nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒06‒14
twelve papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. Social anchor effects in decision-making under ambiguity By Lahno, Amrei M.
  2. Strategic Trustworthiness via Unstrategic Third-party Reward – An Experiment By Lilia Zhurakhovska
  3. Peer effects and social preferences in voluntary cooperation By Simon Gächter; Christian Thöni
  4. The Paradox of Misaligned Profiling: Theory and Experimental Evidence By Holt, Charles; Kydd, Andrew; Razzolini, Laura; Sheremeta, Roman
  5. Sharing Personal Information with Close and Distant Peers By Simeon Schudy; Verena Utikal
  6. How do risk attitudes affect measured confidence? By Zahra Murad; Chris Starmer; Martin Sefton
  7. Discretionary Sanctions and Rewards in the Repeated Inspection Game By Daniele Nosenzo; Theo Offerman; Martin Sefton; Ailko van der Veen
  8. An Instrument that Could Turn Crowding-out into Crowding-in By Antoine Beretti; Charles Figuières; Gilles Grolleau
  9. Sellouts, Beliefs, and Bandwagon Behavior By Nick Vikander
  10. The Relevance of Relative Position in Ultimatum Games By Miller Moya, Luis Miguel; Ubeda Molla, Paloma
  11. Other-regarding behavior under collective action By Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
  12. Personality, IQ, and Lifetime Earnings By Gensowski, Miriam

  1. By: Lahno, Amrei M.
    Abstract: I experimentally examine whether feedback about others' choices provides an anchor for decision-making under ambiguity. In a between-subjects design I vary whether subjects learn choices made individually by a "peer" in a first part when facing the same task a second time, and whether prospects are defined over gains or losses. My key findings are that the relative ambiguity attitude (compared to the peer's) significantly matters for shifts in individual attitudes, and that dynamics considerably differ between gain and loss domains. For gains, learning to be comparably ambiguity averse increases the likelihood for such shifts, relative to the individual condition; for losses, this likelihood decreases only if peers learn to exhibit exactly the same attitude. Further, I observe imitative shifts towards the peer's attitude in the gain domain, but only towards neutrality in the loss domain. Shifts towards neutrality for losses also appear significant without social anchor suggesting that ambiguity seeking might not be particularly robust. Moreover, cognitive ability positively correlates to shifts towards neutrality in the gain domain, but has no impact in the loss domain.
    Keywords: Decision-making under uncertainty; ambiguity; social comparison; learning; laboratory experiment.
    JEL: C91 D03 D81 D83
    Date: 2014–06–05
  2. By: Lilia Zhurakhovska (University of Erlangen-Nuremberg & Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper investigates the introduction of an institution, in form of an impartial authority (third party), into a two-person situation. The impartial authority can reward a stranger for acting according to a desired behavioral norm. The reward is costly for the authority and her behavior cannot be strategic, i.e., it cannot lead to higher earnings for her in a later stage. A trust game followed by a helping game is implemented. The trustee in the trust game becomes the recipient in the helping game. This paper demonstrates that positive strong indirect reciprocity can exist in one-shot settings (helpers transfer more money to their recipients the more these are trustworthy) and that positive strong indirect reciprocity is not diminishing if the reward can be anticipated. Furthermore, the positive strong indirect reciprocity is correctly anticipated and leads to higher trustworthiness in the treatment.
    Keywords: Norms, strong indirect reciprocity, third-party reward, trust game, helping game, anticipation
    JEL: D63 C90 D03
    Date: 2014–05
  3. By: Simon Gächter (School of Economics, University of Nottingham); Christian Thöni (Centre Walras-Pareto, University of Lausanne)
    Abstract: Social preferences and social influence effects (“peer effectsâ€) are well documented, but little is known about how peers shape social preferences. Settings where social preferences matter are often situations where peer effects are likely too. In a gift-exchange experiment with independent payoffs between two agents we find causal evidence for peer effects. Efforts are positively correlated but with a kink: agents follow a low-performing but not a high-performing peer. This contradicts major theories of social preferences which predict that efforts are unrelated, or negatively related. Some theories allow for positively-related efforts but cannot explain most observations. Conformism, norm following and social esteem are candidate explanations.
    Keywords: social preferences, voluntary cooperation, peer effects, reflection problem, gift-exchange; conformism; social norms; social esteem, experiments.
    Date: 2014–03
  4. By: Holt, Charles; Kydd, Andrew; Razzolini, Laura; Sheremeta, Roman
    Abstract: This paper implements an experimental test of a game-theoretic model of equilibrium profiling. Attackers choose a demographic “type” from which to recruit, and defenders choose which demographic types to search. Some types are more reliable than others in the sense of having a higher probability of carrying out a successful attack if they get past the security checkpoint. In a Nash equilibrium, defenders tend to profile by searching the more reliable attacker types more frequently, whereas the attackers tend to send less reliable types. Data from laboratory experiments with financially motivated human subjects are consistent with the qualitative patterns predicted by theory. However, we also find several interesting behavioral deviations from the theory.
    Keywords: terrorism, profiling, game theory, laboratory experiment
    JEL: C72 C91 J16
    Date: 2014–05–20
  5. By: Simeon Schudy; Verena Utikal
    Abstract: We provide evidence that people have preferences for data privacy and show that these preferences partly reflect peopleÕs interest in controlling who receives their private information. Participants of an experiment face the decision to share validated personal information with peers. We compare preferences for sharing potentially embarrassing information (body weight and height) and non-embarrassing information (address data) with geographically proximate or distant peers. We find that i) participants are willing to give up substantial monetary amounts in order to keep both types of information private, ii) data types are valued differently, and iii) prices for potentially embarrassing information tend to be higher for geographically proximate than distant peers.
    Keywords: preferences, data privacy, information transmission, experiment
    Date: 2014
  6. By: Zahra Murad (School of Economics, University of Nottingham); Chris Starmer (Department of Economics, University of Amsterdam); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We examine confidence in own absolute performance using two elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the“hard-easy effect†(overconfidence in easy tasks and underconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is somewhat reduced when we filter out the effects of risk attitudes. However, even after controlling for risk attitudes our incentivised procedure leads to significant underconfidence, and does not lead to better calibration between confidence and performance than non-incentivised self-reports. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting.
    Keywords: Overconfidence, Underconfidence, Experiment, Risk Preferences
  7. By: Daniele Nosenzo (School of Economics, University of Nottingham); Theo Offerman (Department of Economics, University of Amsterdam); Martin Sefton (School of Economics, University of Nottingham); Ailko van der Veen (Department of Economics, University of East Anglia)
    Abstract: We experimentally investigate a repeated “inspection game†where, in the stage game, an employee can either work or shirk and an employer simultaneously chooses to inspect or not inspect. The unique equilibrium of the stage game is in mixed strategies with positive probabilities of shirking/inspecting while combined payoffs are maximized when the employee works and the employer does not inspect. We examine the effects of allowing the employer discretion to sanction or reward the employee after observing stage game payoffs. When employers have limited discretion, and can only apply sanctions and/or rewards following an inspection, we find that both instruments are equally effective in reducing shirking and increasing joint earnings. When employers have discretion to reward and/or sanction independently of whether they inspect we find that rewards are more effective than sanctions. In treatments where employers can combine sanctions and rewards employers rely mainly on rewards and outcomes closely resemble those of treatments where only rewards are possible.
    Keywords: Inspection Game; Costly Monitoring; Discretionary Incentives; Rewards; Punishment; Experiment.
    Date: 2014–04
  8. By: Antoine Beretti (INRA-Lameta); Charles Figuières (INRA-Lameta); Gilles Grolleau (INRA-Lameta)
    Abstract: Using a simple decision-theoretic approach, we formalize how agents with different kinds of intrinsic motivations react to the introduction of monetary incentives. We contend that empirical results supporting the existence of a crowding-out effect in various contexts hide a more complex reality. We also propose a new policy instrument which taps into agents’ heterogeneity regarding intrinsic motivations in order to turn a situation subject to crowding-out into a crowding-in outcome. This instrument uses a self-selection mechanism to match adequate monetary incentives with individuals’ types regarding intrinsic motivations.
    Keywords: Crowding-out, Heterogeneity, Moral motivation, Environmental regulation
    JEL: D03 D64 H23 Q58
    Date: 2014–05
  9. By: Nick Vikander (Department of Economics, Copenhagen University)
    Abstract: This paper examines how a firm can strategically use sellouts to influence beliefs about its good's popularity. A monopolist faces a market of conformist consumers, whose willingness to pay is increasing in their beliefs about aggregate demand. Consumers are broadly rational but have limited strategic reasoning about the firm's incentives. I show that in a dynamic setting, the firm can use current sellouts to mislead consumers about future demand and increase future profits. Sellouts tend to occur when demand is low, they are accompanied by introductory pricing, and certain consumers benefit from others being misled.
    Keywords: sellouts, conformity, bounded rationality, obfuscation
    JEL: D03 D42 D83
    Date: 2014–04–01
  10. By: Miller Moya, Luis Miguel; Ubeda Molla, Paloma
    Abstract: This paper investigates the effect of focal points and initial relative position in the outcome of a bargaining process. We conduct two on-line experiments. In the first experiment we attempt to replicate Güth, Huck and Müller's (2001) results about the relevance of equal splits. In our second experiment, we recover the choices of participants in forty mini-ultimatum games. This design allows us to test whether the equal split or any other distribution or set of distributions are salient. Our data provide no support for a focal-point explanation but we find support for an explanation based on relative position. Our results confirm that there is a norm against hyper-fair offers. Proposers are expected to behave selfishly when the unselfish distribution leads to a change in the initial relative position.
    Keywords: bargaining, focal points, relative position
    JEL: C78 C92
    Date: 2014
  11. By: Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
    Abstract: In many collective action settings, such as decisions on public education or climate change mitigation, actions of a group have welfare consequences for themselves as well as their followers. We conduct laboratory experiments with two-stage predecessor-follower prisoners' dilemma and coordination games with dynamic externalities to study whether concerns for the followers' welfare affect the predecessors' behavior. We find that predecessors often give up own payoffs to avoid imposing negative externalities on the followers, but not to generate positive externalities for the followers. A concern for the followers aligned with own group payoff maximization motive helps to resolve social dilemma and coordination problems; yet, a conflict in motives greatly exacerbates both free-riding and coordination on the payoff-inferior equilibrium. We also find strong evidence of social learning: the followers tend to blindly mimic their own predecessor, but act opposite to their match's predecessor, no matter whether these actions are welfare-improving or not.
    Keywords: economic experiments, other-regarding behavior, collective action
    JEL: C90 C73
    Date: 2014–05
  12. By: Gensowski, Miriam (University of Copenhagen)
    Abstract: Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits. I identify a previously undocumented interaction between education and traits in earnings generation, which results in important heterogeneity of the net present value of education. Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.
    Keywords: personality traits, social skills, cognitive skills, returns to education, life-time earnings, Big Five, human capital, factor analysis
    JEL: J24 I24 J16
    Date: 2014–06

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