nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2016‒12‒11
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Loss Aversion and Lying Behavior: Theory, Estimation and Empirical Evidence By Garbarino, Ellen; Slonim, Robert; Villeval, Marie Claire
  2. On the Interpretation of Non-cognitive Skills: What is Being Measured and Why It Matters By John Eric Humphries; Fabian Kosse
  3. Money Illusion and Household Finance By Thomas A. Stephens; Jean-Robert Tyran
  4. Does Studying Ethics Affect Moral Views? An Application to Distributive Justice By Konow, James
  5. Budgeting, Psychological Contracts, and Budgetary Misreporting By Susanna Gallani; Ranjani Krishnan; Eric J. Marinich; Michael D. Shields
  6. Dynamic Incentive Effects of Team Formation: Experimental Evidence By Gall, Thomas; Hu, Xiaocheng; Vlassopoulos, Michael
  7. Gain and loss of money in a choice experiment. The impact of financial loss aversion and risk preferences on willingness to pay to avoid renewable energy extarnalities. By Anna Bartczak; Susan Chilton; Mikołaj Czajkowski; Jürgen Meyerhoff

  1. By: Garbarino, Ellen (University of Sydney); Slonim, Robert (University of Sydney); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We theoretically show that agents with loss-averse preferences are more likely to lie to avoid receiving a financially bad outcome the lower the probability of this bad outcome. The increased dishonesty occurs due to the expected payoff increasing as the bad outcome becomes less likely, and hence the greater the loss that can be avoided by lying. We demonstrate robust support for this role of loss aversion on lying by reanalyzing the results from the extant literature covering 74 studies and 363 treatments, and from two new experiments that vary the outcome probabilities and examine lying for personal gain and for gains to causes one supports or opposes. To measure and compare lying behavior across treatments and studies, we develop an empirical method that estimates the full distribution of dishonesty when agents privately observe the outcome of a random process and can misreport what they observed.
    Keywords: loss aversion, dishonesty, econometric estimation, experimental economics, lying
    JEL: C91 C81 D03
    Date: 2016–11
  2. By: John Eric Humphries; Fabian Kosse
    Abstract: Across academic sub-fields such as labor, education, and behavioral economics, the measurement and interpretation of non-cognitive skills varies widely. As a result, it is difficult to compare results on the importance of non-cognitive skills across literatures. Drawing from these literatures, this paper systematically relates various prototypical non-cognitive measures within one data set. Specifically, we estimate and compare several different strategies for measuring non-cognitive skills. For each, we compare their relative effectiveness at predicting educational success and decompose what is being measured into underlying personality traits and economic preferences. We demonstrate that the construction of the non-cognitive factor greatly influences what is actually measured and what conclusions are reached about the role of non-cognitive skills in life outcomes such as educational attainment. Furthermore, we demonstrate that, while sometimes difficult to interpret, factors extracted from self-reported behaviors can have predictive power similar to well established taxonomies, such as the Big Five.
    Keywords: non-cognitive skills, personality, preferences, educational success
    JEL: J24 I20 D03 D90
    Date: 2016
  3. By: Thomas A. Stephens (Department of Economics, WU Vienna University of Economics and Business); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: We elicit money illusion and match it with financial and sociodemographic data from official registers on a quasi-representative sample of the Danish population. We find that people who are more prone to money illusion hold more of their gross wealth in nominal assets, including bank deposits and bonds, and less in real assets, including real estate and stocks. This bias is robust to controls for education, income, cognitive ability and other relevant characteristics. We further find that money illusion is a costly bias: 10-year portfolio returns are about 10 percentage points lower for individuals with high money illusion.
    Keywords: money illusion, loss aversion, household finance
    JEL: C91 D03 D14 E21 G11
    Date: 2016–12–01
  4. By: Konow, James
    Abstract: Recent years have witnessed a rapid increase in initiatives to expand ethics instruction in higher education. Numerous empirical studies have examined the possible effects on students of discipline-based ethics instruction, such business ethics and medical ethics. Nevertheless, the largest share of college ethics instruction has traditionally fallen to philosophy departments, and there is a paucity of empirical research on the individual effects of that approach. This paper examines possible effects of exposure to readings and lectures in mandatory philosophy classes on student views of morality. Specifically, it focuses on an ethical topic of importance to both economics and philosophy, viz., economic (or distributive) justice. The questionnaire study is designed to avoid features suspected of generating false positives in past research while calibrating the measurement so as to increase the likelihood of detecting even a modest true effect. The results provide little evidence that the philosophical ethics approach studied here systematically affects the fairness views of students. The possible implications for future research and for ethics instruction are briefly discussed.
    Keywords: ethics education, fairness, philosophy
    JEL: A2 D63
    Date: 2016–09
  5. By: Susanna Gallani (Harvard Business School, Accounting and Management Unit); Ranjani Krishnan (Eli Broad School of Management, Michigan State University); Eric J. Marinich (Miami University); Michael D. Shields (Michigan State University)
    Abstract: We study three common types of budgeting that differ in employees' influence over their approved budgets. These include affirmative budgeting where employees have full influence, consultative budgeting where employees have moderate influence, and authoritative budgeting where employees have low influence on their approved budgets. We argue that when organizations explicitly or implicitly communicate that budgeting will be participative, it establishes psychological contracts of affirmative budgeting in employees. Psychological contract breach occurs if employees subsequently experience authoritative or consultative budgeting. Psychological contract breach leads to feelings of violation and distrust, even when the terms of the employees' economic contracts are fulfilled. We examine if employees who experience psychological contract breach seek redress by increased budgetary misreporting. Experimental results indicate that psychological contract breach partially mediates the relation between budgeting type and budgetary misreporting. Moreover, the effects of budgeting type on budgetary misreporting persist in the future, even when budgeting is affirmative.
    Keywords: budgeting; budgetary slack; participative budgeting; psychological contracts.
    Date: 2015–08
  6. By: Gall, Thomas (University of Southampton); Hu, Xiaocheng (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: Optimal team composition has been the focus of exhaustive analysis, academic and otherwise. Yet, much of this analysis has ignored possible dynamic effects: e.g., anticipating that team formation is based on prior performance will affect prior performance. We test this hypothesis in a lab experiment with two stages of a real effort task. Participants first work individually without monetary incentives and are then assigned to teams of two where compensation is based on team performance. Our results are consistent with a simple investment-cum-matching model: pairing the worst performing individuals with the best yields 20% lower first stage effort than random matching. Pairing the best with the best, however, yields 5% higher first stage effort than random matching. In line with the theory the latter result is more pronounced when the task has less scope for learning-by-doing. Moreover, pairing the best with the best achieves the same effort response as having explicit monetary incentives in the first stage.
    Keywords: matching, team formation, performance, dynamic incentives
    JEL: C78 C91 M54
    Date: 2016–11
  7. By: Anna Bartczak (Faculty of Economic Sciences, University of Warsaw; Warsaw Ecological Economics Center); Susan Chilton (Newcastle University Business School); Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Jürgen Meyerhoff (Institute for Landscape and Environmental Planning, Technische Universität Berlin)
    Abstract: We examine how the direction of price changes affects the value people place on avoiding renewable energy externalities in Poland. Additionally, we investigate the influence of individuals’ financial loss aversion and financial risk preferences on this valuation. In our study we conduct a choice experiment survey in which respondents’ choices indicate the value they place on avoiding wind, solar, and biomass externalities. We combine this survey with a financial lottery choice task that elicits the respondents’ risk preferences and degree of loss aversion. In the choice experiment we use both increases and decreases in electricity bills to depict the uncertain effect of new sources of energy generation on the current price level. This design allows us to investigate if obtained values are independent of the payment mechanism. In the analyzed context, our results indicate that marginal utility of money seems to be lower with a rebate on the energy bill than with a surcharge. Moreover, financial risk preferences affect people’s choices in a case of a surcharge, while loss aversion for money affects them in the case of a rebate. We find that the more loss averse people are with regard to money, the more they require compensation before they accept externalities from renewable electricity production. In contrast, the more risk seeking people are in a financial domain, the less cost sensitive they are and the more willing they are to pay for proposed changes in renewable electricity generation.
    Keywords: choice experiment, externalities of renewable energy, loss aversion, lottery experiment, marginal utility of money, risk preferences
    JEL: D81 Q20 Q42 Q49 Q51
    Date: 2016

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