nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒10‒25
six papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Statistical formats to optimize evidence-based decision making: a behavioral approach By Iván Arribas; Irene Comeig; Amparo Urbano Salvador; Jose E. Vila
  2. How Learning a Musical Instrument Affects the Development of Skills By Hille, Adrian; Schupp, Jürgen
  3. On altruism and remittances By Alexis Antoniades; Ganesh Seshan; Roberto A. Weber; Robertas Zubrickas
  4. Time preferences and lifetime outcomes By Golsteyn, Bart; Grönqvist, Hans; Lindahl, Lena
  5. Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment By Delfgaauw, Josse; Dur, Robert; Non, Arjan; Verbeke, Willem
  6. Intertemporal Consumption and Debt Aversion:An Experimental Study By Thomas Meissner; ; ;

  1. By: Iván Arribas (ERI-CES, University of Valencia, Ivie); Irene Comeig (LINEEX, University of Valencia); Amparo Urbano Salvador (ERI-CES, University of Valencia); Jose E. Vila (ERI-CES, University of Valencia)
    Abstract: Statistical information is crucial for managerial decision making. The decision-making literature in psychology and mathematical cognition documents how different statistical formats can facilitate certain types of decisions. The present analysis is the first of its kind to assess the impact of statistical formats in the presentation of data from market research on both the optimality of market decisions and the time required to perform the decision-making process. An economic experiment provides the data for this study. The experiment presents statistical information in simple frequencies and relative frequencies using numerical and pictorial representations in the context of different informational environments. The key findings are that statistical information presented in terms of relative frequency formats gives rise to more accurate decision making than data presented in terms of simple frequencies, independently of the informational environments. When time is the relevant variable, numerical formats lead to a faster interpretation than pictorial ones. Since the number of factors defining the four statistical formats and the different informational environments is quite large, an orthogonal design offers a suitable experimental design. This design keeps the experiment manageable without substantially reducing its analytical power
    Keywords: Economic experiments, Statistical formats, Probability judgment, Orthogonal design, Judgment under uncertainty
    Date: 2013–10
  2. By: Hille, Adrian (DIW Berlin); Schupp, Jürgen (DIW Berlin)
    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: 2013–09
  3. By: Alexis Antoniades; Ganesh Seshan; Roberto A. Weber; Robertas Zubrickas
    Abstract: We provide a direct test of the impact of altruism on remittances. From a sample of 105 male migrant workers from Kerala, India working in Qatar, we elicit the propensity to share with others from their responses in a dictator game, and use it as a proxy for altruism. When the entire sample is considered, we find that only migrants' income robustly explains remittances. Altruism does not seem to matter. However, we document a strong positive relationship between altruism and remittances for those migrants that report a loan obligation back home, which is nearly half the sample. We explain the role of loan obligations with a standard remittance model, extended with reference-dependent preferences.
    Keywords: Remittances, altruism, reference-dependent preferences, dictator game, Qatar
    JEL: O12 O15 D81
    Date: 2013–10
  4. By: Golsteyn, Bart (ROA, Maastricht University); Grönqvist, Hans (Swedish Institute for Social Research (SOFI), Stockholm University); Lindahl, Lena (Swedish Institute for Social Research (SOFI))
    Abstract: This paper investigates the relationship between time preferences and lifetime social and economic behavior. We use a Swedish longitudinal dataset that links information from a large survey on children’s time preferences at age 13 to administrative registers spanning over four decades. Our results indicate a substantial adverse relationship between high discount rates and school performance, health, labor supply, and lifetime income. Males and high ability children gain significantly more from being future-oriented. These discrepancies are largest regarding outcomes later in life. We also show that the relationship between time preferences and long-run outcomes operates through early human capital investments.
    Keywords: Intertemporal choice; personality; preference parameter; human capital; income; health
    JEL: D03 D91 J01
    Date: 2013–10–04
  5. By: Delfgaauw, Josse (Erasmus University Rotterdam); Dur, Robert (Erasmus University Rotterdam); Non, Arjan (ROA, Maastricht University); Verbeke, Willem (Erasmus University Rotterdam)
    Abstract: We conduct a field experiment among 189 stores of a retail chain to study dynamic incentive effects of relative performance pay. Employees in the randomly selected treatment stores could win a bonus by outperforming three comparable stores from the control group over the course of four weeks. Treatment stores received weekly feedback on relative performance. Control stores were kept unaware of their involvement, so that their performance generates exogenous variation in the relative performance of the treatment stores. As predicted by theory, we find that treatment stores that lag far behind do not respond to the incentives, while the responsiveness of treatment stores close to winning a bonus increases in relative performance. On average, the introduction of the relative performance pay scheme does not lead to higher performance.
    Keywords: dynamic incentives, relative performance pay, field experiment
    JEL: C93 M52
    Date: 2013–09
  6. By: Thomas Meissner; ; ;
    Abstract: This paper tests how subjects behave in an intertemporal consumption/saving experiment when borrowing is allowed and whether subjects treat debt differently than savings. Two treatments create environments where either saving or borrowing is required for optimal consumption. Since both treatments share the same optimal consumption levels, actual consumption choices can be directly compared across treatments. The experimental findings imply that deviations from optimal behavior are higher when subjects have to borrow than when they have to save in order to consume optimally, suggesting debt-aversion. Signifiant underconsumption is observed when subjects have to borrow in order to reach optimal consumption. Only weak evidence is found suggesting that subjects over-consume when saving is necessary for optimal consumption.
    Keywords: Laboratory Experiment, Intertemporal Consumption, Consumption Smoothing, Debt Aversion
    JEL: C91 D81 E21
    Date: 2013–09

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