nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒06‒14
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Allais for the poor By Herrmann, Tabea; Hübler, Olaf; Menkhoff, Lukas; Schmidt, Ulrich
  2. Blue or Red? How Color Affects Consumer Information Processing in Food Choice By Shen, Meng; Gao, Zhifeng
  3. Choice or information overload ? By Fabrice Le Lec; Marianne Lumeau; Benoît Tarroux
  4. Ellsberg Re-revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion By Loic Berger; Valentina Bosetti
  5. Heterogeneous Motives in the Trust Game: A Tale of Two Roles By Espín, Antonio M.; Exadaktylos, Filippos; Neyse, Levent
  6. Potential Consumers in Consumer Behavior Models By Jiang, Yuan; Kim, Hyeyoung; House, Lisa; Percival, Susan S.
  7. Incentives in Experiments with Objective Lotteries By Paul J. Healy; Yaron Azrieli; Christopher P. Chambers
  8. Salience, Framing, and Decisions under Risk, Uncertainty, and Time By Jonathan W. Leland; Mark Schneider
  9. What is the Causal Impact of Knowledge on Preferences in Stated Preference Studies? By Nick Hanley; Mikolaj Czajkowski
  10. The Effects of Emotion on Consumers’ Willingness-to-Pay (WTP) for Eco-labeled Fresh Produce By Chen, Xuqi; Gao, Zhifeng

  1. By: Herrmann, Tabea; Hübler, Olaf; Menkhoff, Lukas; Schmidt, Ulrich
    Abstract: This paper complements evidence on the Allais paradox from advanced countries and educated people by a novel investigation in a poor rural area. The share of Allais-type behavior is indeed high and related to characteristics of 'lacking ability', such as poor education, unemployment, and little financial sophistication. Based on prospective reference theory, we extend these characteristics by biased processing of probabilistic information. Finally, we reveal that Allais-type behavior is linked to risk-related characteristics, such as risk tolerance and optimism. This indicates a potential problem as exactly the more dynamic among the poor tend to make inconsistent decisions under uncertainty.
    Keywords: field experiments,Allais paradox,socio-demographic characteristics,prospective reference theory,first order stochastic dominance,risk attitude,optimism
    JEL: D81 D03 O10
    Date: 2016
  2. By: Shen, Meng; Gao, Zhifeng
    Abstract: Colors can carry specific meaning and have an important influence on people’s feelings, thoughts and behaviors. This paper investigates the impact of blue versus red on how consumers process information in food choice. Results show color indeed influences consumer information processing and feature evaluation. Specifically, consumers spend more time and pay more attention to choice tasks in the red condition than in the blue condition. In addition, consumers are willing to pay more premium for certain feature on the red label than on the blue label.
    Keywords: Choice experiment, Color, Information Processing, Willingness-to-pay, Agribusiness, Consumer/Household Economics, Marketing,
    Date: 2016–05–25
  3. By: Fabrice Le Lec (CES, Université de Paris 1, France); Marianne Lumeau (CEPN, Université de Paris 13, LABEX ICCA, France); Benoît Tarroux (CREM, UMR CNRS 6211, Faculté des Sciences Économiques, Université de Rennes 1, France)
    Abstract: This paper aims to test how the profusion of choice and information affects individuals' decisions. In particular, we investigate whether the possible choice overload effects are due to the mere presence of many alternatives or the difficulty in processing abundance of information that comes with the proliferation of options. To do so, we use the frequency with which familiar alternatives are preferred to unfamiliar ones as a behavioural measure of overload. We first propose an individual decision model, in which uncertainty about values of alternatives leads consumer to prefer familiar goods. We use this theoretical approach to devise an experiment where the level of information and the number of alternatives systematically vary. Our results show that individuals are prone to overload in the presence of larger choice sets, but that information has a small impact, if any.
    Keywords: Choice overload; Information overload; Bounded rationality; Familiarity; Experimental Economics
    JEL: C91 D03 D83
    Date: 2016–04
  4. By: Loic Berger (Fondazione Eni Enrico Mattei (FEEM)); Valentina Bosetti (Bocconi University and Fondazione Eni Enrico Mattei (FEEM))
    Abstract: The results of an experiment extending Ellsberg's setup demonstrate that attitudes towards ambiguity and compound uncertainty are closely related. However, this association is much stronger when the second layer of uncertainty is subjective than when it is objective. Provided that the compound probabilities are simple enough, we find that most subjects, consisting of both students and policy makers, (1) reduce compound objective probabilities, (2) do not reduce compound subjective probabilities, and (3) are ambiguity non-neutral. By decomposing ambiguity into risk and model uncertainty, and jointly eliciting the attitudes individuals manifest towards these two types of uncertainty, we characterize individuals' degree of ambiguity aversion. Our data provides evidence of decreasing absolute ambiguity aversion and constant relative ambiguity aversion.
    Keywords: Ambiguity Aversion, Model Uncertainty, Reduction of Compound Lotteries, Non-expected Utility, Subjective Probabilities, Decreasing Absolute Ambiguity Aversion
    JEL: D81
    Date: 2016–05
  5. By: Espín, Antonio M.; Exadaktylos, Filippos; Neyse, Levent
    Abstract: Trustful and trustworthy behaviors have important externalities for the society. But what exactly drives people to behave in a trustful and trustworthy manner? Building on research suggesting that individuals’ social preferences might be a common factor informing both behaviors, we study the impact of a set of different motives on individuals’ choices in a dual-role Trust Game (TG). We employ data from a large-scale representative experiment (N = 774), where all subjects played both roles of a binary TG with real monetary incentives. Subjects’ social motives were inferred using their decisions in a Dictator Game and a dual-role Ultimatum Game. Next to self-interest and strategic motives we consider preferences for altruism, spitefulness, egalitarianism, and efficiency. We demonstrate that there exists considerable heterogeneity in motives in the TG. Most importantly, among individuals who choose to trust as trustors, social motives can differ dramatically as there is a non-negligible proportion of them who seem to act out of (strategic) self-interest whereas others are driven more by efficiency considerations. Subjects’ elicited trustworthiness, however, can be used to infer such motivations: while the former are not trustworthy as trustees, the latter are. We discuss that research on trust can benefit from adding the second player’s choice in TG designs.
    Keywords: trust game,dictator game,ultimatum game,social preferences,self-interest
    Date: 2016
  6. By: Jiang, Yuan; Kim, Hyeyoung; House, Lisa; Percival, Susan S.
    Abstract: This study analyzes the consumer behavior of three groups: non-participants, potential consumer and current buyer by using a two-stage sample-selection model incorporating a binary probit model and an ordered probit model. Different from the previous research which A consumer survey about fresh mushroom consumption in the U.S was conducted which allows us to observe consumers’ participation intention and acquisition through a purchase history and purchase frequency. The results indicate that there are different reasons driving non-participants (consumers who will not participate in the market) and potential consumers (consumers with zero purchase frequency), and the potential consumers share many similarities with less frequent consumers instead of with non-participants, with whom they are often combined in previous research.
    Keywords: fresh mushroom consumption, sample-selection, non-linear model, potential consumers, Agribusiness, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Marketing,
    Date: 2016
  7. By: Paul J. Healy (Department of Economics, Ohio State University); Yaron Azrieli (Department of Economics, Ohio State University); Christopher P. Chambers (Department of Economics, University of California, San Diego)
    Abstract: When subjects in an experiment are given multiple decisions, their choices in one decision may be distorted by the choices made in others. An experiment’s payment mechanism is incentive compatible if no such distortions occur. Azrieli et al. (2014) provide two characterizations of incentive compatible mechanisms in a general decision-theoretic framework in subjects’ choices are represented as Savage-style acts. In particular, paying for one randomly-chosen problem — the Random Problem Selection (RPS) mechanism — is incentive compatible when we assume preferences satisfy event-wise monotonicity, and nothing else. Here, we consider the case where subjects view gambles as objective lotteries. Using completely different proof techniques, we show that the set of incentive compatible mechanisms under the monotonicity assumption is strictly larger than in the acts case. We discuss these new incentive compatible mechanisms in detail.
    Keywords: Experimental design, decision theory, mechanism design
    JEL: D81 D84
    Date: 2016–05
  8. By: Jonathan W. Leland (Division of Social and Economic Sciences, National Science Foundation); Mark Schneider (Economic Science Institute, Chapman University)
    Abstract: We propose a comparative model of decision making under risk, uncertainty, and time, in which large differences in payoffs and probabilities or dates of receipt are perceived as salient and overweighted in the evaluation process. The predictions of the model depend on what differences are compared across alternatives which, in turn, depends on how the choice is framed. We formalize a class of matrix-based frames which applies to decisions under risk, uncertainty, and time, and we specify two important types of frames within this class: minimal frames which provide the simplest representation of choice alternatives, and transparent frames which make the normative appeal of the classical rationality axioms more transparent. We also propose two simple and natural assumptions regarding the perceived salience of differences in numerical magnitudes. We show that the model predicts systematic framing effects in which people will exhibit major violations of rational choice theory (the Allais paradox, common ratio effect, Ellsberg paradox, present bias, and violations of stochastic dominance) when the options are represented in a minimal frame but will behave more consistently with the classical axioms when the same choices are presented in a transparent frame. The model employs the same salience-based decision algorithm across the domains of risk, uncertainty, and time, thus providing a unified approach to explaining choice anomalies as decision errors. Moreover, because it maintains the assumption that preferences obey expected and discounted utility, it facilitates traditional welfare analysis.
    Keywords: Salience Perception; Allais Paradox; Ellsberg Paradox; Present Bias; Diminishing Sensitivity
    JEL: D03 D81
    Date: 2016
  9. By: Nick Hanley (Department of Geography and Sustainable Development, University of St. Andrews); Mikolaj Czajkowski (University of Warsaw, Department of Economic Sciences, Poland)
    Abstract: This paper reports the results of a stated preference experiment designed to test for how information provided in a survey affects knowledge, and how knowledge affects preferences for a public good. A novel experimental design allows us to elicit subjects’ ex ante knowledge levels about a good’s attributes, exogenously vary how much new objective information about these attributes we provide to subjects, elicit subjects’ valuation for the good, and elicit posterior knowledge states about the same attributes. We find evidence of incomplete learning and fatigue: as subjects are told more information, their marginal learning rates decrease. We find there is no marginal impact of knowledge on the mean nor the variance of WTP for changes in the environmental good; but that ex ante knowledge does affect stated WTP. Our results are consistent with preference formation models of confirmation bias, costly search, or timing differences in learning and preference formation. Our results raise questions about the purpose and effects of providing information in stated preference studies
    Keywords: Learning, Information, Behavioral Economics, Decision Making Under Uncertainty
    JEL: D83 D81 Q51
    Date: 2016–04
  10. By: Chen, Xuqi; Gao, Zhifeng
    Abstract: This study exams consumers’ Willingness-to-Pay (WTP) for eco-labeled fresh produce under the influence of emotion. Previous literature has indicated a significant correlation between emotion and consumer final purchase decisions. However, few researchers conducted the study within the context of eco-labeled products. In this paper, about 2,500 participants were asked to evaluate four different types of eco-labeled fresh strawberries in terms of WTP. Respondents’ emotion and changes in emotion after a stimulus were measured. Contingent valuation method was used to estimate consumers’ WTP. Multivariate tobit model and seemingly unrelated regression (SUR) were used to estimate the effect of emotion on consumers’ WTP for eco-labeled products. Results show that emotion has a significant positive effect on consumers’ WTP for GMO-free, organic and natural products. Meanwhile, it also has a significant positive impact on the WTP premium for these three products and locally produced products as well, using conventional counterpart as the base.
    Keywords: Emotion, Willingness to pay (WTP), Eco-labels, Fresh Strawberry, Contingent Valuation (CV), Agribusiness, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics, Marketing,
    Date: 2016

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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