nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒10‒18
twenty papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. The Interrogation Game: Using Coercion and Rewards to Elicit Information from Groups By David Johnson; John Ryan
  2. Cooperation in Small Groups: The Effect of Group Size By Daniele Nosenzo; Simone Quercia; Martin Sefton
  3. Workers' propensity to cooperate with colleagues and the general population: a comparison based on a field experiment By Giacomo Degli Antoni
  4. Guilt aversion and redistributive politics: A moral intuitionist approach By Le Garrec, Gilles
  5. How Learning a Musical Instrument Affects the Development of Skills By Adrian Hille; Jürgen Schupp
  6. Social preferences and portfolio choice By Riedl A.M.; Smeets P.M.A.
  7. Complexity and Bounded Rationality in Individual Decision Problems By Theodoros M. Diasakos
  8. Resource Allocation Contests: Experimental Evidence By Robert Shupp; Roman M. Sheremeta; David Schmidt; James Walker
  9. Ignorance: Lessons from the Laboratory of Literature By Roy, Devjani; Zeckhauser, Richard
  10. Scitovsky, behavioural economics, and beyond By Pugno, Maurizio
  11. Self-Control, Commitment and Peer Pressure: A Laboratory Experiment By Aurélie Bonein; Laurent Denant-Boèmont
  12. Source-Dependence of Utility and Loss Aversion: A Critical Test of Ambiguity Models By Mohammed Abdellaoui; Han Bleichrodt; Olivier L'Haridon; Dennie Van Dolder
  13. Taking the Well-being of Future Generations Seriously : Do People Contribute More to Intra-temporal or Inter-temporal Public Goods? By Grolleau , Gilles G.; Sutan, Angela; Vranceanu, Radu
  14. Why Real Leisure Really Matters: Incentive Effects on Real Effort in the Laboratory. By Brice Corgnet; Roberto Hernán-González; Eric Schniter
  15. Separating attitudes towards money from attitudes towards probabilities: Stake effects and ambiguity as a test for prospect theory By Vieider, Ferdinand M.; Cingl, Lubomír; Martinsson, Peter; Stojic, Hrvoje
  16. Measuring Time and Risk Preferences: Reliability, Stability, Domain Specificity By Riedl A.M.; Wölbert E.M.
  17. The Social Egoist By Boschini, Anne; Muren, Astri; Persson, Mats
  18. Risk taking in diverse groups: Gender matters By Jeroen Nieboer
  19. Risk taking and risk sharing does responsibility matter? By Tausch F.; Cettolin E.
  20. When You Know Your Neighbor Pays Taxes: Information, Peer Effects, and Tax Compliance By James Alm; Kim M. Bloomquist; Michael McKee

  1. By: David Johnson (University of Calgary); John Ryan
    Abstract: In this paper, we examine how interrogators can get potential sources to provide information which entails defecting from their group. In our experiment, subjects are faced with an interrogator either using coercive techniques or offering rewards. We argue that coercion and reward affect individuals who are “conditional defectors†differently. These individuals will defect only when they can justify that selfish action as either fair or truth telling. For subjects who possess the information the interrogator desires, these conditional defectors will provide that information in both treatments because they are simply telling the truth. For ignorant subjects, conditional defectors provide bad information under coercion because honestly stating ignorance leads to unequal outcomes. In the reward treatment, truthfully saying “I don’t know†leads to a more equal outcome. This means that interrogators receive more information under coercion, but that information is of lower quality.
    Keywords: Group Identity, Punishment, Rewards, Information Gathering
    JEL: C91 D03 D02 L38
    Date: 2013–10–12
  2. By: Daniele Nosenzo (School of Economics, University of Nottingham); Simone Quercia (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We study the effect of group size on cooperation in voluntary contribution mechanism games. As in previous experiments, we study four- and eight-person groups in high and low marginal per capita return (MPCR) conditions. We find a positive effect of group size in the low MPCR condition, as in previous experiments. However, in the high MPCR condition we observe a negative group size effect. We extend the design to investigate two- and three-person groups in the high MPCR condition, and find that cooperation is highest of all in two-person groups. The findings in the high MPCR condition are consistent with those from n-person prisoner’s dilemma and oligopoly experiments that suggest it is more difficult to sustain cooperation in larger groups. The findings from the low MPCR condition suggest that this effect can be overridden. In particular, when cooperation is low other factors, such as considerations of the social benefits of contributing (which increase with group size), may dominate any negative group size effect.
    Keywords: voluntary contribution mechanism, cooperation, group size
    Date: 2013–05
  3. By: Giacomo Degli Antoni (University of Parma, Department of Law)
    Abstract: Experimental evidence shows that people tend to be more cooperative with persons belonging to their own group than with others. Strangely enough, this literature largely fails to consider a type of group pervasive in modern societies: colleagues belonging to the same productive organization. This is particularly curious if one considers the importance of cooperation among colleagues for the economic performance of organizations. This paper carries out an original experimental analysis which compares the level of cooperation of social cooperative workers when they are paired with colleagues and with people from the general population. In contrast with the literature on in-group favoritism, we find that workers trust their colleagues less and cooperate less with them than they do with people from the general public, even though, in absolute terms, the level of cooperation is quite high also among colleagues. By analyzing first- and second-order beliefs, we show that the difference in cooperation is partly mediated by expectations concerning the counterpart's behavior, since workers expect their colleagues to be less cooperative than members of the general public. However, the analysis reveals that also other motivations count, such as other-regarding preferences and warm glow.
    Keywords: social cooperatives, field experiment, social dilemmas, in-group favoritism, trust, beliefs
    JEL: C72 C93 L31 P13 Z13
    Date: 2013–10
  4. By: Le Garrec, Gilles
    Abstract: In mainstream economics individuals are supposed to be driven only by their self-interest. By contrast, surveys clearly show that people do care about fairness in their demand for redistribution. In this article, in the spirit of the new synthesis in moral psychology (Haidt, 2007: The new synthesis in moral psychology) the author proposes to modelize the voting behavior over redistribution as the interaction between (a) an automatic cognitive process which quickly generates intuitions on the fair level of redistribution, (b) a rational self-oriented reasoning which controls the feeling of guilt associated with fair intuitions. In addition, considering that guilt aversion depends on the cultural context, the author shows that the model exhibits a multiplicity of history-dependent steady states which may account for the huge difference of redistribution observed between Europe and the United States. --
    Keywords: redistribution,voting behavior,fairness,behavioral economics
    JEL: D03 D64 D72 H53
    Date: 2013
  5. By: Adrian Hille; Jürgen Schupp
    Abstract: Despite numerous studies on skill development,we know little about the causal effects of music training on cognitive and non-cognitive skills. This study examines how long-term music training during childhood and youth affects the development of cognitive skills, school grades, personality, time use and ambition using representative data from the German Socio-Economic Panel (SOEP). Our findings suggest that adolescents with music training have better cognitive skills and school grades and are more conscientious, open and ambitious. These effects do not differ by socio-economic status. Music improves cognitive and non-cognitive skills more than twice as much as sports, theater or dance. In order to address the non-random selection into music training, we take into account detailed information on parents, which may determine both the decision to pursue music lessons and educational outcomes: socio-economic background, personality, involvement with the child’s school, and taste for the arts. In addition, we control for the predicted probability to give up music before age 17 as well as the adolescent’s secondary school type. We provide evidence that our results are robust to both reverse causality and the existence of partly treated individuals in the control group.
    Keywords: Music, cognitive and non-cognitive skills, educational achievement, SOEP
    JEL: I21 J24 Z11
    Date: 2013
  6. By: Riedl A.M.; Smeets P.M.A. (GSBE)
    Abstract: This paper explores whether social preferences influence portfolio choices of retail investors. We use administrative investor trading records which we link to decisions of the same investors in experiments with real money at stake. We show that social preferences rather than return expectations or risk perceptions are the main driver of investments in socially responsible SRI mutual funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives. This illustrates that tax incentives change the clientele of mutual funds and that tax incentives crowd out the intrinsic motivations of investors with strong social preferences. Our results also show that prosocial behavior in one domain experiment is correlated with prosocial behavior in another domain investments, which adds to the discussion on the usefulness of experiments in finance.
    Keywords: Altruism; Philanthropy; Portfolio Choice; Investment Decisions; Public Goods;
    JEL: G11 D64 H41
    Date: 2013
  7. By: Theodoros M. Diasakos (University of St Andrews)
    Abstract: I develop a model of endogenous bounded rationality due to search costs, arising implicitly from the problem's complexity. The decision maker is not required to know the entire structure of the problem when making choices but can think ahead, through costly search, to reveal more of it. However, the costs of search are not assumed exogenously; they are inferred from revealed preferences through her choices. Thus, bounded rationality and its extent emerge endogenously: as problems become simpler or as the benefits of deeper search become larger relative to its costs, the choices more closely resemble those of a rational agent. For a fixed decision problem, the costs of search will vary across agents. For a given decision maker, they will vary across problems. The model explains, therefore, why the disparity, between observed choices and those prescribed under rationality, varies across agents and problems. It also suggests, under reasonable assumptions, an identifying prediction: a relation between the benefits of deeper search and the depth of the search. As long as calibration of the search costs is possible, this can be tested on any agent-problem pair. My approach provides a common framework for depicting the underlying limitations that force departures from rationality in different and unrelated decision-making situations. Specifically, I show that it is consistent with violations of timing independence in temporal framing problems, dynamic inconsistency and diversification bias in sequential versus simultaneous choice problems, and with plausible but contrasting risk attitudes across small- and large-stakes gambles.
  8. By: Robert Shupp (Department of Agricultural, Food and Resource Economics, Michigan State University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); David Schmidt (Federal Trade Commission, Bureau of Economics); James Walker (Indiana University, Department of Economics)
    Abstract: Many resource allocation contests have the property that individuals undertake costly actions to appropriate a potentially divisible resource. We design an experiment to compare individuals’ decisions across three resource allocation contests which are isomorphic under riskneutrality. The results indicate that in aggregate the single-prize contest generates lower expenditures than either the proportional-prize or the multi-prize contest. Interestingly, while the aggregate results indicate similar behavior in the proportional-prize and multi-prize contests, individual level analysis indicates that the behavior in the single-prize contest is more similar to the behavior in the multi-prize contest than in the proportional-prize contest. We also elicit preferences toward risk, ambiguity and losses, and find that while such preferences cannot explain individual behavior in the proportional-prize contest, preferences with regard to losses are predictive of behavior in both the single-prize and multiple-prize contests. Therefore, it appears that loss aversion is correlated with behavior in the single-prize and multi-prize contests where losses are likely to occur, but not in the proportional-prize contest where losses are unlikely.
    Keywords: contest, rent-seeking, experiments, risk aversion, game theory
    JEL: C72 C92 D72
    Date: 2013
  9. By: Roy, Devjani (Harvard University); Zeckhauser, Richard (Harvard University)
    Abstract: Traditional decision theory distinguishes between risk and uncertainty. With risk, the probabilities of possible outcomes are known; with uncertainty, those outcomes are known, but not their probabilities. We introduce the concept of ignorance, a third, less tractable category. With ignorance, even the possible outcomes cannot be identified. Ignorance takes importance when high payoffs are associated with the unidentified outcomes. Thus we focus on consequential amazing developments, or CADs. CADs spring upon societies as well as individuals. In the policy realm, the 2008 financial meltdown and the Arab Spring would represent CADs, major unanticipated events. For an individual, a CAD might be the discovery that a faithful spouse of many years has a secret second family, or that our trusted business partner has been pilfering corporate secrets all along. Authors depict the implications of consequential ignorance in some of the greatest of literary works: Hamlet's ignorance of his father's killer, Macbeth's unawareness of outcomes when he attempts to seize the Scottish crown, Odysseus's journey back to Ithaca involving a series of consequential adventures, all unknowable. Consequential ignorance cannot be studied in a controlled laboratory setting, since its payoffs are high, its time delays often long, and merely introducing the subject tends to give away the game. Thus we study ignorance through great works of literature, from antiquity to the present day, positing that great writers understand how humans make decisions. We distinguish between unrecognized and recognized ignorance. In the latter category, we identify specific cognitive biases at work. We provide a formula for calculating consequential ignorance that incorporates the expected magnitudes and assessed base rates for CADs. Finally, we propose steps towards measured decision making under ignorance.
    Date: 2013–10
  10. By: Pugno, Maurizio
    Abstract: By revisiting Scitovsky's work on well-being, which introduces 'novelty' into the consumer's option set as a peculiar source of satisfaction, this paper finds a number of connections with the recent behavioural economics so as to open new lines on inquiry. First, similarly to behavioural economics, Scitovsky used psychology to interpret sub-optimal choices. However, his welfare benchmark is different from rational choice, as understood by the economists, because 'novelty' implies a very strong form of uncertainty, as well as learning. Second, Scitovsky contributed to further elaboration of the two-systems framework put forward by Kahneman's recent book, which attempts to base behavioural economics on new foundations. Third, Scitovsky anticipated and contributed to specific analytical issues that have been studied in behavioural economics, such as the role of people's skill in uncertainty, the unpredictability of taste changes, and harmful addiction. --
    Keywords: Scitovsky,behavioural economics,novelty,consumption skill,strong uncertainty,harmful addiction
    JEL: B31 D03 D11
    Date: 2013
  11. By: Aurélie Bonein (CREM UMR CNRS 6211, University of Rennes 1, France); Laurent Denant-Boèmont (CREM UMR CNRS 6211, University of Rennes 1, France)
    Abstract: This paper focuses on the relationship between individual self-control and peer pressure. To this end, we implement a laboratory experiment that proceeds in two parts. The first part involves an individual real-effort task in which subjects may commit themselves to achieve a certain level of performance while being tempted by an alternative recreational activity. The second part consists of bargaining in a power-to-take game in which previously earned revenues are at stake. Experimental treatments represent variations in the available information given to peers regarding previous individual behavior. The results show that many subjects commit them-selves strongly and that future revelation of commitment decisions induces subjects to increase the credible components of commitment decisions. Past individual be-haviors also play a role in bargaining behavior: (i) partners who have committed themselves benefit from both lower take and destruction rates, and (ii) partners who have succumbed to temptation suffer from both higher take and destruction rates.
    Keywords: Self-control, temptation, commitment, willpower, laboratory experiment, peer pressure
    JEL: C91 C92 D63
    Date: 2013–09
  12. By: Mohammed Abdellaoui (HEC Paris and GREGHEC CNRS); Han Bleichrodt (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE), the Netherlands); Olivier L'Haridon (CREM UMR CNRS 6211 and GREGHEC, University of Rennes 1, France); Dennie Van Dolder (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE))
    Abstract: This paper tests whether utility is the same for risk and for uncertainty. This test is critical for models that capture ambiguity aversion through a difference in event weighting between risk and uncertainty, like the multiple priors models and prospect theory. We present a new method to measure utility and loss aversion under uncertainty without the need to introduce simplifying parametric assumptions. Our method extends Wakker and Deneffe’s (1996) trade‐off method by allowing for standard sequences that include gains, losses, and the reference point. It provides an efficient way to measure loss aversion and a useful tool for practical applications of ambiguity models. We could not reject the hypothesis that utility and loss aversion were the same for risk and uncertainty, suggesting that utility primarily reflects attitudes towards outcomes. Utility was S‐shaped, concave for gains and convex for losses and there was substantial loss aversion. Our findings support models that explain ambiguity aversion through a difference in event weighting and suggest that descriptive ambiguity models should allow for reference‐dependence of utility.
    Keywords: prospect theory, loss aversion, utility for gains and losses, probability distortion, decision analysis, risk aversion
    Date: 2013–07
  13. By: Grolleau , Gilles G. (LAMETA, UMR 1135 and LESSAC); Sutan, Angela (LESSAC); Vranceanu, Radu (ESSEC Business School and THEMA)
    Abstract: We investigate the dynamics of cooperation in public good games when contributions to the public good are immediately redistributed across contributors (intra-temporal transfers) and when contributions to the public good by the current group are transferred over time to a future group (inter-temporal transfers). We show that people are more cooperative in inter-temporal contexts than in intra-temporal contexts. We also find that subjects invest more on average in public goods when they know in advance their inheritance from the past.
    Keywords: Public goods; Voluntary contribution mechanism; Inter-temporal vs intra-temporal transfers; Sustainable development
    JEL: C72 C92 H41
    Date: 2013–09
  14. By: Brice Corgnet (Argyros School of Business and Economics, Chapman University); Roberto Hernán-González (Universidad de Granada); Eric Schniter (Economic Science Institute, Chapman University)
    Abstract: On-the-job leisure is a pervasive feature of the modern workplace. We studied its impact on work performance in a laboratory experiment by either allowing or restricting Internet access. We used a 2×2 experimental design in which subjects completing real-effort work tasks could earn cash according to either individual- or team-production incentive schemes. Under team pay, production levels were significantly lower when Internet browsing was available than when it was not. Under individual pay, however, no differences in production levels were observed between the treatment in which Internet was available and the treatment in which it was not. In line with standard incentive theory, individual pay outperformed team pay across all periods of the experiment when Internet browsing was available. This was not the case, however, when Internet browsing was unavailable. These results demonstrate that the integration of on-the-job leisure activities into an experimental labor design is crucial for uncovering incentive effects.
    Keywords: Incentive, Free riding, Internet access, Experimental method
    JEL: C92 D23 M52
    Date: 2013
  15. By: Vieider, Ferdinand M.; Cingl, Lubomír; Martinsson, Peter; Stojic, Hrvoje
    Abstract: Prospect theory (PT) is the dominant descriptive theory of decision making under risk today. For the modeling of choices, PT relies on a psychologically founded separation of risk attitudes into attitudes towards outcomes, captured in a value function; and attitudes towards probabilities, captured in a probability weighting function. However, while it is theoretically sound, it is unclear whether this clear separation is reflected in actual choices. To test this, we designed two experiments. In the first experiment, we elicit the value and probability weighting functions both under known and unknown probabilities. The results support PT and show that the value function is unaffected by the nature of the probabilities, which only affects probability weighting. More in general, this finding supports theories that represent ambiguity attitudes through probability transformations rather than utility transformations. In the second experiment, we examine the effects of an increase in stakes on risk attitudes. We find that the stake increase is not reflected in the value function, but rather in the weighting function, thus contradicting PT's prediction. --
    Keywords: prospect theory,value functions,probability weighting,risk attitudes,ambiguity aversion,modeling of preferences
    JEL: C91 D03 D81
    Date: 2013
  16. By: Riedl A.M.; Wölbert E.M. (GSBE)
    Abstract: To accurately predict behavior economists need reliable measures of individual time preferences and attitudes toward risk and typically need to assume stability of these characteristics over time and across decision domains. We test the reliability of two choice tasks for eliciting discount rates, risk aversion, and probability weighting and assess the stability of these characteristics over timeand across situations. We find high reliability and that individual characteristics are remarkably stable over time. The estimated parameters correlate well with self-reported decisions in financial domains, but are largely uncorrelated with decisions in other important life domains involving intertemporal trade-offs and risk.
    Keywords: Methodological Issues: General; Design of Experiments: Laboratory, Individual; Behavioral Economics: Underlying Principles; Information, Knowledge, and Uncertainty: General; Intertemporal Choice and Growth: General;
    JEL: C18 C91 D03 D80 D90
    Date: 2013
  17. By: Boschini, Anne (Dept. of Economics, Stockholm University); Muren, Astri (Dept. of Economics, Stockholm University); Persson, Mats (Institute for International Economic Studies, Stockholm University)
    Abstract: People cooperate more in one-shot interactions than can be explained by standard textbook preferences. We discuss a set of non-standard preferences that can accommodate such behavior. They are social, in the sense of incorporating the payoffs of other persons; they are also norm-based, in the sense of taking into account the behavior of other persons. We show theoretically that, with such preferences, a Nash equilibrium with a strictly positive cooperation rate can exist. We use experimental data on within-subject decisions to show that such preferences are empirically plausible. The data show that, in addition to the well-known types (egoist, altruist, reciprocator), there is an important group: the social egoist. Such individuals care for people who have cooperated, but ignore people who have broken the implicit cooperation norm in society. The social egoists, who turn out to be different from “conditional cooperators”, account for one third of the observations in our experiment.
    Keywords: social norms; prisoner’s dilemma; hawk-dove game; egoism; altruism; reciprocity; conditional cooperation
    JEL: C91 D03 D64
    Date: 2013–10–10
  18. By: Jeroen Nieboer (School of Economics, University of Nottingham)
    Abstract: Using an experiment with incentivized decisions of groups in the economics laboratory, I investigate the effect of group diversity on group risk taking. I measure econometrically the effects of various aspects of subjects’ diversity: nationality, language, university degree and gender. I find that group decisions, when taken during face-to-face discussions between group members, replicate the pattern of previous studies with the same experimental task in that they lead to significantly higher risk taking by groups as compared to individuals. Furthermore, the only dimension of diversity with an effect on risk taking is gender: risk taking is increasing in the number of male group members. Keywords: experiments, choice under risk, groups, teams, diversity
    Date: 2013–06
  19. By: Tausch F.; Cettolin E. (GSBE)
    Abstract: Risk sharing arrangements diminish individuals vulnerability to probabilistic events that negatively affect their financial situation. This is because risk sharing implies redistribution, as lucky individuals support the unlucky ones. We hypothesize that responsibility for risky choices decreases individuals willingness to share risk by dampening redistribution motives, and investigate this conjecture with a laboratory experiment. Responsibility is created by allowing participants to choose between two different risky lotteries before they decide how much risk they share with a randomly matched partner. Risk sharing is then compared to a treatment where risk exposure is randomly assigned. We find that average risk sharing does not depend on whether individuals can control their risk exposure. However, we observe that when individuals are responsible for their risk exposure, risk sharing decisions are systematically conditioned on the risk exposure of the sharing partner, whereas this is not the case when risk exposure is random.
    Date: 2013
  20. By: James Alm; Kim M. Bloomquist; Michael McKee
    Abstract: In this paper, we argue that individuals are affected in their compliance behavior by the behavior of their “neighbors”, or those about whom they may have information, whom they may know, or with whom they may interact on a regular basis. Individuals seem more likely to file and to report their taxes when they believe that other individuals are also filing and reporting their taxes; conversely, when individuals believe that others are cheating on their taxes, they may well become cheaters themselves. We use experimental methods to test the role of such information about peer effects on compliance behavior. In one setting, we inform individuals about the frequency that their neighbors submit a tax return. In a second setting, we inform them about the number of their neighbors who are audited, together with the penalties that they pay. In both cases, we examine the impact of information on filing behavior and also on subsequent reporting behavior. We find that providing information on whether one’s neighbors are filing returns and/or reporting income has a statistically significant and economically large impact on individual filing and reporting decisions. However, this “neighbor” information does not always improve compliance, depending on the exact content of the information. Key Words: Tax evasion; Tax compliance; Behavioral economics; Experimental economics
    JEL: H26 C91
    Date: 2013

This nep-cbe issue is ©2013 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.