nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2015‒11‒21
fourteen papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Creating birds of similar feathers: Leveraging similarity to improve teacher-student relationships and academic achievement By Gehlbach, Hunter; Brinkworth, Maureen Elizabeth; King, Aaron; Hsu, Laura; McIntyre, Joe; Rogers, Todd T
  2. Intrinsic and extrinsic effects on behavioral tax biases in risky investment decisions By Fochmann, Martin; Hemmerich, Kristina; Kiesewetter, Dirk
  3. Take it or leave it: Experimental evidence on the effect of time-limited offers on consumer behaviour By Robert Sugden; Mengjie Wang; Daniel John Zizzo
  4. Trust, Ability-to-Pay, and Charitable Giving By Paul Missios; Ida Ferrara
  5. Centralized vs. Decentralized Management: an Experimental Study By Jordi Brandts; David J. Cooper
  6. A model of cognitive and operational memory of organizations in changing worlds By Giovanni Dosi; Luigi Marengo; Evita Paraskevopoulou; Marco Valente
  7. The beauty of simplicity? (Simple) heuristics and the opportunities yet to be realized By Andreas Ortmann; Leonidas Spiliopoulos
  8. Voting and transfer payments in a threshold public goods game By Feige, Christian; Ehrhart, Karl-Martin
  9. Pathos & ethos: emotions and willingness to pay for tobacco products By Francesco Bogliacino; Cristiano Codagnone; Giuseppe Alessandro Veltri; Amitav Chakravarti; Pietro Ortoleva; George Gaskell; Andriy Ivchenko; Francisco Lupiáñez-Villanueva; Francesco Mureddu; Caroline Rudisill
  10. Some (Mis)facts about Myopic Loss Aversion By Iñigo Iturbe-Ormaetxe Kortajarene; Giovanni Ponti; Josefa Tomás Lucas
  11. Gender differentiation in risk-taking behavior: On the relative risk aversion of single men and single women By Stark, Oded; Zawojska, Ewa
  12. The power of individual-level drivers of inventive performance By Zwick, Thomas; Frosch, Katharina; Hoisl, Karin; Harhoff, Dietmar
  13. Cognitive ability and the effect of strategic uncertainty By Nobuyuki Hanaki; Nicolas Jacquemet; Stéphane Luchini; Adam Zylbersztejn
  14. Charitable Giving, Emotions, and the Default Effect By Noussair, Charles; Habetinova, Lenka

  1. By: Gehlbach, Hunter; Brinkworth, Maureen Elizabeth; King, Aaron; Hsu, Laura; McIntyre, Joe; Rogers, Todd T
    Abstract: When people perceive themselves as similar to others, greater liking and closer relationships typically result. In the first randomized field experiment that leverages actual similarities to improve real-world relationships, we examined the affiliations between 315 ninth grade students and their 25 teachers. Students in the treatment condition received feedback on five similarities that they shared with their teachers; each teacher received parallel feedback regarding about half of his/her ninth grade students. Five weeks after our intervention, those in the treatment conditions perceived greater similarity with their counterparts. Furthermore, when teachers received feedback about their similarities with specific students, they perceived better relationships with those students, and those students earned higher course grades. Exploratory analyses suggest that these effects are concentrated within relationships between teachers and their “underserved†students. This brief intervention appears to close the achievement gap at this school by over 60%.
    Date: 2015
  2. By: Fochmann, Martin; Hemmerich, Kristina; Kiesewetter, Dirk
    Abstract: In a variety of recent papers, it is shown that individuals do not take taxes correctly into account, which results in distorted or unexpected investment behavior. We shed further light on the discussion of such behavioral tax perception biases by analyzing intrinsic and extrinsic effects on decision behavior. We study two dimensions: (1) the influence of emotions and cognition (individual dimension, intrinsic effects) and (2) the influence of available tax information by varying tax complexity and salience (tax system dimension, extrinsic effects). In our laboratory experiment, we construct the payoff structure such that the subjects are confronted with exactly the same choices in net terms in a situation with or without a capital gains tax. This design allows us to identify pure tax perception biases. We show that both dimensions are able to explain tax perception biases. In particular, we find evidence that perceived risk (cognition) is lower and consequently willingness to take risk is higher with a capital gains tax (with full loss offset provision) than without taxation. Furthermore, this positive effect on risky investment is higher in a situation with a rather low level of tax information in which tax complexity is high and tax salience is low. In addition, we are able to provide evidence that the use of decision heuristics can explain the observed tax bias differences between our information treatments. In particular, we find a negative relationship between the information level and the use of heuristics.
    Keywords: Tax Perception,Behavioral Taxation,Risk Taking Behavior,Tax Complexity,Tax Salience,Affect and Cognition,Experimental Economics
    JEL: C91 D14 H24
    Date: 2015
  3. By: Robert Sugden (University of East Anglia); Mengjie Wang (University of East Anglia); Daniel John Zizzo (Newcastle University)
    Abstract: Time-limited offers have become one of the most frequently applied pricing practices worldwide. We devise an experiment to explore the influence of time-limited offers on consumers’ behaviour and the mechanisms by which time-limited offers generate this influence. In our experimental tasks, subjects choose among several offers in which one might be time-limited. We vary the time pressure level, the offer value and the occurrence timing of time-limited offers. We control the amount of feedback information that subjects get in various treatments and also subjects’ degree of risk aversion. The experimental results show a strong tendency for subjects to choose time-limited offers. Feedback information has a significant impact on subjects' decisions. Subjects' decision quality shows no improvement with experience. Time-limited offers cause significant consumer welfare losses.
    JEL: C91 D03 D12 D18
    Date: 2015–10–27
  4. By: Paul Missios (Department of Economics, Ryerson University, Toronto, Canada); Ida Ferrara (Department of Economics, York University, Toronto, Canada)
    Abstract: In the literature on privately provided public goods, altruism has been motivated by what contributions can accomplish (public goods philanthropy), by the pleasure of giving (warm-glow philanthropy), or by the desire to personally make a difference (impact philanthropy). We revisit these motives but allow for income heterogeneity and distrust in the institutional structures involved. We also model socially motivated philanthropy when income-heterogeneous donors take trust and ability-to-pay into account. We show key differences across the four models in terms of crowding out and in the effects of income distribution. In the socially motivated model, low-income donors may contribute more than high-income donors, giving theoretical foundation to the frequently observed "U-shaped" pattern of giving.
    Keywords: Philanthropy, Social Motivation, Trust, Ability to Pay, Crowding Out.
    JEL: D03 H31 H41 Q53
    Date: 2015–11
  5. By: Jordi Brandts; David J. Cooper
    Abstract: We introduce a new game to the experimental literature and use it to study how behavioral phenomena affect the tradeoffs between centralized and decentralized management. Our game models an organization with two divisions and one central manager. Each division must choose or be assigned a product. Ignoring asymmetric information, the underlying game is an asymmetric coordination game related to the Battle of the Sexes. In equilibrium, the divisions coordinate on identical products. Each division prefers an equilibrium where the selected products are closest to its local tastes while central management prefers the efficient equilibrium, determined by a randomly state of the world, which maximizes total payoffs. The state of the world is known to the divisions, but the central manager only learns about it through messages from the divisions who have incentives to lie. Contrary to the theory, overall performance is higher under centralization, where the central manager assigns products to divisions after receiving messages from the divisions, than under decentralization where the divisions choose their own products. Underlying this, mis-coordination is common under decentralization and divisions fail to use their information when they do coordinate. Mis-coordination is non-existent under centralization and there is a high degree of truth-telling by divisions as well. Performance under centralization is depressed by persistent sub-optimal use of information by central managers.
    Keywords: Coordination, experiments, Organizations, Asymmetric Information
    JEL: C92 D23 J31 L23 M52
    Date: 2015–11
  6. By: Giovanni Dosi; Luigi Marengo; Evita Paraskevopoulou; Marco Valente
    Abstract: This work analyzes and models the nature and dynamics of organizational memory, as such an essential ingredient of organizational capabilities. There are two sides to it, namely a cognitive side, involving the beliefs and interpretative frameworks by which the organization categorizes the states of the world and its own internal states, and an operational one, including routines and procedures that store the knowledge of how to do things. We formalize both types of memory by means of evolving systems of condition-action rules and investigate their performance in different environments characterized by varying degrees of complexity and non-stationarity. Broadly speaking, in simple and stable environments memory does not matter, provided it satisfies some minimal requirements. In more complex and gradually changing ones more memory is better. However there is some critical level of environmental instability above which forgetfulness is evolutionary superior from the point of view of long term performance. Moreover, above some (modest) complexity threshold stable and robust cognitive categorizations and routinized behavior emerge.
    Keywords: organizational memory, routines, cognitive categories, condition-action rules
    Date: 2015–12–11
  7. By: Andreas Ortmann (School of Economics, UNSW Business School, UNSW); Leonidas Spiliopoulos (Center for Adaptive Rationality, Max Planck Institute for Human Development, Berlin, Germany)
    Abstract: Heuristics are all around us, both in the real world and the literature. There are many of them and there are many—too many—definitions of them. In this chapter we focus on the history of fast and frugal heuristics, as sketched out comprehensively in Gigerenzer, Todd, & the ABC Research Group (1999) and scores of follow-up books. Specifically, we contextualize the emergence of the “Ecological-Rationality” program as an explicit counterpoint to the “Heuristics-and-Biases” program initiated by Kahneman and Tversky that informed and inspired scores of early behavioural economists. Simple heuristics are here understood to be fast and frugal rules of thumb because they ignore information that is available. Also, they ought to reflect cognitive processes (and hence be able to predict) rather than be as-if modelling exercises that explain ex post. We first review in more detail how this battle of programs unfolded and then a) lay out what we consider the considerable accomplishments of the ER program, b) point out some overlooked connections between the ER program and economics, and c) enumerate what we consider to be open questions and challenges.
    Keywords: heuristics, simple heuristics, simplicity, model selection, beauty
    JEL: B20 B41 C02 C18 D01 D03
    Date: 2015–10
  8. By: Feige, Christian; Ehrhart, Karl-Martin
    Abstract: In a laboratory experiment, we investigate if groups consisting of two heterogeneous player types (with different marginal contribution costs) can increase their total contributions and payoffs in a threshold public goods game if transfer payments are possible among the players. We find that transfer payments are indeed used in many groups to shift contributions from high-cost players to low-cost players, thereby not only increasing social welfare, but also equalizing payoffs. In a repeated setting with individual voluntary contributions and transfers, this redistribution effect takes a few rounds to manifest and high-cost players benefit the most in terms of payoffs. The same beneficial effect of transfer payments can also be achieved in a one-shot setting by having the groups vote unanimously on contributions and transfers of all players.
    Keywords: threshold public good,transfer payments,experimental economics,unanimous voting,committee,heterogeneity
    JEL: C92 D71 H41
    Date: 2015
  9. By: Francesco Bogliacino; Cristiano Codagnone; Giuseppe Alessandro Veltri; Amitav Chakravarti; Pietro Ortoleva; George Gaskell; Andriy Ivchenko; Francisco Lupiáñez-Villanueva; Francesco Mureddu; Caroline Rudisill
    Abstract: In this article we use data from a multi-country Randomized Control Trial study on the effect of anti-tobacco pictorial warnings on an individual’s emotions and behavior. By exploiting the exogenous variations of images as an instrument, we are able to identify the effect of emotional responses. We use a range of outcome variables, from cognitive (risk perception and depth of processing) to behavioural (willingness to buy and willingness to pay). Our findings suggest that the odds of buying a tobacco product can be reduced by 80% if the negative affect elicited by the images increases by one standard deviation. More importantly from a public policy perspective, not all emotions behave alike, as eliciting shame, anger, or distress proves more effective in reducing smoking than fear and disgust.
    JEL: C99 I18
    Date: 2015–10–20
  10. By: Iñigo Iturbe-Ormaetxe Kortajarene (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante); Josefa Tomás Lucas (Universidad de Alicante)
    Abstract: Gneezy and Potters (1997) run an experiment to test the empirical content of Myopic Loss Aversion (MLA). They find that the attractiveness of a risky asset depends upon the investors’ time horizon: consistently with MLA, individuals are more willing to take risks when they evaluate their investments less frequently. This paper shows that these experimental findings can be easily accommodated by the most standard version of Expected Utility Theory, namely a CRRA specification. Additionally, we use four different datasets to estimate a CRRA model and two alternative MLA versions, together with various mixture specifications of the two competing models. Our econometric exercise finds little evidence of subjects’ loss aversion, which provides empirical ground for our theoretical claim.
    Keywords: Expected Utility Theory, Myopic Loss Aversion, Evaluation Period
    JEL: C91 D81 D14
    Date: 2015–11
  11. By: Stark, Oded; Zawojska, Ewa
    Abstract: We relate an observed difference between single men (SM) and single women (SW) in attitudes towards risk to the higher value assigned to social status by SM than by SW. In the marriage market, low status carries a harsher penalty for SM than for SW because when selecting a partner, the social status of a man is more important to a woman than the social status of a woman is to a man. Correlating social status with relative wealth, we show how intensified distaste at experiencing low relative wealth reduces relative risk aversion.
    Keywords: Risk-taking behavior,Gender-based difference in risk aversion,Relative wealth deprivation,Social status,Marriage market outcome
    JEL: D03 D81 G11 G32
    Date: 2015
  12. By: Zwick, Thomas; Frosch, Katharina; Hoisl, Karin; Harhoff, Dietmar
    Abstract: Based on an established theoretical framework of the drivers of inventive performance, the so-called KSAO (Knowledge, Skills, Abilities, and Other) factors, this paper seeks to explain empirically the performance of inventors throughout their careers. We combine survey information spanning the inventors' entire careers and psychometric test evidence, with patent history data for more than 1,000 inventors. We also control for variables that have traditionally been included in estimations of inventive performance such as inventor age and a broad list of applicant institution-, technology-, patent-, and period-related information. We show that educational level, skills acquired during the career, personality traits, career motivations, cognitive abilities, and cognitive problem-solving style are significantly related to inventive performance.
    Keywords: inventive performance,individual drivers,patent history,survey
    JEL: J24 M54 O31 O32
    Date: 2015
  13. By: Nobuyuki Hanaki (GREDEG, Université Nice Sophia Antipolis, and Skema Business School. 250 Rue Albert Einstein, 06560, Valbonne, France); Nicolas Jacquemet (Paris School of Economics and University Paris 1 Panthéon-Sorbonne. MSE, 106 Bd de l'hopital, 75013 Paris); Stéphane Luchini (Université de Lyon, F-69007, France; CNRS, GATE Lyon St Etienne, 93, Chemin des Mouilles, F-69130, Ecully, France; Université Lyon 2, Lyon, F-69007, France); Adam Zylbersztejn (Université de Lyon, F-69007, France; CNRS, GATE Lyon St Etienne, 93, Chemin des Mouilles, F-69130, Ecully, France; Université Lyon 2, Lyon, F-69007, France)
    Abstract: How is one’s cognitive ability related to the way one responds to strategic uncertainty? We address this question by conducting a set of experiments in simple 2 x 2 dominance solvable coordination games. Our experiments involve two main treatments: one in which two human subjects interact, and another in which one human subject interacts with a computer program whose behavior is known. By making the behavior of the computer perfectly predictable, the latter treatment eliminates strategic uncertainty. We find that subjects with higher cognitive ability are more sensitive to strategic uncertainty than those with lower cognitive ability.
    Keywords: Strategic Uncertainty, Bounded Rationality, Robot, Experiment
    JEL: C92 D83
    Date: 2015
  14. By: Noussair, Charles (Tilburg University, Center For Economic Research); Habetinova, Lenka
    Abstract: We report an experiment to study the effect of defaults on charitable giving. In<br/>three different treatments, participants face varying default levels of donation. In<br/>three other treatments that are paired with the first three, they receive the same<br/>defaults, but are informed that defaults are thought to have an effect on their donation decisions. The emotional state of all individuals is monitored throughout the sessions using Facereading software, and some participants are required to report their emotional state after the donation decision. We find that the default level has no effect on donations, and informing individuals of the possible impact of defaults also has no effect. The decision to donate is independent of prior emotional state, unless specific subgroups of participants are considered. Donors experience a negative change in the valence of their emotional state subsequent to donating, when valence is measured with Facereading software. This contrasts with the selfreport data, in which donating correlates with a more positive reported subsequent emotional state.
    Keywords: charitable giving; emotion; default; facereading
    JEL: C91
    Date: 2015

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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