nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒11‒15
eight papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Nudge for (the Public) Good: How Defaults can affect Cooperation By Toke Reinholt Fosgaard; Marco Piovesan
  2. Testing Models of Belief Bias: An Experiment By Coutts, Alexander
  3. Implementation Rationality: The Nexus of Psychology and Economics at the RAND Logistics Systems Laboratory, 1956-1966 By Judy L. Klein
  4. Venting and Gossiping in Conflicts: Emotion Expression in Ultimatum Games By Samahita, Margaret
  5. Voluntary Provision of Public Knowledge Goods: Group-Based Social Preferences and Coalition Formation By Tom Dedeurwaerdere; Paolo Melindi-Ghidi; Willem Sas
  6. Are Entrepreneurs more Optimistic and Overconfident than Managers and Employees? By Martin Koudstaal; Randolph Sloof; Mirjam van Praag
  7. HIV and Rational risky behaviors: a systematic review of published empirical literature (1990-2013) By Marlène Guillon; Josselin Thuilliez
  8. The neural bases of framing effects in social dilemmas By Julian Macoveanu; Thomas Zoëga Ramsøy; Martin Skov; Hartwig R. Siebner; Toke Reinholt Fosgaard

  1. By: Toke Reinholt Fosgaard (Department of Food and Resource Economics, University of Copenhagen); Marco Piovesan (Department of Economics, University of Copenhagen)
    Abstract: In this paper we test the effect of non-binding defaults on the level of contribution to a public good. We manipulate the default numbers appearing on the decision screen to nudge subjects toward a free-rider strategy or a perfect conditional cooperator strategy. Our results show that the vast majority of our subjects did not adopt the default numbers, but their stated strategy was affected by the default. Moreover, we find that our manipulation spilled over to a subsequent repeated public goods game where there default was not manipulated. Here we found that subjects who previously saw the free rider default were significantly less cooperative than those who saw the perfect conditional cooperator default.
    Keywords: Cooperation, Nudging
    JEL: C90
    Date: 2015–11
  2. By: Coutts, Alexander
    Abstract: Optimistic beliefs affect important areas of economic decision making, yet direct knowledge on how belief biases operate remains limited. To better understand these biases I conduct an experiment examining beliefs about binary events with financial stakes. By varying financial prizes in outcomes, as well as incentive payments for accuracy, the experiment is able to distinguish between two leading theories of optimistic belief formation that differ in their assumptions about how such beliefs are constrained. The Optimal Expectations theory of Brunnermeier and Parker (2005) models beliefs as being constrained through the future costs of holding incorrect beliefs, while the Affective Decision Making model of Bracha and Brown (2012) argues that beliefs are constrained by mental costs of distorting reality. The results suggest that people hold optimistically biased beliefs, and comparative statics indicate that these beliefs are not constrained by increasing the costs of making inaccurate judgments. In fact, the results support the theory of Bracha and Brown (2012), as observed bias is increasing in the size of incentive payments for accuracy.
    Keywords: Beliefs, Optimism, Pessimism, Overconfidence, Anticipation, Affective expected utility.
    JEL: C91 D03 D80 D81 D83 D84
    Date: 2015–08
  3. By: Judy L. Klein
    Abstract: In October 1956, the RAND Corporation establis hed the Logistics Systems Laboratory (LSL) with the goal of using simulation to translate the broad findings of normative microeconomics into detailed, implementable pr ocedures for US Air Force oper ations. The laboratory was housed in the training simulation facilities that had been recently vacated by psychologists working at the RAND Systems Research Laboratory. Economists at the LSL, interwove their marginal cost- benefit analysis with the psychologists’ focus on process, adaptation, a nd group behavior. Over the course of a decade, economists and psycholog ists at the RAND Logistics Systems Laboratory conducted game simulations structured by the f our separate laboratory problems. Economists went from using simulation to demonstrate the superiority of optimal policies derived from deductive economics to using the ex periment as an inductive tool. One of the concerns in this historical case study is with how economics leveraged psychology to grow a regulatory system when individual units pursuing their own interest s did not promote effect ually the interests of society. This dilemma was one of a few stimuli ge nerating a new focal point for rationality, that of efficient implementation. More recently, economists on the BIS Basel Committee on Banking Supervision were engaging in implementation ra tionality through simulation in the form of the Regulatory Consistency Assessment Programme ( RCAP). The examination of iterative modeling and solving for rules of action at the LSL and in the RCAP suggest that the explicit narrowing of modeling choices that bind the ratio nality of the individual units w ould be best iterated through a process that takes into account the human factor. Interactions with experimental psychologists opened a door for economists to non-standard mode ling and an iterative, he uristic specification of economizing rules of action that ha d a greater chance of implementation.
    Keywords: normative microeconomics, cost-benefit anal ysis, procedural rationality, implementation rationality, systems analysis, simulati on, experiments, regulation, history of economics, Murray Geisler, RAND Logistics Systems Laboratory, RAND Systems Research Laboratory
    JEL: B21 C6 C92 B4 D03 D61 G28
    Date: 2015
  4. By: Samahita, Margaret (Department of Economics, Lund University)
    Abstract: Conflicts often lead to expression of emotion to unrelated parties. We study non-instrumental emotion expression in binary ultimatum games, where receivers can express emotion either privately or to a third-party audience prior to accepting or rejecting the offer. The possibility of emotion expression to an audience increases welfare, but this is driven by senders behaving more fairly rather than any change in receivers' behaviour. We thus show that the role of emotion expression in increasing co-operation is mainly driven by the punishment motive. There is demand for emotion expression even when it is unobserved, this is motivated by low self-esteem.
    Keywords: ultimatum game; co-operation; emotion; fairness; self-esteem
    JEL: C72 C91 D03 D63
    Date: 2015–11–10
  5. By: Tom Dedeurwaerdere (Université Catholique de Louvain and Fonds National de la Recherche Scientifique (FNRS)); Paolo Melindi-Ghidi (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Willem Sas (Center for Economic Studies - CES - KU Leuven - CES - KU Leuven)
    Abstract: In this paper we develop a private-collective model of voluntary public knowledge production, where group-based social preferences have an impact on coalition formation. Our theoretical model builds on the large empirical literature on voluntary production of pooled public knowledge goods, including source code in communities of software developers or data provided to open access data repositories. Our analysis shows under which conditions social preferences such as 'group belonging' or 'peer approval' influence stable coalition size, as such rationalising several stylized facts emerging from large scale surveys of Free/Libre/Open-Source software developers (David and Shapiro, 2008), previously unaccounted for. Furthermore, heterogeneity of social preferences is added to the model to study the formation of stable, but mixed coalitions.
    Keywords: public knowledge goods,coalition formation,private-collective model,group belonging,peer approval,open source software
    Date: 2015–11
  6. By: Martin Koudstaal (VU University Amsterdam); Randolph Sloof (VU University Amsterdam, the Netherlands); Mirjam van Praag (Copenhagen Business School, Denmark)
    Abstract: Empirical evidence supports the conventional wisdom that entrepreneurs are more optimistic and overconfident than others. However, the same holds true for top managers. In this lab-in-the-field experiment we directly compare the scores of entrepreneurs, managers and employees on a comprehensive set of measures of optimism and overconfidence (n = 2,058). The results show that on average entrepreneurs are more optimistic than others in their dispositional optimism and attributional style when bad events occur. For incentivized measures of overconfidence we find no difference between entrepreneurs and managers, although both are more prone to it than employees. Finally, exploration of within-group heterogeneities shows that optimism and success are more strongly related for managers than for entrepreneurs and that an average entrepreneur is not more optimistic than successful managers. We conclude that optimism and overconfidence are indeed characteristics of entrepreneurs, but they are not unique when compared to (top) managers.
    Keywords: Entrepreneurs; managers; dispositional optimism; attributional style; overestimation; overconfidence; behavioral economics
    JEL: L26 C93 D03 M13
    Date: 2015–11–06
  7. By: Marlène Guillon (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Josselin Thuilliez (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: Risky health behaviors have the negative effect – negative externality – of the individual being able to spread the disease to others. They thus represent a threat for the society and a tragedy for public health. The objective of this study is to inquire into the nature, extent and strength of the evidence for such risky behaviors for HIV/AIDS from an economic perspective. We aim at investigating the concept of risk or prevalence-elasticity of health behaviors in the case of HIV. We did an exhaustive review of published articles in French and English indexed in the databases PubMed, ScienceDirect and Jstor between 1 January 1990 to 31 December 2013. We searched for publications empirically investigating the risk or prevalence-elasticity of behaviors in the case of HIV/AIDS and performed a bibliometric and descriptive analysis of the dataset. Of the 12,545 articles that were screened, 189 (1.5%) full-text publications studied the risk-elasticity of health behaviors that are related to HIV/AIDS. Of these 189 articles, 167 (88.4%) were quantitative studies that empirically estimated the risk-elasticity, and 22 (11.6%) were qualitative studies. We found that 55.7% of the quantitative studies included at least a correlation between HIV risk and health behaviors that supports the concept of risk or prevalence-elasticity. Moreover, we identified articles that address the reverse causality problem between HIV risk and health behaviors, by using indirect HIV risk measures, to demonstrate the existence of a responsiveness of risk/preventive behaviors to HIV risk. Finally, an in-depth analysis showed seven out of ten articles using an objective measure of risk for HIV/AIDS gave strong support to prevalence-elasticity. However, only one of the ten articles established a direct measure of prevalence-elasticity while appropriately dealing with the reverse causation problem between objective HIV risk and preventive/risk behaviors. These results stress out the need to carefully monitor programs of risk behaviors' surveillance in the context of HIV becoming chronic, especially in sub-Saharan Africa where large scale HIV treatment policies are being implemented. More evidence is needed on the strength of rational risky behaviors to maximize the public health and economic impact of large scale HIV treatment or preventive policies. With this purpose, epidemiological surveillance programs could be paired with specific behavioral surveillance programs to better inform policy makers.
    Keywords: HIV,Economic epidemiology,Prevalence-elasticity
    Date: 2015–08
  8. By: Julian Macoveanu (Danish Research Centre for Magnetic Resonance, Copenhagen University Hospital Hvidovre); Thomas Zoëga Ramsøy (Center for Decision Neuroscience, Dept. of Marketing, Copenhagen Business School); Martin Skov (Center for Decision Neuroscience, Dept. of Marketing, Copenhagen Business School); Hartwig R. Siebner (Danish Research Centre for Magnetic Resonance, Copenhagen University Hospital Hvidovre); Toke Reinholt Fosgaard (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: Human behavior in social dilemmas is strongly framed by the social context, but the mechanisms underlying this framing effect remains poorly understood. To identify the behavioral and neural responses mediating framing of social interactions, subjects underwent functional Magnetic Resonance Imaging while playing a Prisoners Dilemma game. In separate neuroimaging sessions, the game was either framed as a cooperation game or a competition game. Social decisions where subjects were affected by the frame engaged the hippocampal formation, precuneus, dorsomedial prefrontal cortex and lateral temporal gyrus. Among these regions, the engagement of the left hippocampus was further modulated by individual differences in empathy. Social decisions not adhering to the frame were associated with stronger engagement of the angular gyrus and trend increases in lateral orbitofrontal cortex, posterior intraparietal cortex, and temporopolar cortex. Our findings provide the first insight into the mechanisms underlying framing of behavior in social dilemmas, indicating increased engagement of the hippocampus and neocortical areas involved in memory, social reasoning and mentalizing when subjects make decisions that conform to the imposed social frame.
    Keywords: Social reasoning, prisoners dilemma, fMRI, framing
    JEL: C90
    Date: 2015–11

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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