nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒11‒16
eighteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Risk Preferences under Acute Stress By Lubomir Cingl; Jana Cahlikova
  2. Sharing or gambling? On risk attitudes in social contexts By Kocher, Martin; Krawczyk, Michal; Le Lec, Fabrice
  3. Make Humans Randomize By Lisa Bruttel; Tim Friehe
  4. Revealed Notions of Distributive Justice II – Experimental Evidence By Nicole Becker; Kirsten Häger; Jan Heufer
  5. The Role of Emotions on Risk Preferences: An Experimental Analysis By Anna Conte; M. Vittoria Levati; Chiara Nardi
  6. I am sorry - Honest and Fake Apologies By Verena Utikal
  7. Risk preferences and development revisited: A field experiment in Vietnam By Vieider, Ferdinand M.; Truong, Nghi; Martinsson, Peter; Pham Khanh Nam; Martinsson, Peter
  8. Gender- and Frame-specific Audience Effects in Dictator Games By Jonathan E. Alevy; Francis L. Jeffries; Yonggang Lu
  9. Fairness through the Lens of Cooperative Game Theory: An Experimental Approach By Geoffroy de Clippel; Kareen Rozen
  10. The Importance of Betting Early By Alessandro Innocenti; Tommaso Nannicini; Roberto Ricciuti
  11. Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries By Vieider, Ferdinand M.; Lefebvre, Mathieu; Bouchouicha, Ranoua; Chmura, Thorsten; Hakimov, Rustamdjan; Krawczyk, Michal; Martinsson, Peter
  12. Buying and Selling Risk - An Experiment Investigating Evaluation Asymmetries By Werner Güth; Matteo Ploner; Ivan Soraperra
  13. The Dow is Killing Me: Risky Health Behaviors and the Stock Market By Chad Cotti; Richard A. Dunn; Nathan Tefft
  14. Is there an Exclusionary Effect of Retroactive Price Reduction Schemes? By Lisa Bruttel
  15. Does being Elected Increase Subjective Entitlements? Evidence from the Laboratory By Arne Robert Weiss; Irenaeus Wolff
  16. Autonomy-enhancing paternalism By Martin Binder; Leonhard K. Lades
  17. Using a natural field experiment to test the theory of multitasking By Fuhai Hong; Tanjim Hossain; John List; Migiwa Tanaka
  18. Evolutionary beliefs and financial markets By Napp, Clotilde; Viossat, Yannick; Jouini, Elyès

  1. By: Lubomir Cingl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jana Cahlikova (CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic)
    Abstract: Many important decisions are made under stress and they often involve risky alternatives. There has been ample evidence that stress influences decision making in cognitive as well as in affective domains, but still very little is known about whether individual attitudes to risk change with exposure to acute stress. To directly evaluate the causal effect of stress on risk attitudes, we adopt an experimental approach in which we randomly expose participants to a psychosocial stressor in the form of a standard laboratory stress-induction procedure: the Trier Social Stress Test for Groups. Risk preferences are elicited using an incentive compatible task, which has been previously shown to predict risk-oriented behavior out of the laboratory. Using three different measures (salivary cortisol levels, heart rate and multidimensional mood questionnaire scores), we show that stress was successfully induced on the treatment group. Our main result is that acute psychosocial stress significantly increases risk aversion. The effect is mainly driven by males; men in our control group are less risk-averse than women, which is a standard result in the literature, but this difference almost disappears when under psychosocial stress.
    Keywords: risk preferences, stress, Trier Social Stress Test, cortisol
    JEL: C90 C91 D03 D81 D87
    Date: 2013–11
  2. By: Kocher, Martin; Krawczyk, Michal; Le Lec, Fabrice
    Abstract: This paper investigates experimentally whether risk attitudes are stable across social contexts. In particular, it focuses on situations where some resource (for instance, a position, decision power, a bonus) has to be allocated between two parties: the decision maker can either opt for sharing the resource or for using a random device that allocates the entire prize to one of the two parties. By varying the relative situation of the decision maker with respect to the other party, we show that risk attitude is strongly affected by social contexts: participants in the experiment seem to be relatively risk seeking when they possess a relatively weaker position than the other party and risk averse when the opposite is true. Our main average results seem to be driven by the behavior of around a quarter of subjects whose choices appear to be fully determined by social comparisons. Various interpretations of the behavior are provided linking our results to preferences under risk with a social reference point and on status-seeking preferences.
    Keywords: risk attitudes; risk preferences in social context; social reference point; status-seeking preferences; social preferences under risk
    JEL: A13 C65 C72 D63 D03
    Date: 2013–10–24
  3. By: Lisa Bruttel (Department of Economics, University of Konstanz, Germany); Tim Friehe (Center for Advanced Studies in Law and Economics, University of Bonn, Germany)
    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 subjects’ 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
    JEL: C71 C92 D83
    Date: 2013–07–19
  4. By: Nicole Becker; Kirsten Häger; Jan Heufer
    Abstract: We report the results of a combination of a dictator experiment with either a “social planner” or a “veil of ignorance” experiment. The experimental design and the analysis of the data are based on the theoretical framework proposed in the companion paper by Becker, Häger, and Heufer (BHH 2013), in which we introduce a “notion of distributive justice” by which individuals trade off equality and efficiency. The purpose of the theoretical framework is to explain preferences in dictator experiments by a combination of selfishness and concerns for distributive justice. Most participants conform very well with the Agreement and Symmetry axioms proposed in BHH; we find that for 80% of participants the evidence is very strong. The experiment therefore demonstrates that most participants’ behaviour in dictator experiments can be explained by a combination of selfishness and concerns for distributive justice. We also provide a rough classification of preferences and notions of distributive justice and show that participants’ strength of the sense for justice (Karni and Safra 2002b) can be compared nonparametrically.
    Keywords: Altruism; dictator games; distributive justice; experimental economics; nonparametric analysis; preference decomposition; revealed preference; social preferences
    JEL: C14 C91 D11 D12
    Date: 2013–10
  5. By: Anna Conte (Westminster Business School, University of Westminster, London, and Strategic Interaction Group, Max Planck Institute of Economics, Jena); M. Vittoria Levati (Strategic Interaction Group, Max Planck Institute of Economics, Jena, and Department of Economics, University of Verona); Chiara Nardi (Department of Economics, University of Verona)
    Abstract: In the last decades, there has been a large volume of research showing that emotions do have relevant effects on decision-making. We contribute to this literature by experimentally investigating the impact of four specific emotional states - joviality, sadness, fear, and anger - on risk attitudes. In order to do so, we fit two models of behaviour under risk: the Expected Utility model (EU) and the Rank Dependent Expected Utility model (RDEU), assuming several functional forms of the weighting function. Our results indicate that all emotional states instigate risk-seeking behaviour. Furthermore, we show that there are some differences across gender and across participants' experience in lab experiments.
    Keywords: Risk aversion, Emotions, Structural models
    JEL: D81 C91 D00
    Date: 2013–10–29
  6. By: Verena Utikal (Department of Economics, University of Erlangen-Nürnberg, Germany)
    Abstract: Apologies have a positive effect on forgiveness. Nevertheless not all people apologize after an offense. In a laboratory experiment we test whether lying aversion can explain this behavior by comparing honest and fake apologies. First, we show that even an honest apology comes along with a cost for some people. Second, costs for fake apologies are even higher. Fake apologies are less likely than honest apologies and consist of different wording and content. Receivers understand apologies as a signal for honesty. Following, forgiveness after an honest apology is more likely than after a fake apology.
    Keywords: Apology, Lying, Intentions, Experiment
    JEL: C91 D82 D83
    Date: 2013–04–30
  7. By: Vieider, Ferdinand M.; Truong, Nghi; Martinsson, Peter; Pham Khanh Nam; Martinsson, Peter
    Abstract: We obtain rich measures of risk preferences of poor farmers in Vietnam, and estimate structural models that capture risk preferences over different probability levels and across different domains (gains and losses). The results break radically with the previous literature on risk preferences, in developed and developing countries alike. Far from being particularly risk averse, our Vietnamese farmers are on average risk neutral. At the same time, we find our preference measures to perform well at predicting behavior, from the purchase of lottery tickets to risk management on the farm. We also find strong direct evidence of a risk-income paradox. While risk aversion is strongly decreasing in income within our farmer subject population, our Vietnamese farmers are significantly less risk averse than subjects in Western countries according to measurements obtained using the same decision tasks and procedures. --
    Keywords: risk preferences,development,external validity
    JEL: C93 D03 D80 O12
    Date: 2013
  8. By: Jonathan E. Alevy (Department of Economics, College of Business and Public Policy, University of Alaska Anchorage); Francis L. Jeffries (College of Business and Public Policy, University of Alaska Anchorage); Yonggang Lu (College of Business and Public Policy, University of Alaska Anchorage)
    Abstract: We study dictator allocations using a 2x2 experimental design that varies the level of anonymity and the choice set, allowing observation of audience effects in both give and take frames. Changes in the distribution of responses across treatment cells allow us to distinguish among alternative motives as elaborated in recent theory. We observe significant audience effects that vary by both frame and gender. The pattern of responses suggests that heterogeneous concerns for reputation and self-signaling across gender give rise to the contextual effects associated with the give and take frames that have previously been observed in the literature .
    Keywords: Dictator game; anonymity; gender; framing.
    JEL: C91 C92 D01 D03
    Date: 2013–10
  9. By: Geoffroy de Clippel (Dept. of Economics, Brown University); Kareen Rozen (Cowles Foundation, Yale University)
    Abstract: This paper experimentally investigates cooperative game theory from a normative perspective. Subjects designated as Decision Makers express their view on what is fair for others, by recommending a payoff allocation for three subjects (Recipients) whose substitutabilities and complementarities are captured by a characteristic function. We show that axioms and solution concepts from cooperative game theory provide valuable insights into the data. Axiomatic and regression analysis suggest that Decision Makers' choices can be (noisily) described as a convex combination of the Shapley value and equal split solution. A mixture model analysis, examining the distribution of Just Deserts indices describing how far one goes in the direction of the Shapley value, reveals heterogeneity across characteristic functions. Aggregating opinions by averaging, however, shows that the societal view of what is fair remains remarkably consistent across problems.
    Keywords: Cooperative game theory, Fairness, Experiment
    JEL: D63 D03 C71 C91
    Date: 2013–11
  10. By: Alessandro Innocenti; Tommaso Nannicini; Roberto Ricciuti
    Abstract: We evaluate the impact of timing on decision outcome, when both the timing and the relevant decision are chosen under uncertainty. Betting markets provide the testing ground, as we exploit an original dataset containing more than one million online bets on games of the Italian Major Soccer League. We find that individuals perform systematically better when they place their bets farther away from the game day. The better performance of early bettors holds controlling for (time-invariant) unobservable ability, learning during the season, and timing of the odds. We attribute this result to the increase of noisy information on game day, which hampers the capacity of late (non-professional) bettors to use very simple prediction methods, such as team rankings or last game results. We also find that more successful bettors tend to bet in advance,focus on a smaller set of events, and prefer events associated with smaller betting odds. JEL codes: D81, D83. Keywords: decision timing, information overload, betting, sports forecasting.
    Date: 2013
  11. By: Vieider, Ferdinand M.; Lefebvre, Mathieu; Bouchouicha, Ranoua; Chmura, Thorsten; Hakimov, Rustamdjan; Krawczyk, Michal; Martinsson, Peter
    Abstract: Attitudes towards uncertainty have been indicated to be highly context-dependent, and to be sensitive to the measurement technique employed. We present data collected in controlled experiments with 2939 subjects in 30 countries measuring uncertainty attitudes through incentivized measures as well as survey questions. Our data show clearly that measures correlate not only within decision context or measurements methods, but also across contexts and methods. This points to the existance of one underlying 'risk preference', which influences attitudes independently of the measurement method or choice domain. We furthermore find that answers to a general survey question correlate with incentivized lottery choices in most countries. Much more surprisingly, incentivized and survey measures also correlate significantly between countries. This opens the possibility to conduct cultural comparisons on risk attitudes using survey instruments. --
    Keywords: risk attitudes,uncertainty attitudes,context-specificity,experimental methodology
    JEL: D0 D81 C90 J10
    Date: 2013
  12. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Matteo Ploner (DEM-University of Trento); Ivan Soraperra (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: Experimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.
    Keywords: WTP-WTA gap, Risk, Elicitation Mechanisms, Probability Weighting
    JEL: D81 D03 C91
    Date: 2013–11–05
  13. By: Chad Cotti (University of Connecticut); Richard A. Dunn (Texas A&M University); Nathan Tefft (University of Washington)
    Abstract: We investigate how risky health behaviors and self - reported health vary with the Dow Jones Industrial Average (DJIA) and during stock market crashes. Because stock market indices are leading indicators of economic performance, this research contributes to our understanding of the macroeconomic determinants of health. Existing studies typically rely on the unemployment rate to proxy for economic performance, but this measure captures only one of many channels through which the economic environment may influence individual health decisions. We find that large, negative monthly DJIA returns, decreases in the level of the DJIA, and stock market crashes are widely associated with worsening self-reported mental health and more cigarette smoking, binge drinking, and fatal car accidents involving alcohol. These results are consistent with predictions from rational addiction models and have implications for research on the association between consumption and stock prices.
    Keywords: stock market, risky health behaviors, business cycle, alcohol, cigarettes
    JEL: I1 E32 G1
    Date: 2013–06
  14. By: Lisa Bruttel (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price the buyer pays for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study shows that there in fact is a loyalty enhancing effect of retroactive discounts and how it relates to risk preferences and loss aversion.
    Keywords: rebates and discounts, consumer behavior, risk aversion, loss aversion, experiment
    JEL: C91 D03 D81
    Date: 2013–08–31
  15. By: Arne Robert Weiss (Department of Economics, University of Köln, Germany); Irenaeus Wolff (Department of Economics, University of Konstanz, Germany and TWI Kreuzlingen, Switzerland)
    Abstract: In Geng, Weiss, and Woff (2011), we pointed to the possibility that a voting mechanism may create or strengthen an entitlement effect in political-power holders relative to a random-appointment mechanism. This comment documents that such an effect, if it exists, is not robust.
    Keywords: Elections, Electoral Campaigns, Dictator Game, Social Distance, Entitlement, Experiment
    JEL: D72 D03 C91
    Date: 2013–10–31
  16. By: Martin Binder; Leonhard K. Lades
    Abstract: Behavioral economics has shown that individuals sometimes make decisions that are not in their best interest. This insight has prompted calls for behaviorally-informed policy interventions popu-larized under the notion of "libertarian paternalism". This type of soft paternalism aims at helping individuals without reducing their freedom of choice. We highlight three problems of libertarian paternalism: the difficulty to detect what is in the best interest of an individual, the focus on freedom of choice at the expense of a focus on autonomy, and the neglect of the dynamic effects of libertarian paternalistic policy interventions. We present a form of soft paternalism called "autonomy-enhancing paternalism" that seeks to constructively remedy these problems. Autonomy-enhancing paternalism suggests using insights from subjective well-being research in order to determine what makes individuals better off. It imposes an additional con-straint on the set of permissible interventions highlighting the importance of autonomy in the sense of the capability to make critically reflected, i.e. autonomous, decisions. Finally, it acknowl-edges that behavioral interventions can change the strength of individual decision making anomalies over time as well as influence individual preference learning. We illustrate the differences between libertarian paternalism and autonomy-enhancing paternalism in a simple formal model in the context of optimal sin nudges.
    Keywords: libertarian paternalism, behavioral economics, subjective well-being, autonomy, preference learning, welfare economics
    Date: 2013–11–08
  17. By: Fuhai Hong; Tanjim Hossain; John List; Migiwa Tanaka
    Abstract: A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
    Date: 2013
  18. By: Napp, Clotilde; Viossat, Yannick; Jouini, Elyès
    Abstract: Why do investors keep different opinions even though they learn from their own failures and successes? Why do investors keep different opinions even though they observe each other and learn from their relative failures and successes? We analyze beliefs dynamics when beliefs result from a very general learning process that favors beliefs leading to higher absolute or relative utility levels. We show that such a process converges to the Nash equilibrium in a game of strategic belief choices. The asymptotic beliefs are subjective and heterogeneous across the agents. Optimism (respectively overconfidence) as well as pessimism (respectively doubt) emerge from the learning process. Furthermore, we obtain a positive correlation between pessimism (respectively doubt) and risk tolerance. Under reasonable assumptions, beliefs exhibit a pessimistic bias and, as a consequence, the risk premium is higher than in a standard setting.
    Keywords: heterogeneous beliefs; Beliefs formation; evolutionary game theory; risk premium; pessimism;
    JEL: D81 D53 D03 G12
    Date: 2013

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