nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒11‒01
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Social Comparison and Peer effects with Heterogeneous Ability By Aurélie BONEIN
  2. Eye-image in Experiments: Social Cue or Experimenter Demand Effect? By Subhasish M. Chowdhury; Joo Young Jeon; Bibhas Saha
  3. Misperception of Consumption: Evidence from a Choice Experiment By Seeun Jung; Yasuhiro Nakamoto,; Masayuki Sato; Katsunori Yamada
  4. Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences By Attila Ambrus; Tinna Laufey Ãsgeirsdóttir; Jawwad Noor; László Sándor
  5. Alternation bias and reduction in St. Petersburg gambles By Kim Kaivanto; Eike Kroll
  6. Medical Insurance and Free Choice of Physician Shape Patient Overtreatment. A Laboratory Experiment By Steffen Huck; Gabriele Lünser; Florian Spitzer; Jean-Robert Tyran
  7. Should Paris Hilton Receive a Lighter Prison Sentence Because She’s Rich? An Experimental Study By Josef Montag; Tomas Sobek

  1. By: Aurélie BONEIN (CREM UMR CNRS 6211, University of Rennes 1, France)
    Abstract: Whether and how the observability of a coworker’s effort influences an employer’s wage decisions and workers’ effort decisions is a central issue for labor organizations. We conduct an experiment using a three-person gift-exchange game to investigate this matter in the context of wage transparency and heterogeneous abilities. We find that showing a coworker’s effort increases both wages and the difference in wages between two heterogeneously skilled workers when the more able worker is observed. The knowledge of a coworker’s effort increases the level of reciprocity exhibited by observed workers (peer effects), whereas it reduces that exhibited by workers who are observers. Overall, displaying coworker’s effort has a beneficial effect on reciprocity. Regardless of their ability, workers exert levels of effort that are positively related to those of their coworkers. This strategic complementarity of efforts is partially explained by inequity aversion.
    Keywords: Heterogeneous ability, Gift-exchange game, Social comparison, Peer effect, Reciprocity
    JEL: C91 D03 J24 J31 J82
    Date: 2014–08
  2. By: Subhasish M. Chowdhury (University of East Anglia); Joo Young Jeon (University of East Anglia); Bibhas Saha (Durham University)
    Abstract: It is observed in neuroscience, economics and psychology experiments that the presence of an image of a pair of eyes may result in higher level of altruistic behavior by subjects. It is hence concluded that the eye-image serves as a `social Êcue'. We test this against an alternative hypothesis that the higher level of altruism may occur since the eye-image triggers an experimenter demand effect in the same direction with the perceived altruism. We run a `Taking game' with and without eye-image in which the recipient owns some money, and the dictator can take any amount from that. In such a case the social cue and the experimenter demand effect go in opposite directions. We find no overall difference in the amount taken in those treatments. However, males take significantly less and females take insignificantly more under the treatment with eye-image. We conclude that the presence of eyes may have both the social cue and the experimental demand effects, and the net effect depends on the relative magnitude and the direction of the two. For males, the social cue effect is more prominent.
    Date: 2014–10
  3. By: Seeun Jung; Yasuhiro Nakamoto,; Masayuki Sato; Katsunori Yamada (Université de Cergy-Pontoise, THEMA)
    Abstract: We investigate people's dierent conceptions of the economic term consump- tion when comparing with others. An Internet-based hypothetical discrete choice experiment was conducted with Japanese participants. As in other relative income comparison studies, we found that own consumption and own saving had a positive impact on utility, whereas the consumption and saving of a reference person had a negative impact on utility. However, the results show that the magnitudes of consumption and saving dier in size; saving could aect utility much more than consumption for the Japanese subjects. By using scope tests, we found that the impact of own consumption is not monotonic and so does not necessarily increase utility. This calls into question the conventional assumption of the monotonicity of \the utility of consumption"; consumption could be perceived as a negative good. Our results, therefore, provide some evidence that, in reality, people understand and perceive the economic terms dierently from what economists would expect. Furthermore, when considering the consumption of others as well as their own, the size of the discrepancy is even bigger.
    Keywords: Relative Utility; Choice Experiment; Misperception of Economic Terms
    JEL: C91 A13 D91 J17
    Date: 2014
  4. By: Attila Ambrus; Tinna Laufey Ãsgeirsdóttir; Jawwad Noor; László Sándor
    Abstract: This paper examines the empirical question of whether subjects’ static choices among rewards received at different times are influenced by their expected income levels at those times. Moreover, we recover time preferences after compensating for possible income effects. Besides eliciting subjects’ preference between standard delayed rewards, the experimental design also elicited their preferences over delayed rewards that are received only if the subject’s income remains approximately constant. These preferences, along with elicited subjective probabilities of satisfying the condition, make the correction possible. We conducted the experiments in Iceland, where our prompt access to income tax records enabled us to condition delayed rewards on income realizations. We find that background income is associated with preferences over unconditional delayed rewards. While most people exhibited present bias when comparing unconditional delayed rewards, subjects with stable income did not. The results are similar for the entire sample once we correct subjects’ discount functions for income effects. This suggests that income expectations have an effect on choices between future rewards, and that this may account for some of the present-bias observed in experiments.
    Date: 2014–09
  5. By: Kim Kaivanto; Eike Kroll
    Abstract: Reduction of compound lotteries is implicit both in the statement of the St. Petersburg Paradox and in its resolution by Expected Utility (EU).We report three real-money choice experiments between truncated compound-form St. Petersburg gambles and their reduced-form equivalents. The first tests for differences in elicited Certainty Equivalents. The second develops the distinction between ‘weak-form’ and ‘strong-form’ rejection of Reduction, as well as a novel experimental task that verifiably implements Vernon Smith’s dominance precept. The third experiment checks for robustness against range and increment manipulation. In all three experiments the null hypothesis of Reduction is rejected, with systematic deprecation of the compound form in favor of the reduced form. This is consistent with the predictions of alternation bias. Together these experiments offer evidence that the Reduction assumption may have limited descriptive validity in modelling St. Petersburg gambles, whether by EU or non-EU theories.
    Keywords: St. Petersburg Paradox, reduction axiom, alternation bias, dominance precept, law of small numbers, test of indifference
    JEL: D81 C91
    Date: 2014
  6. By: Steffen Huck (Wissenschaftszentrum Berlin für Sozialforschung (WZB)); Gabriele Lünser (University College London - Centre for Economic Learning and Social Evolution (ELSE)); Florian Spitzer (Department of Economics, Vienna Center for Experimental Economics (VCEE), University of Vienna); Jean-Robert Tyran (Department of Economics, Copenhagen University)
    Abstract: In a laboratory experiment designed to capture key aspects of the interaction between physicians and patients in a stylized way, we study the effects of medical insurance and competition in the guise of free choice of physician. Medical treatment is an example of a credence good: only the physician (but not the patient) knows the appropriate treatment, and even after consulting, the patient is not sure whether he got proper treatment or got an unnecessary treatment, i.e. was overtreated. We find that with insurance, moral hazard looms on both sides of the market: patients consult more often and physicians overtreat more often than in the baseline condition. Competition decreases overtreatment compared to the baseline and patients therefore consult more often. When the two institutions are combined, competition is found to partially offset the adverse effects of insurance: most patients seek treatment, but overtreatment is moderated.
    Keywords: Credence good, Patient, Physician, Overtreatment, Competition, Insurance, Moral hazard
    JEL: C91 I11 I13
    Date: 2014–09–30
  7. By: Josef Montag; Tomas Sobek
    Abstract: The ‘equal punishment for the same crime’ principle is generally agreed upon—yet its implementation differs radically depending on whether the punishment is measured purely in nominal terms or the subjective perspective of the punishee is accounted for. This is simply because different people may experience the same punishment with differing intensity. Legal scholars have recently been proposing that improvements in scientific knowledge and advancing technologies (such as functional magnetic resonance imaging), which allow us to measure subjective perceptions and feelings, need and should be incorporated in our penal systems. This would facilitate calibrating the punishment not only to the crime but also to the offender’s persona, so that different people experience equally tough punishment for the same crime. However, such a substantial change in criminal law and policy necessitates a certain amount of public legitimacy and understanding among constituents. We run a simple experiment in order to learn how people understand punishment and to ascertain whether such legitimacy exists. We find that it may be, in the case of pecuniary punishments. With regard to incarceration policies, however, the likelihood of popular acceptance of proposed innovations is rather remote. Our findings therefore point out a serious challenge to the existing literature and may complicate the implementation of suggested reforms, even if legal scholars find them worthwhile.
    Keywords: punishment; objectivism; subjectivism;
    JEL: K
    Date: 2014–08

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.