nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒12‒17
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Effect of Monetary Incentives on Cognitive Effort, Emotions and Test-Solving Performance By Juan F. Castro; Gustavo Yamada; Hans Contreras; Freddy Linares; Herwig Watson
  2. Cognitive skills and the development of strategic sophistication By David Gill; Eduardo Fe
  3. When a Nudge Backfires. Using Observation with Social and Economic Incentives to Promote Pro-Social Behavior By Gary Bolton; Eugen Dimant; Ulrich Schmidt;
  4. What exactly is public in a public good game? A lab-in-the-field experiment By Pietro Battiston; Simona Gamba; Matteo Rizzolli; Valentina Rotondi
  6. Self-Confidence and Reactions to Subjective Performance Evaluations By Charles Bellemare; Alexander Sebald
  7. Private vs Public incentives: an experiment on motivation crowding and social trust By Simone D'Alessandro; Caterina Giannetti; Pietro Guarnieri
  9. Cooperation Between Emotional Players By Andersson, Lina

  1. By: Juan F. Castro (Universidad del Pacífico); Gustavo Yamada (Universidad del Pacífico); Hans Contreras (Universidad Nacional Mayor de San Marcos); Freddy Linares (Neurometrics); Herwig Watson (Neurometrics)
    Abstract: The relation between monetary incentives, cognitive effort and task performance has been extensively studied. There is, however, scant experimental evidence about the concurrent effect of incentives on cognitive effort and emotions, and its implications for task performance. It is well documented that high-stakes tests correlate with students’ anxiety and performance, but the available evidence is not causal. In this paper we estimate the effect of providing a monetary prize on the cognitive effort, emotions and efficacy exhibited by a group of university students when solving a set of four mathematics and logical reasoning questions. The prize was conditional on answering all questions correctly and was randomly assigned within a group of 126 participants. We find that the incentive produced more cognitive effort but this did not translate into increased test-solving efficacy. We provide evidence suggesting that the absence of increased efficacy despite the greater input of cognitive effort can be linked to the participants’ emotional response to the prize.
    Keywords: Cognitive effort, emotions, monetary incentives, eye-tracking, facial expressions
    JEL: D91 C91
    Date: 2018–12
  2. By: David Gill; Eduardo Fe
    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: 2018–11
  3. By: Gary Bolton; Eugen Dimant (Philosophy, Politics and Economics, University of Pennsylvania); Ulrich Schmidt;
    Abstract: Both theory and recent empirical evidence on nudging suggests that observability of behavior acts as an instrument for promoting (discouraging) pro-social (anti-social) behavior. Our study questions the universality of these claims. We employ a novel four-party setup to disentangle the roles three observational mechanisms play in mediating behavior. We systematically vary the observability of one’s actions by others as well as the (non-)monetary relationship between observer and observee. Observability involving economic incentives crowds-out anti-social behavior in favor of more pro-social behavior. Surprisingly, social observation without economic incentives fails to achieve any aggregate pro-social effect, and if anything it backfires. Additional experiments confirm that observability without additional monetary incentives can indeed backfire. However, they also show that the effect of observability on pro-social behavior is increased when social norms are made salient.
    Keywords: Anti-Social Behavior, Experiment, Nudge, Pro-Social Behavior, Reputation
    JEL: C91 D64 D9
    Date: 2018–12
  4. By: Pietro Battiston; Simona Gamba; Matteo Rizzolli; Valentina Rotondi
    Abstract: Are public good games really capturing individuals' willingness to contribute to real-life public goods? To answer this question, we conducted a lab-in-the-field experiment with communities who own collective goods. In our experiment, subjects voluntarily contribute to a common pool, which can either be subdivided in individual vouchers, as in standard public good games, or used to acquire collective goods, as it happens for real-life public goods. We show that participants' contributions are larger when the voucher is paid individually, suggesting that individuals' willingness to contribute to public goods may be overestimated when based on results from laboratory experiments.
    Keywords: ublic goods, lab-in-the-field experiment, cooperation, group behavior, community, indivisibility
    Date: 2018–10
  5. By: Deepak Gupta (University School of Management Studies, Guru Gobind Singh Indraprastha University)
    Abstract: People, everday are inumdated with making decisions whether they are big or small. Cognitive psychology plays a major role in how people make their choices. Cognitive bias is known to have an effect on decision making. These biases are based on memory which create a systematic deviation in thinking and processing information. This paper aims to identify the effect of select cognitive biases i.e., Overconfidence bias, Endowment bias, Ambiguity Aversion bias and Recency bias on General Decision Making of a person as well as Financial Decision Making. The study also explores the differences and similarities in cognitive biases working during general decision making and financial decision making. For this, a self-administered questionnaire was used to collect data from 416 people and analysis and conclusions were drawn based on it.
    Keywords: Over confidence bias, Endowment bias, Ambiguity Aversion bias, Recency bias, Decision making, Financial Decision Making
    JEL: M00
    Date: 2018–10
  6. By: Charles Bellemare; Alexander Sebald
    Abstract: Subjective performance evaluations are commonly used to provide feedback and incentives to workers. However, such evaluations can generate significant disagreements and conflicts, the severity of which may be driven by many factors. In this paper we show that a workers’ level of self-confidence plays a central role in shaping reactions to subjective evaluations - overconfident agents engage in costly punishment when they receive evaluations below their own, but provide limited rewards to principals when evaluations exceed their own. In contrast, underconfident agents do not significantly react to evaluations below their own, but reward significantly evaluations exceeding their own. Our analysis exploits data from a principal-agent experiment run with a large sample of the Danish working age population, varying the financial consequences associated with the evaluations workers receive. In contrast to existing economic models of reciprocal behavior, reactions to evaluations are weakly related to the financial consequences of the evaluations. These results point towards a behavioral model of reciprocity that intertwines the desire to protect self-perceptions with over-/underconfidence.
    Keywords: subjective performance evaluations, self-confidence, reciprocity
    JEL: D01 D02 D82 D86 J41
    Date: 2018
  7. By: Simone D'Alessandro; Caterina Giannetti; Pietro Guarnieri
    Abstract: Relying on a threshold public good game, we experimentally investigate the effect of two types of incentives on prosocial behaviours. On the one hand, a private type of incentive targets individuals by reducing their cost of contribution. On the other hand, a public type of incentive targets groups by providing an investment that directly support the achievement of the collective objective (i.e. the threshold in the public good game). Thus, we study how expectations on others determine the impact of incentives on prosocial behaviours and how incentives themselves affect these expectations in turn. We interpret this mutual relation as reflecting an endogenous relation between incentive provision and social trust.
    Keywords: Motivation crowding, Social Norms, Incentives
    JEL: C92 D04
    Date: 2018–11–01
  8. By: Pascal Le Masson (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Armand Hatchuel (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Mario Le Glatin (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Benoit Weil (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This study examines how design theory enables us to extend decision-making logic to the "unknown," which often appears as the strange territory beyond the rationality of the decision-maker. We contribute to the foundations of management by making the unknown an actionable notion for the decision-maker. To this end, we build on the pioneering works in "managing in the unknown" and on design theory to systematically characterize rational forms of action to structure the exploration of the unknown from a decision-making perspective. We show that action consists of designing decisions in the unknown and can be organized on the basis of the notion of a "decision-driven design path," which is not yet a decision but helps to organize the generation of a better decision-making situation. Our decision-design model allows us to identify four archetypes of decision-driven design paths. Two involve generating "wishful decisions," either by improvement or by genericity, while the other two involve generating "decision-changing states" by generating a "best-choice hacking state" or an "all-decisions hacking state." These archetypes correspond to forms of collective action characterized by a specific strategy of knowledge acquisition, a specific performance, and specific organizations. In particular, they enable us to discuss the variety of known organizational forms that managers can rely on to explore the unknown. Le Masson, P., Hatchuel, A., Le Glatin, M., and Weil, B. (2018). "Designing decisions in the unknown: towards a generative decision model for management science." European Management Review, To be published, pp.
    Date: 2018
  9. By: Andersson, Lina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper uses the framework of stochastic games to propose a model of emotions in repeated interactions. An emotional player, who transitions between different states of mind as a response to observed actions taken by the other player, can be in either a friendly, a neutral, or a hostile state of mind. The state of mind determines the player's psychological payoff that together with a material payoff constitutes his utility. In the friendly (hostile) state of mind the player has a positive (negative) concern for the other player's material payoffs. Emotions can both facilitate and obstruct cooperation in the repeated prisoners' dilemma game. If finitely repeated, then a traditional player (who cares only for own material payoffs) can have an incentive to manipulate an emotional player into a friendly state of mind for future gains. If infinitely repeated, then two emotional players may require less patience to sustain cooperation. However, emotions can also obstruct cooperation if the players are either unwilling to punisheach other, or become revengeful when punished.
    Keywords: Emotions; cooperation; repeated prisoners dilemma; stochastic games
    JEL: C73 D01 D91
    Date: 2018–12

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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