nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒05‒06
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Depression, Risk Preferences and Risk-Taking Behavior By Cobb-Clark, Deborah A.; Dahmann, Sarah C.; Kettlewell, Nathan
  2. Social Status and Risk-Taking in Investment Decisions By Florian Lindner; Michael Kirchler; Stephanie Rosenkranz; Utz Weitzel
  3. Behavioral Economics and the Value of a Statistical Life By Kniesner, Thomas J.
  4. When a Nudge Backfires:Using Observation with Social and Economic Incentives to Promote Pro-Social Behavior By Gary Bolton; Eugen Dimant; Ulrich Schmidt
  5. Made for the job or by the job? A lab-in-the-field experiment with firefighters By Ondřej Krčál; Rostislav Staněk; Martin Slanicay

  1. By: Cobb-Clark, Deborah A. (University of Sydney); Dahmann, Sarah C. (University of Sydney); Kettlewell, Nathan (University of Sydney)
    Abstract: Depression affects the way that people process information and make decisions, including those involving risk and uncertainty. Our objective is to analyze the way that depressive episodes shape risk preferences and risk-taking behaviors. We are the first to address this issue using large-scale, representative panel data that include both behavioral and stated risk preference measures and a theoretical framework that accounts for the multiple pathways through which depression affects risk-taking. We find no disparity in the behavioral risk preferences of the mentally well vs. depressed; yet depression is related to people's stated risk preferences and risk-taking behaviors in ways that are context-specific. Those who are likely to be experiencing a depressive episode report less willingness to take risks in general, but more willingness to take health risks, for example. We investigate these patterns by developing a conceptual model – informed by the psychological literature – that links depression to risk-taking behavior through the key elements of a standard intertemporal choice problem (e.g., time preferences, expectations, budget constraints). This motivates a mediation analysis in which we show that differences in risk-taking behavior are largely explained by depression-related disparities in behavioral traits such as locus of control, optimism and trust. Overall, we find that there is no overarching tendency for those who are depressive to engage in either more or less risk-taking. Instead, the decision-making context matters in ways that largely align with our theoretical expectations.
    Keywords: risk preferences, depression, mental health, risk-taking
    JEL: D91 I12 D14
    Date: 2019–04
  2. By: Florian Lindner; Michael Kirchler; Stephanie Rosenkranz; Utz Weitzel
    Abstract: A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment deci- sions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.
    Keywords: experimental finance, behavioral economics, investment game, rank incen- tives, social status, reputational motives
    JEL: G02 G11 D03 C91
    Date: 2019–07
  3. By: Kniesner, Thomas J. (Claremont Graduate University)
    Abstract: There are many possible connections between VSL and behavioral economics. A list of topics includes endowment effects, risk salience, ambiguity aversion, present bias, reference groups, reference points, and experienced versus decision utilities. There are also nudges that connect to estimating or using VSL in government decisions and cousins of behavioral economic research including interpersonal heterogeneity, experiments, neuroeconomics, and beauty or personal attractiveness. Current evidence suggests that VSL and behavioral economics best connect via (1) possible multi-attribute reference group effects and (2) a possible distinction between decision utility and experienced utility.
    Keywords: VSL, behavioral economics, WTP, WTA, reference dependence, benefit-cost analysis, nudge, internality
    JEL: D61 D91 J17 J31
    Date: 2019–04
  4. By: Gary Bolton (University of Texas at Dallas); Eugen Dimant (University of Pennsylvania); Ulrich Schmidt (Kiel Institute for the World Economy)
    Abstract: Both theory and recent empirical evidence on nudging suggest 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 that the relevant observational mechanisms play in affecting pro-/antisocial 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, observation without economic consequences fails to achieve any aggregate pro-social effect, and if anything it backfires. In additional experiments we confirm that this backfiring effect is driven by inequity concerns. We propose and successfully test a solution: increasing the focus on the underlying social norms.
    Keywords: Anti-Social Behavior, Experiment, Nudge, Pro-Social Behavior, Reputation
    Date: 2019–03
  5. By: Ondřej Krčál (Masaryk University); Rostislav Staněk (Masaryk University); Martin Slanicay (Masaryk University)
    Abstract: A large body of evidence supports a negative association between risk aversion of workers and the level of risk they face in their occupations. This relationship could be explained by the self-selection of workers into jobs according to their risk preferences or by the effect on risk attitudes of occupations in which people face or witness dangerous situations. We use incentivized experiments to measure risk preferences among three different groups: experienced firefighters, novice firefighters, and students. We find that experienced firefighters are less risk-averse than novice firefighters, and these in turn are less risk-averse than students. The effects remain significant even after controlling for other relevant differences between these groups. Our findings suggest that the observed relationship between risk aversion and high-risk occupations is not only a result of self-selection but also of people’s preferences being shaped by their work lives.
    Keywords: risk preferences, high-risk occupations, self-selection, lab-in-the-field experiment
    Date: 2019–04–13

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