nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2017‒07‒23
eight papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Favouritism Or Fairness?: A Framed Laboratory Experiment By Dey, Oindrila; Das, Abhishek; Gupta, Gautam; Banerjee, Swapnendu
  2. Risk Attitudes, Sample Selection and Attrition in a Longitudinal Field Experiment By Glen W. Harrison; Morten I. Lau; Hong Il Yoo
  3. Belief in Hard Work and Altruism: Evidence from a Randomized Field Experiment By Sule Alan; Seda Ertac
  4. The Effect of Voluntary Participation on Cooperation By Daniele Nosenzo; Fabio Tufano
  5. Trust, Reciprocity and Rules By Rietz, Thomas; Schniter, Eric; Sheremeta, Roman; Shields, Timothy
  6. Does Voluntary Risk Taking Affect Solidarity? Experimental Evidence from Kenya By Renate Strobl; Conny Wunsch
  7. Confidence biases and learning among intuitive Bayesians By Louis Lévy-Garboua; Muniza Askari; Marco Gazel
  8. Gender Wage Gaps and Risky vs. Secure Employment: An Experimental Analysis By SeEun Jung; Chung Choe; Ronald L. Oaxaca

  1. By: Dey, Oindrila; Das, Abhishek; Gupta, Gautam; Banerjee, Swapnendu
    Abstract: This paper provides laboratory experimental evidence for prevalence of organizational favouritism. It is significantly found that when subjects where put into a situation where they can offer a job to someone then the choice criteria is based on social ties rather than efficiency. Interestingly, even when subjects had the choice of giving the job to her favourite person, she prefers to give it randomly to anyone from her favoured pool, when her group size is large. Also, socio-economic factors like family structure, family occupation, social connection, caste and political connections are among the important factors in explaining the emergence of favouritism.
    Keywords: Favouritism, group size, status, efficiency, lab experiment
    JEL: C91 C92 D03 J7 M51
    Date: 2017–07–15
  2. By: Glen W. Harrison (Georgia State University); Morten I. Lau (Copenhagen Business School); Hong Il Yoo (Durham Business School)
    Abstract: Abstract. Longitudinal experiments allow one to evaluate the temporal stability of latent preferences, but raise concerns about sample selection and attrition that may confound inferences about temporal stability. We evaluate the hypothesis of temporal stability in risk preferences using a remarkable data set that combines socio-demographic information from the Danish Civil Registry with information on risk attitudes from a longitudinal field experiment. Our experimental design builds in explicit randomization on the incentives for participation. The results show that the use of different participation incentives can affect sample response rates and help one identify the effects of selection. Correcting for endogenous sample selection and panel attrition changes inferences about risk preferences in an economically and statistically significant manner. We draw mixed conclusions on temporal stability of risk preferences that depend on which aspect of temporal stability one is interested in.
    Date: 2017–06
  3. By: Sule Alan (University of Essex); Seda Ertac (Koc University)
    Abstract: We show that optimistic beliefs regarding the role of effort in success, while leading to success, diminish the individual’s sympathy toward the unsuccessful. We generate random variation in the degree of optimism about the productivity of effort via an effective educational intervention. We find that treated children, holding significantly more optimistic beliefs, are no less likely than control to give to unlucky recipients, but significantly less likely to give to those who failed at a real effort task despite an opportunity to build skill. The results highlight possible unintended social effects of effort-focused optimism and have implications for political economy.
    Keywords: redistributive preferences, prosocial behavior, altruism, beliefs, fairness, field experiments
    JEL: D31 D64 I24 I28
    Date: 2017–07
  4. By: Daniele Nosenzo (School of Economics, University of Nottingham); Fabio Tufano (School of Economics, University of Nottingham)
    Abstract: We study the effects of voluntary participation on cooperation in collective action problems. Voluntary participation may foster cooperation through a mechanism of assortative selection of interaction partners based on false consensus bias, or through a mechanism whereby the decision to not participate can be used as a threat against free-riders. We examine the effectiveness of these mechanisms in a one-shot public goods experiment. Voluntary participation has a positive effect on provision only through the threat of non-participation. Assortative selection of interaction partners seems to play a minor role in our setting, whereas the threat of non-participation is a powerful force to discipline free-riding.
    Keywords: collective action; cooperation; voluntary participation; experiment
    Date: 2017–12
  5. By: Rietz, Thomas; Schniter, Eric; Sheremeta, Roman; Shields, Timothy
    Abstract: Many economic interactions rely on trust, which is sometimes violated. The fallout from business fraud and other malfeasance shows serious economic consequences of trust violations. Simple rules mandating minimum standards are attractive because they prevent the most egregious trust violations. However, such rules may undermine more trusting and reciprocal (trustworthy) behavior that otherwise would have occurred and, thus, lead to worse outcomes. We use an experimental trust game to test the efficacy of exogenously imposed minimum standard rules. Rules fail to increase trust and reciprocity, leading to lower economic welfare. Although sufficiently restrictive rules restore welfare, trust and reciprocity never return. The pattern of results is consistent with participants who are not only concerned with payoffs, but also use the game to learn about trust and trustworthiness of others.
    Keywords: Trust, Reciprocity, Minimum Standards, Experiment
    JEL: C72 C90 D63 D64 L51
    Date: 2017–07–19
  6. By: Renate Strobl; Conny Wunsch (University of Basel)
    Abstract: In this study we experimentally investigate whether solidarity, which is a crucial base for informal insurance arrangements in developing countries, is sensitive to the extent to which individuals can influence their risk exposure. With slum dwellers of Nairobi our design measures subjects' willingness to share income with a worse-o ff partner both in a setting where participants could either deliberately choose or were randomly assigned to a safe or a risky project. We find that when risk exposure is a choice, willingness to give is roughly 9 percentage points lower compared to when it is exogenously assigned to subjects. The reduction of solidarity is driven by a change in giving behaviour of persons with the risky project. Compared to their counterparts in the random treatment, voluntary risk takers are seemingly less motivated to share their high payoff with their partner, especially if this person failed after choosing the risky project. This suggests that the willingness to show solidarity is influenced by both the desire for own compensation and attributions of responsibility. Our findings have important implications for policies that interact with existing informal insurance arrangements.
    Keywords: Solidarity; Risk taking; Kenya
    JEL: D81 C91 O12 D63
    Date: 2017
  7. By: Louis Lévy-Garboua (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal , PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Muniza Askari (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Marco Gazel (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We design a double-or-quits game to compare the speed of learning one’s specific ability with the speed of rising confidence as the task gets increasingly difficult. We find that people on average learn to be overconfident faster than they learn their true ability and we present an intuitive-Bayesian model of confidence which integrates confidence biases and learning. Uncertainty about one’s true ability to perform a task in isolation can be responsible for large and stable confidence biases, namely limited discrimination, the hard–easy effect, the Dunning–Kruger effect, conservative learning from experience and the overprecision phenomenon (without underprecision) if subjects act as Bayesian learners who rely only on sequentially perceived performance cues and contrarian illusory signals induced by doubt. Moreover, these biases are likely to persist since the Bayesian aggregation of past information consolidates the accumulation of errors and the perception of contrarian illusory signals generates conservatism and under-reaction to events. Taken together, these two features may explain why intuitive Bayesians make systematically wrong predictions of their own performance.
    Keywords: Confidence biases , Intuitive-Bayesian , Learning , Double or quits , experimental game , Doubt , Contrarian illusory signals
    Date: 2017–06–20
  8. By: SeEun Jung (Department of Economics, Inha University); Chung Choe (Hanyang University); Ronald L. Oaxaca (University of Arizona)
    Abstract: In addition to discrimination, market power, and human capital, gender differences in risk preferences might also contribute to observed gender wage gaps. We conduct laboratory experiments in which subjects choose between a risky (in terms of exposure to unemployment) and a secure job after being assigned in early rounds to both types of jobs. Both jobs involve the same typing task. The risky job adds the element of a known probability that the typing opportunity will not be available in any given period. Subjects were informed of the exogenous risk premium being offered for the risky job. Women were more likely than men to select the secure job, and these job choices accounted for between 40% and 77% of the gender wage gap in the experiments. That women were more risk averse than men was also manifest in the Pratt-Arrow Constant Absolute Risk Aversion parameters estimated from a random utility model adaptation of the mean-variance portfolio model.
    Keywords: Occupational Choice, Gender Wage Differentials, Risk Aversion, Lab Experiment
    JEL: J16 J24 J31 C91 D81
    Date: 2017–07

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