nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒02‒04
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Stability and Change in Risk-Taking Propensity Across the Adult Lifespan By Anika K. Josef; David Richter; Gregory R. Samanez-Larkin; Gert G. Wagner; Ralph Hertwig; Rui Mata
  2. Social Identity, Attitudes Towards Cooperation, and Social Preferences: Evidence From Switzerland By Devesh Rustagi; Marcella Veronesi
  3. Rankings and Risk-Taking in the Finance Industry By Michael Kirchler; Florian Lindner; Utz Weitzel
  4. Cognitive Empathy in Conflict Situations By Florian Gauer; Christoph Kuzmics
  5. Behavioral Origins of Epidemiological Bifurcations By David Aadland; David Finnoff; Kevin X. D. Huang
  6. Information and Crime Perceptions: Evidence from a Natural Experiment By Nicola Mastrorocco; Luigi Minale
  7. Can a single theory explain coordination? An experiment on alternative modes of reasoning and the conditions under which they are used By Marco Faillo; Alessandra Smerilli; Robert Sugden
  8. Different Behavioral Explanations of the Neolithic Transition from Foraging to Agriculture: A Review By Tisdell, Clem; Svizzero, Serge
  9. Predicting Human Cooperation By John J. Nay; Yevgeniy Vorobeychik
  10. Herding and Contrarian Behavior in Financial Markets : An Experimental Analysis By Park, Andreas; Sgroi, Daniel

  1. By: Anika K. Josef; David Richter; Gregory R. Samanez-Larkin; Gert G. Wagner; Ralph Hertwig; Rui Mata
    Abstract: Can risk-taking propensity be thought of as a trait that captures individual differences across domains, measures, and time? Studying stability in risk-taking propensities across the lifespan can help to answer such questions by uncovering parallel, or divergent, trajectories across domains and measures. We contribute to this effort by using data from respondents aged 18 to 85 in the German Socio-Economic Panel Study (SOEP) and by examining (1) differential stability, (2) mean-level differences, and (3) individual-level changes in self-reported general (N = 44,076) and domain-specific (N =11,903) risk-taking propensities across adulthood. In addition, we investigate (4) the correspondence between cross-sectional trajectories of self-report and behavioral measures of social (trust game; N = 646) and nonsocial (monetary gamble; N = 433) risk taking. The results suggest that risk-taking propensity can be understood as a trait with moderate stability. Results show reliable mean-level differences across the lifespan, with risk-taking propensities typically decreasing with age, although significant variation emerges across domains and individuals. Interestingly, the mean-level trajectory for behavioral measures of social and nonsocial risk taking was similar to those obtained from self-reported risk, despite small correlations between task behavior and self-reports. Individual-level analyses suggest a link between changes in risk-taking propensities both across domains and in relation to changes in some of the Big Five personality traits. Overall, these results raise important questions concerning the role of common processes or events that shape the lifespan development of risk-taking across domains as well as other major personality facets.
    Keywords: Risk taking, individual differences, lifespan development, domain specificity, differential stability
    Date: 2016
  2. By: Devesh Rustagi (Goethe University Frankfurt); Marcella Veronesi (Department of Economics (University of Verona))
    Abstract: We investigate the role of social identity in explaining individual variation in social preferences in the domain of cooperation. We combine measures of social identity at both extensive and intensive margins with measures of social preferences elicited using a public goods game in the strategy method among a representative sample of Swiss households. We document a strong association between social identity and social preferences, which becomes stronger with the degree of social identity. Using different data sources, we show that social identity matters also for attitudes towards cooperation. Our results are not driven by differences in national or even local institutions, geography, historical, and economic conditions. Additional analyses show that grandparental and parental background shapes social identity, as well as social preferences. Our design allows us to go beyond behavior and disentangle social preferences from beliefs, highlighting the importance of social identity for deeper social preferences in a natural field setting.
    Keywords: Social identity, social preferences, conditional cooperation, attitudes towards cooperation, public goods game
    JEL: C93 D03 D70 H41 Z13
    Date: 2016–01
  3. By: Michael Kirchler; Florian Lindner; Utz Weitzel
    Abstract: Rankings are a pervasive feature of the finance industry. Although they have no di- rect monetary consequences, rankings provide utility for intrinsic (positive self-image) and extrinsic (status) reasons. We recruit a unique subject pool of 204 financial professionals and investigate how anonymous rankings influence risk-taking in investment decisions. We find that rankings increase risk-taking because of financial professionals? desire for positive self-image. This particularly applies to underperformers, who take the highest risks. Incentivizing rankings monetarily does not further increase risk-taking. In a comparative study with 432 students we find that student behavior is not driven by rankings.
    Keywords: Experimental finance, behavioral finance, rank incentives, rankings, financial professionals, investment game, framed field experiment, tournament incentives
    JEL: G02 G11 D03 C93
    Date: 2016–01
  4. By: Florian Gauer (Bielefeld University); Christoph Kuzmics (University of Graz)
    Abstract: Two individuals are involved in a conflict situation in which preferences are ex ante uncertain. While they eventually learn their own preferences, they have to pay a small cost if they want to learn their opponent’s preferences. We show that, for sufficiently small positive costs of information acquisition, in any Bayesian Nash equilibrium of the resulting game of incomplete information the probability of getting informed about the opponent’s preferences is bounded away from zero and one.
    Keywords: Incomplete Information; Information Acquisition; Theory of Mind; Conflict; Imperfect Empathy
    JEL: C72 C73 D03 D74 D82 D83
    Date: 2016–01
  5. By: David Aadland (University of Wyoming); David Finnoff (University of Wyoming); Kevin X. D. Huang (Vanderbilt University)
    Abstract: In this paper, we investigate the nature of rational expectations equilibria for economic epidemiological models, with a particular focus on the behavioral origins of epidemiological bifurcations. Unlike mathematical epidemiological models, economic epidemiological models can produce regions of indeterminacy or instability around the endemic steady states. We consider SI, SIS, SIR and SIRS versions of economic compartmental models and show how well-intentioned public policy may contribute to disease instability and uncertainty.
    Keywords: economic epidemiology, bifurcation, dynamics, disease, indeterminacy, rational expectations
    JEL: D1 I1
    Date: 2016–01–26
  6. By: Nicola Mastrorocco (London School of Economics); Luigi Minale (Universidad Carlos III de Madrid)
    Abstract: This paper investigates the influence of media on the beliefs and perceptions individuals hold, with a focus on crime perceptions. We study the case of Italy, where the majority of television channels have been under the influence of the former Prime Minister Silvio Berlusconi for more than a decade. First, we document that these channels systematically over represent crime news compared to others. We then test if individuals revise their perceptions about crime when exposure to news programs broadcast by a specific group of partisan channels is reduced. In order to identify the causal effect we exploit a natural experiment in the Italian television market where the staggered introduction of the digital TV signal led to a drastic drop in the viewing shares of the channels above. Combining unique data on each channel’s crime news coverage and prime-time viewing shares, we find that reduced exposure to crime related news decreased concerns about crime, an effect that is mainly driven by older individuals who, on average, watch more television and use alternative sources of information (such as Internet, radio and newspapers) less frequently. Finally, we show that this change in crime perceptions is likely to have important implications for voting behaviour.
    Keywords: information, mass media, persuasion, crime perceptions
    JEL: D72 D83 K42 L82
    Date: 2016–01
  7. By: Marco Faillo (University of Trento); Alessandra Smerilli (PFSE-Auxilium); Robert Sugden (University of East Anglia)
    Abstract: We investigate experimentally the conditions under which bounded best response and collective optimality reasoning are used in coordination games. Using level-k and team reasoning theories as exemplars, we study games with three pure-strategy equilibria, two of which are mutually isomorphic. The third is always team-optimal, but whether it is predicted by level-k theory differs across games. We find that collective optimality reasoning is facilitated if the collectively optimal equilibrium gives more equal payoffs than the others, and is inhibited if that equlibrium is Pareto-dominated by the others, considered separately. We suggest that coordination cannot be explained by a single theory.
    Keywords: team reasoning, level-k theory, coordination games
    JEL: C7 C9
    Date: 2016–01–18
  8. By: Tisdell, Clem; Svizzero, Serge
    Abstract: This article examines how well two parallel behavioral approaches, one in economics and the other in anthropology, explain the economic evolution of Neolithic societies, particularly their transit from foraging to agriculture. Both assume rational optimizing behavior. It is argued that satisficing theories provide a superior explanation of transition (and non-transition) by some hunter-gatherers. Furthermore, many of the concepts associated with neoclassical economics are shown to be inadequate for analyzing the choice problems involved. Moreover, it is argued that all behavioral theories considering the relationship between human behavior and economic evolution need to pay attention to the way that decision-making is embedded in social structures. It is unlikely that a single theory will be able to explain the economic evolution of all societies when social structures and other relevant variables differ between communities.
    Keywords: Economic evolution, economic optimization, human behavioral ecology, hunter-gatherers, Neolithic Revolution, satisficing behavior, social embedding., Community/Rural/Urban Development, Crop Production/Industries, Institutional and Behavioral Economics, D01, O10, P00, Q10,
    Date: 2016–01–19
  9. By: John J. Nay; Yevgeniy Vorobeychik
    Abstract: The Prisoner's Dilemma has been a subject of extensive research due to its importance in understanding the ever-present tension between individual self-interest and social benefit. A strictly dominant strategy in a Prisoner's Dilemma (defection), when played by both players, is mutually harmful. Repetition of the Prisoner's Dilemma can give rise to cooperation as an equilibrium, but defection is as well, and this ambiguity is difficult to resolve. The numerous behavioral experiments investigating the Prisoner's Dilemma highlight that players often cooperate, but the level of cooperation varies significantly with the specifics of the experimental predicament. We present the first computational model of human behavior in repeated Prisoner's Dilemma games that unifies the diversity of experimental observations in a systematic and quantitatively reliable manner. Our model relies on data we integrated from many experiments, comprising 168,386 individual decisions. The computational model is composed of two pieces: the first predicts the first-period action using solely the structural game parameters, while the second predicts dynamic actions using both game parameters and history of play. Our model is extremely successful not merely at fitting the data, but in predicting behavior at multiple scales in experimental designs not used for calibration, using only information about the game structure. We demonstrate the power of our approach through a simulation analysis revealing how to best promote human cooperation.
    Date: 2016–01
  10. By: Park, Andreas (University of Toronto); Sgroi, Daniel (University of Warwick)
    Abstract: We analyze and confirm the existence and extent of rational informational herding and rational informational contrarianism in a financial market experiment, and compare and contrast these with equivalent irrational phenomena. In our study, subjects generally behave according to benchmark rationality. Traders who should herd or be contrarian in theory are the signicant sources of both within the data. Correcting for subjects who can be identified as less rational increases our ability to predict herding or contrarian behavior considerably.
    Keywords: Herding ; Contrarianism ; Informational Efficiency ; Experiments JEL classification numbers: C91 ; D82 ; G14
    Date: 2016

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