nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒03‒05
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Cognition, optimism and the formation of age-dependent survival beliefs By Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander
  2. How success breeds success By Ambroise Decamps; Changxia Ke; Lionel Page
  3. DeMo by NaMo (Demonetization by Narendra Modi): Money burning in India By Gupta, N.
  4. Varieties of risk elicitation By Friedman, Daniel; Habib, Sameh; James, Duncan; Crockett, Sean
  5. Honesty in the digital age By Alain Cohn; Tobias Gesche; Michel Maréchal
  6. Power of Joint Decision-Making in a Finitely-Repeated Dilemma By Kenju Kamei
  7. Believing in Others’ Dishonesty: An Experimental Study on Beliefs about Lying By Silvia Lübbecke
  8. A bright future for financial agent-based models By J. Lussange; A. Belianin; S. Bourgeois-Gironde; B. Gutkin
  9. Emotional Responses to Behavioral Economic Incentives for Health Behavior Change By van der Swaluw, Koen; Lambooij, Mattijs S; Mathijssen, Jolanda; Zeelenberg, Marcel; Polder, Johan; Prast, Henriette
  10. Can routines be inherited? A microfoundational approach to spinoffs By Andrea Furlan; Roberto Grandinetti
  11. Essays in the Economics of Corruption: Experimental and empirical evidence By Nastassia Leszczynska
  12. How Artificial Intelligence and Machine Learning Can Impact Market Design By Paul R. Milgrom; Steven Tadelis

  1. By: Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander
    Abstract: This paper investigates the roles psychological biases play in empirically estimated deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions (PWFs), as documented in experimental prospect theory. Our estimates suggest that the implied measures for cognitive weakness, likelihood insensitivity, and those for motivational biases, relative pessimism, increase with age. We document that direct measures of cognitive weakness and motivational attitudes share these trends. Our regression analyses confirm that these factors play strong quantitative roles in the formation of subjective survival beliefs. In particular, cognitive weakness is an increasingly important contributor to the overestimation of survival chances in old age.
    Keywords: Subjective Survival Beliefs,Probability Weighting Function,Confirmatory Bias,Cognition,Optimism
    JEL: D12 D83 I10
    Date: 2018
  2. By: Ambroise Decamps; Changxia Ke; Lionel Page
    Abstract: We study whether and how success increases the chance of subsequent success using a real-effort laboratory experiment. We identify the causal effect of winning in a simple dynamic contest (best-of-three) using the random component of a stochastic contest success function that determines the winner of each round. We find a positive effect of an initial success on subsequent performance. Replacing either the first round or the last round of the contest with a die selecting the winner at random, we disentangle two competing explanations of the positive effect: strategic thinking and psychological effect of winning. Our results clearly support the existence of a psychological effect of winning. On the contrary, we do not find evidence that strategic thinking can explain the effect of winning. Varying the amount of feedback provided in contest, we find that the psychological effect is likely driven by improved self-confidence after experiencing a success. We suggest that contest models need to venture beyond the framework of games with complete information to explain behaviour in dynamic contests.
    Date: 2018–02–24
  3. By: Gupta, N.
    Abstract: Despite the well-documented hardship caused by demonetization policy implemented on 8th November 2016 in India, the large scale public support and acceptance of it was puzzling. Was this acceptance a silent protest to punish those with ill-gotten wealth and an aversion towards the growing inequality in the country? Motivated by this ambiguity, this thesis attempts to understand the demonetization acceptance as being in line with the research in experimental economics and experimental psychology that argues that notions such as inequity aversion and fairness drives human behaviour into taking decisions which are not economically rational. More specifically, the study will examine the role of social preferences and fairness in an economic agents’ behaviour. The research paper designs a “money-burning” experiment in a field setting in India and attempts to mimic the acquisition of money through unfair means (black money) and thereafter offers participants a chance to punish each other (reduce each other’s money at a cost to themselves). The study finds a balanced support for both, self-interest behaviour and fairness preference. Empirically, the study did not find any link between the burning behaviour and demonetization acceptance.
    Keywords: social preferences, money burning, fairness, procedural fairness, experimental economics, demonetization, India
    Date: 2018–02–20
  4. By: Friedman, Daniel; Habib, Sameh; James, Duncan; Crockett, Sean
    Abstract: We explore a variety of risk preference elicitation procedures that involve direct choice from a set of lotteries, including budget lines (BL) and binary choice lists (HL). We find statistically significant violations of the expected utility hypothesis (EUH) consistent with disappointment aversion, and also find violations of first order stochastic dominance, but both sorts of violations are mostly small and only slightly impair the predictive power of a parametric implementation of EUH. The estimated coefficient of relative risk aversion, gamma, varies widely across individual subjects (consistent with EUH) and also across elicitation tasks (inconsistent with direct implementation of EUH). An alternative nonparametric measure of risk preferences displays similar patterns. The two risk preference measures are highly correlated with each other for each elicitation task. Each separate measure varies widely across individual subjects and across elicitation tasks, with low to nil correlation between BL tasks and HL tasks. Some of the variation across tasks can be explained by attributes such as graphical vs text representation that have no role in decision theory.
    Keywords: risk aversion,experiment,elicitation,multiple price list
    JEL: C91 D81 D89
    Date: 2018
  5. By: Alain Cohn; Tobias Gesche; Michel Maréchal
    Abstract: Modern communication technologies enable efficient exchange of information, but often sacrifice direct human interaction inherent in more traditional forms of communication. This raises the question of whether the lack of personal interaction induces individuals to exploit informational asymmetries. We conducted two experiments with 866 subjects to examine how human versus machine interaction influences cheating for financial gain. We find that individuals cheat significantly more when they interact with a machine rather than a person, regardless of whether the machine is equipped with human features. When interacting with a human, individuals are particularly reluctant to report unlikely favorable outcomes, which is consistent with social image concerns. The second experiment shows that dishonest individuals prefer to interact with a machine when facing an opportunity to cheat. Our results suggest that human interaction is key to mitigating dishonest behavior and that self-selection into communication channels can be used to screen for dishonest people.
    Keywords: Cheating, honesty, private information, communication, digitization, lying costs
    JEL: C99 D82 D83
    Date: 2018–02
  6. By: Kenju Kamei
    Abstract: A rich body of literature has proposed that pairs behave significantly differently from individuals due to a number of reasons such as group polarization. This paper experimentally compares cooperation behaviors between pairs and individuals in a finitely-repeated two-player public goods game (continuous prisoner’s dilemma game). We show that pairs contribute significantly more than individuals to their group accounts. Especially when two pairs are matched with each other for the entire periods, they successfully build long-lasting cooperative relationships with their matched pairs. Our detailed analyses suggest that the enhanced cooperation behavior of pairs may be driven by (a) the mere fact that they have partners as decision-making units when they make decisions, (b) group polarization – those who initially prefer to contribute smaller amounts are more affected by the partners in their pairs, and (c) stronger conditional cooperation behavior of pairs to their matched pairs.Length: 51 pages
  7. By: Silvia Lübbecke (University of Paderborn)
    Abstract: Several experiments provide evidence for discriminating behavior towards the out-group—even in settings where group division is arbitrary. This paper studies whether discriminatory behavior can be traced back to subjects holding discriminating beliefs. An experiment is presented where subjects are randomly assigned to minimal groups. First, subjects are asked to draw a marble in private and report whether it is white or speckled. Second, their beliefs are elicited about how many of the others in the respective group have reported the payoff-maximizing speckled marble. Data show that subjects expect others to behave dishonestly in general, but do not differ in their beliefs about the behavior of in- and out-group members. Further, the results indicate that subjects’ beliefs about others’ honesty are positively correlated with the individual lying behavior. Subjects who report the profit-maximizing type also believe in significantly more payoff-maximizing reports by others compared to those subjects who report the unfavorable outcome.
    Keywords: Group identity, Minimal groups, Intergroup discrimination, Incentivized belief elicitation, Experimental economics
    JEL: C91 D01 D82 D83 D91 Z13
    Date: 2018–02
  8. By: J. Lussange; A. Belianin; S. Bourgeois-Gironde; B. Gutkin
    Abstract: The history of research in finance and economics has been widely impacted by the field of Agent-based Computational Economics (ACE). While at the same time being popular among natural science researchers for its proximity to the successful methods of physics and chemistry for example, the field of ACE has also received critics by a part of the social science community for its lack of empiricism. Yet recent trends have shifted the weights of these general arguments and potentially given ACE a whole new range of realism. At the base of these trends are found two present-day major scientific breakthroughs: the steady shift of psychology towards a hard science due to the advances of neuropsychology, and the progress of artificial intelligence and more specifically machine learning due to increasing computational power and big data. These two have also found common fields of study in the form of computational neuroscience, and human-computer interaction, among others. We outline here the main lines of a computational research study of collective economic behavior via Agent-Based Models (ABM) or Multi-Agent System (MAS), where each agent would be endowed with specific cognitive and behavioral biases known to the field of neuroeconomics, and at the same time autonomously implement rational quantitative financial strategies updated by machine learning. We postulate that such ABMs would offer a whole new range of realism.
    Date: 2018–01
  9. By: van der Swaluw, Koen (Tilburg University, Center For Economic Research); Lambooij, Mattijs S; Mathijssen, Jolanda (Tilburg University, Center For Economic Research); Zeelenberg, Marcel (Tilburg University, Center For Economic Research); Polder, Johan (Tilburg University, Center For Economic Research); Prast, Henriette (Tilburg University, Center For Economic Research)
    Abstract: Many people aim to change their lifestyle, but have trouble acting on their intentions. Behavioral economic incentives and related emotions can support commitment to personal health goals, but the related emotions remain unexplored. In a regret lottery, winners who do not attain their health goals do not get their prize but receive feedback on what their forgone earnings would have been. This counterfactual feedback should provoke anticipated regret and increase commitment to health goals. We explored which emotions were actually expected upon missing out on a prize due to unsuccessful weight loss and which incentive-characteristics influence their likelihood and intensity. Participants reported their expected emotional response after missing out on a prize in one of 12 randomly presented incentive-scenarios, which varied in incentive type, incentive size and deadline distance. Participants primarily reported feeling disappointment, followed by regret. Regret was expected most when losing a lottery prize (vs. a fixed incentive) and intensified with prize size. Multiple features of the participant and the lottery incentive increase the occurrence and intensity of regret. As such, our findings can be helpful in designing behavioral economic incentives that leverage emotions to support health behavior change.
    Keywords: incentives; emotions; behavioral economics; health behavior; weight loss
    JEL: D91 I12
    Date: 2018
  10. By: Andrea Furlan (University of Padova); Roberto Grandinetti (University of Padova)
    Date: 2018–01
  11. By: Nastassia Leszczynska
    Abstract: The advent of experimental methodologies have led to decisive progress in the study of corrupt behaviour in the last two decades. Since they can complement survey data and perception indexes with controlled experimental data, scholars and policy makers have reached a better understanding of decision-making in bribery situations and are able to design innovative anticorruption policies.In this thesis, I use experimental and empirical data to contribute to the field of the economics of corruption. The first two chapters of this PhD dissertation use experimental methodologies to study decision-making in a bribery scenario. The first chapter tests an anti-corruption strategy with a lab in the field experiment in Burundi. The second chapter studies the fairness concerns that might arise when dealing with redistribution in a bribery situation. The third chapter uses an empirical analysis to explore the controversial issue of political moonlighting, i.e. having outside activities while holding public office. It investigates "double-hat politicians", who combine mayor and parliamentary positions in Wallonia.In a first chapter, written with Jean-Benoit Falisse, we explore the effect of anti- corruption messages on corrupt behavior and public service delivery. In a novel lab-in-the-field experiment, 527 public servants from Burundi were asked to allocate rationed vouchers between anonymous citizens; some of these citizens attempted to bribe the public servants to obtain more vouchers than they were entitled to. Two groups of public servants were randomly exposed to short messages about good governance or professional identity reminders. Participants in these two groups behaved in a fairer manner than those of a third group who were not exposed to any message. The result is more robust in the case of the group exposed to the professional identity reminder. The underlying mechanisms seem to be that when a public servant reflects upon governance values and her professional identity, the moral cost increases, prompting more equal service delivery. Bribe-taking was not impacted by the messages. The experiment provides new insights into the design of anti-corruption strategies.The second chapter, written with Lena Epp, investigates the impact of a public officials’ fairness considerations towards citizens in a petty corruption situation. Other-regarding preferences, and, more particularly, fairness concerns are widely acknowledged as crucial elements of individual economic decision-making. In petty corruption contexts, public officials are to a large extent aware of differences between citizens. Here, we experimentally investigate how fairness considerations may impact on corrupt behaviour. Our novel bribery game reveals that bribes are less frequently accepted when bribers are unequal in terms of endowments. These results suggest that fairness considerations can influence corrupt behaviour.In the last chapter, I focus on political moonlighting in Wallonia. Activities outside of public office or combining specific public offices simultaneously is a topic of ongoing heated debates. An element crucial to these discussions is whether moonlighting is detrimental for politicians’ performance. In Belgium, the combination of local executive and regional legislative offices, i.e. double hat politicians, is a frequent habit for a majority of politicians. This accumulation of activities might lead to (un-)desirable outcomes in terms of political achievements. This chapter investigates the impact of holding several remunerated and honorary positions on regional MPs parliamentary activities and mayor’s municipality performance in Wallonia. I use a database of all public and private positions held by Belgian politicians in Wallonia since the disclosure of positions became compulsory for those holding at least one public position, i.e. from 2004 to 2016. For members of Parliament, wearing a double hat reduces global parliamentary activity. For mayors, it seems that holding more remunerated positions is associated with less efficient municipality management.
    Keywords: corruption; experimental economics; behavioural games; public service delivery; fairness; political moonlighting; bribery game; messages; rank reversal aversion
    Date: 2018–02–20
  12. By: Paul R. Milgrom; Steven Tadelis
    Abstract: In complex environments, it is challenging to learn enough about the underlying characteristics of transactions so as to design the best institutions to efficiently generate gains from trade. In recent years, Artificial Intelligence has emerged as an important tool that allows market designers to uncover important market fundamentals, and to better predict fluctuations that can cause friction in markets. This paper offers some recent examples of how Artificial Intelligence helps market designers improve the operations of markets, and outlines directions in which it will continue to shape and influence market design.
    JEL: D44 D82 L15
    Date: 2018–02

This nep-cbe issue is ©2018 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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