nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒04‒30
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Moral Wiggle Room Reverted: Information Avoidance is Myopic By Homayoon Moradi; Alexander Nesterov
  2. Can Words Breed or Kill Investment? Metaphors, Imagery, Affect and Investor Behaviour By Prast, Henriette; Sanders, José; Leonhard, Olga
  3. Self Confidence Spillovers and Motivated Beliefs By Ritwik Banerjee; Nabanita Datta Gupta; Marie Villeval
  4. Effort, inequality and cooperation: evidence from the lab By Kjetil Bjorvatn; Nicola Daniele Coniglio
  5. Loss Aversion, Expectations and Anchoring in the BDM Mechanism By Vassilopoulos, Achilleas; Drichoutis, Andreas C.; Nayga, Rodolfo
  6. Measuring Costly Effort Using the Slider Task By Gill, David; Prowse, Victoria L.

  1. By: Homayoon Moradi (National Research University Higher School of Economics); Alexander Nesterov (National Research University Higher School of Economics)
    Abstract: We use a range of dictator game experiments to investigate why people avoid information. Dictators in our experiment know their own payoffs and can choose whether to learn the payoffs of the recipient. We vary whether dictators can learn the recipient's payoff before or after they are presented with their self-interested action. We find that dictators are more likely to avoid information when they do not yet know their self-interested action, and consequently act more selfishly in this case. These results go against two popular explanations of information avoidance: self-image and default effects. We study and test alternative explanations such as wishful thinking, cognitive dissonance, and attention and find support for the latter.
    Keywords: Attention, Wishful Thinking, Self-Image, Default Effect, In- formation Avoidance, Moral Wiggle Room
    JEL: C91 D64 D83 D01
    Date: 2018
  2. By: Prast, Henriette (Tilburg University, Center For Economic Research); Sanders, José; Leonhard, Olga
    Abstract: In "building your portfolio", building is what linguists call a conceptual metaphor: the investor does not literally pile up his assets like they were bricks, but "building" is used as a metaphor for putting together elements. We could therefore also say "cooking", "sewing" or "weaving" your portfolio, as these are also activities that involve putting together elements to make your life comfortable. Conceptual metaphors make some aspects of the topic at hand salient, and hide others. Metaphors create imagery and induce affect. As the latter is shown to influence risk perception and return expectations, it is worthwhile to study metaphors in stock market reporting. In this paper we identify the metaphors in newspaper articles on the stock market both during a crash and in “normal” times. We find that both in the general and the financial press journalists use many metaphors, that these come from a limited number of source domains, and that the latter are predominantly masculine, thus “priming” readers with certain aspects of investing. We speculate that this may create positive affect among men, not women, and bias masculine investors toward excess trading. If so, stock market reporting in newspapers could contribute to the gender difference in stated risk tolerance, financial risk taking, stock market participation and (excess) trading. We suggest further research to verify this.
    Keywords: conceptual metaphors; imagery; affect; FAMILIARITY; risk perception; gender
    JEL: G02 G11 D14 D18 J16
    Date: 2018
  3. By: Ritwik Banerjee (IIMB - Indian Institute of Management [Bangalore]); Nabanita Datta Gupta (Aarhus University [Aarhus]); Marie Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Is success in a task used strategically by individuals to motivate their beliefs prior to taking action in a subsequent, unrelated, task? Also, is the distortion of beliefs reinforced for individuals who have lower status in society? Conducting an artefactual field experiment in India, we show that success when competing in a task increases the performers' self-confidence and competitiveness in the subsequent task. We also find that such spillovers affect the self-confidence of low-status individuals more than that of high-status individuals. Receiving good news under Affirmative Action, however, boosts confidence across tasks regardless of the caste status.
    Keywords: Motivated beliefs, spillovers, self-confidence, competitiveness, Affirmative Action, experiment
    Date: 2018–04–06
  4. By: Kjetil Bjorvatn (NHH, Norwegian School of Economics); Nicola Daniele Coniglio (Università degli Studi di Bari "Aldo Moro")
    Abstract: We investigate the impact of inequality on cooperation using a linear public good game and focusing on heterogeneity in the source of income, where some participants work for their endowment (“workers”) while others do not (“non-workers”). The key finding of our paper is that cooperation is higher when workers are grouped with other workers, and we provide evidence that the underlying mechanism for this result is a higher degree of altruism between workers. Our results thus lend support to the concerns that inequality may have detrimental effects on economic efficiency.
    Keywords: public goods; inequality; source of income heterogeneity
    JEL: F1 O1 O3
    Date: 2018–04
  5. By: Vassilopoulos, Achilleas; Drichoutis, Andreas C.; Nayga, Rodolfo
    Abstract: We present the results of an economic laboratory experiment that tests behavioral biases that have been associated with the BDM mechanism. By manipulating the highest random competing bid, the maximum possible loss, the distribution of prices and the elicitation format, we attempt to disentangle the effects of reference-dependence, expectations as well as price and loss anchoring on subjects' bids. The results show that bids are affected by expectations and anchoring on the highest price but not by anchoring on the maximum possible loss. In addition, results are supportive of the no-loss-in-buying hypothesis of Novemsky and Kahneman (2005).
    Keywords: Becker-DeGroot-Marschak (BDM) mechanism; expectations; anchoring; valuation; experiment
    JEL: C91 D44
    Date: 2018–03–22
  6. By: Gill, David (Purdue University); Prowse, Victoria L. (Purdue University)
    Abstract: Using real effort to implement costly activities increases the likelihood that the motivations that drive effort provision in real life carry over to the laboratory. However, unobserved differences between subjects in the cost of real effort make quantitative prediction problematic. In this paper we present the slider task, which was designed by us to overcome the drawbacks of real effort tasks. The slider task allows the researcher to collect precise and repeated observations of effort provision from the same subjects in a short time frame. The resulting high-quality panel data allow sophisticated statistical analysis. We illustrate these advantages in two ways. First, we show how to use panel data from the slider task to improve precision by controlling for persistent unobserved heterogeneity. Second, we show how to estimate effort costs at the subject level by exploiting within-subject variation in incentives across repetitions of the slider task. We also provide z-Tree code and practical guidance to help researchers implement the slider task.
    Keywords: experimental methodology, real effort, effort provision, cost of effort, slider task, design of laboratory experiments, unobserved heterogeneity
    JEL: C91 C13
    Date: 2018–03

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