nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒11‒06
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Pros and Cons of Workplace Tournaments By Sheremeta, Roman
  2. Risk Taking, Intertemporal Choice, and Loss Aversion By William Morrison, Robert Oxoby
  3. Gender, competition and performance:Evidence from real tournaments By Peter Backus; María Cubel; Matej Guid; Santiago Sánchez-Pages; Enrique Lopez Manas
  4. Handedness, Ability, Earnings and Risk. Evidence from the Lab By Marcello Sartarelli
  5. Expectation-Based Loss Aversion and Strategic Interaction By Simon Dato; Andreas Grunewald; Daniel Müller
  6. Using Goals to Motivate College Students: Theory and Evidence from Field Experiments By Clark, Damon; Gill, David; Prowse, Victoria L.; Rush, Mark
  7. Deciding fast and slow By D. Pennesi
  8. On the Robustness of Higher Order Risk Preferences By Cary Deck; Harris Schlesinger
  9. Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains? By Barron, Kai
  10. The influence of induced care and anger motives on behavior, beliefs and perceptions in a public goods game By Bartke, Simon; Bosworth, Steven J.; Snower, Dennis; Chierchia, Gabriele
  11. Locus of Control and Performance Appraisal By Heywood, John S.; Jirjahn, Uwe; Struewing, Cornelia

  1. By: Sheremeta, Roman
    Abstract: Tournaments are commonly used in the workplace to determine promotion, assign bonuses, and motivate personal development. Tournament-based contracts can be very effective in eliciting high effort, often outperforming other compensation contracts, but they can also have negative consequences for both managers and workers. The benefits and disadvantages of workplace tournaments have been identified in theoretical, empirical, and experimental research over the past several decades. Based on these findings, I provide suggestions and guidelines for when it might be beneficial to use tournaments in the workplace.
    Keywords: tournaments, contests, competition, contracts, workplace
    JEL: C7 C8 C9 J4 J7 L1 L2 M1 M5
    Date: 2016–11–01
  2. By: William Morrison, Robert Oxoby (Wilfrid Laurier University)
    Abstract: We report on two laboratory experiments testing for the presence of loss aversion, separate from risk aversion, in decisions involving risk and intertemporal choice. Both experiments utilize an asset legitimacy protocol to control for ‘house money’ effects. In our first experiment, we augment the Holt-Laury risk preference elicitation protocol to address the effects of loss aversion. In our second experiment, we explore loss aversion using a discount rate elicitation protocol that controls for risk preferences. Our results show that loss aversion can be separated from risk preferences and has a profound effect in decision-making.
    JEL: C91 D91
    Date: 2016–07–01
  3. By: Peter Backus (University of Manchester& Barcelona Institute of Economics (IEB)); María Cubel (Universitat de Barcelona); Matej Guid (University of Ljubljana); Santiago Sánchez-Pages (Universitat de Barcelona); Enrique Lopez Manas (Google Developer Expert)
    Abstract: There is a growing literature looking at how men and women respond differently to competition. We contribute to this literature by studying gender differences in performance in a high-stakes and male dominated competitive environment, expert chess tournaments. Our findings show that women underperform compared to men of the same ability and that the gender composition of games drives this effect. Using within player variation in the conditionally random gender of their opponent, we find that women earn significantly worse outcomes against male opponents. We examine the mechanisms through which this effect operates by using a unique measure of within game quality of play. We find that the gender composition effect is driven by women playing worse against men, rather than by men playing better against women. The gender of the opponent does not affect a male player’s quality of play. We also find that men persist longer against women before resigning. These results suggest that the gender composition of competitions affects the behavior of both men and women in ways that are detrimental to the performance of women. Lastly, we study the effect of competitive pressure and find that players’ quality of play deteriorates when stakes increase, though we find no differential effect over the gender composition of games.
    Keywords: Competition, Gender, Stereotype threat, Chess
    JEL: D03 J16 J24 J70 L83 M50
    Date: 2016
  4. By: Marcello Sartarelli (Dpto. Fundamentos del Análisis Económico)
    Abstract: The relationship between handedness, ability and, in addition, their joint role in explaining earnings and decisions under risk is studied experimentally to shed new light on the mechanisms behind the mixed evidence in survey data. Data on 432 under graduate students show that left-handed (L) do not obtain a significantly different Cognitive Reflection Test score relative to others nor different payoffs in a stylized labour market with agents working for principals and being paid for exerting costly effort, a proxy for earnings. In addition, they are not significantly more risk averse. In partial contrast, their self-reported achievement at university tends to be significantly higher and driven by females although weakly for some specifications. Finally, when looking at personality traits, measured using the Big Five test, L are significantly more agreeable, showing higher preferences for cooperation, and also tend to be more extroverted, in particular more sociable.
    Keywords: Ability, Big Five, CRT, earnings, gender, handedness, leftie, left-handed, personality traits, risk.
    JEL: C91 D81 D87
    Date: 2016–10
  5. By: Simon Dato; Andreas Grunewald; Daniel Müller
    Abstract: This paper provides a comprehensive analysis regarding strategic interaction under expectation-based loss-aversion. First, we develop a coherent framework for the analysis by extending the equilibrium concepts of Koszegi and Rabin (2006, 2007) to strategic interaction and demonstrate how to derive equilibria. Second, we delineate how expectation-based loss-averse players differ in their strategic behavior from their counterparts with standard expected-utility preferences. Third, we analyze equilibrium play under expectation-based loss aversion and comment on the existence of equilibria.
    Keywords: Non-Cooperative Games, Expectation-Based Loss Aversion, Reference-Dependent Preferences, Mixed Strategies
    JEL: C72 D01 D03 D81
    Date: 2016–02
  6. By: Clark, Damon (University of California, Irvine); Gill, David (Purdue University); Prowse, Victoria L. (Purdue University); Rush, Mark (University of Florida)
    Abstract: Will college students who set goals for themselves work harder and perform better? In theory, setting goals can help time-inconsistent students to mitigate their self-control problem. In practice, there is little credible evidence on the causal effects of goal setting for college students. We report the results of two field experiments that involved almost four thousand college students in total. One experiment asked treated students to set goals for performance in the course; the other asked treated students to set goals for a particular task (completing online practice exams). We find that performance-based goals had no discernible impact on course performance. In contrast, task-based goals had large and robust positive effects on the level of task completion, and task-based goals also increased course performance. Further empirical analysis indicates that the increase in task completion induced by setting task-based goals caused the increase in course performance. We also find that task-based goals were more effective for male students. We develop new theory that reinforces our empirical results by suggesting two key reasons why task-based goals might be more effective than performance-based goals: overconfidence and uncertainty about performance. Since task-based goal setting is low-cost, scaleable and logistically simple, we conclude that our findings have important implications for educational practice and future research.
    Keywords: goal, goal setting, higher education, field experiment, self-control, present bias, time inconsistency, commitment device, loss aversion, reference point, task-based goal, performance-based goal, self-set goal, performance uncertainty, overconfidence, student effort, student performance, educational attainment, MOOC
    JEL: I23 C93
    Date: 2016–10
  7. By: D. Pennesi
    Abstract: Empirical evidence suggests that choices are affected by the amount of time available to the decision maker. Time pressure or a cooling-off period (mandatory delay of choice) changes how choices are determined. Yet, few models are able to account for the role of available time on decisions. This paper proposes a dual-self model in which a fast and a slow self bargain to decide: the longer is the decision process, the higher is the bargaining power of the slow self when deciding. A large variety of behaviors observed under time pressure or cooling-off can be explained by our model. Quantitative predictions concerning the effect of nudging through time manipulation are also provided. We characterize the model imposing testable conditions on revealed preferences combined with non-choice data.
    JEL: D01 D03 D11 D81
    Date: 2016–10
  8. By: Cary Deck (University of Arkansas and Economic Science Institute, Chapman University,); Harris Schlesinger (University of Alabama)
    Abstract: Economists have begun to recognize the role that higher order risk preferences play in a variety of settings. As such, several experiments have documented the degree of prudence, temperance, and to a lesser extent, edginess and bentness that laboratory subjects exhibit. More recently, researchers have argued that higher order risk preferences generally conform to mixed risk averse and mixed risk loving patterns that arise from a preference for disaggregating or aggregating harms, respectively. This paper examines the robustness of this pattern in three ways. First, it attempts to directly replicate previous results with compound lotteries over monetary outcomes. Second, it compares behavior in compound lotteries with behavior in reduced form lotteries. And third, it evaluates choices over monetary and non-monetary risks. While previous results are replicated for compound lotteries over monetary outcomes and aggregate behavior with reduced form lotteries has a similar pattern, individuals clearly treat compound and reduced form lotteries differently. Further, behavior differs between monetary and non-monetary outcomes.
    Keywords: Risk apportionment, mixed risk aversion, prudence, temperance, edginess, experiments
    JEL: C9 D8
    Date: 2016
  9. By: Barron, Kai
    Abstract: Bayes' statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Recent research has questioned the use of Bayes' rule in descriptive models of behavior, presenting evidence that people overweight 'good news' relative to 'bad news' when updating ego-relevant beliefs. In this paper, we present experimental evidence testing whether this 'good-news, bad-news' effect extends to belief updating in the domain of financial decision making, i.e. the domain of most applied economic decision making. We find no evidence of asymmetric updating in this domain. In contrast, the average participant in our experiment is strikingly close to Bayesian in her belief updating. However, we show that this average behavior masks the existence of three distinct types of updating behavior - each of which is distinct from Bayesian, but none of which displays the 'good-news, bad-news' effect.
    Keywords: economic experiments,Bayes' rule,asymmetric belief updating,belief measurement,proper scoring rules,subjective probability,motivated beliefs
    JEL: C11 C91 D83
    Date: 2016
  10. By: Bartke, Simon; Bosworth, Steven J.; Snower, Dennis; Chierchia, Gabriele
    Abstract: This study analyzes the stability of preferences through the lens of psychological motives. We report the results of a public goods experiment in which subjects were induced with the motives of Care and Anger through autobiographical recall. Subjects' preferences, beliefs, and perceptions under each motive are compared with those of subjects experiencing a neutral autobiographical recall condition. We find that Care elicits significantly higher contributions than Anger, with Control treatment contributions in between. This is primarily driven by changes in conditional contribution schedules (measuring preferences) across treatments, though higher beliefs explain part of the effect that Care has on giving. These results are robust to checking for comprehension of the game's incentives. We also observe concomitant differences in attention to own and other's payoffs (using mouse tracking) as well as perceptions of the game's incentive structure (harmony) - particularly for subjects motivated by Anger. We interpret our findings as suggesting that people have access to multiple preferences that depend on how they perceive the decision context.
    Keywords: public goods,motivation,stability of preferences,anger,care,framing
    JEL: C92 H41 D64 D03
    Date: 2016
  11. By: Heywood, John S. (University of Wisconsin, Milwaukee); Jirjahn, Uwe (University of Trier); Struewing, Cornelia (University of Trier)
    Abstract: This work contributes to the literature demonstrating an important role for psychological traits in labor market decisions. We show that West German workers with an internal locus of control sort into jobs with performance appraisals. Appraisals provide workers who believe they control their environment a tool to demonstrate their value and achieve their goals. We confirm that workers who are risk tolerant also sort into jobs with performance appraisals but explain why the influence of the locus of control and risk tolerance should not be additive. We demonstrate this by estimating a routinely large and significantly negative interaction in our sorting equations. We also show that important patterns of sorting are revealed only when taking into account the interaction of locus of control and risk tolerance.
    Keywords: locus of control, risk attitude, performance appraisal, performance pay, sorting, extrinsic rewards, intrinsic motivation
    JEL: D03 J33 M52
    Date: 2016–10

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