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on Cognitive and Behavioural Economics |
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Issue of 2018‒03‒26
eighteen papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Barron, Kai |
| Abstract: | Bayes’ statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Recent research has questioned the use of Bayes’ rule in descriptive models of behavior, presenting evidence that people overweight ‘good news’ relative to ‘bad news’ when updating ego-relevant beliefs. In this paper, we present experimental evidence testing whether this ‘good-news, bad-news’ effect extends to belief updating in the domain of financial decision making, i.e. the domain of most applied economic decision making. We find no evidence of asymmetric updating in this domain. In contrast, the average participant in our experiment is strikingly close to Bayesian in her belief updating. However, we show that this average behavior masks substantial heterogeneity in updating behavior, but we find no evidence in support of a sizeable subgroup of asymmetric updators. |
| Keywords: | economic experiments; Bayes’ rule; belief updating; belief measurement; proper scoring rules; subjective probability, motivated beliefs |
| JEL: | C11 C91 D83 |
| Date: | 2018–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84742&r=cbe |
| By: | Andrea Morone; Francesco Nemore; Dario, Antonio Schirone |
| Abstract: | Environmental psychologists suggest that people feelings and emotions determine what they do and how they do it. According to the stimulus organism response model (SOR), the environment creates a behavioral/emotional response in individuals that, in turn, induces approach or avoidance behaviors. We conducted survey in six stores, settled in six different Italian cities, of a Swedish-founded Dutch-based multinational group, that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories. Firstly, we apply the SOR model to evaluate loyalty program participation impact on consumers receipts. Subsequently, we provide empirical evidence about the effects of an emotional-sensorial stimulus (i.e. the presence of the restaurant inside the store). Through both a non-parametric and parametric testing, we found that environmental stimuli have a positive effect in terms of sales. |
| Keywords: | Servicescape; sensorial stimuli; functionality; loyalty; restaurant. |
| JEL: | L83 |
| Date: | 2018–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2018_02&r=cbe |
| By: | Grimm, Stefan (LMU Munich); Klimm, Felix (LMU Munich) |
| Abstract: | Do people blame refugees for negative events? We propose a novel experimental paradigm to measure discrimination in responsibility attribution towards Arabic refugees. Participants in the laboratory experience a positive or negative income shock, which is with equal probability caused by a random draw or another participant\'s performance in a real effort task. Responsibility attribution is measured by beliefs about whether the shock is due to the other participant\'s performance or the random draw. We find evidence for reverse discrimination: Natives attribute responsibility more favorably to refugees than to other natives. In particular, refugees are less often held responsible for negative income shocks. Moreover, natives with negative implicit associations towards Arabic names attribute responsibility less favorably to refugees than natives with positive associations. Since neither actual performance differences nor beliefs about natives\' and refugees\' performance can explain our finding of reverse discrimination, we rule out statistical discrimination as the driving force. We discuss explanations based on theories of self-image and identity concerns. |
| Keywords: | refugees; discrimination; responsibility attribution; |
| JEL: | C91 D03 D83 J15 |
| Date: | 2018–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:83&r=cbe |
| By: | Guber, Raphael (Munich Center for the Economics of Aging); Kocher, Martin (University of Vienna); Winter, Joachim (LMU Munich) |
| Abstract: | Recent research in contract theory on the effects of behavioral biases implicitly assumes that they are stable, in the sense of not being affected by the contracts themselves. In this paper, we provide evidence that this is not necessarily the case. We show that in an insurance context, being insured against losses that may be incurred in a real-effort task changes subjects\' self-confidence. Our novel experimental design allows us to disentangle selection into insurance from the effects of being insured by randomly assigning coverage after subjects revealed whether they want to be insured or not. We find that uninsured subjects are underconfident while those that obtain insurance have well-calibrated beliefs. Our results suggest that there might be another mechanism through which insurance affects behavior than just moral hazard. |
| Keywords: | overconfidence; insurance choice; underplacement; |
| JEL: | D84 D82 C91 |
| Date: | 2018–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:80&r=cbe |
| By: | Chowdhury, Shyamal (University of Sydney); Sutter, Matthias (Max Planck Institute for Research on Collective Goods); Zimmermann, Klaus F. (University of Bonn) |
| 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: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11337&r=cbe |
| By: | Benndorf, Volker; Rau, Holger A.; Sölch, Christian |
| Abstract: | In this paper, we discuss learning behavior and the heterogeneity of subjects' ability to perform in real-effort tasks. Afterwards, we present a novel variant of Erkal et al.'s (2011) encryption real-effort task which aims to minimize learning behavior in repeated settings. In the task, participants encrypt words into numbers. In our variant, we apply a double-randomization mechanism to minimize learning and heterogeneity. Existing experiments with repeated real-effort tasks find a performance increase of 12-14% between the first and second half. By contrast, our task mitigates learning behavior down to 2% between the first and second half. The data show that subjects show a small heterogeneity in performance. |
| Keywords: | Experimental Methods,Learning Behavior,Real Effort |
| JEL: | C90 C91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:343&r=cbe |
| By: | Armin Falk; Anke Becker; Thomas Dohmen; Benjamin Enke; David Huffman; Uwe Sunde |
| Abstract: | This paper studies the global variation in economic preferences. For this purpose, we present the Global Preference Survey (GPS), an experimentally validated survey dataset of time preference, risk preference, positive and negative reciprocity, altruism, and trust from 80,000 individuals in 76 countries. The data reveal substantial heterogeneity in preferences across countries, but even larger within-country heterogeneity. Across individuals, preferences vary with age, gender, and cognitive ability, yet these relationships appear partly country specific. At the country level, the data reveal correlations between preferences and bio-geographic and cultural variables such as agricultural suitability, language structure, and religion. Variation in preferences is also correlated with economic outcomes and behaviors. Within countries and subnational regions, preferences are linked to individual savings decisions, labor market choices, and prosocial behaviors. Across countries, preferences vary with aggregate outcomes ranging from per capita income, to entrepreneurial activities, to the frequency of armed conflicts. |
| JEL: | D01 D03 F00 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_005_2018&r=cbe |
| By: | Barron, Kai; Gravert, Christina |
| Abstract: | Confidence is often seen as the key to success. Empirical evidence about whether such beliefs causally map into actions is, however, sparse. In this paper, we experimentally investigate the causal effect of an increase in confidence about one’s own ability on two central choices made by workers in the labor market: choosing between jobs with different incentive schemes, and the subsequent choice of how much effort to exert within the job. An increase in confidence leads to an increase in self-selection into uncertain ability-contingent payment schemes. This is detrimental for low ability workers. Policy implications are discussed. |
| Keywords: | Overconfidence; experiment; beliefs; real-effort; grade inflation |
| JEL: | C91 D03 J24 M50 |
| Date: | 2018–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84743&r=cbe |
| By: | Fe, Eduardo (University of Strathclyde); Gill, David (Purdue University) |
| Abstract: | In this paper we investigate how observable cognitive skills influence the development of strategic sophistication. To answer this question, we study experimentally how psychometric measures of theory-of-mind and cognitive ability (or 'fluid intelligence') work together with age to determine the strategic ability and level-k behavior of children in a variety of incentivized strategic interactions. We find that better theory-of-mind and cognitive ability predict strategic sophistication in competitive games. Furthermore, age and cognitive ability act in tandem as complements, while age and theory-of-mind operate independently. Older children respond to information about the cognitive ability of their opponent, which provides support for the emergence of a sophisticated strategic theory-of-mind. Finally, theory-of-mind and age strongly predict whether children respond to intentions in a gift-exchange game, while cognitive ability has no influence, suggesting that different psychometric measures of cognitive skill correspond to different cognitive processes in strategic situations that involve the understanding of intentions. |
| Keywords: | cognitive skills, theory-of-mind, cognitive ability, fluid intelligence, strategic sophistication, age, children, experiment, level-k, bounded rationality, non-equilibrium thinking, intentions, gift-exchange game, competitive game, strategic game, strategic interaction |
| JEL: | C91 D91 J24 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11326&r=cbe |
| By: | Kocher, Martin (University of Vienna); Schindler, David (Tilburg University); Trautmann, Stefan (University of Heidelberg); Xu, Yilong (Uinversity of Heidelberg) |
| Abstract: | Time pressure is a central aspect of economic decision making nowadays. It is therefore natural to ask how time pressure affects decisions, and how to detect individual heterogeneity in the ability to successfully cope with time pressure. In the context of risky decisions, we ask whether a person\'s performance under time pressure can be predicted by measurable behavior and traits, and whether such measurement itself may be affected by selection issues. We find that the ability to cope with time pressure varies significantly across decision makers, leading to selected subgroups that differ in terms of their observed behaviors and personal traits. Moreover, measures of cognitive ability and intellectual efficiency jointly predict individuals\' decision quality and ability to keep their decision strategy under time pressure. |
| Keywords: | risk; cognitive ability; selection; time pressure; |
| JEL: | C91 D81 |
| Date: | 2018–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:84&r=cbe |
| By: | Becker, Anke (Harvard University); Dohmen, Thomas (University of Bonn and IZA); Enke, Benjamin (Harvard University); Falk, Armin (briq Institute and University of Bonn); Huffman, David (University of Pittsburgh); Sunde, Uwe (LMU München) |
| Abstract: | This paper studies the global variation in economic preferences. For this purpose, we present the Global Preference Survey (GPS), an experimentally validated survey dataset of time preference, risk preference, positive and negative reciprocity, altruism, and trust from 80,000 individuals in 76 countries. The data reveal substantial heterogeneity in preferences across countries, but even larger within-country heterogeneity. Across individuals, preferences vary with age, gender, and cognitive ability, yet these relationships appear partly country specific. At the country level, the data reveal correlations between preferences and bio-geographic and cultural variables such as agricultural suitability, language structure, and religion. Variation in preferences is also correlated with economic outcomes and behaviors. Within countries and subnational regions, preferences are linked to individual savings decisions, labor market choices, and prosocial behaviors. Across countries, preferences vary with aggregate outcomes ranging from per capita income, to entrepreneurial activities, to the frequency of armed conflicts. |
| Keywords: | ; |
| JEL: | D01 D03 F00 |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:79&r=cbe |
| By: | Grimm, Stefan; Klimm, Felix |
| Abstract: | Do people blame refugees for negative events? We propose a novel experimental paradigm to measure discrimination in responsibility attribution towards Arabic refugees. Participants in the laboratory experience a positive or negative income shock, which is with equal probability caused by a random draw or another participant’s performance in a real effort task. Responsibility attribution is measured by beliefs about whether the shock is due to the other participant’s performance or the random draw. We find evidence for reverse discrimination: Natives attribute responsibility more favorably to refugees than to other natives. In particular, refugees are less often held responsible for negative income shocks. Moreover, natives with negative implicit a sociations towards Arabic names attribute responsibility less favorably to refugees than natives with positive associations. Since neither actual performance differences nor beliefs about natives’ and refugees’ performance can explain our finding of reverse discrimination, we rule out statistical discrimination as the driving force. We discuss explanations based on theories of self-image and identity concerns. |
| Keywords: | Refugees; discrimination; responsibility attribution |
| JEL: | C91 D03 D83 J15 |
| Date: | 2018–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:42657&r=cbe |
| By: | Klimm, Felix (LMU Munich) |
| Abstract: | Supporters of left-wing parties typically place more emphasis on redistributive policies than right-wing voters. I investigate whether this difference in tolerating inequality is amplified by suspicious success - achievements that may arise from cheating. Using a laboratory experiment, I exogenously vary cheating opportunities for stakeholders who work on a real effort task and earn money according to their self-reported performances. An impartial spectator is able to redistribute the earnings between the stakeholders, although it is not possible to detect cheating. I find that the opportunity to cheat leads to different views on whether to accept inequality. Left-wing spectators substantially reduce inequality when cheating is possible, while the treatment has no significant effect on choices of right-wing spectators. Since neither differences in beliefs nor differences in norms about cheating can explain this finding, it seems to be driven by a difference in preferences. These results suggest that redistributive preferences will diverge even more once public awareness increases that inequality may be to a certain extent created by cheating. |
| Keywords: | cheating; inequality; fairness; political preferences; redistribution; |
| JEL: | C91 D63 D83 H23 H26 |
| Date: | 2018–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:82&r=cbe |
| By: | He, Simin; Wu, Jiabin |
| Abstract: | This paper experimentally studies the role of a compromise option in a repeated battle-of-the-sexes game. We find that in a random-matching environment, compromise serves as an effective focal point and facilitates coordination, but fails to improve efficiency. However, in a fixed-partnership environment, compromise deters subjects from learning to play alternation, a more efficient but also more complex strategy. As a result, compromise hurts efficiency in the long-run by allowing subjects to coordinate on the less efficient outcome. We explore various behavioral mechanisms and suggest that people may fail to use an equal and efficient strategy if such a strategy is complex. |
| Keywords: | Compromise, Battle-of-the-Sexes, Repeated games, Behavioral game theory, Experimental economics. |
| JEL: | C72 C92 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84713&r=cbe |
| By: | Fatemeh Borhani; Edward J. Green |
| Abstract: | People reason heuristically in situations resembling inferential puzzles such as Bertrand's box paradox and the Monty Hall problem. The practical significance of that fact for economic decision making is uncertain because a departure from sound reasoning may, but does not necessarily, result in a "cognitively biased" outcome different from what sound reasoning would have produced. Criteria are derived here, applicable to both experimental and non-experimental situations, for heuristic reasoning in an inferential-puzzle situations to result, or not to result, in cognitively bias. In some situations, neither of these criteria is satisfied, and whether or not agents' posterior probability assessments or choices are cognitively biased cannot be determined. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1802.08935&r=cbe |
| By: | Florian Englmaier; Stefan Grimm; David Schindler; Simeon Andreas Dermot Schudy |
| Abstract: | Despite the prevalence of non-routine analytical team tasks in modern economies, little is known about how incentives influence performance in these tasks. In a field experiment with more than 3000 participants, we document a positive effect of bonus incentives on the probability of completion of such a task. Bonus incentives increase performance due to the reward rather than the reference point (performance threshold) they provide. The framing of bonuses (as gains or losses) plays a minor role. Incentives improve performance also in an additional sample of presumably less motivated workers. However, incentives reduce these workers’ willingness to “explore” original solutions. |
| Keywords: | team work, bonus, incentives, loss, gain, non-routine, exploration |
| JEL: | C92 C93 J33 D03 M52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6903&r=cbe |
| By: | Gweneth Leigh; Andrew Leigh |
| Abstract: | We design a new field experiment to test pro-social behaviour: will a household return a letter that has been incorrectly addressed? On average, we find that half of all letters were returned. Return rates do not vary significantly according to the gender, race or ethnicity of the fictitious addressee. However, return rates are higher in more affluent neighbourhoods. |
| Keywords: | field experiments, discrimination, altruism |
| JEL: | J71 C93 D64 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6900&r=cbe |
| By: | Gerald Eisenkopf (University of Vechta); Tim Friehe (University of Marburg); Ansgar Wohlschlegel (Portsmouth Business School) |
| Abstract: | We present experimental evidence on the influence of emotions on litigation. Our experiment compares the impact of an intentional taking of points, resulting in an unfair outcome, to that of an exogenous taking. The intentional taking induces negative emotions (e.g., anger), but this emotional arousal does not influence litigant behavior in terms of either filing a case or spending litigation effort. Our observation is independent of litigation being a one-staged or a (possibly) two-staged contest (i.e., one with an an appeal). |
| Keywords: | Litigation, Contest, Emotions, Experiment |
| JEL: | K41 D91 C91 |
| Date: | 2018–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:pbs:ecofin:2018-02&r=cbe |