nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒12‒24
fifteen papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Behavioral Economic Phenomena in Decision-Making for Others By Ifcher, John; Zarghamee, Homa
  2. What's behind image? towards a better understanding of image-driven behavior By Tobias Regner
  3. Forecast heuristics, consumer expectations, and new-Keynesian macroeconomics: A horse race By Jang, Tae-Seok; Sacht, Stephen
  4. Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result By Burkhard Schipper; Wenjun Ma
  5. Strategic Reasoning in Persuasion Games: An Experiment By Burkhard Schipper; Ying Xue Li
  6. Lying and Reciprocity By Simon Dato; Eberhard Feess; Petra Nieken
  7. Gain-Loss Framing in Interdependent Choice By Susann Fiedler; Adrian Hillenbrand
  8. All Over the Map A Worldwide Comparison of Risk Preferences * By Olivier L'Haridon; Ferdinand Vieider
  9. Economic Behavior of Children and Adolescents - A First Survey of Experimental Economics Results By Sutter, Matthias; Zoller, Claudia; Glätzle-Rützler, Daniela
  10. The differential effect of narratives By Adrian Hillenbrand; Eugenio Verrina
  11. My Peers are Watching me - Audience and Peer Effects in a Pay-What-You-Want Context By Elisa Hofmann; Michael E. Fiagbenu; Asri Özgümüs; Amir M. Tahamtan; Tobias Regner
  12. Are Economic Preferences Shaped by the Family Context? The Impact of Birth Order and Siblings' Sex Composition on Economic Preferences By Detlefsen, Lena; Friedl, Andreas; Lima de Miranda, Katharina; Schmidt, Ulrich; Sutter, Matthias
  13. Insights from behavioral economics on current policy issues By Ashima Goyal
  14. Using Response Times to Measure Ability on a Cognitive Task By Aleksandr Alekseev
  15. Macroeconomic dynamics under bounded rationality: On the impact of consumers' forecast heuristics By Jang, Tae-Seok; Sacht, Stephen

  1. By: Ifcher, John (Santa Clara University); Zarghamee, Homa (Barnard College)
    Abstract: We examine whether biases identified in the behavioral-economics literature apply in decision-making for others (DMfO). We conduct a laboratory experiment in which subjects make decision on behalf of themselves and others in eighteen tasks that measure the following biases: present-bias in time preferences, reflection effect in risk preferences, ambiguity aversion, decoy effect, anchoring bias, endowment effect, and identifiable-victim bias. In our experiment, DMfO is DMfO simpliciter: unincentivized decisions made by one individual on behalf of another - the individual making decisions faces no direct costs or benefits when engaging in DMfO (as they would in a principal-agent framework or with bequest motives), and DMfO is not framed as giving advice or guessing behavior. We identify the following self-other discrepancies: (i) willingness to pay is higher in DMfO than in decisions for oneself in tasks associated with the anchoring bias, endowment effect, and identifiable-victim bias; and (ii) the propensity to give uninterpretable responses is higher in DMfO than in decisions for oneself. We also find order effects, with DMfO more similar to decisions for oneself when it follows them. Lastly, in response to open-ended items soliciting self-reports of their DMfO, most subjects report having followed some version of the "Golden Rule" (e.g., deciding for others as they would for themselves) or having tried to maximize the other subject's payment or utility; very few subjects report motivations that can be construed as rivalrous.
    Keywords: decisions making for others, laboratory experiments, social preferences, anchoring bias, endowment effect, identifiable-victim bias
    JEL: D90
    Date: 2018–11
  2. By: Tobias Regner (FSU Jena)
    Abstract: Our experimental design systematically varies image concerns in a dictator/trust game. In comparison to the baseline, we either decrease the role of self-image concerns (by providing an excuse for selfish behavior) or increase the role of social-image concerns (by conveying the transfer choice to a third person). In this set up, we analyze the underlying processes that motivate subjects to give less/more. Controlling for distributional preferences and expectations, our results indicate that moral emotions (guilt and shame) are a significant determinant of pro-social behavior. The disposition to guilt explains giving in the baseline, while it does not when an excuse for selfish behavior exists. Subjects' disposition to shame is correlated to giving when their choice is public and they can be identified.
    Keywords: social preferences, pro-social behavior, experiments, guilt aversion, reciprocity, self-image concerns, social-image concerns, trust game
    JEL: C72 C91 D03 D80
    Date: 2018–12–21
  3. By: Jang, Tae-Seok; Sacht, Stephen
    Abstract: This study extends the hybrid version of the baseline New-Keynesian model with heterogeneous agents who may adopt various forecast heuristics. With a focus on consumer expectations, we identify the most appropriate pairs of forecast heuristics that can lead to an equivalent fit to the data compared with the model specification under rational expectations. The competing specifications are estimated using the simulated method of moments. Our empirical results suggest that expectations under bounded rationality in the United States are grounded on consumers' emotional state, while for the Euro Area they are technical in nature. This observation questions the need for a hybrid model specification under rational expectations.
    Keywords: Consumer Expectations,Forecast Heuristics,New-Keynesian Model,Simulated Method of Moments
    JEL: C53 D83 E12 E21 E32
    Date: 2018
  4. By: Burkhard Schipper; Wenjun Ma (Department of Economics, University of California Davis)
    Abstract: One fundamental assumption often made in the literature on unawareness is that risk preferences are invariant to changes of awareness. We study how exposure to unawareness affects choices under risk. Participants in our experiment choose repeatedly between varying sure outcomes and a lottery in 3 phases. All treatments are exactly identical in phase 1 and phase 3, but differ in phase 2. There are five different treatments pertaining to the lottery faced in phase 2: The control treatment (i.e., a standard lottery), the treatment with awareness of unawareness of lottery outcomes but known number of outcomes, the treatment with awareness of unawareness of outcomes but with unknown number of outcomes, the treatment with unawareness of unawareness of some outcomes, and the treatment with an ambiguous lottery. We study both whether behavior differs in phase 3 across treatments (between subjects effect) and whether differences of subjects' behavior between phases 1 and phase 3 differs across treatments (within subject effects). We observe no significant treatment effects.
    Keywords: Unawareness, Awareness of unawareness, Risk aversion, Experiments
    JEL: C91 C92 D81 D87
    Date: 2017–05–01
  5. By: Burkhard Schipper; Ying Xue Li (Department of Economics, University of California Davis)
    Abstract: We study experimentally persuasion games in which a sender (e.g., a seller) with private information provides verifiable but potentially vague information (e.g., about the quality of a product) to a receiver (e.g., a buyer). Various theoretical solution concepts such as sequential equilibrium or iterated admissibility predict unraveling of information. Iterative admissibility also provides predictions for every finite level of reasoning about rationality. Overall we observe behavior consistent with relatively high levels of reasoning. While iterative admissibility implies that the level of reasoning required for unraveling is increasing in the number of quality levels, we find only insignificantly more unraveling in a game with two quality levels compared to a game with four quality levels. There is weak evidence for learning higher-level reasoning in later rounds of the experiments. Participants display difficulties in transferring learning to unravel in a game with two quality levels to a game with four quality levels. Finally, participants who score higher on cognitive abilities in Raven's progressive matrices test also display significantly higher levels of reasoning in our persuasion games although the effect-size is small.
    Keywords: Persuasion games, verifiable information, communication, disclosure, unraveling, iterated admissibility, prudent rationalizability, common strong cautious belief in rationality, level-k reasoning, experiments, cognitive ability.
    JEL: C72 C92 D82 D83
    Date: 2018–02–19
  6. By: Simon Dato; Eberhard Feess; Petra Nieken
    Abstract: Recent literature has shown that lying behavior in the laboratory can well be explained by a combination of lying costs and reputation concerns. We extend the literature on lying behavior to strategic interactions. As reciprocal behavior is important in many interactions, we study a theoretical model on reciprocity where a player's altruism depends on her perception of the other player’s altruism towards herself. We analyze a sequential two-player contest and vary the second mover’s information on the first movers lying behavior. This allows us to derive predictions on the second mover’s behavior which we test empirically in a large scale online experiment and in the laboratory. In both experiments, the second mover’s lying propensity does not depend on whether the first mover has (possibly) lied or not. This robust behavioral pattern provides strong evidence that reciprocity does not play a role for lying behavior in our setting.
    Keywords: private information, lying, reciprocity
    JEL: C90 D82 D91
    Date: 2018
  7. By: Susann Fiedler (Max Planck Institute for Research on Collective Goods); Adrian Hillenbrand (Max Planck Institute for Research on Collective Goods)
    Abstract: Framing influences choice. However, little is known about the underlying mechanisms behind framing effects. We study gain-loss framing in binary modified dictator games. Subjects choose the selfish option more often in the loss frame compared to the gain frame. Recording visual fixations with eye-tracking, we find that dictators focus more on their own outcomes when facing losses. This suggests that losses to the own outcome are weighted more than losses to another player.
    Date: 2018–12
  8. By: Olivier L'Haridon (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Ferdinand Vieider (Department of Economics, University of Reading)
    Abstract: We obtain rich measurements of risk preferences for 2939 subjects across 30 countries, and use the data to paint a picture of the distribution of risk preferences across the globe using structural equation models. Reference-dependence and likelihood-dependence are found to be important everywhere. Model parameters in non-Western countries differ systematically from those in Western countries, with poorer countries substantially more risk tolerant than rich countries on average. We qualify previous findings on gender effects and cognitive ability by showing how they mainly impact likelihood-dependence. We further add novel evidence on the correlation between risk preferences and study major. Whereas we confirm previous results on observable characteristics of subjects explaining little of overall preference heterogeneity, a few macroeconomic indicators can explain a considerable part of the between-country heterogeneity.
    Keywords: risk preferences,cultural comparison,prospect theory
    Date: 2018
  9. By: Sutter, Matthias (Max Planck Institute for Research on Collective Goods); Zoller, Claudia (University of Cologne); Glätzle-Rützler, Daniela (University of Innsbruck)
    Abstract: About 15 years ago, economic experiments with children and adolescents were considered as an extravagant niche of economic research. Since then, this type of research has exploded in scope and depth. It has become clear that studying the development of economic behavior and its determinants is important to understand economic behavior of adults and to provide a basis for potential policy interventions with respect to economic behavior in childhood and adolescence. Given the huge increase of papers, we provide the first overview of economic experiments with children and adolescents. We focus on the following aspects: rationality of choices, risk preferences, time preferences, social preferences, cooperation, and competitiveness. All of these aspects are analyzed with respect to the influence of age and gender, and we also consider the role of socio-economic status or interventions.
    Keywords: competitiveness, risk preferences, time preferences, social preferences, survey, experiment, children, gender, age
    JEL: C91 D01
    Date: 2018–12
  10. By: Adrian Hillenbrand (Max Planck Institute for Research on Collective Goods); Eugenio Verrina (Max Planck Institute for Research on Collective Goods)
    Abstract: Narratives pervade almost any aspect of our life and play a particularly important role in moral and prosocial decision-making. We study how positive (stories in favor of a prosocial action) and negative (stories in favor of a selfish action) narratives influence prosocial behavior. Our main findings are that positive narratives increase giving substantially, especially for selfish types, compared to a baseline with no narratives. Negative narratives, on the other hand, have a differential effect. Prosocial types decrease their giving, while selfish types give more than in the baseline. We also find that positive narratives lead to a binary response (comply or not comply), while negative narratives induce a more gradual trade-off.
    Date: 2018–12
  11. By: Elisa Hofmann (Friedrich Schiller University Jena); Michael E. Fiagbenu (Friedrich Schiller University Jena); Asri Özgümüs (Georg-August University Göttingen); Amir M. Tahamtan (Sharif University of Technology, Teheran); Tobias Regner (Friedrich Schiller University Jena)
    Abstract: We experimentally investigate two relevant drivers of payments in voluntary settings: the ef- fects of audience and peers. Our 2×2 between-subjects design varies the interpersonal closeness of buyers (Strangers vs. Peers) and the observability of their payments to other buyers (Anonymous vs. Public). This allows us to enrich the research on both drivers and identify whether payment observability (audience effect), the presence of known others (peer effect), or the combination of both affects voluntary payments. Payments are, on average, higher if they are made public and if buyers feel close to each other. While the effect of audience and peers on payments is additive in total, we do not find an interaction effect, if payments are observed by peers.
    Keywords: social preferences, experiments, social image concerns, Pay-What-You-Want, interpersonal closeness
    JEL: C91 D03 L11
    Date: 2018–12–21
  12. By: Detlefsen, Lena (University of Kiel); Friedl, Andreas (University of Erlangen-Nuremberg); Lima de Miranda, Katharina (Kiel Institute for the World Economy); Schmidt, Ulrich; Sutter, Matthias (Max Planck Institute for Research on Collective Goods)
    Abstract: The formation of economic preferences in childhood and adolescence has long-term consequences for life-time outcomes. We study in an experiment with 525 teenagers how both birth order and siblings’ sex composition affect risk, time and social preferences. We find that second born children are typically less patient, less risk averse, and more trusting. However, siblings' sex composition interacts importantly with birth order effects. Second born children are more risk taking only with same-sex siblings. For trust and trustworthiness, birth order effects are larger with mixed-sex siblings than in the single-sex case. Only for patience, siblings’ sex composition does not matter.
    Keywords: birth order, siblings' sex composition, economic preferences, experiment
    JEL: C93 D10 D90 J12
    Date: 2018–11
  13. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper examines behavioral constraints in policy-making and in achieving coordination across policies. First it applies psychological concepts to understand policy inadequacies, and next examines how general reforms or better coordination can be achieved using psychological trigger strategies.
    Keywords: Indian policy; Behavioural constraints; Psychological trigger strategies
    JEL: D78 E63 D73
    Date: 2018–10
  14. By: Aleksandr Alekseev (Economic Science Institute, Chapman University)
    Abstract: I show how using response times as a proxy for effort coupled with an explicit process-based model can address a long-standing issue of how to separate the effect of cognitive ability on performance from the effect of motivation. My method is based on a dynamic stochastic model of optimal effort choice in which ability and motivation are the structural parameters. I show how to estimate these parameters from the data on outcomes and response times in a cognitive task. In a laboratory experiment, I find that performance on a Digit-Symbol test is a noisy and biased measure of cognitive ability. Ranking subjects by their performance leads to an incorrect ranking by their ability in a substantial number of cases. These results suggest that interpreting performance on a cognitive task as ability may be misleading.
    Keywords: cognitive ability, test scores, response times, drift-diffusion model, choice-process data
    JEL: C24 C41 C91 D91 J24
    Date: 2018
  15. By: Jang, Tae-Seok; Sacht, Stephen
    Abstract: In this study, we analyze the macroeconomic dynamics under various shocks in two competing frameworks. Given the baseline New-Keynesian model, we compare the impulse response functions that stem from the hybrid version under rational expectations with the ones obtained in the forward-looking version under bounded rationality. For the latter, we assume heterogeneous agents who may adopt various forecast heuristics. We seek to understand which framework mimics real-world adjustments well and is therefore most suitable to describe economic adjustments over the business cycle.
    Keywords: Bounded Rationality,Consumer Expectations,Forecast Heuristics,Impulse Response Functions,New-Keynesian Model
    JEL: C53 D83 E12 E21 E32
    Date: 2018

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