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on Cognitive and Behavioural Economics |
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Issue of 2017‒04‒16
five papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Schilirò, Daniele |
| Abstract: | In the Theory of Rational Decision Making the psychological aspects are set aside. This contribution seeks to point out the relevance of psychology into economic decisions. The essay treats the "framing of decisions", which is a pillar of Kahneman's behavioral theory. Framing must be considered a special case of the more general phenomenon of dependency from the representation. The best-known risky choice-framing problem, i.e. the "Asian Disease Problem", is shown where an essential aspect of rationality: invariance, is violated. In addition, the contribution explains Kahneman and Tversky's Prospect Theory and illustrates their value function. Finally, it discusses the reversals of preference in framing and framing of contingencies. The framing manipulation is viewed as a public tool for influencing the decision maker's private framing of the problem in terms of gains or losses, which determines the decision maker's evaluation of the options. In conclusion, the psychology of choice is relevant both for the descriptive question of how decisions are made and for the normative question of how decisions ought to be made. |
| Keywords: | Behavioral Economics; Framing of Decisions; Prospect Theory; Daniel Kahneman. |
| JEL: | D01 D03 D81 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78270&r=cbe |
| By: | Luigi Butera; John List |
| Abstract: | Novel empirical insights by their very nature tend to be unanticipated, and in some cases at odds with the current state of knowledge on the topic. The mechanics of statistical inference suggest that such initial findings, even when robust and statistically significant within the study, should not appreciably move priors about the phenomenon under investigation. Yet, a few well-conceived independent replications dramatically improve the reliability of novel findings. Nevertheless, the incentives to replicate are seldom in place in the sciences, especially within the social sciences. We propose a simple incentive-compatible mechanism to promote replications, and use experimental economics to highlight our approach. We begin by reporting results from an experiment in which we investigate how cooperation in allocation games is affected by the presence of Knightian uncertainty (ambiguity), a pervasive and yet unexplored characteristic of most public goods. Unexpectedly, we find that adding uncertainty enhances cooperation. This surprising result serves as a test case for our mechanism: instead of sending this paper to a peer-reviewed journal, we make it available online as a working paper, but we commit never to submit it to a journal for publication. We instead offered co-authorship for a second, yet to be written, paper to other scholars willing to independently replicate our study. That second paper will reference this working paper, will include all replications, and will be submitted to a peer- reviewed journal for publication. Our mechanism allows mutually-beneficial gains from trade between the original investigators and other scholars, alleviates the publication bias problem that often surrounds novel experimental results, and accelerates the advancement of economic science by leveraging the mechanics of statistical inference. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00608&r=cbe |
| By: | Caldara, Michael; McBride, Michael; McCarter, Matthew; Sheremeta, Roman |
| Abstract: | We study three triggers of conflict and explore their resultant emotional reactions in a laboratory experiment. Economists suggest that the primary trigger of conflict is monetary incentives. Social psychologists suggest that conflicts are often triggered by fear. Finally, evolutionary biologists suggest that a third trigger is uncertainty about opponent’s desire to cause harm. Consistent with the predictions from economics, social psychology, and evolutionary biology, we find that conflict originates from all three triggers. The three triggers differently impact the frequency of conflict, but not the intensity. Also, we find that the frequency and intensity of conflict decrease positive emotions and increase negative emotions, and that conflict impacts negative emotions more than positive emotions. |
| Keywords: | conflict, incentives, fear, uncertainty, laboratory experiment, reverse dictator game, joy of destruction game |
| JEL: | C72 C91 D74 |
| Date: | 2017–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78049&r=cbe |
| By: | Feld, Jan (Victoria University of Wellington); Sauermann, Jan (SOFI, Stockholm University); de Grip, Andries (ROA, Maastricht University) |
| Abstract: | The Dunning–Kruger effect states that low performers vastly overestimate their performance while high performers more accurately assess their performance. Researchers usually interpret this empirical pattern as evidence that the low skilled are vastly overconfident while the high skilled are more accurate in assessing their skill. However, measurement error alone can lead to a negative relationship between performance and overestimation, even if skill and overconfidence are unrelated. To clarify the role of measurement error, we restate the Dunning–Kruger effect in terms of skill and overconfidence. We show that we can correct for bias caused by measurement error with an instrumental variable approach that uses a second performance as instrument. We then estimate the Dunning–Kruger effect in the context of the exam grade predictions of economics students, using their grade point average as an instrument for their exam grade. Our results show that the unskilled are more overconfident than the skilled. However, as we predict in our methodological discussion, this relationship is significantly weaker than ordinary least squares estimates suggest. |
| Keywords: | Dunning–Kruger effect, overconfidence, judgment error, measurement error, instrumental variable |
| JEL: | D03 I23 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10611&r=cbe |
| By: | Christopher Boyce (University of Stirling, Stirling Management School, Economics Divisio); Mikolaj Czajkowski (University of Warsaw, Department of Economics); Nick Hanley (School of Geography and Sustainable Development, University of St. Andrews) |
| Abstract: | In this paper, we undertake the first examination of the effects of personality on individual economic choices over public environmental goods, using a stated preference approach. Based on three data sets from three separate choice modelling studies, we examine the effects of personality on preferences for the status quo, for changes in environmental quality, and over the costs of investing in environmental improvement. Using a hybrid choice framework, we show that incorporating personality research into economic models can provide valuable behavioural insights, enriching explanations of why the demand for environmental goods varies across people. |
| Keywords: | personality, preference heterogeneity, hybrid choice models, stated preferences, choice models |
| JEL: | C35 D03 D12 D61 Q25 Q51 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:sss:wpaper:2017-08&r=cbe |