nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒06‒25
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Cognitive load and mixed strategies: On brains and minimax By Duffy, Sean; Naddeo, JJ; Owens, David; Smith, John
  2. Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism By Bayrak, Oben
  3. Narrativity from the Perspectives of Economics and Philosophy: Davis, Ross, Multipleselves Models... and Behavioral Economics By Tom Juille; Dorian Jullien
  4. Group (Re-)formation in Public Good Games: The Tale of the Bad Apple By Grund, Christian; Harbring, Christine; Thommes, Kirsten
  5. Taking Over Control:An Experimental Analysis of Delegation Avoidance in Risky Choices By Matteo Ploner; Viola Saredi
  6. Locus of Control and Mothers' Return to Employment By Eva M. Berger; Luke Haywood
  7. Do Psychological Traits Explain Differences in Free Riding? By Gregory DeAngelo; Hannes Lang; Bryan McCannon
  8. Eliciting Risk Preferences for Intrinsic Attributes By Dorner, Zach; Brent, Daniel A.; Leroux, Anke
  9. The Magic of the Personal Touch: Field Experimental Evidence on Money and Appreciation as Gifts By Christiane Bradler; Susanne Neckermann
  10. Guilt-averse or reciprocal? Looking at behavioural motivations in the trust game By Yola Engler; Rudolf Kerschbamer; Lionel Page
  11. Measuring Responsiveness to Feedback as a Personal Trait By Thomas Buser; Leonie Gerhards; Joël J. van der Weele

  1. By: Duffy, Sean; Naddeo, JJ; Owens, David; Smith, John
    Abstract: It is well-known that laboratory subjects often do not play mixed strategy equilibrium games according to the equilibrium predictions. In particular, subjects often mix with the incorrect proportions and their actions often exhibit serial correlation. However, little is known about the role of cognition in these observations. We conduct an experiment where subjects play a repeated hide and seek game against a computer opponent programmed to play either a strategy that can be exploited by the subject (a naive strategy) or designed to exploit suboptimal play of the subject (an exploitative strategy). The subjects play with either fewer available cognitive resources (under a high cognitive load) or with more available cognitive resources (under a low cognitive load). While we observe that subjects do not mix in the predicted proportions and their actions exhibit serial correlation, we do not find strong evidence these are related to their available cognitive resources. This suggests that the standard laboratory results on mixed strategies are not associated with the availability of cognitive resources. Surprisingly, we find evidence that subjects under a high load earn more than subjects under a low load. However, we also find that subjects under a low cognitive load exhibit a greater rate of increase in earnings across rounds than subjects under a high load.
    Keywords: bounded rationality, experimental economics, working memory load, cognition, learning, mixed strategies
    JEL: C72 C91
    Date: 2016–06–08
  2. By: Bayrak, Oben
    Abstract: Although there are alternative models which can explain the Allais paradox with non-standard preferences, they do not take the emerging evidence on preference imprecision into account. The imprecision is so far incorporated into these models by adding a stochastic specification implying the errors that subjects make. However, there is also the inherent part of the preference imprecision which does not diminish with experience provided in repeated experiments and these stochastic specifications cannot explain a significant portion of the observed behavior in experiments. Moreover, evidence on imprecision suggests that subjects exhibit higher imprecision for a lottery with a higher variance. This paper presents a new model for decision under risk which takes into account the findings of the literature. Looking at the indifference curves predicted by the new model, the new model acts like a mixture of Expected Utility Theory and Rank Dependent Utility Theory depending on which part of the probability triangle the lottery is located.
    Keywords: Allais Paradox, Independence Axiom, Preference Imprecision, Anomalies, Decision Theory, Decision under Risk and Uncertainty, Alternative Models
    JEL: A1 A10 B0 C0 C9 D0 D00 D01 D02 D03 D04 D10 D11 D8 D80 D81 D83 D89 G0 G02
    Date: 2016–05–31
  3. By: Tom Juille (University of Nice Sophia Antipolis; GREDEG CNRS); Dorian Jullien (University of Nice Sophia Antipolis; GREDEG CNRS)
    Abstract: Narrativity broadly refers to the way humans construct and use stories, be them the widely known ones in a given culture or the more private ones people tell to each other or to themselves. The main goal of this paper is to clarify the extent to which the notion of narrativity can play a role in economic analysis with respect to the representation of economic agents in models of individual behaviors. To do so, we scrutinize a set of contributions from a twofold perspective. From the perspective of economics, we seek to clarify the issues regarding which we, as economists, should be interest in narrativity. From the perspective of philosophy, we, as economic methodologists or philosopher of economics, seek to clarify the conceptual issues inherent to the notion of narrativity that are not trivial or can be of some use for economic analysis. To some extent, this twofold perspective on narrativity and economics has already been taken by John Davis (2009; 2011) and Don Ross (2005; 2014), who use the notion of narrativity to account for individuals’ sense of a unified self and identity, notably with respect to the recent surge of multipleselves models in economics. We propose to further Davis’ and Ross’ efforts in at least three respects: firstly, through a comparative study of their contributions focused on narrativity from the perspective of economics; secondly, by discussing the connections between their contributions and the set of existing contributions related to narrativity in behavioral economics that none of them discuss; and, thirdly, by taking, at least for the sake of argument, a philosophically critical perspective on narrativity.
    Keywords: narrativity, economic rationality, multipleselves models, behavioral economics, economics and philosophy
    JEL: B41 B49 D01 D03 E20
    Date: 2016–06
  4. By: Grund, Christian (RWTH Aachen University); Harbring, Christine (RWTH Aachen University); Thommes, Kirsten (Brandenburg University of Technology Cottbus)
    Abstract: We analyze how different previous roles as partners or strangers in public good games affect an individual's subsequent cooperation in a partner setting. We systematically vary a group's composition from all individuals being partner over blended groups of partners and strangers to all individuals being stranger in each round. Our results show that previous group composition does not affect cooperation in the subsequent partner setting with one exception: Groups cooperate significantly less compared to all other settings, when one stranger entered the group. We further analyze this situation in-depth and find that individuals may labor under an ultimate attribution error: They feel that the newcomer is a "bad apple". The cooperativeness towards the newcomer, but also among oldtimers is disturbed in this case. We conduct additional treatments to back up this result and to show how certain information can prevent such an error.
    Keywords: cooperation, economic experiments, group composition, public good game, teams
    JEL: C9 M5
    Date: 2016–06
  5. By: Matteo Ploner; Viola Saredi
    Abstract: The study reports on the agency problem embedded in delegated risky decisions, by analyzing discrepancies in risk-taking and decision quality. It also combines delegation with a description-experience comparison. Subjects deciding on behalf of others tend to make inefficient investment decisions: principals are more ambitious, and make fewer and less dominated choices, irrespective of the process of information acquisition. While principals adapt their effort to the complexity of the situation, agents are reluc- tant to collect information to evaluate prospects. Principals predict agents poor performance and are ready to pay a substantial fee to avoid delegation. However, the fee is generally excessive and negatively impacts on final earnings. These results suggest that principals attitudes and negative beliefs on agents may prevent the emergence of delegation relationships.
    Keywords: Description-Experience Gap, delegated decision-making, control premium, risk taking; experiment
    JEL: C91 D81 D83
    Date: 2016
  6. By: Eva M. Berger; Luke Haywood
    Abstract: This paper investigates the effect of locus of control (LOC) on the length of mothers’ employment break after childbirth. Using data from the German Socio-Economic Panel Study (SOEP), duration data reveals that women with an internal LOC return to employment more quickly than women with an external LOC. We find evidence that this effect is mainly related to differential appreciation of the career costs of longer maternity leave. Given the high level of job protection enjoyed by mothers in Germany, economic consequences of differences in this non-cognitive skill can be expected to be larger in other settings.
    Keywords: Locus of Control, Non-cognitive skills, personality, maternal employment, female labor supply, survival analysis
    JEL: J22 J24
    Date: 2016
  7. By: Gregory DeAngelo (West Virginia University, Department of Economics); Hannes Lang (Evolution Institute); Bryan McCannon (West Virginia University, Department of Economics)
    Abstract: We explore the relationship between common psychological traits, such as Theory of the Mind, Rational†Experiential Inventory, and Big Five Personality styles, and willingness to contribute to public goods. Then, motivated by research that has indicated a relationship between past social interactions and cooperativeness, we consider the interaction between past game outcomes and psychological traits on free riding. We show that psychological traits of individuals have both a direct effect on free riding behavior, as well as an indirect effect as it enhances the correlation between past strategic behavior and public goods giving. Thus, the measurement tools of social psychology and management can be beneficial in understanding individual†level differences in free riding.
    Keywords: Big Five, competence, experiment, free riding, personality traits, psychological traits, public goods, Rational†Experiential Inventory, risk preferences, Theory of Mind
    Date: 2016–06
  8. By: Dorner, Zach; Brent, Daniel A.; Leroux, Anke
    Abstract: Risk is an important attribute of goods, whereby the utility derived from that attribute is determined by one's attitude to risk. We develop a novel approach to leverage data on risk attitudes from a fully incentivized risk elicitation task to model intrinsic riskiness of alternatives in a choice experiment. In a door-to-door survey, 981 respondents participated in a discrete choice experiment to elicit pref- erences over alternative sources of municipal water, conditional on water price and quality. Additional source attributes, such as supply risks due to the water source being weather dependent or technology risks are treated as intrinsic as they cannot be plausibly disassociated from the water supply source. The risk task allows the estimation of a coefficient of constant relative risk aversion (CRRA) for an indi- vidual, which is incorporated into the preference estimation to test the hypotheses that supply risk and new technology risk are important intrinsic attributes for new water sources. Participants are not given information about supply or technological risks of the sources to avoid framing effects driving the results. Controlling for water quality and cost, we find that supply risk is an important determinant of participants' choices, while respondents are not concerned about technology risk.
    Keywords: Research and Development/Tech Change/Emerging Technologies, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2016–06
  9. By: Christiane Bradler (ZEW Centre for European Economic Research, Mannheim, Germany); Susanne Neckermann (Erasmus University Rotterdam, the Netherlands, and ZEW Centre for European Economic Research, Mannheim, Germany)
    Abstract: This paper makes use of two field experiments to explore individual effort responses to gifts. We extend the literature by looking at nonfinancial gifts and gifts that combine financial and nonfinancial elements with or without adding a ``personal touch.'' We find that non-pecuniary gifts that signal worker appreciation induce reciprocity. Most importantly, we find that there are interaction effects between money and appreciation. While money and appreciation are individually effective, they only work well together when they are combined with a personal touch. This points to the importance of interpersonal elements in gift giving and has important implications for how to effectively elicit worker effort.
    Keywords: gift exchange; reciprocity; personnel economics; gratitude; personal touch; field experiment
    JEL: C93 M52
    Date: 2016–06–06
  10. By: Yola Engler; Rudolf Kerschbamer; Lionel Page
    Abstract: For the trust game, recent models of belief-dependent motivations make opposite predictions regarding the correlation between back-transfers and second- order beliefs of the trustor: While reciprocity models predict a negative correlation, guilt-aversion models predict a positive one. This paper tests the hypothesis that the inconclusive results in previous studies investigating the reaction of trustees to their beliefs are due to the fact that reciprocity and guilt-aversion are behaviorally relevant for different subgroups and that their impact cancels out in the aggregate. We find little evidence in support of this hypothesis and conclude that type heterogeneity is unlikely to explain previous results.
    JEL: C25 C70 C91 D63 D64
    Date: 2016–06
  11. By: Thomas Buser (University of Amsterdam, the Netherlands); Leonie Gerhards (University of Hamburg, Germany); Joël J. van der Weele (University of Amsterdam, the Netherlands)
    Abstract: People typically update their beliefs about their own abilities too little in response to feed-back, a phenomenon known as “conservatism”, and some studies suggest that they overweight good relative to bad signals (“asymmetry”). We measure individual conservatism and asymmetry in three tasks that test different cognitive skills, and study entry into a winner-takes-all competition based on similar skills. We show that individual differences in feedback responsiveness explain an important part of the variation in confidence and competition entry decisions. Conservatism is correlated across tasks and predicts competition entry both by influencing beliefs and independently of beliefs, suggesting it can be considered a personal trait. Subjects tend to be more conservative in tasks that they see as more ego-relevant and women are more conservative than men. Asymmetry is less stable across tasks, but predicts competition entry by increasing self-confidence.
    Keywords: Bayesian updating; feedback; confidence; identity; competitive behavior
    JEL: C91 C93 D83
    Date: 2016–06–03

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