nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒09‒24
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Why Blame? By Gurdal, Mehmet; Miller, Joshua B.; Rustichini, Aldo
  2. Play it Again: Partner Choice, Reputation Building and Learning in Restarting, Finitely-Repeated Dilemma Games By Kenju Kamei; Louis Putterman
  3. Voluntary Payments, Privacy and Social Pressure on the Internet: A Natural Field Experiment By Tobias Regner; Gerhard Riener
  4. Directed Giving: Evidence from an Inter-Household Transfer Experiment By Catia Batista; Dan Silverman; Dean Yang
  5. Collective risk aversion. By Jouini, Elyès; Napp, Clotilde; Nocetti, Diego
  6. Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment By Noam Yuchtman; Florian Ederer; Bruno Ferman; Leonardo Bursztyn
  7. Personality Changes in Couples: Partnership Longevity and Personality Congruence in Couples By Beatrice Rammstedt; Frank M. Spinath; David Richter; Jürgen Schupp
  8. Coordination in Teams: A Real Effort-task Experiment with Informal Punishment By Vranceanu, Radu; El Ouardighi, Fouad; Dubart , Delphine
  9. Do Donors Care About the Price of Giving? A Review of the Evidence, with Some Theory to Organize It By Jade Wong; Andreas Ortman
  10. Cognitive distance in research collaborations By Margherita Balconi; Valeria Lorenzi; Pier Paolo Saviotti; Antonella Zucchella
  11. Payments or persuasion: norms, subsidies, and efficiency in a common pool resource experiment By Delaney, Jason; Jacobson, Sarah
  12. Temptation and self-control: some evidence and applications By Kevin X.D. Huang; Zheng Liu; John Q. Zhu
  13. Sunshine works -- comment on"the adverse effects of sunshine: a field experiment on legislative transparency in an authoritarian assembly" By Anderson, James H.
  14. Behavioral economics and public sector reform : an accidental experiment and lessons from Cameroon By Raballand, Gael; Rajaram, Anand
  15. Behavioral Biases and Corporate Decision Making on Investing Abroad By Kotov, Denis
  16. Evidence for countercyclical risk aversion: an experiment with financial professionals By Alain Cohn; Jan Engelmann; Ernst Fehr; Michel Maréchal

  1. By: Gurdal, Mehmet (Bogazici University); Miller, Joshua B. (Bocconi University); Rustichini, Aldo (University of Minnesota)
    Abstract: We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.
    Keywords: Experiments; Rationality; Fairness
    Date: 2013
  2. By: Kenju Kamei; Louis Putterman
    Abstract: Previous research has shown that opportunities for two-sided partner choice in finitely repeated social dilemma games can promote cooperation through a combination of sorting and opportunistic signaling, with late period defections by selfish players causing an end-game decline. How such experience would affect play of subsequent finitely-repeated games remains unclear. In each of six treatments that vary the cooperation premium and the informational basis for reputation formation, we let sets of subjects play sequences of finitely-repeated voluntary contribution games to study the competing forces of (a) learning about the benefits of reputation, and (b) learning about backward unraveling. We find, inter alia, that with a high cooperation premium and good information, investment in reputation grows across sets of finitely-repeated games.
    Keywords: cooperation, reputation, voluntary contribution, public goods, sorting, endogenous grouping, group formation, experiment
    Date: 2013
  3. By: Tobias Regner (Max Planck Institute for Economics, Jena); Gerhard Riener (Duesseldorf Institute for Competition Economics (DICE))
    Abstract: The emergence of Pay-What-You-Want (PWYW) business models as a successful alternative to conventional uniform pricing brings up new questions related to the task of pricing. We investigate the eect of a reduction of privacy on consumers' purchase decisions (whether to buy, and if so how much to pay) in a natural experiment at an online music store with PWYW-like pricing. Our study extends the empirical evidence of the reduced anonymity eect, previously established for donation or public goods contexts, to a consumption environment. We nd that revealing the name of the customer led to slightly higher payments, while it drastically reduced the number of customers purchasing. Overall, the regime led to a revenue loss of 15%. The experiment suggests that even low levels of social pressure without face to face interaction on customers leads to a reduction of welfare.
    Keywords: Digital content, Voluntary Payments, PWYW, Public goods, Voluntary contributions, Social pressure, Internet, Privacy, Natural experiment
    JEL: D03 D49 H41 L82 L86 P14
    Date: 2013–09–09
  4. By: Catia Batista (Faculdade de Economia, Universidade Nova de Lisboa and IZA); Dan Silverman (Arizona State University and NBER); Dean Yang (Department of Economics and Gerald R. Ford School of Public Policy, University of Michigan, NBER, and BREAD)
    Abstract: We investigate the determinants of giving in a lab-in-the-field experiment with large stakes. Study participants in urban Mozambique play dictator games where their counterpart is the closest person to them outside their household. Dictators share more with counterparts when they have the option of giving in kind (in the form of goods), compared to giving that must be in cash. Qualitative post-experiment responses suggest that this effect is driven by a desire to control how recipients use gifted resources. Standard economic determinants such as the rate of return to giving and the size of the endowment also affect giving, but the effects of even large changes in these determinants are significantly smaller than the effect of the in-kind option. Our results support theories of giving where the utility of givers depends on the composition (not just the level) of gift-recipient expenditures, and givers thus seek control over transferred resources.
    Keywords: sharing, altruism, giving, dictator game, inter-household transfers, Mozambique
    JEL: C92 C93 D01 D03 D64 O17
    Date: 2013–09
  5. By: Jouini, Elyès; Napp, Clotilde; Nocetti, Diego
    Abstract: In this paper we analyse the risk attitude of a group of heterogenous agents and we develop a theory of comparative collective risk tolerance. In particular, we characterize how shifts in the distribution of individual levels of risk tolerance affect the representative agent's degree of risk tolerance. In the model with efficient risk – sharing and two agents (e.g. a household) with isoelastic preferences we show that an increase of the level of risk tolerance of one of the agents might have an ambiguous impact on the aggregate level of risk tolerance; the latter increases for some levels of aggregate wealth while it decreases for other levels of aggregate wealth. Specifically, there are two possible shapes for aggregate risk tolerance as a function of the risk tolerance level of one of the agents: increasing curve or increasing then decreasing curve. For more general populations we characterize the effect of first order like shifts (individual levels of risk tolerance more concentrated on high values) and second order like shifts (more dispersion on individual levels of risk tolerance) on the collective level of risk tolerance. We also evaluate how shifts in the distribution of individual levels of risk tolerance impact the collective level of risk tolerance in a framework with exogenous egalitarian sharing rules. Our results permit to better characterize differences in risk taking behavior between groups and individuals and among groups with different distribution of risk preferences.
    Keywords: collective risk; heterogenous agents; risk tolerance; isoelastic preferences; aggregate wealth; risk preferences;
    JEL: D1 D81
    Date: 2013
  6. By: Noam Yuchtman (UC Berkeley); Florian Ederer (UCLA); Bruno Ferman (The George Washington University); Leonardo Bursztyn (UCLA)
    Abstract: Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets.
    Date: 2013
  7. By: Beatrice Rammstedt; Frank M. Spinath; David Richter; Jürgen Schupp
    Abstract: Evidence of assortative mating according to personality was reported in a previous SOEP-based study (Rammstedt & Schupp, 2008). Based on population representative data of almost 7,000 couples, high levels of congruence between spouses were found, which increased with marriage duration. Almost 5,000 of these couples were tracked over a five-year period with personality assessed at the beginning and end of this time, which allowed us to investigate the relationship between personality congruence and marriage duration longitudinally. Using this data, we investigated (a) whether personality congruence is predictive for partnership longevity and whether congruence therefore differs between subsequently stable and instable couples, (b) if stable couples become more congruent, and (c) if separated couples become less congruent with regard to their personality over time. The results provide initial evidence of personality congruence as a predictor for partnership longevity: the more congruent couples are in the personality domain of Openness, the more stable their partnership. In addition, we found no indications of an increase in personality congruence over time within the stable couples; within the separated couples, however, a strong decrease in congruence was detectable.
    Keywords: Assortative mating, Big Five, personality, congruence, personality change, partnership
    Date: 2013
  8. By: Vranceanu, Radu (ESSEC Business School); El Ouardighi, Fouad (ESSEC Business School); Dubart , Delphine (ESSEC Business School)
    Abstract: This paper reports the results from a real-effort team production experiment, where best performers can impose either tacit or explicit sanctions on their less-performing partners. The behavior of the best performer in the team differs from one condition to another. When explicit sanctions are not allowed, good performers reduce their effort in response to the advantageous difference in scores; when they can impose sanctions, their change in effort is no longer related to the difference in scores. To some extent, a mechanism of explicit sanctions allows good performers to focus on their own performance. Not sanctioning an opponent who under-performs, what we refer to as forgiveness, prompts the latter to improve his performance, but applying the sanction has a stronger effect.
    Keywords: Team work; Performance; Experimental economics; Punishment
    JEL: C92 D03 M52
    Date: 2013–08
  9. By: Jade Wong (Centre for Social Impact, Australian School of Business, the University of New South Wales); Andreas Ortman (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: We study how donors decide which charity to give to. To this end, we construct a theoretical model that clarifies the conditions in which the stand-alone benefit from giving, price of giving, and cost of information acquisition inform giving decisions. The model shows that giving decisions are affected by a price-cost trade-off – a condition where donors care about the price of giving because they want their donations to maximise charitable output, but dislike searching for the price of giving because it is costly. The literature is then reviewed to test the explanatory power of the theoretical model: it seems to support the conjecture that a price-cost trade-off informs donors’ giving decisions.
    Keywords: donations, efficiency, price of giving, price-cost trade-off
    JEL: D03 L31
    Date: 2013–09
  10. By: Margherita Balconi (Department of Economics and Management, University of Pavia); Valeria Lorenzi (Dipartimento di Scienze Economico Aziendali, Università di Milano Bicocca, Italy); Pier Paolo Saviotti (INRA GAEL, Univérsité Pierre Mendés-France, Grenoble, France); Antonella Zucchella (Department of Economics and Management, University of Pavia)
    Abstract: This paper addresses the cognitive dimension of proximity/distance in research collaborations of small biotechnology firms. While the theory of optimal cognitive distance assumes learning as motive of collaborations, we suggest that small specialised firms or sub-units of big diversified organizations tend to collaborate with actors endowed with different specific knowledge, with the purpose of accessing rather than acquiring and assimilating the pieces of knowledge they lack. This leads to the expectation of high cognitive distance between collaborators, who however can understand each other since they share the same basic knowledge. We apply this framework to investigate the research collaborations of a sample of Italian biotech firms, using data on the papers co-authored by individuals belonging to different organizations. In order to measure cognitive distance at a very disaggregated level, we introduce an index originally developed by ecologists to measure distance between different species. As expected, most co-publishing partners have high cognitive distance. Moreover, the knowledge accessing motive is also consistent with the finding that even small firms often engage in extensive networks of collaborations with a remarkable variety of actors and do not tend to enlarge their scope over time.
    Keywords: biotech; cognitive distance; knowledge; research collaborations.
    Date: 2013–09
  11. By: Delaney, Jason (School of Business, Georgia Gwinnett College, 1000 University Center Lane, Lawrenceville, GA 30043, USA); Jacobson, Sarah (Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA 01267, USA)
    Abstract: We study the comparative effectiveness of three policy interventions in a lab experiment that models common pool resources. The interventions we examine are a Pigouvian subsidy, information provision, and an appeal to social norms. The subsidy successfully reduces over-extraction to close to the efficient level on average, but even groups that were not over-extracting are induced to extract less. Because the social optimum is interior, over-compliance reduces efficiency. Moreover, when the subsidy is removed, extraction reaches its least efficient level. Both information provision and normative appeals increase efficiency by reducing over-extraction without exacerbating over-compliance, although the reduction in extraction is much less than that seen with the subsidy. Some of the effect of normative appeals persists even after messages stop being sent. Net of estimates of the marginal cost of raising public funds to pay for a subsidy, the efficiency achieved by the two nonpecuniary treatments is comparable to that achieved by the Pigouvian subsidy.
    Keywords: laboratory experiment, Pigouvian tax, Pigouvian subsidy, common pool resource, information provision, normative messaging
    JEL: H41 H21 C91 C92 D62 D83
    Date: 2013–08
  12. By: Kevin X.D. Huang; Zheng Liu; John Q. Zhu
    Abstract: This paper studies the empirical relevance of temptation and self-control using household-level data from the Consumer Expenditure Survey. We construct an infinite-horizon consumption-savings model that allows, but does not require, temptation and self-control in preferences. In the presence of temptation, a wealth-consumption ratio, in addition to consumption growth, becomes a determinant of the asset-pricing kernel, and the importance of this additional pricing factor depends on the strength of temptation. To identify the presence of temptation, we exploit an implication of the theory that a more tempted individual should be more likely to hold commitment assets such as IRA or 401(k) accounts. Our estimation provides empirical support for temptation preferences. Based on our estimates, we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle
    Keywords: Consumption (Economics) ; Consumer behavior
    Date: 2013
  13. By: Anderson, James H.
    Abstract: Transparency -- sunshine -- is often touted as a core element of the governance agenda, and one that is most important in environments with low transparency to begin with. In a provocative paper published in the American Political Science Review, Edmund Malesky, Paul Schuler, and Anh Tran present the results of a creative experiment in which they provided an additional spotlight on the activities of a random sample of delegates to Vietnam's National Assembly. They report that the effect of sunshine was negative, that delegates subject to this treatment curtailed their speech, and that those who spoke most critically were punished through the subsequent election and promotion processes. The present paper argues that Malesky, Schuler, and Tran's results, if interpreted correctly, actually predict a net positive effect of transparency. The differences in interpretation stem primarily from three sources: the interpretation of regression results for models with interaction terms, the interpretation of the variable for Internet penetration, and significant pre-treatment differences between treated and control delegates. For the context in which more than 80 percent of delegates operate, Malesky, Schuler, and Tran's results predict a positive but insignificant effect of transparency. In addition, Internet penetration, itself a measure of access to information, is positively associated with critical speech. The paper draws lessons for the design and interpretation of randomized experiments with interaction effects.
    Keywords: Technology Industry,Educational Technology and Distance Education,Information Security&Privacy,Disease Control&Prevention,Economic Theory&Research
    Date: 2013–09–01
  14. By: Raballand, Gael; Rajaram, Anand
    Abstract: Starting with the hypothesis that behaviors are the critical (and often overlooked) factor in public sector performance, this paper explores the notion of how behavioral change (and thus institutional change) might be better motivated in the public sector. The basis for this study is"an accidental experiment"resulting from the World Bank's operational engagement in Cameroon. In 2008, World Bank staff successfully concluded preparation on a project to support the Government of Cameroon to improve transparency, efficiency, and accountability of public finance management. The US$15 million project supported a number of ministries to strengthen a broad range of management systems and capacities. Independently and concurrently, other Bank staff initiated a low-profile, technical assistance project to improve performance in Cameroon's Customs, supported by a small trade facilitation grant of approximately US$300,000. One approach appears to have succeeded in initiating change while the other has signally failed. The two projects of different scale, scope and design in the same governance environment offer a very interesting natural experiment (unplanned but accidental for that reason) that allows insights into the nature of institutional change and the role of behavior and incentives and approaches that offer greater prospects for making reform possible. The paper confirms the value of using ideas from behavioral economics, both to design institutional reforms and to critically assess the approach to institutional reform taken by development agencies such as the World Bank.
    Keywords: Environmental Economics&Policies,Cultural Policy,National Governance,E-Business,Public Sector Economics
    Date: 2013–09–01
  15. By: Kotov, Denis
    Abstract: In this paper we have studied the role of biases in making corporate decisions on investing abroad. We have formulated four conditions under which a corporate investment decision is least exposed to the influence of heuristics. Failing to comply with some conditions of a precise investment performance leads to a situation of a high uncertainty and complexity that demands an intuitive thinking from a decision maker and, as a result, stimulates using the rules of thumb. Further, we have discussed possible measures for the mitigation of the negative influence of heuristics. For an indicative estimation of a degree of biases an ex-ante/ex-post risk perception matrix has been proposed. The study is supported by the results of a survey made in 2008 and structured interviews taken in the spring and the summer of 2013. The survey was carried on among German firms doing business in Russia. Interviews covered not only investments to Russia, but also investments of Russian investors in Europe as well as transatlantic foreign direct investments made in the last three years.
    Keywords: biases; heuristics; investment decisions; foreign direct investments; decision-making process
    JEL: D81 F21 L2
    Date: 2013–09
  16. By: Alain Cohn; Jan Engelmann; Ernst Fehr; Michel Maréchal
    Abstract: A key ingredient of many popular asset pricing models is that investors exhibit countercyclical risk aversion, which helps explain major puzzles in financial economics such as the strong and systematic variation in risk premiums over time and the high volatility of asset prices. There is, however, surprisingly little evidence for this assumption because it is difficult to control for the host of factors that change simultaneously during financial booms and busts. We circumvent these control problems by priming financial professionals with either a boom or a bust scenario and by subsequently measuring their risk aversion in two experimental investment tasks with real monetary stakes. Subjects who were primed with a financial bust were substantially more risk averse than those who were primed with a boom. Subjects were also more fearful in the bust than in the boom condition, and their fear is negatively related to investments in the risky asset, suggesting that fear may play an important role in countercyclical risk aversion. The mechanism described in this paper is relevant for theory and has important implications for financial markets, as it provides the basis for a self-reinforcing process that amplifies market dynamics.
    Keywords: Countercyclical risk aversion, experiment, financial professionals
    JEL: G02 C91
    Date: 2013–08

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