nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒10‒15
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. A Tale of Two Cities: An Experiment on Inequality and Preferences By Bigoni, Maria; Bortolotti, Stefania; Rattini, Veronica
  2. Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting By Claudia M. Landeo; Kathryn E. Spier
  3. Cooperation, Discounting, and the Effects of Delayed Costs and Benefits By Felix Koelle; Thomas Lauer
  4. Consumer Credit Card Choice: Costs, Benefits and Behavioural Biases By Mary-Alice Doyle
  5. Eliciting the Endowment Effect under Assigned Ownership By Patrick Barranger; Rohit Nair; Rob Mulla; Shane Conner
  6. No Time to Think: Food Decision-Making under Time Pressure By Huseynov, Samir; Krajbich, Ian; Palma, Marco A.

  1. By: Bigoni, Maria (University of Bologna); Bortolotti, Stefania (University of Cologne); Rattini, Veronica (University of Pittsburgh)
    Abstract: In an online experiment, we exploit the existing disparities in socio-economic status within an Italian city, to study how these differences correlate with preferences in strategic and non-strategic situations. Our findings indicate that participants living in an area characterized by a high socio-economic environment tend to trust more and are more inclined to reciprocate higher levels of trust, as compared to those coming from less wealthy neighborhoods. This behavioral difference is, at least in part, driven by heterogeneities in beliefs: subjects from the most affluent part of the city have more optimistic expectations on their counterpart's trustworthiness than those living in a lower socio-economic environment. By contrast, no significant differences emerge in other preferences: generosity, risk-attitudes, and time preferences. Finally, we do not find any systematic evidence of out-group discrimination based on neighborhood identity.
    Keywords: beliefs, discrimination, generosity, risk attitudes, time preferences, trust, trustworthiness
    JEL: C90 D31 D63 R23
    Date: 2018–08
  2. By: Claudia M. Landeo (University of Alberta); Kathryn E. Spier (Harvard Law School and NBER)
    Abstract: This paper reports the results of an experiment designed to assess the ability of an enforcement agency to detect and deter harmful short-term activities committed by groups of injurers. With ordered-leniency policies, early cooperators receive reduced sanctions. We replicate the strategic environment described by Landeo and Spier (2018). In theory, the optimal ordered-leniency policy depends on the refinement criterion applied in case of multiplicity of equilibria. Our findings are as follows. First, we provide empirical evidence of a “race-to-the-courthouse” effect of ordered leniency: Mild and Strong Leniency induce the injurers to self-report promptly. These findings suggest that the injurers' behaviors are aligned with the risk-dominance refinement. Second, Mild and Strong Leniency significantly increase the likelihood of detection of harmful activities. This fundamental finding is explained by the high self-reporting rates under ordered-leniency policies. Third, as a result of the increase in the detection rates, the averages fines are significantly higher under Mild and Strong Leniency. As expected when the risk-dominance refinement is applied, Mild Leniency exhibits the highest average fine.
    Keywords: Law Enforcement, Ordered Leniency, Self-Reporting, Experiments, Leniency, Coordination Game, Prisoners' Dilemma Game, Risk Dominance, Pareto Dominance, Equilibrium Selection, Non-Cooperative Games, Harmful Externalities, Corporate Misconduct, White-Collar Crime, Securities Fraud, Insider Trading, Market Manipulation, Whistleblowers, Plea Bargaining, Tax Evasion, Environmental Policy Enforcement
    JEL: C72 C90 D86 K10 L23
    Date: 2018–09
  3. By: Felix Koelle (University of Cologne); Thomas Lauer (University of Cologne)
    Abstract: Numerous studies have investigated how people resolve intertemporal trade-offs in individual decision making, but little is known about how the timing of costs and benefits affects behavior in strategic decision situations. Here, we experimentally study how delayed costs and/or benefits affect cooperation in a social dilemma situation. We find that cooperation is substantially reduced (increased) when only the benefits (costs) of cooperation are shifted towards the future. We show that the change in contributions can be explained by (i ) a shift in the beliefs about others' cooperativeness, (ii ) a shift in subjects' willingness to conditionally cooperate, and (iii ) a subject's degree of impatience. We further demonstrate that the amount of economic incentives needed to close the cooperation gap are substantial, indicating discount rates in our strategic context of about 50 percent, much higher than the ones typically observed in individual decision contexts. Finally, when both costs and benefits are delayed to the same extent, contribution levels do not change, indicating that cooperation is time-consistent.
    Keywords: Public goods, cooperation, discounting, time preferences, delay
    Date: 2018–10
  4. By: Mary-Alice Doyle (Reserve Bank of Australia)
    Abstract: The credit card market offers consumers a wide range of options when choosing a card. While many factors may influence this choice, this paper focuses on the main financial costs and benefits of holding a credit card. I summarise these costs and benefits as the net monetary benefit associated with a card. Theory might suggest that a rational consumer will choose a card that maximises their net monetary benefit. But in reality, consumers' decisions may be systematically biased, leading them to select higher-cost credit cards when lower-cost alternatives are available. To test this possibility, I first estimate the net monetary cost or benefit that individuals in a nationally representative survey obtain from their credit card. I then use these estimates to examine whether principles from behavioural economics – such as optimism bias, bounded rationality and present bias – can help to explain consumers' choice of credit card. I find that approximately 40 per cent of Australian credit card holders receive a positive net monetary benefit from their card (that is, they receive benefits from rewards points and their interest-free period that outweigh annual fees and interest payments). Generally these are higher-wealth and higher-income consumers. Of the remaining 60 per cent, around half break even, while half incur a net cost. Moreover, most cardholders, including those who receive a net benefit, appear not to choose cards that best suit their use patterns – for instance, I estimate that consumers who use their card to borrow and pay interest could reduce their annual costs by around $250 by choosing a more appropriate card. Behavioural explanations are consistent with some, but not all, of the patterns observed. Consumers appear to be subject to optimism bias, underestimating how much they will borrow on their card, and a subset of consumers tend to hold inflated estimates of the net monetary benefits that they receive from their card. In contrast, consumers do not appear to be present biased in responding to temporary sign-up offers. Finally, I find that around half of the respondents who made a net loss held high-cost cards, but had not considered switching to a lower-cost card; indicative evidence of cognitive, as well as practical, barriers to switching cards.
    Keywords: bounded rationality; switching behaviour; optimism bias; optimal credit card choice; present bias; retail payments
    JEL: D12 D30 D90 E42
    Date: 2018–10
  5. By: Patrick Barranger; Rohit Nair; Rob Mulla; Shane Conner
    Abstract: The endowment effect is the tendency for people who own a good to value it more than people who do not. Its economic impact is consequential. It creates market inefficiencies and irregularities in valuation such as differences between buyers and sellers, reluctance to trade, and mere ownership effects. This study (n=495) presents evidence that endowment effect can be elicited merely by assigned ownership. Employing survey responses we were able to generate an endowment effect size of 15-20 times (at p
    Date: 2018–09
  6. By: Huseynov, Samir; Krajbich, Ian; Palma, Marco A.
    Keywords: Behavioral & Institutional Economics, Food and Agricultural Marketing, Food and Agricultural Policy Analysis
    Date: 2018–06–20

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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