nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒11‒01
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Behavior in Group Contests: A Review of Experimental Research By Sheremeta, Roman
  2. Risk taking and information aggregation in groups By Spiro Bougheas; Jeroen Nieboer; Martin Sefton
  3. The "tone effect" of news on investor beliefs: An experimental approach By Bosman, Ronald; Kräussl, Roman; Mirgorodskaya, Elizaveta
  4. Grit Trumps Talent? An experimental approach By Gerhards, Leonie; Gravert, Christina
  5. Confidence Biases and Learning among Intuitive Bayesians By Louis Lévy-Garboua; Muniza Askari; Marco Gazel
  6. Competition Between and Within Universities: Theoretical and Experimental Investigation of Group Identity and the Desire to Win By Chen, Zhuoqiong; Ong, David; Sheremeta, Roman
  7. Accents, Race and Discrimination: Evidence from a Trust Game By Ece Yagman; Malcolm Keswell
  8. Trade Bounded Rationality and Bounded Individuality By Davis, John
  9. Does Gender Diversity Promote Non-Conformity? By Amini, Makan; Ekström, Mathias; Ellingsen, Tore; Johannesson, Magnus; Strömsten, Fredrik

  1. By: Sheremeta, Roman
    Abstract: Group contests are ubiquitous. Some examples include warfare between countries, competition between political parties, team-incentives within firms, group sports, and rent-seeking. In order to succeed, members of the same group have incentives to cooperate with each other by expending individual efforts. However, since effort is costly, each member also has an incentive to abstain from expending any effort and instead free-ride on the efforts of other members. Contest theory shows that the intensity of competition between groups and the amount of free-riding within groups depend on the group size, sharing rule, group impact function, contest success function, and heterogeneity of players. We review experimental studies testing these theoretical predictions. Almost all studies of behavior in group contests find significant over-expenditure of effort relative to the theory. We discuss potential explanations for such over-expenditure, including the utility of winning, bounded rationality, relative payoff maximization, parochial altruism, and social identity. Despite over-expenditure, most studies find support for the comparative statics predictions of the theory (with the exception of the “group size paradox”). Finally, studies show that there are effective mechanisms that can promote within-group cooperation and conflict resolution mechanisms that can de-escalate and potentially eliminate between-group conflict.
    Keywords: groups, contests, experiments
    JEL: C7 C9 D7 H4 J4 K4 L2 M5
    Date: 2015–10–29
  2. By: Spiro Bougheas; Jeroen Nieboer; Martin Sefton
    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 behaviour; teams; decision making; risk; experiment
    JEL: C91 C92 D71 D80
    Date: 2015
  3. By: Bosman, Ronald; Kräussl, Roman; Mirgorodskaya, Elizaveta
    Abstract: We investigate the effect of the tone of news on investor stock price expectations and beliefs. In an experimental study we ask subjects to estimate a future stock price for twelve real listed companies. As additional information we provide them with historical stock prices and extracts from real newspaper articles. We propose a way to manipulate the tone of news extracts without distorting its content. Subjects in different treatment groups read news items that are written either in positive or negative tone for each stock. We find that subjects tend to predict a significantly higher (lower) return for stocks after reading positive (negative) tone news. The effect is especially pronounced for stocks with poor past performance. Subjects are more likely to be optimistic (pessimistic) about the economy and to buy (sell) stocks after reading positive (negative) than negative (positive) tone news. Our results show that the news media might affect not only how investors perceive information, but also what they do in response to it.
    Keywords: Tone,News,Framing Effect,Price Expectations,Investor Sentiment,Investment Decisions,Experiment
    JEL: D83 G02 G11
    Date: 2015
  4. By: Gerhards, Leonie (Department of Economics and Business Economics, Aarhus University); Gravert, Christina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Perseverance to accomplish long-term goals, also know as grit, is a crucial determinant for success in life. In the present study we introduce an innovative laboratory design to elicit grit in an incentivized and controlled way. Subjects work on a computerized task to solve anagrams. By observing their decision not to shirk, we measure their grittiness experimentally. We find that the original questionnaire measure of grit developed by Duckworth et al. (2007) is significantly correlated with our new experimental measure - even when controlling for ability and a questionnaire measure of self-control. Moreover, subjects' earnings increase in their experimentally elicited grit.
    Keywords: Grit; perseverance; laboratory experiment; real-effort task
    JEL: C91 D03 J24 M50
    Date: 2015–10
  5. By: Louis Lévy-Garboua (Centre d'Economie de la Sorbonne and CIRANO - Montreal); Muniza Askari (Centre d'Economie de la Sorbonne); Marco Gazel (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: We design a double-or-quits game to compare the speed of learning one's specific ability with the speed of rising confidence as the task gets increasingly difficult. We find that people on average learn to be overconfident faster than they learn their true ability and we present a simple Bayesian model of confidence which integrates these facts. We show that limited discrimination of objective differences, myopia, and uncertainty about one's true ability to perform a task in isolation can be responsible for large and robust confidence biases, namely the hard-easy effect, the Dunning-Kruger effect, conservative learning from experience and the overprecision phenomenon (without underprecision) if subjects act as Bayesian learners. Moreover, these biases are likely to persist since the Bayesian aggregation of past information consolidates the accumulation of errors and the perception of contrarian illusory signals generates conservatism and under-reaction to events. Taken together, these two features may explain why intuitive Bayesians make systematically wrong predictions of their own performance
    Keywords: Confidence biases; Bayesian learning; double or quits experimental game; hard-easy effect; Dunning-Kruger effect; illusory signals
    JEL: C11 C91 D03
    Date: 2015–10
  6. By: Chen, Zhuoqiong; Ong, David; Sheremeta, Roman
    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: 2015–10–21
  7. By: Ece Yagman (SALDRU, the School of Economics, University of Cape Town); Malcolm Keswell (SALDRU, School of Economics, University of Cape Town)
    Abstract: We investigate discrimination according to accent and race on trust behaviour. Proposers were randomly paired with responders of the same/different race, and asked to play the trust game after looking at a photograph and hearing a 10 second audio clip of the responders reading a standardised script in English. This allows us to check for within and across-group favouritism in both race and accentedness. We find that accentedness is a statistically significant predictor of trust and is strongly non-linear in the race of the paired subjects for males but not for females. In the case of males, offers decrease by 11.3% if the responder has a mother-tongue English accent and does not share the same race as the proposer, but increases by about 6.6% if there is racial similarity. This effect is especially pronounced for Black males who are paired with other Black males: offers are 19.5% higher if responders have a mother-tongue English accent. By contrast, females in general seem less sensitive to the signal package. These large gender differences are not because men behave any more strategically than women.
    Keywords: Experiments, Trust, Accents, Discrimination, Race
    JEL: C91 D03 J15
    Date: 2015
  8. By: Davis, John (Department of Economics Marquette University)
    Abstract: This paper argues that since the utility function conception of the individual is derived from standard rationality theory, the view that rationality is bounded suggests that individuality should also be seen as bounded. The meaning of this idea is developed in terms of two ways in which individuality can be said to be bounded, with one bound associated with Kahneman and Tversky's prospect theory and the "new" behavioral economics and a second bound associated with Simon's evolutionary thinking and the "old" behavioral economics. The paper then shows how different bounded individuality conceptions operate in nudge economics, agent-based modeling, and social identity theory, explaining these conceptions in terms of how they relate to these two behavioral economics views of bounded rationality. How both the "new" and "old" individuality bounds might then be combined in a single account is briefly explored in connection with Kirman's Marseille fish market analysis.
    Keywords: bounded rationality, bounded individuality, nudge economics, agent-based modeling, social identity theory, Marseille fish market
    Date: 2014–07
  9. By: Amini, Makan (Advent International); Ekström, Mathias (NHH Norwegian School of Economics); Ellingsen, Tore (Stockholm School of Economics); Johannesson, Magnus (Stockholm School of Economics); Strömsten, Fredrik (McKinsey & Company)
    Abstract: Failure to express minority views may distort the behavior of company boards, committees, juries, and other decision-making bodies. Devising a new experimental procedure to measure such conformity in a judgment task, we compare the degree of conformity in groups with varying gender composition. Overall, our experiments offer little evidence that gender composition affects expression of minority views. A robust finding is that a subject’s lack of ability predicts both a true propensity to accept others judgment (informational social influence) and a propensity to agree despite private doubt (normative social influence). Thus, as an antidote to conformity in our experiments, high individual ability seems more effective than group diversity.
    Keywords: Conformity; Gender Differences; Group Composition; Skill
    JEL: C90 D02 D71 D83 J16
    Date: 2015–10–20

This nep-cbe issue is ©2015 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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