nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒05‒09
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Dragon Slaying with Ambiguity: Theory and Experiments By Sara le Roux; David Kelsey
  2. Measuring farmers' time preference: A comparison of methods By Hermann, Daniel; Mußhoff, Oliver; Rüther, Dörte
  3. The Effects of Emotions on Preferences and Choices for Public Goods By Christopher Boyce; Mikolaj Czajkowski; Nick Hanley; Charles Noussair; Michael Townsend; Steve Tucker
  4. Testing Psychological Forward Induction in the Lost Wallet Game By Maroš Servátka; Daniel Woods
  5. Cultural Norms and Identity in Coordination Games By Jo Laban Peryman; David Kelsey
  6. Nudging credit scores in the field: the effect of text reminders on creditworthiness in the United States By Bracha, Anat; Meier, Stephan
  7. Boundedly Rational Opinion Dynamics in Social Networks: Does Indegree Matter? By Pietro Battiston; Luca Stanca
  8. Forecaster overconfidence and market survey performance By Deaves, Richard; Lei, Jin; Schröder, Michael
  9. Efficiency in a forced contribution threshold public good game By Edward Cartwright; Anna Stepanova
  10. Mental accounting in tax evasion decisions: An experiment on underreporting and overdeducting By Fochmann, Martin; Wolf, Nadja

  1. By: Sara le Roux (Department of Economics, Oxford Brookes University); David Kelsey (Department of Economics, University of Exeter)
    Abstract: This paper studies the impact of ambiguity in the best shot and weakest link models of public good provision. The models are ?rst analysed theoretically. Then we conduct experiments to study how ambiguity affects behaviour in these games. We test whether subjects? perception of ambiguity differs between a local opponent and a foreign one. We fi?nd that an ambiguity safe strategy, is often chosen by subjects. This is compatible with the hypothesis that ambiguity aversion infl?uences behaviour in games. Subjects tend to choose contributions above (resp. below) the Nash equilibrium in the Best Shot (resp. Weakest Link) model.
    Keywords: Public goods; Ambiguity; Choquet expected utility; strategic complements; weakest link; best shot.
    JEL: C72 C91 D03 D81 H41
    Date: 2015
  2. By: Hermann, Daniel; Mußhoff, Oliver; Rüther, Dörte
    Abstract: The discount rate is of great importance for all decisions in an intertemporal context, such as the decision of how much a society invests in environmental preservation, or the financial decisionmaking on the individual level. This study experimentally investigates the time preferences of farmers by comparing two different methods: One method is based on the measurement of time preference and risk attitude that are elicited in two parts of an experiment. Afterwards, the discount rate is adjusted using the risk attitude. The other method uses a one-parameter approach without the necessity of separately eliciting the individual risk attitude and without an assumption regarding the form of the utility function. The results reveal that, contrary to previous research, the ascertained discount rates of both methods are different. Furthermore, only the method based on the measurement of time preference and risk attitude separately reveals sensitivities regarding the prospective payout.
    Keywords: discount rate,experimental economics,intertemporal decision making,magnitude effect,risk attitude
    Date: 2015
  3. By: Christopher Boyce (University of Stirling); Mikolaj Czajkowski (University of Warsaw); Nick Hanley (University of St Andrews); Charles Noussair (Tilburg University); Michael Townsend (NZ National Institute for Water and Atmosphere); Steve Tucker (University of Waikato)
    Abstract: This paper tests whether changes in 'incidental emotions' lead to changes in economic choices. Incidental emotions are experienced at the time of an economic decision but are not part of the payoff from a particular choice. As such, the standard economic model predicts that incidental emotions should not affect behavior, yet many papers in the behavioral science and psychology literatures find evidence of such effects. In this paper, we used a standard procedure to induce different incidental emotional states in respondents, and then carried out a choice experiment on changes to an environmental good (beach quality). We estimated preferences for this environmental good and willingness to pay for changes in this good, and tested whether these were dependent on the particular emotional state induced. We also tested whether choices became more or less random when emotional states were induced, based on the notion of randomness in a standard random utility model. Contrary to our a-priori hypothesis we found no significant evidence of treatment effects, implying that economists need not worry about the effects of variations in incidental emotions on preferences and the randomness of choice, even when there is measured (induced) variation in these emotions.
    Keywords: choice experiments; behavioral economics; ecosystem services; emotions; rationality
    JEL: Q51 Q57 D03 D87
    Date: 2015–03–31
  4. By: Maroš Servátka (University of Canterbury); Daniel Woods
    Abstract: This paper tests Psychological Forward Induction in the Lost Wallet Game, in an attempt to explain an empirical puzzle observed by Dufwenberg & Gneezy (2000) that the size of the outside option forgone by the first mover does not affect the behavior of the second mover. This is puzzling as Psychological Forward Induction and other theories predict that raising the outside option will increase the reward provided by the second mover to the first mover for foregoing the outside option. Our experiment tests whether the second movers update their beliefs after observing their paired first movers’ decision by eliciting beliefs with different second mover knowledge of first mover decision, depending on treatment. We find that second movers do update their beliefs conditional on receiving information on the first mover’s action, supporting Psychological Forward Induction.
    Keywords: beliefs, experiment, guilt aversion, lost wallet game, psychological forward induction
    JEL: C70 C91
    Date: 2015–05–03
  5. By: Jo Laban Peryman (RMIT University, Melbourne); David Kelsey (Department of Economics, University of Exeter)
    Abstract: We run experiments with a stag hunt and bargaining coordination game. Using a between-subjects design, we vary the identity of the opponent between someone of the same culture or a different culture. The idea is to see whether cultural norms or identity play a part in coordination decisions. We compare the responses of British and Asian students at the University of Exeter and show the cultural identity of the opponent by physical appearance. The players appear to use cultural stereotypes to predict behaviour, especially in the bargaining game which may require more strategic thought than the stag hunt game. In particular, the British act in way that indicates they believe the Asians will behave more cautiously than other British. According to our results, the stereotype of Asians being cautious is misleading.
    Keywords: culture,identity, norms, coordination, bargaining
    JEL: C29 C71 C72 Z13
    Date: 2015
  6. By: Bracha, Anat (Federal Reserve Bank of Boston); Meier, Stephan (Columbia University)
    Abstract: Given the fundamental role that credit scores play in day-to-day life in the United States, it is very important to understand what can be done to help individuals improve their credit scores. This question is important in general, and especially important for the low-to-moderate-income (LMI) individuals who likely have a greater need for access to liquidity than higher-income individuals. In this paper the authors report results from a field experiment conducted between early 2013 and early 2014 in Boston, Massachusetts, with LMI taxpayers who were offered credit advising services. Taxpayers who opted into the advising sessions were randomized as to whether they received extra information on credit scores and the average APR (annual payment rate) on basic credit cards in their area (the "information" condition), and, independently, as to whether or not they received monthly text reminders (the "text" condition). These reminders included the individual's financial goal and credit score range, reminders to pay bills on time and to pay at least the minimum amount, and updated interest rate information on basic credit cards.
    Keywords: field experiment; credit score; creditworthiness; reminders; financial decisionmaking; low income
    JEL: C93 D14
    Date: 2014–11–01
  7. By: Pietro Battiston; Luca Stanca
    Abstract: This paper investigates opinion dynamics and social in uence in directed communication networks. We study the theoretical properties of a boundedly rational model of opinion formation in which individuals aggregate the information they receive from their neighbors by using weights that are a function of neighbors' indegree. We then present the results of a laboratory experiment explicitly designed to test the causal effect of indegree on social in uence. We find that the social influence of an agent is positively affected by the number of individuals she listens to. When forming their opinions, agents take into account the structure of their communication network, although only to a limited extent.
    Keywords: Social Networks, Learning, Social Influence, Bounded Rationality
    Date: 2015–04–24
  8. By: Deaves, Richard; Lei, Jin; Schröder, Michael
    Abstract: We document using the ZEW panel of German stock market forecasters that weak forecasters tend to be overconfident in the sense that they provide extreme forecasts and their confidence intervals are less likely to contain eventual realizations. Moderate filters based on forecast accuracy over short rolling windows are somewhat successful in improving predictability. While poor performance can be due to various factors, a filter based on a prior tendency to provide extreme forecasts also improves predictability.
    Keywords: Overconfidence,Forecasting Performance,Stock Market
    JEL: G02 G17
    Date: 2015
  9. By: Edward Cartwright; Anna Stepanova
    Abstract: We contrast and compare three ways of predicting efficiency in a forced contribution threshold public good game. The three alternatives are based on ordinal potential, quantal response and impulse balance theory. We report an experiment designed to test the respective predictions and find that impulse balance gives the best predictions. A simple expression detailing when enforced contributions result in high or low efficiency is provided.
    Keywords: Public good; threshold; impulse balance theory; quantal response; forced contribution; ordinal potential
    JEL: C72 H41 C92
    Date: 2015–03
  10. By: Fochmann, Martin; Wolf, Nadja
    Abstract: Although there is already a variety of papers analyzing tax evasion decisions, only little focus is put on tax evasion of gains and losses. As taxpayers can evade taxes by either underreporting their income or by overdeducting expenses, we study whether there is a significant difference if subject are confronted with a gain or a loss scenario. We find that individuals evade more in the first than in the latter case. As a consequence, subjects are more willing to evade taxes by underreporting income than by overdeducting expenses. We show that this finding can be explained by mental accounting and an asymmetric evaluation of tax payments and tax refunds. Our result is robust to treatment variation. However, if individuals have to complete only one tax declaration (but still decide on gains and losses) and we therefore expect subjects to use only one mental account, the effect vanishes. This provides strong evidence that mental accounting plays an important role in tax evasion decisions. Further results are presented and discussed.
    Keywords: tax evasion,tax compliance,prospect theory,mental accounting,behavioral taxation,experimental economics
    JEL: C91 D14 H24
    Date: 2015

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