory, Pesticide Use
    JEL: O13 O14 O33 D03 D81 D83
    Date: 2013–04–19
  5. By: Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: I report the results of a large survey of experimental subjects and researchers concerning the use of deception. I conclude that members of these two groups largely agree on the extent to which various specific techniques are deceptive. I identify the main dimensions that determine this judgment. I also find that the attitude towards deception among subjects tends to be more favorable than among researchers, although even the latter do not readily conform with the common view that deception is taboo in experimental economics.
    Keywords: experimental methodology, deception
    JEL: C90
    Date: 2013
  6. By: Kohsaka Youki (Center for Finance Research, Waseda University); Grzegorz Mardyla (Faculty of Economics, Kinki University); Shinji Takenaka (Japan Center for Economic Research); Yoshiro Tsutsui (Graduate School of Economics, Osaka University)
    Abstract: We experimentally investigate the existence of the disposition effect and loss aversion as its potential cause. Our approach includes three key characteristics: (i) An environment closely mimicking actual stock markets; (ii) Individual-specific reference prices; (iii) A direct test of loss aversion as a cause of the disposition effect. We find strong support for the existence of the disposition effect as an independent hypothesis. This is an improvement over previous studies, which tested this hypothesis only jointly with others. Our results also strongly point to loss aversion, of the type postulated by prospect theory, being a source of the disposition effect.
    Keywords: disposition effect, loss aversion, investor behavior, experimental economics
    Date: 2013–04
  7. By: Jonas Fooken; Markus Schaffner
    Abstract: We study the difference in the result of two different risk elicitation methods by linking estimates of risk attitudes to gender, age, personality traits, a decision in a dilemma situation, and physiological states measured by heart rate variability (HRV). Our results indicate that differences between the methods are reflected in a different effect of gender and personality traits. Furthermore, HRV is linked to risk-taking in the experiment for one of the methods, suggesting that emotionally more stressed individuals display more risk aversion. However, we cannot determine if these are significantly related to the difference on the results of the two methods. Finally, we find that risk attitudes are not predictive of the ability to decide in a dilemma, but personality traits are. There is also no apparent relationship between the physiological state during the dilemma situation and the ability to make a decision.
    Keywords: s risk preferences
    JEL: D81 D87
    Date: 2013–04–18
  8. By: Pierpaolo Pierani; Silvia Tiezzi
    Abstract: This paper deals with one of the main theoretical and empirical problems associated with the rational addiction model, namely that the demand equation derived from the rational addiction theory is not empirically distinguishable from models with forward-looking behavior, but with timeinconsistent preferences. The implication is that, even when forward-looking behavior can be convincingly supported, this equation cannot provide evidence in favor of time-consistent preferences against a model with dynamic inconsistency. In fact, we show that the possibility of testing for exponential versus non-exponential time discounting is nested within the rational addiction model. We propose a test of time consistency that uses only the information obtained from the general rational addiction demand equation and the price effects. A pseudo panel of Italian households is used to test for rational addiction in tobacco consumption. GMM estimators are used to deal with errors in variables and unobserved heterogeneity. The results conform to the theoretical predictions. We find evidence that tobacco consumers are forward-looking, but timeinconsistent. The values of the derived present bias and long run discount parameters are statistically significant and in line with the literature.
    Keywords: rational addiction, time inconsistency, GMM
    JEL: C23 D03 D12
    Date: 2012–12
  9. By: Timothy C. Salmony; Danila Serra
    Abstract: We experimentally investigate the extent to which social observability of one’s actions and the possibility of social non-monetary judgment affect the decision to engage in rule breaking behavior. We consider three rule breaking scenarios — theft, bribery and embezzlement — in the absence of any formal enforcement mechanism. By involving a student sample characterized by cultural heterogeneity due to immigration of ancestors to the US, we are able to investigate whether the effectiveness of informal social enforcement mechanisms is conditional on the cultural background of the decision-maker. A total of 52 countries are represented in our sample, ranging from Low Rule of Law countries such as Liberia and Nigeria to High Rule of Law countries such as Sweden and Norway. Our data provide evidence that people with different cultural backgrounds do respond differently to increased social observability of their actions. In particular, while subjects that identify culturally with a High Rule of Law country respond to social obervability and judgment by lowering their propensities to engage in rule breaking, subjects that identify with Low Rule of Law countries do not. Our findings suggest that development policies that rely purely on social judgment to enforce behavior may not work with Low Rule of Law populations.
    Keywords: Theft;Corruption; Social Enforcement; Culture; Experiments
    JEL: C90 D73 K42 Z10
    Date: 2013
  10. By: Andersson, Ola (Research Institute of Industrial Economics (IFN)); Tyran, Jean-Robert (University of Vienna); Wengström, Erik (University of Copenhagen); Holm, Håkan J. (Lund University)
    Abstract: Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation might be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Structural estimation allowing for heterogeneity of noise yields no significant relation between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making, rather than to risk preferences.
    Keywords: Risk preference; Cognitive ability; Experiment; Noise
    JEL: C81 C91 D12 D81
    Date: 2013–04–17

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