nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒08‒19
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Confidence and Career Choices: An Experiment By Barron, Kai; Gravert, Christina
  2. Many Balls in the Air Makes Time Fly: The Effect of Multitasking on Time Perception and Time Preferences By Hardardottir, Hjördis
  3. Habits as Adaptations: An Experimental Study By Ludmila Matysková; Brian Rogers; Jakub Steiner; Keh-Kuan Sun
  4. Ignorance is bliss: a game of regret By Claudia Cerrone; Francesco Feri; Philip R. Neary
  5. A preliminary test on risk and ambiguity attitudes, and time preferences in decisions under uncertainty: towards a better explanation of participation in crop insurance schemes By Coletta, Attilio; Giampietri, Elisa; Santeramo, Fabio Gaetano; Severini, Simone; Trestini, Samuele

  1. By: Barron, Kai (WZB Berlin); Gravert, Christina (University of Copenhagen)
    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 confidence about one\'s own ability on two central choices made by workers in the labor market: choosing between jobs with different incentive schemes, and the subsequent 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; career choices;
    JEL: C91 D03 M50 J24
    Date: 2019–07–30
  2. By: Hardardottir, Hjördis (Department of Economics, Lund University)
    Abstract: In this paper, we study how increasing the cognitive demands of multitasking affects time preferences. The novelty of this paper is that it studied how time perception mediates the effect of multitasking on time preferences. Results from experimental psychology have demonstrated that people tend to experience the passage of time as quicker when they are busy with cognitively-demanding tasks. If time is experienced as passing faster, the future should be experienced as being closer, and patience should increase. However, a standard prediction from behavioral economics is that being cognitively loaded leads to less patient decisions. Our hypothesis is that increases in patience, driven by the speeding up of time, and decreases in patience, driven by decreased cognitive capacity, added together explain the total effect of increasing the cognitive demands of multitasking on time preferences. We also shed light on whether the observed relationship between time preferences and time perception within subjects is mirrored when comparing between subjects.
    Keywords: Time preferences; Multitasking; Cognitive load; Time perception; Foundations of preferences
    JEL: C91 D91
    Date: 2019–08–09
  3. By: Ludmila Matysková; Brian Rogers; Jakub Steiner; Keh-Kuan Sun
    Abstract: Psychologists emphasize two aspects of habit formation: (i) habits arise when the history of a decision process correlates with optimal continuation actions, and (ii) habits alleviate cognition costs. We ask whether serial correlation of optimal actions alone induces habits or if habits form as optimal adaptations. We compare lab treatments that differ in the information provided to subjects, holding fixed the serial correlation of optimal actions. We find that past actions affect behavior only in the treatment in which this habit is useful. The result suggests that caution is warranted when modeling habits via a fixed utility over action sequences.
    Keywords: habit formation, rational inattention
    JEL: C91 D8 D9
    Date: 2019–07
  4. By: Claudia Cerrone (Max Planck Institute for Research on Collective Goods, Bonn); Francesco Feri (Royal Holloway, Department of Economics); Philip R. Neary (Royal Holloway, Department of Economics)
    Abstract: Existing models of regret aversion assume that individuals can make an ex-post comparison between their choice and a foregone alternative. Yet in many situations such a comparison can be made only if someone else chose the alternative option. We develop a model where regret-averse agents must decide between the status quo and a new risky option that outperforms the status quo in expectation, and learn the outcome of the risky option, if unchosen, with a probability that depends on the choices of others. This turns what was previously a series of single-person decision problems into a coordination game. Most notably, regret can facilitate coordination on the status quo { an action that would not be observed if the agents were acting in isolation or had standard preferences. We experimentally test the model and find that regret-averse agents behave as predicted by our theory.
    Keywords: regret aversion, coordination games, information
    JEL: C72 C92 D81 D91
    Date: 2019–07
  5. By: Coletta, Attilio; Giampietri, Elisa; Santeramo, Fabio Gaetano; Severini, Simone; Trestini, Samuele
    Abstract: The exposure of farmers to different (and increasing) risks has been recognized by the EU policy, which supports several risk management tools through the Common Agricultural Policy (CAP). Despite the vulnerability of the agricultural sector, and the attention paid at the EU level, the uptake of such tools is generally low across EU countries. The Italian case is emblematic: the uptake of subsidized crop insurance contracts is low, limited to few products, and concentrated in few areas. Coherently, the interest of policy makers toward explaining these characteristics and in gaining insights on the interventions that may help promoting participation is intense. This contribution investigates behavioral aspects linked to choices under risk and ambiguity, and account for time preferences in order to mimic the scenario faced by the potential adopters of the subsidized crop insurance contracts in Italy. Data are collected through questionnaires submitted to students from agricultural colleges in three administrative regions located in northern, central and southern Italy. Results show that attitude toward risk, ambiguity, and impatience are correlated with the intrinsic characteristics of respondents. In addition, some of those attitudes may help explaining decisions under uncertainty. Despite the empirical analysis is preliminary and focused on students, it allowed to validate a promising methodological approach capable of explaining farmer’s willingness to adopt (or renew) insurance contracts. By accounting for (currently under-investigated) behavioral aspects, it is likely to prove useful to re-design or implementing, more effectively, the current policies.
    Keywords: Insurance; subjective probabilities; risk preferences; choice experiment
    JEL: D81 D83 Q12 Q18
    Date: 2018

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.