nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒12‒15
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Imagine Being a Nice Guy: A Note on Hypothetical vs. Incentivized Social Preferences By Christoph Bühren; Thorben C. Kundt
  2. Lifecycle Consumption Plans, Social Learning and External Habits: Experimental Evidence By John Duffy; Enrica Carbone
  3. Social Preferences under Risk: the Role of Social Distance By Natalia Montinari; Michela Rancan
  4. An Experimental Study on Motivations for Socially Responsible Investment By Miwa Nakai; Tomonori Honda; Nariaki Nishino; Kenji Takeuchi
  5. Vertically Splitting a Firm: Promotion and Demotion in a Team Production Experiment By Tibor Neugebauer; Susana Cabrera; Enrique Fatas; Juan A. Lacomba
  6. Limited Liability, Moral Hazard and Risk Taking A Safety Net Game Experiment By Tibor Neugebauer,; Sascha Fullbrunn
  7. Communication and Efficiency in Competitive Coordination Games By Cason, Timothy; Sheremeta, Roman; Zhang, Jingjing
  8. Are Females Scared of Competing with Males? Results from a Field Experiment By De Paola, Maria; Gioia, Francesca; Scoppa, Vincenzo
  9. Fight or Flight? By Deck, Cary; Sheremeta, Roman
  10. What is a fair wage? Reference points, Entitlements and Gift Exchange By Eleonora Bottino; Cintia Goddio; Praveen Kujal
  11. Free to Choose: An Experimental Investigation of the Value of Free Choice By Lasha Lanchava
  12. Are Sunk Costs Irrelevant? Evidence from Playing Time in the National Basketball Association By Leeds, Daniel; Leeds, Michael A.; Motomura, Akira
  13. Uncertainty, Ambiguity and Risk Taking: an experimental investigation of consumer behavior and demand for insurance By Jean Desrochers; J. Francois Outreville
  14. Social and Moral Norms in Allocation Choices in the Laboratory By Charness, Gary; Schram, Arthur
  15. "How About Giving My Things Away Over The Internet? " When Internet Makes It Easier To Give Things Away By Valérie Guillard; Céline Del Bucchia
  16. Locus of Control and Savings By Deborah A. Cobb-Clark; Sonja C. Kassenboehmer; Mathias G. Sinning

  1. By: Christoph Bühren (University of Kassel); Thorben C. Kundt (Helmut-Schmidth-University)
    Abstract: We conducted an experimental study on social preferences using dictator games similar to Fehr et al. (2008). We show that social preferences differ between participants who receive low-stakes monetary rewards for their decisions and participants who consider hypothetical stakes. The results are robust when we control for socio-demographic characteristics and participants’ risk attitudes. Besides incentives, gender plays an important role for the categorization of different social preferences.
    Keywords: social preferences, incentive mechanisms, dictator games
    JEL: D91
    Date: 2013
  2. By: John Duffy; Enrica Carbone
    Abstract: We report results from a laboratory experiment exploring the extent to which individuals can solve a deterministic, intertemporal lifecycle consumption optimization problem. The environment we study has a positive interest rate on savings and no discounting implying that the optimal consumption path should be linearly increasing over time, i.e., agents maximize their lifecycle payoff by smoothing their consumption over time. In addition to studying the individual intertemporal consumption/savings problem, we explore the role played by social information regarding the consumption/savings decisions of other, homogeneously endowed agents as well as the role played by an external habit formation specification for preferences. We find that subjects are generally closest to the conditionally optimal consumption path when they do not have access to social information on the consumption decisions made by other, similarly situated subjects or when social concerns (external habits) are explicitly incorporated into their utility functions.
    JEL: C91 C92 D11 D91 E21
    Date: 2013–09
  3. By: Natalia Montinari (University of Lund, Department of Economics); Michela Rancan (Robert Schuman Centre for Advanced Studies, European University Institute)
    Abstract: In many different contexts individuals take decisions on the behalf of others. However, little is known about how this circumstance affects the decision making process and influences the ultimate individuals' choices. In this paper, we focus on the context of investment decisions and study if (and how) lottery-type investment decisions made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results shows that social distance (i.e., whether the person affected by one's decision is an unknown stranger or a friend) is an important determinant when people decide on the behalf of others. Individuals are heterogeneous in their individual investment strategies but, on average, when deciding on behalf of a friend rather than only for themselves or a stranger, their behavior is closer to expected value maximization, exhibiting less risk taking. We interpret these findings as evidence of other regarding preferences affecting the decision making process in lottery-type decisions when the social distance is shortened.
    Keywords: Risk seeking, Other Regarding Preferences, Social Distance, Friends, Lottery-type investment
    JEL: A13 C91 D64 D81
    Date: 2013–12–04
  4. By: Miwa Nakai (Graduate School of Economics, Kobe University, Japan); Tomonori Honda (The National Institute of Advanced Industrial Science and Technology, Japan); Nariaki Nishino (School of Engineering, The University of Tokyo, Japan); Kenji Takeuchi (Graduate School of Economics, Kobe University, Japan)
    Abstract: This paper aims, through laboratory-based economic experiments, to shed light on the decision-making process in SRI and how it differs from decision making by other types of investors. We asked subjects to make decisions regarding stock investments on the basis of the three attributes of return, variance, and CSR, and we estimated their utility function to classify the types of investors. We also conducted a dictator game and lottery-choice experiments to measure subjectsf heterogeneity in regard to three psychological factors: altruism, risk aversion, and time preference. We used psychological factors to apply a latent class model and we examined whether these factors affect investment in the stock of companies that actively promote CSR. The main finding of this study is that there is heterogeneity among investors, even among SRI investors. With the latent class model, we found conventional investors, SRI investors, and risk-loving SRI investors among our subjects. We hypothesised three psychological factors behind this heterogeneity. While the results support our altruistic hypothesis, the results under the risk-averse hypothesis and lower time preference hypothesis depend on which investor group is treated as SRI investors and also on the model specification. Although previous studies also found heterogeneity among SRI investors, no studies have tried to reveal the psychological background of the heterogeneity.
    Keywords: Behavioural Finance; Economic Experiment; Socially Responsible Investment
    JEL: M14 G02 C91
    Date: 2013–11
  5. By: Tibor Neugebauer; Susana Cabrera; Enrique Fatas; Juan A. Lacomba (LSF)
    Abstract: The paper reports an experimental study on a promotion-demotion mechanism to mitigate the free-rider problem in team production. The "mechanism hierarchically splits a group in two; we refer to one subgroup as" the major league and to the other as the minor league. The most cooperative subject of the minor league is switched with the least cooperative subject in the major league. The results reveal a significant increase of cooperation levels relative to the standard voluntary contribution mechanism. We argue that competition arises and contributions increase because some subjects believe in a larger short-term continuation payoff from the major league than from the minor league. The data suggest that the promotion-demotion mechanism leads to a self-sorting of subjects according to their cooperativeness.
    Keywords: experiment, group incentives, organization design
    JEL: C92 H41 J33 J4
    Date: 2012
  6. By: Tibor Neugebauer,; Sascha Fullbrunn (LSF)
    Abstract: We model the safety net problem as a social dilemma game involving moral hazard, risk taking and limited liability. The safety net game is compared to both an individual decision task involving full liability and the deterministic public goods game. We report experimental data to show that limited "liability leads to higher risk taking in comparison to full liability;" nevertheless, the difference is much smaller than predicted by theory. In the safety net game, subjects behave as if socially responsible for the losses they impose on the group. With repetition, nevertheless, a gradual emergence of the moral hazard problem arises.
    Keywords: Forthcoming: Economic Inquiry
    JEL: C9 D7 D8 H4 I1 I3
    Date: 2012
  7. By: Cason, Timothy; Sheremeta, Roman; Zhang, Jingjing
    Abstract: Costless pre-play communication has been found to effectively facilitate coordination and enhance efficiency in games with Pareto-ranked equilibria. We report an experiment in which two groups compete in a weakest-link contest by expending costly efforts. Allowing intra-group communication leads to more aggressive competition and greater coordination than control treatments without any communication. On the other hand, allowing inter-group communication leads to less destructive competition. As a result, intra-group communication decreases while inter-group communication increases payoffs. Our experiment thus provides an example of an environment where communication can either enhance or damage efficiency. This contrasts sharply with experimental findings from public goods and other coordination games, where communication always enhances efficiency and often leads to socially optimal outcomes.
    Keywords: contest, between-group competition, within-group competition, cooperation, coordination, free-riding, experiments
    JEL: C70 D72 H41
    Date: 2012
  8. By: De Paola, Maria (University of Calabria); Gioia, Francesca (University of Calabria); Scoppa, Vincenzo (University of Calabria)
    Abstract: We conducted a field experiment involving 720 Italian undergraduate students to investigate the existence of gender differences in performance in competitive settings and whether performance is affected by one's opponent gender. The experimental design was aimed at disentangling gender differences in taste for competition from other differences in psychological attitudes, such as self-confidence and risk aversion. Students were invited to undertake a midterm exam under a tournament scheme having as a prize some bonus points to add to the final grade. Students competed in pairs of equal predicted ability but different gender composition. We find that females are as likely as males to take part in the competition and to obtain a good performance. The gender of one's competitor does not play any role in shaping students' behavior. Men and women perform similarly both in the competitive and in the non-competitive environment.
    Keywords: gender differences, attitude toward competition, psychological differences, tournaments, field experiment, student achievements
    JEL: J16 J24 J70 C93
    Date: 2013–12
  9. By: Deck, Cary; Sheremeta, Roman
    Abstract: This paper examines theory and behavior in a two-player game of siege, sequential attack and defense. The attacker’s objective is to successfully win at least one battle while the defender’s objective is to win every battle. Theoretically, the defender either folds immediately or, if his valuation is sufficiently high and the number of battles is sufficiently small, then he has a constant incentive to fight in each battle. Attackers respond to defense with diminishing assaults over time. Consistent with theoretical predictions, our experimental results indicate that the probability of successful defense increases in the defenders valuation and it decreases in the overall number of battles in the contest. However, the defender engages in the contest significantly more often than predicted and the aggregate expenditures by both parties exceed predicted levels. Moreover, both defenders and attackers actually increase the intensity of the fight as they approach the end of the contest.
    Keywords: Colonel Blotto, conflict resolution, weakest-link, game of siege, multi-period resource allocation, experiments.
    JEL: C91 D74
    Date: 2012
  10. By: Eleonora Bottino; Cintia Goddio; Praveen Kujal
    Abstract: Society adopts institutions that can change incentives, reference points and entitlements for the economic agents. In this paper we look at two stylized wage setting institutions and their effect on wage offers and effort in the classic gift exchange experiments of Fehr, Kirchsteiger and Riedl (1993). The first one is the exogenously imposed minimum wage institution (first instituted in New Zealand in 1894). The second institution we look is an endogenous wage proposal institution where workers first make wage proposals. We find that the imposition of an exogenous minimum wage floor at the competitive outcome lowers average wage offers. However, workers do not negatively reciprocate and continue to offer high effort. In the second institution workers make non-binding (endogenous) minimum wage proposals. The introduction of endogenous minimum wage proposals marginally increases wage offers while, average effort decreases when wage proposals are not matched. Finally, relative to the baseline, overall efficiency with the non-binding minimum wage decreases, while, efficiency is only slightly higher under endogenous minimum wage proposals. We find that clear evidence that the institutional structure has important implications towards wage offers, effort and efficiency.
    JEL: J2 J3
    Date: 2013
  11. By: Lasha Lanchava
    Abstract: This study is the first economic experiment that tests the economic significance of the theory of psychological reactance (Brehm, 1966). For this purpose, I design an economic experiment in which subjects are asked to express their valuation of two-choice situations. In one case, subjects are given absolute freedom, whereas in another, the extent of their freedom of choice is limited. As the experimental data revealed, subjects’ valuation of free and limited choice situations did not differ significantly. Thus, in the experiment, the subjects did not display signs of reactance. In the end, the potential reasons of why the subjects did not exhibit reactance are discussed. The lessons derived from this study may serve as a future guide for testing the economic significance of the reactance theory.
    Keywords: psychological reactance; freedom of choice; law enforcement;
    JEL: K0 C90 A1
    Date: 2013–09
  12. By: Leeds, Daniel (University of Michigan); Leeds, Michael A. (Temple University); Motomura, Akira (Stonehill College)
    Abstract: The relevance of sunk costs in decision making is one of the major sources of disagreement between neoclassical economists and behavioral economists. We test the importance of sunk costs by examining the role of a player's draft position on his playing time in the National Basketball Association. Specifically, we ask whether players taken as "lottery picks" or in the first round of the draft are treated differently from otherwise identical players who are chosen later. We build on previous studies in three ways. First, we study a time period that had a stronger contrast between the financial commitment to first and second-round draft picks. Second, we use a better measure of playing time by accounting fully for the time a player loses to injury, suspension, or other exogenous factor. Finally and most importantly, we use a more sophisticated methodology – regression discontinuity – to test for whether teams treat lottery picks or first-round picks differently from later picks. Our results find little or no impact of draft round or lottery status on playing time. Hence, our findings strongly support the neoclassical outlook.
    Keywords: sunk costs, behavioral economics, basketball, regression discontinuity
    JEL: D03 J23 L83
    Date: 2013–12
  13. By: Jean Desrochers; J. Francois Outreville
    Abstract: The purpose of this paper is to examine whether people treat all forms of uncertainty in the same way. Studies investigating known-risk gambles and ambiguous gambles have systematically used the urn context. Little systematic research has investigated differences in expressed attitude as a function of the manner in which vague probability information is communicated to a decision maker. The experiments reported in this paper examine the behavior of people when faced with different situations with and without an insurance context: a risky situation (the probability of loss is known), an uncertain situation (there is no prior information on the probability of loss) or an ambiguous (the information provided is vague).
    Keywords: Risk behavior; ambiguity aversion; insurance purchase
    JEL: C90 D81 D83 G22
    Date: 2013–11
  14. By: Charness, Gary; Schram, Arthur
    Keywords: Social and Behavioral Sciences
    Date: 2013–10–19
  15. By: Valérie Guillard (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Céline Del Bucchia (Audencia Recherche - Audencia)
    Abstract: The present article looks at the meaning of gift-giving when it is performed via free online recycling websites. Underpinned by research on the difficulties inherent to giving, our paper illustrates how these websites remove the difficulties inherent in giving to kith, kin or to charities.
    Keywords: Gift economy, online giving, gifts to distant others, disposition, recognition, recycling objects.
    Date: 2012
  16. By: Deborah A. Cobb-Clark (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and IZA, Bonn); Sonja C. Kassenboehmer (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and IZA, Bonn); Mathias G. Sinning (Research School of Economics, College of Business and Economics, The Australian National University; RWI, Essen; and IZA, Bonn)
    Abstract: This paper analyzes the relationship between individuals’ locus of control and their savings behavior, i.e. wealth accumulation, savings rates, and portfolio choices. Locus of control is a psychological concept that captures individuals’ beliefs about the controllability of life events and is a key component of self-control. We find that households with an internal reference person save more both in terms of levels and as a percentage of their permanent incomes. Although the locus-of-control gap in savings rates is largest among rich households, the gap in wealth accumulation is particularly large for poor households. Finally, households with an internal reference person and average net worth hold significantly less financial wealth, but significantly more pension wealth, than otherwise similar households with an external reference person.
    Keywords: Non-cognitive skills, locus of control, wealth accumulation, asset portfolios, savings
    JEL: G02 G11 I31 R21
    Date: 2013–12

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