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on Cognitive and Behavioural Economics |
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Issue of 2017‒04‒30
ten papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Loukas Balafoutas; Simon Czermak; Marc Eulerich; Helena Fornwagner |
| Abstract: | This study examines experimentally how dishonest behavior in the form of misreporting others' performance depends on the nature of provided incentives. We conduct a 'lab in the field' experiment with internal auditors during two large conferences in Germany and evaluate their performance and objectivity, measured as the extent to which they truthfully report the performance of other participants a real-effort task. It has been suggested in the literature that incentive-pay compensation for auditors has the potential to lead to dishonest behavior on their part, for instance when their payoff depends on the performance of the unit that they are auditing. We vary incentives in the experiment from individual (piece rate) to competitive (tournament against another auditor) and collective (based on performance within a team). In line with our hypotheses, we find that incentive-based compensation increases dishonest behavior among internal auditors: competitive incentives lead to under-reporting of other participants' performance, while collective incentives lead to over-reporting of performance. |
| Keywords: | dishonesty, incentives, sabotage, internal audit, experiment |
| JEL: | C93 M42 M52 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2017-06&r=cbe |
| By: | Jang, Tae-Seok; Sacht, Stephen |
| Abstract: | The notion of bounded rationality has received a considerable attention in the midst of debate over the usefulness of various macroeconomic models. In this paper we empirically seek to analyze the baseline New-Keynesian model with heterogeneous agents who may adopt various heuristics used to forecast future movements in consumption. Agents could exhibit an optimistic or pessimistic view or act as fundamentalists or chartists when forming expectations on future consumption based on discrete choice. Our empirical results via the Simulated Method of Moment Approach show that consumer confidence in the US is heavily grounded on consumers' emotional state (with respect to optimism and pessimism), while for the Euro Area it is most likely technical in nature (with respect to fundamentalists and chartists). These heuristics lead to an equivalent or even better fit to the data compared to the hybrid version of the baseline New-Keynesian model. We argue that this study could open up new possibilities for estimating bounded rationality models and policy analysis. |
| Keywords: | Bounded Rationality,Consumer Confidence,New-Keynesian Model,Forecast Heuristics,Simulated Method of Moments |
| JEL: | C53 D83 E12 E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201704&r=cbe |
| By: | Ispano, Alessandro (THEMA - Universite de Cergy-Pontoise); Schwardmann, Peter (University of Munich) |
| Abstract: | Evidence from studies in international relations, the politics of reform, collective action and price competition suggests that economic agents in social dilemma situations cooperate more to avoid losses than in the pursuit of gains. To test whether the prospect of losses can induce cooperation, we let experimental subjects play the travelers dilemma in the gain and loss domain. Subjects cooperate substantially more over losses. Furthermore, our results suggest that this treatment effect is best explained by reference-dependent risk preferences and reference-dependent strategic sophistication. We discuss the implications of our results and relate our findings to other experimental games played in the loss domain. |
| Keywords: | Travelers dilemma; loss domain; diminishing sensitivity; strategic sophistication; |
| JEL: | C90 D01 D03 D81 |
| Date: | 2017–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:23&r=cbe |
| By: | Thomas Garcia (Univ Lyon, Université Lumière Lyon 2, GATE L-SE UMR 5824, F-69130 Ecully, France; QuBE - School of Economics and Finance, QUT, Brisbane, Australia); Sébastien Massoni (QuBE - School of Economics and Finance, QUT, Brisbane, Australia; Australian Centre for Entrepreneurship Research, QUT, Brisbane, Australia) |
| Abstract: | When making a decision under uncertainty, individuals aim to achieve opti- mality. In general, an accurate decision is optimal. However, in real life situations asymmetric stakes induce an unusual divergence between optimality and accuracy. We highlight this optimality-accuracy trade-off and study its origins using two experiments on perceptual decision making. We use Signal Detection Theory as a normative benchmark. The first experiment confirms the existence of an optimality-accuracy trade-off with a leading role of accuracy. The second experiment explains this trade-off by the concern of people for being right. |
| Keywords: | optimality, accuracy, signal detection theory, incentives, experiment |
| JEL: | D81 D83 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1714&r=cbe |
| By: | Schwardmann, Peter (University of Munich); van der Weele, Joel (University of Amsterdam) |
| Abstract: | Why are people so often overconfident? We conduct an experiment to test the hypothesis that people become overconfident to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money by convincing others of their superior performance. The privately elicited beliefs of informed subjects are significantly more confident than the beliefs of subjects in the control condition. By generating exogenous variation in confidence with a noisy performance signal, we are also able to show that higher confidence indeed makes subjects more persuasive in the subsequent face-to-face interactions. |
| Keywords: | Overconfidence; self-deception; motivated cognition; persuasion; deception; |
| JEL: | C91 D03 D83 |
| Date: | 2017–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:25&r=cbe |
| By: | Sinaiko, Anna (Harvard University); Zeckhauser, Richard (Harvard University) |
| Abstract: | Behavioral economic research has established that defaults, one form of nudge, powerfully influence choices. In most policy contexts, all individuals receive the same nudge. We present a model that analyzes the optimal universal nudge when individuals differ in their preferences, different individuals should make different choices, and there is a cost to resist a nudge. Our empirical focus is on terminated choosers, individuals whose prior choice becomes no longer available. Specifically, we examine the power of defaults for individuals who had enrolled in Medicare Advantage with drug coverage and had their plans discountinued. Should these terminated choosers fail to actively choose another Medicare Advantage plan, they are automatically defaulted into fee-for-service Medicare absent drug coverage. Overall, the rate of transition for TCs to FFS Medicare is low, implying that original preferences and status quo bias overpowered the default. Black TCs were more susceptible to the default than non-blacks. Increasing numbers of Americans are choosing plans in health insurance exchange settings such as Medicare, the Affordable Care Act (ACA), and private exchanges. Plan exits and large numbers of TCs are inevitable, along with other forms of turmoil. Any guidance and defaults provided for TCs should attend to their past revealed preferences. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp16-055&r=cbe |
| By: | Robinson, Carly D. (Harvard University); Lee, Monica G. (Stanford University); Dearing, Eric (Boston College); Rogers, Todd (Harvard University) |
| Abstract: | Attendance in kindergarten and elementary school robustly predicts student outcomes. Despite this well-documented association, there is little experimental research on how to reduce absenteeism in the early grades. This paper presents results from a randomized field experiment in ten school districts evaluating the impact of a low-cost, parent-focused intervention on student attendance in grades K-5. The intervention targeted commonly held parental misbeliefs undervaluing the importance of regular K-5 attendance as well as the number of school days their child had missed. The intervention decreased chronic absenteeism by 15%. This study presents the first experimental evidence on how to improve student attendance in grades K-5 at scale, and has implications for increasing parental involvement in education. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp17-011&r=cbe |
| By: | Norma Burow; Miriam Beblo; Denis Beninger; Melanie Schröder |
| Abstract: | This paper addresses the behavioral puzzle of women’s preference for competition when competitors are also women. Using a framed field experiment with 883 non-standard subjects, we show that none of the determinants of competitive behavior in general, including ability, self-confidence and risk aversion, provide a satisfying explanation for women’s substantive gender-related selection into competition. Nonetheless, women who are overconfident, i.e. over-estimate own abilities in performing a task, enter competition regardless of the gender-mix. Hence, the gender-pairing phenomenon is driven by women who correctly estimate or under-estimate own ability. We concluded that this is due to stereotypes about women’s underperformance compared to men. |
| Keywords: | Preferences for competition, gender, group composition, self-confidence |
| JEL: | C99 D83 J16 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1662&r=cbe |
| By: | Dargnies, Marie-Pierre (University of Paris Dauphine); Kübler, Dorothea (WZB and TU Berlin) |
| Abstract: | We document experimentally how biased self-assessments affect the outcome of matching markets. In the experiments, we exogenously manipulate the self-confidence of participants regarding their relative performance by employing hard and easy real-effort tasks. We give participants the option to accept early offers when information about their performance has not been revealed, or to wait for the assortative matching based on their actual relative performance. Early offers are accepted more often when the task is hard than when it is easy. We show that the treatment effect works through a shift in beliefs, i.e., underconfident agents are more likely to accept early offers than overconfident agents. The experiment identifies a behavioral determinant of unraveling, namely biased self-assessments, which can lead to penalties for underconfident individuals as well as efficiency losses. |
| Keywords: | Market unraveling; experiment; self-confidence; matching markets; |
| JEL: | C92 D47 D83 |
| Date: | 2017–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:5&r=cbe |
| By: | Adena, Maja (WZB Berlin); Huck, Steffen (WZB Berlin and UCL) |
| Abstract: | Is there a way of matching donations that avoids crowding out? We introduce a novel matching method where the matched amount is allocated to a different project, present some simple theoretical considerations that predict reduced crowding out or crowding in (depending on the degree of substitutability between the two projects) and present evidence from a large-scale natural field experiment and a laboratory experiment. Similar to findings in the literature, conventional matching for the same project results in partial crowding out in the field experiment and, as predicted, crowding out is reduced under the novel matching scheme. The lab experiment provides more fine-tuned evidence for the change in crowding and yields further support for the theory: the novel matching method works best when the two projects are complements rather than substitutes. |
| Keywords: | charitable giving; matched fundraising; natural field experiment; |
| JEL: | C93 D64 D12 |
| Date: | 2017–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:16&r=cbe |