nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒11‒07
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Default or reactance? Identity priming effects on overconfidence in Germany and Japan By Duttle, Kai; Shichijo, Tatsuhiro
  2. Competing theories of risk preferences and the demand for crop insurance: Experimental evidence from Peru By Petraud, Jean; Boucher, Stephen; Carter, Michael
  3. Gender priming and altruism in a random sample By Boschini, Anne; Dreber, Anna; von Essen, Emma; Muren, Astri; Ranehill, Eva
  4. Using Behavioral Insights to Increase Parental Engagement: The Parents and Children Together (PACT) Intervention By Susan E. Mayer; Ariel Kalil; Philip Oreopoulos; Sebastian Gallegos
  5. The Welfare Effects of Nudges: A Case Study of Energy Use Social Comparisons By Hunt Allcott; Judd B. Kessler
  6. Reason-based choice and context-dependence: an explanatory framework By Franz Dietrich; Christian List

  1. By: Duttle, Kai; Shichijo, Tatsuhiro
    Abstract: This experimental study measures three types of overconfidence in the decision behavior of participants from Germany and Japan. In the first stage of the experiment subjects completed a Raven Progressive Matrices test and subsequently assessed their test performance in absolute and relative terms. During the second stage subjects provided probability forecasts by confidence intervals to artificially generated price paths. Furthermore subjects´ better-than-average bias was assessed during a post-experimental questionnaire. We find that monetary incentives as a reason to honestly self-evaluate reduce cultural differences in overplacement and in overestimation of own performance. Over-precision in probability judgment accuracy on the other hand significantly differed across ethnical groups. To analyze national identity priming effects on overconfidence, a pre-experimental questionnaire made this identity salient to a randomly selected treatment group. Previous studies found that primes of certain identities can trigger behavior that is consistent with the stereotypes associated with that identity, but can also cause psychological reactance leading to counter-stereotypical behavior. We find that in a setting where there are no incentives to provide honest performance self-evaluations the identity prime reinforces behavior consistent with a default strategy which helps adapting to social norms. In incentivized decisions on the other hand the prime causes counter-stereotypical self-perception. Reasons for this phenomenon are discussed.
    Keywords: overconfidence,interval estimates,identity priming,culture,stereotype effect
    JEL: C91 G02 F00
    Date: 2015
  2. By: Petraud, Jean; Boucher, Stephen; Carter, Michael
    Abstract: Low demand for index insurance in several recent pilot programs has created a puzzle for development economists and policy makers concerned with enhancing farmers risk management capacity in low-income economies. This paper contributes to the resolution of this puzzle by providing empirical evidence on the relative effectiveness of two primary frameworks for modeling decision-making under uncertainty. Specifically, we test whether features of Cumulative Prospect Theory (CPT), or Expected Utility Theory (EUT), better predict farmers' demand for crop insurance. Whereas in EUT, risk preferences can be represented by a single risk aversion parameter, in CPT they are determined by at least four components: probability weighting, the curvature of a utility function, a reference income and loss aversion. The data come from a series of unframed and framed lotteries played with 480 small-holder cotton farmers in southern Peru. The unframed risk games allow us to measure individual-specific preference parameters, for both theories. We use these parameters to generate predictions of farmers' choices in two framed insurance games in which farmers choose to purchase one of two available insurance contracts or to purchase no insurance. In the first game, farmers' earnings are framed as gross revenues and are always positive, i.e., this game is played over gains. In the second game, earnings are framed as net revenues and may be either positive or negative so that this is a game played over mixed prospects. We test the relative performance of the two theories by comparing the predictions of farmers' choices versus their actual choices in the insurance games. An important finding with respect to marketing of insurance contracts is that framing incomes as net revenues instead of gross revenues increases the CPT predicted demand by 24%. In the actual insurance games however, only 8% more farmers chose insurance in the net revenues frame. We find that neither theory is a particularly strong predictor of insurance choices, although EUT fares better than CPT for better educated farmers.
    Keywords: Crop Production/Industries,
    Date: 2015
  3. By: Boschini, Anne (SOFI); Dreber, Anna (Stockholm School of Economics); von Essen, Emma (Aarhus University); Muren, Astri (Dept. of Economics, Stockholm University); Ranehill, Eva (University of Zurich)
    Abstract: We study gender differences in altruism in a large random sample of the Swedish population using a standard dictator game. In our data, a gender gap in altruism emerges when we increase the salience of gender by priming participants with their gender and placing them in a gender-mixed context. In this case women give more than in the baseline, and men give less, thereby creating a significant gender difference in altruism. Our findings provide insight into the conditions under which individuals’ gender identity is made salient.
    Keywords: Gender differences; Random sample; Dictator games; Gender context; Priming; Experiment
    JEL: C91 C93 J16
    Date: 2015–10–23
  4. By: Susan E. Mayer; Ariel Kalil; Philip Oreopoulos; Sebastian Gallegos
    Abstract: Parent engagement with their children plays an important role in children’s eventual economic success and numerous studies have documented large gaps in parent engagement between low- and higher-income families. While we know remarkably little about what motivates parents to engage in their children’s development, recent research suggests that ignoring or discounting the future may inhibit parental investment, while certain behavioral tools may help offset this tendency. This paper reports results from a randomized field experiment designed to increase the time that parents of children in subsidized preschool programs spend reading to their children using an electronic reading application that audio and video records parents as they read. The treatment included three behavioral tools (text reminders, goal-setting, and social rewards) as well as information about the importance of reading to children. The treatment increased usage of the reading application by one standard deviation after the six-week intervention. Our evidence suggests that the large effect size is not accounted for by the information component of the intervention and that the treatment impact was much greater for parents who are more present-oriented than for parents who are less present-oriented.
    JEL: D03 I20 I28 J24
    Date: 2015–10
  5. By: Hunt Allcott; Judd B. Kessler
    Abstract: "Nudge"-style interventions are typically evaluated on the basis of their effects on behavior, not social welfare. We use a field experiment to measure the welfare effects of one especially policy-relevant intervention, home energy conservation reports. We measure consumer welfare by sending introductory reports and using an incentive-compatible multiple price list to determine willingness-to-pay to continue the program. We combine this with estimates of implementation costs and externality reductions to carry out a comprehensive welfare evaluation. We find that this nudge increases social welfare, although traditional program evaluation approaches overstate welfare gains by a factor of five. To exploit significant individual-level heterogeneity in welfare gains, we develop a simple machine learning algorithm to optimally target the nudge; this would more than double the welfare gains. Our results highlight that nudges, even those that are highly effective at changing behavior, need to be evaluated based on their welfare implications.
    JEL: C44 C53 D12 L94 Q41 Q48
    Date: 2015–10
  6. By: Franz Dietrich; Christian List
    Abstract: We introduce a “reason-based” framework for explaining and predicting individual choices. The key idea is that a decision-maker focuses on some but not all properties of the options and chooses an option whose “motivationally salient” properties he/she most prefers. Reason-based explanations can capture two kinds of contextdependent choice: (i) the motivationally salient properties may vary across choice contexts, and (ii) they may include “context-related” properties, not just “intrinsic” properties of the options. Our framework allows us to explain boundedly rational and sophisticated choice behaviour. Since properties can be recombined in new ways, it also offers resources for predicting choices in unobserved contexts.
    Keywords: rational choice; reasons; context-dependence; bounded and sophisticated rationality; prediction of choice
    JEL: J1
    Date: 2015

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