nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒04‒30
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Accommodating Stake Effects under Prospect Theory By Ranoua Bouchouicha; Ferdinand Vieider
  2. Can we neutralize social preference in experimental games? By Michal Krawczyk; Fabrice Le Lec
  3. The Impact of Violence on Individual Risk Preferences: Evidence from a Natural Experiment By Jakiela, Pamela; Ozier, Owen
  4. Institutional Endogeneity and Third-party Punishment in Social Dilemmas By Isabel Marcin; Pedro Robalo; Franziska Tausch
  5. The Adverse Consequences of Tournaments: Evidence from a Field Experiment By De Paola, Maria; Gioia, Francesca; Scoppa, Vincenzo
  6. Inter-generational thoughtfulness in a dynamic public good experiment By Spiller, Jörg; Bolle, Friedel
  7. Recent Developments in the Experimental Elicitation of Time Preference By Cheung, Stephen L.
  8. The limits of guilt By Loukas Balafoutas; Helena Fornwagner
  9. Environmental Incentives: Nudge or Tax? By Benjamin Ouvrard; Sandrine Spaeter
  10. Tell Me How to Rule: Leadership, Delegation, and Voice in Cooperation By Marco Faillo; Federico Fornasari; Luigi Mittone
  11. Where Do Social Preferences Come From? By Chaning Jang; John Lynham

  1. By: Ranoua Bouchouicha (Henley Business School, University of Reading); Ferdinand Vieider (Department of Economics, University of Reading)
    Abstract: We investigate how to accommodate qualitative changes in risk preferences over outcomes and probabilities under prospect theory. We find a double two-fold pattern of risk preferences for gains, one over probabilities and one over outcomes. While such patterns over probabilities are an integral part of prospect theory, a solution on how to incorporate two-fold patterns over outcomes has only recently been proposed by Scholten and Read (2014) [‘Prospect theory and the “forgotten” fourfold pattern of risk preferences. JRU 48(1)’]. We use this insight to address violations of probability-outcome separability under prospect theory as stakes increase [Fehr-Duda, Bruhin, Epper, and Schubert (2010). Rationality on the Rise: Why Relative Risk Aversion Increases with Stake Size’. JRU 40(2)]. We replicate the violations using traditional functional forms such as power or exponential utility. Using logarithmic utility instead makes the violations disappear, showing the importance of accommodating changing risk preferences across the outcome dimension.
    Keywords: risk preferences, prospect theory, probability-outcome separability
    JEL: C51 C52 C91 D03 D90
    Date: 2016–04–17
  2. By: Michal Krawczyk (UW - University of Warsaw); Fabrice Le Lec (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose an experimental method whose purpose is to remove social concerns in games. The core idea is to adapt the binary-lottery incentive scheme, so that an individual payoff is a probability to see one's preferred social allocation implemented. For a large class of social preference models, the method induces payoffs in the game that are in line with subjects' (social) preferences. We test the method in several popular experimental games, contrasting behaviors with and without our methodology. Our results suggest that a substantial part of the difference between predictions based on selfishness and observed behaviors seems driven by such preferences , since our method does induce more " selfish " behaviors. But they also indicate that a considerable share is left unexplained, perhaps giving weight to alternative explanations or other types of social concerns.
    Keywords: social preferences,experimental game theory,ultimatum game,public goods game,trust game,prisoner's dilemma,dictator game
    Date: 2015
  3. By: Jakiela, Pamela (University of Maryland); Ozier, Owen (World Bank)
    Abstract: We estimate the impact of Kenya's post-election crisis on individual risk preferences. The crisis interrupted a longitudinal survey of more than five thousand Kenyan youth, creating plausibly exogenous variation in exposure to civil conflict by the time of the survey. We measure individual risk preferences using hypothetical lottery choice questions which we validate by showing that they predict migration and entrepreneurship in the cross-section. Our results indicate that the post-election violence sharply increased individual risk aversion. Immediately after the crisis, the fraction of subjects displaying extreme risk aversion increased by more than 80 percent. Findings remain robust when we use an IV estimation strategy that exploits random assignment of respondents to waves of surveying. Our results suggest that the crisis also impacted trust, social capital, and beliefs about the economy, though it did not have any detectable negative impacts on job prospects or wages.
    Keywords: risk preferences, civil conflict, natural experiment
    JEL: C91 C93 D01 D74 D81
    Date: 2016–04
  4. By: Isabel Marcin (Max Planck Institute for Research on Collective Goods); Pedro Robalo (Max Planck Institute for Research on Collective Goods); Franziska Tausch (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper studies experimentally how the endogeneity of sanctioning institutions affects the severity of punishment in social dilemmas. We allow individuals to vote on the introduction of third-party-administered sanctions, and compare situations in which the adoption of this institution is endogenously decided via majority voting to situations in which it is exogenously imposed by the experimenter. Our experimental design addresses the self-selection and signaling effects that arise when subjects can vote on the institutional setting. We find that punishment is significantly higher when the sanctioning institution is exogenous, which can be explained by a difference in the effectiveness of punishment. Subjects respond to punishment more strongly when the sanctioning institution is endogenously chosen. As a result, a given cooperation level can be reached through milder punishment when third-party sanctions are endogenous. However, overall efficiency does not differ across the two settings as the stricter punishment implemented in the exogenous one sustains high cooperation as subjects interact repeatedly.
    Keywords: Endogeneity, Third-party punishment, Voting, Institutions, Social dilemma, Public good
    JEL: C92 D02 D72 H41
    Date: 2016–04
  5. By: De Paola, Maria (University of Calabria); Gioia, Francesca (University of Edinburgh); Scoppa, Vincenzo (University of Calabria)
    Abstract: We run a field experiment to investigate whether competing in rank-order tournaments with different prize spreads affects individual performance. Our experiment involved students from an Italian University who took an intermediate exam in which one part was awarded on the basis of their relative performance. Students were matched in pairs on the basis of their high school grades and each pair was randomly assigned to one of three different tournaments. Random assignment neutralizes selection effects and allows us to investigate if larger prize spreads increase individual effort. We do not find any positive effect of larger prizes on students' performance and in several specifications we do find a negative effect. Furthermore, we show that the effect of prize spreads on students' performance depends on their degree of risk-aversion: competing in tournaments with large spreads negatively affects the performance of risk-averse students, while it does not produce any effect on students who are more prone to take risks.
    Keywords: rank-order tournaments, incentives, prize spread, risk-aversion, randomized experiment
    JEL: J33 J31 J24 D81 D82 C93
    Date: 2016–03
  6. By: Spiller, Jörg; Bolle, Friedel
    Abstract: In a laboratory experiment we investigate inter-generational concerns and myopia in a dynamic Public Good game. Groups of four played a 15-period game where they could either invest in a green sector or in a more profitable brown sector that builds a pollution stock. We find that subjects are more cooperative when their final pollution stock will be inherited by another group in a later session. Furthermore, we observe that defection from a negotiated common plan is higher when subjects are in a loss frame, negotiated plans are more ambitious. We analyze our results in reference to several social preference theories and find that Linear Altruism is most supported in such a dynamic environment.
    Keywords: Dynamic,Environmental Economics,Experimental Economics,Inter-Generation,Public Good
    JEL: H41 C91
    Date: 2016
  7. By: Cheung, Stephen L. (University of Sydney)
    Abstract: This methodological survey reviews recent developments in the design of experiments to elicit individuals' time preferences, with a focus on the measurement or control for potentially non-linear utility. While the objective of a time preference experiment is usually to estimate parameters of a discount function, assumptions concerning the nature of utility may have an important influence upon these estimates. The survey classifies experiment designs on two dimensions: whether they assume an equivalence between utility under risk and over time, and whether they result in an estimate of the curvature of utility.
    Keywords: time preference, discounted utility, instantaneous utility, choice list
    JEL: C91 D03 D90
    Date: 2016–04
  8. By: Loukas Balafoutas; Helena Fornwagner
    Abstract: Guilt aversion has been put forward in recent years as a prominent motivation for certain aspects of human behavior. When agents are guilt averse, their utility depends on what they believe others expect of them and they suffer a cost whenever they fall short of those expectations. In this paper we suggest that there may be limits to this kind of motivation. We present evidence from a dictator game showing that dictators display behavior consistent with guilt aversion for relatively low levels of recipient expectations, roughly up to the point where the recipient expects half of the available surplus. Beyond that point the relationship between expectations and transfers becomes negative. We argue that this non-monotonicity can help explain why the economic literature on guilt aversion offers conflicting findings on the relationship between expectations and behavior. Moreover, we examine this relationship at the individual level and establish a typology of subjects depending on how and whether they condition their behavior on recipient expectations. Our evidence is consistent with a simple theoretical model of guilt aversion.
    Keywords: guilt aversion, greed, experiment, strategy method
    JEL: C91 D03
    Date: 2016–04
  9. By: Benjamin Ouvrard (ETA, CNRS and University of Strasbourg); Sandrine Spaeter (ETA, CNRS and University of Strasbourg)
    Abstract: We consider a model where individuals can voluntarily contribute to improve the quality of the environment. They differ with regard to their confidence in the announcement made by the regulator about the risk of pollution, modelized in a RDEU model, and to their environmental sensitivity. We compare the efficiency of a tax in increasing individual contributions with the advantages of a nudge based on the announcement of the social optimum to each individual. Under some conditions, a nudge performs better than a tax, in particular, because the individual reaction depends directly on sensitivity, while only indirectly with a tax. Moreover, a nudge does not require information about private contributions, contrary to a tax based on the contributions that are not provided compared to the social optimum. Lastly, its implementation is much cheaper. Yet, some drawbacks are discussed and simulations illustrate our results.
    Keywords: incentives, nudge, environmental sensitivity, probability distortion, tax
    JEL: Q50 D8
    Date: 2016–04
  10. By: Marco Faillo; Federico Fornasari; Luigi Mittone
    Abstract: Following some recent studies, we experimentally test the effect of intra-group leadership in a public good experiment. Specifically, individuals taking part in our experiment are randomly assigned either the role of leader or the role of follower. Leaders take part in a public good game, aware of the fact that every decision they make directly affects their followers. In this sense, our experimental setting combines the dimension of leadership in cooperation with the one of delegated agents. In our experiment, we find that leadership produces two main effects: subjects contribute more, and tend to punish more frequently. In spite of the presence of higher contributions, we observe lower payoffs; these are caused by an aggressive behavior that push leaders to mane an undue use of punishment. Allowing one-sided communication between followers and leaders provide a different effect: communication reduces decision makers’ aggressiveness, leading to lower contributions and punishment, but better results in terms of final payoffs. The same welfare can be reached when leadership is not implemented at all; this suggests that the presence of a dictatorial leader in public goods with punishment can be beneficial only when there is communication.
    Keywords: Voluntary contribution experiment, Leadership, Punishment
    JEL: C72 C92 H41 O12
    Date: 2016
  11. By: Chaning Jang (Department of Psychology, Princeton University); John Lynham (Department of Economics & UHERO, University of Hawaii at Manoa; Center for Ocean Solutions, Stanford University)
    Abstract: Where do preferences for fairness come from? We use a unique field setting to test for a spillover of sharing norms from the workplace to a laboratory experiment. Fishermen working in teams receive random income shocks (catching fish) that they must regularly divide among themselves. We demonstrate a clear correlation between sharing norms in the field and sharing norms in the lab. Furthermore, the spillover effect is stronger for fishermen who have been exposed to a sharing norm for longer, suggesting that our findings are not driven by selection effects. Our results are consistent with the hypothesis that work environments shape social preferences.
    Keywords: ultimatum game; social preferences; fairness; workplace spillovers
    JEL: Q2 C9 C7 B4 D1
    Date: 2015–08

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