nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒08‒12
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Investment behaviour when agents f in?uence on the success probability is hard to detect: An experiment By Alistair Munro; Ben D fExelle; Arjan Verschoor
  2. The Role of Locus of Control in Education, Occupation, Income and Healthy Habits: Evidence from Australian Twins By Xue, Sen; Kidd, Michael P.; Le, Anh T.; Kirk, Kathy; Martin, Nicholas G.
  3. Commentary on Edmund Rolls: "Emotion and reason in human decision-making" By Solms, Mark
  5. Long Run Effects of Universal Childcare on Personality Traits By Maximilian Bach; Josefine Koebe; Frauke H. Peter
  6. Why do we lie? Distinguishing between competing lying theories? By Paul Clist; Ying-yi Hong
  7. Information Redundancy Neglect versus Overconfidence: A Social Learning Experiment By Marco Angrisani; Antonio Guarino; Philippe Jehiel; Toru Kitagawa

  1. By: Alistair Munro (National Graduate Institute for Policy Studies, Tokyo, Japan); Ben D fExelle (University of East Anglia, U.K.); Arjan Verschoor (University of East Anglia, U.K.)
    Abstract: In the context of investment decisions, gcontingency h refers to the in?uence agents may exert over the probability distribution of returns on investment. Often, contingency is di?cult to detect and investment decisions are in?uenced by recent experience of (non-)contingency. To investigate the behavioural in?uence of prior (non-)contingency on investment decisions, we conduct an economic experiment in rural Uganda. Subjects are asked to invest any amount they wish of their endowment, with success dependent on whether they are correct in detecting the heavier of two objects. In one task, there is contingency: trying hard to detect the weight di?erence should in?uence the success probability. In another version, there is noncontingency: the weight di?erence is below the di?erential that humans are able to perceive. To investigate the e?ect of prior experience of (non-)contingency we experimentally vary the priming of (non-)contingency with a guessing game organised before the investment tasks. Our main ?nding is that priming contingency raises investment in the contingency condition. We ?nd in addition that stated perceptions of con?dence are also a?ected by priming contingency. In both cases, the e?ect is mediated by individuals f risk aversion. Individuals who are less risk averse respond more positively to priming contingency. We conclude that alertness to contingency matters for investment decisions, the more so the less risk averse people are.
    Date: 2019–07
  2. By: Xue, Sen; Kidd, Michael P.; Le, Anh T.; Kirk, Kathy; Martin, Nicholas G.
    Abstract: The role of non-cognitive skills in socio-economic behavior is a burgeoning research area in economics. Much interest is focused on the personality trait, locus of control, a measure of the extent to which individuals believe their fate is self-determined. The existing empirical literature generally estimates the role of locus of control via OLS. The legitimacy of the approach relies upon stability of locus of control as well as the correct specification of the model, i.e. no omitted variable bias. Recent evidence is supportive of treating locus of control as predetermined, particularly for working age individuals. However, the behavioural genetics consensus is that personality traits including locus of control have a significant heritability component. This suggests the potential for omitted variable problems associated with the prior literature’s attempt to identify the impact of locus of control using cross-sectional methods. We address the issue of omitted shared family background and genetic factors using data on both monozygotic and dizygotic twins to examine the role of locus of control. Comparison of results across OLS and twins fixed effect estimators is consistent with substantial upward bias in previous estimates of the locus of the control due to omitted variable problems.
    Keywords: Locus of control,twin studies,socioeconomic outcomes
    JEL: J24 J21 J31
    Date: 2019
  3. By: Solms, Mark
    Abstract: In his paper Emotion and reasoning in human decision-making (Economics Discussion Papers, No 2019-8) Edmund Rolls points out that multiple and independent types of reinforcement exist in the human brain, and that they cannot be reduced to a common currency. The present commentary introduces non-specialist readers to this wide variety of reinforcers, each of which carries equal biological value. The evolutionary forces underwriting them reveal much about the causes of our apparently irrational choices - which is why it is important for economists to acquaint themselves with such things.
    Keywords: decision-making,brain mechanisms,basic emotions,reward value,economicvalue,dominance hierarchies,macroeconomics,microeconomics,affective neuroscience
    JEL: D01 D87 D91
    Date: 2019
  4. By: Donato Masciandaro; Davide Romelli
    Abstract: This chapter reviews the evolution of the theory of monetary policy design since the 1980s, highlighting the emerging role of central banker psychology. Three subsequent stages are evident. First, the central bank was considered as an independent institution (modern economics). Second, central bankers were assumed to be delegated bureaucrats (advanced political economy). Third, a link with psychology was established (behavioural economics).
    JEL: E52 E58
    Date: 2019
  5. By: Maximilian Bach; Josefine Koebe; Frauke H. Peter
    Abstract: Although universal childcare has become an essential tool to support child development, few economic studies analyze its effects on non-cognitive skills and little is known about causal effects on these skills in the long run. In this paper we go beyond short run analyses and examine the long run effects of one additional year of universal childcare on students’ personality traits in adolescence. We focus on personality traits as part of their non-cognitive skills set and as important predictors of later educational achievements. As of 1996, a legal entitlement to universal childcare applied to children of three years and older in Germany. However, severe shortages in the former-West meant that many children could not get a childcare place and had to wait a full year until the next entry date. Using data from the National Educational Panel Study (NEPS) we estimate effects of one additional year of childcare by exploiting geographical variation in the timing of childcare entry arising from local supply constraints. We find that an earlier entry in universal childcare increases extroversion in adolescence, which has been shown to be associated with favorable labor market outcomes.
    Keywords: early childcare, non-cognitive skills, personality traits
    JEL: I21 J13 J18 J24
    Date: 2019
  6. By: Paul Clist (University of East Anglia); Ying-yi Hong (Chinese University of Hong Kong)
    Abstract: Lying is an important human behaviour that has received unprecedented empirical attention in recent years due to a new experimental paradigm in which subjects are incentivised to misreport a die roll for financial gain. Amongst theoretical attempts to explain results, Justified Dishonesty (JD) is a theory with impressive support and a plausible psychological foundation. JD predicts subjects will swap a paid and unpaid roll of a die whenever financially beneficial, as this feels less like lying. However, JD's predictions are virtually identical to a competing economic model. In Dufwenberg & Dufwenberg's (DD) subjects have perceived cheating aversion, incurring a cost of lying that is in proportion to the amount they are perceived to cheat. Current evidence is unable to distinguish between these two distinct mechanisms. Here we show that JD often makes accurate predictions, but is a poor expla- nation. We perform a placebo test, finding that JD is more accurate when it should be irrelevant. Furthermore, we elicit the second (unpaid) roll, strongly rejecting a direct corollary of JD. Our results demonstrate that the role of justifications and desired counterfactuals have been overstated. The simple idea that subjects dislike others perceiving them as liars in proportion to the size of the lie is sufficient to explain patterns of lying behaviour.
    Keywords: Dishonesty, Dice, Justification, Counterfactual, Perceived Lying Aversion
    JEL: D82 C72 D91
    Date: 2019–07
  7. By: Marco Angrisani (USC - University of Southern California); Antonio Guarino (UCL - University College of London [London]); Philippe Jehiel (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, UCL - University College of London [London]); Toru Kitagawa (UCL - University College of London [London])
    Abstract: We study social learning in a continuous action space experiment. Subjects, acting in sequence, state their belief about the value of a good, after observing their predecessors' statements and a private signal. We compare the behavior in the laboratory with the Perfect Bayesian Equilibrium prediction and the predictions of bounded rationality models of decision making: the redundancy of information neglect model and the overconfidence model. The results of our experiment are in line with the predictions of the overconfidence model and at odds with the others'.
    Date: 2019–07

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