nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒05‒09
seven papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. Affective reactions influence investment decisions: Evidence from a laboratory experiment with taxation By Schüßler, Katharina; Hewig, Johannes; Kiesewetter, Dirk; Fochmann, Martin
  2. Learning about Learning in Games through Experimental Control of Strategic Interdependence By Jason Shachat; J. Todd Swarthout
  3. Strategic Sophistication and Attention in Games: an Eye-Tracking Study By Luca Polonio; Sibilla Di Guida; Giorgio Coricelli
  4. Conforming to Group Norms: An Experimental Study By Gautam Bose; Lorraine Ivancic; Evgenia Dechter
  5. The effect of straight-line and accelerated depreciation rules on risky investment decisions: An experimental study By Ackermann, Hagen; Fochmann, Martin
  6. The Hayek Hypothesis and Long Run Competitive Equilibrium: An Experimental Investigation By Jason Shachat; Zhenxuan Zhang
  7. Team Reasoning as a Guide to Coordination By Lahno, Amrei Marie; Lahno, Bernd

  1. By: Schüßler, Katharina; Hewig, Johannes; Kiesewetter, Dirk; Fochmann, Martin
    Abstract: We investigate the effect of taxation on gains and losses on the investment behavior of investors. Based on the insights of both economic research on the influence of taxation on investment behavior and psychological concepts dealing with the descriptive decision behavior of investors we expect investors to react to taxation of investment alternatives they face with behavioral and affective changes. By conducting a laboratory experiment with a total of 72 participants based on the experimental design of Fochmann, Kiesewetter, and Sadrieh (2012) that allows to quantify the reactions of investors to taxation on gains and loss deduction independent of their individual risk preferences and additionally measuring the affective reactions of our participants, we explore the role of affect in the relation of taxation and decision making. Hence, we are able to show that affective reactions to the taxation situations, in particular the perceived valence of these situations, influence the change in behavior of investors when confronted with taxation on gains and limited loss deduction. --
    Keywords: decision making,risk taking behavior,behavioral taxation,distorting taxation,affect,valence
    JEL: C91 D14 H24
    Date: 2014
  2. By: Jason Shachat; J. Todd Swarthout
    Abstract: We report results from an experiment in which humans repeatedly play one of two games against a computer program that follows either a reinforcement or an experience weighted attraction learning algorithm. Our experiment shows these learning algo- rithms detect exploitable opportunities more sensitively than humans. Also, learning algorithms respond to detected payoff-increasing opportunities systematically; how- ever, the responses are too weak to improve the algorithms’ payoffs. Human play against various decision maker types does not vary significantly. These factors lead to a strong linear relationship between the humans’ and algorithms’ action choice propor- tions that is suggestive of the algorithms’ best response correspondences.
    Keywords: Learning, �Repeated games, �Experiments, �Simulation
    JEL: C72 C92 C81
    Date: 2013–10–14
  3. By: Luca Polonio; Sibilla Di Guida; Giorgio Coricelli
    Abstract: We used eye-tracking to measure the dynamic patterns of visual information acquisition in twoplayers normal form games. Participants played one-shot games in which either, neither, or only oneof the players had a dominant strategy. First, we performed a mixture models cluster analysis to groupparticipants into types according to the pattern of visual information acquisition observed in a singleclass of games. Then, we predicted agents’ choices in different classes of games, and observed thatpatterns of visual information acquisition were game invariant. Our method allowed us to predictwhether the decision process would lead to equilibrium choices or not, and to attribute out-ofequilibriumresponses to limited cognitive capacities or social motives. Our results suggest theexistence of individually heterogeneous-but stable-patterns of visual information acquisition basedon subjective levels of strategic sophistication and social preferences.
    Keywords: game theory; strategic sophistication; social preferences; attention; eye-tracking
    Date: 2014–04
  4. By: Gautam Bose (School of Economics, Australian School of Business, the University of New South Wales); Lorraine Ivancic (School of Economics, Australian School of Business, the University of New South Wales); Evgenia Dechter (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: There is substantial experimental and empirical evidence to suggest that individual behaviour in bilateral or small-group interactions is affected by social norms. Further, social norms vary according to context. Previous research largely focuses on norms of fairness, not norms per se. We design an experiment to decouple norm-adherence from fairness. We find that (a) a group norm evolves and individuals cluster more tightly around it as they learn the average behaviour of the group, (b) actions further from this norm in a self-serving direction are less acceptable by others, and (c) when an agent is moved to a group with a different norm, s/he conforms quickly to the new norm.
    Keywords: group behaviour, norms, conformism, fairness, ultimatum game
    JEL: C72 C78 C92 Z13
    Date: 2014–04
  5. By: Ackermann, Hagen; Fochmann, Martin
    Abstract: The aim of this study is to analyze how depreciation rules influence the decision behavior of investors. For this purpose, we conduct a laboratory experiment in which participants decide on the composition of an asset portfolio in different choice situations. Using an experimental environment with different payment periods, we show that accelerated compared to straight-line depreciation can increase the willingness to invest as hypothesized by theory. Additionally, we are able to replicate the unexpected finding of Ackermann et al. (2013) - that introducing a subsidy leads to a lower willingness to take risk although the net returns are kept constant - with our setting which is different to their experimental environment. --
    Keywords: Taxation,Straight-line Depreciation,Accelerated Depreciation,Tax Perception,Risk Taking Behavior,Portfolio Choice,Behavioral Taxation
    JEL: C91 D14 H24
    Date: 2014
  6. By: Jason Shachat; Zhenxuan Zhang
    Abstract: We report on an experiment investigating whether the Hayak Hypothesis (Smith, 1982)extends to the long run setting. We consider two environments; one with a common pro-duction technology having a U-shaped long run average cost curve and a single competitive equilibrium, and another with a common constant returns to scale technology having a constant long run average cost curve and multiple competitive equilibria. While there is convergence in both environments to the long run equilibrium, it takes longer and is less robust than usually observed in the short run setting. We show that price formation is adaptive and quickly converges to realized short run equilibrium, but long run investment decisions exhibit very limited rationality. We present and estimate an investment choice model that shows that only minimal rationality, coupled with repeated decisions, is enough to achieve high long run allocative eciency when markets use continuous double auctions.
    Keywords: Experiment; Double Auction; Hayek Hypothesis; Long Run Equilibrium; Bounded Rationality
    JEL: C92 D02
    Date: 2013–10–14
  7. By: Lahno, Amrei Marie; Lahno, Bernd
    Abstract: A particular problem of traditional Rational Choice Theory is that it cannot explain equilibrium selection in simple coordination games. In this paper we analyze and discuss the solution concept for common coordination problems as incorporated in the theory of Team Reasoning (TR). Special consideration is given to TR’s concept of opportunistic choice and to the resulting restrictions in using private information. We report results from a laboratory experiment in which teams were given a chance to coordinate on a particular pattern of behavior in a sequence of HiLo games. A modification of the stage game offered opportunities to improve on the team goal through changing this accustomed pattern of behavior. Our observations throw considerable doubt on the idea of opportunistic team reasoning as a guide to coordination. Contrary to what TR would predict, individuals tend to stick to accustomed behavioral patterns. Moreover, we find that individual decisions are at least partly determined by private information not accessible to all members of a team. Alternative theories of choice, in particular cognitive hierarchy theory may be more suitable to explain the observed pattern of behavior.
    Keywords: team reasoning, collective agency, coordination, opportunistic choice, laboratory experiment.
    JEL: C91 C92 D03 D70
    Date: 2014–04–01

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.