nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒07‒28
ten papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Make humans randomize By Lisa Bruttel; Tim Friehe
  2. Market experience is a reference point in judgments of fairness By Holger Herz; Dmitry Taubinsky
  3. Learning, Words and Actions: Experimental Evidence on Coordination-Improving Information By Nicolas Jacquemet; Adam Zylberstejn
  4. Cheating in the workplace: An experimental study of the impact of bonuses and productivity By David Gill; Victoria Prowse; Michael Vlassopoulos
  5. Risk Taking and Social Exposure By Valeria Faralla; Alessandro Innocenti; Eva Venturini
  6. Exploitation Aversion: When Financial Incentives Fail to Motivate Agents By Carpenter, Jeffrey P.; Dolifka, David
  7. Chance versus choice: eliciting attitudes to fair compensations By John Bone; Paolo Crosetto; John D Hey; Carmen Pasca
  8. List of suggestions for behavioural elements in the macroeconomic model By Ardjan Gazheli; Miklós Antal; Jeroen van den Bergh
  9. Three cases of identity (re)construction through art interventions: the dialogical and the 'sensible' By Philippe Mairesse; Rachel Beaujolin; Emmanuelle Begon; Véronique Perret; Géraldine Schmidt
  10. Rhetoric and Analogies By Enriqueta Aragones; Itzhak Gilboa; Andrew Postlewaite; David Schmeidler

  1. By: Lisa Bruttel; Tim Friehe
    Abstract: This paper presents results from an experiment studying a two-person 4x4 pure coordination game. We seek to identify a labeling of actions that induces subjects to select all options with the same probability. Such a display of actions must be free from salient properties that might be used by participants to coordinate. Testing 23 different sets of labels, we identify two sets that produce a distribution of subjectsÕ choices which approximate the uniform distribution quite well. Our design can be used in studies intending to compare the behavior of subjects who play against a random mechanism with that of participants who play against human counterparts.
    Keywords: coordination game, experiment, mixed strategy, level k
    Date: 2013
  2. By: Holger Herz; Dmitry Taubinsky
    Abstract: People's desire for fair transactions can play an important role in negotiations, organizations, and markets. In this paper, we show that markets can also shape what people consider to be a fair transaction. We propose a simple and generally-applicable model of path-dependent fairness preferences, in which past experiences shape preferences, and we experimentally test the model's predictions. We find that previous exposure to competitive pressure substantially and persistently reduces subjects' fairness concerns, making them more likely to accept low offers. Consistent with our theory, we also find that past experience has little effect on subjects' inclinations to treat others unfairly.
    Keywords: Social preferences, reference points, fairness, bargaining
    JEL: C78 C91 D01 D03
    Date: 2013–07
  3. By: Nicolas Jacquemet (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université de Strasbourg - Université Nancy II); Adam Zylberstejn (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: We experimentally study an asymmetric coordination game with two Nash equilibria: one is Pareto-efficient, the other is Pareto-inefficient and involves a weakly dominated strategy. We assess whether information about the interaction partner helps eliminate the imperfect equilibrium. Our treatments involve three information-enhancing mechanisms: repetition and two kinds of individual signals: messages from partner or observation of his past choices. Repetition-based learning increases the frequencies of the most efficient outcome and the most costly strategic mismatch. Moreover, it is superseded by individual signals. Like previous empirical studies, we find that signals provide a screening of partners' intentions that reduces the frequency of coordination failures. Unlike these studies, we find that the transmission of information between partners, either via messages or observation, does not suffice to significantly increase the overall efficiency of outcomes. This happens mostly because information does not restrain the choice of the dominated action by senders.
    Keywords: coordination game; communication; cheap-talk; observation
    Date: 2013
  4. By: David Gill; Victoria Prowse; Michael Vlassopoulos
    Abstract: We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating.  Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid.  Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity.  We also find that more productive workers behave more dishonestly.  These results are consistent with workers' cheating behavior responding to the perceived fairness of their employer's compensation scheme.
    Keywords: Bonus, compensation, cheating dishonesty, lying, employee crime, productivity, slider task, real effort, experiment
    JEL: C91 J33
    Date: 2013–07–08
  5. By: Valeria Faralla; Alessandro Innocenti; Eva Venturini
    Abstract: The paper examines in the laboratory how risk-taking situations are affected by the conditions of observing other’s choices (observer) and being observed by others (source). By extending Yechiam et al.’s (2008) experimental design to the domain of gains we find that observers are more probable than sources to choose risky alternatives producing rare gains than equiprobable gains. The impact of social exposure is also analyzed and interpreted in the context of personality traits to assess how heterogeneity influences risky decisions.
    Keywords: risky shift, social exposure, personality traits.
    JEL: C91 D01 D81
    Date: 2013–07
  6. By: Carpenter, Jeffrey P. (Middlebury College); Dolifka, David (Middlebury College)
    Abstract: Empirical studies of the principal-agent relationship find that extrinsic incentives work in many instances, linking rewards to performance increases effort, but that they can also backfire, reducing effort. Intrinsic motivation, the internal drive to work to master a skill or to improve one's self image, is thought to be the key to whether incentives work or not. If the incentives crowd-out intrinsic motivation, and the effect is large enough, the net motivational effect on effort will be negative. We posit that an aversion to being exploited, i.e. being used instrumentally for the benefit of another, is one facet of intrinsic motivation, triggered by the combination of high-powered incentives and egoistic principal intent, that can cause incentives to fail. Using an experiment that provides the material circumstances necessary for exploitation to occur, we find that agent compliance is significantly lower for exploitative principals who use high-powered incentives and have a financial interest to do so, compared to neutral principals who use the same contracts but do not benefit from them. To corroborate our interpretation of the results we show that a surveyed "exploitation aversion" scale moderates this effect. Exploitation averse participants are less likely to comply with the incentives than exploitation tolerant participants when the principal signals an exploitative intent, but they are no less likely to comply with the same incentives when the principal is neutral. Our results have implications for the design and implementation of incentive structures within organizations.
    Keywords: financial incentives, intrinsic motivation, crowding, exploitation, experiment
    JEL: C92 J33 M52 M55
    Date: 2013–07
  7. By: John Bone; Paolo Crosetto; John D Hey; Carmen Pasca
    Abstract: This paper reports an experiment designed to elicit social preferences over income compensation schemes, where income differences between subjects have two independent components: one due to chosen effort and the other due to random chance. These differences can be compensated through social dividends, according to principles chosen beforehand by subjects themselves from behind a stylised Rawlsian veil of ignorance, or outside the society on which the principles will be implemented. We test the attractiveness in particular of Luck Egalitarianism, compensating inequalities due to chance but not those due to choice. We find modest but not overwhelming support for these principles, suggesting that subjects’actual preferences are more complex.
    Keywords: chance, choice, envy-freeness, fairness, luck, luck egalitarianism, responsibility
    JEL: D31 D63 C91
    Date: 2013–07
  8. By: Ardjan Gazheli; Miklós Antal; Jeroen van den Bergh
    Abstract: Traditional economic theory describes economic agents as being perfectly rational. According to this approach, agents posses all necessary information and have the ability to process this information to make the best decision for maximizing their profit. However, in the real world this assumption does not hold for a number of reasons. First, economic agents are not in possession of all the information relevant to making decisions and furthermore, information is costly. Second, they do not have all the computational abilities needed to arrive at optimal decisions. Third, they are boundedly rational and have a number of other-regarding preferences which influence their choices. Here we provide a list with the most important behavioural biases of different stakeholders involved in a sustainability transition. This will allow us to improve macroeconomic models and associated analyses of transition policies.
    Keywords: Behavioural economics, entrepreneurship, industrial innovation, innovation, social innovation, socio-ecological transition
    JEL: D1 D2 D8 L2
    Date: 2013–07
  9. By: Philippe Mairesse (ACTE - Arts, Créations, Théories, Esthétiques - CNRS : UMR8218 - Université Paris I - Panthéon-Sorbonne); Rachel Beaujolin (GREGOR - Groupe de Recherche en Gestion des Organisations - Institut d'Administration des Entreprises (IAE) - Paris - Université Paris I - Panthéon-Sorbonne); Emmanuelle Begon (ANACT - Agence Nationale d'Amélioration des Conditions de Travail - Anact, Lyon); Véronique Perret (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Géraldine Schmidt (GREGOR - Groupe de Recherche en Gestion des Organisations - Institut d'Administration des Entreprises (IAE) - Paris - Université Paris I - Panthéon-Sorbonne)
    Abstract: Identity construction (IC) cannot be reduced to discourses, nor to individual responsibility. Alvesson & Wilmott (2002) suggest two main processes of identity construction : identity regulation (IR, the discursive practices of identity definition) and identity work (IW, the interpretive activities involved in reproduction of self-identity). Based on this dialogic conception of IC, we wonder whether artistic interventions could play a significant role in the IC process, especially through its ability to address the relational, sensible, emotional, and affective dimensions. In other words, our paper intends to better understand the role of experience and the embodiment of sensemaking in the dialogic process of identity construction. In this perspective, we will focus on cases where art interventions take place in working situations at some crucial moments of IC. Exploring the dimension of the sensible encapsulated in artworks and art interventions allows in particular to better grasp how collective understanding of organizations and their transformations hinge on subjectivity (Abrir 2012). This knowledge is generally recognized as disruptive, because of the heterogeneity of the two words of art and organization, the ability of art for ―not-knowing or more generally the ability of art and aesthetics for promoting contradictory emotions. The dimension of the sensible brought by art is characterized by its subjectification power and by its value sharing (the role of emotions and affects, the construction of subjectivity) and value-adding. Our argument is that art, by organizing the co-creation of work-related sensible forms, triggers and performs - in ways we strive at investigating - a collective and dialogic process between IR and IW.
    Keywords: Identity Construction - Identity Work - Identity regulation - Art-based research
    Date: 2013–07–03
  10. By: Enriqueta Aragones; Itzhak Gilboa; Andrew Postlewaite; David Schmeidler
    Abstract: The art of rhetoric may be defined as changing other people's minds (opinions, beliefs) without providing them new information. One tech- nique 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 reg- ularities. In this paper we offer two models of analogies, discuss their theoretical equivalence, and show that finding good analogies is a com- putationally hard problem.
    Keywords: rhetoric, analogies, information, similarities, complexity
    JEL: D7 D8
    Date: 2013–07–23

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