nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒03‒30
thirteen papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. On the Interpretation of Giving, Taking, and Destruction in Dictator Games and Joy-of-Destruction Games. By Le Zhang; Andreas Ortmann
  2. Persuasion with Reference Cues and Elaboration Costs By Ennio Bilancini; Leonardo Boncinelli
  3. Asymmetrically Dominated Choice Problems, the Isolation Hypothesis and Random Incentive Mechanisms By Cox, James C.; Sadiraj, Vjollca; Schmidt, Ulrich
  4. To Win or Not to Lose: an Experiment on Communication Efforts By Olivier Body; Régine Kolinsky
  5. Happy-go-lucky. Positive emotions boost demand for lotto. By Zuzanna Halicka; Michał Krawczyk
  6. Cross Cultural Differences in Decisions from Experience: Evidence from Denmark, Israel and Taiwain By Sibilla Di Guida; Ido Erev; Davide Marchiori
  7. Gender differences and stereotypes in the beauty contest By María Cubel; Santiago Sanchez-Pages
  8. On the economics of others By Stark, Oded
  9. Just a Matter of Prospect (Theory)? - The Ecological Rationality of the Traditional Accounting Principles By Eduard Braun
  10. Wildfires in Poland: the impact of risk preferences and loss aversion on environmental choices By Anna Bartczak; Susan Chilton; Jürgen Meyerhoff
  11. Effects of stress on economic decision-making: Evidence from laboratory experiments By Delaney, Liam; Fink, Gunther; Harmon, Colm
  12. Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle By Amedeo Piolatto; Matthew D. Rablen
  13. Behavioral and Network Origins of Wealth Inequality: Insights from a Virtual World By Benedikt Fuchs; Stefan Thurner

  1. By: Le Zhang (University of New South Wales); Andreas Ortmann (University of New South Wales)
    Abstract: The literature on dictator [D] and joy-of-destruction [JoD] games demonstrates that people can be nice and nasty. We study, by way of an experiment with between-subjects and within-subjects features, to what extent behaviors are context dependent and consistent. We find that, for one-shot D and JoD games, our participants' niceness and nastiness depend on the choice set. Contradicting the observed altruism and nastiness, participants tend to be selfish but nonetheless make choices that increase social welfare when given the opportunity.
    Keywords: Dictator game, Joy-of-Destruction game, Money burning, Altruism, Nastiness, Efficiency considerations, Mach-IV test
    JEL: A13 C79 D03 D64
    Date: 2013–11
  2. By: Ennio Bilancini (Università degli Studi di Modena e Reggio Emilia); Leonardo Boncinelli (Università degli Studi di Pisa)
    Abstract: We develop a model of persuasion where, consistent with the psychological literature on dual process theory, the persuadee has to sustain a cognitive effort - the elaboration cost - in order to fully and precisely elaborate information. The persuader makes an offer to the persuadee and, aware that she is a dual process reasoner, also sends her a costly signal - the reference cue - which refers the offer to a category of offers whose average quality is known by the persuadee. Initially, the actual quality of the offer by the persuader is hidden to the persuadee, while the signal is visible. Then, the persuadee can either rely on cheap low elaboration and form expectations on the basis of the signal - thinking coarsely, i.e., by category - or engage in costly high elaboration to attain knowledge of the actual quality of the offer. This signaling setup allows us to keep the assumption that agents are both rational and Bayesian and, at the same time, to match many of the findings emphasized by well established psychological models of persuasion - such as the Elaboration Likelihood Model and the Heuristic-Systematic Model. In addition, the model provides novel theoretical results such as the possibility of separating equilibria that do not rely on the single-crossing property and a new rationale for the phenomenon of counter-signaling.
    Keywords: persuasion, coarse reasoning, peripheral and central route, heuristic and systematic reasoning, counter-signaling
    JEL: D01 D82 D83
    Date: 2014
  3. By: Cox, James C.; Sadiraj, Vjollca; Schmidt, Ulrich
    Abstract: This paper presents an experimental study of the random incentive mechanisms which are a standard procedure in economic and psychological experiments. Random incentive mechanisms have several advantages but are incentive-compatible only if responses to the single tasks are independent. This is true if either the independence axiom of expected utility theory or the isolation hypothesis of prospect theory holds. We present a simple test of isolation in the context of choice under risk. In the baseline (one task) treatment, we observe risk behavior in a given decision problem. We show that by adding an asymmetrically dominated choice problem in a random incentive mechanism risk behavior can be manipulated systematically; this violates the isolation hypothesis. The random incentive mechanism thus does not elicit true preferences in our example.
    Keywords: random incentive mechanism, isolation, asymmetrically dominated alternatives
    JEL: C90 D80
    Date: 2014–03–20
  4. By: Olivier Body; Régine Kolinsky
    Keywords: communication; experiment; information acquisition; effort
    JEL: C91 D83
    Date: 2014–03
  5. By: Zuzanna Halicka (University of Warsaw); Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The objective of this work was to investigate whether situational emotions can influence consumers’ decision to purchase lottery tickets. We conducted a field experiment in which positive or negative emotions were induced immediately prior to such a decision in 685 subjects unaware of their participation in a study. Two methods of induction—gambling related and gambling unrelated—were used to verify the robustness of the results. We found that subjects in whom positive emotions were induced, in both gambling and non-gambling contexts, bought lottery tickets significantly more often than subjects with negative emotions or those in the control group.
    Keywords: decision making, lotteries, induced emotions, gambling-related cues, field experiment
    JEL: D81 L83
    Date: 2014
  6. By: Sibilla Di Guida; Ido Erev; Davide Marchiori
    Abstract: This paper examines the effects of different cultural backgrounds on decisions from experience. In Experiment 1, participants from Denmark, Israel, and Taiwan faced each of six binary choice problems for 200 trials. The participants did not receive prior description of the payoff distributions, but obtained complete feedback after each choice. Comparison of choice behavior across cultural groups reveals similar overall choice rates, and similar indications of underweighting of rare events and of the payoff variability effect. In addition, subjects from Taiwan exhibited a stronger tendency to chase recent outcomes. That is, subjects from East Asia behaved “as if” they expected less change in the environment than subjects from West Asia and West Europe. Experiment 2 shows that an increase in the complexity of the choice tasks (i.e. adding slight variability to the safe option, and increasing the number of replicas for each option) does not break the similarity of choice rates across cultural groups, but reverses the observed chasing pattern: In Experiment 2, Israeli participants tended to chase recent outcomes more than did the Taiwanese. These results can be summarized with the assumption that the tendency to rely of small samples of past experiences (a sufficient condition for underweighting of rare events and the payoff variability effect) is robust to cultural differences, but the exact sampling process is culture- and framing-specific. An increase in the number of possible outcomes increases the probability of sampling the most recent trial in the West, but not in the East. Thus, behavior in the East appears less sensitive to task complexity.
    Keywords: cross cultural decision making; rare events; decisions from experience; clicking paradigm; recency effect
    Date: 2014–03
  7. By: María Cubel (Universitat de Barcelona & IEB); Santiago Sanchez-Pages (Universitat de Barcelona)
    Abstract: Recent literature has emphasized that individuals display different depths of reasoning when playing games. In this paper, we explore gender differences in strategic sophistication and study whether these differences are endogenous. We report results from two different experiments employing the beauty contest. In the first, large study, we show that females react very strongly to incentives to the extent that gender differences disappear when a monetary prize is awarded. In the second study, we use a within subject design to analyze how depth of reasoning varies with gender priming and the gender composition of the set of players. We corroborate that females display higher levels of sophistication and even overtake males when incentives are provided and gender is primed. On the other hand, males who believe that females are better in the game display higher sophistication when playing against females.
    Keywords: Guessing game, strategic sophistication, gender, beliefs, stereotype threat
    JEL: C72 C91 D81 J16
    Date: 2014
  8. By: Stark, Oded
    Abstract: We relate to others in two important ways: we care about others, and we care about how we fare in comparison to others. In some contexts, these two forms of relatedness interact. Caring about others can conveniently be labeled altruism. Caring about how we fare in comparison with others who fare better than ourselves can conveniently be labeled relative deprivation. I provide examples of domains in which the incorporation of altruism and relative deprivation can point to novel perspectives and suggest rethinking, and possibly revising, long-held views. And I show that there are domains in which consideration of relative deprivation can substitute for the prevalence of altruism, and vice versa. I conclude that this is a fascinating sphere for research on economics and social behavior.
    Keywords: Altruism, Relative deprivation, Economic and social behavior, Consumer/Household Economics, Institutional and Behavioral Economics, International Development, D01, D03, D13, D31, D63, D64, F22, F24, J61, O15,
    Date: 2014–03
  9. By: Eduard Braun (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
    Abstract: The principles characterizing the traditional revenue-expense approach to accounting have never been “invented.” They are an institution that is the result of social evolution, not of human design. Therefore, the efforts to defend them against the balance sheet approach endorsed by standard-setters have encountered severe difficulties. The latter is based on a coherent model of the economy, namely neoclassical economics. This paper argues that a solid basis for explaining the rationale of the traditional accounting principles can be found in behavioral economics, especially in Prospect Theory. If one combines this result with a market process view of the economy, the revenue-expense approach turns out to be congenial to the organization of the market economy.
    Keywords: Financial Accounting, Prospect Theory, Fair Value, Historical Costs
    JEL: D03 M41 M48
    Date: 2014
  10. By: Anna Bartczak (Faculty of Economic Sciences, Warsaw Ecological Economics Center , University of Warsaw); Susan Chilton (Newcastle University Business School); Jürgen Meyerhoff (Technische Universität Berlin, Institute for Landscape and Environmental Planning)
    Abstract: This paper examines how risk preferences and loss aversion affect choices over a risky environmental good, wildfire prevention in Poland. We collect data in a stated preference survey that allows us to calculate both risk aversion and loss aversion parameters from individual respondents in both the financial and environmental domains. In doing so, we are able to confirm that this behaviour is consistent with prospect theory and holds for the majority of respondents. Additionally, we find little evidence of domain specificity of risk: responses to the financial risk questions were good predictors of responses to the environmental risk questions.
    Keywords: risk preferences over financial and environmental domains, forest fires, loss aversion, probability weighting, prospect theory
    JEL: Q51 D03 D81
    Date: 2014
  11. By: Delaney, Liam; Fink, Gunther; Harmon, Colm
    Abstract: The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of risk-aversion, and substantially lowers the effort individuals make to learn about financial decisions .
    Keywords: learning; risk aversion; discounting; financial decisions; stress
    Date: 2014–03
  12. By: Amedeo Piolatto (Universitat de Barcelona & IEB); Matthew D. Rablen (Brunel University)
    Abstract: The standard expected utility model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). The existing literature disagrees on whether prospect theory overturns the puzzle. We disentangle four distinct elements of prospect theory and find loss aversion and probability weighting to be redundant in respect of the puzzle. Prospect theory fails to reverse the puzzle for various classes of endogenous specification of the reference level. These classes include, as special cases, the most common specifications in the literature. New specifications of the reference level are needed, we conclude.
    Keywords: Prospect theory, tax evasion, Yitzhaki puzzle, stigma, diminishing sensitivity, reference dependence, endogenous audit probability, endogenous reference level
    JEL: H26 D81 K42
    Date: 2014
  13. By: Benedikt Fuchs; Stefan Thurner
    Abstract: Almost universally, wealth is not distributed uniformly within societies or economies. Even though wealth data have been collected in various forms for centuries, the origins for the observed wealth-disparity and social inequality are not yet fully understood. Especially the impact and connections of human behavior on wealth could so far not be inferred from data. Here we study wealth data from the virtual economy of the massive multiplayer online game (MMOG) Pardus. This data not only contains every player's wealth at every point in time, but also all actions of every player over a timespan of almost a decade. We find that wealth distributions in the virtual world are very similar to those in western countries. In particular we find an approximate exponential for low wealth and a power-law tail. The Gini index is found to be $g=0.65$, which is close to the indices of many Western countries. We find that wealth-increase rates depend on the time when players entered the game. Players that entered the game early on tend to have remarkably higher wealth-increase rates than those who joined later. Studying the players' positions within their social networks, we find that the local position in the trade network is most relevant for wealth. Wealthy people have high in- and out-degree in the trade network, relatively low nearest-neighbor degree and a low clustering coefficient. Wealthy players have many mutual friendships and are socially well respected by others, but spend more time on business than on socializing. We find that players that are not organized within social groups with at least three members are significantly poorer on average. We observe that high `political' status and high wealth go hand in hand. Wealthy players have few personal enemies, but show animosity towards players that behave as public enemies.
    Date: 2014–03

This nep-cbe issue is ©2014 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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