nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒11‒12
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Incidental emotions and risk-taking: An experimental analysis By Annarita Colasante; Matteo M. Marini; Alberto Russo
  2. Lookers-on See Most of the Game: Decision-making for Others versus for Oneself in a Labor Market Experiment By Yun Wang; Hu Sun
  3. Stress and Coping: An Economic Approach By Wälde, Klaus; Scheuer, Niklas
  4. Smog, Cognition and Real-World Decision Making By Chen, Xi
  5. Judging Ethical Behavior in the Workplace: The Role of Attractiveness and Gender By Zeev Shtudiner
  6. Reflection for higher order risk preferences By Han (H.) Bleichrodt; Paul van Bruggen
  7. Beyond behavioral economics: who is the economic man By Obregón, Carlos
  8. Nudging farmers to comply with water protection rules Experimental evidence from Germany By Peth, D.; Mushoff, O.; Funke, K.; Hirschauer, N.
  9. It\'s not my Fault! Self-Confidence and Experimentation By Hestermann, Nina; Le Yaouanq, Yves
  10. A Behavioral Model of the Credit Cycle By Barbara Annicchiarico; Silvia Surricchio; Robert J. Waldmann

  1. By: Annarita Colasante (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Matteo M. Marini (LEE & Economics Department, Universitat Jaume I, Castellón-Spain; Università degli Studi dell’Insubria, Italy); Alberto Russo (Dept. de Teoría e Historia Económica, University of Granada, Spain)
    Abstract: In this paper we conduct a laboratory experiment in order to investigate the effect of incidental sadness and happiness on risky decision making. An emotion induction procedure is the treatment variable of a between-subjects design where two sessions aim at eliciting either sadness or happiness, respectively. Two further groups are characterized by neutral conditions and serve as baseline. After a manipulation check verifies the validity of the induction procedure, we use a multiple price list à la Holt and Laury (2002) to elicit individual risk preferences in the context of a lottery-choice task. The analysis reveals that both sadness and happiness promote greater risk aversion with respect to neutral conditions, a result which might be moderated by the risk elicitation task. Therefore, as compelling explanation we propose the theory of ego depletion, whereby regulating emotions so as to subsequently process information consumers a limited self-control resource, which is needed to take risks as well.
    Keywords: laboratory experiment, emotions, preference elicitation, risk aversion, ego depletion
    JEL: C91 D81
    Date: 2018
  2. By: Yun Wang (Xiamen University); Hu Sun (University of Michigan)
    Abstract: Do lookers-on make better economic decisions and form more objective beliefs than individuals who are in the situation? We design a laboratory experiment studying the dynamic pattern of job applications and individuals' belief updating process in a labor market problem. Our experimental treatments feature decision-making for oneself versus for others. In both treatments, the probability of being accepted for a job position depends on external shocks as well as the individuals' ability ranking, which is unknown to the subjects. We elicit subjects' beliefs about their own and about others' ability ranking after the realization of each application outcome. We find that, when making decisions for themselves, subjects are more inclined to attribute failure to external shocks, while attributing success to their own ability being higher than others'. Estimation results from a reinforcement learning model show that, compared to decision-making for others, subjects tend to have a higher tolerance for failure and remain in applying for unsuitable jobs for longer periods when making decisions for themselves. Our findings provide supportive evidence for the presence of self-serving attributional bias when individuals' self-image affects their economic decisions. We show that decision-making for others could be used as a good benchmark to measure the degree of individuals' attributional bias.
    Keywords: Decision-making for others; Self-serving attribution bias; Belief updating; Bayesian posterior; Belief elicitation
    JEL: C91 D83 D91
    Date: 2018–11–03
  3. By: Wälde, Klaus; Scheuer, Niklas
    Abstract: We present a psychological model of stress. Appraisal translates stressors into subjective stress. Stress reduces instantaneous utility of an individual directly and via cognitive load. Coping can be under the control of the individual or more automatic. We predict the occurrence of uncontrolled coping .emotional outbursts .as a function of an individual´s theory-consistent personality and environment. We explain when stressors reduce income. We also explain under which conditions rising income does not go hand in hand with rising stress. First steps towards a theory of therapy show how stressed individuals can improve their well-being beyond standard coping measures.
    Keywords: Stress,coping,personality,controlled vs. automatic reaction,emotional outbursts,income
    JEL: D03 D91 I12
    Date: 2018
  4. By: Chen, Xi
    Abstract: Cognitive functioning is critical as in our daily life a host of real-world complex decisions in high-stakes markets have to be made. The decision-making process can be vulnerable to environmental stressors. Summarizing the growing economic and epidemiologic evidence linking air pollution, cognition performance and real-world decision making, we first illustrate key physiological and psychological pathways between air pollution and cognition. We then document the main patterns of air pollution affecting cognitive test performance by type of cognitive tests, gender, window of exposure, age profile, and educational attainment. We further extend to a review of real-world decision making that has been found to be affected by air pollution and the resulting cognitive impairments. Finally, rich implications on environmental health policies are drawn based on existing evaluations of social costs of air pollution.
    Keywords: Air Pollution,Cognitive Performance,Intelligence,Decision Making
    JEL: I24 Q53 Q51 G11 J24
    Date: 2018
  5. By: Zeev Shtudiner (Ariel University)
    Abstract: One of the most challenging areas for employees and managers is dealing with shades of gray related to ethical behaviors. The ability to evaluate unethical behavior can differ from person to person and is vulnerable to the influences of unrelated attributions. In the current study, we investigated the role of physical attractiveness and gender in judging severity of unethical workplace behavior. Scenarios with unethical behavioral dilemmas were displayed to 4,602 subjects in different versions accompanied with images. Our findings show that "gray area" behavior was evaluated with more severity if conducted by a plain-looking employee than an attractive one. When comparing genders, the same action was perceived as more ethical if performed by male employees. We explore a number of explanations for this discrimination based on the psychological literature.
    Keywords: business ethics, experiment, gender, beauty
    JEL: C91 M10
    Date: 2018–07
  6. By: Han (H.) Bleichrodt (Erasmus School of Economics, Australian National University); Paul van Bruggen (Erasmus School of Economics)
    Abstract: Higher order risk preferences are important determinants of economic behaviour. We apply behavioural insights to this topic: we measure higher order risk preferences for pure gains and pure losses by controlling the reference point. We find a reflection effect not only for second order risk preferences, as in Kahneman and Tversky 1979, but also for higher order risk preferences: we find risk aversion, prudence and intemperance for gains, but risk loving preferences, imprudence and temperance for losses. The risk aversion and intemperance for gains and the imprudence for losses is evidence against a preference for combining good with bad or good with good, which previous theoretical and empirical results suggest may underlie higher order risk preferences.
    Keywords: Risk Apportionment; Higher Order Risk Preferences; Risk Aversion; Prudence; Temperance; Reference Dependence
    JEL: C91 D81 D91
    Date: 2018–10–28
  7. By: Obregón, Carlos
    Abstract: There are two reasons to go beyond Behavioral Economics. The first reason is that humans, as presented by this school, do not explain many critical economic problems. Behavioral Economics is not an alternative paradigm to traditional economics. It is only one of the New Schools of thought, that has risen due to the failure of the contemporary Neoclassical School to show that markets have a unique maximum welfare full employment equilibrium. Therefore, in order to delimit Behavioral Economics ́ contributions we need to look at the whole paradigm in economics, which today includes: the contemporary neoclassical paradigm plus all the New Schools of thought. The second reason is that humans, as described by Behavioral Economics, are not a good representation of mans ́ evolutionary characteristics. For Behavioral Economics, humans are emotional beings which often do not know what is best for them, and need the help of the government to make the choices which are truly convenient; and they display altruistic and social cooperative behavior, even in monetary transactions. But evolutionarily we are neither design to be emotional or rational, nor to be selfish or altruistic and socially cooperative. We are design to be flexible for survival purposes, and to display a wide range of behaviors.
    Keywords: Behavioral Economics
    JEL: A1 A12 A13 B0 D0 D00 D1 D10 D11 G1 G10
    Date: 2018–10–22
  8. By: Peth, D.; Mushoff, O.; Funke, K.; Hirschauer, N.
    Abstract: Nitrogen runoffs induced by agricultural fertilisation cause serious environmental damage to surface waters. Environmental and consumer protectionists demand government intervention to mitigate these externalities. With this in mind, the present study examines the effects of nudge-based regulatory strategies. We use an incentivised single-player multi-period business management game as an experimental device to study how nudges affect compliance with the minimum-distance-to-water rule in a sample of German farmers. We investigate two different nudge treatments: a nudge with information and pictures showing environmental and health damages that are presumably caused by breaching the minimum-distance-to-water rule, and a nudge with an additional social comparison suggesting that the majority of farmers in the same region comply with the rule. We observe three core experimental outcomes: first, nudging has a preventive effect and reduces the share of non-compliant participants. Second, against all expectations, the preventive effect of the nudge with an additional social comparison is weaker than that of the nudge with information and pictures alone. Third, despite the overall positive effects of nudging, the nudge with social comparison even increased the severity of non-complying behaviour in the deviant subpopulation. Acknowledgement : The authors gratefully acknowledge ?nancial support from the German Research Foundation (DFG). We thank Dr. Matthias Buchholz, Dr. Daniel Hermann and the Centre for Statistics of the University of G ttingen for helpful comments and statistical advice. We also thank Manfred Tietze for support by programming of the experiment.
    Keywords: Resource/Energy Economics and Policy
    Date: 2018–07
  9. By: Hestermann, Nina (Toulouse School of Economics); Le Yaouanq, Yves (LMU Munich)
    Abstract: We study the inference and experimentation problem of an agent in a situation where the outcomes depend on the individual\'s intrinsic ability and on an external variable. We analyze the mistakes made by decision-makers who hold inaccurate prior beliefs about their ability. Overconfident individuals take too much credit for their successes and excessively blame external factors if they fail. They are too easily dissatisfied with their environment, which leads them to experiment in variable environments and revise their self-confidence over time. In contrast, underconfident decision-makers might be trapped in low-quality environments and incur perpetual utility losses.
    Keywords: overconfidence; attribution bias; experimentation; learning.;
    JEL: D83
    Date: 2018–11–02
  10. By: Barbara Annicchiarico (DEF & CEIS,University of Rome "Tor Vergata"); Silvia Surricchio (DEF,University of Rome "Tor Vergata"); Robert J. Waldmann (DEF & CEIS,University of Rome "Tor Vergata")
    Abstract: In a behavioral variant of a New Keynesian model, in which individuals use simple heuristic rules to forecast future in ation and output gap, if there are limits on the amount of debt that economic agents are allowed to bear, we observe occasionally severe downturns. Differences in beliefs combined with borrowing constraints tend to dampen expansions, but give rise to a chain reaction that exacerbates the recessions. The model is an example of endogenous credit cycles with expansions, severe recessions, and persistent inequality in the distribution of wealth. Monetary policy can both stabilize the economy and cause increased average output.
    Keywords: Credit cycle, heuristic rules, monetary policy
    JEL: E10 E32 D83
    Date: 2018–10–30

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