nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒03‒01
twelve papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. Moving Ahead by Thinking Backwards: Cognitive Skills, Personality, and Economic Preferences in Collegiate Success By Burks, Stephen V.; Lewis, Connor; Kivi, Paul; Wiener, Amanda; Anderson, Jon E.; Götte, Lorenz; DeYoung, Colin G.; Rustichini, Aldo
  2. The Power of (No) Recognition: Experimental Evidence from the University Classroom By Hoogveld, Nicky; Zubanov, Nikolay
  3. Social Esteem versus Social Stigma: the role of anonymity in an income reporting game. By Sandro Casal; Luigi Mittone
  4. The economic behaviour of doctors: medical altruism without an ethic? By Philippe Batifoulier; Nicolas Da Silva
  5. Stated and Revealed Heterogeneous Risk Preferences in Educational Choice By Fossen, Frank M.; Glocker, Daniela
  6. Explaining anomalies in intertemporal choice: A mental zooming theory By Holden, Stein
  7. Pay-What-You-Want Pricing Schemes: A Self-Image Perspective By Kahsay, Goytom Abraha; Samahita, Margaret
  8. The Effect of Economic Change and Elite Framing on Economic Preferences: A Survey Experiment By Marx, Paul; Schumacher, Gijs
  9. When Identifying Contributors is Costly: An Experiment on Public Goods By Anya Savikhin Samek; Roman M. Sheremeta
  10. Reducing within-group overconfidence through group identity and between-group confidence judgments By Philip Brookins; Adriana Lucas; Dmitry Ryvkin
  11. Task enjoyment and opportunity costs in the lab - the effect of financial incentives on performance in real effort tasks By Katharina M. Eckartz
  12. Fair and unfair punishers coexist in the Ultimatum Game By Pablo Branas-Garza; Antonio M. Espin; Benedikt Herrmann

  1. By: Burks, Stephen V. (University of Minnesota, Morris); Lewis, Connor (University of Minnesota, Morris); Kivi, Paul (University of Minnesota, Morris); Wiener, Amanda (University of Minnesota, Morris); Anderson, Jon E. (University of Minnesota, Morris); Götte, Lorenz (University of Lausanne); DeYoung, Colin G. (University of Minnesota); Rustichini, Aldo (University of Minnesota)
    Abstract: We collected personality (Big Five) and demographic characteristics, and ran incentivized experiments measuring cognitive skills (non-verbal IQ, numeracy, backward induction/ planning), and economic (time, risk) preferences, with 100 students at a small public undergraduate liberal arts college in the Midwestern US as part of a larger study that collected the same measures from 1,065 trainee truckers. Using standardized (z-score) versions of our variables we analyze their relative power to predict (1) timely graduation (four years or less), (2) graduation in six years or less, and (3) final GPA. The proactive aspect of Conscientious (but not the inhibitive one) has a large and robust positive effect on all three outcomes, and Agreeableness has a robust negative effect on both graduation outcomes, but not on GPA. Economic time preferences predict graduation in four years, and GPA. Cognitive skill measures predict as expected if entered individually in a multivariate model, but when all variables compete it is only our backward induction measure ("Hit15") that weakly predicts graduation in four years, and strongly predicts graduation in six years. Trainee truckers work in a different vocational setting and their results are appropriately different, but there is a common element: Hit15 also predicts their job success (completing a one year employment contract that makes training free). We interpret Hit15 as capturing a specific part of the cognitive skills required for self-management in non-routine settings – thinking backward from future goals to make the best current choice – that is not well measured by existing instruments, and suggest this deserves further scientific and institutional scrutiny.
    Keywords: graduation, Big Five, cognitive skill, backward induction, economic preferences, GPA
    JEL: D03 I21 C99
    Date: 2014–02
  2. By: Hoogveld, Nicky (affiliation not available); Zubanov, Nikolay (Goethe University Frankfurt)
    Abstract: We study the effect of recognition on performance with a field experiment involving first-year undergraduate students at a Dutch university. Our treatment, given unannounced in randomly selected student groups, was to publicly recognize students who scored within the top 30% of their group on the first of the two midterm exams. The overall treatment effect on the second midterm grade is 0.03s (s = the grade's standard deviation) for the recipients of recognition, and 0.15s for the non-recipients, both statistically insignificant. The effect for the non-recipients increases with class attendance (itself unaffected), and decreases with the distance to the cutoff grade for recognition, reaching a significant 0.44s for those exceeding the minimum attendance requirement and staying within the first quartile of the distance to cutoff. We argue that conformance to performance norm is the most likely behavioral mechanism behind our findings.
    Keywords: recognition, performance, experiment
    JEL: C93 M52
    Date: 2014–02
  3. By: Sandro Casal; Luigi Mittone
    Abstract: When the phenomenon of tax evasion is discussed, both scholars and authorities agree on the fact that, although essential, classical enforcements are not enough to ensure tax compliance: some other forms of incentives must be adopted. The paper’s aim is to experimentally test the role of different non- monetary incentives for tax compliance: participants have been treated with different experimental conditions, which differ in the role played by anonymity. Indeed, subjects have been informed on the possibility of revealing their identity and their choices through the publication of their pictures, as a consequence of the result of the auditing process. As expected, anonymity plays an important role in the decision to pay taxes; in addition, we find that negative non-monetary incentive increases tax compliance more effectively than positive non-monetary incentive. We find also that the effect of these non-monetary incentives is mitigated, when too many information are made available. Finally, results show that, when evasion is made public, tax-dodgers are willing to pay in order to keep secret their cheating behavior and avoid public shame.
    Keywords: Tax Evasion, Non-monetary incentives, Anonymity, Experimental Economics
    Date: 2014
  4. By: Philippe Batifoulier; Nicolas Da Silva
    Abstract: Health economics appears to have difficulty in taking medical ethics into consideration because of the standard figure of homo economicus. In main stream economics, the ethical attitude of a physician is then formalized in terms of “medical altruism”. This paper seeks to highlight the advantages and the contradictions of this medical altruism. We can identify several levels of problems raised by this medical altruism: theoretical paradoxes and economic policy problems for the regulator. The interest of the concept of medical altruism is to save or improve the economic theory with a more realistic assumption. However, if this assumption is more realistic, it induces paradoxes of economic theory. The misfortune for economists is that this theoretical inconstancy is lined with economic policy issues. These remain unresolved and we do not know what to do. In conclusion, we think that it becomes crucial to consider seriously medical ethics.
    Keywords: healthcare; altruism, professional ethics; instrumental rationality; intrinsic motivation
    JEL: B41 I10 I18
    Date: 2014
  5. By: Fossen, Frank M. (Free University of Berlin); Glocker, Daniela (CEP, London School of Economics)
    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: 2014–02
  6. By: Holden, Stein (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: I present a theory that can explain hyperbolic discounting and magnitude effects in intertemporal choice. This approach builds on theories of narrow framing and reference dependence and expands these theories in a novel way by examining hidden mental zooming in base consumption adjustment in decisions regarding intertemporal prospects of varying magnitudes and time horizons. Data from a field experiment were used to assess the theory with an incentive-compatible multiple price list approach involving magnitude levels of 5x, 10x and 20x the basic magnitude level with time horizons of one, three, six and 12 months. Without zooming adjustments in base consumption, very strong hyperbolic and magnitude effects were found, and present bias could not explain the hyperbolic effects. The mental zooming model provides an effective rational explanation of what appear to be significant intertemporal anomalies in the data.
    Keywords: Intertemporal choice; hyperbolic discountin; magnitude effects; mental zooming theory; field experiment
    JEL: C93 D03 D91
    Date: 2014–02–21
  7. By: Kahsay, Goytom Abraha (Department of Food and Resource Economics, University of Copenhagen); Samahita, Margaret (Department of Economics, Lund University)
    Abstract: Pay-What-You-Want (PWYW) pricing schemes are becoming increasingly popular in a wide range of industries. We develop a model incorporating self-image into the buyer's utility function and introduce heterogeneity in consumption utility and image-sensitivity, which generates different purchase decisions and optimal prices across individuals. When a good is sold at a fixed price higher than a threshold value, a price that the individual thinks is fair, the adoption of PWYW increases his utility and hence results in a weakly higher purchase rate. When a good is sold at a fixed price lower than this threshold, however, PWYW can lead to a lower utility. This may result in a lower purchase rate and higher average price, in line with previously unexplained evidence from field experiments. Moreover, an increase in the threshold value decreases the buyer's utility and may further lower the purchase rate, possibly resulting in a further increase in purchase price. Using simple assumptions of quadratic self-image function and uniformly distributed individual preferences, we investigate the conditions under which PWYW yields higher total welfare.
    Keywords: pay-what-you-want; self-image; fairness; voluntary contribution
    JEL: D03 D11 D49 D64 D82
    Date: 2014–02–17
  8. By: Marx, Paul (University of Southern Denmark); Schumacher, Gijs (University of Southern Denmark)
    Abstract: An unresolved question in political science is how economic downturns affect citizens' economic left-right preferences. Existing observational studies fail to isolate the effect of economic conditions and the effect of elite framing of these conditions. We therefore designed a survey experiment to evaluate how economic change in conjunction with different elite frames impact on citizens' preferences for economic policies. We hypothesise and demonstrate that the effects of these frames differ by income group and partisanship. Our survey experiment – carried out in the UK – demonstrates that poor economic prospects motivate support for unemployment benefits vis-à-vis deficit reduction. Emphasis on government debt and deficits increases support for the latter policy option. Also, we find support for the hypothesis that partisans are less responsive to the economy than independents.
    Keywords: economic preferences, economic crises, elite framing, survey experiment, UK
    JEL: D72 Z18
    Date: 2014–02
  9. 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: Studies show that identifying contributors significantly increases contributions to public goods. In practice, however, viewing identifiable information is costly, which may discourage people from accessing such information. To address this question, we design a public goods experiment in which participants can pay a fee to view information about identities and corresponding contributions of their group members. We then compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are freely identified. Our main findings are that: (1) contributions in the treatment with costly information are as high as those in the treatment with free information, (2) participants choose to view the information about 10% of the time, and (3) being a high contributor is positively correlated with choosing to view identifiable information about others. Thus, it seems that having access to information is important even when such information is rarely viewed. Or findings have practical implications for non-profit organizations with a large pool of donors and for designers of recognition systems, especially in online communities with many participants.
    Keywords: public-goods, information, experiments
    JEL: C72 C91 H41
    Date: 2014
  10. By: Philip Brookins (Department of Economics, Florida State University); Adriana Lucas (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: Overconfidence in one's relative performance within a group is a wide-spread phenomenon. Similar to individual (or within-group) overconfidence, it was also shown that individuals are, on average, overconfident about the performance of their group relative to other groups. We hypothesize that this between-group overconfidence should mitigate within-group individual overconfidence. Simply put, if the decision maker believes that her group's ranking is high it must be because her beliefs about the performance of other members of her group are inflated, which we expect will lead to a reduction in her individual within-group overconfidence. We test this hypothesis in a laboratory experiment. Using a 2x2 between-subject design, we manipulate the salience of between-group confidence judgments and group identity. We find, as hypothesized, that the salience of between-group confidence judgments significantly reduces within-group individual overconfidence. We also find an equally strong reduction in within-group overconfidence from the group identity manipulation. For managers whose goal is to improve calibration of their employees, our results imply that activities promoting comparisons between groups, e.g., between firms or between teams within a firm, and strengthening organizational identity should be helpful.
    Keywords: overconfidence, group identity, judgment about one's group, experiment
    JEL: C91 D03 D83 D84
    Date: 2014–02
  11. By: Katharina M. Eckartz (Friedrich-Schiller-University Jena, International Max Planck Research School on Adapting Behavior in a Fundamentally Uncertain World)
    Abstract: This study is directly motivated by the results of Eckartz et al (2012). Subjects exerted suprisingly high efforts irrespectively of how they were compensated. This paper discusses a number of potential explanations and then it will focus on two of them: first, subjects might exert effort simply because they enjoy working on the tasks. Second, subjects might exert effort because they feel obliged to do so or because they do not have opportunity costs of working. These questions are crucial to better understand the robustness of experimental results and also to be eventually able to transfer the results to the world outside the laboratory. We replicate our earlier results: in the baseline treatment we do not find effects of incentive schemes on the output. Decreasing the attractiveness of the tasks, we also do not observe differences between the incentive schemes. When we introduce, however, a paid outside option, the efforts are higher in the performance-dependent pay treatments than under flat payment. The size of the effect differs between the tasks, the direction is, however, the same.
    Keywords: Creativity, Incentives, Real effort task, Experimental methods
    JEL: C90 C91 J33
    Date: 2014–02–19
  12. By: Pablo Branas-Garza (Business School, Middlesex University London); Antonio M. Espin (GLOBE,Universidad de Granada; Departamento de Teoría e Historia Económica, Universidad de Granada); Benedikt Herrmann (Behavioural Economics Team, Institute for Health and Consumer Protection, Joint Research Centre, European Commission)
    Abstract: Fairness norms are crucial in understanding the emergence and enforcement of large-scale cooperation in human societies. The most widely applied framework in the study of human fairness is the Ultimatum Game (UG). In the UG, a proposer suggests how to split a sum of money with a responder. If the responder rejects the proposer’s offer, both players get nothing. Rejection of unfair offers is considered to be a form of punishment implemented by fair-minded individuals, who are willing to sacrifice their own resources in order to impose the fairness norm. However, an alternative interpretation is equally plausible: punishers might actually be using rejections in a competitive, spiteful fashion as a means to increase their relative standing. This hypothesis is in line with recent evidence demonstrating that “prosocial” and “antisocial” punishers coexist in other experimental games. Using two large-scale experiments, we explore the nature of UG punishers by analyzing their behavior in a Dictator Game. In both studies, we confirm the coexistence of two entirely different sub-populations: prosocial punishers, who behave fairly as dictators, and spiteful (antisocial) punishers, who are totally unfair. Such a result is fundamental for research on the foundations of punishment behavior employing the UG. We discuss how focusing only on the fairness-oriented part of human behavior might give rise to misleading conclusions regarding the evolution of cooperation and the behavioral underpinnings of stable social systems.
    Date: 2014–01

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