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on Cognitive and Behavioural Economics |
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Issue of 2015‒06‒20
eighteen papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale “Amedeo Avogadro” |
| By: | Hielke Buddelmeyer (Melbourne Institute of Applied Economic and Social Research, University of Melbourne); Nattavudh Powdthavee (Melbourne Institute of Applied Economic and Social Research, University of Melbourne) |
| Abstract: | We investigate whether the intensity of emotional pain following a negative shock is different across the distribution of a person’s locus of control – the extent to which individuals believe that their actions can influence future outcomes. Using panel data from Australia, we show that individuals with strong internal locus of control are psychologically insured against becoming a victim of property crime and death of a close friend, but not against the majority of other life events. The buffering effects vary across gender. Our findings thus add to the existing literature on the benefits of internal locus of control. Classification-D03, I19, J64 |
| Keywords: | Locus of control, resilience, well-being, happiness, HILDA |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2015n12&r=cbe |
| By: | Kathrin Dengler-Roscher (Institute of Economics, Ulm University, Germany); Natalia Montinari (Department of Economics, Lund University, Sweden); Marian Panganiban (Max Planck Institute for Research on Collective Goods, Bonn and Friedrich Schiller University, Jena, Germany); Matteo Ploner (Department of Economics and Management University of Trento, Italy); Benedikt Werner (Max Planck Institute for Research on Collective Goods, Bonn and Friedrich Schiller University, Jena, Germany) |
| Abstract: | How malleable are people's fairness ideals? Although fairness is an oft-invoked concept in allocation situations, it is still unclear whether and to what extent people's allocations reflect their fairness ideals. We investigate in a laboratory experiment whether people's fairness ideals vary with respect to changes in the order in which they undertake two allocation tasks. Participants first generate resources in a real- effort task and then distribute them. In the partial allocation task, the participant determines the earnings for himself and another participant. In the impartial allocation task, the participant determines the earnings for two other participants. We also manipulate the participants' experience, i.e, whether they took part in similar allocation experiments before. We find that participants are more likely to allocate more resources to themselves than what they earned in the real-effort task when they decide partially. Exclusively for inexperienced participants, deciding impartially first dampens selfish behavior when they decide partially. |
| Keywords: | fairness, proportionality principle, dictator, partial stakeholders, impartial spectators, fairness bias |
| JEL: | C72 C91 D63 D64 |
| Date: | 2015–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2015-006&r=cbe |
| By: | Spiros Bougheas (Department of Economics, University of Nottingham.); Jeroen Nieboer (Department of Social Policy, London School of Economics and Political Science); Martin Sefton (Department of Economics, University of Nottingham) |
| Abstract: | We report a controlled laboratory experiment examining risk-taking and information aggregation in groups facing a common risk. The experiment allows us to examine how subjects respond to new information, in the form of both privately observed signals and signals reported from others. We find that a considerable number of subjects exhibit ‘reverse confirmation bias’: they place less weight on information from others that agrees with their private signal and more weight on conflicting information. We also find a striking degree of consensus when subjects make decisions on behalf of the group under a random dictatorship procedure. Reverse confirmation bias and the incidence of consensus are considerably reduced when group members can share signals but not communicate. |
| Keywords: | Group behavior; Teams; Decision Making; Risk; Experiment |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-07&r=cbe |
| By: | Deaves, Richard; Lei, Jin; Schroeder, 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:40&r=cbe |
| By: | Pedro Rey-Biel (Universitat Autònoma de Barcelona and Barcelona GSE); Roman Sheremeta (Weatherhead School of Management at Case Western Reserve University and the Economic Science Institute at Chapman University); Neslihan Uler (Institute for Social Research at the University of Michigan) |
| Abstract: | We study how giving depends on income and luck, and how culture and information about the determinants of others’ income affect this relationship. Our data come from an experiment conducted in two countries, the US and Spain, which have different beliefs about how income inequality arises. We find no cross-cultural differences in giving when individuals are informed about the determinants of income, but when uninformed, Americans give less than Spanish. Culture and information not only affect individual giving, but also the determinants of giving and the beliefs about how income inequality arises. Beliefs partially moderate cross-cultural differences in giving. |
| Keywords: | individual giving, information, culture, beliefs, laboratory experiment |
| JEL: | C91 D64 D83 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:15-12&r=cbe |
| By: | Tom Lane (School of Economics, University of Nottingham) |
| Abstract: | Economists are increasingly using experiments to study and measure discrimination between groups. In a meta-analysis containing 447 results from 77 studies, we find groups significantly discriminate against each other in roughly a third of cases. Discrimination varies depending upon the type of group identity being studied: it is stronger when identity is artificially induced in the laboratory than when the subject pool is divided by ethnicity or nationality, and higher still when participants are split into socially or geographically distinct groups. In gender discrimination experiments, there is significant favouritism towards the opposite gender. There is evidence for both taste-based and statistical discrimination; tastes seem to drive the relatively strong discrimination with artificial identity, while statistical motivations moderate it. Relative to all other decision-making contexts, discrimination is much stronger when participants are asked to allocate payoffs between passive ingroup and out-group members. Students and non-students appear to discriminate equally. We discuss possible interpretations and implications of our findings. |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-03&r=cbe |
| By: | Christine L. Exley (Stanford University) |
| Abstract: | Decisions involving charitable giving often occur under the shadow of risk. A common finding is that potential donors give less when there is greater risk that their donation will have less impact. While this behavior could be fully rationalized by standard economic models, this paper shows that an additional mechanism is relevant: the use of risk as an excuse not to give. In a laboratory study, participants evaluate risky payoffs for themselves and risky payoffs for a charity. When their decisions do not involve tradeoffs between money for themselves and the charity, they respond very similarly to self risk and charity risk. By contrast, when their decisions force tradeoffs between money for themselves and the charity, participants act more averse to charity risk and less averse to self risk. These altered responses to risk bias participants towards choosing payoffs for themselves more often, consistent with excuse-driven responses to risk. Additional results support the existence of excuse-driven types. |
| Keywords: | Charitable giving; prosocial behavior; altruism; risk preferences. |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:sip:dpaper:15-013&r=cbe |
| By: | Englmaier, Florian; Kolaska, Thomas; Leider, Stephen |
| Abstract: | Recent laboratory evidence suggests that personality traits, in particular social preferences, may affect contractual outcomes under moral hazard. Using the British Workplace Employment Relations Survey 2004 we find that behaviour of employers and employees is consistent with the presence of gift-exchange motives: firms that screen applicants for personality are less likely to pay low wages and more likely to provide (non-pecuniary) benefits. Firms likewise benefit from employee screening as they can implement more team-working and are generally more successful. Other human resource management practices only poorly predict these patterns. Moreover, there is no association between dismissals and personality tests, indicating that personality tests do not merely improve the fit between applicant and employer. Hence, we conclude that motivation based on gift-exchange motives is a plausible explanation for our results. |
| Keywords: | Reciprocity; Organisational Structure; Employee Compensation |
| JEL: | D22 M52 |
| Date: | 2015–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:504&r=cbe |
| By: | Pedro Moreira (Institute for Tourism Studies) |
| Abstract: | Research on dominant decision patterns within the field of economic psychology has revealed that some of the scientific expectations on human decision and behavior were not confirmed. The results of ultimatum decision games are recurrently used in the identification and description of dominant patterns in value related economic decisions. The study includes an initial review of the literature and the results of a sample of individual decision questionnaires based on the ultimatum game, with parallel questions directed to money proposals and time proposals. Initial conclusions indicate that, after an isolated analysis of the two formats (questions related to money proposals and questions related to time proposals), the results within the money format and within the time format revealed high and significant correlations. In contrast, the comparison between formats produced low and non-significant correlations, suggesting that the object of the proposals may influence the value perception and the response patterns. The study is relevant to pricing and revenue management in no-negotiation settings, as is the case of Internet or online website based e-business. Possible applications in the travel and tourism industry are airline e-tickets, and hotel, tours and events e-bookings. |
| Keywords: | Economic decision patterns, ultimatum game, pricing and revenue management, airline e-tickets, hotel e-reservations, website based e-business. |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:2503337&r=cbe |
| By: | Tor Eriksson (Department of Economics and Business, Aarhus School of Business and Social Sciences, Aarhus University. Fuglesangs Allé 4, 8210 Aarhus V, Denmark); Lei Mao (School of Insurance, Central University of Finance and Economics, Beijing, China) |
| Abstract: | Are people willing to sacrifice resources to save one’s and others’ face? In a laboratory experiment, we study whether individuals forego resources to avoid the public exposure of the least performer in their group. We show that a majority of individuals are willing to pay to preserve not only their self- but also other group members’ image. This behavior is frequent even in the absence of group identity. When group identity is more salient, individuals help regardless of whether the least performer is an in-group or an out-group. This suggests that saving others’ face is a strong social norm. |
| Keywords: | Saving face, social image, pro-social behavior, group identity, experiment |
| JEL: | C92 D03 M52 Z13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1515&r=cbe |
| By: | Simone Quercia (University of Bonn, Institute for Applied Microeconomics (IAME)) |
| Abstract: | Betrayal aversion has been operationalized as the evidence that subjects demand a higher risk premium to take social risks compared to natural risks. This evidence has been first shown by Bohnet and Zeckhauser (2004) using an adaptation of the Becker – DeGroot – Marshak mechanism (BDM, Becker et al. (1964)). We compare their implementation of the BDM mechanism with a new version designed to facilitate subjects’ comprehension. We find that, although the two versions produce different distributions of values, the size of betrayal aversion, measured as an average treatment difference between social and natural risk settings, is not different across the two versions. We further show that our implementation is preferable to use in practice as it reduces substantially subjects’ mistakes and hence the likelihood of noisy valuations. |
| Keywords: | experiments, betrayal aversion, trust game, Becker – DeGroot – Marshak mechanism, preference elicitation |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-09&r=cbe |
| By: | Simon Gaechter (Department of Economics, University of Nottingham.); Lingbo Huang (Department of Economics, University of Nottingham); Martin Sefton (Department of Economics, University of Nottingham) |
| Abstract: | We introduce the “ball-catching taskâ€, a novel computerized real effort task, which combines “real†efforts with induced material cost of effort. The central feature of the ball-catching task is that it allows researchers to manipulate the cost of effort function as well as the production function, which permits quantitative predictions on effort provision. In an experiment with piece-rate incentives we find that the comparative static and the point predictions on effort provision are remarkably accurate. We also present experimental findings from three classic experiments, namely, team production, gift exchange and tournament, using the task. All of the results are closely in line with the stylized facts from experiments using purely induced values. We conclude that the ball-catching task combines the advantages of real effort with induced values, which is useful for theory-testing purposes as well as for applications. |
| Keywords: | Experimental design, real effort task, induced values, incentives, piece-rate theory, team incentives, gift exchange, tournaments, online real effort experiments |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-08&r=cbe |
| By: | Daniele Nosenzo (Department of Economics, University of Nottingham.); Fabio Tufano (Department of Economics, University of Nottingham.) |
| Abstract: | We study the effects of voluntary participation on public good provision. Voluntary participation may foster cooperation through two mechanisms: an entry mechanism, which leads to assortative selection of interaction partners, or an exit mechanism, whereby the opportunity to leave the partnership can be used as a means to resist exploitation by free-riders. We examine the relative effectiveness of these two mechanisms in a one-shot, two-person public goods game experiment. We find that voluntary participation has a positive effect on public good provision through the exit mechanism, but we do not find evidence of a positive effect of entry. Assortative selection of interaction partners seems to play a minor role in our setting, whereas the threat of costly exit is a powerful force to discipline free-riding. |
| Keywords: | public goods; cooperation; voluntary participation; exit; entry; experiment |
| Date: | 2015–04 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-04&r=cbe |
| By: | Ulrich Schmidt; Levent Neyse; Milda Aleknonyte |
| Abstract: | Standard economic theory assumes that individual risk taking decisions are independent from the social context. Recent experimental evidence however shows that the income of peers has a systematic impact on observed degrees of risk aversion. In particular, subjects strive for balance in the sense that they take higher risks if this gives them the chance to break even with their peers. The present paper is, to the best of our knowledge, the first systematic analysis of income inequality and risk taking. We perform a real effort field experiment where inequality is introduced to different wage rates. After the effort phase subjects can invest (part of) their salary into a risky asset. Besides the above mentioned possibility of higher risk taking of low-wage individuals to break even with high-wage individuals, risk taking can be influenced by an income effect consistent with e.g. decreasing absolute risk aversion and a house money effect of high- wage individuals. Our results show that the dominant impact of inequality on risk taking is what can be termed a social house money effect: high-wage individuals take higher risks than low- wage individuals only if they are aware of the inequality in wages |
| Keywords: | Risk, Inequality, Real Effort, Field Experiment, Social Comparison |
| JEL: | C93 D63 J31 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:2000&r=cbe |
| By: | Freeman, David; Halevy, Yoram; Kneeland, Terri |
| Abstract: | We experimentally study the effect of embedding pairwise choices between lotteries within a choice list on measured risk attitude. Subjects choose the riskier lottery significantly more often when responding to a choice list. This failure of incentive compatibility can be rationalized by the interaction between non-expected utility and the random incentive system, as suggested by Karni and Safra (1987). |
| Keywords: | random incentive system, isolation, independence axiom, multiple price list, reduction of compound lotteries, preference reversals. |
| JEL: | D81 C91 |
| Date: | 2015–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:yoram_halevy-2015-9&r=cbe |
| By: | George McMillan (Aegis Defense Services) |
| Abstract: | This paper introduces the methodology to create a unified theory of the philosophical and social sciences in the behavioral-political-economic-demographic sequence. The two major ideological political-economic philosophies (Hume-Smith and Marx-Engels) are systematized into competing integrated three dimensional behavioral-political-economic models. The paper argues that Hume-Smith’s empathy-sympathy behavioral assumptions are a sufficient starting point to create the integrated causal model sought by Tooby and Cosmides. The author then shows that the prerequisite advances in psychology and demographic studies now exist to generate the universal economic theory sought by von Neumann-Morgenstern and the integrated behavioral-economic method of Gintis—a psychological (i.e., behavioral) socio-economic model. By updating Hume-Smith’s work with a modern understanding of psychology, as presented by Fromm and others, a new integrated societal model as postulated by Harsanyi can be created that intertwines the social and psychological sciences. The author argues that this fundamentally psychology-based model also can serve as a baseline equation for all social sciences as desired by Kant and Mach, as well as the ahistorical (psychological) philosophic model noted by Husserl, Heidegger, Tillich, and Strauss. The author concludes with a discussion of the necessary next steps to generating a detailed model that fuses these disciplines. |
| Keywords: | Unified theory Model of the Micro and Macro Behavioral Sciences |
| JEL: | P50 B12 B31 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:2504062&r=cbe |
| By: | Dengler-Roscher, Kathrin (Institute of Economics, Ulm University); Montinari, Natalia (Department of Economics, Lund University); Panganiban, Marian (Max Planck Institute for Research on Collective Goods, Bonn); Ploner, Matteo (Department of Economics and Management, University of Trento); Werner, Benedikt (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | How malleable are people’s fairness ideals? Although fairness is an oft-invoked concept in allocation situations, it is still unclear whether and to what extent people’s allocations reflect their fairness ideals. We investigate in a laboratory experiment whether people’s fairness ideals vary with respect to changes in the order in which they undertake two allocation tasks. Participants first generate resources in a real- effort task and then distribute them. In the partial allocation task, the participant determines the earnings for himself and another participant. In the impartial allocation task, the participant determines the earnings for two other participants. We also manipulate the participants’ experience, i.e., whether they took part in similar allocation experiments before. We find that participants are more likely to allocate more resources to themselves than what they earned in the real-effort task when they decide partially. Exclusively for inexperienced participants, deciding impartially first dampens selfish behavior when they decide partially. |
| Keywords: | Fairness; Proportionality Principle; Dictator; Partial Stakeholders; Impartial Spectators; Fairness Bias |
| JEL: | C72 C91 D63 D64 |
| Date: | 2015–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2015_017&r=cbe |
| By: | Ormerod, Paul |
| Abstract: | In situations of what we now describe as radical uncertainty, the core model of agent behaviour, of rational autonomous agents with stable preferences, is not useful. Instead, a different principle, in which the decisions of an agent are based directly on the decisions and strategies of other agents, becomes the relevant core model. Preferences are not stable, but evolve. It is not a special case in such circumstances, but the general one. The author provides empirical evidence to suggest that as a description of behaviour in the modern world, economic rationality is applicable in a declining number of situations. He discusses models drawn from the modern literature on cultural evolution in which imitation of others is the basic strategy, and suggests a heuristic way of classifying situations in which the different models are relevant. The key point is that in situations where radical uncertainty is present, we require theoretical 'null' models of agent behaviour which are different from those of economic rationality. Under uncertainty, fundamentally different behavioural rules are 'rational'. The author gives an example of a very simple pure sentiment model of the business cycle, in which agents use very simple heuristic decision rules. It is nevertheless capable of approximating a number of deep features of output growth over the cycle. |
| Keywords: | uncertainty,imitation,evolution,agent-based model,sentiment,business cycle |
| JEL: | D81 E32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201540&r=cbe |