nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒10‒04
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Behavioural, Financial, and Health & Medical Economics: A Connection By Chia-Lin Chang; Michael McAleer; Wing-Keung Wong
  2. Defaults and Donations: Evidence from a Field Experiment By Altmann, Steffen; Falk, Armin; Heidhues, Paul; Jayaraman, Rajshri
  3. Competition Between and Within Universities: Theoretical and Experimental Investigation of Group Identity and the Desire to Win By Zhuoqiong (Charlie); David Ong; Roman Sheremeta
  4. An Experimental Study of Uncertainty in Coordination Games By Ioannou, Christos A.; Makris, Miltiadis
  5. Suspicious Minds (can be a good thing when saving for retirement) By A.M.J. Deetlefs; H. Bateman; L. Isabella Dobrescu; B.R. Newell; Andreas Ortmann; Susan Thorp
  6. Incentives and Information as Driving Forces of Default Effects By Altmann, Steffen; Falk, Armin; Grunewald, Andreas
  7. Investment in Risk Protection and Social Preferences: An Experimental Study By Federico Fornasari; Matteo Ploner; Ivan Soraperra

  1. By: Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan); Wing-Keung Wong (Department of Economics Hong Kong Baptist University Hong Kong, China)
    Abstract: This Opinion article briefly reviews some of the literature in behavioural and financial economics that are related to health & medical economics. We then discuss some of the research on behavioural and financial economics that could be extended to health & medical economics beyond the existing areas in theory, statistics and econometrics.
    Keywords: Behavioural economics; Financial economics; Health & medical economics; Theory, Statistics; Econometrics.
    JEL: G02 I11 O16 P34
    Date: 2015–09
  2. By: Altmann, Steffen; Falk, Armin; Heidhues, Paul; Jayaraman, Rajshri
    Abstract: We study how website defaults affect consumer behavior in the domain of charitable giving. In a field experiment that was conducted on a large platform for making charitable donations over the web, we exogenously vary the default options in two distinct choice dimensions. The first pertains to the primary donation decision, namely, how much to contribute to the charitable cause. The second relates to an "add-on" decision of how much to contribute to supporting the online platform itself. We find a strong impact of defaults on individual behavior: in each of our treatments, the modal positive contributions in both choice dimensions invariably correspond to the specified default amounts. Defaults, nevertheless, have no impact on aggregate donations. This is because defaults in the donation domain induce some people to donate more and others to donate less than they otherwise would have. In contrast, higher defaults in the secondary choice dimension unambiguously induce higher contributions to the online platform.
    Keywords: Default Options; Online Platforms; Charitable Giving; Field Experiment
    JEL: C93 D03 D64
    Date: 2015–09–17
  3. By: Zhuoqiong (Charlie) (London School of Economics); David Ong (Economic Science Institute & Argyros School of Business and Economics, Chapman University); Roman Sheremeta (Case Western Reserve University)
    Abstract: We study how salient group identity, created through competition between students from different universities, as well as differences in the value of winning impact competitive behavior. Our experiment employs a simple all-pay auction within and between two university subject pools. We find that when competing against their peers, students within the lower tier university bid more aggressively than students within the top-tier university. Also, students from the lower tier university, in particular women, bid more aggressively when competing against students from the top-tier university. These findings, interpreted through a theoretical model incorporating both group identity and differential value of winning, suggest that students at the lower tier university have a stronger group identity as well as higher desire to win.
    Keywords: experiments, all-pay auction, competitiveness, group identity
    JEL: C91 D03 J7 Z13
    Date: 2015
  4. By: Ioannou, Christos A.; Makris, Miltiadis
    Abstract: Global games and Poisson games have been proposed to address equilibrium indeterminacy in Coordination games. The former assume that agents face idiosyncratic uncertainty about economic fundamentals to capture disperse information, whereas the latter model the number of actual players as a Poisson random variable to capture population uncertainty in large games. Given that their predictions differ, it is imperative to understand which type of uncertainty drives empirical behavior in macroeconomic environments with strategic complementarities. Recent experimental literature finds mixed results on whether subjects' behavior is similar in Global and Common Knowledge Coordination games, and hence on whether idiosyncratic uncertainty about economic fundamentals is an important determinant of subjects' behavior. Poisson Coordination games have not been investigated experimentally. We fill this gap. Our findings suggest that uncertainty about the number of actual players may influence subjects' behavior. Crucially, such behavior is consistent with the theoretical prediction of Poisson Coordination games.
    Date: 2015–09–23
  5. By: A.M.J. Deetlefs (School of Marketing, UNSW Business School, UNSW); H. Bateman (School of Risk & Actuarial Stidies, UNSW Business School, UNSW); L. Isabella Dobrescu (CEPAR and School of Economics, UNSW Business School, UNSW); B.R. Newell (School of Psychology, UNSW Business School, UNSW); Andreas Ortmann (School of Economics, UNSW Business School, UNSW); Susan Thorp (Discipline of Finance, University of Sydney)
    Abstract: Retirement saving is an area now jam-packed with defaults meant to address delayed or absent decision making. Yet, getting individuals engaged with retirement saving decisions is critical to avoid unsuitable one-size-fits-all defaults and optimise accumulated wealth. We apply a market-segmentation approach to the problem based on two attitudinal motivators of behavioral engagement: trust and interest. Our research sheds new light on why and how engagement occurs. Engagement grows with interest, yet engagement can also be motivated by low levels of trust. However, when interest is lacking, trust is related to reducing monitoring behaviour. This increases the vulnerability of individuals to exploitation exposing the “dark side of trust” (Gargiulo and Ertug 2006). Based on this interaction of trust and interest and how it feeds into engagement, a personalised approach by pension plan providers that addresses members’ diverse needs and means in terms of time, knowledge, and financial resources seems desirable.
    Keywords: pension defaults, trust, engagement, retirement savings
    JEL: J26 J32
    Date: 2015–03
  6. By: Altmann, Steffen; Falk, Armin; Grunewald, Andreas
    Abstract: The behavioral relevance of non-binding defaults is well established. While most research has focused on decision makers’ responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of default effects requires to take account of the strategic interaction between default setters and decision makers. We analyze theoretically and empirically which defaults emerge in such interactions, and under which conditions defaults are behaviorally most relevant. Our analysis demonstrates that the alignment of interests between default setters and decision makers, as well as their relative level of information are key drivers of default effects. In particular, default effects are more pronounced if the interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment.
    Keywords: Default Options; Behavioral Economics; Strategic Communication; Laboratory Experiment
    JEL: D03 D18 D83 C92
    Date: 2015–09–17
  7. By: Federico Fornasari; Matteo Ploner; Ivan Soraperra
    Abstract: We investigate investment in risk protection when risk affects either the decision maker or another individual and when the cost to offset risk is borne either by the decision maker or by another individual. We assess be- havior in the experiment against predictions obtained from a well-known social preferences model. In line with our predictions, we find that in- dividuals invest more of others’ resources than of their own resources to protect themselves, and individuals invest more of their own resources in risk protection when risk is borne by themselves than when risk is borne by the others. Furthermore, individuals invest more in risk protection when delegated to choose for others than when choosing for themselves.
    Keywords: social preferences; risk; laboratory experiments; delegated choice
    JEL: C91 D03 D80 O12
    Date: 2015

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