nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒06‒04
twenty papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Semi-bounded Rationality: A model for decision making By Tshilidzi Marwala
  2. Reading to Young Children: A Head-Start in Life? By Kalb, G.; Ours, J.C. van
  3. Resource scarcity, spite and cooperation By Sebastian Prediger; Bjoern Vollan; Benedikt Herrmann
  4. Olympic news and attitudes towards the Olympics: A compositional time-series analysis of how sentiment is affected by events By Terence C. Mills; Peter Dawson; Paul Downward
  5. The emergence of democracy: a behavioural perspective By Kyriazis, Nicholas; Metaxas, Theodore
  6. Can You Trust the Good Guys? Trust Within and Between Groups with Different Missions By Fehrler, Sebastian; Kosfeld, Michael
  7. Recalibrational Emotions and the Regulation of Trust-Based Behaviors By Eric Schniter; Timothy Shields
  8. Impact and Implementation Findings from an Experimental Evaluation of Playworks: Effects on School Climate, Academic Learning, Student Social Skills and Behavior. By Jane Fortson; Susanne James-Burdumy; Martha Bleeker; Nicholas Beyler; Rebecca A. London; Lisa Westrich; Katie Stokes-Guinan; Sebastian Castrechini
  9. Surprising Gifts - Theory and Laboratory Evidence By Kiryl Khalmetski; Axel Ockenfels; Peter Werner
  10. Income and choice under risk By Arnt O. Hopland; Egil Matsen; Bjarne Strøm
  11. Organizational Well-being Factors. Determinants of Entrepreneurship in Small and Medium Companies of the Defense Sector By Almeida, Helena; Peñalver, Briones
  12. Does the better –than- average effect show that people are Overconfident?: two experiments. By Jean-Pierre Benoit; Juan Dubra
  13. The effect of anticipated and experienced regret and pride on investors' future selling decisions By Lee, Carmen; Kräussl, Roman; Paas, Leo
  14. THE TIMES THEY ARE A CHANGIN': The effect of institutions on behavior, cooperation, emotional attachment and sentiment at 26,000ft By David A. Savage; Benno Torgler
  15. Learning in a Black Box By H Peyton Young; H.H. Nax; M.N. Burton-Chellew; S.A. West
  16. Bundling Public with Private Goods By Gerrit Frackenpohl; Gert Pönitzsch
  17. Justification and Legitimate Punishment By Xiao, Erte; Tan, Fangfang
  18. Taking Punishment into your Own Hands: An Experiment By Julia Mueller; Peter Duersch
  19. Are risk preferences dynamic? Within-subject variation in risk-taking as a function of background music By Halko, Marja Liisa; Kaustia, Markku
  20. Applications in Agent-Based Computational Economics By Schuster, Stephan

  1. By: Tshilidzi Marwala
    Abstract: In this paper the theory of semi-bounded rationality is proposed as an extension of the theory of bounded rationality. In particular, it is proposed that a decision making process involves two components and these are the correlation machine, which estimates missing values, and the causal machine, which relates the cause to the effect. Rational decision making involves using information which is almost always imperfect and incomplete as well as some intelligent machine which if it is a human being is inconsistent to make decisions. In the theory of bounded rationality this decision is made irrespective of the fact that the information to be used is incomplete and imperfect and the human brain is inconsistent and thus this decision that is to be made is taken within the bounds of these limitations. In the theory of semi-bounded rationality, signal processing is used to filter noise and outliers in the information and the correlation machine is applied to complete the missing information and artificial intelligence is used to make more consistent decisions.
    Date: 2013–05
  2. By: Kalb, G.; Ours, J.C. van (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper investigates the importance of parents reading to their young children. Using Australian data we find that parental reading to children at age 4 to 5 has positive and significant effects on reading skills and cognitive skills of these children at least up to age 10 or 11. Our findings are robust to a wide range of sensitivity analyses.
    Keywords: Reading to children;reading skills;other cognitive skills.
    JEL: C26 I21 J24
    Date: 2013
  3. By: Sebastian Prediger; Bjoern Vollan; Benedikt Herrmann
    Abstract: Using an experimental approach, this paper examines how scarcity of natural resources affects people’s readiness to cooperate and to engage in antisocial behaviour. The experiments were carried out with pastoralists from southern Namibia whose livelihoods are highly dependent on grazing availability on their collectively used rangelands. We split the study region into two areas according to exogenous differences in biomass production, a high-yield and a low-yield area, and conduct a one-shot public goods experiment and the joy-of-destruction experiment with pastoralists from both areas. Results from the joy-of-destruction experiment reveal that a substantial fraction of people is willing to reduce another subject’s income, although this comes at an own cost. We show that this kind of spiteful behaviour occurs twice as often in the area where resources are scarcer and hence competitive pressure is higher. By contrast, levels of cooperation are very similar across areas. This indicates that scarcity does not hamper cooperation, at least as long as a sub-survival level has not been reached. Our data further reveal a coexistence of prosocial and antisocial behaviour within individuals, suggesting that people’s motivations depend on the experimental environment they are acting in. One possible explanation is that subjects are ready to cooperate when substantial net gains can be realized, but turn to spiteful money burners when there is no scope for efficiency improvements and the risk of “falling behind” is particularly salient.
    Keywords: competition, natural resource scarcity, antisocial behaviour, cooperation, Namibia, lab-in-the-field experiments
    JEL: C71 C72 C91 D03 H41 Q24
    Date: 2013–05
  4. By: Terence C. Mills (University of Loughborough); Peter Dawson (University of East Anglia); Paul Downward (University of Loughborough)
    Abstract: The Olympic Games are considered to be the most prestigious multi-sport event in the world. However, with growing costs associated with hosting such events against a backdrop of questionable economic benefits, and yet elation that follows from sporting success, a number of studies have started to address its intangible or softer impacts as a justification for the investment. It is well known that sentiment plays a part in the evolving economic valuation of companies through the stock market. What is less well known is how ‘news’ affects the sentiment towards major public investments like the Olympics. In this paper we consider, from the context of the pre-event stage of the 30th Olympiad, the relationship between attitudes towards the Olympics and Olympic-related news; specifically the bad news associated with an increase in the cost of provision, and the good news associated with Team GB’s medal success in 2008. Using a unique data set and an event-study approach that involves compositional time-series analysis, it is found that ‘good’ news affects sentiments much more than ‘bad’ but that the distribution of such sentiment varies widely. For example, a much more pronounced effect of good news is identified for females than males, but ‘bad’ news has less of an impact on the young and older age groups. The paper consequently argues that extreme caution should be exercised in policy pronouncements that are based on such sentiments.
    Date: 2013–05
  5. By: Kyriazis, Nicholas; Metaxas, Theodore
    Abstract: In the present essay we introduce in a model the concept of macroculture and the formation of new values within the particular macroculture that arose during the 8th to 4th century BC in Ancient Greece. We analyse the conditions and the context for the emergence of the heavy infantryman, the hoplite, and the new tactical formation, the phalanx, and the trireme warship. We apply the coordination and cooperation as behavioural mechanisms to the phalanx and the triremes to show how a specific set of new values emerged. Then, taking into account bounded rationality, as a second behavioural mechanism we analyse how these values were taken over from the military into the political field and thus were crucial for the emergence and development of democracy.
    Keywords: Macroculture, Coordination and Cooperation mechanisms, bounded rationality, phalanx and triremes, military and democratic values.
    JEL: B15 N4 N43
    Date: 2013
  6. By: Fehrler, Sebastian (University of Zurich); Kosfeld, Michael (Goethe University Frankfurt)
    Abstract: NGOs and other non-profit organizations attract workers who strongly identify themselves with their missions. We study whether these "good guys" are more trustworthy and how such pronounced group identities affect trust and trustworthiness within the groups and toward out-groups. We find that subjects who strongly identify themselves with a non-profit mission are more trustworthy in a minimal group setting but also harshly discriminate against out-groups when subjects are grouped by the missions they identify themselves with.
    Keywords: trustworthiness, trust, group identity, social identity theory, discrimination, organization
    JEL: C72 C92 M51
    Date: 2013–05
  7. By: Eric Schniter (Economic Science Institute, Chapman University); Timothy Shields (Economic Science Institute, Chapman University)
    Abstract: Though individuals differ in the degree to which they are predisposed to trust or act trustworthy, we theorize that trust-based behaviors are universally determined by the calibration of conflicting short- and long-sighted behavior regulation programs, and that these programs are calibrated by emotions experienced personally and interpersonally. In this chapter we review both the main-stream and evolutionary theories of emotions that philosophers, psychologists, and behavioral economists have based their work on and which can inform our understanding of trust-based behavior regulation. The standard paradigm for understanding emotions is based on mapping their positive and negative affect valence. While Valence Models often expect that the experience of positive and negative affect is interdependent (leading to the popular use of bipolar affect scales), a multivariate “recalibrational” model based on positive, negative, interpersonal, intrapersonal, short-sighted and long-sighted dimensions predicts and recognizes more complex mixed-valence emotional states. We summarize experimental evidence that supports a model of emotionally-calibrated trust regulation and discuss implications for the use of various emotion measures. Finally, in light of these discussions we suggest future directions for the investigation of emotions and trust psychology.
    Keywords: emotion, affect valence, recalibrational theory, trust game, experiment
    Date: 2013
  8. By: Jane Fortson; Susanne James-Burdumy; Martha Bleeker; Nicholas Beyler; Rebecca A. London; Lisa Westrich; Katie Stokes-Guinan; Sebastian Castrechini
    Keywords: Playworks, School Climate, Academic Learning, Student Social Skills and Behavior
    Date: 2013–03–30
  9. By: Kiryl Khalmetski; Axel Ockenfels; Peter Werner
    Abstract: People do not only feel guilt from not living up to others' expectations (Battigalli and Dufwenberg (2007)), but may also like to exceed them. We propose a model that generalizes the guilt aversion model to capture the possibility of positive surprises when making gifts. A model extension allows decision makers to care about others' attribution of intentions behind surprises. We test the model in two dictator game experiments. Experiment 1 shows a strong causal effect of recipients' expectations on dictators' transfers. Moreover, in line with our model, the correlation between transfers and expectations can be both, positive and negative, obscuring the effect in the aggregate. Experiment 2 shows that dictators care about what recipients know about the intentions behind surprises.
    Keywords: guilt aversion, surprise seeking, dictator game, consensus effect
    JEL: C91 D64
    Date: 2013–05–09
  10. By: Arnt O. Hopland (Department of Economics, Norwegian University of Science and Technology); Egil Matsen (Department of Economics, Norwegian University of Science and Technology); Bjarne Strøm (Department of Economics, Norwegian University of Science and Technology)
    Abstract: This paper studies the relationship between income and risky choice in a field ex- periment where stakes are of first-orderimportance to the subjects' living standards. We combine observations of stopping decisions in a Norwegian game show with reliable data on each subject's income. Participants in the experiment are randomly drawn from a large subject pool that is representative of the Norwegian population. Our re- sults clearly indicate that people are risk-averse in making large-stake choices and that decision makers with high income are more willing to accept nancial risk.
    Keywords: Risky choice; Field experiment
    JEL: C9 C93 D81
    Date: 2013–04–16
  11. By: Almeida, Helena (CIEO - Research Centre on Spatial and Organizational Dynamics); Peñalver, Briones (Polytechnic University of Cartagena)
    Abstract: All over the world, the small and medium enterprises are more and more organized in consortia, cooperation networks, joint-ventures and strategical alliances allowing not only the reduction of uncertainty and turbulence of the markets but also the gathering of advantages which may make them more competitive. It is worth considering that the results of these relationships are affected by determinant factors which may inhibit or facilitate the entrepreneurship. Our aim is to evaluate the relationship between some of those determinants, association, inter-company cooperation, innovation in the methods of work and creativity—about the entrepreneurship in 236 small and medium enterprises of the national defence. One of the questions initially posed is if there is a significant relation between corporation, innovative methods of work, creativity and entrepreneurship. Secondly, if being creative is an attribute of the entrepreneur, can it have a mediator effect between innovative methods of work and entrepreneurship? A factorial exploratory analysis was made in main components (varimax rotation) and multiple linear regression. The results show the direct relationship of the evaluated determinants and entrepreneurship and the partial mediator effect of the creativity between the innovation in the methods of work and entrepreneurship. These enterprises may expect to develop new methods of work as a high differential component concerning the competition and the more efficient use of knowledge and of the skills of the people who make part of the work team in order to increase their competitiveness.
    Keywords: Cooperation; Creativity; Motivation; Entrepreneurship
    JEL: L26
    Date: 2013–05–22
  12. By: Jean-Pierre Benoit; Juan Dubra
    Abstract: We conduct two experiments of the claim that people are overconfident, using new tests of overplacement that are based on a formal Bayesian model. Our two experi- ments, on easy quizzes, find overplacement. More precisely, we find apparently over- confident data that cannot be accounted for by a rational population of expected utility maximizers with a good understanding of the nature of the quizzes they took. The finding is of particular interest because Benoit and Dubra (2011) have shown that the vast majority of the existing findings on the better-than-average efect are actually consistent with Bayesian updating.
    Keywords: Overcon?dence; Better than Average; Experimental Economics; Irrationality; Signalling Models.
    JEL: D11 D12 D82 D83
    Date: 2013
  13. By: Lee, Carmen; Kräussl, Roman; Paas, Leo
    Abstract: This paper investigates the effect of anticipated/experienced regret and pride on individual investors' decisions to hold or sell a winning or losing investment, in the form of the disposition effect. As expected the results suggest that in the loss domain, low anticipated regret predicts a greater probability of selling a losing investment. While in the gain domain, high anticipated pride indicates a greater probability of selling a winning investment. The effects of high experienced regret/pride on the selling probability are found as well. An unexpected finding is that regret (pride) seems to be not only relevant for the loss (gain) domain, but also for the gain (loss) domain. In addition, this paper presents evidence of interconnectedness between anticipated and experienced emotions. The authors discuss the implications of these findings and possible avenues for further research. --
    Keywords: Regret,Pride,Disposition Effect,Risky Decision
    Date: 2012
  14. By: David A. Savage; Benno Torgler
    Abstract: This paper attempts to determine if the introduction of a competing social institution has had a significant effect and shifted the pro-social behavior in the extreme (life-and-death) environment of mountaineering in the Himalayan Mountains over the last sixty years. We apply an analytic narratives approach to empirically investigate the link between death, success and the introduced social institution (commercialization). We use the Hawley and Salisbury (2007) Himalayan Database to determine if the introduction of this social institution is responsible for the decline in pro-social and altruistic behaviors. The results show that the change helping behavior is strongly correlated with the on mass introduction of commercialization. The results show a weakening of the prosocial behavior in the more "traditional climbers" in the modern period, created by a crowding out effect, which may have lead to the break down in prosocial behavior and the rise of anti-social behavior. Additionally, the results indicate that the prosocial behavior of the non-commercial groups in recent times may in fact be driven by the behavior of the Sherpa and not that of the climbers.
    Keywords: Decision under Pressure, Altruism, Tragic Events and Disasters, Survival, Natural Field Experiment, Mountaineering.
    JEL: D63 D64 D71 D81
    Date: 2013–05–17
  15. By: H Peyton Young; H.H. Nax; M.N. Burton-Chellew; S.A. West
    Abstract: Many interactive environments can be represented as games, but they are so large and complex that individual players are in the dark about what others are doing and how their own payoffs are affected.  This paper analyzes learning behavior in such 'black box' environments, where players' only source of information is their own history of actions taken and payoffs received.  Specifically we study repeated public goods games, where players must decide how much to contribute at each stage, but they do not know how much others have contributed or how others' contributions affect their own payoffs.  We identify two key features of the players' learning dynamics.  First, if a player's realized payoff increases he is less inclined to change his strategy, whereas if his realized payoff decreases he is more inclined to change his strategy.  Second, if increasing his own contribution results in higher payoffs he will tend to increase his contribution still further, whereas the reverse holds if an increase in contribution leads to lower payoffs.  These two effects are clearly present when players have no information about the game; moreover they are still present even when players have full information.  Convergence to Nash equilibrium occurs at about the same rate in both situations.
    Keywords: Learning, information, public goods games
    JEL: C70 C73 C91 D83 H41
    Date: 2013–04–23
  16. By: Gerrit Frackenpohl; Gert Pönitzsch
    Abstract: We propose a simple mechanism that might improve voluntary contributions to public goods. Using a laboratory experiment we analyze how bundling public with private goods affects individuals' valuations for both goods. In the experiment, subjects may purchase a private and a public good either separately or in the form of a bundle. The data show superadditivity for bundles of public and private goods, i.e., the willingness to pay for the bundle exceeds the willingness to pay for the two separate goods. In contrast, we find no superadditivity in control treatments with only private goods. We discuss several behavioral concepts which are in line with our results as well as implications for fundraisers and firms.
    Keywords: Public Goods, Bundling, Valuation, Superadditivity
    JEL: C91 D12 H41
    Date: 2013–05
  17. By: Xiao, Erte; Tan, Fangfang
    Abstract: Punishment can lose its legitimacy if the enforcer can profit from delivering punishment. We use a controlled laboratory experiment to examine how justification can combat profit-seeking punishment and promote the legitimacy of punishment. In a one-shot sender-receiver game, an independent third party can punish the sender upon seeing whether the sender has told the truth. Most third parties punish the senders regardless of how the senders behave when they can profit from punishment. However, majority third parties punish the sender if and only if the sender lies when they have to provide explanations for their punishment decisions. Our data also suggests that senders are more likely to perceive punishment as legitimate and behave honestly when they know the enforcer has to justify their punishment decisions. Our findings suggest that justification requirement plays an important role in building efficient punishment institutions.
    Keywords: third-party punishment, justification, sender-receiver game, experiment
    JEL: C72 C92 D63 D83
    Date: 2013–05–22
  18. By: Julia Mueller (Erasmus University Rotterdam); Peter Duersch (University of Heidelberg)
    Abstract: In a punishment experiment, we separate the demand for punishment in general from the demand to conduct punishment personally. Subjects experience an unfair split of their earnings from a real effort task and have to decide on the punishment of the person who determines the distribution. First, it is established whether the allocator's payoff is reduced and, afterwards, subjects take part in a second price auction for the right to (physically) carry out the act of payoff reduction themselves. Subjects bid positive amounts and are happier if they get to punish personally.
    Keywords: personal punishment, real effort task, experiment, auction
    JEL: C92 D03
    Date: 2013–05–27
  19. By: Halko, Marja Liisa; Kaustia, Markku
    Abstract: This paper investigates whether preference interactions can explain why risk preferences change over time and across contexts. We conduct an experiment in which subjects accept or reject gambles involving real money gains and losses. We introduce within-subject variation by alternating subjectively liked music and disliked music in the background. We find that favourite music increases risk-taking, and disliked music suppresses risk-taking, compared to a baseline of no music. Several theories in psychology propose mechanisms by which mood affects risktaking, but none of them fully explain our results. The results are, however, consistent with preference complementarities that extend to risk preference. --
    Keywords: Risk Taking,Music,Preference Interaction
    JEL: D81 G11
    Date: 2012
  20. By: Schuster, Stephan
    Abstract: A constituent feature of adaptive complex system are non-linear feedback mechanisms between actors. This makes it often difficult to model and analyse them. Agent-based Computational Economics (ACE) uses computer simulation methods to represent such systems and analyse non-linear processes. The aim of this thesis is to explore ways of modelling adaptive agents in ACE models. Its major contribution is of a methodological nature. Artificial intelligence and machine learning methods are used to represent agents and learning processes in ACE models. In this work, a general reinforcement learning framework is developed and realised in a simulation system. This system is used to implement three models of increasing complexity in two different economic domains. One of these domains are iterative games in which agents meet repeatedly and interact. In an experimental labour market, it is shown how statistical discrimination can be generated simply by means of the learning algorithm used. The aim of this model is mainly to illustrate the features of the learning framework. The results resemble actual patterns of observed human behaviour in laboratory settings. The second model treats strategic network formation. The main contribution here is to show how agent-based modelling helps to analyse non-linearity that is introduced when assumptions of perfect information and full rationality are relaxed. The other domain has a Health Economics background. The aim here is to provide insights of how the approach might be useful in real-world applications. For this, a general model of primary care is developed, and the implications of different consumer behaviour (based on the learning features introduced before) analysed.
    Keywords: agent-based economics, reinforcement learning, statistical discrimination, health care market, network formation games
    JEL: C63 D85 I11 J71 Y40
    Date: 2012–01

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