nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒01‒03
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Psychological Incentives, Financial Incentives, and Risk Attitudes in Tournaments: An Artefactual Field Experiment By Cadsby, Bram; Engle-Warnick, Jim; Fang, Tony; Song, Fei
  2. The importance of peers for compliance with norms of fair sharing By Simon Gaechter; Leonie Gerhards; Daniele Nosenzo
  3. Voluntary Contributions to a Mutual Insurance Pool By Louis Lévy-Garboua; Claude Montmarquette; Jonathan Vaksmann; Marie Claire Villeval
  4. Eliciting Preferences Over Risk: An Experiment By Morone, Andrea; Temerario, Tiziana
  5. Graphic explanation for welfare economic foundation of hoarding loss By Miura, Shinji
  6. Preventing corruption by promoting trust: Insights from behavioral science By Graf Lambsdorff, Johann
  7. On Reminder Effects, Drop-Outs and Dominance: Evidence from an Online Experiment on Charitable Giving By Sonntag, Axel; Zizzo, Daniel
  8. Competition and Food Intake: A Laboratory Study By Marisa Bucheli; Mariana Gerstenblüth; Máximo Rossi
  9. Bridging the Attitude-Preference-Gap: A Cognitive Approach To Preference Formation By Schmitt, Rebecca
  10. Surplus Identification with Non-Linear Returns By Pete Lunn; Jason J. Somerville
  11. Condensation Task as an Experimental Model for Studying Individual Differences in Cognitive Control By Nikita A. Novikov; Dmitri V. Bryzgalov; Anna A. Lapina; Boris V. Chernyshev

  1. By: Cadsby, Bram (University of Guelph); Engle-Warnick, Jim (McGill University); Fang, Tony (Memorial University of Newfoundland); Song, Fei (Ryerson University)
    Abstract: Tournaments are widely used to assign bonuses and determine promotions because of the link between relative performance and rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers and university students as a comparison group in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. We provided performance-ranking information both privately and publicly, with and without rank-based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for that of workers. Adding financial incentives based on rank provided little evidence of further improvement. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups financial and psychological incentive effects are both inversely related to individual levels of risk aversion, and are positive and significant both for workers and for students who are sufficiently risk-tolerant.
    Keywords: tournament, peer pressure, performance feedback, social comparison, incentives, risk aversion, artefactual field experiment
    JEL: J30 J24 J33 C93 C91
    Date: 2015–12
  2. By: Simon Gaechter (Department of Economics, University of Nottingham.); Leonie Gerhards (Department of Economics, University of Hamburg); Daniele Nosenzo (Department of Economics, University of Nottingham.)
    Abstract: WA burgeoning literature in economics has started examining the role of social norms in explaining economic behavior. Surprisingly, the vast majority of this literature has studied social norms in asocial decision settings, where individuals are observed to act in isolation from each other. In this paper we use a large-scale dictator game experiment (N = 850) to show that the presence of “peers†in the decision setting faced by an individual can have a profound influence on the individual’s perception of the decision situation and its underlying norms of sharing, as elicited in an incentive compatible way. However, we find limited evidence that this influence of peers in normative considerations translates into a corresponding effect in actual behavior. Partly, this is due to substantial heterogeneity in the extent to which dictators in our sample are willing to comply with norms of fair sharing.
    Keywords: social norms, norm compliance, peer effects, fair sharing, dictator game, framing, experiments
    Date: 2015
  3. By: Louis Lévy-Garboua (Université Paris 1-Panthéon Sorbonne, Paris School of Economics, Centre d'Economie de la Sorbonne, 106-112 Bd de l'Hôpital, 75647 Paris Cedex 13, France; and CIRANO, Montréal, Canada); Claude Montmarquette (CIRANO and Université de Montréal, 2020 rue University, Montréal, (Québec), Canada, H3A 2A5); Jonathan Vaksmann (GAINS-TEPP, Université du Maine, Faculté de Droit et des Sciences Economiques Avenue O.Messiaen, 72085 Le Mans Cedex 9; and Centre d'Economie de la Sorbonne, Université Paris 1-Panthéon Sorbonne); Marie Claire Villeval (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: We study mutual-aid games in which individuals choose to contribute to an informal mutual insurance pool. Individual coverage is determined by the aggregate level of contributions and a sharing rule. We analyze theoretically and experimentally the (ex ante) efficiency of equal and contribution-based coverage. The equal coverage mechanism leads to a unique no-insurance equilibrium while contribution-based coverage develops multiple equilibria and improves efficiency. Experimentally, the latter treatment reduces the amount of transfers from high contributors to low contributors and generates a "dual interior equilibrium". That dual equilibrium is consistent with the co-existence of different prior norms which correspond to notable equilibria derived in the theory. This results in asymmetric outcomes with a majority of high contributors less than fully reimbursing the global losses and a significant minority of low contributors less than fully defecting. Such behavioral heterogeneity may be attributed to risk attitudes (risk tolerance vs risk aversion) which is natural in a risky context.
    Keywords: Mutual insurance pool, voluntary contribution mechanism, equal coverage, contribution-based coverage, heterogeneity of risk attitudes, experiment
    JEL: I18 H21 H41 C72 C91
    Date: 2015
  4. By: Morone, Andrea; Temerario, Tiziana
    Abstract: Previous research has begun to investigate how small groups make decisions when facing risky choices. However, no consensus has been reached. One stream of research found that groups are more risk averse, while another one reported the contrary and some studies did not even find any significant difference. This paper is meant to provide a clear comparison between two different experimental designs from Harrison et al. (2012) and Zhang and Casari, (2012). The former tests the risk preferences of groups of three members where group’s decision is taken with the majority rule; the latter, also tests risk preferences of three-members group, but using a different lottery set and aggregation rule, i.e. unanimity. These two experiments lead to different results: Harrison et al. (2012) did not find any substantial difference between individuals’ and groups’ preferences over risk, while Zhang and Casari (2012) found that groups tend to be more prone to the risk neutrality than individuals. Additionally, we present a replication study of Harrison et al. (2012) and Zhang and Casari (2012) in order to check to what extent the lottery set and the aggregation rule (majority or unanimity) adopted to elicit preferences may affect the final group choice. It results that individual and group choices are not significantly different, regardless of the lottery set and the aggregation rule used in the experimental design.
    Keywords: risk choice; decision-making under risk and uncertainty; experimental economics; group behavior;
    JEL: C92 D81
    Date: 2015–11
  5. By: Miura, Shinji
    Abstract: Saving brings an economic loss. The author intends to publish a paper, which gives a foundation of this paradox of thrift by connecting money circulation analysis and welfare economics in the case where saving is limited to hoarding. As an introduction of the intended paper, this paper provides a simple explanation for hoarding loss using some graphs. Under certain conditions, the representative agent hoards money in order to increase utility, but the hoarding actually decreases it against agent’s rational intention. This irrationality of rationality occurs because the agent maximizes their utility while lowering the budget of the entire relevant term. This conclusion is derived from the agent making the decision with an ignorance of the whole expenditure reflux. Since the interest of a selfish agent is limited to their private range, the agent ignores the objective truth.
    Keywords: Money Circulation; Welfare Economics; Under-Consumption; Paradox of Thrift; Intertemporal Choice
    JEL: D60 E21 E40
    Date: 2015–12–27
  6. By: Graf Lambsdorff, Johann
    Abstract: Governments, companies and organizations across the world have implemented strategies for countering corruption. A growing body of so-called best practice has emerged in the last 20 years. But some approaches have been criticized for being costly, ineffective or even counterproductive. This study illustrates this, using six examples, relating to the four-eyes principle, procurement, development aid, compliance statements, leniency and the tone at the top. Increasingly, behavioral science has provided insights on how to improve policies. These insights, along with experimental evidence, are applied to the six examples to provide direction to behaviorally better informed policies.
    Date: 2015
  7. By: Sonntag, Axel; Zizzo, Daniel
    Abstract: We present the results of an experiment that (a) shows the usefulness of screening out drop-outs and (b) tests whether different methods of payment and reminder intervals affect charitable giving. Following a lab session, participants could make online donations to charity for a total duration of three months. Our procedure justifying the exclusion of drop-outs consists in requiring participants to collect payments in person flexibly and as known in advance and as highlighted to them later. Our interpretation is that participants who failed to collect their positive payments under these circumstances are likely not to satisfy dominance. If we restrict the sample to subjects who did not drop out, but not otherwise, reminders significantly increase the overall amount of charitable giving. We also find that weekly reminders are no more effective than monthly reminders in increasing charitable giving, and that, in our three months duration experiment, standing orders do not increase giving relative to one-off donations.
    Keywords: drop-outs, methodology, charitable giving, payment method, reminders, nudges, dominance
    JEL: C91 D64 L31
    Date: 2015–03–13
  8. By: Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Mariana Gerstenblüth (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: In this paper we are interested on the study of the effect of competition on the food intake from two perspectives: the overall consumption and the substitution between two snacks (a “healthy” and a “non-healthy” snack). For this purpose we do a laboratory experiment in which the participants are women. Participants are offered chocolate candies and raisings as they solve several tasks. Half of the participants solve the tasks under non- competitive piece rate and the other half, under a competitive a tournament incentive scheme. The results show that the intake of participants is higher under tournament than piece rate payment. Moreover, the increase of food intake is led by a rise of chocolate consumption. We interpret that competition increases the consumption of fat, calories and carbohydrates and thus, affect the eating behavior in favor of unhealthy patterns. This research contributes to the strand of the literature that focuses on factors that affect the eating behavior which influences health.
    Keywords: food intake, competition, laboratory experiment, women
    JEL: C91 D12 I19
    Date: 2015–07
  9. By: Schmitt, Rebecca
    Abstract: This paper provides a descriptive decision model that is based on a single behavioral pattern: human beings strive for consistency between what they do, what they think and what they perceive. This pattern manifests in the decision maker’s aim to bring his attitudes, beliefs and behavior into balance. Drawing principally on the theory of cognitive dissonance by Festinger (1957), the model shows how the concept of attitudes and the concept of preferences are interwoven by the human need for consistency. It closes the conceptual gap between preferences and attitudes. The model is an alternative approach to additive utility models, such as the one by Fehr and Schmidt (1999). Models of this class are not capable of explaining behavioral discontinuities in the mini ultimatum game. In contrast, the attitude-based model covers this behavioral pattern.
    Keywords: Preference Formation, Attitudes, Cognitive Dissonance, Preference Reversal, Additive Utility, Ultimatum Game
    JEL: C7 D11 Z1
    Date: 2015–09
  10. By: Pete Lunn; Jason J. Somerville
    Abstract: We present evidence from two experiments designed to quantify the impact of cognitive constraints on consumers’ ability to identify surpluses. Participants made repeated forced-choice decisions about whether products conferred surpluses, comparing one or two plainly perceptible attributes against displayed prices. Returns to attributes varied in linearity, scale and relative weight. Despite the apparent simplicity of this task, in which participants were incentivised and able to attend fully to all relevant information, surplus identification was surprisingly imprecise and subject to systematic bias. Performance was unaffected by monotonic non-linearities in returns, but non-monotonic non-linearities reduced the likelihood of detecting a surplus. Regardless of the shape of returns, learning was minimal and largely confined to initial exposures. Although product value was objectively determined, participants exhibited biases previously observed in subjective discrete choice, suggesting common cognitive mechanisms. These findings have implications for consumer choice models and for ongoing attempts to account for cognitive constraints in applied microeconomic contexts.
    Date: 2015–12
  11. By: Nikita A. Novikov (National Research University Higher School of Economics); Dmitri V. Bryzgalov (National Research University Higher School of Economics); Anna A. Lapina (National Research University Higher School of Economics); Boris V. Chernyshev (National Research University Higher School of Economics)
    Abstract: Successful performance in complex tasks depends upon the functioning of the cognitive control system involving the maintenance of sustained attention, retention and activation of task rules, as well as the inhibition of preliminary responses. Failure of any of these functions can lead to performance errors. In this study, we investigated behavioral data obtained from participants performing the auditory condensation task, which is highly demanding of the level of cognitive control but does not require participants to inhibit or override any prepotent automatic responses. We identified pre-error speeding and error slowing, while post-error slowing was not evident. Our results suggest that there are three factors contributing to the variability within the behavioral measures obtained. The first factor is related to the overall response latency, the second to the main individual mechanism of performance errors, and the third to the subject’s ability to increase motor threshold in the event of uncertainty and choice ambiguity. The data obtained evidence that the auditory condensation task is a promising model for studying cognitive control
    Keywords: condensation task, cognitive control, inter-individual differences, response latency
    JEL: Z
    Date: 2015

This nep-cbe issue is ©2016 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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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.