nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒02‒28
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Equilibrium selection in similar repeated games: Experimental evidence on the role of precedents By Duffy, John ; Fehr, Dietmar
  2. Behavioral Economics of Education: Progress and Possibilities By Lavecchia, Adam M. ; Liu, Heidi ; Oreopoulos, Philip
  3. Portfolio Choice Under Ambiguity By Enrica Carbone ; Xueqi Dong ; John Hey
  4. Experimental Economics in Virtual Reality By Gürerk, Özgür ; Bönsch, Andrea ; Braun, Lucas ; Grund, Christian ; Harbring, Christine ; Kittsteiner, Thomas ; Staffeldt, Andreas
  5. How Social Preferences Shape Incentives in (Experimental) Markets for Credence Goods By Rudolf Kerschbamer ; Matthias Sutter ; Uwe Dulleck
  6. Who never tells a lie? By Vanberg, Christoph
  7. Individual Performance after Success and Failure - A Natural Experiment By Christoph Bühren ; Stefan Krabel
  8. "Small miracles"-- behavioral insights to improve development policy : World Development Report 2015 By Demeritt, Allison ; Hoff, Karla
  9. Housework share between partners: Experimental evidence on gender identity By Auspurg, Katrin ; Iacovou, Maria ; Nicoletti, Cheti
  10. Why have Dostojewski and Tolstoi never met? On the relation of risk attitudes and altruism By Müller, Stephan ; Rau, Holger A.

  1. By: Duffy, John ; Fehr, Dietmar
    Abstract: We report on an experiment examining behavior and equilibrium selection in two similar, infinitely repeated games, Stag Hunt and Prisoner's Dilemma under anonymous random matching. We are interested in the role that precedents may play for equilibrium selection between these two stage game forms. We find that a precedent for efficient play in the repeated Stag Hunt game does not carry over to the repeated Prisoner's Dilemma game despite the possibility of efficient play in the latter game. Similarly, a precedent of inefficient play in the Prisoner's Dilemma game does not extend to the repeated Stag Hunt game. We conclude that equilibrium selection between similar repeated games has little to do with historical precedents and is mainly determined by strategic considerations associated with the different payouts of these similar repeated games.
    Keywords: Equilibrium Selection,Precedent,Beliefs,Stag Hunt,Prisoner's Dilemma,Repeated Games,Experimental Economics
    JEL: C72 C73 C92 D83
    Date: 2015
  2. By: Lavecchia, Adam M. (University of Toronto ); Liu, Heidi (Harvard University ); Oreopoulos, Philip (University of Toronto )
    Abstract: Behavioral economics attempts to integrate insights from psychology, neuroscience, and sociology in order to better predict individual outcomes and develop more effective policy. While the field has been successfully applied to many areas, education has, so far, received less attention – a surprising oversight, given the field's key interest in long-run decision-making and the propensity of youth to make poor long-run decisions. In this chapter, we review the emerging literature on the behavioral economics of education. We first develop a general framework for thinking about why youth and their parents might not always take full advantage of education opportunities. We then discuss how these behavioral barriers may be preventing some students from improving their long-run welfare. We evaluate the recent but rapidly growing efforts to develop policies that mitigate these barriers, many of which have been examined in experimental settings. Finally, we discuss future prospects for research in this emerging field.
    Keywords: behavioral economics of education, present-bias, student motivation
    JEL: D03 D87 I2 J24
    Date: 2015–02
  3. By: Enrica Carbone ; Xueqi Dong ; John Hey
    Abstract: This paper represents an intersection between two lines of research. The first is portfolio choice theory, which underlies much of finance; the second is the elicitation of preferences under uncertainty. The theory of the behaviour of financial markets builds heavily on portfolio choice theory; until recently this has assumed that preferences are of a particularly simple kind. In contrast research on preferences has revealed that people have more sophisticated preferences. This paper tries to bring the two fields together by investigating, in a portfolio choice context, the preferences that are revealed by decisions. In the second of these two fields, researchers are increasingly using allocation problems to elicit the preferences of subjects, believing that such problems are more informative, and perhaps more natural, than other elicitation methods. At the same time portfolio choice theory is itself concerned with an allocation problem. Usually in experimental finance the allocation problems are over Arrow securities each of which pays off only in one state of the world. Instead we study the more realistic case, familiar from finance, in which all assets pay off in all states of the world. To make our study more realistic we frame the problem as one under ambiguity, where the probabilities of the states are not known to the decision-maker. This enables us to compare the performance of some recent theories of behaviour under ambiguity as well as traditional ones (such as Mean-Variance) from the theory of finance. We also identify a ‘rule of thumb’ that decision-makers may be using in this rather complex scenario. This research may help us to understand more fully actual portfolio choice decisions.
    Keywords: ambiguity, portfolio choice, preferences under ambiguity, securities.
    JEL: C9 D81 G02 G11
    Date: 2015–02
  4. By: Gürerk, Özgür ; Bönsch, Andrea ; Braun, Lucas ; Grund, Christian ; Harbring, Christine ; Kittsteiner, Thomas ; Staffeldt, Andreas
    Abstract: Recent developments in virtual reality (VR) technology have the potential to revolutionize the way economists do experimental research. With Oculus’ light and affordable head mounted display (HMD) human subjects can literally move and use objects in virtual spaces and interact with others. This technology as well as surround-screen projection systems like CAVEs (Cruz-Neira et al. 1994), allow the experimenter to observe economically relevant behavior and social interaction in a highly immersive and at the same time tightly controlled virtual environment. More than other disciplines, economics focuses on the evaluation of counterfactual scenarios which help to analyze strategic decisions and their efficiency effects. In this note, by means of three examples, we illustrate how experiments in highly IVEs can add value to experimental economics and benefit economic research.
    Keywords: experimental economics; virtual reality; immersive virtual environment; risk preferences; real effort; avatar; reflection problem; experimental methodology
    JEL: C90
    Date: 2014–12
  5. By: Rudolf Kerschbamer ; Matthias Sutter ; Uwe Dulleck
    Abstract: Credence goods markets suffer from inefficiencies caused by superior information of sellers about the surplus-maximizing quality. While standard theory predicts that equal mark-up prices solve the credence goods problem if customers can verify the quality received, experimental evidence indicates the opposite. We identify a lack of robustness with respect to heterogeneity in social preferences as a possible cause of this and conduct new experiments that allow for parsimonious identification of sellers' social preference types. Our results indicate that less than a fourth of the subjects behave in accordance with the standard assumption on preferences, the rest behaving either in line with other forms of selfish or in accordance with different variants of non- selfish social preferences. We discuss consequences of our findings for institutional design and agent selection.
    Keywords: Credence Goods, Expert Services, Social Preferences, Distributional Preferences, Other-Regarding Preferences, Behavioral Economics, Experimental Economics
    JEL: C72 C91 D82
    Date: 2015–02
  6. By: Vanberg, Christoph
    Abstract: Erat and Gneezy (2012) conduct an experiment to test whether people avoid lying in a situation where doing so would lead to a Pareto improvement. They conclude that many people exhibit such a "pure lie aversion." I argue that the experiment does not provide a reliable test for such an aversion, and that the evidence does not support the authors' conclusion. I conduct two new experiments which are explicitly designed to test for a 'pure' aversion to lying, and find no evidence for the existence of such a motivation. I discuss the implications of the findings for moral behavior and rule following more generally.
    Keywords: Lying; Deception; Morality; Ethics; Experiments
    Date: 2015–02–10
  7. By: Christoph Bühren (University of Kassel ); Stefan Krabel (VDI/VDE Innovation+Technik GmbH )
    Abstract: The main goal of our study is to analyze how success and failure in crucial situations affect subsequent individual performance. Our study is based on evidence from a natural experiment of NBA (National Basketball Association) players: Based on play-by-play statistics of NBA games in 10 seasons (1818 observations of 345 sportsmen), we identify players who are responsible for the overtime by taking the last shot of the game. Players who miss the shot when the game is tied perform better in overtime than in the last quarter (within-subject comparison) but not significantly different to their game and season averages. Players who score the equalizer in the last shot of the regular game perform substantially worse in overtime compared to their 4th quarter performance as well as compared to their game and season averages. Yet the average performances in overtime of both groups do not differ significantly (between-subject comparison). We conclude that success in crucial situations leads to lower subsequent individual performance. Psychological explanations for this phenomenon, e.g. the role of overconfidence, are discussed. We argue that our findings can be transferred to behavior after success or failure in business settings since we have distinct identifications of performance and responsibility: the observed overtimes are clear and immediate outcomes of the last shots of our analyzed players; without their success or failure, the game would have been over after regular time.
    Keywords: success, failure, performance, psychological pressure, overconfidence, hot hand fallacy, natural experiment, basketball, NBA
    JEL: C93
    Date: 2015
  8. By: Demeritt, Allison ; Hoff, Karla
    Abstract: One of the most fruitful advances in modern economics has been the introduction of psychological realism into the model of"economic man."The World Development Report 2015 organizes the evidence about how humans actually think and make decisions into a coherent framework useful for designing development policy. This paper elaborates on the three principles of human thinking that constitute the report's intellectual framework: Human thinking is dual process -- automatic as well as deliberative (thinking automatically); it is conditioned by social context and the salience of social identities (thinking socially); and it is shaped by mental models that are socially constructed (thinking with mental models). Behavioral insights create scope for policy interventions that produce"miracles"from the perspective of traditional economics.
    Keywords: Tertiary Education,Health Monitoring&Evaluation,Educational Sciences,Knowledge for Development,Primary Education
    Date: 2015–02–01
  9. By: Auspurg, Katrin ; Iacovou, Maria ; Nicoletti, Cheti
    Abstract: Using an experimental design, we investigate the reasons behind the gendered division of housework within couples. In particular, we assess whether the fact that women do more housework than men may be explained by differences in preferences deriving from differences in gender identity between men and women. We find little evidence of any systematic gender differences in the preference for housework, suggesting that the reasons for the gendered division of housework lie elsewhere.
    Date: 2015–02–10
  10. By: Müller, Stephan ; Rau, Holger A.
    Abstract: We experimentally analyze the relation of risk preferences and subjects aversion to advantageous inequality as measured by the guilt parameter of the Fehr and Schmidt (1999) model. Our findings reveal a significant negative correlation between subjects risk attitudes and their altruistic behavior. Risk tolerant subjects tend to be selfish, whereas risk-averse people show high levels of altruism.
    Keywords: altruism,experiment,risk preferences
    JEL: C91 D64 D81
    Date: 2015

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