nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒08‒01
twenty papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Conditional Cooperation and Betrayal Aversion By Robin Cubitt; Simon Gaechter; Simone Quercia
  2. Getting a Leg Up or Pulling it Down? Interpersonal Comparisons and Destructive Actions: Experimental Evidence from Bolivia By Zeballos, Eliana
  3. When Do Punishment Institutions Work? By Patrick Aquino; Robert S. Gazzale; Sarah Jacobson
  4. Exploring the role of deliberation time in non-selfish behaviour: the Double Response method By Marta Dyrkacz; Michal Krawczyk
  5. Do Peer Comparison Feedback and Financial Incentives Induce Healthy Behavior? Evidence from Dormitory Roommate Assignments By Katare, Bhagyashree; Beatty, Timothy
  6. Pledges of commitment and cooperation in partnerships By Lachlan Deer; Ralph-C. Bayer
  7. Biomass Contracts for Ethanol Production: The Role of Farmer’s Risk Preferences By Wamisho, Kassu; De Laporte, Aaron; Ripplinger, David
  8. Dissecting an Investment Game: Evidence From a Field Experiment in Rural Cameroon By Meriggi, Niccolo F.; Leuveld, Koen; Gardebroek, Cornelis
  9. Negative Voters: Electoral Competition with Loss-Aversion By Ben Lockwood; James Rockey
  10. The Role of Personality, Cognition and Shocks in Determining Age of Entry into Labor Market, Sector of Employment, and within Sector Earnings By Sahn, David E.; Villa, Kira M.
  11. Technology Adoption When Risk Attitudes Matter: Evidence from Incentivized Field Experiments in Niger By Sanou, Awa; Liverpool-Tasie, Lenis Saweda O.; Shupp, Robert
  12. Expressing Individuality via Food Choices By Weaver, Amanda S.; Lusk, Jayson
  13. Feedback, Social Nudges, and Energy Conservation By Hunter, Elizabeth; Crago, Christine; Spraggon, John
  14. Preference Cloud Theory: Imprecise Preferences and Preference Reversals By Oben Kurtulus Bayrak; John Hey
  15. The Effect of Restaurant Menu Labeling on Consumer’s Choice: Evidence from a Choice Experiment Involving Eye-Tracking By Zaffou, Madiha; Campbell, Benjamin
  16. Digital piracy and the perception of price fairness By Michal Krawczyk; Anna Kukla-Gryz; Joanna Tyrowicz
  17. Social Drivers of Aspirations Formation and Failure in Rural Nepal By Thompson, William W.; Janzen, Sarah A.; Magnan, Nicholas P.; Sharma, Sudhindra
  18. Some determinants of trust formation and pro social behaviours in investment games: An experimental study By Di Bartolomeo Giovanni; Papa Stefano
  19. The Failure of Neoclassical Economics Modelling and Human Behavioural Ecology to Satisfactorily Explain the Evolution of Neolithic Society By Tisdell, Clem; Svizzero, Serge
  20. Mental Accounting: A New Behavioral Explanation of Covered Call Performance By Siddiqi, Hammad

  1. By: Robin Cubitt (Department of Economics, University of Nottingham); Simon Gaechter (Department of Economics, University of Nottingham); Simone Quercia (University of Bonn, Institute for Applied Microeconomics)
    Abstract: We investigate whether there is a link between conditional cooperation and betrayal aversion. We use a public goods game to classify subjects by type of contribution preference and by belief about the contributions of others; and we measure betrayal aversion for different categories of subject. We find that, among conditional cooperators, only those who expect others to contribute little to the public good are significantly betrayal averse, while there is no evidence of betrayal aversion for those who expect substantial contributions by others. This is consistent with their social risk taking in public goods games, as the pessimistic conditional cooperators tend to avoid contribution to avoid exploitation, whereas the optimistic ones typically contribute to the public good and thus take the social risk of being exploited.
    Keywords: public goods game, conditional cooperation, trust, betrayal aversion, exploitation aversion, free riding, experiments
    Date: 2015
  2. By: Zeballos, Eliana
    Abstract: Sometimes people, when comparing themselves with others, take a host of actions that are destructive to those around them, even when these actions imply self-inflicted costs. "Pulling down" other more successful individuals may have both direct and indirect detrimental effects on productivity and efficiency. On one hand, welfare is reduced directly as output is destroyed, and indirectly if their threat induces ex-ante behavioral responses in the form of lower levels of effort and investment. Consequently, linking reactions to upward social comparisons and their effect on effort levels may help explain the considerable variability in how people have been shown to react to such comparisons. In this paper, I develop a two-stage, two-agent model of strategic behavior that integrates the role of inter-personal comparisons with conventional neoclassical economic preference theory to analyze how interpersonal comparisons lead to destructive behavior and affect levels of effort. The experiment, designed to test the predictions of the model and tease out the mechanisms that drive destructive behavior, builds on the two-stage "money burning" game. The experimental games were carried out in Bolivia among 285 dairy farmers. Results show that people that were above the within-group mean, in average exert less effort when comparing themselves with others (the "guilt" case); while people below the within-group mean exert more effort (the "keep-up-with-the-Joneses" case). People who fear the envy of others decrease their effort exerted, specially if they are highly ranked. Results from the money burning game show that people below the mean took in average more destructive behavior than people above the mean. Of all the participants, 55% took at least one destructive action against somebody in their group reducing their output by 34%. People seem to be averse to disadvantageous inequalities, but not averse to advantageous inequalities. Moreover, people destroy less the bigger the advantageous difference is but destroy more in the oposite case.
    Keywords: Interpersonal comparisons, Destructive behavior, Envy, Equity, Equality, Institutional and Behavioral Economics, D01, D03, D63,
    Date: 2015
  3. By: Patrick Aquino (Harvard Graduate School of Education); Robert S. Gazzale (University of Toronto); Sarah Jacobson (Williams College)
    Abstract: The public good literature has often found that a punishment option increases cooperation while the gift exchange literature has found the opposite. We use a novel experiment to seek the cause of this difference. We begin with a gift exchange game with punishment as it has typically been implemented therein, and modify two features to replicate conditions more like those usually used in a public good game: punishment's power and its timing (whether the punisher publicly pre-commits to punishment before the punishee decides or acts after the punishee). We replicate the result that punishment institutions as they have typically been implemented in gift exchange games "backfire," but show that this bad outcome disappears if punishment is more powerful. We find three reasons that punishment decreases cooperation: lower wages are offered (a stick is substituted for a carrot); punishment is poorly chosen by many punishers; and some agents spitefully choose low cooperation in retribution against a punishing principal, but only if the punishment is weak so that spite is relatively cheap. We find that punishment that is not publicly pre-committed to is not effective in this game, even though this kind of punishment is similar to that used in many public good games in the literature where punishment does seem to increase cooperation. The only punishment institution that increases cooperation is high-power punishment that is publicly pre-committed to. Finally, the existence of a punishment institution often decreases social surplus (when punishment-related losses are considered), although it may eventually increase social surplus if it is powerful and publicly pre-committed to.
    Keywords: punishment, cooperation, reciprocity, gift exchange, public good
    JEL: C91 D03 D64 H41 J41
    Date: 2015–07
  4. By: Marta Dyrkacz (Faculty of Economic Sciences, University of Warsaw); Michal Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: In this paper we introduce an innovative research method called Double Response under which subjects are incentivised to provide a quick, intuitive choice and additionally one based on longer deliberation. We apply the method to a series of simple decision tasks aimed at eliciting subjects’ social preferences (as in Charness and Rabin, 2002). Our method appears to successfully induce very quick responses. We find that although only 9.9% of initial choices are changed after deliberation, 79.4% of subjects change at least one of their choices. Comparing contents of the decisions we observe that time pressure leads to more negative attitude towards another individual’s earnings when they are higher than those of the decision maker. In other words, with deliberation decisions are typically updated towards lesser aversion to disadvantageous inequality (“envy”).
    Keywords: response time, design of laboratory experiments, other-regarding preference, inequality aversion
    JEL: C92 D63
    Date: 2015
  5. By: Katare, Bhagyashree; Beatty, Timothy
    Abstract: Physical inactivity has been linked to increase in the risk of health problems such as obesity, cardiovascular diseases, diabetes, cancer, arthritis, hypertension and depression. The American Heath Association recommends 150 minutes of moderate physical activity or 90 minutes of vigorous physical activity per week. We investigate the effect of a social norming tool and financial incentives on inducing physical exercise in individuals. Physical exercise is measured as the number of times an individual visits the recreation center. The social norming tool provides feedback to individuals on own and peers’ physical exercise behavior. The financial incentive enters the individuals in a lottery to win a gift card. In both the interventions we see positive effect on attending the recreation center. Results show that interventions were effective on those students who reported little or zero level of physical exercise before the interventions. Those students who reported regular physical exercise levels, exercised regularly during the intervention.
    Keywords: Physical Exercise, social norming, financial incentive, Health Economics and Policy, Institutional and Behavioral Economics,
    Date: 2015–05–28
  6. By: Lachlan Deer; Ralph-C. Bayer
    Abstract: We use experimental methods to investigate whether pledges of commitment can improve cooperation in endogenously formed partnerships facing a social dilemma. Treatments vary in terms of the individual’s (a) opportunity to commit to their partner, (b) the cost of dissolving committed partnerships, and (c) the distribution of these dissolution costs between partners. Our findings show that pledges of commitment increase cooperation in committed partnerships when costs to dissolve them are shared equally among partners. In contrast, when costs to dissolve committed partnerships fall solely on the individual choosing to break up, pledges of commitment fail to improve cooperation and instead decrease cooperation.
    Keywords: Commitment, cooperation, endogenous group formation, experiment
    JEL: C92 D03 D83 H41
    Date: 2015–07
  7. By: Wamisho, Kassu; De Laporte, Aaron; Ripplinger, David
    Abstract: This study analyze what contracting terms provides sufficient incentives for farmer’s to enter into a contract to produce energy beets for biofeul production. A stated choice experiment was designed to elicit farmer’s preferences to grow energy beet under alternative contractual arrangements. A latent class rank-ordered logit [LCROL] model is used to empirically analyze the effects of contract attributes, farmer’s risk preferences, and farm characteristics on willingness to adopt energy beet. The results shows that the way the contract mechanism is designed significantly affects farmer’s preference to rank contract alternatives. Few risk perception factors extracted from farmer’s response play a role on the preference of contracts.
    Keywords: Contracts, Energy Beets, Ethanol, Risk Preferences, Rank Order Logit Model, Agribusiness, Industrial Organization, Institutional and Behavioral Economics, Resource /Energy Economics and Policy,
    Date: 2015–07
  8. By: Meriggi, Niccolo F.; Leuveld, Koen; Gardebroek, Cornelis
    Abstract: Preliminary Draft, Please do not cite or circulate without authors’ permission
    Keywords: Trust, trustworthiness, reciprocity, social preferences, institutions, Sub-Saharan Africa, Community/Rural/Urban Development, Institutional and Behavioral Economics, International Development, Public Economics, Research Methods/ Statistical Methods, C90, D2, D3,
    Date: 2015–05–27
  9. By: Ben Lockwood; James Rockey
    Abstract: This paper studies how voter loss-aversion affects electoral competition in a Downsian setting. Assuming that voters’ reference point is the status quo, we show that loss-aversion has a number of effects. First, there is policy rigidity both parties choose platforms equal to the status quo, regardless of other parameters. Second, that there is a moderation effect when there is policy rigidity, the equilibrium policy outcome is closer to the moderate voters’ ideal point than in the absence of loss-aversion. In a dynamic extension of the model, we consider how parties strategically manipulate the status quo to their advantage, and we find that this increases policy rigidity. Finally, we show that with loss-aversion, incumbents adjust less than challengers to changes in voter preferences. The underlying force is that the status quo works to the advantage of the incumbent. This prediction of asymmetric adjustment is new, and we test it using elections to US state legislatures. The results are as predicted: incumbent parties respond less to shocks in the preferences of the median voter.
    Keywords: electoral competition, loss-aversion, incumbency advantage, platform rigidity
    JEL: D72 D81
    Date: 2015–07
  10. By: Sahn, David E.; Villa, Kira M.
    Abstract: Growing evidence in the economics literature links “noncognitive” skills to economic, behavioral and demographic outcomes in the developed world. However, there is little such evidence linking these traits to economic outcomes in developing country contexts. This paper estimates the joint effect of five specific personality traits and cognition on the age of entry into the labor market, labor market sectoral selection, and within sector earnings for a sample of young adults in Madagascar. The personality traits we examine are known as the Big Five Personality Traits: Openness to Experience, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. Additionally, we look at how these traits interact with household-level shocks in determining their labor market entry decisions. We find that personality does indeed have an effect on these outcomes of interest and affects how these individuals respond to shocks in their labor decisions.
    Keywords: Cognitive Noncognitive Personality Labor Education Development, International Development, Labor and Human Capital, O12, O15, O17,
    Date: 2015–05–27
  11. By: Sanou, Awa; Liverpool-Tasie, Lenis Saweda O.; Shupp, Robert
    Abstract: Fertilizer micro-dosing is a precision fertilizer application technique that has the potential to improve agricultural productivity and livelihoods in Niger. Despite more than two decades of disseminating the technology, adoption rates remain low and there is evidence of dis-adoption of micro-dosing among fertilizer users. Since fertilizer is a risk increasing technology, it is possible that risk attitudes contribute to the low rates of adoption observed. This paper empirically estimates the effects of risk attitudes on fertilizer use and the practice of micro-dosing. We elicit several measures of risk aversion to assess their comparability and supplement those with measures of ambiguity and loss aversion to examine their effect on the decision to use fertilizer. We find that incentivized measures of risk attitudes have better predictive power than general measures based on hypothetical survey questions. Risk aversion matters in the decision to use fertilizer, and less risk averse farmers tend to practice micro-dosing over mixing seeds with fertilizer. Consequently, it is important to consider policies like insurance programs for risk averse farmers, to increase their likelihood of using fertilizer and promote the practice of micro-dosing.
    Keywords: Risk elicitation, laboratory experiments in the field, incentives, fertilizer micro-dosing, rural Niger, International Development, Risk and Uncertainty,
    Date: 2015
  12. By: Weaver, Amanda S.; Lusk, Jayson
    Abstract: A new means to the end of expressing one’s identity or individuality has grown in popularity in recent years; food is much more to consumers than the basic physiological needs of food. Consumers have diversified into a wide range of food personality types with different perceptions of the role food should play in their lives. This paper uses factor analysis and compares these food personality factors with food attributes factors consisting of non-price features of food products. Results show that identity is expressed via food at differing levels and income level does have some influence.
    Keywords: identity, food personality, food attributes, hierarchy of needs, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics,
    Date: 2014
  13. By: Hunter, Elizabeth; Crago, Christine; Spraggon, John
    Abstract: In the context of climate change and heightened concerns about our energy future, academics and policy makers have taken an interest in the different motivational factors influencing individuals’ energy use. One area of particular interest is the role of information and other non-financial motivators: When traditional financial incentives are not appropriate, can contextualized information programs be used to encourage energy conservation? In our research we conduct an experiment to examine the effect of feedback and social nudges on the energy consumption of renters in utility-inclusive contracts. A sample of 64 households at a University of Massachusetts Amherst family housing complex was selected to participate in this experiment. These residents pay utility-inclusive rent and previously had no means of gaining access to information regarding their personal energy consumption. Households were randomly divided into a control and two treatment groups. During the first phase of the experiment, both treatment groups received weekly Home Energy Reports [HERs] with feedback pertaining to their electricity consumption and its associated financial cost. During the second phase of the experiment both treatment groups continued to receive these HERs as before but with one distinction: households in one of the treatment groups received additional information as to how their electricity consumption compared to the electricity consumption of others in the complex (a social nudge). Analysis of this experiment suggests that feedback on own electricity usage reduced electricity consumption on average by 1.9%, while the social nudge increased electricity consumption by 3.6%. Further investigation into the cause of this positive effect on electricity consumption from social contextualization reveals that this figure was driven by low-consumers of electricity, who subsequently increased their electricity consumption upon receiving the social nudge.
    Keywords: energy efficiency, energy conservation, social nudge, social norms, feedback, field experiment, boomerang effect, split incentives, Resource /Energy Economics and Policy,
    Date: 2015
  14. By: Oben Kurtulus Bayrak; John Hey
    Abstract: This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individualsâ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwiczâs criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain.
    JEL: D81
    Date: 2015–07–20
  15. By: Zaffou, Madiha; Campbell, Benjamin
    Abstract: Eating away from home has been noted to be a contributor to the rising obesity epidemic in the U.S. The U.S. Food and Drug Administration has announced plans to require calorie information to certain food retail establishments. However, the effectiveness of such a requirement has been found to be mixed with the literature. The objective of this paper was to understand the role of various nutritional labels (i.e. calorie, percent daily intake, and traffic light signals) on food choice at both sit down and fast food establishments. Our results indicate that participants in the price only treatment chose meals with higher caloric content from both sit down and fast food menus. However, we find that calorie only information provides the largest reduction in calories in a meal from a sit down menu, but percent daily intake in conjunction with calorie information provides the largest reduction in calories for a fast food menu. Further, via eye tracking technology we find that participants looked at the nutritional information similarly across treatments.
    Keywords: obesity, eye tracking, menu labeling, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Health Economics and Policy,
    Date: 2015–06–05
  16. By: Michal Krawczyk (Faculty of Economic Sciences, University of Warsaw); Anna Kukla-Gryz (Faculty of Economic Sciences, University of Warsaw); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: We focus on the relationship between pricing of cultural goods and willingness to download their unauthorized versions. Building on equity theory we propose that perceiving a price as overly high provides a self-justification for downloading content from unauthorized sources. In a large-scale online experiment on customers of a major e-book store we employ the Bayesian Truth Serum to induce truthful confessions of acquiring content from unauthorized sources. We confirm that self-reported downloading from unauthorized sources is associated with having experienced overpricing. We also relate it to endorsing relatively positive views on the role of file-sharing services and believing that "pirate's" motives are relatively principled, while those of abstainers are rather pragmatic.
    Keywords: inequality, longevity, defined contribution, defined benefit, Gini
    JEL: A13 C93 D12
    Date: 2015
  17. By: Thompson, William W.; Janzen, Sarah A.; Magnan, Nicholas P.; Sharma, Sudhindra
    Abstract: The importance of aspirations for economic decision making has recently gained attention in the field of development economics. It’s been suggested that aspirations are formed from observing the status of one’s peers, and a failure of aspirations may result in a tendency to behave in a myopic and seemingly suboptimal manner. In this paper we provide the first known empirical test of the aspirations failure theory articulated in Appadurai (2004) and Ray (2006) using a unique dataset from rural Nepal. We ask two questions: (1) Does the current status of others in my aspirations window predict my own aspirations? (2) Is the aspirations gap correlated with future-oriented behavior? Our analysis suggests that the readily observable assets of one’s peers are quite important for one’s own wealth aspirations. However, the income of one’s peers, which is more readily hidden, is not important for one’s aspirational income. We also find evidence in support of Ray’s hypothesis that the aspirations gap is what ultimately drives future-oriented behavior, rather than aspirations or current standard of living.
    Keywords: Consumer/Household Economics, Institutional and Behavioral Economics,
    Date: 2015–05
  18. By: Di Bartolomeo Giovanni; Papa Stefano
    Date: 2014–09
  19. By: Tisdell, Clem; Svizzero, Serge
    Abstract: Examines two parallel approaches, one in economics and the other in anthropology, intended to explain the behaviours of Neolithic societies, particularly their transit from foraging to agriculture. Both approaches assume that human behaviour is a response to rational human decisions to optimise. The application of microeconomic theory by a Danish professor to explain the transition of foragers to agriculture and the corresponding complementary views of some American anthropologists about this transition are outlined and discussed. While these approaches provide valuable insights into the evolution of Neolithic societies, it is also important to be aware of their limitations, several of which are identified in this article. Such approaches are unlikely to provide a general theory of the evolution of Neolithic societies. Because of the diversity of human behaviours, a range of theories are required.
    Keywords: Economic evolution, economic optimisation, human behavioural ecology, hunter-gatherers, Neolithic Revolution, satisficing behaviour, Research and Development/Tech Change/Emerging Technologies, D01, 010, P00, Q10,
    Date: 2015–02–02
  20. By: Siddiqi, Hammad
    Abstract: The empirical performance of covered call writing is quite puzzling in the traditional finance framework. Covered call writing is typically a risk reducing strategy so its expected return should be less than the expected return on the underlying in an efficient market. However, recent empirical evidence suggests (covering a period from 1988 onwards) that the covered call writing has nearly the same return as the underlying whereas the standard deviation of returns is considerably less. Market professionals consider a call option to be a surrogate for the underlying. Such mental accounting of a call option with the underlying has strong support in laboratory experiments. We show that such mental accounting embodied in the principle, assets with similar payoffs must have the same expected returns, provides a new behavioral explanation for the puzzling empirical performance of covered call writing.
    Keywords: Covered Call, Generalized Principle of No-Arbitrage, Analogy Making, Mental Accounting, Binomial Model, Trinomial Model, Black Scholes, Financial Economics, G13, G12,
    Date: 2014–01

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