nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒07‒13
sixteen papers chosen by
Marco Novarese
Universita' del Piemonte Orientale Amedeo Avogadro

  1. When Ignorance is Bliss* : Information Asymmetries Enhance Prosocial Behavior in Dicator Games By Winschel, Evguenia; Zahn, Philipp
  2. A Theory of Representative Behavior in the Dictator Game By Giménez Gómez, José M. (José Manuel); Osório, António (António Miguel)
  3. Loss Aversion in the Laboratory By Morrison, William G. and Robert Oxoby
  4. Peers at Work: From the Field to the Lab By Roel van Veldhuizen; Hessel Oosterbeek; Joep Sonnemans
  5. The Effect of Conflict History on Cooperation Within and Between Groups: Evidence from a Laboratory Experiment By Beekman, Gonne; Cheung, Stephen L.; Levely, Ian
  6. Risk Taking and Information Aggregation in Groups By Spiros Bougheas; Jeroen Nieboerr; Martin Sefton
  7. On Self-Interest and Greed By Kirchgässner, Gebhard
  8. How Individual Preferences are Aggregated in Groups: An Experimental Study By Attila Ambrus; Ben Greiner; Parag A. Pathak
  9. "And lead us not into temptation": Presentation formats and the choice of risky alternatives By Glenzer, Franca; Gründl, Helmut; Wilde, Christian
  10. Social norms, morals and self-interest as determinants of pro-environment behaviour By Mikołaj Czajkowski; Nick Hanley; Karine Nyborg
  11. Ability Dispersion and Team Performance By Sander Hoogendoorn; Simon C. Parker; Mirjam van Praag
  12. Detecting false positives in experimental auctions: A case study of projection bias in food consumption By Briz, Teresa; Drichoutis, Andreas C.; Nayga, Rodolfo M.
  13. A New Perspective on Classical Choice Problems Using Selection Functions By Hedges, Jules; Oliva, Paulo; Winschel, Evguenia; Winschel, Viktor; Zahn, Philipp
  14. Behavioural Labour Economics: Advances and Future Directions By Dohmen, Thomas
  15. The Effect of Personality Traits on Subject Choice and Performance in High School: Evidence from an English Cohort By Mendolia, Silvia; Walker, Ian
  16. The tactical utilization of cognitive biases in negotiations By Rhode, Alexander; Schönbohm, Avo; van Vliet, Jacobus

  1. By: Winschel, Evguenia; Zahn, Philipp
    Abstract: In most laboratory experiments concerning prosocial behavior subjects are fully informed how their decision influences the payoff of other players. Outside the laboratory, however, individuals typically have to decide without such detailed knowledge. To asses the effect of information asymmetries on prosocial behavior, we conduct a laboratory experiment with a simple non-strategic interaction. A dictator has only limited knowledge about the benefits his prosocial action generates for a recipient. We observe subjects with heterogenous social preferences. While under symmetric information only individuals with the same type of preferences transfer, under asymmetric information different types transfer at the same time. As a consequence and the main finding of our experiment, uninformed dictators behave more prosocially than informed dictators.
    Keywords: Asymmetric Information , Prosocial Behavior , Efficiency Concern , Inequality Aversion , Dictator Game
    JEL: D82 C91
    Date: 2014
  2. By: Giménez Gómez, José M. (José Manuel); Osório, António (António Miguel)
    Abstract: In this paper we present a model of representative behavior in the dictator game. Individuals have simultaneous and non-contradictory preferences over monetary payoffs, altruistic actions and equity concerns. We require that these behaviors must be aggregated and founded in principles of representativeness and empathy. The model results match closely the observed mean split and replicate other empirical regularities (for instance, higher stakes reduce the willingness to give). In addition, we connect representative behavior with an allocation rule built on psychological and behavioral arguments. An approach consistently neglected in this literature. Key words: Dictator Game, Behavioral Allocation Rules, Altruism, Equity Concerns, Empathy, Self-interest JEL classification: C91, D03, D63, D74.
    Keywords: Disseny d'experiments, Microeconomia, Economia del benestar, Decisió de grup, 33 - Economia,
    Date: 2014
  3. By: Morrison, William G. and Robert Oxoby (Wilfrid Laurier University)
    Abstract: We report the results of a laboratory experiment testing for the existence of loss aversion in a standard risk aversion protocol (Holt and Laury, 2002). In our experiment, participants earn and retain money for a week before using it in an incentivized risk preference elicitation task. We find loss aversion, distinct from risk aversion, has a significant effect on behavior resulting in participants requiring higher compensation to bear risk.
    Keywords: risk aversion, loss aversion, experiments
    JEL: C91 D91
    Date: 2014–06–30
  4. By: Roel van Veldhuizen (WZB Berlin Social Science Center); Hessel Oosterbeek (Universiteit van Amsterdam); Joep Sonnemans (Universiteit van Amsterdam)
    Abstract: In an influential study, Mas and Moretti (2009) find that “worker effort is positively related to the productivity of workers who see him, but not workers who do not see him”. They interpret this as evidence that social pressure can reduce free riding. In this paper we report an attempt to reproduce the findings of Mas and Moretti in a lab experiment. Lab experiments have the advantage that they can shut down alternative channels through which workers can influence the productivity of colleagues whom they observe. Although the subjects in our experiment are aware of the productivity of others and although there is sufficient scope for subjects to vary their productivity, we find no evidence of the type of peer effects reported by Mas and Moretti. This suggests that their findings are less generalizable than has been assumed.
    Keywords: peer effects, experiment, laboratory experiment
    JEL: C91 J24
    Date: 2014–04–29
  5. By: Beekman, Gonne (Wageningen University); Cheung, Stephen L. (University of Sydney); Levely, Ian (Charles University, Prague)
    Abstract: We study cooperation within and between groups in the laboratory, comparing treatments in which two groups have previously been (i) in conflict with one another, (ii) in conflict with a different group, or (iii) not previously exposed to conflict. We model conflict using an inter-group Tullock contest, and measure its effects upon cooperation using a multi-level public good game. We demonstrate that conflict increases cooperation within groups, while decreasing cooperation between groups. Moreover, we find that cooperation between groups increases in response to an increase in the efficiency gains from cooperation only when the two groups have not previously interacted.
    Keywords: within- and between-group cooperation, inter-group conflict, group identity, multi-level public good experiment, Tullock contest, other-regarding preferences
    JEL: C92 D64 D74 H41
    Date: 2014–06
  6. By: Spiros Bougheas (School of Economics, University of Nottingham); Jeroen Nieboerr (Department of Social Policy, London School of Economics and Political Science); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We report an experiment examining risk taking and information aggregation in groups. Group members come to the table with an individual preference for a choice under risk, based on privately received information, and can share this information with fellow group members. They then make a decision under risk on behalf of the group using a random dictatorship mechanism, as well as an individual decision. Our analysis reveals that, while the behavior of many subjects is consistent with Bayesian rationality, a considerable number of subjects exhibited ‘reverse confirmation bias’: they place less weight on information from others that agrees with their private signal and more weight on conflicting information. We also observe a striking degree of consensus: in most groups all members made the same choice on behalf of the group. The pattern of individual choices after group deliberation suggests that the high degree of group consensus is due to persuasive arguments of other group members.
    Keywords: Group behavior; Teams; Decision Making; Risk; Experiment
  7. By: Kirchgässner, Gebhard
    Abstract: First the assumption of self-interest as applied in Economics is presented. Here we also discuss areas in which (many) people behave less self- but more other-regarding than traditional economic models assume. Then, greedy behaviour is considered as existing in the political and economic ‘world’. Here we refer to corruption as well as to the role of money as a positional good. We also discuss such behaviour in the academic world, in which money plays a role as well as reputation. Thus, while the assumption of mutually disinterested rationality is a very powerful instrument for analysing individual behaviour, to explain some phenomena we have to recognise that people are not only sometimes other-regarding, but also sometimes greedy, and that they might value money much more than traditional Economics assumes. We conclude with some remarks on what we can learn in this respect from Behavioural Economics.
    Keywords: Economic Model of Behaviour, Self-Interest, Altruism, Greed, Corruption
    JEL: B41
    Date: 2014–06
  8. By: Attila Ambrus (Department of Economics, Duke University); Ben Greiner (School of Economics, Australian School of Business, the University of New South Wales); Parag A. Pathak (Department of Economics, MIT)
    Abstract: This paper experimentally investigates how individual preferences, through unrestricted deliberation, are aggregated into a group decision in two contexts: reciprocating gifts and choosing between lotteries. In both contexts, we find that median group members have a significant impact on the group decision, but the median is not the only influential group member. Non-median members closer to the median tend to have more influence than other members. By investigating the same individual’s influence in different groups, we find evidence for relative position in the group having a direct effect on influence. These results are consistent with predictions from a spatial model of dynamic bargaining determining group choices. We also find that group deliberation involves bargaining and compromise as well as persuasion: preferences tend to shift towards the choice of the individual’s previous group, especially for those with extreme individual preferences.
    Keywords: group decision-making, role of deliberation, social influence
    JEL: C72 C92 H41
    Date: 2014–06
  9. By: Glenzer, Franca; Gründl, Helmut; Wilde, Christian
    Abstract: This paper uses laboratory experiments to provide a systematic analysis of how different presentation formats affect individuals' investment decisions. The results indicate that the type of presentation as well as personal characteristics influence both, the consistency of decisions and the riskiness of investment choices. However, while personal characteristics have a larger impact on consistency, the chosen risk level is determined more by framing effects. On the level of personal characteristics, participants' decisions show that better financial literacy and a better understanding of the presentation format enhance consistency and thus decision quality. Moreover, female participants on average make less consistent decisions and tend to prefer less risky alternatives. On the level of framing dimensions, subjects choose riskier investments when possible outcomes are shown in absolute values rather than rates of return and when the loss potential is less obvious. In particular, reducing the emphasis on downside risk and upside potential simultaneously leads to a substantial increase in risk taking. --
    Keywords: Behavioral finance,Decision under risk,Framing effects
    Date: 2014
  10. By: Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Nick Hanley (School of Geography and Sustainable Development, University of St Andrews); Karine Nyborg (Department of Economics, University of Oslo)
    Abstract: This paper considers the role which selfish, moral and social incentives and pressures play in explaining the extent to which stated choices over pro-environment behaviours vary across individuals. The empirical context is choices over household waste contracts and recycling actions in Poland. A theoretical model is used to show how cost-based motives and the desire for a positive self- and social image combine to determine the utility from alternative choices of recycling behaviour. We then describe a discrete choice experiment designed to empirically investigate the effects such drivers have on stated choices. Using a latent class model, we distinguish three types of individual who are described as duty-orientated recyclers, budget recyclers and homo oeconomicus. These groups vary in their preferences for how frequently waste is collected, and the number of categories into which household waste must be recycled. Our results have implications for the design of future policies aimed at improving participation in recycling schemes.
    Keywords: recycling, motives of pro-environment behaviour, social norms, discrete choice experiment
    JEL: Q51 Q53 D01 D03
    Date: 2014
  11. By: Sander Hoogendoorn (CPB Netherlands Bureau for Economic Policy Analysis, the Netherlands); Simon C. Parker (Ivey Business School, Western University, London, Canada); Mirjam van Praag (Copenhagen Business School, Denmark)
    Abstract: What is the effect of dispersed levels of cognitive ability of members of a (business) team on their team’s performance? This paper reports the results of a field experiment in which 573 students in 49 teams start up and manage real companies under identical circumstances. We ensured exogenous variation in — otherwise random — team composition by assigning students to teams based on their measured cognitive abilities (Raven test). Each team performs a variety of tasks, often involving complex decision making. The key result of the experiment is that the performance of business teams first increases and then decreases with ability dispersion. We seek to understand this finding by developing a model in which team members of different ability levels form sub-teams with other team members with similar ability levels to specialize in different productive tasks. Diversity spreads production over different tasks in order to escape diminishing marginal returns under specialization. The model comes with a boundary condition: our experimental finding is most likely to emerge in settings where different tasks exhibit moderate differences in their productive contributions to total output.
    Keywords: Ability dispersion, team performance, field experiment, entrepreneurship
    JEL: C93 D83 J24 L25 L26 M13 M54
    Date: 2014–05–06
  12. By: Briz, Teresa; Drichoutis, Andreas C.; Nayga, Rodolfo M.
    Abstract: In this paper we argue that valuable information can be conveyed by looking at data coming from the training rounds of experimental auctions. As a case study, we use data from an experiment that seeks to elaborate on the mediating role of mood states on projection bias. Following a mood induction procedure, subjects are found to bid more under negative mood (as compared to positive mood) for products that are delivered in the future but bid less under negative mood for products that are delivered in present time. We show that if one had neglected insights gained from the training auction data, the researcher would have fallen prey to a case of a false positive result.
    Keywords: projection bias; experimental auctions; type I error; false positive
    JEL: C12 C90
    Date: 2014–07–02
  13. By: Hedges, Jules; Oliva, Paulo; Winschel, Evguenia; Winschel, Viktor; Zahn, Philipp
    Abstract: We use quantifiers and selection functions to generalize the classical economic approach to choice. Our framework encompasses preference and utility based approaches as special cases, but also extends to non-maximizing behavior and context-dependent motives such as social concerns. We adapt the method of quantifiers and selection functions which is based on higher-order functions and originate in computer science.
    Keywords: behavioral economics , social preferences , beauty contest , higher order functions , quantifiers , selection functions
    JEL: C0 D01 D03 D63 D64
    Date: 2014
  14. By: Dohmen, Thomas (University of Bonn)
    Abstract: In the past decades, behavioural economics has become an influential and important field of economics. Interest in behavioural economics derives from unease with standard economic models that are based on restrictive assumptions, which confine the nature of human motivation. Although Adam Smith, the founding father of modern economics, had highlighted the multitude of psychological motives that drive human behaviour, and despite the fact that many influential economists thereafter believed in tenets of modern behavioural economics, the homo economicus assumption became prevalent, until this construct was challenged by compelling evidence on social, cognitive and emotional factors that drive decision-making and social interaction. Since human interaction is germane to labour markets, one would expect behavioural economics to be highly relevant for labour economics. This paper gauges whether and how behavioural economics has left its mark on labour economics, considers the timing and structure of this development, and contemplates its future impact on labour economics.
    Keywords: behavioural economics, labour economics, behavioural labour economics
    JEL: J00 J01 D03
    Date: 2014–06
  15. By: Mendolia, Silvia (University of Wollongong); Walker, Ian (Lancaster University)
    Abstract: This paper investigates the relationship between personality traits in adolescence and performance in high school using a large and recent cohort study. In particular, we investigate the impact of locus of control, self-esteem and work ethics at age 15, on test scores at age 16, and on subject choices and subsequent performance at age 17-18. In particular, individuals with external locus of control or with low levels of self-esteem seem less likely to have good performance in test scores at age 16 and to pursue further studies at 17-18, especially in mathematics or sciences. We use matching methods to control for a rich set of adolescent and family characteristics and we find that personality traits do affect study choices and performance in test scores - particularly in mathematics and science. The results are stronger for adolescents from disadvantaged socio-economic backgrounds. We establish the robustness of our results using the methodology proposed by Altonji et al. (2005) that consists in making hypotheses as to the correlation between the unobservables that determine test scores and subjects' choices and, the unobservables that influence personality.
    Keywords: personality, education, locus of control, self-esteem
    JEL: I10 I21
    Date: 2014–06
  16. By: Rhode, Alexander; Schönbohm, Avo; van Vliet, Jacobus
    Abstract: The present paper conceptualizes the domain of psychological influence in negotiations and thereby proposes seven negotiations tactics which utilize the findings of cognitive bias research. After reviewing existing literature on cognitive biases in negotiations, the paper argues that their persuasive utilization in negotiations has not been discussed extensively so far. Inspired by the research findings on anchoring in negotiations, the paper develops tactics which alter information sets of counterparties in such a way that their decision making becomes biased, but leave their incentive structures untouched. The theoretical foundations of these value-claiming tactics are accompanied by short examples, where bargainers play on the cognitive biases of their counterparties to sell proposals and persuade reluctant counterparties. The authors thus explain the effectiveness of widely used negotiation tactics and allow a greater understanding of negotiators' decision making processes and provide recommendations for practitioners. -- Das Arbeitspapier behandelt psychologische Einflüsse in Verhandlungen und schlägt sieben Verhandlungstaktiken auf der Basis der Forschung über kognitive Verzerrungen vor. Der Literaturüberblick zeigt, dass die Übertragung kognitiver Verzerrungen auf Verhandlungssituationen noch Ausbaupotential besitzt. Inspiriert von der Literatur zum Thema Ankereffekt in Verhandlungen, werden Taktiken entwickelt, welche die Wahrnehmung der Gegenseite beeinflussen, ohne ihre Anreizstruktur zu verändern.Die theoretischen Grundlagen dieser auf den eigenen Vorteil ausgerichteten Taktiken werden durch kurze Beispiele illustriert, in denen Verhandler kognitive Verzerrungen ihrer Verhandlungspartner nutzen, um Vorschläge zu verkaufen, bzw. die Gegenseite zu überreden. Die Autoren erklären so die Effektivität häufig angewandter Verhandlungstaktiken, beleuchten den inneren Entscheidungsprozess bei Verhandlungen und generieren Empfehlungen für Praktiker.
    Date: 2014

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