nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒11‒27
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Pay-What-You-Want Game and Laboratory Experiments By Greiff, Matthias; Egbert, Henrik
  2. Social Contagion of Ethnic Hostility By Michal Bauer; Jana Cahlikova; Julie Chytilova; Tomas Zelinsky
  3. Economics meets Psychology:Experimental and self-reported Measures of Individual Competitiveness By Werner Bönte; Sandro Lombardo; Diemo Urbig
  4. The relation between privacy protection and risk attitudes, with a new experimental method to elicit the implicit monetary value of privacy By Frik, Alisa; Gaudeul, Alexia
  5. Microfoundations for Switching Behavior in Heterogeneous Agent Models: An Experiment By Mikhail Anufriev; Te Bao; Jan Tuinstra
  6. How Effective are Reminders and Frames in Incentivizing Blood Donations By Danijela Vuletic
  7. ExpertsÕ versus ConsumersÕ Perception of Financial Products By Inga Jonaityte
  8. Simple Forecasting Heuristics that Make us Smart: Evidence from Different Market Experiments By Mikhail Anufriev; Cars Hommes; Tomasz Makarewicz
  9. Identifying the Reasons for Coordination Failure in a Laboratory Experiment By Philipp Külpmann; Davit Khantadze

  1. By: Greiff, Matthias; Egbert, Henrik
    Abstract: This paper introduces the Pay-What-You-Want game which represents the interaction between a buyer and a seller in a Pay-What-You-Want (PWYW) situation. The PWYW game embeds the dictator game and the trust game as subgames. This allows us to use previous experimental studies with the dictator and the trust game to identify three factors that can influence the success of PWYW pricing in business practice: (i) social context, (ii) social information, and (iii) deservingness. Only few cases of PWYW pricing for a longer period of time have been documented. By addressing repeated games, we isolate two additional factors which are likely to contribute to successful implementations of PWYW as a long term pricing strategy. These are (iv) communication and (v) the reduction of goal conflicts. The central implication of this study is that the results from experimental economics can provide guidance to developing long-term applications of PWYW pricing.
    Keywords: Pay-What-You-Want; PWYW Game; participative pricing; experiments; reciprocity
    JEL: C90 D11 M21 M31
    Date: 2016–11–22
  2. By: Michal Bauer; Jana Cahlikova; Julie Chytilova; Tomas Zelinsky
    Abstract: Ethnic hostilities often spread rapidly. This paper investigates the influence of peers on willingness to sacrifice one’s own resources in order to cause harm to others. We implement a novel experimental design, in which we manipulate the identity of a victim as well as the social context, by allowing subjects to observe randomly assigned peers. The results show that the susceptibility to follow destructive peer behavior is great when harm is caused to members of the Roma minority, but small when it impacts co-ethnics. If not exposed to destructive peers, subjects do not discriminate. We observe very similar patterns in a norms elicitation experiment: destructive behavior towards Roma is not generally rated as more socially appropriate than when directed at co-ethnics but norms are more sensitive to social contexts. The findings can help to explain why ethnic hostilities can spread quickly among masses, even in societies with few visible signs of systematic inter-ethnic hatred, and why many societies institute hate crime laws.
    Keywords: ethnic conflict; discrimination; hostile behavior; contagion; peer effects;
    JEL: C93 D03 D74 J15
    Date: 2016–08
  3. By: Werner Bönte (University of Wuppertal, Schumpeter School of Business and Economics; University of Wuppertal, Jackstädt Center of Entrepreneurship and Innovation Research; Indiana University, School of Public & Environmental Affairs, Institute for Development Strategies); Sandro Lombardo (University of Wuppertal, Schumpeter School of Business and Economics); Diemo Urbig (University of Wuppertal, Schumpeter School of Business and Economics; University of Wuppertal, Jackstädt Center of Entrepreneurship and Innovation Research; Indiana University, School of Public & Environmental Affairs, Institute for Development Strategies)
    Abstract: Economists and psychologists follow different approaches to measure individual competitiveness. While psychologists typically use self-reported psychometric scales, economists tend to use incentivized behavioral experiments, where subjects confronted with a specific task self-select into a competitive versus a piece-rate payment scheme. So far, both measurement approaches have remained largely isolated from one another. We discuss how these approaches are linked and based on a classroom experiment with 186 students we empirically examine the relationship between a behavioral competitiveness measure and a self-reported competitiveness scale. We find a stable positive relationship between these measures suggesting that both measures are indicators of the same underlying latent variable, which might be interpreted as a general preference to enter competitive situations. Moreover, our results suggest that the self-reported scale partly rests on motives related to personal development, whereas the behavioral measure does not reflect competitiveness motivated by personal development. Our study demonstrates how comparative studies such as ours can open up new avenues for the further development of both behavioral experiments and psychometric scales that aim at measuring individual competitiveness.
    Keywords: Competition, Experiment, Tournament scheme, Personal Development Motive
    JEL: C91 D03 M52
    Date: 2016–11
  4. By: Frik, Alisa; Gaudeul, Alexia
    Abstract: We investigate the decision of experimental subjects to incur the risk of revealing personal private information to other participants. We do so by using a novel method to generate personal information that reliably induces privacy concerns in the laboratory. We show that individual decisions to incur privacy risk are correlated with decisions to incur monetary risk. We find that partially depriving subjects of control over the revelation of their personal information does not lead them to lose interest in protecting it. We also find that making subjects think of privacy decisions after financial decisions reduces their aversion to privacy risk. Finally, surveyed attitude to privacy and explicit willingness to pay or to accept payment for personal information correlate well with willingness to incur privacy risk. Having shown that privacy loss can be assimilated to a monetary loss, we compare decisions to incur risk in privacy lotteries with risk attitude in monetary lotteries to derive estimates of the implicit monetary value of privacy. The average implicit monetary value of privacy is about equal to the average willingness to pay to protect private information, but the two measures do not correlate at the individual level. We conclude by underlining the need to know individual attitudes to risk to properly evaluate individual attitudes to privacy as such.
    Keywords: privacy,disclosure,risk,control,personal information,experiment
    JEL: C91 D81 O30
    Date: 2016
  5. By: Mikhail Anufriev (Economics Discipline Group, University of Technology, Sydney); Te Bao (Faculty of Economics and Business, University of Groningen); Jan Tuinstra (Amsterdam School of Economics and CeNDEF, University of Amsterdam)
    Abstract: We run a laboratory experiment to study how people switch between several profitable alternatives, framed as mutual funds, in order to provide a microfoundation for so-called heterogeneous agent models. The participants in our experiment have to choose repeatedly between two, three or four experimental funds. The time series of fund returns are exogenously generated prior to the experiment and participants are paid for each period according to the return of the fund they choose. For most cases participants' decisions can be successfully described by a discrete choice switching model, often applied in heterogeneous agent models, provided that a predisposition towards one of the funds is included. The estimated intensity of choice parameter of the discrete choice model depends on the structure of the fund returns. In particular, it increases with correlation between past and future returns. This suggests people do not myopically chase past returns, but are more likely to do so when past returns are more predictive of future returns, a feature that is absent in the standard heterogeneous agent models.
    Keywords: Heterogeneuos agent models; discrete choice; switching; experiments
    JEL: C25 C91 D83
    Date: 2015–09–16
  6. By: Danijela Vuletic
    Abstract: This paper studies the effects of reminders, and frames used to invoke higher levels of empathy and altruistic motives on the willingness to donate blood. We have conducted a randomized field experiment with 3236 blood donors from Bosnia and Herzegovina, in order to test how effective frames were when used in letters soliciting blood donation. Further, we tested the effectiveness of the letter itself which served as a specific reminder, making the need for blood more salient. Our baseline group did not receive any letter. Another seven groups received letters which differed in terms of goal framing; whether a specific victim was identified; and the gender of a victim. We found that a reminder of the need for blood in the form of a simple letter increases the probability of coming to donate blood by 63% relative to the baseline group, suggesting that reminder letters may serve as a cost effective policy tool. At the same time, we found that the framing of the letter had relatively little effect when donors are allowed longer period to make their donation decision.
    Keywords: field experiment; blood donation; reminders; goal framing; identifiable victim effect;
    JEL: C93 D64 A13 I18
    Date: 2015–11
  7. By: Inga Jonaityte (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: This study explores decision-making processes of promoters of financial products and financial advice services. We collect experimental evidence about how these professionals perceive their customersÕ needs, preferences, and biases. By focusing on the behavioral differences between expert (621) and non-expert subjects (573) this study shows that expertise alone is not enough to prevent biased behavior. Our results suggest that even the most experienced and well-informed professionals exhibit systematic biases. We discuss how interpersonal cues used in financial communications may induce trust-related biases. This research provides useful insights for future in-depth research on how contextual factors, often non-informative, influence financial advisersÕ judgments and subsequent advice.
    Keywords: financial advice; consumer finance; financial advertisement; disclosure; information processing; expertise; trust; experiment.
    JEL: D03 D1 D8 D81 D83 D84 G11 G2 G21 G23 M3
    Date: 2016–11
  8. By: Mikhail Anufriev (Economics Discipline Group, University of Technology, Sydney); Cars Hommes (CeNDEF, University of Amsterdam); Tomasz Makarewicz (CeNDEF, University of Amsterdam)
    Abstract: We study a model in which individual agents use simple linear first order price forecasting rules, adapting them to the complex evolving market environment with a smart Genetic Algorithm optimization procedure. The novelties are: (1) a parsimonious experimental foundation of individual forecasting behaviour; (2) an explanation of individual and aggregate behavior in four different experimental settings, (3) improved one-period and 50-period ahead forecasting of lab experiments, and (4) a characterization of the mean, median and empirical distribution of forecasting heuristics. The median of the distribution of GA forecasting heuristics can be used in designing or validating simple Heuristic Switching Model.
    Keywords: Expectation Formation; Learning to Forecast Experiment; Genetic Algorithm Model of Individual Learning
    JEL: C53 C63 C91 D03 D83 D84
    Date: 2015–07–13
  9. By: Philipp Külpmann; Davit Khantadze
    Abstract: In this paper, we use a laboratory experiment to investigate the effect of absence of common knowledge on the outcomes of coordination games. We introduce cognitive types into a pure coordination game in which there is no common knowledge about the distribution of cognitive types. In our experiment, around 76% of the subjects managed to coordinate on the payoff-dominant equilibrium despite the absence of common knowledge. However, around 9% of the players had first-order beliefs that lead to coordination failure and another 9% exhibited coordination failure due to higher-order beliefs. Furthermore, we compare our results with predictions of different models of higher-order beliefs, commonly used in the literature.
    JEL: C72 C92 D83
    Date: 2016–11–21

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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