nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2017‒05‒14
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Pen is Mightier than the Sword: How Third-party Advice or Sanction Impacts on Pro-environmental Behavior By Agnès Festré; Pierre Garrouste; Ankinée Kirakozian; Mira Toumi
  2. The Pay-What-You-Want Game: What can be learned from the experimental evidence on Dictator and Trust Games? By Matthias Greiff; Henrik Egbert
  3. Do Higher Achievers Cheat Less? An Experiment of Self-Revealing Individual Cheating By Siniver, Erez; Tobol, Yossi; Yaniv, Gideon
  4. A new behavioral framework to analyze preference construction and decision processes within the modal choice. By Hugo Bois
  5. The Sequencing of Gift Exchange: A Field Trial By Carpenter, Jeffrey P.
  6. Disappointment Aversion and Social Comparisons in a Real-Effort Competition By Simon Gaechter; Lingbo Huang; Martin Sefton
  7. Fairness views and political preferences - Evidence from a large online experiment By Daniel Müller; Sander Renes
  8. A Tale of Two Tails: On the Coexistence of Overweighting and Underweighting of Rare Extreme Events By Epper, Thomas; Fehr-Duda, Helga
  9. Personality and Economic Choices By Christopher Boyce; Mikołaj Czajkowski; Nick Hanley
  10. The City as a Self-Help Book: The Psychology of Urban Promises By Cardoso, Rodrigo V.; Meijers, Evert J.; van Ham, Maarten; Burger, Martijn J.; de Vos, Duco
  11. Asymmetric dominance effect with multiple decoys for low- and high-variance lotteries By Sürücü, Oktay; Brangewitz, Sonja; Mir Djawadi, Behnud

  1. By: Agnès Festré (Université Côte d'Azur, France; GREDEG CNRS); Pierre Garrouste (Université Côte d'Azur, France; GREDEG CNRS); Ankinée Kirakozian (Université Côte d'Azur, France; GREDEG CNRS); Mira Toumi (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: It is recognized widely that incentives can influence the cooperation of individuals in the provision of public goods. The aim of this study is to adapt a public good game (PGG) to the environmental issue of waste management. We report an experiment where the players have to cooperate in order to reduce the cost of waste sorting treatment. We consider a traditional PGG involving groups with four players. A fifth player representing the third-party is introduced in the incentivized treatments. The third-party can provide advice about the desired individual contribution (Advice Treatment), or can punish collectively non-cooperative behaviors by increasing the tax rate (Sanction Treatment). Furthermore, participants are asked to perform an effort task to increase their given initial endowments. A social preferences measure is introduced in the form of a social value orientation (SVO) test. We find that initially, both advice and the threat of sanction significantly increase the average individual contribution level. However, once the sanction is applied, we find it has no significant effect in increasing cooperation, rather the contrary. Also, we find results in line with Becker (1974)'s altruism hypothesis that high income individuals contribute more in absolute value than low income individuals only under the threat of a sanction.
    Keywords: Waste sorting, Laboratory experiment, Advice, Sanction, Pro-social behavior
    JEL: Q53 C91 D03
    Date: 2017–05
  2. By: Matthias Greiff (Justus-Liebig-University Giessen); Henrik Egbert (Anhalt University of Applied Sciences)
    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 contribution of this study is an attempt to bridge the gap between laboratory experiments and the research on PWYW pricing, which relies largely on evidence from the field. By reviewing the relevant experiments, this study identifies factors crucial for the success of PWYW pricing and provides guidance to developing long-term applications of PWYW pricing.
    Keywords: Pay-What-You-Want, PWYW Game, pricing, dictator game, trust game
    JEL: C90 D12 D49 M21 M30
    Date: 2017–05
  3. By: Siniver, Erez (College of Management, Rishon Lezion Campus); Tobol, Yossi (Jerusalem College of Technology (JTC)); Yaniv, Gideon (Ariel University)
    Abstract: The extensive body of survey-based research correlating between students' cheating and their academic grade point average (GPA) consistently finds a significant negative relationship between cheating and the GPA. The present paper reports the results of a two-round experiment designed to expose student cheating at the individual level and correlate it with three intellectual achievement measures: the GPA, the high-school matriculation average grade (MAG) and the psychometric exam score (PES). The experiment involved two classes of third-year economics students incentivized by a competitive reward to answer a multiple-choice trivia quiz without consulting their electronic devices. While this forbiddance was deliberately overlooked in the first round, providing an opportunity to cheat, it was strictly enforced in the second, conducted two months later in the same classes with the same quiz. A comparison of subjects' performance in the two rounds, self-revealed a considerable extent of cheating in the first one. Regressing the individual cheating levels on subjects' gender and their intellectual achievement measures exhibited no significant differences in cheating between males and females. However, cheating of both genders was found to significantly increase with each achievement measure, implying, in sharp contrast with the direct-question surveys, that higher achievers are bigger cheaters.
    Keywords: experimental data, cheating behavior, intellectual achievement
    JEL: A22 C91 C92 K42
    Date: 2017–04
  4. By: Hugo Bois
    Abstract: This paper discusses a new framework to explain the decision-making process of modal choice. A specific approach, based on the behavioral framework developed by Ben-Akiva & Boccara (1987), is adopted to understand and analyze the decision processes of individuals. Precisely, we use the Analytic Hierarchy Process (AHP) to build the hierarchy of preferences from attitudes and perceptions. Through the hierarchy of preferences, we can apply three different methods to better explain the decision processes; namely a standard compensatory model, a non-compensatory model based on the decision rules, and different possible weightings of the AHP method. The random utility maximization is predominantly used in the transportation literature because of its strong theoretical background, its success in predicting many types of human behavior, and the simplicity of mathematical and statistical analyses and model estimation it offers. Despite that, we believe that non-compensatory approaches are better suited to understand both travel behaviors and decision processes for transportation modes when taking active modes into account. These approaches allow us to better explain the impacts of each modal attribute on the one hand and to build psychological profiles with respect to decision rules on the other hand. Thus, it is possible to simulate shocks all things being equal.
    Keywords: Modal choice, Preferences, Decision rules, Hierarchical model, AHP.
    Date: 2016
  5. By: Carpenter, Jeffrey P. (Middlebury College)
    Abstract: There is now an extensive literature on "gift exchange" showing that when principals and agents can trade "gifts" (rewards that should not emerge in a competitive equilibrium), exchange becomes more efficient. However, it is not obvious how gift exchange should be organized if the principal's goal is to increase the performance of a reciprocal agent. Specifically, who should make the first gift, the principal or the agent? Although both orderings, by themselves, have been hypothesized and examined in theory and experiments, the literature is largely silent on the comparison. I report the results of a field experiment that compares the principal-first and agent-first orderings to each other and a gift-less control. Consistent with the previous experimental literature, I find that principal-first, gifts do increase agent performance. Unlike the literature, however, I find that agent-first, gifts are also effective. Comparing the two, I see that the agent-first ordering works best, is clearly cheaper to implement and differences appear on both the extensive and intensive margins.
    Keywords: gift exchange, reciprocity, social norm, incentives, field experiment, charity, fundraising
    JEL: C93 D03 D64 H41 L30 M30
    Date: 2017–04
  6. By: Simon Gaechter (CESifo, IZA, and School of Economics, University of Nottingham); Lingbo Huang (Department of Economics, Monash University, Melbourne); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We present an experiment to investigate the source of disappointment aversion in a sequential real-effort competition. Specifically, we study the contribution of social comparison effects to the disappointment aversion previously identified in a two-person realeffort competition (Gill and Prowse, 2012). To do this we compare “social†and “asocial†versions of the Gill and Prowse experiment, where the latter treatment removes the scope for social comparisons. If disappointment aversion simply reflects an asymmetric evaluation of losses and gains we would expect it to survive in our asocial treatment, while if losing to or winning against another person affects the evaluation of losses/gains we would expect treatment differences. We find behavior in social and asocial treatments to be similar, suggesting that social comparisons have little impact in this setting. Unlike in Gill and Prowse we do not find evidence of disappointment aversion.
    Keywords: real effort competition, social comparison effects, disappointment aversion, referencedependent preferences
    Date: 2017–07
  7. By: Daniel Müller; Sander Renes
    Abstract: We elicit distributional fairness ideals of impartial spectators using an incentivized economic experiment in a large and heterogeneous sample of the German population. Our dataset allows us to relate our experimental data on fairness ideals to a large range of socio-demographic characteristics, political preferences and revealed charitable behavior. We document several empirical facts: i) egalitarians are the predominant type, even though egalitarian allocations are Pareto-dominated by maxi-min allocations; ii) females are more egalitarian than men; iii) men are relatively more efficiency-minded; iv) maxi-max preferences are empirically irrelevant; v) left-leaning voters are more likely to be egalitarians whereas right-leaning voters are more likely to be efficiency-minded; and vi) young and highly-educated participants hold different fairness ideals than the rest of the population. Moreover, we show that the experimentally elicited fairness types predict preferences for redistribution and social spending. We also find that egalitarians are more likely to donate to charity than efficiency-minded people, even after controlling for a range of covariates. Hence, our paper also contributes to the emerging literature examining the external validity of laboratory experiments on fairness preferences.larger in-group - out-group bias.
    Keywords: Distributional fairness, impartial spectator, representative online experiment, external validity, political attitudes
    JEL: C90 D31 D63
    Date: 2017–05
  8. By: Epper, Thomas; Fehr-Duda, Helga
    Abstract: Almost all important decisions in people’s lives entail risky consequences. Some of these decisions involve events that materialize with a low probability but lead to extreme consequences such as loss of total wealth or accidental death. When facing such rare extreme events, people display considerable risk aversion in some situations whereas in others the opposite is the case. For example, the prospect of airplane and stock market crashes triggers high risk aversion but there is a low willingness to take out hazard or life insurance. We address this puzzle by arguing that the timing of the consequences and of uncertainty resolution are crucial for understanding these phenomena. We show that future uncertainty conjointly with people’s proneness to probability distortions generates a unifying framework for explaining the coexistence of over- and underweighting of rare extreme events.
    Keywords: Tail risk, insurance, risk preference, time preferences, extreme events, probability weighting
    JEL: D01 D81 D91
    Date: 2017–04
  9. By: Christopher Boyce (University of Stirling, Stirling Management School); Mikołaj Czajkowski (Faculty of Economic Sciences, University of Warsaw); Nick Hanley (University of St Andrews, School of Geography and Geosciences)
    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
  10. By: Cardoso, Rodrigo V. (Delft University of Technology); Meijers, Evert J. (Delft University of Technology); van Ham, Maarten (Delft University of Technology); Burger, Martijn J. (Erasmus University Rotterdam); de Vos, Duco (Delft University of Technology)
    Abstract: Despite the many negative aspects of life in cities, urban promises of economic prosperity, freedom and happiness have fuelled the imagination of generations of migrants, who have flocked to cities in search of a better life, invariably exaggerating the opportunities and neglected the potential disadvantages of their choice. This paper uses insights from psychological literature to better understand why people have such strong, positive and apparently overrated expectations about cities. We dwell into concepts of bounded rationality to describe the cognitive biases and heuristics affecting decision-making under uncertainty and apply them to the way individuals perceive and act upon the promises of urban life. By linking this literature to urban theory, we can better understand how individuals make their decisions about moving to and living in cities. We thereby offer an understanding of urbanisation and migration processes departing from economic rationality assumptions and explain the remarkable attractive force of cities throughout human history. Finally, we discuss the ways in which human biases in favour of city narratives and bright urban futures can be exploited by 'triumphalist' accounts of cities in policy and media, which neglect the embedded injustices and structural problems of urban life.
    Keywords: cognitive biases and heuristics, decision-making, urban migration, social mobility, subjective well-being, urban triumphalism
    JEL: O18 R23
    Date: 2017–04
  11. By: Sürücü, Oktay (Center for Mathematical Economics, Bielefeld University); Brangewitz, Sonja (Center for Mathematical Economics, Bielefeld University); Mir Djawadi, Behnud (Center for Mathematical Economics, Bielefeld University)
    Abstract: The asymmetric dominance effect refers to the phenomenon according to which the choice probability of an alternative increases when an inferior alternative - the decoy - is included into the choice set. The objective of this experimental study is twofold. First, we investigate the asymmetric dominance effect on two-outcome lotteries with almost equal expected values. We find that the impact of a decoy on low-variance lotteries (LVLs) is much higher than on high-variance lotteries (HVLs). Second, we examine the asymmetric dominance effect in the presence of two decoys. While the asymmetric dominance effect persists when the choice set includes two decoys, the effect is not always further enhanced compared to the setting with one decoy and again much stronger for LVLs than for HVLs. Controlling for subjects’ degrees of risk aversion, we find support for consistency between individual risk preferences and choice behavior among the lotteries. However, we observe decoy effects of equal strength irrespective of the subjects’ degree of risk aversion. Thus, our analysis indicates that to a substantial extent the presence of decoys subtly makes decision-makers choose against their risk preferences by favoring lotteries that entail risks contrary to their elicited individual risk-taking profile.
    Keywords: Asymmetric dominance effect, decoy effects, multiple decoys, risk aversion, individual decision making, experimental economics
    Date: 2017–05–02

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