nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2014‒12‒24
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. How do risk attitudes affect measured confidence? By Zahra Murad; Chris Starmer; Martin Sefton
  2. 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
  3. An ultimatum game with multidimensional response strategies By Werner Gueth; Maria Vittoria Levati; Chiara Nardi; Ivan Soraperra
  4. Randomizing Endowments: An Experimental Study of Rational Expectations and Reference-Dependent Preferences By Götte, Lorenz; Harms, Annette; Sprenger, Charles
  6. Social Status and Personality Traits By Alessandro Bucciol; Barbara Cavasso; Luca Zarri
  7. Behavioral Influences in Non-Ferrous Metals Prices By Mark Cummins; Brian M. Lucey; Michael M. Dowling
  8. Locus of Control and the Labor Market By Deborah Cobb-Clark
  9. Ideals should not be too ideal: Identity and public good contribution By Fuhai HONG
  10. Essays on validation and estimation of agent-based models and on overconfidence measures By Stasiukynaite, R.
  11. Learning faster or more precisely? Strategic experimentation in networks By Wuggenig, Mirjam
  12. The Psychological Contract: A Review Model By Agarwal, Promila

  1. By: Zahra Murad (School of Economics, University of Nottingham; Department of Health Care Management and Policy, University of Surrey); Chris Starmer (Department of Economics, University of Amsterdam); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We examine the relationship between confidence in own absolute performance and risk attitudes using two elicitation procedures: self-reported (non-incentivised) confidence and an incentivised procedure that elicits the certainty equivalent of a bet based on performance. The former procedure reproduces the “hard-easy effect†(overconfidence in easy tasks and underconfidence in hard tasks) found in a large number of studies using non-incentivised self-reports. The latter procedure produces general underconfidence, which is significantly reduced, but not eliminated when we filter out the effects of risk attitudes. Finally, we find that self-reported confidence correlates significantly with features of individual risk attitudes including parameters of individual probability weighting.
    Keywords: Overconfidence, Underconfidence, Experiment, Risk Preferences
  2. 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); 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
  3. By: Werner Gueth (Max Planck Institute of Economics); Maria Vittoria Levati (Department of Economics (University of Verona)); Chiara Nardi (Department of Economics (University of Verona)); Ivan Soraperra (Department of Economics (University of Verona))
    Keywords: Ultimatum; Social preferences; Incomplete information; Experiments
    JEL: C72 C91 D63 D74
    Date: 2014–08
  4. By: Götte, Lorenz (University of Lausanne); Harms, Annette (University of Lausanne); Sprenger, Charles (Stanford University)
    Abstract: An important advance in the study of reference-dependent preferences is the discipline provided by coherent accounts of reference point formation. Kőszegi and Rabin (2006) provide such discipline by positing a reference point grounded in rational expectations. We examine the predictions of Kőszegi and Rabin (2006) in the context of market experiments with probabilistic forced exchange. The experiment tightly tests the predictions of Kőszegi and Rabin (2006), as when the probability of forced exchange increases, individuals should grow more willing to exchange. This mechanism has the theoretical potential to eliminate and even reverse the 'endowment effect' (Knetsch and Sinden, 1984; Knetsch, 1989; Kahneman et al., 1990). Our results uniformly reject these theoretical predictions. In a series of experiments with a total of 930 subjects, sellers' valuations exceed buyers' valuations under all probabilities of forced exchange. In robustness tests where attention is drawn specifically to the forced exchange mechanism, the results are directionally more promising for buyers, but still reject the main thrust of the theoretical predictions. Our findings suggest a potential path forward incorporating failures to completely forecast sensations of gain and loss into models of expectations-based reference dependence.
    Keywords: reference-dependent preferences, rational expectations, personal equilibrium, endowment effect, expectations-based reference points
    JEL: D81 D84 D12 D03
    Date: 2014–11
  5. By: Sven Fischer (Max Planck Institute of Economics, Germany); Werner Guth (Max Planck Institute of Economics, Germany); Todd R. Kaplan (University of Exeter, Exeter, EX4 4PU, UK, and University of Haifa, Israel.); Ro'i Zultan (BGU)
    Keywords: auctions, espionage, collusion, laboratory experiments.
    JEL: C72 C91 D44
    Date: 2014
  6. By: Alessandro Bucciol (Department of Economics (University of Verona)); Barbara Cavasso (University of Padua); Luca Zarri (Department of Economics (University of Verona))
    Abstract: In this study we provide direct evidence on the relationship between social status and personality traits. Using survey data from the 2006-2012 waves of the HRS, we show that individuals’ self-perceived social status is associated with all the “Big Five” personality traits, after controlling for observable characteristics that arguably reflect one’s actual status. We also construct an objective status measure that in turn is influenced by personality traits. Objectively measured status is positively but not highly correlated with its subjective counterpart and, when incorporated in a regression specification, still leaves room for direct effects of personality traits on status perception.
    Keywords: Subjective Social Status, Objectively Measured Social Status, Personality Traits
    JEL: D03 I31 Z13
    Date: 2014–12
  7. By: Mark Cummins (Dublin City University Business School); Brian M. Lucey (Institute for International Integration Studies, Trinity College Dublin); Michael M. Dowling (Dublin City University Business School)
    Abstract: Recent research has identified the presence of behavioral influences on traders in predominantly professionally traded markets such as oil, gold, and foreign exchange. Previous research had largely confined behavioral-based investigations to equity markets due to an assumption that noise traders would drive any influence and these traders were mainly absent from the professionally traded markets. This paper extends this research to the non-ferrous metals markets and demonstrates similar influences on prices. It is shown that psychological price barriers, where there is predictable trading patterns around psychologically important price points, are important. Specifically, lead, zinc, and aluminium alloy, show anomalous price reactions in the days particularly following a breach of a $1,000 price point. There is also evidence presented of negative price clustering before key price barriers. Subperiod tests further indicate that the relevant psychological price point is dependent on average prices. Recognizing the multiple hypothesis testing nature of the study, generalized Bonferroni corrections are implemented to provide a robust control for the possibility of data mining. This represents a first investigation of behavioral influences in non-ferrous metals prices, and suggests these markets are not immune to trader biases influencing the setting of prices.
    Keywords: psychological barriers; clustering; non-ferrous metals
    JEL: G13 G14 L61
    Date: 2014–11
  8. By: Deborah Cobb-Clark (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Institute for the Study of Labor (IZA); and ARC Centre of Excellence for Children and Families over the Life Course)
    Abstract: This paper reviews the role of locus of control in the labor market. I begin with a discussion of the conceptual origins of locus of control, including its relationship to related concepts such as self-efficacy, motivation, and self-control. The relationship between locus of control and labor market success is then summarized. In doing so, I pay careful attention to what we know about three potential mechanisms – human capital investments, hiring decisions, and optimal incentive contracts – through which locus of control might operate. Finally, the broader implications of these relationships for public policy and future research are discussed.
    Keywords: Locus of control, labor markets, non-cognitive skills, behavioral labor economics
    JEL: J01 J08
    Date: 2014–11
  9. By: Fuhai HONG (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological Univer- sity. Address: 14 Nanyang Drive, Singapore, 637332.)
    Abstract: This paper incorporates identity into a model of voluntary public good contribution. An ideal of contributing to public goods divides players to di¤erent social categories: Players who identify with the ideal become insiders, obtaining identity utility but incurring disu- tility if their contributions depart from the ideal, while players who do not identify with the ideal remain as outsiders. We show that identity could increase public good contribution; the ideal that best resolves the free-riding problem in the public good game equals either the contribution level of the most altruistic player in the absence of the identity, or a level that makes the least altruistic player indi¤erent between becoming an insider and not, depending on the size of the group. These results have implications for social policymaking.
    Keywords: Ideals, Identity, Public Goods, Social Categories
    JEL: D03 H41
    Date: 2014–11
  10. By: Stasiukynaite, R. (Tilburg University, School of Economics and Management)
    Abstract: The unifying theme of this thesis is the study built around individual heterogeneity. When analyzing the behaviour of economic agents and institutions, the role of individual heterogeneity, various behavioural characteristics receive more attention in scientific research. This thesis can be divided into two parts, presenting two ways for studying individual heterogeneity in financial markets and economy. One way to study the behaviour of heterogeneous individuals is building models based on microsimulations where one can model agents with different preferences and behavioural rules and investigate behavioural characteristics and individual interactions which lead to the behaviour of the market as a whole. Another way to study the behaviour of heterogeneous individuals is studying the observed individual behaviour with the help of micro-level data retrieved from various surveys. When studying individual behaviour using survey responses, a researcher often needs to create reliable measures which may represent a behavioural characteristic under consideration. Sometimes a researcher encounters many alternatives when approaching a specific question. Therefore, it is also necessary to investigate the relations between these alternatives and whether they might represent the same underlying behavioural factor.
    Date: 2014
  11. By: Wuggenig, Mirjam
    Abstract: The paper analyzes a dynamic model of rational strategic learning in a network. It complements existing literature by providing a detailed picture of short-run dynamics in a game of strategic experimentation where agents are located in a social network. We show that the delay in information transmission caused by incomplete network structures may induce players to increase own experimentation efforts. As a consequence a complete network can fail to be optimal even if there are no costs for links. This means that in the design of networks there exists a trade-off between the speed of learning and accuracy.
    Keywords: Strategic Experimentation; Networks; Learning
    JEL: C73 D83 D85
    Date: 2014–12–04
  12. By: Agarwal, Promila
    Abstract: The objective of this paper is to review and synthesize the literature of psychological contract in order to provide a comprehensive framework of psychological contract through individual and multi-level analysis. The article provides an inclusive review of antecedents (individual and organizational) and outcomes of psychological contract. The last meta analysis was done in 2007 (Zhao et al., 2007) and research has grown significantly from thereon. The current paper extends the range of variables (antecedents and outcomes) considered in comparison to earlier studies. The study extensively reviews the literature from the period of 1972 to 2013 (July). The findings highlight how individual and organizational level variables influence the psychological contract of employees. It also reveals that psychological contract is associated with favorable organizational outcomes. While doing so the paper brings out the challenges in the field of psychological contract, gaps in the research, and makes propositions for future research. The exhaustive synthesis of review of literature promises to provide a holistic picture of psychological contract to the scholars interested in the field of psychological contract and employee relations. It highlights the gap which contributes in taking this concept forward. Practitioners can use this research for managing psychological contract in the light of its critical factors. The paper concludes that individual level antecedents of psychological contract require detail examination and summarize the relationship between macro level variables and psychological contract.

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