nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2013‒12‒20
seven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Temporary Workers Are Not Free-Riders: An Experimental Investigation By D. Dragone; F. Galeotti; R. Orsini
  2. Sustainable Decision-Making: Non-Monetary Incentives for Pro-Social Behavior in the Energy Sector By Stephanie Rosenkranz; Katrin Muehlfeld; Gerwin van der Laan; Utz Weitzel; Jeroen van der Donk; Helia Ivanova; Erik-Jan van Kesteren; Milou Ottink; Heleen van der Spek
  3. In brief...Top of the class By Richard Murphy; Felix Weinhardt
  4. Reference Points, Performance and Ability: A Real Effort Experiment on Framed Incentive Schemes By Katharina Hilken; Stephanie Rosenkranz; Kris De Jaegher; Marc Jegers
  5. The Excess Returns Puzzle in Currency Markets: Clues on Moving Forward By Josh Stillwagon
  6. Does Anticipated Regret Really Matter? Revisiting the Role of Feedback in Auction Bidding By Peter Katuscak; Fabio Michelucci; Miroslav Zajicek
  7. Learning with Recency Bias By Drew Fudenberg; David K Levine

  1. By: D. Dragone; F. Galeotti; R. Orsini
    Abstract: We conduct an artefactual field experiment to study whether the individual preferences and propensity to cooperate of temporary workers differ from permanent contract workers. We find that temporary and permanent contract workers have different other-regarding preferences, but display similar contribution patterns in an anonymous Public Good Game. Students, instead, are more selfish and contribute less than temporary and permanent workers.
    JEL: C72 C93 D23 H41 J54
    Date: 2013–12
  2. By: Stephanie Rosenkranz; Katrin Muehlfeld; Gerwin van der Laan; Utz Weitzel; Jeroen van der Donk; Helia Ivanova; Erik-Jan van Kesteren; Milou Ottink; Heleen van der Spek
    Abstract: Taking into account insights into the reality of human decision-making, is an important challenge for today's policymakers. Are there `cheaper', more efficient and possibly as well more effective, non-financial ways of influencing the behaviour of private and corporate citizens, nudging them towards socially desired choices, for example, in the domain of energy consumption? Can such mechanisms complement or substitute for monetary incentives in fostering sustainable decision-making in policy relevant areas such as energy consumption? If so, what mechanisms might be feasible to implement in actual policymaking? Against this background, the Dutch Ministry of Economic Affairs (Ministerie van Economische Zaken) wants to know which "nudges" are the most suitable for application in the field of energy conservation. To this end, in this report we (1) take stock what is known about the effects of non-monetary incentives in general, and legacy reminders in particular, in increasing individuals' regard for collective interests and for intergenerational beneficence, in particular in the domain of energy consumption (literature review); (2) investigate in a laboratory setting the effects of selected non-monetary incentives on a selection of relevant decision tasks (laboratory experiments); and (3) apply the insights from the literature review and laboratory experiments to specific instruments of policy-making in the Netherlands.
    Keywords: Behavioral Economics, Choice Architecture, Nudge, Energy Efficiency
    JEL: D01 D03 D04
    Date: 2013–10
  3. By: Richard Murphy; Felix Weinhardt
    Abstract: Boys may be better off not going to the school with high-performing peers, according to research by Richard Murphy and Felix Weinhardt, which explores how much impact there is on later confidence and exam results from where a child ranks in primary school. They find that being ranked in the top quarter of your primary school peers as opposed to the bottom quarter improves later test scores by twice as much as being taught by a highly effective teacher for one year (with boys four times more affected by being top of the class than girls). Non-cognitive skills such as confidence, perseverance and resilience have big effects on achievement.
    Keywords: Rank, non-cognitive skills, peer effects
    JEL: I21 J24 D01
    Date: 2013–12
  4. By: Katharina Hilken; Stephanie Rosenkranz; Kris De Jaegher; Marc Jegers
    Abstract: The paper investigates the effect of four differently framed payment contracts on the agent's effort provision and performance in a real effort experiment. The four incentive payments are framed as a base wage and bonuses (one immediately pays bonuses, the other only after an initial performance-independent part), penalties or a combination of bonuses and penalties. The base wage that is offered, induces the reference point. The participants provide real effort and are paid for finding pairs in a customized Memory game. The bonus-only frame elicits the highest effort, whereas frames with penalties lag behind. Ability positively complements the effect of effort on performance. The combination of penalties and bonuses minimises the costs of the principal only for low levels of performance employing heterogeneous agents. For higher performance levels, framing a base wage with bonuses is cost-effective.
    Keywords: Real Effort Experiment, Optimal Payment Scheme, Principal-Agent Relationship, Ability, Bonus, Penalty
    JEL: M52 J33 C91
    Date: 2013–11
  5. By: Josh Stillwagon (Department of Economics, Trinity College)
    Abstract: This paper is designed to review the empirical literature on the excess returns puzzle: the difficulty encountered by standard risk premium models in accounting for relative returns in the foreign exchange market. Of particular interest are the studies using survey data to decompose ex post excess returns into an expected component - the risk premium - and a forecast error. On the whole, these studies have found evidence of violations of the rational expectations hypothesis (non-white noise forecast errors), and a time-varying risk premium. This suggests the need for an alternative specification of forecasting. The literature has left open however the question of whether the traditional models can account for movements in the premium as measured by survey. Although the traditional models have not been tested against survey data, there is reason from the outset to believe EUT provides a deficient foundation for a model of the risk premium. Experimental evidence is discussed showing that the predictions of EUT are grossly inconsistent with the behavior of actual subjects towards risky gambles. Lastly, the paper discusses alternative models of risk preferences drawing from the experimental findings on prospect theory, and ways in which their testing can be improved through use of the I(2) Cointegrated VAR model.
    Keywords: Excess returns puzzle, survey data, prospect theory, cointegration
    JEL: F31 G02 G15
    Date: 2013–12
  6. By: Peter Katuscak; Fabio Michelucci; Miroslav Zajicek
    Abstract: Does the type of post-auction feedback affect bidding behavior in first price auctions? Filiz- Ozbay and Ozbay (2007) find that such manipulation can increase bids in a one-shot auction. They explain this as an effect of anticipated regret combined with the assumption that feedback directly affects salience of regret relative to material payoff. We revisit this important market design issue using four different auction protocols and a large sample of subjects. We do not find any systematic effect of feedback on the average bid/value ratio. This evidence indicates either the lack of anticipated regret or its manipulability by feedback in one-shot auctions.
    Keywords: auctions; bidding; feedback; regret;
    JEL: C91 C92 D44
    Date: 2013–06
  7. By: Drew Fudenberg; David K Levine
    Date: 2013–12–16

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