nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒02‒04
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Revisiting a remedy against the chain of unkindness By Wendelin Schneder; Nina Lucia Stephan
  2. Confidence and career choices: An experiment By Barron, Kai; Gravert, Christina
  3. Motivated Memory in Dictator Games By Saucet, Charlotte; Villeval, Marie Claire
  4. On self-serving strategic beliefs By Nadja R. Ging-Jehli; Florian H. Schneider; Roberto A. Weber
  5. Traders, forecasters and financial instability: A model of individual learning of anchor-and-adjustment heuristics By Makarewicz, Tomasz
  6. Regret Theory and Salience Theory: Total Strangers, Distant Relatives or Close Cousins? By Fabian Herweg; Daniel Müller

  1. By: Wendelin Schneder (University of Paderborn); Nina Lucia Stephan (University of Paderborn)
    Abstract: Previous experimental studies show that subjects who receive little in a dictator game, pass on less to a third person when they become dictators themselves. However, when subjects can write a letter to their dictator, they act more kindly. The prevailing explanation for this phenomenon is that letter writing helps them to emotionally ‘close the case’. Alternatively, being asked to write a letter may be seen as a signal that something is wrong with the dictator’s behavior and lead to less imitation of this behavior. We examine whether letter writing also helps to increase kindness when the second explanation is excluded by design. In our experiment, subjects face choices in different domains, so that imitation is not possible. Instead of deciding how to split money, the first decision consists in assigning an annoying work task (the unkind option) instead of an enjoyable one. We find that letter writing nevertheless increases giving in a subsequent dictator game, confirming the validity of letter writing as a remedy against the chain of unkindness.
    Keywords: experimental economics, chain of unkindness, emotional closure, cooling down
    JEL: D91 C91 D03
    Date: 2018–10
  2. By: Barron, Kai; Gravert, Christina
    Abstract: Confidence is often seen as the key to success. Empirical evidence about how such beliefs about one’s abilities causally map into actions is, however, sparse. In this paper, we experimentally investigate the causal effect of an increase in confi-dence about one’s own ability on two central choices made by workers in the la-bor market: choosing between jobs with different incentive schemes, and the sub-sequent choice of how much effort to exert within the job. An exogenous increase in confidence leads to an increase in subjects’ propensity to choose payment schemes that depend heavily on ability. This is detrimental for low ability workers. Policy implications are discussed.
    Keywords: overconfidence,experiment,beliefs,real-effort,grade inflation
    JEL: C91 D03 M50 J24
    Date: 2019
  3. By: Saucet, Charlotte (University of Lyon 2); Villeval, Marie Claire (CNRS, GATE)
    Abstract: The memory people have of their past behavior is one of the main sources of information about themselves. To study whether people retrieve their memory self-servingly in social encounters, we designed an experiment in which participants play binary dictator games and then have to recall the amounts allocated to the receivers. We find evidence of motivated memory through selective recalls: dictators remember more their altruistic than their selfish choices. A causal effect of the responsibility of decisions is identified, as the recall asymmetry disappears when options are selected randomly by the computer program. Incentivizing memory accuracy increases the percentage of dictators' correct recalls only when they behaved altruistically. In contrast, there is no clear evidence of motivated memory through biased, i.e., overly optimistic recalls: dictators recall selectively but they do not bias strategically the direction and magnitude of these recalls.
    Keywords: motivated memory, selective recall, self-image, Dictator Game, experiment
    JEL: C91 D91 D63 D64
    Date: 2018–12
  4. By: Nadja R. Ging-Jehli; Florian H. Schneider; Roberto A. Weber
    Abstract: We experimentally study settings where an individual may have an incentive to adopt negative beliefs about another’s intentions in order to justify egoistic behavior. Our first study uses a game in which a player can take money from an opponent in order to prevent the opponent from subsequently causing harm. We hypothesize that players will justify taking by engaging in “strategic cynicism,” convincing themselves of the opponent’s ill intentions. We elicit incentivized beliefs both from players with such an incentive and from neutral third parties with no incentive to bias their beliefs. We find no difference between the two sets of beliefs, suggesting that people do not negatively bias their beliefs about a strategic opponent even when they have an incentive to do so. This result contrasts with Di Tella, et al. (2015), who argue that they provide evidence of strategic cynicism. We reconcile the discrepancy by using Di Tella, et al.’s, data, a simple model of strategic belief manipulation and a novel experiment in which we replicate Di Tella, et al.’s, experiment and also elicit the beliefs of neutral third parties. Across three experimental datasets, the results provide no evidence of negatively biased beliefs about others’ intentions. However, Di Tella, et al.’s, results and our novel data indicate that those with a greater incentive to view others’ intentions negatively exhibit relatively less positive beliefs than those without such incentives.
    Keywords: Motivated beliefs, strategic cynicism, bias, experiment
    JEL: C72 D83 C92
    Date: 2019–01
  5. By: Makarewicz, Tomasz
    Abstract: Behavioral and experimental literature on financial instability focuses on either subjective price expectations (Learning-to-Forecast experiments) or individual trading (Learning-to-Optimize experiments). Bao et al. (2017) have shown that subjects have problems with both tasks. In this paper, I explore these experimental results by investigating a model in which financial traders individually learn how to use forecasting and/or trading anchor-and-adjustment heuristics by updating them with Genetic Algorithms. The model replicates the main outcomes of these two threads of the experimental finance literature. It shows that both forecasters and traders coordinate on chasing asset price trends, which in turn causes substantial and self-fulfilling price oscillations, albeit larger and faster in the case of trading markets. When agents have to learn both tasks, financial instability becomes more persistent.
    Keywords: Financial Instability,Learning-to-Forecast and Learning-to-Optimize Experiments,Genetic Algorithm Model of Individual Learning
    JEL: C53 C63 C91 D03 D83 D84
    Date: 2019
  6. By: Fabian Herweg; Daniel Müller
    Abstract: Two non-expected-utility-theory approaches to model decision making under risk are regret theory (Loomes and Sugden, 1982; Bell, 1982) and salience theory (Bordalo, Gennaioli, and Shleifer, 2012). While the psychological underpinning of these two approaches is different, the models share the assumption that within-state comparisons of outcomes across choice options are a key determinant of choice behavior. We investigate the overlap between the two theories and show that salience theory is a special case of regret theory. Moreover, we trace out the relationship be- tween diminishing sensitivity of the salience function and concavity of the choiceless utility function with regard to behavioral implications.
    Keywords: choice under risk, regret theory, salience theory
    JEL: D81 D91
    Date: 2019

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