nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒08‒28
fourteen papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. On the Interpretation of Bribery in a Laboratory Corruption Game: Moral Frames and Social Norms By Ritwik Banerjee
  2. Locus of Control and Its Intergenerational Implications for Early Childhood Skill formation By Francesca Cornaglia; Warn N. Lekfuangfu; Nattavudh Powdthavee; Nele Warrinnier
  3. Estimating Time Preferences from Convex Budgets: Comment on Normality and Impatience By Calford, Evan; Chakraborty, Anujit; Fenig, Guidon; Halevy, Yoram
  4. Strategic Behavior and Social Outcomes in a Bottleneck Queue: Experimental Evidence By Breinbjerg, Jesper; Sebald, Alexander; Østerdal, Lars Peter
  5. Psychological Skills, Education, and Longevity of High-Ability Individuals By Peter A. Savelyev
  6. Altruism and Self Control By Anna Dreber; Drew Fudenberg; David K Levine; David G Rand
  7. Handing out guns at a knife fight: behavioral limitations of subgame-perfect implementation By Ernst Fehr; Michael Powell; Tom Wilkening
  8. Is temporary employment a cause or consequence of poor mental health? By Chris Dawson; Michail Veliziotis; Gail Pacheco; Don J Webber
  9. Is it a Norm to Favour Your Own Group? By Donna Harris; Benedikt Herrmann; Andreas Kontoleon; Jonathan Newton
  10. Insights from behavioral economics on how labor markets work By Altman, Morris
  11. The New Hampshire Effect: Behavior in Sequential and Simultaneous Election Contests By Zeynep B. Irfanoglu; Shakun D. Mago; Roman M. Sheremeta
  12. Dissolution of Partnerships in Infinitely Repeated Games By Alistair Wilson; Hong Wu
  13. An ultimatum game with multidimensional response strategies By Werner Güth; M. Vittoria Levati; Chiara Nardi; Ivan Soraperra
  14. Endowment Effects in Bundles By Dutta, Swati; Mukhopadhyay, Jyoti Prasad; Pingali, Viswanath

  1. By: Ritwik Banerjee (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Past studies on laboratory corruption games have not been able to find consistent evidence that subjects make “immoral” decisions. A possible reason, and also a critique of laboratory corruption games, is that the experiment may fail to trigger the intended immorality frame in the minds of the participants, leading many to question the very raison d’être of laboratory corruption games. To test this idea, we compare behavior in a harassment bribery game with a strategically identical but neutrally framed ultimatum game. The results show that fewer people, both as briber and bribee, engage in corruption in the bribery frame than in the alternative, suggesting that moral costs are indeed at work. To provide further support that the bribery game does measure moral costs, we elicit the shared perceptions of appropriateness of the actions or social norm, under the two frames. We show that the social norm governing the bribery game frame and ultimatum game frame are indeed different and that the perceived sense of social appropriateness plays a crucial role in determining the actual behavior in the two frames. Finally, we comment on the external validity of behavior in lab corruption games.
    Keywords: Corruption, Framing Effects, Social Norms, External Validity
    JEL: C91 C92 D03
    Date: 2014–08–14
  2. By: Francesca Cornaglia; Warn N. Lekfuangfu; Nattavudh Powdthavee; Nele Warrinnier
    Abstract: We propose a model in which parents have a subjective belief about the impact of their investment on the early skill formation of their children. This subjective belief is determined in part by locus of control (LOC), i.e., the extent to which individuals believe that their actions can influence future outcomes. Using a unique British cohort survey, we show that maternal LOC measured during the 1st-trimester strongly predicts early and late child cognitive and noncognitive outcomes. Further, we utilize the variation in maternal LOC to improve the specification typically used in the estimation of parental investment effects on child development.
    Keywords: Locus of control, parental investment, human capital accumulation, early skill formation, ALSPAC
    JEL: J01 I31
    Date: 2014–08
  3. By: Calford, Evan; Chakraborty, Anujit; Fenig, Guidon; Halevy, Yoram
    Abstract: We evaluate Andreoni and Sprenger's (2012) data for demand, wealth and impatience monotonicity. We find that violations for all three measures are concentrated in subjects who make interior choices and thereby take advantage of the novel feature of Andreoni and Sprenger's experimental design. Wealth monotonicity violations are more prevalent and pronounced than either demand or impatience monotonicity violations. We believe that the frequency and magnitude of monotonicity violations pose a challenge to rationalizing choices with a utility function whose corresponding demand satisfies the three monotonicity conditions.
    Keywords: design of experiments
    JEL: C91 D90
    Date: 2014–08–07
  4. By: Breinbjerg, Jesper (Department of Business and Economics); Sebald, Alexander (Department of Economics); Østerdal, Lars Peter (Department of Business and Economics)
    Abstract: We consider a class of three-player queuing games where players independently choose when to arrive at a bottleneck facility that serves only one at a time. Players are impatient for service but cannot arrive before the facility opens and they dislike time spent in queue. We derive the equilibrium arrivals under the first-in-first-out (FIFO), last-in-first-out (LIFO), and service-in-random-order (SIRO) queue disciplines and compare these equilibrium predictions to outcomes from a laboratory experiment. LIFO provides higher equilibrium welfare than FIFO and SIRO since the players arrive such that lower congestion is induced. Experimental evidence confirms that employing different queue disciplines indeed affects the strategic behavior of players and thereby the level of congestion. The experimental participants do not, however, behave as prescribed by the equilibrium predictions. They obtain significantly higher welfare than prescribed by equilibrium under all queue disciplines. Our results moreover suggest that people perceive LIFO as the most unfair of the three disciplines although the theoretical results suggest that it is welfare optimal.
    Keywords: Queue disciplines; congestion; equilibrium; experiments; fairness
    JEL: C72 D62 D63 R41
    Date: 2014–08–13
  5. By: Peter A. Savelyev (Vanderbilt University, Department of Economics)
    Abstract: Based on the 1922–1991 Terman data of children with high ability, I investigate the effects of childhood psychological skills and post-compulsory education on longevity. I identify causal effects and account for measurement error using factor-analytic methodology (Heckman et al., 2006). Latent class analysis supports the causal interpretation of results. For males, I find strong effects of psychological skills and education on longevity and an interaction between personality and education. Results are in line with the IV literature. For females, who are born around 1910 and live longer than men, I find no effects of education and personality on longevity.
    Keywords: longevity, survival function, life expectancy, value of longevity, post-compulsory education, IQ, personality skills, Big Five, average treatment effect, Terman Data of Children with High Ability, gender difference
    JEL: I1 C1
    Date: 2014–08–04
  6. By: Anna Dreber; Drew Fudenberg; David K Levine; David G Rand
    Date: 2014–08–07
  7. By: Ernst Fehr; Michael Powell; Tom Wilkening
    Abstract: The assumption that payoff-relevant information is observable but not verifiable is important for many core results in contract, organizational and institutional economics. However, subgame-perfect implementation (SPI) mechanisms - which are based on off-equilibrium arbitration clauses that impose fines for lying and the inappropriate use of arbitration - can be used to render payoff-relevant observable information verifiable. Thus, if SPI mechanisms work as predicted they undermine the foundations of important economic results based on the observable but non-verifiable assumption. Empirical evidence on the effectiveness of SPI mechanisms is, however, scarce. In this paper we show experimentally that SPI mechanisms have severe behavioral limitations. They induce retaliation against legitimate uses of arbitration and thus make the parties reluctant to trigger arbitration. The inconsistent use of arbitration eliminates the incentives to take first-best actions and leads to costly disagreements such that individuals - if given the choice - opt out of the mechanism in the majority of the cases. Incentive compatible redesigns of the mechanism solve some of these problems but generate new ones such that the overall performance of the redesigned mechanisms remains low. Our results indicate that there is little hope for SPI mechanisms to solve verifiability problems unless they are made retaliation-proof and, more generally, robust to other-regarding preferences.
    Keywords: Implementation theory, incomplete contracts, experiments
    JEL: D23 D71 D86 C92
    Date: 2014–08
  8. By: Chris Dawson (University of Bath); Michail Veliziotis (University of the West of England, Bristol); Gail Pacheco (Auckland University of Technology); Don J Webber (University of the West of England, Bristol)
    Abstract: Mental health status often has a strong association with labour market outcomes. If people in temporary employment have poorer mental health than those in permanent employment then it is consistent with two mutually inclusive possibilities: temporary employment generates adverse mental health effects and/or individuals with poorer mental health select into temporary from permanent employment. We reveal that permanent workers with poor mental health appear to select into temporary employment thus signalling that prior cross sectional studies may overestimate the influence of employment type on mental health. We also reveal that this selection effect is significantly mitigated by job satisfaction.
    Keywords: Employment transitions; Psychological distress; Anxiety; Life satisfaction; Job satisfaction
    JEL: I12 I31 J23
    Date: 2014–01–09
  9. By: Donna Harris; Benedikt Herrmann; Andreas Kontoleon; Jonathan Newton
    Abstract: This paper examines the relationship between norm enforcement and in-group favouritism behaviour.� Using a new two-stage allocation experiment with punishments, we investigate whether in-group favouritism is considered as a social norm in itself or as a violation of a different norm, such as egalitarian norm.� We find that which norm of behaviour is enforced depends on who the punisher is.� If the punishers belong to the in-group, in-group favouritism is considered a norm and it does not get punished.� If the punishers belong to the out-group, in-group favouritism is frequently punished.� If the punishers belong to no group and merely observe in-group favouritism (the third-party), they do not seem to care sufficiently to be willing to punish this behavour.� Our results shed a new light on the effectiveness of altruistic norm enforcement when group identities are taken into account and help to explain why in-group favouritism is widespread across societies.
    Keywords: In-group Favouritism, Group Identity, Social Norms, In-group Punishment, Out-group Punishment, Third-party Punishment
    JEL: C92 D70 D73
    Date: 2014–08–15
  10. By: Altman, Morris
    Abstract: I discuss some key issues raised by behavioral economics for better understanding the working of the labor market. Amongst the key points in this paper are: (i) a revised modeling of the labor supply curve, with a specific focus on the target income approach (ii) elaborating on the importance of effort variability for understanding labor supply, including a narrative on efficiency wage and x-efficiency theory (includes the importance of fairness) (iii) building upon x-efficiency and efficiency wage theory to better understand the demand side of the labor market (iv) discussing some of the cognitive/informational/institutional factors affecting decision-making, including modeling the role of errors or biases in labor market decisions for both the supply and demand side of the labor market (v) insights of experimental economics for labor market behavior (vi) the importance behavioral economics for better understanding the stylizing facts of labor markets. This paper also compares conventional to behavioral theoretical approaches labor markets, their different underlying assumptions, and analytical predictions, with implications for public policy and institutional design. Also compared are the errors and biases and the bounded rationality approaches labor market analysis. They produce different analytical predictions as well as having different implications for public policy and institutional design.
    Keywords: Behavioral economics, Bounded rationality, Efficiency wages, Effort discretion, Errors and biases, Fairness, Information asymmetries, Target income approach, Involuntary employment,
    Date: 2014
  11. By: Zeynep B. Irfanoglu (Department of Agricultural Economics, Purdue University); Shakun D. Mago (Department of Economics, Robins School of Business, University of Richmond); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University and the Economic Science Institute, Chapman University)
    Abstract: This experimental study compares sequential and simultaneous election contests. Consistent with the theory, we find evidence of the “New Hampshire effect” in the sequential contests, i.e., the winner of the first electoral battle wins the overall contest with much higher probability than the loser of the first battle. However, contrary to the theory, sequential contests generate higher expenditure than the simultaneous contests. This is mainly because in the sequential contests losers of the first battle do not decrease their expenditure in the second battle while winners of the first battle increase (instead of decreasing) their expenditure in the second battle. We discuss the implications of our findings both for policy makers and social scientists.
    Keywords: election, sequential contests, simultaneous contests, experiments
    JEL: C72 C73 C91 D72
    Date: 2014
  12. By: Alistair Wilson; Hong Wu
    Abstract: We experimentally examine repeated partnerships with imperfect monitoring, where participants can unilaterally sever partnerships at any time. The experiment examines effects from changes in the value of an outside-the-partnership option. We find four main results where partners have access to the same outside option: i) the presence of a dissolution option increases cooperation; ii) the use of dissolution is dictated by individual rationality; iii) where dissolution is used as a punishment, subjects increases lenient, but are still forgiving; iv) overall efficiency is non-monotone in the outside option. An extension examines asymmetric outside options finding: advantages to terminating first-movers creates highly inefficient outcomes; a last-mover advantage is less inefficient but reduces forgiveness; while an arbitrator-mechanism assigning higher payoffs to `more-deserving` parties increases efficiency.
    Keywords: Key words and phrases: Repeated Games, Endogenous Termination, Dissolution clauses, Imperfect public monitoring, Dynamic games
    JEL: C92 D01 D86 D90
    Date: 2014–08
  13. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); M. Vittoria Levati (University of Verona and Max Planck Institute of Economics, Strategic Interaction Group, Jena); Chiara Nardi (University of Verona); Ivan Soraperra (University of Verona)
    Abstract: We enrich the choice task of responders in ultimatum games by allow- ing them to independently decide whether to collect what is offered to them and whether to destroy what the proposer demanded. Such a multidimensional response format intends to cast further light on the motives guiding responder behavior. Using a conservative and strin- gent approach to type classification, we find that the overwhelming majority of responder participants choose consistently with outcome- based preference models. There are, however, few responders that destroy the proposer's demand of a large pie share and concurrently reject their own offer, thereby suggesting a strong concern for integrity.
    Keywords: Ultimatum, Social preferences, Incomplete information, Experiments
    JEL: C72 C91 D63 D74
    Date: 2014–08–19
  14. By: Dutta, Swati; Mukhopadhyay, Jyoti Prasad; Pingali, Viswanath
    Abstract: Behavioral experiments conducted so far to establish existence of endowment effect as propounded by prospect theorists typically endow subjects with a single good. In this paper we depart from this setting by giving subjects initial endowment bundles which consist of two goods: chocolates and pens and directly pit neo-classical theory against prospect theory by comparing divergence between willingness to pay (WTA) and willingness to accept (WTP). Using a novel experimental setting we examine the difference in such divergence for a group that is given physical bundles as endowment vis-�-vis a group which is asked to imagine the same initial endowment bundle in their possession. We find weak evidence of endowment effect. Moreover, we examine how endowment effect of a good changes when units of the other good in initial endowment bundle change. We find no statistically significant evidence of endowment effect of a good being sensitive to the number of units of the other good in initial endowment bundle.

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.