nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒07‒20
seventeen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Inter-Generational Thoughtfulness in a Dynamic Public Good Experiment By Jörg Spiller; Friedel Bolle
  2. Social Identity and Punishment. By Butler, Jerey V.; Conzo, Pierluigi; Leroch, Martin A.
  3. The Origins of Risk Sharing: An Experimental Approach By Steven Gazzillo; Barry Sopher; Athena Aktipis; Lee Cronk
  4. Economic Incentives and Social Preferences: Causal Evidence of Non-Separability By Marco Faravelli; Luca Stanca
  5. The Role of Emotions on Risk Aversion: A prospect theory experiment By Campos-Vazquez, Raymundo M.; Cuilty, Emilio
  6. How the Zebra Got Its Stripes: Imprinting of Individuals and Hybrid Social Ventures By Matthew Lee; Julie Battilana
  7. Myopic Loss Aversion under Ambiguity and Gender Effects By Iñigo Iturbe-Ormaetxe Kortajarene; Giovanni Ponti; Josefa Tomás
  8. Loss Aversion, Stochastic Compensation, and Team Incentives By Kohei Daido; Takeshi Murooka
  9. Institutional Cognitive Economics: some recent developments By Gigante, Anna Azzurra
  10. Selling a Dollar for More Than a Dollar? Evidence from Online Penny Auctions By Wang, Zhongmin; Xu, Minbo
  11. Health Club Attendance, Expectations and Self-Control By Jean-Denis Garon; Alix Masse; Pierre-Carl Michaud
  12. Can Contracts Signal Social Norms? Experimental Evidence By Danilov, Anastasia; Sliwka, Dirk
  13. Parental Investment and the Intergenerational Transmission of Economic Preferences and Attitudes By Zumbühl, Maria; Dohmen, Thomas; Pfann, Gerard A.
  14. Superstition in the Housing Market By Fortin, Nicole M.; Hill, Andrew J.; Huang, Jeff
  15. Consistency and Aggregation in Individual Choice Under Uncertainty By Jeff Birchby; Gary Gigliotti; Barry Sopher
  16. Nudging Energy Efficiency Behavior: The Role of Information Labels By Newell, Richard G.; Siikamäki, Juha
  17. Rhetoric and Analogies By Enriqueta Aragones; Itzhak Gilboa; Andrew Postlewaite; David Schmeidler

  1. By: Jörg Spiller (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)); Friedel Bolle (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: In a laboratory experiment groups of four played a 15-period Public Good game. Each period a player could either invest in a green sector or in a more profitable but polluting brown sector. The pollutant accumulated and decreased the players’ income in all following periods. We conducted several treatments including the existence of a future generation. In the latter case subjects were told that their final stock would be forwarded to another group in a later session. The framework allowed investigating learning, the effects of communication and the possibly different reactions to self-produced and inherited pollution. The most interesting result is that the existence of heirs restricts pollution. We find that the result may be driven partly by thoughtfulness and partly by the induced motivation for longer-term planning.
    Keywords: Experimental Economics, Public Good, Dynamic, Environmental Eco- nomics, Inter Generation
    JEL: H41 C91
    Date: 2013–07
  2. By: Butler, Jerey V.; Conzo, Pierluigi; Leroch, Martin A. (University of Turin)
    Abstract: Third party punishment is crucial for sustaining cooperative behavior. Still, little is known about its determinants. In this paper we use laboratory experiments to investigate a long-conjectured interaction between group identication and bystanders' punishment preferences using a novel measure of these preferences. We induce minimal groups and give a bystander the opportunity to punish the perpetrator of an unfair act against a defenseless victim. We elicit the bystander's valuation for punishment in four cases: when the perpetrator, the victim, both or neither are members of the bystander's group. We generate testable predictions about the rank order of punishment valuations from a simple framework incorporating group-contingent preferences for justice which are largely conrmed. Finally, we conduct control sessions where groups are not induced. Comparing punishment across treatment and control suggests that third-party punishers tend to treat others as in-group members unless otherwise divided.
    Date: 2013–05
  3. By: Steven Gazzillo (Rutgers University); Barry Sopher (Rutgers University); Athena Aktipis (Arizona State University); Lee Cronk (Rutgers University)
    Abstract: Controversy exists about the act of giving as altruistic instead of self-interested behavior. Each side of this argument interprets similar results from similar experiments in different ways. One side argues the results show that the appearance of altruistic behavior can be explained by self-interested motives. The other side argues these results are evidence of group selection,where a group member takes an action that is harmful to itself but benefi cial to the group. We consider this question using a novel approach. We create a rich experimental environment in which subjects have the ability to cooperate to improve the group's outcome by sharing their wealth in non-compulsory, non-enforceable risk-sharing arrangements. We find that average subject behavior appears to be motivated by self-interest more than group survival.
    Keywords: risk sharing, experiment, resource management
    JEL: C9 D8
    Date: 2013–01–18
  4. By: Marco Faravelli; Luca Stanca
    Abstract: This paper provides a direct test of the hypothesis that agents' objective functions are non-separable in economic incentives and social preferences. We study experimentally fixed-prize contests using a 2x2 design, varying orthogonally the degree of competition of the incentive mechanism (all-pay auction vs. lottery) and the presence or absence of social returns to bidding (rent seeking vs. public good). The results indicate that either stronger competition or positive social returns have positive main effects on bids. In addition, we find a negative interaction between the all-pay auction mechanism and the public good environment, leading us to reject separability. This finding provides causal evidence that economic incentives may negatively affect pro-social behavior.
    Keywords: Contests, Public goods, Rent-seeking, Social preferences, Separability, Laboratory experiments
    JEL: C91 D44 H41
    Date: 2013–07
  5. By: Campos-Vazquez, Raymundo M.; Cuilty, Emilio
    Abstract: This study measures risk and loss aversion using Prospect Theory and the impact of emotions on those parameters. Our controlled experiment at two universities in Mexico City, using uncompensated students as research subjects, found results similar to those obtained by Tanaka et al. (2010). In order to study the role of emotions, we provided subjects with randomly varied information on rising deaths due to drug violence in Mexico and also on youth unemployment. In agreement with previous studies, we find that risk aversion on the gains domain decreases with age and income. We also find that loss aversion decreases with income and is less for students in public universities. With regard to emotions, risk aversion increases with sadness and loss aversion is negatively influenced by anger. On the loss domain, anger dominates sadness. On average, anger reduces loss aversion by half.
    Keywords: Risk Aversion; Emotions; Prospect Theory; Experiment; Mexico
    JEL: C93 D03 D12 O12 O54
    Date: 2013–03
  6. By: Matthew Lee (Harvard Business School); Julie Battilana (Harvard Business School, Organizational Behavior Unit)
    Abstract: Hybrid organizations that combine multiple, existing organizational forms are frequently proposed as a source of organizational innovation, yet little is known about the origins of such organizations. We propose that individual founders of hybrid organizations acquire imprints from past exposure to work environments, thus predisposing them to incorporate the associated logics in their subsequent ventures, even when doing so requires deviation from established organizational templates. We test our theory on a novel dataset of over 700 founders of social ventures, all guided by a social welfare logic. Some of them also incorporate a commercial logic along with the social welfare logic, thereby creating a hybrid social venture. We find evidence of three sources of commercial imprints: the founder's own, direct work experience, as well as the indirect influence of parental work experiences and professional education. Our findings further suggest that the effects of direct imprinting are strongest from the early tenure of for-profit experience, but diminish with longer tenure. In supplementary analyses, we parse out differences between the sources of imprints and discuss implications for how imprinting functions as an antecedent to the creation of new, hybrid forms.
    Keywords: hybrid organizations, imprinting, institutional theory, social entrepreneurship
    Date: 2013–07
  7. By: Iñigo Iturbe-Ormaetxe Kortajarene (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante); Josefa Tomás (Universidad de Alicante)
    Abstract: Experimental evidence suggests that the frequency with which individuals get feedback information on their investments has an effect on risk-taking behavior. In particular, when they are given information sufficiently often, they take fewer risks compared with a situation in which they are informed less frequently. In this paper we find that this result still holds when subjects do not know the probabilities of the lotteries they are betting upon. We also detect significant gender effects, in that the frequency with which information is disclosed mostly affects men’s betting behavior, rather than women’s, and that men are much more risk-seeking after experiencing a loss.
    Keywords: Myopic loss aversion, evaluation periods, ambiguity, gender effects
    JEL: C91 D81 D14
    Date: 2013–07
  8. By: Kohei Daido (School of Economics, Kwansei Gakuin University); Takeshi Murooka (Department of Economics, University of California, Berkeley)
    Abstract: We investigate moral-hazard problems with limited liability where agents have expectation-based reference-dependent preferences. We show that stochastic compensation for low performance can be optimal. Because of loss aversion, the agents have first-order risk aversion to wage uncertainty. This causes the agents to work harder when their low performance is stochastically compensated. We also examine team incentives for credibly employing such stochastic compensation. In an optimal contract, low- and high-performance agents are equally rewarded if most agents achieve high performance. Team incentives can be optimal even when there are only two agents and the degree of loss aversion is not large.
    Keywords: Moral Hazard, Loss Aversion, Stochastic Compensation, Team Incentives,Reference-Dependent Preferences
    JEL: D03 D86 M12 M52
    Date: 2013–07
  9. By: Gigante, Anna Azzurra
    Abstract: By investigating the connection between mind working and institutional processes, Institutional Cognitive Economics turns out to be the most appropriate in order to overcome some limits in New Institutional Economics. This leads us to develop further this approach. This paper integrates F. Hayek’s theory on knowledge production and A. Bandura’s social cognitive theory with the fertile contributions coming from Self-Organization approach and cognitive path-dependence, by considering also the recent cognitive acquisitions in D. North’s analysis. Then, it proposes a further development. Learning process is broken into smaller sub-processes, each of them is investigated through new analytical tools coming from cognitive psychology and neurobiology. They are T. Higgins’s extension of social cognitive theory and semantic priming concept. These mechanisms clarify well reinforcement and evolution processes of institutional norms, while their genesis finds a convincing explanation in social representations’ theory, as it was formulated by S. Moscovici, which investigates the imaginative dimension ordering perceived data before they are processed into new knowledge.
    Keywords: cognitive path-dependence; institutions; knowledge activation/use; semantic priming; social cognitive theory; social representation.
    JEL: A12 B25
    Date: 2013–07–15
  10. By: Wang, Zhongmin (Resources for the Future); Xu, Minbo
    Abstract: Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as ?the evil stepchild of game theory and behavioral economics.?We use the complete bid and bidder history at a website to study if penny auctions can sustain excessive pro?fits over time. The overwhelming majority of new bidders lose money, but they quit quickly. A very small percentage of bidders are experienced and strategically sophisticated, but they earn substantial profi?ts. Our evidence thus suggests that penny auctions cannot sustain excessive pro?fits without attracting a revolving door of new customers who will lose money.
    Keywords: behavioral game theory, behavioral industrial organization, auction, learning, strategic sophistication
    JEL: D03 D44 L81
    Date: 2013–05–30
  11. By: Jean-Denis Garon; Alix Masse; Pierre-Carl Michaud
    Abstract: Using a unique dataset on health club attendance from Quebec, we look at the relationship between actual and expected attendance and how these relate to measures of self-control. We find that a large majority of contract choices appear inconsistent if we do not take into account the commitment value of long-term contracts for attendees with self-control problems: 41% of members would be better off paying the fee for a single visit each time they go to the gym rather than signing a long-term contract. We then find that almost all members have made the right decision once we use subjectives expectations on the number of visits per week at the time of contract choice. We estimate that the median total cost is $229 for those making a mistake. Next, we study how actual attendance following contract choice is related to measures of self-control. We find that reports of self-control problems at baseline are associated with low future attendance and that attendance decreases faster, in particular after New Year, for those expressing such problems. Quite interestingly, those expressing self-control problems do not expect at baseline to attend less often. We show that these results are consistent with a model where agents underestimate the severity of their self-control problems and estimate this degree of underestimation.
    Keywords: Self-control, gym attendance, expectations, obesity
    JEL: D00 D12 D91
    Date: 2013
  12. By: Danilov, Anastasia (University of Cologne); Sliwka, Dirk (University of Cologne)
    Abstract: We investigate whether incentive schemes signal social norms and thus affect behavior beyond their direct economic consequences. A principal-agent experiment is studied in which prior to contract choice principals are informed about past actions of other agents and thus have more information about "norms of behavior". Compared to a setting with uninformed principals agents exert nearly 50% higher efforts under a fixed wage contract when an informed principal had chosen this contract. Apparently the informed principal's choice signals a norm not to exploit the trust which leads to more trustworthy behavior. This mechanism's robustness is explored in further experiments.
    Keywords: social norms, contracts, incentives, signaling, experiments
    JEL: D03 C91 D86
    Date: 2013–06
  13. By: Zumbühl, Maria (ROA, Maastricht University); Dohmen, Thomas (University of Bonn); Pfann, Gerard A. (Maastricht University)
    Abstract: We study empirically whether there is scope for parents to shape the economic preferences and attitudes of their children through purposeful investments. We exploit information on the risk and trust attitudes of parents and their children, as well as rich information about parental efforts in the upbringing of their children from the German Socio-Economic Panel Study. Our results show that parents who invest more in the upbringing of their children are more similar to them with respect to risk and trust attitudes and thus transmit their own attitudes more strongly. The results are robust to including variables on the relationship between children and parents, family size, and the parents' socioeconomic background.
    Keywords: risk preferences, trust, intergenerational transmission, cultural transmission, social mobility, GSOEP
    JEL: D1 D8 J13 J62 Z13
    Date: 2013–06
  14. By: Fortin, Nicole M. (University of British Columbia, Vancouver); Hill, Andrew J. (University of British Columbia, Vancouver); Huang, Jeff (University of British Columbia, Vancouver)
    Abstract: We provide the first solid evidence that Chinese superstitious beliefs can have significant effects on house prices in a North American market with a large immigrant population. Using real estate data on close to 117,000 house sales, we find that houses with address number ending in four are sold at a 2.2% discount and those ending in eight are sold at a 2.5% premium in comparison to houses with other addresses. These price effects are found either in neighborhoods with a higher than average percentage of Chinese residents, consistent with cultural preferences, or in repeated transactions, consistent with speculative behavior.
    Keywords: superstition, lucky Chinese numbers, housing markets efficiency, immigration
    JEL: D03 J15 R2 Z1
    Date: 2013–07
  15. By: Jeff Birchby (Rutgers University); Gary Gigliotti (Rutgers University); Barry Sopher (Rutgers University)
    Abstract: It is common in studies of individual choice behavior to report averages of the behavior under consideration. In the social sciences the mean is, indeed, often the quantity of interest, but at times focusing on the mean can be misleading. For example, it is well known in labor economics that failure to account for individual differences may lead to incorrect inference about the nature of hazard functions for unemployment duration. If all workers have constant hazard functions independent of duration, simple aggregation will nonetheless lead to the inference that the hazard function is state-dependent, with the hazard of leaving unemployment declining with duration of unemployment. Similarly, a recent study in psychology has shown that the “learning curve,” a monotonically increasing function of response to a stimuli, is better understood as an average representation of individual response functions that are, in fact, more step-function-like. As such, the learning curve as commonly understood is a misleading representation of the behavior of any one individual. These observations motivate us to consider the question of possible aggregation bias in the realm of choice under uncertainty. In particular, Cumulative Prospect Theory posits a weighting function through which probabilities are transformed into decision weights. An inverted S-shaped weighting function is commonly taken to be “the” appropriate weighting function, based on quite a number of experimental studies. This particular version of the weighting function implies, in simple two outcome lotteries, that an individual will tend to overweight small (near 0) probabilities and to underweight large (near 1) probabilities. A natural question to ask, suggested by both the hazard function and the learning curve examples, is whether this weighting function is not, similarly, an artifact of aggregation. Of course, no one believes that every individual’s behavior can be accounted for by a single weighting function. Studies have shown that there can be considerable variation in estimated weighting functions across individuals. But no one, to our knowledge, has systematically addresses the question of whether, in fact, one can meaningfully use a single weighting function, even as a rhetorical device, to accurately discuss individual choice behavior. If most individuals indeed do have an inverted S-shaped weighting function, then this representation of choice behavior is not misleading, provided it is clear that one is discussing the behavior of “most,” not all, individuals. We focus on the reliability of estimated weighting functions. We study the problem of determining the parameters of the cumulative prospect theory function. Using responses to paired sets of choice questions, it is possible to derive estimates for a two-parameter version of the Cumulative Prospect Theory choice function (using a power function for the value function and Prelec’s one parameter version of the weighting function). By analyzing multiple such pairs of choice questions, we are able to also investigate the consistency of these estimates. Our main finding is that there is, in general, considerable variation at the individual level in the choice parameters implied by the responses to the different pairs of choice questions. The modal choice pattern observed is one consistent with expected value maximization, and there is considerably less variation (again, at the individual level) in the parameters implied by those who appear to be maximizing expected value on one pair of choice questions than for those who never choose in this way. But these individuals account for only about one-fifth to one-sixth of subjects. For the rest of the subjects, it is rare that any two pairs of estimates are the same, and often the implied parameters
    Keywords: uncertainty, prospect theory, aggregation, consistency
    JEL: C9 D8
    Date: 2013–01–18
  16. By: Newell, Richard G.; Siikamäki, Juha (Resources for the Future)
    Abstract: We evaluate the effectiveness of energy efficiency labeling in guiding household appliance choice decisions. Using a carefully designed choice experiment with several alternative labeling treatments, we disentangle the relative importance of different types of information and intertemporal behavior (i.e., discounting) in guiding energy efficiency behavior. We find that simple information on the economic value of saving energy was the most important element guiding more cost-efficient investments in appliance energy efficiency, with information on physical energy use and carbon dioxide emissions having additional but lesser importance. The degree to which the current EnergyGuide label guided cost-efficient decisions depends importantly on the discount rate assumed appropriate for the analysis. Using individual discount rates separately elicited in our study, we find that the current EnergyGuide label came very close to guiding cost-efficient decisions, on average. However, using a uniform five percent rate for discounting—which was much lower than the average individual elicited rate—the EnergyGuide label led to choices that result in a one-third undervaluation of energy efficiency. We find that labels that not only nudged people with dispassionate monetary or physical information, but also endorsed a model (with Energy Star) or gave a suggestive grade to a model (as with the EU-style label), had a substantial impact in encouraging the choice of appliances with higher energy efficiency. Our results reinforce the centrality of views on intertemporal choice and discounting, both in terms of understanding individual behavior and in guiding public policy decisions.
    Keywords: energy efficiency behavior, gap, information label, discounting, time preference gap, choice experiment, mixed logit
    JEL: C91 D12 D91 D83 H43 Q41 Q48
    Date: 2013–07–03
  17. By: Enriqueta Aragones (Universitat Pompeu Fabra); Itzhak Gilboa (Tel-Aviv University and Economics & Decision Sciences, HEC Paris); Andrew Postlewaite (Department of Economics, University of Pennsylvania); David Schmeidler (The Interdisciplinary Center Herzliya and Tel Aviv University)
    Abstract: The art of rhetoric may be defined as changing other people’s minds (opinions, beliefs) without providing them new information. One technique heavily used by rhetoric employs analogies. Using analogies, one may draw the listener’s attention to similarities between cases and to re-organize existing information in a way that highlights certain regularities. In this paper we offer two models of analogies, discuss their theoretical equivalence, and show that finding good analogies is a computationally hard problem.
    Keywords: Methodology, Case-based reasoning
    JEL: B40 B41
    Date: 2013–07–09

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