nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒05‒27
twelve papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Dispelling Misconceived Beliefs about Rent Control: Insights from a Field and a Laboratory Experiment By Jordi Brandts; Isabel Busom; Cristina Lopez-Mayan; Judith Panadés
  2. The Economic Preferences of Cooperative Managers By Alves, Guillermo; Blanchard, Pablo; Burdín, Gabriel; Chávez, Mariana; Dean, Andres
  3. Risk Attitudes, Sample Selection and Attrition in a Longitudinal Field Experiment By Harrison, Glenn W.; Lau, Morten I.; Yoo, Hong Il
  4. A short note on the rationality of the false consensus effect By Vanberg, Christoph
  5. Distributional preferences in larger groups: Keeping up with the Joneses and keeping track of the tails By Raymond Fisman; Ilyana Kiziemko; Silvia Vannutelli
  6. Competition and the role of group identity By Francesca Cornaglia; Michalis Drouvelis; Paolo Masella
  7. Conveniently Dependent or Naively Overconfident? An Experimental Study on the Reaction to External Help. By Zhang, Yinjunjie; Xu, Zhicheng; Palma, Marco
  8. On the Importance of Context in Sequential Decision-Making By Hsiao, Yu Chin; Kemp, Simon; Servátka, Maroš
  9. Risk aversion, prudence and temperance: an experiment in gain and loss By Marielle Brunette; Julien Jacob
  10. An Experimental Study on the Effects of Communication, Credibility, and Clustering in Network Games By Gary Charness; Francesco Feri; Miguel A. Meléndez-Jiménez; Matthias Sutter
  11. Cognitive Biases and Consumer Sentiment By Erik Kole; Liesbeth Noordegraaf-Eelens; Bas Vringer
  12. Discrete Choice under Oaths By Nicolas Jacquemet; Stéphane Luchini; Jason F. Shogren; Verity Watson

  1. By: Jordi Brandts; Isabel Busom; Cristina Lopez-Mayan; Judith Panadés
    Abstract: False beliefs about natural, health and socio-economic issues are pervasive in society. Many persist even when contradicted by scientific evidence. We conduct a classroom field and a laboratory experiment to investigate the effect of a particular communication strategy, the refutation text, previously used in the natural sciences and psychology, on a widespread economic misconception: the belief that rent controls make housing available to more people. Our interests are in successfully communicating social science results to the general public and promoting deep learning in economics courses. We find that in the field and in the laboratory a refutation text induces a substantial belief change in the direction of expert knowledge. In the field its impact is significantly larger than that of the natural control, whereas in the laboratory the impact is larger than that of an appropriate control, but not significantly so. The persuasiveness of the refutation text is higher for less reflective participants when the refutation text is read individually, whereas team discussion enhances the positive effect of the text independently of cognitive ability.
    Keywords: misconceptions; biases; rent control; economic communication; persuasion
    JEL: A12 A2 D9 I2
    Date: 2019–05
  2. By: Alves, Guillermo (Development Bank of Latin America); Blanchard, Pablo (IECON, Universidad de la República); Burdín, Gabriel (Leeds University Business School); Chávez, Mariana (IECON, Universidad de la República); Dean, Andres (IECON, Universidad de la República)
    Abstract: A growing body of research has been investigating the role of management practices and managerial behaviour in conventional private firms and public sector organizations. However, little is known about managers' behavioural profile in noninvestor-owned firms. This paper aims to fill this gap by providing a comprehensive behavioural characterization of managers employed in cooperatives.We gathered incentive-compatible measures of risk preferences, time preferences, reciprocity, altruism, and trust from 196 Uruguayan managers (half of them employed in worker cooperatives) and 92 first-year undergraduate students. To do this, we conducted a high-stakes lab-in-the-field experiment in which participants played a series of online experimental games and made incentivised decisions. The average payoff in the experiment was approximately 2.5 times higher than the average local managerial wage in the private sector. Our key findings are that (1) the fraction of risk loving subjects is lower among co-op managers compared to conventional managers, and (2) co-op managers appear to be more altruistic than their conventional counterparts. Interestingly, we do not observe significant differences between the two groups across other preference domains, such as impatience, trust, and reciprocity.
    Keywords: risk-aversion, time preferences, altruism, reciprocity, trust, lab-in-the-field experiment, managers, cooperatives
    JEL: C90 D81 J54
    Date: 2019–05
  3. By: Harrison, Glenn W.; Lau, Morten I. (Department of Economics, Copenhagen Business School); Yoo, Hong Il
    Abstract: Longitudinal experiments allow one to evaluate the temporal stability of latent preferences, but raise concerns about sample selection and attrition that may confound inferences about temporal stability. We evaluate the hypothesis of temporal stability in risk preferences using a remarkable data set that combines socio-demographic information from the Danish Civil Registry with information on risk attitudes from a longitudinal field experiment. Our experimental design builds in explicit randomization on the incentives for participation. The results show that the use of different participation incentives can affect sample response rates and help identify the effects of selection. Correcting for endogenous sample selection and panel attrition changes inferences about risk preferences in an economically and statistically significant manner. Estimates of risk preferences change with these corrections. In general we find evidence consistent with temporal stability of risk preferences when one corrects for selection and attrition. †
    Keywords: Preferences; Risk Attitudes
    JEL: D81 D90
    Date: 2019–01–02
  4. By: Vanberg, Christoph
    Abstract: In experiments which measure subjects’ beliefs, both beliefs about others’ behavior and beliefs about others’ beliefs, are often correlated with a subject’s own choices. Such phenomena have been interpreted as evidence of a causal relationship between beliefs and behavior. An alternative explanation attributes them to what psychologists refer to as a ‘false consensus effect’. It is my impression that the latter explanation is often prematurely dismissed because it is thought to be based on an implausible psychological bias. The goal of this note is to show that the false consensus effect does not rely on such a bias. I demonstrate that rational belief formation implies a correlation of behavior and beliefs of all orders whenever behaviorally relevant traits are drawn from an unknown common distribution. Thus, if we assume that subjects rationally update beliefs, correlations of beliefs and behavior cannot support a causal relationship.
    Keywords: beliefs; behavioral economics; experimental economics
    Date: 2019–05–09
  5. By: Raymond Fisman (Boston University); Ilyana Kiziemko; Silvia Vannutelli (Boston University, PhD Candidate)
    Abstract: We study distributional preferences in “large†groups. While most prior experi- ments have focused on exploring attitudes toward inequality in two- or three-person groups, we field a series of experiments via Mechanical Turk in which subjects choose between two income distributions, each with seven (or nine) individuals, with hypo- thetical incomes that aim to approximate the actual distribution of income in the U.S. Our setting thus provides a more direct comparison to the redistributive choices faced by society. Consistent with standard maximin (Rawlsian) preferences, subjects select distributions in which the bottom individual’s income is higher (but show little regard for lower incomes above the bottom ranking). In contrast to standard models, however, we find that subjects select distributions that lower the top individual’s income, but not other high incomes. Finally, we provide tentative evidence of “locally competitive†preferences—in most experimental sessions, subjects select distributions that lower the income of the individual directly above them, while the income of the individual two positions above has little effect on subjects’ decisions. Our findings suggest that the- ories of inequality aversion should be enriched to account for individuals’ aversion to “topmost†and “local†disadvantageous inequality.
    Keywords: Inequality aversion; Envy; Redistribution
    JEL: C91 D63 H23
    Date: 2018–02
  6. By: Francesca Cornaglia (Queen Mary University of London); Michalis Drouvelis (Department of Economics, University of Birmingham); Paolo Masella (Department of Economics, University of Bologna)
    Abstract: The emergence of competition is a defining aspect of human nature and characterizes many important social environments. However, its relationship with how social groups are formed has received little attention. We design an experiment to analyze how individuals’ willingness to compete is affected by group identity. We find that individuals display substantially stronger competitiveness in within group (ingroup) matchings than in between group (outgroup) matchings or in a control setting where no group identity is induced. We also find that the effect of group identity is stronger for subjects who participated more actively in the team-building task.
    Keywords: competition; social distance; group identity; laboratory experiment
    JEL: C92 D03
    Date: 2019–05–07
  7. By: Zhang, Yinjunjie; Xu, Zhicheng; Palma, Marco
    Abstract: The rapid development and diffusion of new technologies such as automation and artificial intelligence make life more convenient. At the same time, people may develop overdependence on technology to simplify everyday tasks or to reduce the level of effort required to accomplish them. We conduct a two-phase real-effort laboratory experiment to assess how external assistance affects subsequently revealed preferences for the convenience of a lower level of effort versus monetary rewards requiring greater effort. The results suggest that men treated with external help in the first phase tend to choose more difficult options with potentially higher monetary rewards. In contrast, after being treated with external help, women exhibit a stronger propensity to utilize the convenience of an easier task and are less likely to choose a more difficult option that carries higher potential earnings.
    Keywords: Gender difference, Reaction to help, Real effort
    JEL: C91 D81 J16
    Date: 2018
  8. By: Hsiao, Yu Chin; Kemp, Simon; Servátka, Maroš
    Abstract: We experimentally investigate whether framing an individual-choice decision in a market setting results in a different outcome than when the decision is described in a context-free frame. We further explore whether the context effect is triggered by the frame itself or whether a richer descriptive content is required to establish familiarity with the decision-making environment. Understanding what constitutes context is central to formulating practical recommendations aiming to improve the quality of individual decisions. Our results show that framing a sequential search problem as selling houses leads to better decisions than a context-free frame. Manipulating whether or not the framed decision-making scenario includes a description of the house, which would be naturally available in a real estate market, does not impact the length of search or the total earnings.
    Keywords: Schema Activation, Secretary Problem, Sequential Search, Context, Framing, Decision-Making
    JEL: C91 D83
    Date: 2019–05–03
  9. By: Marielle Brunette (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Julien Jacob (UNISTRA - Université de Strasbourg)
    Abstract: We characterize the individual's attitude towards risk, prudence and temperance in the gain and loss domains. We analyze the links between the three features of preferences for a given domain and between domains for each feature of preferences. Consequently, the reflection effect, the mixed risk aversion and the risk apportionment, are key concepts of our study. We also display some determinants for risk aversion, prudence and temperance in each domain. To do this, we conducted a lab experiment with students eliciting risk aversion, prudence and temperance in the two domains, and collected information about each subject's characteristics.
    Keywords: risk aversion,prudence,temperance,experiment,correlations,determinant
    Date: 2019
  10. By: Gary Charness (University of California at Santa Barbara, IZA Bonn, and CESifo Munich); Francesco Feri (Royal Holloway University of London and University of Trieste); Miguel A. Meléndez-Jiménez (Universidad de Málaga); Matthias Sutter (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The effectiveness of social interaction depends strongly on an ability to coordinate actions efficiently. In large networks, such coordination may be very difficult to achieve and may depend on the communication technology and the network structure. We examine how pre-play communication and clustering within networks affect coordination in a challenging experimental game on eight-person networks. Free-form chat is enormously effective in achieving the non-equilibrium efficient outcome in our game, but restricted communication (where subjects can only indicate their intended action) is almost entirely ineffective. We can rationalize this result with a novel model about the credibility of cheap-talk messages. This credibility is much larger with free-form message communication than with restricted communication. We are the first to model this credibility and show, both theoretically and experimentally, an interaction effect of network structure and communication technologies. We also provide a model of message diffusion, which indeed predicts that diffusion will be more rapid without clustering and is consistent with our data.
    Keywords: Networks, Clustering, Communication, Credibility, Cheap talk, Experiment
    JEL: C71 C91 D03 D85
    Date: 2019–05
  11. By: Erik Kole (Erasmus University Rotterdam); Liesbeth Noordegraaf-Eelens (Erasmus University Rotterdam); Bas Vringer (Erasmus University Rotterdam)
    Abstract: We investigate whether two heuristics, the peak-end rule and herding, lead to cognitive biases in the index of consumer sentiment published by the University of Michigan. Both affect respondents' assessment of changes in their financial position over the past year. Consistent with the peak-end rule, respondents rely more on extreme detrimental monthly changes during the year than to changes over the whole year. We rule out that these extremes proxy for risk. The evidence for irrational herding consists in a too strong relationship from expectations about the future of respondents interviewed in a first round to assessments of the past by respondents interviewed in a second round. Both results show that cognitive biases can be found in a key macro variable and outside more controlled environments. They also indicate that the behavioral component of the sentiment index may offer another explanation for its relevance, next to news or animal spirits.
    Keywords: Consumer sentiment, cognitive biases, peak-end rule, herding
    JEL: E32
    Date: 2019–05–01
  12. By: Nicolas Jacquemet (Paris School of Economics,Université Paris1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne); Stéphane Luchini (Aix-Marseille University - Aix-Marseille School of Economics, CNRS and EHESS); Jason F. Shogren (Department of Economics - University of Wyoming); Verity Watson (University of Aberdeen - Health Economics Research Unit University (HERU))
    Abstract: Using discrete choices to elicit preferences is a major tool to help guide public policy. Although Discrete Choice Experiment (DCE) remains by far the most popular mechanism used to elicit preferences, its reliability still is questionable. Using an induced value experimental design, we show that standard benchmarks achieve no more than 56% (hypothetical answers with no monetary incentives) to 60% (real monetary incentives) of payoff maximizing choices. Herein we demonstrate that having respondents sign a the truth-telling oath reduces non-payoff maximizing choices by nearly 50% relative to these benchmarks. The explicit and voluntary commitment to honesty improved decisions. Further, we show that it is the explicit commitment to honesty induced by the truth-telling oath improves choices, not just any oath mechanism, i.e., an oath to task or to duty did not improve choices
    Keywords: Discrete Choice Experiments; Stated Preferences; Oath; Truth-telling; External validity; Welfare
    JEL: C9 H4 Q5
    Date: 2019–05

This nep-cbe issue is ©2019 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.