nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒07‒08
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Groups disguise lying better By Yoshitaka Okano; Eiji Goto
  2. Self-regulation Training and Job Search Behavior: A Natural Field Experiment Within an Active Labor Market Program By Berger, Eva M.; Hermes, Henning; Koenig, Guenther; Schmidt, Felix; Schunk, Daniel
  3. Heads We Both Win, Tails Only You Lose: the Effect of Limited Liability On Risk-Taking in Financial Decision Making By Ahrens, Steffen; Bosch-Rosa, Ciril
  4. Do Measures of Risk Attitude in the Laboratory Predict Behavior under Risk in and outside of the Laboratory? By Charness, Gary; Garcia, Thomas; Offerman, Theo; Villeval, Marie Claire
  5. The limitations of the representativeness heuristic: further evidence from choices between lottery tickets By Michał Wiktor Krawczyk; Joanna Rachubik
  6. Anticipatory Anxiety and Wishful Thinking By Jan Engelmann; Maël Lebreton; Peter Schwardmann; Joël van der Weele; Li-Ang Chang
  7. Does The Consensus Prevail? Experimental Evidence By Sylvain Marsat

  1. By: Yoshitaka Okano (School of Economics and Management, Kochi University of Technology); Eiji Goto (Nichinan Gakuen Junior High School)
    Abstract: This study experimentally examines the lying behavior of individuals and two-person groups, using a dice-rolling experiment developed by Fischbacher and Follmi-Heusi (2013). We found strong evidence of lying in both individuals and groups,but partial lying (not lying to the maximum extent possible) is more pronounced under group decisions. Furthermore, from the experimental data, we estimated thepreference parameter(s) of existing models for lying aversion. The results reveal thatgroups are more sensitive to the social image concern of not being perceived as a liar and have a lower cost of lying than individuals.
    Keywords: Lying, group decision, experiment
    JEL: C72 C91 C92 D63
    Date: 2019–06
  2. By: Berger, Eva M.; Hermes, Henning (Dept. of Economics, Norwegian School of Economics and Business Administration); Koenig, Guenther; Schmidt, Felix; Schunk, Daniel
    Abstract: Existing evidence suggests that self-regulation plays an important role in the job search process and labor market reintegration of unemployed persons. We conduct a randomized natural field experiment embedded in an established labor market reactivation program to examine the causal effect of conducting self-regulation training on the job search behavior of long-term unemployed participants. Our treatment involves teaching a self-regulation strategy based on mental contrasting with implementation intentions (MCII). We find that the treatment has a positive effect on the quality of application documents as well as on the probability of participants submitting their documents on time. However, we do not find a positive effect on labor market reintegration—possibly due to the short-term horizon of the data. Because the intervention is very low cost, a rollout to other programs might have high individual and social rates of return.
    Keywords: active labor market policy; natural field experiment; job search behavior; unemployed; self-regulation; non-cognitive skills
    JEL: C93 J24 J64
    Date: 2019–06–18
  3. By: Ahrens, Steffen (TU Berlin); Bosch-Rosa, Ciril (TU Berlin)
    Abstract: One of the reasons for the recent crisis is that financial institutions took \"too much risk\" (Brunnermeier, 2009; Taylor et al., 2010). Why were these institutions taking so much risk is an open question. A recent strand in the literature points towards the \"cognitive dissonance\" of investors who, because of the limited liability of their investments, had a distorted view of riskiness (e.g., Barberis (2013); Benabou (2015)). In a series of laboratory experiments we show how limited liability does not affect the beliefs of investors, but does increase their willing exposure to risk. This results points to a simple explanation for the over-investment of banks and hedge-funds: When incentives are not aligned, investors take advantage of the moral hazard opportunities.
    Keywords: moral hazard; cognitive dissonance; behavioral finance;
    JEL: C91 D84 G11
    Date: 2019–06–26
  4. By: Charness, Gary (University of California, Santa Barbara); Garcia, Thomas (GATE, University of Lyon); Offerman, Theo (University of Amsterdam); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We consider the external validity of laboratory measures of risk attitude. Based on a large-scale experiment using a representative panel of the Dutch population, we test if these measures can explain two different types of behavior: (i) behavior in laboratory risky financial decisions, and (ii) behavior in naturally-occurring field behavior under risk (financial, health and employment decisions). We find that measures of risk attitude are related to behavior in laboratory financial decisions and the most complex measures are outperformed by simpler measures. However, measures of risk attitude are not related to risk-taking in the field, calling into question the methods currently used for the purpose of measuring actual risk preferences. We conclude that while the external validity of measures of risk attitude holds in closely related frameworks, this validity is compromised in more remote settings.
    Keywords: lab-in-the-field experiment, elicitation methods, risk preferences
    JEL: C91 C93 D81
    Date: 2019–06
  5. By: Michał Wiktor Krawczyk (Faculty of Economic Sciences, University of Warsaw); Joanna Rachubik (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The representativeness heuristic (RH) proposes that people expect even a small sample to have similar characteristics to the parent population. One domain in which it appears to operate is the preference for combinations of numbers on lottery tickets: most players seem to avoid very characteristic, “unrepresentative” combinations, e.g. only containing very low numbers. Likewise, most players may avoid betting on a combination that was drawn recently, because it would seem particularly improbable to be drawn again. We confirm both of these tendencies in two field experiments, building upon Krawczyk and Rachubik (2019, KR19). However, we find no link between these two choices: it is not the same people that show the two biases. In this sense, the RH does not organize the data well. Nevertheless, there are some links related to rationality across the two choices – people who are willing to forgo a monetary payment in order to get the preferred ticket in one task are also willing to do it in the other. We find such preference to be related with misperception of probabilities and providing intuitive, incorrect answers in the Cognitive Reflection Test.
    Keywords: Decision making under risk; Gambler’s fallacy; Lottery choice; Perception of randomness; Number preferences in lotteries; Representativeness heuristic
    JEL: C93 D01 D81 D91
    Date: 2019
  6. By: Jan Engelmann (University of Amsterdam); Maël Lebreton (University of Geneva); Peter Schwardmann (LMU Munich); Joël van der Weele (University of Amsterdam); Li-Ang Chang (CREED - University of Amsterdam)
    Abstract: It is widely hypothesized that anxiety and worry about an uncertain future lead to the adoption of comforting beliefs or "wishful thinking". However, there is little direct causal evidence for this effect. In our experiment, participants perform a visual pattern recognition task where some patterns may result in the delivery of an electric shock, a proven way of inducing anxiety. Participants engage in significant wishful thinking, as they are less likely to correctly identify patterns that they know may lead to a shock. Greater ambiguity of the pattern facilitates wishful thinking. Raising incentives for accuracy does not significantly decrease it.
    Keywords: confidence, beliefs, anticipatory utility, anxiety, motivated cognition
    JEL: D83 C91
    Date: 2019–06–21
  7. By: Sylvain Marsat (CLERMA - Clermont Recherche Management - Clermont Auvergne - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne)
    Abstract: We test hypotheses on herd behavior in a simple investment decision through an experimental setting. Subjects were given some fundamental information about a specific firm and asked for a recommendation, buy or sell. This personal judgment was then confronted to the opposed consensus of analysts, in order to determine if subjects revise their recommendations. In this binary choice setting, we show that herding takes place, and is inversely correlated to perceived individual ability. Moreover, when reputation is at stake, conformist subjects are even more prone to follow the consensus in their decision making. Herding behavior is, among other behavioral biases, a frequently cited phenomenon by both money managers and academics to explain booms and crashes in financial markets (Denevow and Welch [1996]). Sometimes, agents on the market are presumed to act according to the behavior of others. Although such behavior is often analyzed in the literature (e.g. Scharfstein and Stein [1990], Bikhchandani, Hirshleifer and Welch [1992], Graham [1999], or Chamley [2004]), empiric evidence is still quite scarce (Welch [2000]). Since Lakonishok, Shleifer, and Vishny [1992], many works (e.g. Wermers [1999], Wylie [2005]) have tried to show clusters among individuals, who act together on the market, compared to a "normal" behavior. However, most of these studies are not convincing since they come up against the detection of actual herding. The fact that individuals acted in the same manner is not always the consequence of herding, and can merely be a common reaction to a common
    Keywords: Herding Behavior,Decision Making,Behavioral Finance,Reputation
    Date: 2019–06–14

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.