nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒10‒13
four papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Within- and between- sample tests of preference stability and willingness to pay for forest management By Mikolaj Czajkowski; Anna Barczak; Wiktor Budzinski; Marek Giergiczny; Nick Hanley
  2. Portfolio Selection Optimization under Cumulative Prospect Theory – a parameter sensibility analysis By Luis A.G. Coelho
  3. Cognitive Constructs and the Intent to Remit: Are Norms the Key to Explaining Remitting Behaviour of Kosovar Migrants in Germany By Meyer, Wiebke; Mollers, Judith
  4. Cognitive Diversity, Binary Decisions, and Epistemic Democracy By John A Weymark

  1. By: Mikolaj Czajkowski (University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland); Anna Barczak (University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland); Wiktor Budzinski (University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland; University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland); Marek Giergiczny (University of Warsaw, Faculty of Economic Sciences, Warsaw Ecological Economics Center, Poland); Nick Hanley (School of Geography and Sustainable Development, University of St. Andrews)
    Abstract: The assumption of the stability of preferences is a fundamental one in the theory of the consumer. Many papers within the stated preferences literature have tested this assumption, and have found mixed results. Individuals may become more sure of their preferences as they repeat a valuation task or purchase decision; they may also learn more about prices and quantities of substitutes or complements over time, or about other relevant characteristics of both the good being valued and alternatives in their choice sets. In this paper, we test for the stability of preferences and willingness to pay for attributes of forest management both within and between samples. The within-sample test compares a set of responses from individuals over the sequence of a survey; the between-sample test compares responses from the same people over a period of 6 months. We find that respondents’ preferences differ more within a sample (comparing their first 12 with their second 12 choices) than across samples. This may imply that preference learning and/or fatigue effects within choice experiments are more important than changes in preferences over time in this data.
    Keywords: preference stability, test-retest, discrete choice experiments, contingent valuation, stated preferences, forestry
    JEL: D01 H4 Q23 Q51
    Date: 2014–09
  2. By: Luis A.G. Coelho (CEFAGE-UE and Management Department, Évora University)
    Abstract: The Cumulative Prospect Theory (CPT) is one of the most popular theories for evaluating the behavior of decision makers in the context of risk and uncertainty. This theory emerged as a generalization of the Expected Utility Theory (EUT) and being a relatively recent theory, its application has been somewhat reduced, especially when linked to optimization models. This paper intends to analyze the behavior of CPT, with a power value function and a two-parameter probability weighting function, as an objective function of a portfolio selection model. The parameterization of the objective function parameters allows us to analyze the composition of portfolios such as loss aversion, risk aversion in gains and risk preference in the range of losses. The results suggest that loss aversion and risk aversion in gains lead to the choice of portfolios with lower profitability and variability and that the risk preference in losses leads to the choice of portfolios with higher profitability and variability. The results are also compared with those obtained with EUT, and allow us to conclude that CPT leads to more diversified solutions which are therefore more easily adjusted to the investors’ behavioral profile.
    Keywords: Cumulative Prospect Theory; Portfolio Selection; Loss Aversion; Risk Aversion; Expected Utility.
    JEL: C61 D81 G11
    Date: 2014
  3. By: Meyer, Wiebke; Mollers, Judith
    Keywords: Institutional and Behavioral Economics, Research Methods/ Statistical Methods,
    Date: 2013–12
  4. By: John A Weymark (Vanderbilt University)
    Abstract: In Democratic Reason, Hélène Landemore has built a case for the epistemic virtues of inclusive deliberative democracy based on the cognitive diversity of the group engaged in making collective decisions. She supports her thesis by appealing to the Diversity Trumps Ability Theorem of Lu Hong and Scott Page. In practice, deliberative assemblies often restrict attention to situations with only two options. In this paper, it is shown that it is not possible to satisfy the assumptions of the Diversity Trumps Ability Theorem when decisions are binary. The relevance of this theorem for democratic decision-making in non-binary situations is also considered.
    Keywords: epistemic democracy, Diversity Trumps Ability Theorem
    JEL: D7 Y8

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