nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒07‒28
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting By Beshears, John Leonard; Choi, James J; Fuster, Andreas; Laibson, David I.; Madrian, Brigitte
  2. Alternative Payoff Mechanisms for Choice under Risk By James C. Cox; Vjollca Sadiraj; Ulrich Schmidt
  3. Individual Differences in Need for Cognition and Decision-Making Competence among Leaders By Carnevale, Jessica J.; Inbar, Yoel; Lerner, Jennifer S.
  4. Third-Party Punishment: Retribution or Deterrence? By Fangfang Tan; Erte Xiao
  5. Gratitude: A Tool for Reducing Economic Impatience By DeSteno, David; Li, Ye; Dickens, Leah; Lerner, Jennifer
  6. I Cannot Cheat on You after We Talk By Cristina Bicchieri; Alessandro Sontuoso; ;
  7. Loss Aversion in the Laboratory By Morrison, William G.; Oxoby, Robert J.
  8. Using Cognitive Dissonance to Manipulate Social Preferences By Oxoby, Robert J.; Smith, Alexander
  9. Do Personality Traits Affect Productivity? Evidence from the Lab By Cubel, Maria; Nuevo-Chiquero, Ana; Sanchez-Pages, Santiago; Vidal-Fernández, Marian
  10. Who cooperates in repeated games: The role of altruism, inequity aversion, and demographics By Dreber-Almenberg, Anna; Fudenberg, Drew; Rand, David G.
  11. Deterrence Works for Criminals By Menusch Khadjavi
  12. The Causal Effect of Market Priming on Trust: An Experimental Investigation Using Randomized Control By Al-Ubaydli, Omar; Houser, Daniel; Nye, John; Paganelli, Maria Pia; Pan, Xiaofei

  1. By: Beshears, John Leonard; Choi, James J; Fuster, Andreas; Laibson, David I.; Madrian, Brigitte
    Abstract: Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over ten periods ("fast"), while the other subjects see a version with dynamics that unfold over 50 periods ("slow"). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.
    Date: 2013
  2. By: James C. Cox; Vjollca Sadiraj; Ulrich Schmidt
    Abstract: Most experiments on decision theory ask individual subjects to make more than one decision. The isolation hypothesis is commonly used to justify the choice of the random lottery incentive mechanism as the preferred payoff protocol. This research note reports on the main findings on the theoretical and empirical performance of different payoff mechanisms on eliciting individuals’ attitudes toward risk. It challenges the conventional view that the random lottery incentive mechanism introduces no biases in inducing risk preferences
    Keywords: experiments, risk, payoff mechanisms, paradoxes, cross-task contamination
    JEL: C91 D81
    Date: 2014–06
  3. By: Carnevale, Jessica J.; Inbar, Yoel; Lerner, Jennifer S.
    Abstract: When making decisions, people sometimes deviate from normative standards. While such deviations may appear to be alarmingly common, examining individual differences may reveal a more nuanced picture. Specifically, the personality factor of need for cognition (i.e., the extent to which people engage in and enjoy effortful cognitive activities; Cacioppo & Petty, 1982) may moderate decision makers’ susceptibility to bias, as could personality factors associated with being a leader. As part of a large-scale assessment of high-level leaders, participants completed a battery of decision-making competence and personality scales. Leaders who scored higher on need for cognition performed better on two of four components of a decision-making competence measure: framing and honoring sunk costs. In addition, the leader sample performed better than published controls. Thus, both individual differences in need for cognition and leadership experience moderate susceptibility to decision biases. Implications for broader theories of individual differences and bias are discussed.
    Date: 2012–09–27
  4. By: Fangfang Tan; Erte Xiao
    Abstract: We conduct an experiment to examine the role of retribution and deterrence in motivating third party punishment. In particular, we consider how the role of these two motives may differ according to whether a third party is a group or an individual. In a one-shot prisoner’s dilemma game with third party punishment, we find groups punish more when the penalty embeds deterrence than when it can only be retributive. In contrast, individual third parties’ punishment decisions do not vary on whether the punishment has any deterrent effect. In general, third party groups are less likely to impose punishment than individuals even though the punishment is costless for third parties.
    Keywords: third-party punishment, group decision making, retribution, deterrence, social dilemmas, experiment
    JEL: C72 C92 D63 D70
    Date: 2014–05
  5. By: DeSteno, David; Li, Ye; Dickens, Leah; Lerner, Jennifer
    Abstract: The human mind tends to excessively discount the value of delayed rewards relative to immediate ones, with “hot†affective processes believed to drive desires for short-term gratification. Supporting this view, recent findings demonstrate that sadness exacerbates financial impatience even when the sadness is unrelated to the economic decision at hand (Lerner, Li, & Weber, 2012). Such findings might reinforce the view that emotions must always be suppressed to combat impatience. But if emotions serve adaptive functions, then certain emotions might be capable of reducing excessive impatience for delayed rewards. We find evidence supporting this alternative view. Specifically, we find that (1) the emotion gratitude reduces impatience even with real money at stake, and (2) the effects of gratitude are differentiable from those of the more general positive state of happiness. These findings challenge the view that individuals must tamp down affective responses through effortful self-regulation to reach more patient and adaptive economic decisions.
    Date: 2014
  6. By: Cristina Bicchieri; Alessandro Sontuoso (Philosophy, Politics and Economics, University of Pennsylvania); ;
    Abstract: This is a draft of a chapter in a planned book on the Prisoner’s Dilemma, edited by Martin Peterson, to be published by Cambridge University Press. - Experimental evidence on pre-play communication supports a “focusing function of communication” hypothesis. Relevant communication facilitates cooperative, pro-social behavior because it causes a shift in individuals’ focus towards strategies dictated by some salient social norm. After reviewing the formal foundations for a general theory of conformity to social norms, we provide an original application illustrating how a framework that allows for different conjectures about norms is able to capture the focusing function of communication and to explain experimental results.
    Keywords: social norms, social dilemmas
    JEL: C72 C92
    Date: 2014–07
  7. By: Morrison, William G. (Wilfrid Laurier University); Oxoby, Robert J. (University of Calgary)
    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: 2014–07
  8. By: Oxoby, Robert J. (University of Calgary); Smith, Alexander (Worcester Polytechnic Institute)
    Abstract: We explore the role of cognitive dissonance in dictator and public goods games. Specifically, we motivate cognitive dissonance between one's perception of “fair treatment” and self-interested behaviour by having participants answer a question about fairness. Utilizing two manipulations (reminding participants about their answer to the fairness question and publicly reporting aggregate answers to the question), we find that there is greater cognitive dissonance and behavioural change when there is a social component (i.e., reporting of aggregate answers). When a participant's answer to the fairness question is private, there is less dissonance and hence no behavioural change.
    Keywords: cognitive dissonance, experiments, social preferences
    JEL: C91 D64 H41
    Date: 2014–07
  9. By: Cubel, Maria (University of Barcelona); Nuevo-Chiquero, Ana (University of Sheffield); Sanchez-Pages, Santiago (University of Barcelona); Vidal-Fernández, Marian (University of New South Wales)
    Abstract: While survey data supports a strong relationship between personality and labor market outcomes, the exact mechanisms behind this association remain unexplored. In this paper, we take advantage of a controlled laboratory set-up to test whether this relationship operates through productivity, and isolate this mechanism from other channels such as bargaining ability or self-selection into jobs. Using a gender neutral real-effort task, we analyse the impact of the Big Five personality traits on performance. We find that more neurotic subjects perform worse, and that more conscientious individuals perform better. These findings are in line with previous survey studies and suggest that at least part of the effect of personality on labor market outcomes operates through productivity. In addition, we find evidence that gender and university major affect the impact of the Big Five personality traits on performance.
    Keywords: Big-Five, personality traits, experiment, labour productivity, performance
    JEL: C91 D03 J3 M5
    Date: 2014–07
  10. By: Dreber-Almenberg, Anna; Fudenberg, Drew; Rand, David G.
    Abstract: We explore the extent to which altruism, as measured by giving in a dictator game (DG), accounts for play in a noisy version of the repeated prisoner's dilemma. We find that DG giving is correlated with cooperation in the repeated game when no cooperative equilibria exist, but not when cooperation is an equilibrium. Furthermore, none of the commonly observed strategies are better explained by inequity aversion or efficiency concerns than money maximization. Various survey questions provide additional evidence for the relative unimportance of social preferences. We conclude that cooperation in repeated games is primarily motivated by long-term payoff maximization and that even though some subjects may have other goals, this does not seem to be the key determinant of how play varies with the parameters of the repeated game. In particular, altruism does not seem to be a major source of the observed diversity of play.
    Date: 2014
  11. By: Menusch Khadjavi
    Abstract: Criminal law and economics rests on the expectation that deterrence incentives can be employed to reduce crime. Prison survey evidence however suggests that a majority of criminals are biased and may not react to deterrence incentives. This study employs an extra-laboratory experiment in a German prison to test the effectiveness of deterrence. Subjects either face potential punishment when stealing, or they can steal without deterrence. We confirm Gary Becker’s deterrence hypothesis that deterrence works for criminals
    Keywords: Crime, Stealing, Deterrence, Prison, Extra-laboratory experiment, Artefactual field experiment
    JEL: C72 C91 C93 K42
    Date: 2014–07
  12. By: Al-Ubaydli, Omar; Houser, Daniel; Nye, John; Paganelli, Maria Pia; Pan, Xiaofei
    Abstract: We report data from laboratory experiments where participants were primed using phrases related to markets and trade. Participants then participated in trust games with anonymous strangers. The decisions of primed participants are compared to those of a control group. We find evidence that priming for market participation affects positively the beliefs regarding the trustworthiness of anonymous strangers and increases trusting decisions.
    Date: 2013

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