nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒05‒11
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Comment on Ameriks, Caplin, Leahy & Tyler (2007): Measuring Self-Control Problems By Volker Seiler
  2. Simultaneous Decision-Making in Competitive and Cooperative Environments By Savikhin , Anya; Sheremeta , Roman
  3. Does Monitoring Work? A Field Experiment with Multiple Forms of Counterproductive Behaviour By Michèle Belot; Marina Schröder
  4. Sorting via Screening versus Signaling: A Theoretic and Experimental Comparison By Werner Güth; Fabian Winter
  5. Gender and other determinants of trust and reciprocity in an experimental labour market amongst Chinese students By Uwe Dulleck; Jonas Fooken; Yumei He
  6. Linking Appropriation of Common Resources and Provision of Public Goods Decreases Rate of Destruction of the Commons By Anabela Botelho; Ariel Dinar; Lígia M.Costa Pinto; Amnon Rapoport
  7. Fairness norms can explain the emergence of specific cooperation norms in the Battle of the Prisoners Dilemma By Fabian Winter
  8. On Loss Aversion, Level-1 Reasoning, and Betting By Ido Erev; Sharon Gilat-Yihyie; Davide Marchiori; Doron Sonsino
  9. Cooperation and Climate Change: Can Communication Facilitate the Provision of Public Goods in Heterogeneous Settings? By Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
  10. Prospect Theory and consumer behavior: Goals and Tradeoffs. By Florent Buisson
  11. Religious Activity, Risk Taking Preferences, and Financial Behaviour: Empirical Evidence from German Survey Data By Anja Koebrich Leon; Christian Pfeifer
  12. Delusions of Success: Comment on Dan Lovallo and Daniel Kahneman By Bent Flyvbjerg
  13. Visibility of Contributors and Cost of Information: An Experiment on Public Goods By Samak , Anya; Sheremeta , Roman
  14. Experimental Departures from Self-Interest when Competing Partnerships Share Output By Cherry, Josh; Salant, Stephen; Uler, Neslihan
  15. Thanks but No Thanks: A New Policy to Avoid Land Conflict By Dufwenberg, Martin; Köhlin, Gunnar; Martinsson, Peter; Medhin, Haileselassie
  16. Noisy retrievers and the four-fold reaction to rare events By Davide Marchiori; Sibilla Di Guida; Ido Erev

  1. By: Volker Seiler (University of Paderborn)
    Abstract: Ameriks, Caplin, Leahy & Tyler (2007) study how lack of self-control may lead to overconsumption and low wealth accumulation. For their analysis, the authors calculate difference scores from their survey questions. We review their study and highlight potential issues in the use of difference scores such as lack of reliability, validity, spurious correlation and variance restriction. The concerns we raise put into question their findings and the conclusions they draw.
    Keywords: self-control, difference scores, reliability, validity, spurious correlation, variance restriction
    JEL: A12 B41 C18 C42
    Date: 2013–04
  2. By: Savikhin , Anya; Sheremeta , Roman
    Abstract: We experimentally investigate simultaneous decision-making in two contrasting environments: one that encourages competition (lottery contest) and one that encourages cooperation (public good game). We find that simultaneous participation in the public good game affects behavior in the contest, decreasing sub-optimal overbidding. Contributions to the public good are not affected by participation in the contest. The direction of behavioral spillover is explained by differences in strategic uncertainty and path-dependence across games. Our design allows us to compare preferences for cooperation and competition. We find that in early periods, there is a negative correlation between decisions in competitive and in cooperative environments.
    Keywords: cooperation, competition, public goods, contests, experiments, behavioral spillover
    JEL: C72 C91
    Date: 2012–03–05
  3. By: Michèle Belot (School of Management, University Edinburgh); Marina Schröder (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper provides .eld experimental evidence on the effects of monitoring in a context where workers can engage in various forms of counterproductive behaviour and only one of them is monitored and incentivised. We hire students to do a job for us (identifying euro coins) for which they are paid a .at fee. There are various ways they can behave counterproductively: they can perform sloppily, not complete the task within the requested time or even steal some of the coins. We study how monitoring one productivity dimension (sloppiness) spills over to others (tardiness and theft). We find that introducing lax monitoring does not improve performance, but increases tardiness substantially. Strict monitoring increases tardiness to the same extent, but also leads to substantial improvements in performance. Theft, on the other hand, occurs more rarely and its prevalence is not affected by the monitoring scheme. We conclude that monitoring does have a discipling effect on workers, but at the same time, workers retaliate for being monitored and do so in the least costly manner for themselves (both in monetary and non-monetary terms).
    Keywords: counterproductive behaviour, monitoring, experiment
    JEL: C93 J24 J30 M42 M52
    Date: 2013–04
  4. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Fabian Winter (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: Similar to Kübler et al. (2008, GEB 64, p. 219-236), we compare sorting in games with asymmetric incomplete information theoretically and experimentally. Rather than distinguishing two very different sequential games, we use the same game format and capture the structural difference of screening and signaling only via their payoff specification. The experiment thus relies on the same verbal instructions. Although the equilibrium outcomes coincide, greater efficiency losses off the equilibrium play due to sorting under signaling, compared to screening, is predicted and confirmed experimentally.
    Keywords: sorting, screening, signaling, wage bargaining, off-equilibrium play
    JEL: C9 D82 J24 J40
    Date: 2013–04–24
  5. By: Uwe Dulleck; Jonas Fooken; Yumei He
    Abstract: Due to economic and demographic changes highly educated women play an important role on the Chinese labour market. Gender has been shown to be an important characteristic that influences behaviour in economic experiments, as have, to a lesser degree, academic major, age and income. We provide a study looking at trust and reciprocity and their determinants in a labour market laboratory experiment. Our experimental data is based on two games, the Gift Exchange Game (GEG) and a variant of this game (the Wage Promising Game, WPG) where the employer's wage offer is non-binding and the employer can choose the wage freely after observing the workers effort. We find that women are less trusting and reciprocal than men in the GEG while this cannot be found in the WPG. Letting participants play the GEG and the WPG, allows us to disentangle reciprocal and risk attitudes. While in the employer role, it seems to be that risk attitude is the main factor, this is not confirmed analysing decisions in the worker role.
    Date: 2013–05–01
  6. By: Anabela Botelho (NIMA, Universidade do Minho); Ariel Dinar (Water Science and Policy Center, Department of Environmental Sciences, University of California, Riverside); Lígia M.Costa Pinto (NIMA, Universidade do Minho); Amnon Rapoport (A. Gary Anderson School of Business Administration, University of California, Riverside)
    Abstract: Experimental studies of common pool resource (CPR) dilemmas are frequently terminated with collapse of the resource; however, there is considerable evidence in real-world settings that challenge this finding. To reconcile this difference, we propose a two-stage model that links appropriation of the CPR and provision of public goods in an attempt to explain the emergence of cooperation in the management of CPRs under environmental uncertainty. Benchmark predictions are derived from the model, and subsequently tested experimentally under different marginal cost-benefit structures concerning the voluntary contribution to the provision of the good. Our results suggest that the severity of the appropriation problem is significantly mitigated by the presence of an option for voluntarily contributing a fraction of the income surplus from the appropriation phase to the provision of the public good.
    Date: 2013–04
  7. By: Fabian Winter (Max Planck Institute of Economics, Jena)
    Abstract: Cooperation norms often emerge in situations, where the long term collective benefits help to overcome short run individual interests, for instance in repeated Prisoner's Dilemma (PD) situations. Often, however, there are different paths to cooperation, benefiting different kinds of actors to different degrees. This leads to payoff asymmetries even in the state of cooperation, and consequently can give rise to normative conflicts about which norms should be in place. This norm-coordination problem will be modeled as a Battle of the Sexes game (BoS) with different degrees of asymmetry in payoffs. We combine the PD and the BoS to the 3×3 Battle of the Prisoners Dilemma (BOPD) with several asymmetric cooperative and one non-cooperative equilibria. Bame theoretical and "behavioral" predictions are derived about the kind of norms that are likely to emerge under different shadows of the future and degrees of asymmetry and tested in a lab-experiment. Our experimental data show that game theory fairly well predicts the basic main effects of our experimental manipulations, but "behavioral" predictions perform better in describing the equilibrium selection process of emerging norms.
    Keywords: Social norms, normative conflict, Prisoner's Dilemma, coordination, experiment
    JEL: Z13 C92 C72 D31
    Date: 2013–04–24
  8. By: Ido Erev (Faculty of Industrial Engineering and Management, Technion); Sharon Gilat-Yihyie (Department of Psychology, Western Galilee College); Davide Marchiori (Department of Management, Università Ca' Foscari Venezia); Doron Sonsino (The School of Business Administration, The College of Management)
    Abstract: Previous research suggests that human reaction to risky opportunities reflects two contradicting biases: Òloss aversion", and Òlimited level of reasoning" that leads to overconfidence. Rejection of attractive gambles is explained by loss aversion, while counterproductive risk seeking is attributed to limited level of reasoning. The current research highlights a shortcoming of this popular (but often implicit) "contradicting biases" assertion. Studies of "negative-sum betting games" reveal high rate of counterproductive betting even when limited level of reasoning and loss aversion imply no betting. The results reflect two reasons for the high betting rate: initial tendency to participate and slow learning. Under certain conditions, the observed betting rate was higher than the rate predicted under random choice even after 250 trials with immediate feedback. These results can be captured with a model that assumes a tendency to select strategies that have led to good outcomes in a small set of similar past experiences, and allows for an initial framing effect.
    Keywords: Loss aversion, Level-1 reasoning, SamuelsonÕs Colleague, acquiring a company problem, market for lemons
    JEL: C63 C73 D03 D82 D83
    Date: 2013–04
  9. By: Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
    Abstract: International and domestic efforts to reduce greenhouse gas emissions require a coordinated effort from heterogeneous actors. This experiment uses a public good game with a climate change framing to consider whether cooperation is possible in just such a climate change context. Specifically, we examine whether groups of heterogeneous individuals can meet a collective emissions reduction target through individual contributions. Participants represent two different sectors of society with differing marginal costs of abatement. Thus, the equity considerations that make climate change such a contentious issue are implicit in the experiment framing. Subjects are able to communicate with one another in order to coordinate contribution strategies. The results indicate that participatory processes and stakeholder engagement play an important role in promoting cooperation—even when heterogeneity is present. However, heterogeneity makes it more difficult for groups to reach consensus on how to distribute an abatement burden. Further, the non-binding nature of the agreement results in significant levels of free-riding. In addition, heterogeneity appears to provide disadvantaged player-types with a justification for free-riding. Ultimately, the results indicate that participatory processes alone are not sufficient to induce widespread compliance with a mitigation obligation.
    Keywords: public good, framing, communication, heterogeneity, emissions reduction target
    JEL: H41 Q54 Q58
    Date: 2012–11–16
  10. By: Florent Buisson (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: I show that a loss averse consumer who must share her budget between two goods prefer allocations for which consumption equals reference point for at least one good. The phenomenon intensity depends on the curvature of the utility curve. These results are consistent with several stylized facts which cannot be explained by the standard consumer theory.
    Keywords: Loss aversion, prospect theory.
    JEL: D03 D11 D83
    Date: 2013–03
  11. By: Anja Koebrich Leon (Institute of Economics, Leuphana University Lueneburg, Germany); Christian Pfeifer (Institute of Economics, Leuphana University Lueneburg, Germany)
    Abstract: Individual preferences with respect to risk taking play an important role in financial economic behaviour and, hence, in financial markets. Using German microdata, we argue that individual religiosity is a determinant of household willingness to take risks, since it shapes relevant individual values and norms. Controlling for overall level of general risk assessment, firstly, we find that different religious affiliations are associated with distinct financial risk-taking attitudes. Adherents to the two main Christian religions in Germany (Protestants and Catholics) are less risk-tolerant in general, but not in financial concerns. The same holds for Muslims. Further, religious involvement is associated with higher risk aversion. Secondly, we examine the extent to which religion-induced heterogeneity in risk-taking preferences actually influences investment decisions of individuals in Germany. We provide evidence suggesting that religious beliefs and religious involvement influence individual portfolio decisions.
    Keywords: church; religion; risk aversion; portfolio choice
    JEL: D14 G11 Z12
    Date: 2013–04
  12. By: Bent Flyvbjerg
    Abstract: Dan Lovallo and Daniel Kahneman must be commended for their clear identification of causes and cures to the planning fallacy in "Delusions of Success: How Optimism Undermines Executives' Decisions" (HBR July 2003). Their look at overoptimism, anchoring, competitor neglect, and the outside view in forecasting is highly useful to executives and forecasters. However, Lovallo and Kahneman underrate one source of bias in forecasting - the deliberate "cooking" of forecasts to get ventures started.
    Date: 2013–04
  13. By: Samak , Anya; Sheremeta , Roman
    Abstract: We experimentally investigate the impact of visibility of contributors and cost of information on public good contributions. First, we vary recognizing all, highest or lowest contributors. Second, we investigate the effect of imposing a cost on viewing contributors. Recognizing all contributors significantly increases contributions relative to the baseline, even when viewing contributors’ information is costly. This effect holds even though the identities of contributors are viewed less than ten percent of the time. Recognizing only highest contributors does not increase contributions compared to not recognizing contributors, but recognizing only lowest contributors is as effective as recognizing all contributors. These findings support our conjecture that aversion from shame is a more powerful motivator for giving than anticipation of prestige.
    Keywords: public-goods, information, experiments
    JEL: C72 C90 H41
    Date: 2013–05–06
  14. By: Cherry, Josh; Salant, Stephen; Uler, Neslihan
    Abstract: When every individual's effort imposes negative externalities, self-interested behavior leads to socially excessive effort. To curb these excesses when effort cannot be monitored, competing output-sharing partnerships can form. With the right-sized groups, aggregate effort falls to the socially optimal level. We investigate this theory experimentally and find it makes correct qualitative predictions but there are systematic quantitative deviations, always in the direction of the socially optimal investment. By using data on subjects' conjectures of each other's behavior we show that deviations are consistent with both altruism and conformity (but not extremeness aversion).
    Keywords: output-sharing, partnership solution, laboratory experiment, altruism, conformity
    JEL: L23 Q20 Q22 O13
    Date: 2013–03–14
  15. By: Dufwenberg, Martin; Köhlin, Gunnar; Martinsson, Peter; Medhin, Haileselassie
    Abstract: Land conflicts can be detrimental. An important goal of development policy is to help define and instill respect for borders. This is often implemented through mandatory and expensive interventions that rely on the expansion of government land administration institutions. We bring to the table a new policy that, in theory, promotes neighborly relations and equitable divisions at low cost. The salient features of this policy would be the existence of a regulatory institution and the option to bypass regulation in favor of a cooperative solution. Such a policy is particularly relevant when the government formally owns the land but tenure rights are about to be individualized. The key idea combines the logic of forward induction with the insight that social preferences transform social dilemmas into coordination problems. As a first and low-cost pass at empirical evaluation, we conduct a framed field experiment among farmers in the Ethiopian highlands, a region exhibiting features typical of many countries where borders are often disputed.
    Keywords: conflict, land grabbing game, social preferences, forward induction, Ethiopia, experiment, land reform, development aid
    JEL: C78 C93 D63 Q15
    Date: 2013–01–18
  16. By: Davide Marchiori (Department of Management, Università Ca' Foscari Venezia); Sibilla Di Guida (SBS-EM, ECARES, Universite Libre de Bruxelles); Ido Erev (Faculty of Industrial Engineering and Management, Technion)
    Abstract: Previous research documents two pairs of inconsistent reactions to rare events: 1) Studies of probability judgment reveal conservatism which implies overestimation of rare events, and overconfidence which implies underestimation of rare events. 2) Studies of choice behavior reveal overweighting of rare events in one-shot tasks, and the opposite bias in decisions from experience. The current analysis and experimental results demonstrate that the coexistence and relative importance of the four biases can be captured with simple models that share the assumption that judgments and decisions are made based on the information conveyed by small and noisy samples of past experiences.
    Keywords: Black swan; prospect theory; experience-description gap; case-based decision theory; overgeneralization
    JEL: C79 C91 D81
    Date: 2013–04

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