nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒07‒25
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. On The Origins of Risk-Taking By Black, Sandra E.; Devereux, Paul J.; Lundborg, Petter; Majlesi, Kaveh
  2. Less is more: A Field Experiment on Matching By Guillen, Pablo; Hakimov, Rustamdjan
  3. Institutionalize reciprocity to overcome the public goods provision problem By Hiroki Ozono; Yoshio Kamijo; Kazumi Shimizu
  4. Investing to Cooperate: Theory and Experiment By Jean-Pierre Benoît; Roberto Galbiati; Emeric Henry
  5. Incorporating Phenotype Plasticity into the Indirect Evolutionary Approach By Schmitt, Rebecca
  6. Adaptive Expectations with Correction Bias: Evidence from the lab By Annarita COLASANTE; Antonio PALESTRINI; Alberto RUSSO; Mauro GALLEGATI
  7. Charitable Behaviour and the Big Five Personality Traits: Evidence from UK Panel Data By Sarah Brown; Karl Taylor
  8. Silence is Golden:  Communication Costs and Team Problem Solving By Charness, Gary; Cooper, David; Grossman, Zachary
  9. Intrinsically Motivated Agents in Teams By Ester Manna
  10. Does Sunstein and Thaler’s Theory Have a Broad Scope? By Akira Inoue; Kazumi Shimizu; Yoshiki Wakamatsu; Daisuke Udagawa
  11. Leadership with Individual Rewards and Punishments By Gürerk, Özgür; Lauer, Thomas; Scheuermann, Martin
  12. Idealizations of uncertainty, and lessons from artificial intelligence By Smith, Robert Elliott

  1. By: Black, Sandra E. (Department of Economics, University of Texas, Austin); Devereux, Paul J. (School of Economics and Geary Institute, University College Dublin); Lundborg, Petter (Department of Economics, Lund University); Majlesi, Kaveh (Department of Economics, Lund University)
    Abstract: Risk-taking behavior is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their adoptive children becomes very weak. We find similar results when we study the share of financial wealth that is invested in stocks. This suggests that a substantial proportion of risk-attitudes and behavior is environmentally determined.
    Keywords: Nature-Nurture; Risk-taking; Portfolio choice; Investment behavior
    JEL: G11 J01
    Date: 2015–06–20
  2. By: Guillen, Pablo; Hakimov, Rustamdjan
    Abstract: We run a field experiment to test the truth-telling rates of the theoretically strategy-proof Top Trading Cycles mechanism (TTC) under different information conditions. First, we asked first-year economics students enrolled in an introductory microeconomics unit about which topic, among three, they would most like to write an essay about. Most students chose the same favorite topic. Then we used TTC to distribute students equally across the three options. We ran three treatments varying the information the students received about the mechanism. In the first treatment students were given a description of the matching mechanism. In the second they received a description of the strategy-proofness of the mechanism without details of the mechanism. Finally, in the third they were given both pieces of information. We find a significant and positive effect of describing the strategy-proofness on truth-telling rates. ON the other hand, describing the matching mechanism has a significant and negative effect on truth-telling rates.
    Date: 2015–07
  3. By: Hiroki Ozono (Faculty of Law, Economics and Humanities, Kagoshima University); Yoshio Kamijo (School of Economics and Management, Kochi University of Technology); Kazumi Shimizu (School of Political Science and Economics, Waseda University)
    Abstract: Cooperation is fundamental to human societies, and one of the important paths for its emergence and maintenance is reciprocity. In prisoner’s dilemma (PD) experiments, reciprocal strategies are often effective at attaining and maintaining high cooperation. In many public goods (PG) games or n-person PD experiments, however, reciprocal strategies are not successful at engendering cooperation. In the present paper, we attribute this difficulty to a coordination problem against free riding among reciprocators: Because it is difficult for the reciprocators to coordinate their behaviors against free riders, this may lead to inequality among players, which will demotivate them from cooperating in future rounds. We propose a new mechanism, institutionalized reciprocity (IR), which refers to embedding the reciprocal strategy as an institution (i.e., institutionalizing the reciprocal strategy). We experimentally demonstrate that IR can prevent groups of reciprocators from falling into coordination failure and achieve high cooperation in PG games. In conclusion, we argue that a natural extension of the present study will be to investigate the possibility of IR to serve as a collective punishment system.
    Keywords: operation, public goods game, laboratory experiment, institutionalized reciprocity, raise the stakes strategy, collective punishment
    JEL: C72 C91 C92 M54
    Date: 2015–07
  4. By: Jean-Pierre Benoît (London Business School (LBS)); Roberto Galbiati (Département d'économie); Emeric Henry (Département d'économie)
    Abstract: We study theoretically and in a lab-experiment how legal protection affects the level and type of investments in a setting where a player chooses an investment level before interacting repeatedly with the same set of agents. The investment stochastically affects the payoffs of the game in every subsequent period. We show that without legal protection: investments will be made since repeated interactions can serve as a substitute for legal enforcement; investments with less volatile returns are more likely; the investor might be forced to invest more to keep other players cooperative. Experimental results are broadly consistent with the theoretical findings.
    Keywords: Investment; Experiments; Repeated Games; Property Rights
    JEL: C72 C73 C91 C92
    Date: 2014–05
  5. By: Schmitt, Rebecca
    Abstract: Up to now, the Indirect Evolutionary Approach (IEA) has been based on phenotypes which are represented by unchangeable preference parameters and, as a consequence, by time-invariant utility functions. Here we introduce phenotype plasticity into the IEA by providing a model which includes changeable individual preference parameters. We show that such phenotype plasticity can be a stable phenomenon in a stable environment. For 2x2 symmetric evolutionary games, we identify conditions under which a population of non-plastic phenotypes can be invaded by mutants of a plastic phenotype, but not by mutants of a non-plastic phenotype.
    Keywords: Evolutionary Games, Indirect Evolution, Preference Theory, Taste, Instability of Preferences, Evolution of Preferences
    JEL: C73 D10 D11
    Date: 2015–07–15
  6. By: Annarita COLASANTE (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Antonio PALESTRINI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Alberto RUSSO (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Mauro GALLEGATI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Abstract: The present work analyzes the individual behavior in an experimental asset market in which the only task of each player is to predict the future price of an asset. To form their expectations, players see the past realization of the asset price in the market and the current information about the mean dividend and the interest rate. We investigate the mechanism of expectation formation in two dierent contexts: in the rst one the fundamental value is constant, while in the second the fundamental price increases over repetitions. The aim of this work is twofold: on the one hand, based on the nding of the recent literature about expectations, we investigate whether agents make their prediction according to adaptive expectation instead of rational one. On the other hand, we test the accuracy of the aggregate forecasts compared with the individual ones. Results show that there is heterogeneity both within and between groups. Agents follow adaptive rules to predict future prices and this implies that, in the majority of the cases, they coordinate on a price dierent from the fundamental value. We nd that there is a collective rationality instead of individual rationality. Indeed, each player makes systematic error forecast but, at the aggregate level, there are no signicant forecasting errors in the case in which the fundamental value is constant. In the context of increasing fundamental value, players are able to capture the trend but they underestimate that value.
    Keywords: Bounded rationality, Expectation, Experiments
    JEL: C92 G12 G17
    Date: 2015–07
  7. By: Sarah Brown (Department of Economics, University of Sheffield); Karl Taylor (Department of Economics, University of Sheffield)
    Keywords: Charitable donations; Volunteering; Personality traits; Tobit model; Censored quantile regression.
    JEL: C24 D03 H41 N3 I E A A
    Date: 2015–06
  8. By: Charness, Gary; Cooper, David; Grossman, Zachary
    Abstract: Numerous studies have compared the performance of individuals and teams at solving intellective problems.  The ubiquitous finding in the economics literature is that teams out-perform individuals.  This result is intuitively appealing, as teams can benefit from sharing insights.  We analyze experiments comparing the performance of teams and individuals at solving a series of challenging logic puzzles.  Contrary to the existing literature, individuals meet or exceed the performance of teams on all measures.  If we impose a small cost of communication on teams, the performance of teams improves to closely resemble the performance of individuals.  Underlying these results is a definite negative relationship between frequency of communication and team performance.  We also document a strong gender effect.  Teams with more women perform considerably better even though men slightly outperform women when solving the puzzles individually.
    Keywords: Social and Behavioral Sciences, teams, communication, experimental economics
    Date: 2015–07–20
  9. By: Ester Manna (Facultat d'Economia i Empresa; Universitat de Barcelona (UB))
    Abstract: I develop a principal-agent model where a profit-maximizing principal employs two agents to undertake a project. The employees differ in terms of their intrinsic motivation towards the project and this is their private information. I analyze the impact of individual and team incentives on the screening problem of employees with different degrees of motivation within teams. If the principal conditions each agent's wage on his own level of effort (individual incentives), an increase of the rents paid to the motivated agents results in a lower level of effort exerted by all agents in the second-best. In this case, reversal incentives occur. Conversely, reversal incentives do not arise if the principal uses team-incentives. If the principal conditions each agent's wage on the effort of both agents and the agent's performance on the effort of his colleague (team-incentives), motivated agents exert the same level of effort as in the first-best.
    Keywords: Intrinsically Motivated Agents, Team Production, Adverse Selection, Individual and team incentives, Reversal Incentives.
    JEL: D03 D82 M54
    Date: 2015
  10. By: Akira Inoue (Ritsumeikan University); Kazumi Shimizu (Waseda University); Yoshiki Wakamatsu (Gakushuin University); Daisuke Udagawa (Hannan University)
    Abstract: Sunstein and Thaler’s theory aims to justify libertarian paternalism (LP), a particular version of paternalism which is in favor of policies that nudge people to choose in their own welfare-promoting direction. A normative ground of their theory for LP lies in understanding that human beings are devoid of rational capacities, as has been illuminated by many findings in cognitive psychology and behavioral economics. With this in hand, their theory goes so far as to endorse libertarian benevolence (LB), which is in favor of policies that nudge people to choose in a direction of promoting the welfare of third parties. In this paper, we examine whether this theory is broad enough so that LB can complement LP. To do so, we show the significance in their theory of a necessary (but implicitly presumed) condition for the LP- and LB-relevant cases, the condition of convergence. Since this condition is not easily met, the LP-relevant cases and especially the LB-relevant cases are much more limited than Sunstein and Thaler presume; the case of organ donation they regard as a typical LB-relevant case is exceptional. This seems a serious problem with Sunstein and Thaler’s theory, since it is meant to have a broad scope in such a way that nudges can reasonably be applied to some LB cases.
    Date: 2015–07
  11. By: Gürerk, Özgür; Lauer, Thomas; Scheuermann, Martin
    Abstract: In a public goods experiment, leaders with reward or punishment power induce higher team cooperation compared to leader-free teams without any reward or punishment possibilities. When equipped with reward or punishment instruments, however, leader-free teams perform as well as teams with leaders.We conclude that the instruments as such are more effective in fostering cooperation than a leader.
    Keywords: Leadership, Public Goods, Punishment, Reward
    JEL: C92 H41 M5
    Date: 2015–07–17
  12. By: Smith, Robert Elliott
    Abstract: Making decisions under uncertainty is at the core of human decision-making, particularly economic decision-making. In economics, a distinction is often made between quantifiable uncertainty (risk) and un-quantifiable uncertainty (Knight, Uncertainty and Profit, 1921). However, this distinction is often ignored by, in effect, the quantification of unquantifiable uncertainty, through the assumption of subjective probabilities in the mind of the human decision makers (Savage, The Foundations of Statistics, 1954). This idea is also reflected in developments in artificial intelligence (AI). However, there are serious reasons to doubt this assumption, which are relevant to both AI and economics. Some of the reasons for doubt relate directly to problems that AI has faced historically, that remain unsolved, but little regarded. AI can proceed on a prescriptive agenda, making engineered systems that aid humans in decision-making, despite the fact that these problems may mean that the models involved have serious departures from real human decision-making, particularly under uncertainty. However, in descriptive uses of AI and similar ideas (like the modelling of decision- making agents in economics), it is important to have a clear understanding of what has been learned from AI about these issues. This paper will look at AI history in this light, to illustrate what can be expected from models of human decision-making under uncertainty that proceed from these assumptions. Alternative models of uncertainty are discussed, along with their implications for examining in vivo human decision-making uncertainty in economics.
    Keywords: uncertainty,probability,Bayesian,artificial intelligence
    JEL: B59
    Date: 2015

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