nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒02‒08
fifteen papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. An Experimental Test of a Search Model under Ambiguity By Asano, Takao; Okudaira, Hiroko; Sasaki, Masaru
  2. Locus of Control and Savings By Deborah A. Cobb-Clark; Sonja C. Kassenboehmer; Mathias G. Sinning
  3. Adaptive learning and survey data By Agnieszka Markiewicz; Andreas Pick
  4. Do Overconfident Workers Cooperate Less? The Relationship between Overconfidence and Cooperation in Team Production By Vanessa Mertins; Wolfgang Hoffeld
  5. Ambiguity on Audits and Cooperation in a Public Goods Game By Dai, Zhixin; Hogarth, Robin M.; Villeval, Marie Claire
  6. Reciprocal relationships in tax compliance decisions By Cécile Bazart; Aurélie Bonein
  7. Organizational Coordination and Costly Communication with Boundedly Rational Agents By Dietrichson, Jens; Jochem, Torsten
  8. You always meet twice: An experiment on intrinsic versus instrumental reciprocity By Johnsen, Åshild A; Kvaløy, Ola
  9. Payments for Ecosystem Services: Can we kill two birds with one stone? Insights from a Natural Field Experiment in Madagascar By Sophie Clot; Fano Andriamahefazafy; Gilles Grolleau; Lisette Ibanez; Philippe Méral
  10. Present Bias in Payments for Ecosystem Services: Insights from a Behavioural Experiment in Uganda By Sophie Clot; Charlotte Stanton
  11. Boundedly Rational Opinion Dynamics in Directed Social Networks: Theory and Experimental Evidence By Pietro Battiston; Luca Stanca
  12. An experimental analysis from a taking game in Madagascar By Sophie Clot; Gilles Grolleau; Lisette Ibanez
  13. An experimental study of sorting in group contests By Philip Brookins; John Lightle; Dmitry Ryvkin
  14. Social comparison and risk taking behavior By Astrid Gamba; Elena Manzoni
  15. The Impact of Apprenticeship Training on Personality Traits: An Instrumental Variable Approach By Thomas Bolli; Stefanie Hof

  1. By: Asano, Takao (Okayama University); Okudaira, Hiroko (Okayama University); Sasaki, Masaru (Osaka University)
    Abstract: This paper's objective is to design a laboratory experiment to explore the effect of ambiguity on a subject's search behavior in a finite-horizon sequential search model. In so doing, we employ a new approach to observe the potential trend of reservation points that is usually unobserved. We observe a significant dip in a trend of reservation points when subjects are faced with ambiguity over wage distributions.
    Keywords: experiment, search model, ambiguity, reservation wage
    JEL: C91 D81
    Date: 2014–01
  2. By: Deborah A. Cobb-Clark (Melbourne Institute, University of Melbourne); Sonja C. Kassenboehmer (Melbourne Institute, University of Melbourne); Mathias G. Sinning (School of Economics, The University of Queensland)
    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.
    Date: 2014–01–07
  3. By: Agnieszka Markiewicz; Andreas Pick
    Abstract: This paper investigates the ability of the adaptive learning approach to replicate the expectations of professional forecasters. For a range of macroeconomic and financial variables, we compare constant and decreasing gain learning models to simple, yet powerful benchmark models. We find that constant gain models provide a better fit for the expectations of professional forecasters. For macroeconomic series they usually perform significantly better than a naïve random walk forecast. In contrast, we find it difficult to beat the no-change benchmark using the adaptive learning models to forecast financial variables.
    Keywords: expectations; survey of professional forecasters; adaptive learning; bounded rationality
    JEL: E37 E44 G14 G15
    Date: 2014–01
  4. By: Vanessa Mertins (Institute for Labour Law and Industrial Relations in the EU, University of Trier); Wolfgang Hoffeld (Institute for Labour Law and Industrial Relations in the EU, University of Trier)
    Abstract: The tendency to underestimate others’ relative performance compared to one’s own is widespread among individuals in all work environments. We examine the relationship between, and the driving forces behind, individual overconfidence and voluntary cooperation in team production. Our experimental data suggest an indirect and gender-specific link: Overconfident men hold more optimistic beliefs about coworkers’ cooperativeness than men who lack confidence, and are accordingly significantly more cooperative, whereas overconfidence, beliefs, and cooperativeness are not correlated in women.
    Keywords: team production, public good, experiment, real effort, cooperation, gender, overconfidence, belief
    JEL: M52 J33 J16 J24 C91
    Date: 2013–12
  5. By: Dai, Zhixin (CNRS, GATE); Hogarth, Robin M. (Universitat Pompeu Fabra); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We investigate the impact of various audit schemes on the future provision of public goods, when contributing less than the average of the group is sanctioned exogenously and the probability of an audit is unknown. We study how individuals update their beliefs about the probability of being audited, both before and after audits are definitely withdrawn. We find that when individuals have initially experienced systematic audits, they decrease both their beliefs and their contributions almost immediately after audits are withdrawn. In contrast, when audits were initially less frequent and more irregular, they maintain high beliefs about the probability of being audited and continue cooperating long after audits have been withdrawn. Inconsistency in experiencing audits across time clearly increases the difficulty of learning the true audit probabilities. Thus, conducting less frequent and irregular audits with higher fines can increase efficiency dramatically.
    Keywords: ambiguity, audits, sanctions, beliefs, cooperation, public goods, experiment
    JEL: C92 H41 D83
    Date: 2014–01
  6. By: Cécile Bazart (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - Université Montpellier I - CNRS : UMR5474 - Institut national de la recherche agronomique (INRA) : UR1135 - Centre international de hautes études agronomiques méditerranéennes [CIHEAM]); Aurélie Bonein (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie)
    Abstract: Reciprocity considerations are important to the tax compliance problem as they may explain the global dynamics of tax evasion, beyond individual tax evasion decisions, toward a downward or upward spiral. To provide evidence on reciprocity in tax compliance decisions, we have conducted a laboratory experiment in which we introduced two types of inequities. The first type of inequity is called vertical, because it refers to inequities introduced by the government when it sets different fiscal parameters for identical taxpayers, while the second type of inequity is called horizontal because it refers to the fact that taxpayers may differ in tax compliance decisions. In this setting, taxpayers may react to a disadvantageous or advantageous inequity through negative or positive reciprocal behaviors, respectively. Our results support the existence of negative and positive reciprocity in both vertical and horizontal cases. When both inequities come into play and may induce reciprocal behaviors in opposite directions, the horizontal always dominates the vertical.
    Keywords: Behavioral economics; experimental economics; fairness; tax evasion; tax compliance
    Date: 2014
  7. By: Dietrichson, Jens (Department of Economics, Lund University); Jochem, Torsten (Faculty of Economics and Business, University of Amsterdam)
    Abstract: How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.
    Keywords: Organizational coordination; Commmunication; Stochastic stability; Bounded rationality; Simulation
    JEL: C73 D23 L22 L23
    Date: 2014–02–03
  8. By: Johnsen, Åshild A (UiS); Kvaløy, Ola (UiS)
    Abstract: In repeated games, it is hard to distinguish true prosocial behavior from strategic instrumental behavior. In particular, a player does not know whether a reciprocal action is intrinsically or instrumentally motivated. In this paper, we experimentally investigate the relationship between intrinsic and instrumental reciprocity by running a two-period repeated trust game. In the `strategic treatment' the subjects know that they will meet twice, while in the `non-strategic treatment' they do not know and hence the second period comes as a surprise. We find that subjects anticipate instrumental reciprocity, and that intrinsic reciprocity is rewarded. In fact, the total level of cooperation, in which trust is reciprocated, is higher in the non-strategic treatment. Instrumental reciprocity thus seems to crowd out intrinsic reciprocity: If one takes the repeated game incentives out of the repeated game
    Keywords: Trust; Reciprocity; Repeated Games; Experiment
    JEL: C72 C91 D03
    Date: 2014–01–28
  9. By: Sophie Clot; Fano Andriamahefazafy; Gilles Grolleau; Lisette Ibanez; Philippe Méral
    Abstract: The explicit assumption underlying Payments for Ecosystem Services (PES) is that offering payments that are at least equal to individual’s opportunity cost will establish individuals’ participation. At the same time, that payment should act as a substitution within landowners’ global income, making environmental conservation compatible with economic development goals, and suitable for win-win policy. This partially acts under the more general hypothesis of money fungibility built-in neoclassical economic premise. Meanwhile, behavioural economics demonstrate that individuals track their financial activities using a set of cognitive labels depending to the context in which it was obtained, each of which being associated with a different marginal propensity to consume. Based on a ‘Humans’ vs. ‘Econs’ approach, we test the effect of income’s origin (‘Low effort’ based money vs. ‘High effort’ based money) on spending decisions (Necessity vs. Superior goods) and pro social preferences (Contribution to a public good) within Madagascar rural areas that are potential beneficiaries of PES programs, using a natural field experiment. Our findings support that human’s behavioural responses matter and could, under some circumstances, alter environmental conservation policies.
    Date: 2014–01
  10. By: Sophie Clot; Charlotte Stanton
    Abstract: Farmers are necessary agents in global efforts to conserve the environment now that croplands and pastures together constitute the largest terrestrial system on Earth – covering some 48% of (ice-free) land surface. Whereas standard economic models predict that farmers will participate in conservation programs so long as they are profitable, empirical findings from behavioral economics point to a number of normally unobservable preferences that may influence the decision-making process. This study tests whether heterogeneity in behavioral preferences correlates with decisions to participate in Payments for Environmental Services (PES) programs. We elicit individual trust and time preferences using incentivized choice experiments and link resulting measures to PES enrollment and household survey data in Uganda. We find that farmers who exhibit present-biased preferences – those who show a particular desire for proximate gains – are 44.1% more likely to self-select into PES than those who show time-consistent or future-biased preferences.
    Date: 2014–01
  11. By: Pietro Battiston; Luca Stanca
    Abstract: This paper investigates opinion dynamics and social influence in directed communication networks. We study the properties of a generalized boundedly rational model of opinion formation in which individuals aggregate the information they receive by using weights that are a function of their neighbors' indegree. We then present an experiment designed to test the predictions of the model. We find that both Bayesian updating and boundedly rational updating à la DeMarzo et al. (2003) are rejected by the data. Consistent with our theoretical predictions, the social influence of an agent is positively and significantly affected by the number of individuals she listens to. When forming their opinions, agents do take into account the structure of the communication network, although in a sub-optimal way.
    Keywords: Social Networks, Learning, Social In uence, Bounded Rationality
    JEL: D85 D83 A14 L14 Z13
    Date: 2014–01
  12. By: Sophie Clot; Gilles Grolleau; Lisette Ibanez
    Abstract: This paper explores whether previous good deeds may license non-cooperative behavior such as damaging a social surplus for private benefits in Madagascar. We designed a two steps framed experiment, with one control and three treatments. In the first step, the three treatments consist in a task that enables subjects to earn moral credit, whereas the control group just has a neutral task (i.e. unscrambling sentences). The three treatments differ in the framing of the “moral boosting” task. In the second step, subjects are given the possibility to take an amount from a fund allocated to their University. We show that participants in the license condition adopt higher anti-social behavior than participants in control. First, the number of participants who decide to take money from the University’s fund increases under the license condition, and second, the average amount taken is significantly higher than in the control condition, even when only takers are considered. The framing of the preceding task seems to have little impact on self-licensing. However, a low degree of implication encourages greater morally dubious behavior. Finally, we found that license effect exists both for men and women, while the increase of anti-social behavior after a good deed is more pronounced for men.
    Date: 2014–01
  13. By: Philip Brookins (Department of Economics, Florida State University); John Lightle (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We study experimentally the effects of sorting in contests between groups of heterogeneous players whose within-group efforts are perfect substitutes. The theory predicts that higher aggregate effort will be reached when variation in ability between groups is lower, i.e., by a more balanced sorting. In the experiment, we assign subjects to four types -- A, B, C, and D -- ranked by their cost of effort, with A having the lowest and D having the highest cost, and conduct contests between two groups of two players each. In the Balanced treatment, (A,D) groups (i.e., groups comprised of a type A and a type D player) compete with (B,C) groups, whereas in the Unbalanced treatment, (A,B) groups compete with (C,D) groups. We find substantial heterogeneity and overinvestment of efforts by all types in both treatments, including the "underdog" (C,D) group which surprisingly is not demoralized by the unbalanced matching. Despite strong overbidding, relative aggregate efforts are remarkably close to equilibrium predictions both between treatments and between groups within each treatment. The results confirm the prediction that balanced sorting leads to higher aggregate effort.
    Keywords: contest, group, sorting, heterogeneous players, experiment
    JEL: C72 C91 M54 D72
    Date: 2014–01
  14. By: Astrid Gamba (Department of Economics, University of Milan Bicocca); Elena Manzoni (Department of Economics, University of Milan Bicocca)
    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: 2014–01–29
  15. By: Thomas Bolli (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Stefanie Hof (Swiss Coordination Centre for Research in Education, Switzerland)
    Abstract: This paper analyzes how apprenticeship training, i.e., work-based secondary education, affects personality traits compared to full-time school-based vocational or general education. Employing an instrumental variable approach that exploits the regional differences in the relative weight of school- and work-based secondary education across Switzerland and Europe, we determine that apprenticeship training reduces neuroticism and increases agreeableness and conscientiousness, while openness and extraversion remain unaffected. These results validate the socializing function of work-based education. However, heterogeneous treatment effects are found, indicating positive effects for students with less favorable personality traits but insignificant or even reducing effects in the case of extraversion for those with already high values in personality traits.
    Keywords: Apprenticeship, work-based education, VET, Big Five, personality traits
    JEL: C26 D01 I20 J24
    Date: 2014–01

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