nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒08‒13
eleven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Risky Choices and Solidarity: Why Experimental Design Matters By Conny Wunsch; Renate Strobl
  2. Defaults and donations: Evidence from a field experiment By Altmann, Steffen; Falk, Armin; Heidhues, Paul; Jayaraman, Rajshri; Teirlinck, Marrit
  3. Locus of control and its intergenerational implications forearly childhood skill formation By Lekfuangfu, Warn N; Powdthavee, Nattavudh; Warrinnier, Nele; Cornaglia, Francesca
  4. Testing the Waters: Behavior across Participant Pools By Erik Snowberg; Leeat Yariv
  5. Social Preferences and Social Curiosity By Weiwei Tasch; Daniel Houser
  6. Paying for what kind of Performance? Performance Pay and Multitasking in Mission-Oriented Jobs By Daniel Jones; Mirco Tonin; Michael Vlassopoulos
  7. Nudging businesses to pay their taxes: Does timing matter? By Gillitzer, Christian; Sinning, Mathias
  8. Investment strategy and selection bias: An equilibrium perspective on overoptimism By Philippe Jehiel
  9. Bringing Tax Avoiders to Light: Moral Framing and Shaming in a Public Goods Experiment By Tsikas, Stefanos A.; Wagener, Andreas
  10. Cognitive sophistication and deliberation times By Carlos Alós-Ferrer; Johannes Buckenmaier
  11. Communication and behavior in organizations: An experiment By Barron, Kai; Gravert, Christina

  1. By: Conny Wunsch; Renate Strobl
    Abstract: Negative income shocks can either be the consequence of risky choices or random events. A growing literature analyzes the role of responsibility for neediness for informal financial support of individuals facing negative income shocks based on randomized experiments. In this paper, we show that studying this question involves a number of challenges that existing studies either have not been aware of, or have been unable to address satisfactorily. We show that the average effect of free choice of risk on sharing, i.e. the comparison of mean sharing across randomized treatments, is not informative about the behavioural effects and that it is not possible to ensure by the experimental design that the average treatment effect equals the behavioural effect. Instead, isolating the behavioural effect requires conditioning on risk exposure. We show that a design that measures subjects preferred level of risk in all treatments allows isolating this effect without additional assumptions. Another advantage of our design is that it allows disentangling changes in giving behaviour due to attributions of responsibility for neediness from other explanations. We implement our design in a lab experiment we conducted with slum dwellers in Nairobi that measures subjects’ transfers to a worse-off partner both in a setting where participants could either deliberately choose or were randomly assigned to a safe or a risky project. We find that free choice matters for giving and that the effects depend on donors’ risk preferences but that attributions of responsibility play a negligible role in this context.
    Keywords: solidarity, risk taking, experimental design
    JEL: C91 D63 D81 O12
    Date: 2018
  2. By: Altmann, Steffen; Falk, Armin; Heidhues, Paul; Jayaraman, Rajshri; Teirlinck, Marrit
    Abstract: We study how defaults affect charitable donations. In a field experiment that was conducted on a large online platform for charitable giving, we exogenously vary the default options in the donation form in two distinct choice dimensions. The first pertains to the primary donation decision, namely, how much to contribute to the charitable cause. The second relates to a "codonation" decision of how much to contribute to supporting the online platform itself. We find a strong impact of defaults on individual behavior: in each of our treatments, the modal positive contributions in both choice dimensions invariably correspond to the specified default amounts. Defaults, nevertheless, have no significant effects on average donation levels. This is because defaults in the donation domain induce some people to donate more and others to donate less. In contrast, higher defaults in the secondary choice dimension unambiguously induce higher average contributions to the online platform. We complement our experimental results by setting up and estimating a structural model that explores whether personalizing defaults based on individuals' donation histories can help the online platform to increase donation revenues.
    Keywords: Default Options,Online Platforms,Charitable Giving,Field Experiment
    JEL: D03 D01 D64 C93
    Date: 2018
  3. By: Lekfuangfu, Warn N; Powdthavee, Nattavudh; Warrinnier, Nele; Cornaglia, Francesca
    Abstract: This paper builds upon Cunha’s (2015) subjective rationality model in which parents have a subjective belief about the impact of their investment on the early skill formation of their children. We propose that this subjective belief is determined in part by locus of control (LOC), i.e., the extent to which individuals believe that their actions can influence future outcomes. Consistent with the theory, we show that maternal LOC measured at the 12th week of gestation strongly predicts maternal attitudes towards parenting style, maternal time investments, as well as early and late cognitive outcomes. We also utilize the variation in inputs and outputs by maternal LOC to help improve the specification typically used in the estimation of skill production function parameters.
    Keywords: locus of control; parental investment; human capital accumulation; early skill formation; ALSPAC
    JEL: I31 J01
    Date: 2017–04–27
  4. By: Erik Snowberg; Leeat Yariv
    Abstract: We leverage a large-scale incentivized survey eliciting behaviors from (almost) an entire university student population, a representative sample of the U.S. population, and Amazon Mechanical Turk (MTurk) to address concerns about the external validity of experiments with student participants. Behavior in the student population offers bounds on behaviors in other populations, and correlations between behaviors are largely similar across samples. Furthermore, non-student samples exhibit higher measurement error. Adding historical lab participation data, we find a small set of attributes over which lab participants differ from non-lab participants. Using an additional set of lab experiments, we see no evidence of observer effects.
    Keywords: lab selection, external validity, experiments
    JEL: B41 C80 C90
    Date: 2018
  5. By: Weiwei Tasch; Daniel Houser
    Abstract: Over the last two decades social preferences have been implicated in a wide variety of key economic behaviors. Here we investigate connections between social preferences and the demand for information about others’ economic decisions and outcomes, which we denote “social curiosity.” Our analysis is within the context of the inequality aversion model of Fehr and Schmidt (1999). Using data from laboratory experiments with sequential public goods games, we estimate social preferences at the individual level, and then correlate social preferences with one’s willingness to pay to make visible others’ contribution decisions. Our investigation enables us to shed light on how costs to knowing others’ economic decisions and outcomes impact decisions among people with different social preferences, and in particular the extent to which such costs impact the willingness for groups to cooperate.
    Keywords: laboratory experiment, curiosity, inequality aversion, sequential public goods game
    JEL: C91 H41
    Date: 2018
  6. By: Daniel Jones; Mirco Tonin; Michael Vlassopoulos
    Abstract: How does pay-for-performance (P4P) impact productivity, multitasking, and the composition of workers in mission-oriented jobs? These are central issues in sectors like education or healthcare. We conduct a laboratory experiment, manipulating compensation and mission, to answer these questions. We find that P4P has positive effects on productivity on the incentivized dimension of effort and negative effects on the non-incentivized dimension for workers in non-mission-oriented treatments. In mission-oriented treatments, P4P generates minimal change on either dimension. Participants in the non-mission sector – but not in the mission-oriented treatments – sort on ability, with lower ability workers opting out of the P4P scheme.
    Keywords: prosocial motivation, performance pay, multitasking, sorting
    JEL: C91 M52 J45
    Date: 2018
  7. By: Gillitzer, Christian; Sinning, Mathias
    Abstract: This paper provides theoretical and empirical evidence on the implications of the timing of reminders by studying the effect of varying the timing of reminder letters to taxpayers on their payment behavior. The collection of unpaid tax debts constitutes a considerable challenge for tax authorities. We show that varying the timing of a reminder letter has a theoretically ambiguous effect on tax payments. We study the payment behavior of business taxpayers in a field experiment in Australia and find that a simple reminder letter increases the probability of payment by about 25 percentage points relative to a control group that does not receive a letter from the tax authority. However, variation over a three-week period in the timing of the reminder letter has no effect on the probability of payment within seven weeks of the due date. Our findings indicate that sending reminders early results in faster payment of debts with no effect on the ultimate probability of payment.
    Keywords: tax compliance,business taxation,natural field experiment,behavioral insights
    JEL: C93 H25 H26
    Date: 2018
  8. By: Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: Investors of new projects consider the returns of implemented projects delivering the same impression, and invest if the empirical mean return exceeds the cost. The steady states of such economies result in suboptimal investment decisions due to the selection bias in the sampling procedure and the dispersion of impressions across investors. Assuming better impressions are associated with higher returns, investors assessments of their projects are overoptimistic, and there is overinvestment as compared with the rational benchmark. The presence of rational investors aggravates the overoptimism bias of sampling investors, thereby illustrating a negative externality imposed by rational investors.
    Keywords: overoptimism,Investment strategy
    Date: 2017–07
  9. By: Tsikas, Stefanos A.; Wagener, Andreas
    Abstract: With a series of public goods games in a 2x2-design, we analyze two channels that might moderate social dilemmas and increase cooperation without using pecuniary incentives: moral framing and shaming. Cooperation increases when non-contributing to a public good is framed as morally debatable and socially harmful tax avoidance. However, cooperation is only durable when free-riders are "shamed" by disclosing their misdemeanor. We find shaming effects to be strong enough to make appeals to morality redundant for participants' decisions.
    Keywords: shaming; framing; tax avoidance; public goods experiment
    JEL: E62 H26 H30
    Date: 2018–07
  10. By: Carlos Alós-Ferrer; Johannes Buckenmaier
    Abstract: Behavioral heterogeneity arising from cognitive differences among economic agents plays a fundamental role in the economy. To explain this heterogeneity, models of iterative thinking assume that certain choices indicate higher cognitive effort. That is, choices are used to infer the cognitive process behind the choices themselves. To establish this link choice data is insufficient, thus an individually-measurable correlate of cognitive effort is required. We argue that deliberation times provide this missing link. We present a simple model of heterogeneous cognitive depth, incorporating stylized facts from the psychophysical literature, which makes predictions on the relation between choices, cognitive effort, incentives, and deliberation times. In an experimental test, the predicted relations are readily observed in the data, but only when the features leading to iterative thinking are salient enough. Hence, the predicted relations become a tool to uncover the limits of models of iterative thinking.
    Keywords: Heterogeneity, level-k reasoning, cognitive sophistication, deliberation times, depth of reasoning, cognitive effort
    JEL: C72 C91 D80 D91
    Date: 2018–07
  11. By: Barron, Kai; Gravert, Christina
    Abstract: We design a laboratory experiment to study behavior in a multidivisional organization facing a trade-off between coordinating its decisions across the divisions and meeting division-specific needs that are known only to the division managers. The managers communicate their private information through cheap talk. While the results show close to optimal communication, we also find systematic deviations from optimal behavior in how the communicated information is used. Specifically, subjects' decisions show worse than predicted adaptation to the needs of the divisions in decentralized organizations and worse than predicted coordination in centralized organizations. We show that the observed deviations disappear when uncertainty about the divisions' local needs is removed and discuss the possible underlying mechanisms.
    Keywords: communication,coordination,decentralization,experiment
    JEL: C70 D03 C92
    Date: 2018

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