nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒07‒23
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  2. Mis-Judging Merit: The Effects of Adjudication Errors in Contests By Astrid, Gamba; Luca, Stanca;
  3. Risk and punishment revisited. Errors in variables and in the lab By Christoph Engel; Oliver Kirchkamp
  4. Empirical essays on behavioral economics and lifecycle decisions By Dillingh, Rik
  5. History-Dependent Risk Preferences: Evidence from Individual Choices and Implications for the Disposition Effect By Angie ANDRIKOGIANNOPOULOU; Filippos PAPAKONSTANTINOU
  6. Emotion Research in Economics By Klaus Wälde
  7. New consumers behaviours in the sharing economy: an experimental analysis on food waste reduction By Andrea Morone; Enrica Imbert; Marcello Morone; Pasquale Falcone; Piergiuseppe Morone
  8. Fair share and social effciency: a mechanism in which peers decide on the payoff division By Lu Dong; Rod Falvey; Shravan Luckraz
  9. Are Behavioral Biases Stable Across Markets and Prevalent Across Individuals? Evidence from Individual Betting Choices OR from SSRN: Individual Reaction to Past Performance Sequences: Evidence from a Real Marketplace By Angie ANDRIKOGIANNOPOULOU; Filippos PAPAKONSTANTINOU

  1. By: Eun-Mi Lee (Izmir University of Economics); Ece Çam (Izmir University of Economics)
    Abstract: As people recognize the values of a healthy lifestyle, they are effectively attempting to enhance eating habits and they have a tendency to promote a healthier dietary behavior or strict diet to lose weight. Social media is an important source that people use to learn and obtain information about health and healthy life. Even though social media has the potential to be a crucial source for health information and issues, very few studies of the effectiveness of social media in this area have been investigated. The purpose of this research is to examine how different types of messages can contribute to the effectiveness of social media in health communication. The sample consisted of 159 participants who use social media. 2 (message frame: positive vs. negative) * 2 (message appeals: body image vs. health) between subject experimental design was used to test the hypotheses. The study shows that a positively framed message paired with a health focused message and a negatively framed message paired with a body image focused message exhibit a positive eWOM and message perception. This research offers direction for development of appropriate message types to improve social media effectiveness.
    Keywords: social media, message appeal, message frame, eating habit
  2. By: Astrid, Gamba; Luca, Stanca;
    Abstract: Adjudication errors in contests have a dual nature: they imply at the same time the unjust exclusion of a meritorious candidate (exclusion error) and the unjust inclusion of a non-meritorious one (inclusion error). We study theoretically and experimentally the effects of adjudication errors on contestants' effort, explicitly disentangling the respective effects of exclusion and inclusion errors. We show how behavioral aspects, such as risk aversion, loss aversion and the framing of the incentive scheme (prize vs. penalty) shape the effects of judgement errors on effort. The experimental findings indicate that mis-judgements negatively affect bids, with exclusion and inclusion er- rors contributing equally to the disincentive effects of adjudication errors. A penalty framing significantly increases bids, relative to a prize framing, both in the absence of judgement errors and in the presence of adjudication errors. On the other hand, no significant interaction is found between the framing of the incentive scheme and the disincentive effects of judgement errors.
    Keywords: adjudication errors, contests, all-pay auction, experiment
    JEL: C72 C91 D44
    Date: 2016–07–14
  3. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Oliver Kirchkamp (University Jena, School of Economics)
    Abstract: We provide an example for an errors in variables problem which might be often neglected but which is quite common in lab experimental practice: In one task, attitude towards risk is measured, in another task participants behave in a way that can possibly be explained by their risk attitude. How should we deal with inconsistent behaviour in the risk task? Ignoring these observations entails two biases: An errors in variables bias and a selection bias. We argue that inconsistent observations should be exploited to address the errors in variables problem, which can easily be done within a Bayesian framework.
    Keywords: Risk, lab experiment, public good, errors in variables, Bayesian inference
    JEL: C91 D43 L41
    Date: 2016–07
  4. By: Dillingh, Rik (Tilburg University, School of Economics and Management)
    Abstract: This dissertation consists of four empirical essays that study decisions on insurance, consumption and the accumulation and decumulation of wealth. The studies pay due attention to behavioral factors that may limit rationality, such as complexity and intertemporal choice. The first essay looks at the relationship between the saving decisions of specific groups in the Dutch labor market and whether or not they are covered by the occupational pension regime. Higher pension wealth turns out to be associated with lower private wealth accumulation, especially among the self-employed. The second essay examines whether the demand for health insurance is affected by the individual’s level of probability numeracy, which we define as the specific ability to understand and process probabilistic concepts. Our results indicate that those with intermediate levels of probability numeracy take out more health insurance, possibly due to ambiguity aversion. The third essay looks at the factors determining the decision to place a (visible) tattoo and relates this to several relevant economic and social outcomes, such as income and employment status and self-assessed health. We find some indications for less favorable outcomes for those with a tattoo, but the possibilities for causal inference are limited. The fourth essay studies the potential interest of Dutch homeowners in reverse mortgages. This is a mortgage loan that enables homeowners to liquidate a part of their housing wealth, without the need to move or increase monthly expenses. We find substantial potential interest, especially among the self-employed and those without children.
    Date: 2016
  5. By: Angie ANDRIKOGIANNOPOULOU (University of Geneva and Swiss Finance Institute); Filippos PAPAKONSTANTINOU (Imperial College London)
    Abstract: We use trading data from a sports wagering market to estimate individual risk preferences within the prospect-theory paradigm. The experimental-like features of this market greatly facilitate the estimation of risk preferences, while our long panel enables us to study whether preferences vary across individuals and depend on earlier outcomes. Our estimates i) extend support for existing experimental findings --- mild utility curvature, moderate loss aversion, and probability overweighting of extreme outcomes --- to a real market setting that shares similarities with traditional financial markets, ii) reveal that risk attitude is widely heterogeneous and history-dependent, and iii) indicate that prospect theory can better explain the prevalence of the disposition effect than previously thought.
    Keywords: Risk Preferences, State Dependence, History Dependence, Heterogeneity, Prospect Theory, Disposition Effect
    JEL: D03 D12 D14 D81 G02 G11
  6. By: Klaus Wälde (Johannes Gutenberg-University Mainz)
    Abstract: Emotions were central to the development of economics, especially in utility theory in classical economics. While neoclassical utility theory basically abolished emotions, behavioural economics more recently reintroduced emotions in utility theory. Beyond utility theory, economic theorists use emotions to explain behaviour which otherwise could not be understood or they study emotions out of interest for the emotion itself. While some analyses display a strong overlap between psychological thinking and economic modelling, in most cases there is still a large gap between economic and psychological approaches to emotion research. Ways how to reduce this gap are discussed.
    Keywords: utility theory, ex-ante emotions, immediate emotions, ex-post emotions belief-based emotions, regret, desire, stress, anxiety, guilt
    Date: 2016–06
  7. By: Andrea Morone; Enrica Imbert; Marcello Morone; Pasquale Falcone; Piergiuseppe Morone
    Abstract: Food security, along with growing population and the associated environmental concerns, make food waste and loss a central topic in economic analysis. While food losses occur mostly at the production, postharvest and processing phases of the supply chain, food waste takes place mainly at the end of the chain and therefore concerns primarily the habits and behaviour patterns of retailers and consumers. Many solutions and practices have been proposed and oftentimes implemented in order to "keep food out of landfills", thus reducing food waste at the source. However, little attention has been paid to the possible sharing of consumer-side food surplus. In this context, food sharing could represent an effective way to tackle food waste at the consumers' level, with both environmental and economic potential positive effects. Currently, several initiatives and start-ups are being developed in the US and Europe, involving the collection and use of the excess of food from consumers and retailers and the promotion of collaborative consumption models (e.g. Foodsharing, Growington, Feastly, etc.). Nevertheless, there is still little empirical evidence testing the effectiveness of introducing sharing economy approaches to reduce food waste. This study seeks to fill this gap through a framed field experiment. We run two experimental treatments; in the control treatment students were asked to behave according to their regular food consumption habits, and in the food sharing treatment the same students were instructed to purchase food, cook and consume it collectively. Preliminary results showed that the adoption by households of food sharing practices do not automatically translate into food waste reduction. A number of factors (environmental and economic awareness, domestic skills and collaborative behaviors) might act as 'enablers' to make sharing practices effective.
    Date: 2016
  8. By: Lu Dong (School of Economics, University of Nottingham); Rod Falvey (Bond Business School, Bond University); Shravan Luckraz (School of Economics, University of Nottingham, Ningbo China)
    Abstract: We propose and experimentally test a mechanism for a class of principal-agent problems in which agents can observe each others' efforts. In this mechanism each player costlessly assigns a share of the pie to each of the other players, after observing their contributions, and the final distribution is determined by these assignments. We show that cooperation can be achieved under this simple mechanism and, in a controlled laboratory experiment, we find that players use a proportional rule to reward others in most cases and that the players' contributions improve substantially and almost immediately with 80% of players contributing fully.
    Keywords: mechanism design, experimental economics, fairness, distributive justice
    Date: 2016–10
  9. By: Angie ANDRIKOGIANNOPOULOU (University of Geneva and Swiss Finance Institute); Filippos PAPAKONSTANTINOU (Imperial College London)
    Abstract: We use a unique panel dataset of individual activity in a soccer wagering market, to study the extent to which individuals’ betting behavior is affected by biases such as the representativeness bias, the limited-attention bias, and the home/local bias. Sports betting markets provide a real-world empirical setting with many similarities with traditional financial markets but with experimental-like features. The study of this alternative market enables us to test whether the documented biases are stable across markets, and to better disentangle rational versus behavioral explanations of observed behavior through direct tests of market efficiency and portfolio performance. In addition, our long panel dataset renders an individual-level analysis of behavior possible, hence enables us to study the prevalence of these biases in the cross-section. We find that participants in the soccer wagering market adhere to the same heuristics as investors in the stock market, as patterns in team past performance, team popularity, and team location significantly affect individual bet selection and portfolio weighting decisions. Furthermore, we find that none of the sentiment variables contains information about match outcomes that is not reflected in the quoted prices, and that individuals do not earn significantly higher returns from betting on teams on long winning streaks, on popular teams, or on domestic/local teams. This evidence indicates that the observed behavior is not driven by superior information but rather by sentiment, and could provide useful insights about the sources of analogous biases in the stock market, where tests of efficiency and superior performance are not as clean. The individual-level analysis shows that the local bias is less evident across individuals relative to the other biases, and that while these biases affect most individuals’ bet selection decision, they are not prevalent across individuals in the portfolio weighting decision. OR from SSRN: We use novel data on individual activity in a sports betting market to study the effect of past performance sequences on individual behavior in a real market. The revelation of fundamental values in this market enables us to disentangle whether behavior is caused by sentiment or by superior information about market mispricings, hence to cleanly test in a real setting two sentiment-based theories of momentum and reversals — the regime-shifting model of Barberis, Shleifer, and Vishny (1998) and the gambler's/hot-hand fallacy model of Rabin (2002). Furthermore, our long panel allows us to calculate the proportions of individuals who exhibit each type of behavior. We find that i) three quarters of individuals exhibit trend-chasing behavior; ii) seven times as many individuals exhibit behavior consistent with Barberis, Shleifer, and Vishny (1998) as exhibit behavior consistent with Rabin (2002); and iii) no individuals earn superior returns from momentum trading.
    Keywords: Behavioral Biases, Market Efficiency, Investor Sentiment, Sports Betting, Gambling, Individuals or from SSRN: Momentum, Individual Decision-making, Heterogeneity, Behavioral Biases, Information
    JEL: D12 D81 G00 D12 D81 G02 G11 G14

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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