nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2017‒03‒19
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Is trustworthiness written on the face? By Dilger, Alexander; Müller, Julia; Müller, Michael
  2. Facing Yourself: A Note on Self-Image By Armin Falk
  3. Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets By Nobuyuki Hanaki; Eizo Akiyama; Yukihiko Funaki; Ryuichiro Ishikawa
  4. Behavioural economics and financial consumer protection By Anne-Francoise Lefevre; Michael Chapman
  5. Memory, Attention, and Choice By Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer

  1. By: Dilger, Alexander; Müller, Julia; Müller, Michael
    Abstract: Trust is an important driver of economic transactions, but how do people decide whom to trust? We conduct an experiment to investigate whether people are able to predict trustworthiness by judging the face of a stranger. The behavior of the second player in the Trust Game is used as a measure of trustworthiness. Other subjects assess the trustworthiness of the second players of the Trust Game in the second stage using standardized photos of their faces. We find no significant interrelation in our statistical estimations between trustworthiness ratings and the behavior of the examined players. Surprisingly, players that were rated as more attractive sent back significantly less in the Trust Game.
    JEL: C72 C91 D03 D81 J71
    Date: 2017
  2. By: Armin Falk (Universität Bonn)
    Abstract: Numerous signaling models in economics assume image concerns. These take two forms, as relating either to social image or self-image. While empirical work has identified the behavioral importance of the former, little is known about the role of self-image concerns. We exogenously vary self-image concerns in manipulating self-directed attention and study the impact on moral behavior. The choice context in the experiment is whether subjects inflict a painful electric shock on another subject to receive a monetary payment. Three between-subjects conditions are studied. In the main treatment, subjects see their own face on the decision screen in a real-time video feed. In the two control conditions, subjects see either no video at all or a neutral video. We find that the exogenous increase in self-image concerns significantly reduces the fraction of subjects inflicting pain.
    Keywords: self-image, moral behavior
    JEL: D64 C91
    Date: 2017–03
  3. By: Nobuyuki Hanaki (Université Côte d'Azur; GREDEG-CNRS; IUF); Eizo Akiyama (University of Tsukuba, Japan); Yukihiko Funaki (Waseda University, Japan); Ryuichiro Ishikawa (University of Tsukuba, Japan)
    Abstract: Does diversity of cognitive ability among market participants increase mispricing? Does common knowledge of heterogeneity in relation to cognitive ability of market participants further increase mispricing? We investigated these questions by measuring subjects' cognitive ability and categorizing those above median ability as type `H' and those below median ability as type `L'. We then constructed three market types, each containing six traders: 6H, 6L, and 3H3L. Subjects were informed of their own cognitive type and, depending on the treatment, that of the others in their market. We found that heterogeneous markets (3H3L) generated significantly larger mispricing than homogeneous markets (6H or 6L) regardless of whether subjects were informed about the cognitive type of others in their market. Thus, diversity of cognitive ability among market participants increased mispricing. However, common knowledge of heterogeneity or homogeneity in the market did not have a signi cant additional effect.
    Keywords: Cognitive ability, Heterogeneity, Mispricing, Experimental asset markets
    JEL: C90 D84
    Date: 2017–03
  4. By: Anne-Francoise Lefevre (OECD); Michael Chapman (OECD)
    Abstract: The G20/OECD Task Force on Financial Consumer Protection has highlighted that "regulators and supervisors can use the insights gained through behavioural economics research to inform their approach to potential remedies to help consumers". This paper, prepared under the aegis of the G20/OECD Task Force, first provides some historical context for the development of the field of behavioural economics and its increased application to policy. It then looks more specifically at the application of behavioural economics in the area of financial consumer protection. Common biases that individuals demonstrate in the context of making financial decisions are identified, and an overview of how numerous governments are testing and implementing the application of behavioural economics for policies promoting financial consumer protection is provided. The paper concludes by highlighting the opportunity for behavioural economics to help provide cost-efficient ways of making policy more effective at promoting positive outcomes for consumers, and stressing the need to continue an open dialogue with policy makers, regulators and supervisors to exchange experiences and good practices.
    Keywords: behevioural economics, financial consumer protection
    JEL: D14 D18 G28
    Date: 2017–03–15
  5. By: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
    Abstract: We present a theory in which the choice set cues a consumer to recall a norm, and surprise relative to the norm shapes his attention and choice. We model memory based on Kahana (2012), where past experiences that are more recent or more similar to the cue are recalled and crowd out others. We model surprise relative to the norm using our salience model of attention and choice. The model predicts unstable and inconsistent behavior in new contexts, because these are evaluated relative to past norms. Under some conditions, repeated experience causes norms to adapt, inducing stable ? sometimes rational ?behavior across different contexts. We test some of the model?s predictions using an expanded data set on rental decisions of movers between US cities first analyzed by Simonsohn and Loewenstein (2006).
    Date: 2017–03

This nep-cbe issue is ©2017 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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