nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒02‒15
five papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. The Effect of Income Heterogeneity in An Experiment with Global and Local Public Goods By Kohei Nitta
  2. Ambiguity on audits and cooperation in a public goods game By Zhixin Dai; Robin M. Hogarth; Marie Claire Villeval
  3. The House Money Effect and Negative Reciprocity By Katarína Danková; Maroš Servátka
  4. Stated and Revealed Heterogeneous Risk Preferences in Educational Choice By Frank M. Fossen; Daniela Glocker
  5. Strategic signaling or emotional sanctioning? An experimental study of ex post communication in a repeated public goods game By Adam Zylbersztejn

  1. By: Kohei Nitta (Department of Economics, University of Hawaii at Manoa)
    Abstract: Public goods such as national defense or climate change mitigation affect people in multiple locations. We report on a linear public goods experiment, where subjects can contribute not only to a local public good but also to a global public good. We study the effects of endowment heterogeneity by comparing a setting where two localities have the same income (homogeneous treatment) with a setting where the localities differ in income (heterogeneous treatment). We find that: 1) social efficiency is higher in the homogeneous treatment than in the heterogeneous treatment; 2) the efficiency difference comes from two aspects: the shift from global to local public good contribution and lower total public goods provision in the heterogeneous treatment; and 3) inequality aversion and reciprocity play a role in contribution behavior in the heterogeneous treatment; however these social preferences do not fully counter the efficiency loss caused by the endowment heterogeneity. Our findings suggest that policy interventions may be necessary to increase social efficiency with heterogeneous wealth and multiple public goods.
    Keywords: Voluntary contribution mechanism; Multiple public goods; Income heterogeneity; Inequality; Reciprocity
    JEL: C92 D63 D64 H41
    Date: 2014–02
  2. By: Zhixin Dai (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Robin M. Hogarth (Department of Economics and Business, Universitat Pompeu Fabra and Barcelona Graduate School of Economics, Ramon Trias Fargas, 25–27, 08005 Barcelona, Spain); Marie Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    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
  3. By: Katarína Danková; Maroš Servátka (University of Canterbury)
    Abstract: In the vast majority of experiments documenting the existence of reciprocity subjects are endowed with windfall funds. In some situations such endowments might create a so-called “house money effect”. We identify two reasons why the source of endowment might matter for negative reciprocity: (1) Using earned – as opposed to windfall money – might increase the costs of negative reciprocity due to this money being in a different mental account and thus lead to less retaliation. (2) Decreasing a decision-maker’s endowment consisting of earned money might be considered a stronger violation of property rights and lead to more retaliation. We test our conjectures in an experiment and find that subjects retaliate more in both cases.
    Keywords: Real Effort; Experiment; House money; Reciprocity; Taking Game
    JEL: C71 C91 D03 D64
    Date: 2014–02–07
  4. By: Frank M. Fossen; Daniela Glocker
    Abstract: Stated survey measures of risk preferences are increasingly being used in the literature, and they have been compared to revealed risk aversion primarily by means of experiments such as lottery choice tasks. In this paper, we investigate educational choice, which involves the comparison of risky future income paths and therefore depends on risk and time preferences. In contrast to experimental settings, educational choice is one of the most important economic decisions taken by individuals, and we observe actual choices in representative panel data. We estimate a structural microeconometric model to jointly reveal risk and time preferences based on educational choices, allowing for unobserved heterogeneity in the Arrow-Pratt risk aversion parameter. The probabilities of membership in the latent classes of persons with higher or lower risk aversion are modelled as functions of stated risk preferences elicited in the survey using standard questions. Two types are identified: A small group with high risk aversion and a large group with low risk aversion. The results indicate that persons who state that they are generally less willing to take risks in the survey tend to belong to the latent class with higher revealed risk aversion, which indicates consistency of stated and revealed risk preferences. The relevance of the distinction between the two types for educational choice is demonstrated by their distinct reactions to a simulated tax policy scenario.
    Keywords: Educational choice, stated preferences, revealed preferences, risk aversion, time preference
    JEL: I20 D81
    Date: 2014
  5. By: Adam Zylbersztejn (Department of Economics, Vienna University of Economics and Business)
    Abstract: Several experimental studies show that ex post communication mitigates opportunistic behavior in social dilemmas. The source of this effect, especially in a repeated interaction, is nonetheless still obscure. This study provides a novel empirical testbed for two channels by which ex post communication may affect behavior in a repeated public goods game. One is related to strategic signaling. The other involves emotions induced by others' expressed disapproval. The presence of ex post communication strongly fosters pro-social behavior. The data do not support the signaling hypothesis, favouring the emotion-based explanation instead.
    Keywords: Public goods game, Voluntary Contribution Mechanism, Ex post communication
    JEL: C72 D83
    Date: 2014–01

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