nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒04‒29
fifteen papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. What is the Causal Effect of Information and Learning about a Public Good on Willingness to Pay? By Czajkowski, Mikolaj; Hanley, Nicholas; LaRiviere, Jacob; Simpson, Katherine
  2. Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection By Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A.; Sutter, Matthias
  3. A Social Cognitive Framework of Newcomersf Extra-Role Behaviors By Li Jie; Tomoki Sekiguchi
  4. Are Employee Stock Option Exercise Decisions Better Explained through the Prospect Theory? By Bahaji, Hamza
  5. A Field Experiment in Motivating Employee Ideas By Gibbs, Michael; Neckermann, Susanne; Siemroth, Christoph
  6. Learning-by-Doing in a Highly Skilled Profession When Stakes Are High: Evidence from Advanced Cancer Surgery By Avdic, Daniel; Lundborg, Petter; Vikström, Johan
  7. Exposure to Risk and Risk Aversion: A Laboratory Experiment By Tai-Sen HE; Fuhai HONG
  8. Impatient in Experiments, but Patient in Simulations: A Challenge to a Neoclassical Model. By Emin Gahramanov; Xueli Tang
  9. Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good By Aanesen, Margrethe; Czajkowski, Mikolaj; Falk-Peterson, Jannike; Hanley, Nicholas; LaRiviere, Jacob; Tinch, Dugald
  10. Tax evasion and cognitive dissonance By Beckmann, Klaus; Gattke, Susan
  11. Crime and Self-Control Revisited: Disentangling the Effect of Self-Control on Risk and Social Preferences By Friehe, Tim; Schildberg-Hörisch, Hannah
  12. Playing 'Hard to Get': An Economic Rationale for Crowding Out of Intrinsically Motivated Behavior By Schnedler, Wendelin; Vanberg, Christoph
  13. The Effect of Ambient Noise on Cooperation in Public Good Games By Diederich, Johannes
  14. Motivational Drivers of the Private Provision of Public Goods: Evidence From a Large Framed Field Experiment By Diederich, Johannees; Goeschl, Timo
  15. An idiosyncrasy credit or a generalist discount? Conditional advantages to working broadly in a virtual labor market By Leung, Ming D.; Ng, Weiyi

  1. By: Czajkowski, Mikolaj; Hanley, Nicholas; LaRiviere, Jacob; Simpson, Katherine
    Abstract: In this study we elicit agents' prior information set regarding a public good, exogenously give information treatments to survey respondents and subsequently elicit willingness to pay for the good and posterior information sets. The design of this field experiment allows us to perform theoretically motivated hypothesis testing between different updating rules: non-informative updating, Bayesian updating, and incomplete updating. We find causal evidence that agents imperfectly update their information sets. We also field causal evidence that the amount of additional information provided to subjects relative to their pre-existing information levels can affect stated WTP in ways consistent overload from too much learning. This result raises important (though familiar) issues for the use of stated preference methods in policy analysis.
    Keywords: Stated Preference; Behavioral Economics; Public Goods; Bayesian
    Date: 2014–04
  2. By: Charness, Gary (University of California, Santa Barbara); Feri, Francesco (University of Innsbruck); Meléndez-Jiménez, Miguel A. (University of Malaga); Sutter, Matthias (European University Institute)
    Abstract: In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion's share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
    Keywords: random networks, incomplete information, connectivity, clustering, strategic substitutes, strategic complements, experiment
    JEL: C71 C91 D03 D85
    Date: 2014–04
  3. By: Li Jie (Graduate School of Economics, Osaka University); Tomoki Sekiguchi (Graduate School of Economics, Osaka University)
    Abstract: Although much research has been conducted on employeesf extra-role behaviors (ERBs), the topic of how newcomers to an organization engage in ERBs remains relatively underexplored. Following social cognitive theory, we develop a dynamic model of newcomersf helping and voice as two types of ERBs. The core idea of our model is that although newcomers may eventually come to engage in both types of ERBs, there will be a time lag between the emergence and increase of helping and those of voice. Our model shows that a social cognitive mechanism, including cyclical positive feedback loops and transfer of domain-specific self-efficacy, mediates the behavioral-level spillover from helping to voice. Our model also identifies several moderating factors that influence the process in which newcomersf helping and voice behaviors develop over time.
    Keywords: newcomers, helping, voice, domain-specific self-efficacy, social cognitive theory
    JEL: M10 M12 M54
    Date: 2014–04
  4. By: Bahaji, Hamza
    Abstract: This research provides an alternative framework for the analysis of employee stock option exercise patterns. It develops a binomial model where the exercise decision obeys to a policy that maximizes the expected utility to a representative employee exhibiting preferences as described by the Cumulative Prospect Theory (CPT). Using a large database on exercise transactions in 12 US public corporations, I examined the performance of the model in predicting actual exercise patterns. Interestingly, the probability weighting coefficients yielded by the model calibration are consistent with those from the experimental literature. Further, the results suggest that the model outperforms the Expected Utility Theory-based model in predicting actual exercise decisions in the sample. These findings convey the main contribution of this paper: the strong ability of the CPT framework to explain employees exercise behavior. It therefore provides rationale for using this framework in order to get more relevant fair value estimates of stock options.
    Keywords: Stock options; Exercise behavior; Cumulative Prospect Theory; Fair value; Option valuation;
    JEL: G13 G30 J33 M41
    Date: 2014–03
  5. By: Gibbs, Michael (University of Chicago); Neckermann, Susanne (Erasmus University Rotterdam); Siemroth, Christoph (University of Mannheim)
    Abstract: We study the effects of a field experiment designed to motivate employee ideas, at a large technology company. Employees were encouraged to submit ideas on process and product improvements via an online system. In the experiment, the company randomized 19 account teams into treatment and control groups. Employees in treatment teams received rewards if their ideas were approved. Nothing changed for employees in control teams. Our main finding is that rewards substantially increased the quality of ideas submitted. Further, rewards increased participation in the suggestion system, but decreased the number of ideas per participating employee, with zero net effect on the total quantity of ideas. The broader participation base persisted even after the reward was discontinued, suggesting habituation. We find no evidence for motivational crowding out. Our findings suggest that rewards can improve innovation and creativity, and that there may be a tradeoff between the quantity and quality of ideas.
    Keywords: innovation, creativity, intrinsic motivation, incentives
    JEL: C93 J24 M52 O32
    Date: 2014–04
  6. By: Avdic, Daniel (CINCH); Lundborg, Petter (Lund University); Vikström, Johan (IFAU)
    Abstract: Although learning-by-doing is believed to be an important source of productivity growth, there is limited evidence that production volume affects productivity in a causal sense. We document evidence of learning-by-doing in a highly skilled profession where stakes are high; advanced cancer surgery. For this purpose, we introduce a novel instrument that exploits the closure and opening of entire cancer clinics which have given rise to sharp and exogenous changes in the cancer surgical volumes at Swedish public sector hospitals. Using detailed register data on more than 100,000 episodes of advanced cancer surgery, our results suggest positive effects of surgery volumes on survival. In addition, we provide evidence on the mechanisms through which these improvements occur. We also show that the results are not driven by changes in patient composition or by other changes at the hospital level.
    Keywords: hospital volume, learning-by-doing, cancer surgery, survival, causal effect
    JEL: I11 I12 I18 L11
    Date: 2014–04
  7. By: Tai-Sen HE (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.); Fuhai HONG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore, 637332.)
    Abstract: We examine whether prior exposure to environments with a varying degree of risk affects individuals’ risk-taking behavior. Using a laboratory experiment, we find that subjects exposed to a high risk environment exhibit higher levels of risk aversion than those who were exposed to a moderate or low risk environment. This effect is not driven by subjects’ realized outcomes from the risk. The finding has implications for theoretical models of decision-making under uncertainty, and can speak to a few current policy debates.
    Keywords: Risk; Risk Aversion; Laboratory Experiment
    JEL: D81 C91
    Date: 2014–03
  8. By: Emin Gahramanov; Xueli Tang
    Abstract: Despite ample empirical evidence on the prevalence of high discount rates among people, applied, quantitative-theoretical macro studies with exponential discounting often assume low positive, or even negative discount rate values. Relying on recent advances from the numerical optimal control branch of mathematics, we solve a neoclassical, continuous time model of endogenous consumption/saving and labor supply, and show that even if an agent has a moderately high discount rate, his labour supply and consumption behavior will be highly counterfactual. We provide a remedy to such counterfactual findings by augmenting a standard utility function based on recent evidences from the leisure sciences, while maintaining a rational choice approach of neoclassical economics.
    Keywords: Bounded control; Numerical Optimal Control; Life-cycle Consumption and Labor-Leisure
    JEL: D91 C02 C61 J22 J26
    Date: 2014–03–31
  9. By: Aanesen, Margrethe; Czajkowski, Mikolaj; Falk-Peterson, Jannike; Hanley, Nicholas; LaRiviere, Jacob; Tinch, Dugald
    Abstract: This paper compares how increases in experience versus increases in knowledge about a public good affect willingness to pay (WTP) for its provision. This is challenging because while consumers are often certain about their previous experiences with a good, they may be uncertain about the accuracy of their knowledge. We therefore design and conduct a field experiment in which treated subjects receive a precise and objective signal regarding their knowledge about a public good before estimating their WTP for it. Using data for two different public goods, we show qualitative equivalence of the effect of knowledge and experience on valuation for a public good. Surprisingly, though, we find that the causal effect of objective signals about the accuracy of a subject's knowledge for a public good can dramatically affect their valuation for it: treatment causes an increase of $150-$200 in WTP for well-informed individuals. We find no such effect for less informed subjects. Our results imply that WTP estimates for public goods are not only a function of true information states of the respondents but beliefs about those information states.
    Keywords: Choice Experiment; Uncertainty; Valuation; Field Experiment; Beliefs; Information
    Date: 2014–04
  10. By: Beckmann, Klaus (Helmut Schmidt University, Hamburg); Gattke, Susan (Helmut Schmidt University, Hamburg)
    Abstract: We introduce public signals and cognitive dissonance into the standard Allingham-Sandmo- Yitzhaki (ASY) model of tax evasion. It turns out that the pres- ence of cognitive dissonance attenuates tax evasion as individuals dislike allowing their true bevhaviour to diverge from their public statement of the “admissible” degree of tax evasion, which, in turn, they use to influence the probability of detection. Some potential policy conclusions and extensions are discussed.
    Keywords: tax evasion; cognitive dissonance; public signals
    JEL: D03 H26 H30
    Date: 2014–04–17
  11. By: Friehe, Tim (University of Bonn); Schildberg-Hörisch, Hannah (University of Bonn)
    Abstract: In economic models, risk and social preferences are major determinants of criminal behavior. In criminology, low self-control is considered a fundamental cause of crime. Relating the arguments from both disciplines, this paper studies the relationship between self-control and both risk and social preferences. To exogenously vary the level of self-control, we use a well-established experimental manipulation. We find that low self-control causes less risk-averse behavior. The effect of self-control on social preferences is not significant. In sum, our findings support the proposition that low self-control is a facilitator of crime. While our study is motivated by the literature on the determinants of criminal behavior, it has important implications for dual-system models and documents endogeneity of economic preferences.
    Keywords: criminal behavior, risk preferences, social preferences, ego-depletion, dual-system models, experiment, endogeneity of economic preferences
    JEL: K42 H23 C91
    Date: 2014–04
  12. By: Schnedler, Wendelin (University of Paderborn); Vanberg, Christoph (Alfred-Weber-Institut für Wirtschaftswissenschaften, Universität Heidelberg)
    Abstract: Anecdotal, empirical, and experimental evidence suggests that offering extrinsic rewards for certain activities can reduce people's willingness to engage in those activities voluntarily. We propose a simple rationale for this 'crowding out' phenomenon, using standard economic arguments. The central idea is that the potential to earn rewards in return for an activity may create incentives to play 'hard to get' in an effort to increase those rewards. We discuss two specific contexts in which such incentives arise. In the first, refraining from the activity causes others to attach higher value to it because it becomes scarce. In the second, restraint serves to conceal the actor's intrinsic motivation. In both cases, not engaging in the activity causes others to offer larger rewards. Our theory yields the testable prediction that such effects are likely to occur when a motivated actor enjoys a sufficient degree of 'market power.'
    Keywords: intrinsic motivation, crowding out, behavioral economics, market power, hidden information
    JEL: D1 M5 D8 D4 C9
    Date: 2014–04
  13. By: Diederich, Johannes
    Abstract: Environmental stressors such as noise, pollution, extreme temperatures, or crowding can pose relevant externalities in the economy if certain conditions are met. This paper presents experimental evidence that exposure to acute ambient noise decreases cooperative behavior in a standard linear public good game.
    Keywords: private provision of public goods; environmental stress; noise
    Date: 2014–04–16
  14. By: Diederich, Johannees; Goeschl, Timo
    Abstract: Disentangling the motivational drivers of individuals is frequently regarded a key step in reconciling theory and empirical evidence on the voluntary provision of public goods. We present results of a large online field experiments with 12,624 contribution choices by members of the Internet-using German population. Subjects are assigned to six treatments targeted at motivations such as altruism, "warm glow", image motivation, or equity concerns. While evidence on treatment effects is mixed, the data point to signicant effects of framing and the sequence of presenting options. Exploiting variations within the highly heterogeneous sample, the results confirm previous results from a subset of the data on sociodemographics and exogenous environmental conditions as determinants of subjects' choices and add additional evidence that females and older subjects are more inclined to give to the public good.
    Keywords: private provision of public goods; online experiment; field experiment; warm glow; social norms; equity field experiment; online experiment
    Date: 2014–04–16
  15. By: Leung, Ming D.; Ng, Weiyi
    Abstract: This article challenges the widespread notion that spanning recognized categories, or generalism,is disadvantageous. In markets, buyers face the fundamental challenge of gaining insight into the underlying ability of sellers. Economic sociologists rely on theories of categorization to explain how participants navigate this assessment. Social actors who span multiple categories have beenfound to be disadvantaged. We do not believe this is always the case and seek to identify conditions under which generalism by job seekers is valued. We start with the contention that spanning is an ambiguous indicator of quality, and suggest how it is perceived is dependent on other, salient indicators. We investigate two – relevance and reputation – which are often confounded with generalism. We propose that the same spanning behavior can be advantageous or disadvantageous depending on these other indicators. We hypothesize that those who evince the necessary attributes an employer is looking for by being relevant are advantaged when they also span disparate areas because employers value broader experiences. Spanning should also be advantageous for highly reputable applicants because it is more consistent with the belief they possess superior skills. In short, we identify idiosyncrasy credits. We test and find support for these hypotheses in the context of a virtual labor market for freelancers –
    Keywords: Social and Behavioral Sciences
    Date: 2014–03–21

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