nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2017‒09‒17
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Economic rationality under cognitive load By Andreas Drichoutis; Rodolfo M. Nayga, Jr.
  2. The impact of non-cognitive skills and risk preferences on rural-to-urban migration: Evidence from Ukraine By S. H. Ayhan; K. Gatskova; H. Lehmann
  3. The role of correlation in two-asset games: Some experimental evidence By Martin Geiger; Richard Hule
  4. When Prime Depositors Run on the Banks: A Behavioral Approach By Natanael Waraney Gerald Massie; Chaikal Nuryakin
  5. Competition and Academic Performance: Evidence from a Classroom Experiment By Kelly Bedard; Stefanie Fischer
  6. How Stress Affects Performance and Competitiveness across Gender By Jana Cahlikova; Lubomir Cingl; Ian Levely
  7. Loss Aversion and the Quantity-Quality Tradeoff By Jared Rubin; Anya Samek; Roman M. Sheremeta
  8. Teamwork as a Self-Disciplining Device By Matthias Fahn; Hendrik Hakenes
  9. Rationally Biased Learning By Michel De Lara
  10. Do the altruists lie less? By Rudolf Kerschbamer; Daniel Neururer; Alexander Gruber
  11. The Psychology of the Successful Entrepreneur By Kaushal Mukherjee
  12. Economics form an Evolutionary Perspective By Richard R. Nelson

  1. By: Andreas Drichoutis (Agricultural University of Athens); Rodolfo M. Nayga, Jr. (Department of Agricultural Economics & Agribusiness, University of Arkansas,)
    Abstract: Economic analysis assumes that consumer behavior can be rationalized by a utility function. Previous research has shown that some decision-making quality can be captured by permanent cognitive ability but has not examined how a temporary load in subjects' working memory can a ect economic rationality. In a controlled laboratory experiment, we exogenously vary cognitive load by asking subjects to memorize a number while they undertake an induced budget allocation task (Choi et al., 2007a,b). Using a number of manipulation checks, we verify that cognitive load has adverse a ects on subjects' performance in reasoning tasks. However, we nd no e ect in any of the goodness-of- t measures that measure consistency of subjects' choices with the Generalized Axiom of Revealed Preferences (GARP), despite having a sample size large enough to detect even small di erences between treatments with 80% power. Our nding suggests that researchers need not worry about economic rationality breaking down when subjects are placed under temporary working memory load.
    Keywords: Cognitive load, rationality, revealed preferences, working memory, response times, laboratory experiment
    JEL: C91 D03 D11 D12 G11
    Date: 2017
  2. By: S. H. Ayhan; K. Gatskova; H. Lehmann
    Abstract: This paper provides evidence on the impacts of non-cognitive skills and attitudes towards risk on the decision to migrate from rural to urban areas. Our analysis is based on a unique four-wave panel of Ukrainian Longitudinal Monitoring Survey for the period between 2003 and 2012. Adopting the Five Factor Model of personality structure, and using it in the evaluation of non-cognitive skills, our results suggest that such personality traits as openness to new experience and the willingness to take risks increase the probability of migration. On the other hand, the non-cognitive skills conscientiousness and extraversion are found to be negatively associated with the propensity to migrate. The effects are statistically and quantitatively significant, and mainly driven by movements from rural areas into cities. Our results are robust to several sensitivity checks, including tests for reverse causality.
    JEL: J61 D03 D81 R23
    Date: 2017–09
  3. By: Martin Geiger; Richard Hule
    Abstract: In our experimental setting, participants face the decision to invest into two assets which are subject to correlated information. While fundamental states and signals about fundamental states are correlated, success and default of the investment projects is determined separately. Nevertheless, correlation of signals may give rise to spillovers through informational contagion since participants may overvalue correlated signals resulting from a double-counting problem in the updating process or may be prone to behavioral biases related to good and bad news. Quite strikingly, in our setting, the degree of correlation does not promote pronounced contagious effects. In particular, this is consistent with the theoretical two-dimensional global games solution of the underlying investment game. However, a heuristic of neglecting correlation and signals about the second asset has also merits to explain participants' investment behavior. In some treatments we can distinguish between participants' strategies being derived from the two- dimensional global game and from a heuristic being derived from a one- dimensional game. We cannot reject that people play the two-dimensional investment game as it would be two separate one-dimensional games and ignore correlation.
    Keywords: global games, creditor coordination, experimental economics
    JEL: C91 D82 G12
    Date: 2017–09–05
  4. By: Natanael Waraney Gerald Massie (University of Indonesia); Chaikal Nuryakin (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta)
    Abstract: This study aims to observe the relationship between withdrawal decisions and individual psychological aspects, namely time and risk preferences. Our sample is a pool of prime depositors in Indonesia, mainly due to the country’s deposit market being heavily concentrated on such depositors. We describe the elicited risk preferences of the aforementioned depositors, along with their preferences on how long they would keep their money deposited. We discuss relationships between their withdrawal decision, which in excessive amount could cause bank run situations, with risk and time preferences under idiosyncratic economic shocks. A cascade effect simulation is also included in our analysis.
    Keywords: Withdrawal Decision — Time Preference — Risk Preference — Bank Run — Prime Depositor
    JEL: D81 G02 G21
    Date: 2017–09
  5. By: Kelly Bedard (University of California, Santa Barbara and IZA); Stefanie Fischer (Department of Economics, California Polytechnic State University)
    Abstract: We examine the effect of relative evaluation on academic performance by implementing a classroom-level field experiment in which students are incentivized individually or in a tournament to take a microeconomics quiz. We focus on two aspects of competitive environments that may be particularly salient in academics: tournament size and one's perceived position in the ability distribution. At least in our setting, we find no evidence that effort responses to competition are sensitive to tournament size. However, in contrast to previous studies that examine effort responses to exogenously assigned competition, we find a large negative competition effect for students who believe they are relatively low in the ability distribution and no competition effect for those who believe they are relatively high ability. Using additional treatments, we further show that the divergence between our results and past results is driven by task type and not by differences in selection into participation between lab and field environments.
    Date: 2017
  6. By: Jana Cahlikova; Lubomir Cingl; Ian Levely
    Abstract: Since many key career events, such as exams and interviews, involve competition and stress, gender differences in response to these factors could help to explain the labor-market gender gap. In a laboratory experiment, we manipulate psychosocial stress using the Trier Social Stress Test, and confirm that this is effective by measuring salivary cortisol. Subjects perform a real-effort task under both tournament and piece-rate incentives and we elicit willingness to compete. We find that women under heightened stress do worse than women in the control group when compensated with tournament incentives, while there is no treatment difference for performance under piece-rate incentives. For males, stress does not affect output under competition. We also find that stress decreases willingness to compete overall, and for women, this is related to performance. These results help to explain previous findings on gender differences in performance under competition both in and out of the lab.
    Keywords: competitiveness; performance in tournaments; psychosocial stress; gender gap;
    JEL: C91 D03 J16 J33
    Date: 2017–05
  7. By: Jared Rubin (Argyros School of Business and Economics, Chapman University); Anya Samek (Dornsife College of Letters, Arts and Sciences, University of Southern California); Roman M. Sheremeta (Weatherhead School of Management, Case Western Reserve University)
    Abstract: Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors, such as loss aversion, play in the tradeoffs workers face? We address these questions with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse participantsshift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of appropriate ways to structure contracts, and suggest benefits to personalizing contracts based on individual behavioral characteristics.
    Keywords: quantity, quality, experiment, incentives, real effort, loss aversion
    JEL: D24 J24 J31 J41
    Date: 2017
  8. By: Matthias Fahn (Department of Economics, Johannes Kepler University Linz, Austria); Hendrik Hakenes
    Abstract: We show that team formation can serve as an implicit commitment device to overcome problems of self-control. If individuals have present-biased preferences, effort that is costly today but rewarded at some later point in time is too low from the perspective of an individual’s long-run self. If agents interact repeatedly and can monitor each other, a relational contract involving teamwork can help to improve performance. The mutual promise to work harder is credible because the team breaks up after an agent has not kept this promise – which leads to individual underproduction in the future and hence a reduction of future utility.
    Keywords: Self-Control Problems, Teamwork, Relational Contracts.
    JEL: L22 L23
    Date: 2017–07
  9. By: Michel De Lara (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - ENPC - École des Ponts ParisTech)
    Abstract: Are human perception and decision biases grounded in a form of rationality? You return to your camp after hunting or gathering. You see the grass moving. You do not know the probability that a snake is in the grass. Should you cross the grass — at the risk of being bitten by a snake — or make a long, hence costly, detour? Based on this storyline, we consider a rational decision maker maximizing expected discounted utility with learning. We show that his optimal behavior displays three biases: status quo, salience, overestimation of small probabilities. Biases can be the product of rational behavior.
    Keywords: status quo bias, salience bias, overestimation of small probabilities, optimal behavior
    Date: 2017–09–05
  10. By: Rudolf Kerschbamer; Daniel Neururer; Alexander Gruber
    Abstract: Much is known about heterogeneity in social preferences and about heterogeneity in lying aversion - but little is known about the relation between the two at the individual level. Are the altruists simply upright persons who do not only care about the well-being of others but also about honesty? And are the selfish those who lie whenever lying maximizes their material payoff? This paper addresses those questions in experiments that first elicit subject's social preferences and then let them make decisions in an environment where lying increases the own material payoff and has either consequences for the payoffs of others or no consequences for others. We find that altruists lie less when lying hurts another party but we do not find any evidence in support of the hypothesis that altruists are more (or less) averse to lying than others in environments where lying has no effects on the payoffs of others.
    Keywords: deception, lies, social preferences, distributional preferences, equality equivalence test
    JEL: C91 D63 D64
    Date: 2017–09–04
  11. By: Kaushal Mukherjee (Bankura Unnayani Institute of Engineering)
    Abstract: Illustration of entrepreneurial action plan. Abstract The entrepreneurship development is mainly due to the entrepreneurial motivation. The motivation of entrepreneurs is influenced by the external as well as internal environmental factors. Though there is no research study which reveals the extent to which the entrepreneurs are motivated by these two environments it is found that the entrepreneurial motivation is due to the influence of both the external and internal environmental factors. The psychological behaviours of the entrepreneurs are also equal playing its role while motivating the entrepreneurs, which are also discussed here. This paper also helps entrepreneurs to identify the different business opportunities and growth of the existing business. A real entrepreneur is a person who generally motivated by intrinsic psychological and also economic rewards. He indigenously tries an entrepreneurial venture for his personal satisfaction in work, ego or status. This paper reviews the psychological literature on entrepreneurs. Assessment and generalizations for the entrepreneurs are risky since there is no specific population of entrepreneurs. Psychological characteristics: In the modem days a suitable entrepreneurial culture must be created by developing healthy work environment and modem attitude towards work giving social recognition etc. These factors will provide the psychological stimulus which in turn promotes innovation, inspiration, ethics and values which are essential for successful entrepreneurs. The irrational behaviours of the entrepreneurs are also playing a vital role while motivating the entrepreneurs.
    Keywords: Employee participation,Entrepreneurialism,Entrepreneurial action plan,Psychology of the successful entrepreneur,Workplace learning
    Date: 2016–12
  12. By: Richard R. Nelson
    Date: 2017–08–03

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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