nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒02‒26
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Effect of Initial Inequality on Meritocracy. A Voting Experiment on Tax Redistribution. By Natalia Jiménez Jiménez; Elena Molis; Ángel Solano García
  2. Decisions under Risk Dispersion and Skewness By Bayrak, Oben K.; Hey, John D.
  3. Impatience as Selfishness By Jawwad Noor; Norio Takeoka
  4. Tax evasion, testosterone and personality traits By Arbex, Marcelo; Carré, Justin M.; Geniole, Shawn N.; Mattos, Enlinson
  5. Evaluating intergenerational persistence of economic preferences: A large scale experiment with families in Bangladesh By Chowdhury, Shyamal; Sutter, Matthias; Zimmermann, Klaus F.
  6. Endogenous institution formation in public good games: The effect of economic education By Altemeyer-Bartscher, Martin; Bershadskyy, Dmitri; Schreck, Philipp; Timme, Florian
  7. The Risk and Time Preferences of Young Truants and Their Parents By Antrobus, Emma; Baranov, Victoria; Cobb-Clark, Deborah A.; Mazerolle, Lorraine; Tymula, Agnieszka
  8. Uninvadable social behaviors and preferences in group-structured populations By Alger, Ingela; Lehmann, Laurent; Weibull, Jörgen W.
  9. Punishment As Revenge, Not Only For Inequity Aversion By Donald T. Wargo
  10. Framing Game Theory By Hitoshi Matsushima
  11. Exclusion and Reintegration in a Social Dilemma By Solda, Alice; Villeval, Marie Claire
  12. Excessive Herding in the Laboratory: The Role of Intuitive Judgments By Christoph March; Anthony Ziegelmeyer

  1. By: Natalia Jiménez Jiménez (Departamento de Economía, Métodos Cuantitativos e Historia Económica, University Pablo de Olavide.); Elena Molis (Department of Economic Theory and Economic History, University of Granada.); Ángel Solano García (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: According to Alesina and Angeletos (2005), societies are less redistributive but more efficient when the median voter believes that effort and talent are much more important than luck to determine income. We test these results through a lab experiment in which participants vote over the tax rate and their pre-tax income is determined according to their performance in a real effort task with leisure time. Subjects receive either a high or a low wage and this condition is either obtained through their talent in a tournament or randomly assigned. We compare subjects' decisions in these two different scenarios considering different levels of wage inequality. In our framework, this initial income inequality turns out to be crucial to support the theoretical hypothesis of Alesina and Angeletos (2005). Overall, we find that, only if the wage inequality is high, subjects choose a lower level of income redistribution and they provide a higher effort level in the scenario in which high-wage subjects are selected based on their talent through a tournament (than when it is randomly). Thus, we confirm almost all theoretical results in Alesina and Angeletos (2005) when the wage inequality is high enough. The big exception is for efficiency (measured as the sum of total payoffs), since theoretical results only hold for the scenario in which wage inequality is low.
    Keywords: income redistribution, voting, taxation, real-effort task, leisure.
    JEL: C92 D72 H30 J41
  2. By: Bayrak, Oben K. (CERE - the Center for Environmental and Resource Economics); Hey, John D. (CERE - the Center for Environmental and Resource Economics)
    Abstract: When people take decisions under risk, it is not only the expected utility that is important, but also the shape of the distribution of returns: clearly the dispersion is important, but also the skewness. For given mean and dispersion, decision‐makers treat positively and negatively skewed prospects differently. This paper presents a new behaviourally‐inspired model for decision making under risk, incorporating both dispersion and skewness. We run a horse‐race of this new model against seven other models of decision‐making under risk, and show that it outperforms many in terms of goodness of fit and, perhaps more importantly, predictive ability. It can incorporate the prominent anomalies of standard theory such as the Allais paradox, the valuation gap, and preference reversals.
    Keywords: Decision under Risk; Anomalies; Valuation Gap; Preference Reversals; Allais Paradox; Skewness; Dispersion; Preference Functionals; Experiments; Pairwise Choice; Expected Utility; Non‐Expected Utility; Stochastic Specifications
    JEL: D81
    Date: 2018–01–15
  3. By: Jawwad Noor (Department of Economics, Boston University); Norio Takeoka (
    Abstract: Time preference is modelled as a current self that overcomes selfishness by incurring a cognitive cost of empathizing with her future selves. Such a model unifies disparate well-known experimental findings. Behavioral foundations are provided by exploiting the idea that higher stakes provide an incentive for the exertion of higher effort, so that changes in the agent's impatience with respect to the scale of outcomes pin down the underlying process. The behavioral content of limited cognitive resources is shown to lie in violations of Separability.
  4. By: Arbex, Marcelo; Carré, Justin M.; Geniole, Shawn N.; Mattos, Enlinson
    Abstract: High testosterone levels in men may inhibit tax evasion. From a laboratory experiment with 121 young men, we present suggestive evidence that putative markers of prenatal and pubertal testosterone exposure and some personality traits predict the decision of evading taxes. We also observe a sizable and negative, although weakly signi cant (at 10%), treatment e ect, controlling for individual characteristics, testosterone exposure markers, medication and drugs use. Reinforced by permutation tests for the treatment variable, a lower prevalence of tax evasion in the treated group is in line with recent results that suggest testosterone may increase prosocial or less sel sh behavior.
    Date: 2018–02
  5. By: Chowdhury, Shyamal; Sutter, Matthias; Zimmermann, Klaus F.
    Abstract: Economic preferences – like time, risk and social preferences – have been shown to be very influential for real-life outcomes, such as educational achievements, labor market outcomes, or health status. We contribute to the recent literature that has examined how and when economic preferences are formed, putting particular emphasis on the role of intergenerational transmission of economic preferences within families. Our paper is the first to run incentivized experiments with fathers and mothers and their children by drawing on a unique dataset of 1,999 members of Bangladeshi families, including 911 children, aged 6-17 years, and 544 pairs of mothers and fathers. We find a large degree of intergenerational persistence as the economic preferences of mothers and fathers are significantly positively related to their children’s economic preferences. Importantly, we find that socio-economic status of a family has no explanatory power as soon as we control for parents’ economic preferences. A series of robustness checks deals with the role of older siblings, the similarity of parental preferences, and the average preferences within a child’s village.
    Keywords: Intergenerational transmission of preferences,time preferences,risk preferences,social preferences,children,parents,Bangladesh,socio-economic status,experiment
    JEL: C90 D1 D90 D81 D64 J13 J24 J62
    Date: 2018
  6. By: Altemeyer-Bartscher, Martin; Bershadskyy, Dmitri; Schreck, Philipp; Timme, Florian
    Abstract: In a public good experiment, the paper analyses to which extent individuals with economic education behave differently in a second-order dilemma. Second-order dilemmas may arise, when individuals endogenously build up costly institutions that help to overcome a public good problem (first-order dilemma). The specific institution used in the experiment is a communication platform allowing for group communication before the first-order public good game takes place. The experimental results confirm the finding of the literature that economists tend to free ride more intensively in public good games than non-economists. The difference is the strongest in the end-game phase, yielding in the conclusion that the magnitude of the end-game effect depends on the share of economists in the pool of participants. When it comes to the building-up of institutions, the individual efficiency gain of the institution and its inherent cost function constitute the driving forces for the contribution behaviour. Providing an investment friendly environment yields in economists contributing more to the institution than non-economists. Therefore, we make clear that first-order results of a simple public good game cannot be simply applied for second-order incentive problems.
    Keywords: voluntary contribution mechanism,endogenous formation of institutions,second-order incentive problem,economic education
    JEL: C91 C92 H41
    Date: 2017
  7. By: Antrobus, Emma (University of Queensland); Baranov, Victoria (University of Melbourne); Cobb-Clark, Deborah A. (University of Sydney); Mazerolle, Lorraine (University of Queensland); Tymula, Agnieszka (University of Sydney)
    Abstract: We use an incentivized experiment to measure the risk and time preferences of truant adolescents and their parents. We find that adolescent preferences do not predict school attendance and that a unique police-school partnership program targeting school absences was most effective in reducing the truancy of adolescents with relatively risk-averse parents.
    Keywords: adolescent preferences, time preferences, risk preferences, RCT, truancy
    JEL: D81 J13 I29
    Date: 2017–12
  8. By: Alger, Ingela; Lehmann, Laurent; Weibull, Jörgen W.
    Abstract: Humans have evolved in populations structured in groups that extended beyond the nuclear family. Individuals interacted with each other within these groups and there was limited migration and sometimes conáicts between these groups. Suppose that during this evolution, individuals transmitted their behaviors or preferences to their (genetic or cultural) o§spring, and that material outcomes resulting from the interaction determined which parents were more successful than others in producing (genetic or cultural) o§spring. Should one then expect pure material self-interest to prevail? Some degree of altruism, spite, inequity aversion or morality? By building on established models in population biology we analyze the role that di§erent aspects of population structureó such as group size, migration rates, probability of group conáicts, cultural loyalty towards parentsó play in shaping behaviors and preferences which, once established, cannot be displaced by any other preference. In particular, we establish that uninvadable preferences under limited migration between groups will consist of a materially self-interested, a moral, and an other-regarding component, and we show how the strength of each component depends on population structure.
    Keywords: Strategic interactions; Preference evolution; Evolution by natural selection; Cultural transmission; Pro-sociality; Altruism; Morality; Spite
    JEL: A12 A13 B52 C73 D01 D63 D64 D91
    Date: 2018–02
  9. By: Donald T. Wargo (Department of Economics, Temple University)
    Abstract: This paper shows that punishment arises not only from inequity aversion but also from revenge itself (a desire for reciprocity). We perform face-to-face revenge/punishment experiments by randomly recruiting the students at a major U.S. University. Our results show that punishment is motivated by both inequity aversion and revenge.
    JEL: D91
    Date: 2018–03
  10. By: Hitoshi Matsushima (Department of Economics, University of Tokyo)
    Abstract: A real player sometimes fails to practice hypothetical thinking, which increases the occurrence of anomalies in various situations. This study incorporates psychology into game theory and demonstrates a cognitive method to encourage bounded-rational players to practice correct hypothetical thinking in strategic interactions with imperfect information. We introduce a concept termed “frame†as a description of a synchronized cognitive procedure through which each player decides multiple actions in a step-by-step manner, shaping his (or her) strategy selection. We could regard a frame as the supposedly irrelevant factors from the viewpoint of full rationality. However, this paper theoretically shows that in a multi-unit trading with private values, the ascending proxy auction has a significant advantage over the second-price auction in terms of the bounded-rational players' incentive to practice hypothetical thinking, because of the difference, not in physical rule, but in background frame. By designing a frame appropriately, we generally show that any static game that is solvable in iteratively undominated strategies is also solvable, even if players cannot practice hypothetical thinking without the help of a well-designed frame. We further investigate the possibility that even a detail-free frame design serves to overcome the difficulty of hypothetical thinking. We extend this investigation to the Bayesian environments.
  11. By: Solda, Alice (GATE, University of Lyon); Villeval, Marie Claire (CNRS, GATE)
    Abstract: Using a negatively framed public good game, we study the cooperative behavior of individuals who reintegrate their group after being excluded by their peers. We manipulate the length of exclusion and whether this length is imposed exogenously or results from a vote. We show that people are willing to exclude the least cooperators although it is not an equilibrium strategy. Exclusion has a positive impact on cooperation when it is followed by a quick rather than a slow reintegration and that the length of exclusion is chosen by the group. In this environment, a quicker reintegration also limits retaliation. Post-exclusion cooperation and forgiveness depend not only on the length of exclusion but also on the perceived intentions of others when they punish.
    Keywords: ostracism, exclusion, reintegration, social dilemma, cooperation, experiment
    JEL: C92 H41 D23
    Date: 2017–12
  12. By: Christoph March; Anthony Ziegelmeyer
    Abstract: We designed four observational learning experiments to identify the key channels that, along with Bayes-rational inferences, drive herd behavior. In Experiment 1, unobserved, whose actions remain private, learn from the public actions made in turn by subjects endowed with private signals of medium quality. We find that when unobserved face a handful of identical actions that contradict their high quality signals they herd more extensively than predicted by Bayes-rational herding. Deviations from the normative solution result in severe expected losses and unobserved would be better off without the chance to learn from others. When unobserved are endowed with medium quality signals they learn rather successfully from public actions, but they overweight their low quality signals relative to public information. Experiments 2-4 reveal that non-Bayesian updating and informational misinferences are the two channels that drive excessive herding, while the strong (resp. mild) overemphasis on low (resp. medium) quality signals is caused by wrong expectations about others’ strategy. A model of intuitive observational learning accounts for the phenomenon of excessive herding, it captures well herd behavior with medium quality signals, but it fails to predict that the reluctance to contradict private signals is stronger for low than for medium quality.
    Keywords: observational learning, herd behavior, intuitive judgments, experiments
    JEL: C92 D82 D83 D84
    Date: 2018

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