nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒02‒02
twenty papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. The Individual and Joint Performance of Economic Preferences, Personality, and Self-Control in Predicting Criminal Behavior By Friehe, Tim; Schildberg-Hörisch, Hannah
  2. Social comparison and risk taking behavior By Astrid Gamba; Elena Manzoni
  3. Social norms or low-cost heuristics? An experimental investigation of imitative behavior By Cicognani, Simona; Mittone, Luigi
  4. Who cares for social image? Interactions between intrinsic motivation and social image concerns By Friedrichsen, Jana; Engelmann, Dirk
  5. Cooperation preferences and framing effects By Dariel A.
  6. Overconfidence, Risk Aversion and Individual Financial Decisions in Experimental Asset Markets By Michailova, Julija
  7. Measuring Time and Risk Preferences: Reliability, Stability, Domain Specificity By Riedl A.M.; Wölbert E.M.
  8. The value of real voluntary associations By Giacomo Degli Antoni; Gianluca Grimalda
  9. Social preferences and portfolio choice By Riedl A.M.; Smeets P.M.A.
  10. The impact of communication regimes on group rationality: Experimental evidence By Meub, Lukas; Proeger, Till
  11. Risk taking and risk sharing does responsibility matter? By Tausch F.; Cettolin E.
  12. Social influences towards conformism in economic experiments By Hargreaves Heap, Shaun P.
  13. Loss Aversion and Consumption Choice: Theory and Experimental Evidence By Karle, Heiko; Kirchsteiger, Georg; Peitz, Martin
  14. Do Women Have More Shame than Men? An Experiment on Self-Assessment and the Shame of Overestimating Oneself By Ludwig, Sandra; Thoma, Carmen
  15. Present-Bias, Procrastination and Deadlines in a Field Experiment By Alberto Bisin; Kyle Hyndman
  16. In the long-run we are all dead: On the benefits of peer punishment in rich environments By Engelmann, Dirk; Nikiforakis, Nikos
  17. The Virtue Ethics Hypothesis: Is there a nexus between virtues and well-being? By Koch, Christian
  18. A Dynamic Model of Belief-Dependent Conformity to Social Norms By Sontuoso, Alessandro
  19. Strive to be first and avoid being last: An experiment on relative performance incentives By Lindner, Florian; Dutcher, E. Glenn; Balafoutas, Loukas; Ryvkin, Dmitry; Sutter, Matthias
  20. "Heads or Tails?" - A reachability bias in binary choice By Maya Bar-Hillel; Eyal Peer; Alessandro Acquisti

  1. By: Friehe, Tim (University of Bonn); Schildberg-Hörisch, Hannah (University of Bonn)
    Abstract: We explore the individual and joint explanatory power of concepts from economics, psychology, and criminology for criminal behavior. More precisely, we consider risk and time preferences, personality traits from psychology (Big Five and locus of control), and a self-control scale from criminology. We find that economic preferences, personality traits, and self-control complement each other in predicting criminal behavior. The most significant predictors stem from all three disciplines: risk aversion, conscientiousness, and high self-control make criminal behavior less likely. Our results illustrate that integrating concepts from various disciplines enhances our understanding of individual behavior.
    Keywords: crime, risk preferences, time preferences, personality traits, self-control, experiment
    JEL: K42 D03 D81 D90 C21 C91
    Date: 2014–01
  2. By: Astrid Gamba; Elena Manzoni
    Abstract: We study theoretically and experimentally decision making under uncertainty in a social environment. We introduce an interdependent preferences model that assumes that the decision maker evaluates monetary outcomes in relation both with his individual and his social reference point. In the experiment we reproduce a workplace environment whereby subjects interact in an effort task, earn (possibly) different wages from this task and then undertake a risky decision that may give them an extra bonus. Controlling for intrinsic risk attitudes, we find that both downward and upward social comparison strongly influence risk attitudes and that they both generate more risk loving behavior. Moreover, we find that a propension to envy counterposes such effect, by increasing risk aversion.
    Keywords: Social comparison, risk aversion, interdependent preferences, reference point
    JEL: C91 D03 D81
    Date: 2014–01
  3. By: Cicognani, Simona; Mittone, Luigi
    Abstract: This paper extends choice theory by allowing for the interaction between cognitive costs and social norms. The authors experimentally investigate the role of imitation and temporal decisional patterns when participants face a task which is costly in cognitive terms. They identify two main reasons for imitative behavior. First, individuals belonging to a community might want to conform to others to obey to social norms. Second, individuals might be boundedly rational and consider imitation as a decisional device when comparing alternatives is cognitively demanding. In order to empirically disentangle the two effects, the authors present a laboratory experiment in which they model the choice of different alternatives through high or low cognitive costs and feedback information given to subjects. Their results do not provide strong evidence for imitative behavior. They find instead a temporal pattern in the distribution of choices, both in the high-cost and low-cost conditions. --
    Keywords: social norms,cognitive costs,laboratory experiments
    JEL: C92 D81 Z13
    Date: 2014
  4. By: Friedrichsen, Jana; Engelmann, Dirk
    Abstract: We consider the interaction of intrinsic motivation and concerns for social approval in a laboratory experiment. We elicit a proxy for Fairtrade preferences before the experiment. In the experiment, we elicit willingness to pay for conventional and Fairtrade chocolate. Treatments vary whether this can be signalled to other participants. Subjects concerned with social approval should state a higher Fairtrade premium when signalling is possible. We find that this is the case, but interestingly only for participants who are not intrinsically motivated to buy Fairtrade. This has important implications both for crowding out of intrinsic motivation through incentives and for producer choices. --
    JEL: D03 C91 H41
    Date: 2013
  5. By: Dariel A. (GSBE)
    Abstract: This paper presents the results from an experiment investigating whether framing affects the elicitation and predictive power of preferences for cooperation, i.e., the willingness to cooperate with others. Cooperation preferences are elicited in three treatments using the method of Fischbacher, Gächter and Fehr (2001). The treatments vary two features of their method: the sequence and order in which the contributions of other group members are presented. The predictive power of the elicited preferences is evaluated in a one-shot and a finitely-repeated public-good game. I find that the order in which the contributions of others are presented, by and large, has no impact on the elicited preferences and their predictive power. In contrast, presenting the contributions of others in a sequence has a pronounced effect on the elicited preferences and reduces substantially their predictive power. Overall, elicited preferences are more accurate at predicting behavior when others contributions are presented simultaneously and in ascending order, like in Fischbacher, Gächter and Fehr (2001).
    Keywords: Design of Experiments: Laboratory, Individual; Public Goods;
    JEL: C91 H41
    Date: 2013
  6. By: Michailova, Julija
    Abstract: We investigate the influence of overconfidence and risk aversion on individual financial decision making in the experimental asset markets of the Smith, Suchanek and Williams (1988) type, with no informational asymmetries. Subjects, based on their pre-experimental overconfidence scores, were assigned to the two types of markets: least overconfident subjects formed five “rational” markets and most overconfident subjects formed five “overconfident” markets. The asset market experiment was followed by post hoc risk aversion measurement. Our results revealed that in the suggested setting, performance and trading activity were overconfidence dependent only for female participants. Mistakes in price forecasting, that are negatively correlated with overconfidence, could partially account for the increase in trading activity and losses. In the decreased sample differences in individual outcomes were overconfidence and not risk aversion driven.
    Keywords: overconfidence; miscalibration; overprecision; risk aversion; financial decisions; economic experiments
    JEL: D81 G11 C90 C91
    Date: 2010
  7. By: Riedl A.M.; Wölbert E.M. (GSBE)
    Abstract: To accurately predict behavior economists need reliable measures of individual time preferences and attitudes toward risk and typically need to assume stability of these characteristics over time and across decision domains. We test the reliability of two choice tasks for eliciting discount rates, risk aversion, and probability weighting and assess the stability of these characteristics over timeand across situations. We find high reliability and that individual characteristics are remarkably stable over time. The estimated parameters correlate well with self-reported decisions in financial domains, but are largely uncorrelated with decisions in other important life domains involving intertemporal trade-offs and risk.
    Keywords: Methodological Issues: General; Design of Experiments: Laboratory, Individual; Behavioral Economics: Underlying Principles; Information, Knowledge, and Uncertainty: General; Intertemporal Choice and Growth: General;
    JEL: C18 C91 D03 D80 D90
    Date: 2013
  8. By: Giacomo Degli Antoni (University of Parma, Department of Law; Econometica, Inter-University Center for Economic Ethics and Corporate Social Responsibility, Italy); Gianluca Grimalda (University of Duisburg-Essen, Centre for Global Cooperation Research and Kiel Institute for the World Economy, Germany; LEE-Universitat Jaume I of Castellón, Spain)
    Abstract: The social capital literature attributes association members a key role in propagating inter-personal trust in the society. It has been posited that participating in associations instils pro-social attitudes in their members, and that the decline in associational membership is the main cause of the faltering rates of inter-personal trust in the US. However, the extent to which association members are indeed inclined to extend their presumed higher pro-social attitudes from within associations to the society at large is still an open question. The survey evidence on the issue is scant, and recent laboratory evidence with minimal groups assigns no value to groups as such. We investigate these issues in the first field experiment measuring trust and trustworthiness of members of real-life associations and of a demographically comparable sample of non-members. The sample was stratified with respect to age, gender, educational level. Members have played an anonymous Trust Game either with fellow members (ingroup treatment), or with people from the general population (outgroup treatment). Our main findings are: (a) Association members are significantly more trusting and trustworthy than non-members when interacting with people from the general population. (b) Association members generally trust and reward fellow members in the same way as they behave with people from the general population. Ingroup favouritism is limited to two associations out of ten with respect to trust, and to one case with respect to trustworthiness. (c) However, people who are members of only “Olsonian” associations do not trust others significantly more than people from the general population, while members of “Putnamesque” and social welfare associations trust significantly more. This confirms the conjecture that associations may have different macroeconomic impacts depending on the nature of their goals. (d) We find no evidence that growing individual involvement with associational life, measured by length of membership, hours spent volunteering, and number of associations joined, has any effect in increasing pro-social attitudes.
    Keywords: Trust; Trustworthiness; Social Capital; Ingroup bias; Voluntary associations; Field experiment
    JEL: A13 C91 C93 D03
    Date: 2013
  9. By: Riedl A.M.; Smeets P.M.A. (GSBE)
    Abstract: This paper explores whether social preferences influence portfolio choices of retail investors. We use administrative investor trading records which we link to decisions of the same investors in experiments with real money at stake. We show that social preferences rather than return expectations or risk perceptions are the main driver of investments in socially responsible SRI mutual funds. Social preferences are only associated with investments in SRI funds without tax benefits, but are unrelated to investments in SRI funds with tax incentives. This illustrates that tax incentives change the clientele of mutual funds and that tax incentives crowd out the intrinsic motivations of investors with strong social preferences. Our results also show that prosocial behavior in one domain experiment is correlated with prosocial behavior in another domain investments, which adds to the discussion on the usefulness of experiments in finance.
    Keywords: Altruism; Philanthropy; Portfolio Choice; Investment Decisions; Public Goods;
    JEL: G11 D64 H41
    Date: 2013
  10. By: Meub, Lukas; Proeger, Till
    Abstract: The performance of groups has been thoroughly investigated in experimental economics, showing that groups are overall more rational deciders than individuals. However, superior group performance in economic experiments has primarily been shown for face-toface decision making, which has ceased to be the prevalent form of communication in many IT-based organizations. To test the robustness of higher group rationality under conditions of virtual communication, we conduct a social learning experiment. We find that virtual communication leads to a substantial deterioration of group rationality for a judgmental task, while there is no effect for a purely intellective task. Further, we show that higher cognitive abilities of group members have no impact for the judgmental task, yet increase rationality for the intellective task. Our results have potential implications for the design of communication structures within decentralized organizations relying on virtual communication. --
    Keywords: cognitive abilities,communication,group composition,group performance,laboratory experiment,methodology,social learning
    JEL: C9 D8
    Date: 2014
  11. By: Tausch F.; Cettolin E. (GSBE)
    Abstract: Risk sharing arrangements diminish individuals vulnerability to probabilistic events that negatively affect their financial situation. This is because risk sharing implies redistribution, as lucky individuals support the unlucky ones. We hypothesize that responsibility for risky choices decreases individuals willingness to share risk by dampening redistribution motives, and investigate this conjecture with a laboratory experiment. Responsibility is created by allowing participants to choose between two different risky lotteries before they decide how much risk they share with a randomly matched partner. Risk sharing is then compared to a treatment where risk exposure is randomly assigned. We find that average risk sharing does not depend on whether individuals can control their risk exposure. However, we observe that when individuals are responsible for their risk exposure, risk sharing decisions are systematically conditioned on the risk exposure of the sharing partner, whereas this is not the case when risk exposure is random.
    Date: 2013
  12. By: Hargreaves Heap, Shaun P.
    Abstract: This paper reviews some of the economic experimental evidence on conformism. There is nothing to match the early psychology experiments where subjects were often swayed by the behaviour of others to an extraordinary degree, but there is plenty of evidence of conformism. This seems built-in to our sociality either because we have preferences for conversation or status which are activated by the knowledge of what others do, or because other people face relevantly similar decisions to our own and so that their behaviour signals something useful to us about the uncertain world. These social influences can cause mischief. The more worrying cases, however, are those where individual preferences themselves change through interaction with others: the strongest experimental evidence for this is with respect to individual social preferences. --
    Keywords: social conformism,information cascade,preference change
    JEL: C91 C92 D43 H41
    Date: 2014
  13. By: Karle, Heiko; Kirchsteiger, Georg; Peitz, Martin
    Abstract: In this paper we analyze a consumer choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. We make use of the fact that participants di er in their reported taste di erence between the two sandwiches and the degree of loss aversion which we measure separately. We find that more loss averse participants are more likely to opt for the cheaper sandwich provided that their reported taste di erence is below some threshold, confirming the model s predictions. --
    JEL: C91 D01 D11
    Date: 2013
  14. By: Ludwig, Sandra; Thoma, Carmen
    Abstract: We analyze how subjects' self-assessment depends on whether its accuracy is observable to others. We find that women downgrade their self-assessment given observability while men do not. Women avoid the shame they may have if others observe that they overestimated themselves. Men, however, do not seem to be similarly shame-averse. This gender difference may be due to different societal expectations: While we find that men are expected to be overconfident, women are not. Shame-aversion may explain recent findings that women shy away from competition, demanding jobs and wage negotiations, as entering these situations shows a certain confidence of one's ability. --
    JEL: C91 D03 J16
    Date: 2013
  15. By: Alberto Bisin; Kyle Hyndman
    Abstract: We study procrastination in the context of a field experiment involving students who must exert costly effort to complete certain tasks by a fixed deadline. Students display a strong demand for commitment in the form of self-imposed deadlines. However, deadlines appear not to increase task completion rates. Students who report themselves as being more disorganized delay task completion significantly more. We estimate that the fraction of students displaying present bias in our sample is over 40%. Furthermore, we structurally estimate present bias and other possible behavioral aspects of students' decision making by fitting the experimental data on both completion rates and failed attempts through a stylized stopping time choice model. The point estimate of present bias is 30% in our preferred specification. Present-bias appears, however, not to significantly affect behavior in the context of repeated similar tasks. This suggests various frame effects whereby repeated similar task activate internal self-control. Beyond present bias, our results indicate that other behavioral characteristics play an important role in inducing procrastination.
    JEL: D03
    Date: 2014–01
  16. By: Engelmann, Dirk; Nikiforakis, Nikos
    Abstract: We investigate whether peer punishment is an efficient mechanism for enforcing cooperation in an experiment with a long time horizon. Previous evidence suggests that the costs of peer punishment can be outweighed by the benefits of higher cooperation, if (i) there is a sufficiently long time horizon and (ii) punishment cannot be avenged. However, in most instances in daily life, when individuals interact for an extended period of time, punishment can be retaliated. We use a design that imposes minimal restrictions on who can punish whom or when, and allows participants to employ a wide range of punishment strategies including retaliation of punishment. Similar to previous research, we find that, when punishment cannot be avenged, peer punishment leads to higher earnings relative to a baseline treatment without any punishment opportunities. However, in the more general setting, we find no evidence of group earnings increasing over time relative to the baseline treatment. Our results raise questions under what conditions peer punishment can be an efficient mechanism for enforcing cooperation. --
    JEL: C92 D70 H41
    Date: 2013
  17. By: Koch, Christian
    Abstract: Why do some people behave pro-socially while others do not? Using an experimental design based on Konow and Earley (JPubE, 2008), I investigate a reason already proposed by Aristotle in his Nicomachean Ethics: He claims that there is a nexus between virtues and well-being and that enduring well-being cannot be achieved by hedonic pleasures and material affluence, but only by virtuous behavior. In order to analyze this hypothesis, I use a within-subject design. Initially, participants answer an elaborated well-being questionnaire and then play six different cooperation games. I examine two questions in connection with the Aristotelian idea: First, do more virtuously behaving subjects report on average higher well-being? Second, if the answer is affirmative, what is the underlying causal relationship? I find a favorable correlation between well-being and virtuous behavior and examine different hypotheses about what leads to virtuous behavior: My experimental data is mostly in line with the hypothesis that virtuous behavior is both a long-run cause as well as a short effect of a specific type of long-run well-being, called eudaimonic well-being. To this extent, I find evidence in favor of a nexus between virtues and well-being. --
    JEL: C91 D64 D03
    Date: 2013
  18. By: Sontuoso, Alessandro
    Abstract: Human conduct is often guided by “conformist preferences”, which thrive on behavioral expectations within a society, with conformity being the act of changing one’s behavior to match the purported beliefs of others. Despite a growing research line considering preferences for a fair outcome allocation, economic theories do not explain the fundamental conditions for some social norm – whether of fairness or not – to be followed. Inspired by Bicchieri’s account of norms (C.Bicchieri, The Grammar of Society. CambridgeUP [2006]), I develop a behavioral theory of norm conformity building on the Battigalli-Dufwenberg “psychological” framework (P.Battigalli and M.Dufwenberg, Dynamic Psychological Games, J.Econ.Theory, 144:1-35 [2009]).
    Keywords: Conformist Preferences; Social Norms; Social Dilemmas; Psychological Game Theory; Behavioral Economics
    JEL: A13 C72 C92 D63 H41
    Date: 2013–12–27
  19. By: Lindner, Florian; Dutcher, E. Glenn; Balafoutas, Loukas; Ryvkin, Dmitry; Sutter, Matthias
    Abstract: Managers often use tournament incentive schemes which motivate workers to compete for the top, compete to avoid the bottom, or both. In this paper we test the effectiveness and efficiency of these incentive schemes. To do so, we utilize optimal contracts in a principal-agent setting, using a Lazear-Rosen type model that predicts equal effort and efficiency levels for three tournament incentive schemes: reward tournaments, punishment tournaments, and tournaments combining reward and punishment. We test the model s predictions in a laboratory experiment and find that the combination of reward and punishment produces the highest effort from agents, especially in contests of a relatively larger size. Punishment is shown to be more effective and, in larger contests, more efficient than rewards, and it is also the mechanism with the lowest variance of effort. Finally, we show that behavior in all mechanisms is consistent with a model of basic directional and reinforcement learning. --
    JEL: M52 J33 C90
    Date: 2013
  20. By: Maya Bar-Hillel; Eyal Peer; Alessandro Acquisti
    Abstract: When asked to mentally simulate coin tosses, people generate sequences which differ systematically from those generated by fair coins. It has been rarely noted that this divergence is apparent already in the very first mental toss. Analysis of several existing data sets reveals that about 80% of respondents start their sequence with Heads. We attributed this to the linguistic convention describing coin toss outcomes as "Heads or Tails", not vice versa. However, our subsequent experiments found the "first-toss" bias reversible under minor changes in the experimental setup, such as mentioning Tails before Heads in the instructions. We offer a comprehensive account in terms of a novel response bias, which we call reachability. It is more general than the first-toss bias, and reflects the relative ease of reaching one option compared to its alternative in any binary choice context. When faced with a choice between two options (e.g., Heads and Tails, when "tossing" mental coins), whichever of the two is presented first by the choice architecture (hence, is more reachable) will be favored. This bias has far-reaching implications extending well beyond the context of randomness cognition, and in particular to binary surveys (e.g., accept vs. reject) and tests (e.g., True-False). In binary choice, there is an advantage to what presents first.
    Keywords: acquiescence bias; order effects; randomness cognition; reachability; response bias
    Date: 2014–01

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