nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒01‒18
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Procedures for Eliciting Time Preferences By David Freeman; Paola Manzini; Marco Mariotti; Luigi Mittone
  2. Correlates of Narrow Bracketing By Alexander K. Koch; Julia Nafziger
  3. Higher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma By Proto, Eugenio; Rustichini, Aldo; Sofianos, Andis
  4. Do reciprocators exploit or resist moral wiggle room? An experimental analysis By Tobias Regner; Astrid Matthey
  5. Student Preconceptions and Learning Economic Reasoning By Isabel Busom; Cristina Lopez-Mayan
  6. The Many Faces of Human Sociality: Uncovering the Distribution and Stability of Social Preferences By Adrian Bruhin; Ernst Fehr; Daniel Schunk
  7. Reason-based choice and context-dependence: An explanatory framework By Franz Dietrich; Christian List
  8. Risk Preferences and Misconduct: Evidence from Politicians By Dylan Minor
  9. Consumer valuation of health attributes in food By Sinne Smed; Lars Gårn Hansen
  10. Bounded Rationality and Correlated Equilibria By Fabrizio Germano; Peio Zuazo-Garin
  11. Psychology of Trust: A Three Component Analytical Framework to Explain the Impact of Formal Institutions on Social Trust Formation By Tamilina, Larysa; Tamilina, Natalya

  1. By: David Freeman (Simon Fraser University); Paola Manzini (University of St Andrews and IZA); Marco Mariotti (Queen Mary University of London); Luigi Mittone (University of Trento)
    Abstract: We study three procedures to elicit attitudes towards delayed payments: the Becker-DeGroot-Marschak procedure; the second price auction; and the multiple price list. The payment mechanisms associated with these methods are widely considered as incentive compatible, thus if preferences satisfy Procedure Invariance, which is also widely (and often implicitly) assumed, they should yield identical time preference distributions. We find instead that the monetary discount rates elicited using the Becker-DeGroot-Marschak procedure are significantly lower than those elicited with a multiple price list. We show that the behavior we observe is consistent with an existing psychological explanation of preference reversals.
    Keywords: time preferences, elicitation methods, Becker-DeGroot-Marschak pro- cedure, auctions, multiple price list
    JEL: C91 D9
    Date: 2015–10–20
  2. By: Alexander K. Koch (Department of Economics and Business Economics, Aarhus University, Denmark); Julia Nafziger (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: We examine whether different phenomena of narrow bracketing can be traced back to some common characteristic and whether and how different phenomena are related. We find that making dominated lottery choices or ignoring the endowment when making risky choices are related phenomena and are both associated with low levels of cognitive reflection. In contrast, the phenomena of setting narrow goals or narrow mental budgets seem not to reflect choice errors due to low cognitive reflection, but are tools to overcome self-control problems. Buying small scale insurance is associated with having narrow mental budgets - suggesting that people buy such insurance to insure themselves against the consequences of their own self-control strategy.
    Keywords: Narrow bracketing, mental accounting, risky choices, cognitive skills, selfcontrol
    JEL: D03 C91 D81 D91
    Date: 2016–04–01
  3. By: Proto, Eugenio (Department of Economics, University of Warwick); Rustichini, Aldo (Department of Economics, University of Minnesota); Sofianos, Andis (Department of Economics, University of Warwick)
    Abstract: Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payo sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.
    Keywords: Repeated Prisoner's Dilemma ; Cooperation ; Intelligence
    JEL: C73 C91 C92
    Date: 2015
  4. By: Tobias Regner (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Astrid Matthey (Max Planck Institute of Economics, Jena)
    Abstract: By now there is substantial experimental evidence that people make use of 'moral wiggle room' (Dana et al., 2007), that is, they tend to exploit moral excuses for selfish behavior. However, this evidence is limited to dictator games. In our experiment, a trust game variant, we study whether moral wiggle room also prevails, when reciprocity is a potential motivation for being generous. Trustees' back transfer choices are elicited for five different transfer levels of the trustor. Moreover, we ask trustees to provide their back transfer schedule for different scenarios that vary the implementation probability of the back transfer. This design allows us to identify subjects who reciprocate and analyze how these reciprocators respond to the provision of moral wiggle room. Our results suggest that moral wiggle room exists as well in the context of reciprocity. Among our subjects, 40% of the reciprocators exploited moral wiggle room.
    Keywords: social preferences, pro-social behavior, experiments, reciprocity, moral wiggle room, self-image concerns
    JEL: C72 C91 D03 D80
    Date: 2015–12–22
  5. By: Isabel Busom; Cristina Lopez-Mayan
    Abstract: Economic views held by the general public tend to differ significantly from those of economic experts. To what extent would these differences fade away if people were exposed to economic instruction? In this paper we identify first-year college students’ initial preconceptions about economic issues, explore some cognitive biases behind them, verify their persistence, and test whether beliefs are correlated to course performance. We conduct a survey at the beginning and the end of the semester on a sample of students taking an economic principles course. We find evidence of preconception persistence, inconsistencies and self-serving bias. Most students do not incorporate the newly learned tools into their thinking process, even if they perform well. Many economics senior students have some beliefs that are contradicted in a principles course. Instruction in economics could be more efficient if it explicitly addressed students’ preconceptions and biases, a path already taken in other disciplines.
    Keywords: economic education, student beliefs, cognitive bias, psychology, teaching of economics
    JEL: A12 A20 I21 Y8
    Date: 2015–12
  6. By: Adrian Bruhin (University of Lausanne); Ernst Fehr (University of Zurich); Daniel Schunk (Johannes Gutenberg University of Mainz)
    Abstract: There is vast heterogeneity in the human willingness to weigh others’ interests in decision making. This heterogeneity concerns the motivational intricacies as well as the strength of other-regarding behaviors, and raises the question how one can parsimoniously model and characterize heterogeneity across several dimensions of social preferences while still being able to predict behavior over time and across situations. We tackle this task with an experiment and a structural model of preferences that allows us to simultaneously estimate outcome-based and reciprocity-based social preferences. We find that non-selfish preferences are the rule rather than the exception. Neither at the level of the representative agent nor when we allow for several preference types do purely selfish types emerge. Instead, three temporally stable and qualitatively different other-regarding types emerge endogenously, i.e., without pre-specifying assumptions about the characteristics of types. When ahead, all three types value others’ payoffs significantly more than when behind. The first type, which we denote as strongly altruistic type, is characterized by a relatively large weight on others’ payoffs – even when behind – and moderate levels of reciprocity. The second type, denoted as moderately altruistic type, also puts positive weight on others’ payoff, yet at a considerable lower level, and displays no positive reciprocity while the third type is behindness averse, i.e., puts a large negative weight on others’ payoffs when behind and behaves selfishly otherwise. We also find that there is an unambiguous and temporally stable assignment of individuals to types. Moreover, the three-type model substantially improves the (out-of-sample) predictions of individuals’ behavior across additional games while the information contained in subject-specific parameter estimates leads to no or only minor additional predictive power. This suggests that a parsimonious model with three types captures the bulk of the predictive power contained in the preference estimates.
    Keywords: Social Preferences, Heterogeneity, Stability, Finite Mixture Models
    JEL: C49 C91 D03
    Date: 2016–01–04
  7. By: Franz Dietrich (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Christian List (LSE - London School of Economics)
    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 context-dependent 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
    Date: 2016
  8. By: Dylan Minor (Harvard Business School, Strategy Unit)
    Abstract: When seeking new leaders, business and government organizations alike often need individuals that are less risk averse, or even risk-seeking, in order to improve performance. However, individuals amenable to increased risk-taking may be more likely to engage in misconduct. To study this issue, we explore US political scandals and the implicated politicians' portfolio choices. We find that a politician allocating all of her portfolio to risky investments has double the odds of being involved in a political sandal compared to a politician allocating all of her portfolio to safe investments. This suggests that those who are more willing to take risks in their personal finances are also more likely to engage in misconduct. We validate portfolio choice as a measure of risk preferences by correlating actual high-stakes investment choices (average $700,000 US) to conventional laboratory lottery choices (average $51 US) of wealthy investors.
    Date: 2016–01
  9. By: Sinne Smed (Department of Food and Resource Economics, University of Copenhagen); Lars Gårn Hansen (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: Numerous studies find that education and the healthiness of diets are highly correlated. One possible explanation is that the most highly educated consumers are better at understanding and appreciating the health implications of their diet than consumers with less lower education. In this study, we estimate a hedonic model of consumers’ valuation of food characteristics that allows nutrients to influence utility both through their perceived effects on health and through their effects on the taste and consumption experience. We find that the most highly educated have the same or lower revealed preferences for health compared to the least educated, and we find that it is differences in taste preferences, not differences in health preferences, that explain why the most highly educated have a healthier diet.
    Keywords: hedonic model, taste, health, food consumption
    JEL: D12 I12
    Date: 2016–01
  10. By: Fabrizio Germano (Universitat Pompeu Fabra and Barcelona Graduate School of Economics); Peio Zuazo-Garin (Universitat Rovira i Virgili, Department d’Economia, CREIP and BRiDGE)
    Abstract: We study an interactive framework that explicitly allows for nonrational behavior. We do not place any restrictions on how players’ behavior deviates from rationality. Instead we assume that there exists a probability p such that all players play rationally with at least probability p, and all players believe, with at least probability p, that their opponents play rationally. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary probability p. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to derive a measure p that bounds from below the probability with which any given player chooses actions consistent with payoff maximization and common knowledge of payoff maximization.
    Keywords: strategic interaction, correlated equilibrium, robustness to bounded rationality, approximate knowledge, incomplete information, measure of rationality, experiments
    JEL: C72 D82 D83
    Date: 2015–11–02
  11. By: Tamilina, Larysa; Tamilina, Natalya
    Abstract: Drawing on a social-cognitive theory of psychology, this study introduces a new conceptual framework to explain trust building by individuals and the role that formal rules and laws may play in this process. Trust is viewed as composed of cultural, communal, and contextual components, with the latter encompassing formal institutions. We demonstrate that the contextual component measured through three institutional indexes is the strongest predictor of social trust that may not only condition the importance of cultural and communal components for the process of trust formation, but also trigger changes in them. We also furnish evidence that this impact may vary across formal institutional types and suggest that the autonomy dimension of the institutional framework is particularly important for social trust building.
    Keywords: interpersonal trust, trust formation, formal institutions, social-cognitive psychology
    JEL: K40 Z13
    Date: 2015–02–10

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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