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on Cognitive and Behavioural Economics |
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Issue of 2016‒11‒13
nine papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Giovanni Dosi; Luigi Marengo; Alessandro Nuvolari |
| Abstract: | In this work we shall attempt an excursus across fundamentally different streams of modern interpretations of the 'primitive entities' constituting the social fabrics of economic systems. Behind each specific interpretative story, there is a set of ceteris paribus assumptions and also some fictitious tale on a 'once upon a time' reconstruction of the theoretical primitives of the story itself. Pushing it to the extreme, as we see it, there are in the social sciences two archetypal (meta) tales. The first says, more or less, that 'once upon a time' there were individuals with reasonably structured and coherent preferences, with adequate cognitive algorithms to solve the decision-action problems at hand, and with self-seeking restrictions on preferences themselves. They met in some openings in the forest and, conditional on the technologies available, undertook some sort of general equilibrium trading or, as an unavoidable second best, built organizations in order to deal with technological non-convexities, trading difficulties, contract enforcements, etc. In the alternative tale, 'once upon a time' there were immediately factors of socialization and preference-formation of individuals, including some institutions like families shaping desires, representations and, possibly, cognitive abilities. Non-exchange mechanisms of interactions appear in the explanation from the start: authority, violence and persuasion of parents upon children; obedience; schools; churches; and, generally, the adaptation to particular social roles. Here 'institutions' are the primitives, while 'preferences' and the very idea of 'rationality' are derived entities. Which of the primitive tale is chosen bears far-reaching consequences for the interpretation of socio-economic organizational forms and their dynamics, and involves different theoretical commitments on the interactions between agencies and structures in human affairs. In this work, we argue for the need of moving away from rationality-cum-equilibrium interpretations and of focusing on the varying balances between selfùorginizing dynamics and institution-shaped constraints. |
| Keywords: | Institutions, rationality, self-organization, hierarchies,power, endogenous preferences, motivations |
| Date: | 2016–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2016/38&r=cbe |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods); Lilia Zhurakhovska (University of Duisburg-Essen) |
| Abstract: | Apparently judges’ decisions are not motivated by maximizing their own profit. The literature uses two strategies to explain this observation: judges care about the long-term monetary consequences for themselves, or individuals who are more strongly motivated by the common good self-select into the profession. We suggest that there is an additional explanation, the "office motive". In a lab experiment, we rule out both traditional explanations by design. Nonetheless authorities do a reliable job at overcoming a social dilemma. Calling the authorities "public official" or "judge" increases their sensitivity towards the degree by which individuals are selfish, and it reduces the effect of their social value orientation (making them more neutral). This suggests that the socially desirable effect is not driven by anger or sympathy with the victims, but follows from the desire to fulfill the expectations that come with the assigned task. We test three extensions: When given an opportunity to announce an explicit policy, judges become less sensitive to the objective degree of reproach, and more sensitive to their social value orientation. If judges are elected or experienced, they react more intensely to norm violations. Experienced judges are more affected by their social value orientation. |
| Keywords: | judicial behavior, office motive, public-goods experiment, judicial frame, election, experience |
| JEL: | C91 D03 D63 D73 H11 H41 H83 K41 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2016_15&r=cbe |
| By: | Morone, Andrea; Temerario, Tiziana |
| Abstract: | In this paper, we first replicated Harrison et al. (2012). Then, we studied if the group’s size has an impact on group’s risk aversion. In line with Harrison et al. (2012), our results confirm that no significant differences occur between individuals and groups risk aversion in three-person group. We also found that group size does not affect the level of risk aversion. |
| Keywords: | Risk attitude,Preferences |
| JEL: | C91 C92 D01 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:147413&r=cbe |
| By: | Chen, Daniel L.; Schonger, Martin |
| Abstract: | Most papers that employ the strategy method (SM) use many observations per subject to study responses to rare or off-equilibrium behavior that cannot be observed using direct elicitation (DE), but ignore that the strategic equivalence between SM and DE holds for the monetary payoff game but not the game participants actually play, which is in terms of utilities. To illustrate the severity of this issue, we formalize the mapping from the monetary payoff game to this actual game. A theorem provides necessary and sufficient conditions for strategic equivalence to apply. When the domain of preferences includes commonlymodeled motivations, such as intentions or disappointment aversion, or less-common ones, such as self-image or duty, strategic equivalence fails and thus the invariance to the method of elicitation does not apply. We use results from the past literature and our own experiments to investigate how well this theorem explains when results with SM and DE differ. We manipulate the salience of off-equilibrium considerations in our own experiments to demonstrate that SM and DE are not strategically equivalent, contrary to conventional wisdom. Three results emerge. First, not accounting for the bias in the estimation when decisions at one information set can influence the utility at another information set can render significant differences in decision-making. Second, the bias can be large and equivalent to some of the other causal effects being measured. Third, subtle interventions on salience can magnify these differences by a similar amount. |
| Keywords: | Theory of experiments, strategy method, social preferences, intentions, deontological motivations |
| JEL: | A13 C90 D03 D64 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:31135&r=cbe |
| By: | Ambec, Stefan; Garapin, Alexis; Muller, Laurent; Rahali, Bilel |
| Abstract: | We investigate how people trade off between equity and efficiency, using variations of tripled dictator and trust games in a lab experiment. Equalizing payoffs reduces the return from the tripled investment in the dictator game. In contrast, in the trust game both equal and maximized payoffs can be achieved, provided that receiver transfers back half of the return from investment. We find that subjects sacrifice efficiency for equity in the dictator game but manage to achieve both in the trust game. Most subjects equalize payoffs when they are placed behind a veil of ignorance about their position in the trust game, regardless of their aversion to risk. They invest less when they pay to obtain their position as investor but do not send back less if they pay to be the receiver. Subjects who modify their investment decision after receiving information about the average investment in their group tend to move closer to the average. |
| Keywords: | Trust game, triple dictator game, fairness, efficiency, equity, experiment. |
| JEL: | C72 C90 D03 D63 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31118&r=cbe |
| By: | Chen, Daniel L.; Schonger, Martin |
| Abstract: | Most papers that employ the strategy method (SM) use many observations per subject to study responses to rare or off-equilibrium behavior that cannot be observed using direct elicitation (DE), but ignore that the strategic equivalence between SM and DE holds for the monetary payoff game but not the game participants actually play, which is in terms of utilities. To illustrate the severity of this issue, we formalize the mapping from the monetary payoff game to this actual game. A theorem provides necessary and sufficient conditions for strategic equivalence to apply. When the domain of preferences includes commonlymodeled motivations, such as intentions or disappointment aversion, or less-common ones, such as self-image or duty, strategic equivalence fails and thus the invariance to the method of elicitation does not apply. We use results from the past literature and our own experiments to investigate how well this theorem explains when results with SM and DE differ. We manipulate the salience of off-equilibrium considerations in our own experiments to demonstrate that SM and DE are not strategically equivalent, contrary to conventional wisdom. Three results emerge. First, not accounting for the bias in the estimation when decisions at one information set can influence the utility at another information set can render significant differences in decision-making. Second, the bias can be large and equivalent to some of the other causal effects being measured. Third, subtle interventions on salience can magnify these differences by a similar amount. |
| Keywords: | Theory of experiments, strategy method, social preferences, intentions, deontological motivations |
| JEL: | A13 C90 D03 D64 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31131&r=cbe |
| By: | Michael P. Keane (University of Oxford and University of South Wales); Susan Thorp (The University of Sydney) |
| Abstract: | We review evidence on decision making in complex choice situations – i.e., situations where there are many alternatives and/or where attributes of alternatives are difficult to understand. We focus on choices about health insurance, health care, and retirement planning, all of which are very important for the well-being of the elderly. Our review suggests that consumers in general, and the elderly in particular, have great difficulty making optimal choices in these areas. They often behave in ways that imply a high degree of “confusion,” such as (i) failure to understand key attributes of alternatives, or (ii) inadequate cognitive capacity to process payoff relevant information. We go on to discuss extensions to standard rational choice models that account for consumer confusion. These include allowing perceived attributes to depart from true attributes; the use of heuristics; and inattention or procrastination. Such departures from rationality can be moderated by cognitive ability, age etc. We hope that these new models may be useful in designing paternalistic interventions. |
| Keywords: | Aging; Life cycle; Health insurance; Health care; Pensions; Retirement plans; Discrete choice models |
| JEL: | I13 I11 J14 J32 H55 D14 D83 D84 D91 C35 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:1610&r=cbe |
| By: | Calford, Evan |
| Abstract: | In normal form games, when agents exhibit ambiguity aversion the exclusion of mixed strategies from agents' choice sets can enlarge the set of equilibria. While it is possible, in a game theoretic experiment, to enforce pure strategy reporting it is not possible to prevent subjects from mixing before reporting a pure strategy. This short paper establishes conditions under which the set of equilibrium in a game with ambiguity averse agents and pure strategy reporting is invariant to the existence of pre-play mixing devices. This result is crucial for the interpretation of recent experimental work on the role of ambiguity aversion in normal form games. |
| Keywords: | Ambiguity Aversion, Mixed Strategies, Game Theory, Experimental Economics |
| JEL: | C72 C92 D03 D81 |
| Date: | 2016–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74909&r=cbe |
| By: | Chen, Daniel L.; Schonger, Martin |
| Abstract: | The study of the normative and positive theory of choice under uncertainty has made major advances through thought experiments often referred to as paradoxes: the St. Petersburg paradox, the Allais paradox, the Ellsberg paradox, and the Rabin paradox. Machina proposes a new thought experiment which posits a choice between two acts that have three outcomes. As in the Ellsberg paradox there are three events, but while the Ellsberg paradox has two (monetary) outcomes in Machina there are three. Machina shows that four prominent theories of ambiguity aversion predict indifference between the acts. Introspection, however, suggests that many people might very well strictly prefer one act over the other. This paper makes four contributions: first, to our knowledge, it is the first to experimentally implement the Machina thought experiment. Second, we employ a novel method to simultaneously elicit the certainty equivalent of an embedded lottery. Third, our results—across three experiments—indicate non-indifference, which rejects earlier theories of ambiguity aversion, but is consistent with a newer one, which we apply to explain our results. Fourth, we show that independence is a sufficient condition for indifference in the Machina paradox, and thereby explains why so many models predict indifference. |
| Keywords: | Ellsberg paradox, Machina paradox, uncertainty aversion, independence axiom |
| JEL: | D81 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31117&r=cbe |