nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒01‒17
fourteen papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. Private versus Public Feedback - The Incentive Effects of Symbolic Awards By Leonie Gerhards; Neele Siemer
  2. Mixing the Carrots with the Sticks : Third Party Punishment and Reward By Nikos Nikiforakis; Helen Mitchell
  3. Explaining Behavior in the "11-20" Game By Choo, Lawrence C.Y; Kaplan, Todd R.
  4. Do Women Panic More Than Men? An Experimental Study on Financial Decision By Kiss, Hubert Janos; Rodriguez-Lara, Ismael; Rosa-García, Alfonso
  5. Episodes from the Early History of Experimentation in Economics By Andreas Ortman
  6. Cognitive Ability, Expectations, and Beliefs about the Future: Psychological Influences on Retirement Decisions By Andrew M. Parker; Leandro S. Carvalho; Susann Rohwedder
  7. Recognizing Contributors: An Experiment on Public Goods By Anya Savikhin Samek; Roman M. Sheremeta
  8. When best-replies are not in equilibrium: understanding cooperative behaviour By Irenaeus Wolff
  9. The Political Influence of Peer Groups: Experimental Evidence from the Classroom By Camila Campos; Sean Hargreaves Heap; Fernanda L L de Leon
  10. Birth, Death and Public Good Provision By John Duffy; Jonathan Lafky
  11. Cheap Talk with Two Audiences: An Experiment By Mikhail Drugov; Roberto Hernán-González; Praveen Kujal; Marta Troya Martinez
  12. Leadership and conditional cooperation in public good games: What difference does the game make? By Edward J Cartwright; Denise Lovett
  13. Does mood affect trading behavior? By Kaustia, Markku; Rantapuska, Elias
  14. Social preferences and lying aversion in children By Valeria Maggian; Marie Claire Villeval

  1. By: Leonie Gerhards (Department of Economics and Business, Aarhus University, Denmark); Neele Siemer (Goethe-University Frankfurt)
    Abstract: We experimentally compare the incentive effects of rewarding individuals for outstanding performance publicly versus privately. We implement two real-effort tasks, which differ in how prestigious subjects perceive working on them. In both tasks private and public feedback similarly enhances subjects' performance compared to the control treatment. Also high ability and a positive interim feedback increase performance. Competitive preferences matter only in the less prestigious task. Subjects' gender and overconfidence can in neither of the tasks explain performance. In a supplementary field experiment at a secondary school we furthermore compare the incentive effects of different forms of public recognition.
    Keywords: Private feedback, public feedback, relative performance, competitive preferences, laboratory experiment, field experiment
    JEL: C91 C93 D03 J33 M12
    Date: 2014–01–10
  2. By: Nikos Nikiforakis (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon); Helen Mitchell (Department of Foreign Affairs and Trade - Australian Government Department of Foreign Affairs and Trade)
    Abstract: While the opportunity to punish selfish and reward generous behavior coexist in many instances in daily life, in most laboratory studies, the demand for punishment and reward are studied separately from one another. This paper presents the results from an experiment measuring the demand for reward and punishment by 'unaffected' third parties, separately and jointly. We find that the demand for costly punishment is substantially lower when individuals are also given the ability to reward. Similarly, the demand for costly reward is lower when individuals can also punish. The evidence indicates the reason for this is that costly punishment and reward are not only used to alter the material payoff of others as assumed by recent economic models, but also as a signal of disapproval and approval of others' actions, respectively. When the opportunity exists, subjects often choose to withhold reward as a form of costless punishment, and to withhold punishment as a form of costless reward. We conclude that restricting the available options to punishing (rewarding) only, may lead to an increase in the demand for costly punishment (reward).
    Keywords: punishment; reward; social norms; norm enforcement; third party
    Date: 2014–01–07
  3. By: Choo, Lawrence C.Y; Kaplan, Todd R.
    Abstract: We investigate whether subjects’ behavior in the Arad and Rubinstein (2012) "11-20" game could be well explained by the k-level process described by the authors. We replicated their game in our baseline experiment and provided two other variations that retained the same mixed-strategy equilibrium but resulted in different predicted behavior by the k-level process. Our experiments results suggest that k-level process leads to inconsistent predictions. In contrast to the standard k-level process as in Arad and Rubinstein, we allow players to best respond stochastically in our "SK" model and compared the model’s statistical fit against the Quantal Response Equilibrium and Cognitive Hierarchy Model. The SK model and Cognitive Model were able to outperform the QRE in a statistical sense and performed as well as each other. In addition, the Cognitive Hierarchy and to lesser extend the SK model, demonstrate consistent estimates. Our findings suggest that the behavioral assumptions of Arad and Rubinstein k-level process does not fully explain behavior in the "11-20" and better explanations could be obtained when one allows for stochastic best responds as in the SK and Cognitive Hierarchy Models.
    Keywords: k-level, Cognitive Hierarchy, Quantal Response Equilibrium, "11-20" money request game
    JEL: C73 C91
    Date: 2014–01–09
  4. By: Kiss, Hubert Janos; Rodriguez-Lara, Ismael; Rosa-García, Alfonso
    Abstract: We report experimental evidence on gender differences in financial decision that involves three depositors choosing between waiting or withdrawing their money from a common bank. We find that the position in the line, the fact of being observed and the observed decisions are key determinants to explain subjects’ behavior. Although both men and women value being observed, it has a greater effect on women’s decisions. Observing a withdrawal increases the likelihood of withdrawal but women and men do not react differently to what is observed, so they are equally likely to panic if a bank run is already underway. Interestingly, risk aversion has no predictive power on depositors’ behavior.
    Keywords: bank run; gender difference; strategic uncertainty; experimental evidence; coordination
    JEL: C91 D03 D8 G02 J16
    Date: 2014–01–13
  5. By: Andreas Ortman (School of Economics, Australian School of Business, the University of New South Wales)
    Keywords: Experimental methods, Early History of Experimentation in Economics
    JEL: B41 C9
    Date: 2013–12
  6. By: Andrew M. Parker (RAND); Leandro S. Carvalho (RAND); Susann Rohwedder (RAND)
    Abstract: Recent advances in behavioral decision research, behavioral economics, and life-span development psychology provide leverage for expanding our understanding of the decision to retire earlier versus later. This report examines how cognitive abilities, perceptions about the future, and other psychological characteristics affect retirement decisions. We use existing and new data collected through the RAND-USC American Life Panel, including detailed assessments of fluid and crystallized intelligence, financial literacy, expectations for the future, future time perspective, and maximizing versus satisficing decision styles. We find those with high levels of cognitive ability are more likely to retire later, as are those with greater longevity expectations. We also find those with lower cognitive ability have less coherent expectations of retirement—suggesting a need for planning assistance. We also find expectation of lower Social Security benefits is associated with plans to retire later—contrary to our hypothesis that such expectation might spur early retirement in an effort to lock in benefits. Finally, we find that tendencies maximize (versus satisfice) had mixed effects on retirement decision making, with different aspects of maximizing tendencies showing different relationships with retirement decision making. Future work should expand these data in a targeted direction. Recent research notes that decision-making competence can be improved with training, and to the extent this trainability extends to older adults, decision skills may be a useful target for intervention. Stronger longitudinal design and analysis can also help demonstrate possible endogenities between retirement and psychological variables.
    Date: 2013–09
  7. By: Anya Savikhin Samek (School of Human Ecology, University of Wisconsin-Madison); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and the Economic Science Institute, Chapman University)
    Abstract: We experimentally investigate the impact of recognizing contributors on public good contributions. We vary recognizing all, highest or lowest contributors. Consistent with previous studies, recognizing all contributors significantly increases contributions relative to the baseline. Recognizing only the highest contributors does not increase contributions compared to not recognizing contributors, while recognizing only the lowest contributors is as effective as recognizing all contributors. These findings support our conjecture that aversion from shame is a more powerful motivator for giving than anticipation of prestige.
    Keywords: public-goods, information, experiments
    JEL: C72 C91 H41
    Date: 2013
  8. By: Irenaeus Wolff
    Abstract: To understand cooperative behaviour in social-dilemma experiments, we need to understand the game participants play not only in monetary but in preference terms. Does a Nash-prediction based on participants' actual preferences describe their behaviour in a public-good experiment well? And if not, where does the observed behaviour diverge from the prediction? This study provides an environment which allows to answer these questions: when making their contribution decision, participants are informed about their co-playersÕ priorly-elicited conditional contribution preferences. This induces common knowledge of preferences and thereby leads to direct experimental control over the game participants play. Results show that most people play best-responses to their beliefs. At the same time, beliefs in a third of the cases do not correspond to an equilibrium prediction that is based on the elicited conditional-cooperation preferences. Moreover, more often than not, beliefs are empirically inaccurate. This holds true even in a treatment that gives participants the option to look up the set of equilibria of their game.
    Keywords: Public good, social dilemma, Nash-equilibrium, rational beliefs, conditional cooperation, social preferences.
    Date: 2013
  9. By: Camila Campos (Insper); Sean Hargreaves Heap (King's College London); Fernanda L L de Leon (University of East Anglia)
    Abstract: People who belong to the same group often behave alike. Is this because people with similar preferences naturally associate with each other or because group dynamics cause individual preferences and/or the information that they have to converge? This is the question that we address with a natural experiment. We focus on the possible influence of peers on two types of individual political behaviour: political identification on a left-right spectrum and political engagement. We find no evidence that peer political identification affects individual identification. But we do find that peer engagement affects individual engagement, individual political knowledge and political identification among those who are initially least engaged. We argue this (and other evidence) is most likely to arise from peer effects on the information that individuals have and not their preferences.
    Date: 2013–12
  10. By: John Duffy; Jonathan Lafky
    Abstract: We explore the effect of fixed versus dynamic group membership on public good provision. In a novel experimental design, we modify the traditional voluntary contribution mechanism (VCM) by periodically replacing old members of a group with new members over time. Under this dynamic, overlapping generations matching protocol we find that average contributions experience significantly less decay over time relative to a traditional VCM environment with fixed group membership. These findings suggest that the traditional pattern of contribution and decay seen in many public goods experiments may not accurately reflect behavior in groups with changing membership, as is the case in many real-world environments.
    Keywords: Public goods, Overlapping generations, Voluntary contribution mechanism, Experimental economics
    JEL: C72 C92 D64 H41
    Date: 2014–01
  11. By: Mikhail Drugov (Universidad Carlos III de Madrid, University of Warwick and CEPR); Roberto Hernán-González (Departamento de Teoría e Historia Económica, Universidad de Granada); Praveen Kujal (Middlesex University Business School); Marta Troya Martinez (Department of Economics, University of Oxford)
    Abstract: In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public. Using the level-k model, we exploit the within subject design to show how individuals decrease their level-k in public communication. Surprisingly, we find that individuals become more sophisticated when they communicate privately with two receivers rather than one.
    Keywords: Cheap Talk, Communication, Experiment, Level-k, Cognitive ability, Cognitive Reflection Test
    JEL: C72 C92 D83
    Date: 2013
  12. By: Edward J Cartwright; Denise Lovett
    Abstract: We investigate experimentally whether the extent of conditional cooperation in public good games depends on the marginal return to the public good and type of game. The marginal return is varied from 0.2 to 0.4 to 0.8. The 'standard' game, in which three players contribute before a follower, is compared with a leader-follower game, in which one player leads and three follow. We find no strong evidence that the marginal return or type of game makes a difference to the extent of conditional cooperation. We also find no evidence that the type of game makes a difference to unconditional contributions. The level of marginal return does, however, have a strong effect on unconditional contributions. Our results highlight the critical role that can be played by leaders in a public good game.
    Keywords: Public good; conditional cooperation; reciprocity; leadership
    JEL: C72 H41
    Date: 2013–12
  13. By: Kaustia, Markku; Rantapuska, Elias
    Abstract: We test whether investor mood affects trading with data on all stock market transactions in Finland, utilizing variation in daylight and local weather. We find some evidence that environmental mood variables (local weather, length of day, daylight saving and lunar phase) affect investors' direction of trade and volume. The effect magnitudes are roughly comparable to those of classical seasonals, such as the Monday effect. The statistical significance of the mood variables is weak in many cases, however. Only very little of the day-to-day variation in trading is collectively explained by all mood variables and calendar effects, but lower frequency variation seems connected to holiday seasons. --
    Keywords: mood,seasonal affective disorder (SAD),weather,trading behavior,stock market
    JEL: D03 G11 G12
    Date: 2013
  14. By: Valeria Maggian (Università degli studi di Milano-Bicocca - UNIVERSITÀ DEGLI STUDI DI MILANO-BICOCCA); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon)
    Abstract: While previous research has shown that social preferences develop in childhood, we study whether this development is accompanied by reduced use of deception when lies would harm others, and increased use of deception to benefit others. In a sample of children aged between 7 and 14, we find strong aversion to lying at all ages. Lying is driven mainly by selfish motives and envy. Children with stronger social preferences are less prone to deception, even when lying would benefit others at no monetary cost. Older children lie less than younger children and require more selfjustification to lie.
    Keywords: Lie aversion; deception; social preferences; children; experiment
    Date: 2014–01–07

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