nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2019‒08‒26
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Collective Intertemporal Decisions and Heterogeneity in Groups By Daniela Glätzle-Rützler; Philipp Lergetporer; Matthias Sutter
  2. Projective Paternalism By Sandro Ambuehl; B. Douglas Bernheim; Axel Ockenfels
  3. Is Ellsberg behavior evidence of ambiguity aversion? By Christoph Kuzmics; Brian W. Rogers; Xiannong Zhang
  4. Psychological and Social Motivations in Microfinance Contracts: Theory and Evidence By Sanjit Dhami; Junaid Arshad; Ali al-Nowaihi
  5. Investigating the conditions for psychological momentum in the field: Evidence from men’s professional tennis By Philippe Meier; Maximilian Rüdisser; Raphael Flepp; Egon Franck
  6. It's Not A Lie If You Believe It: On Norms, Lying, and Self-Serving Belief Distortion By Cristina Bicchieri, Eugen Dimant and Silvia Sonderegger; Eugen Dimant and Silvia Sonderegger; Silvia Sonderegger
  7. Are World Leaders Loss Averse? By Matthew Gould; Matthew D. Rablen

  1. By: Daniela Glätzle-Rützler; Philipp Lergetporer; Matthias Sutter
    Abstract: Many important intertemporal decisions, such as investments of firms or households, are made by groups rather than individuals. Little is known what happens to such collective decisions when group members have different incentives for waiting, because the economics literature on group decision making has, so far, assumed homogeneity within groups. In a lab experiment, we study the causal effect of group members’ heterogeneous payoffs from waiting on intertemporal choices. We find that three-person groups behave more patiently than individuals and that this effect is driven by the presence of at least one group member with a high payoff from waiting. We present group chat content, survey data, and additional treatments to uncover the mechanism through which heterogeneity in groups increases patience.
    Keywords: patience, time preferences, group decisions, payoff heterogeneity, experiment
    JEL: C91 C92 D03 D90
    Date: 2019
  2. By: Sandro Ambuehl; B. Douglas Bernheim; Axel Ockenfels
    Abstract: We study experimentally when, why, and how people intervene in others’ choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs frequently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. We consider several hypotheses concerning CAs’ motives. A conventional behavioral welfarist acts as a correctly informed social planner; a mistakes-projective paternalist removes options she wishes she could reject when choosing for herself; an ideals-projective paternalist seeks to align others’ choices with her own aspirations. Ideals-projective paternalism provides the best explanation for interventions in the laboratory and rationalizes support for actual paternalistic policies.
    Keywords: paternalism, libertarianism, welfare economics, experiment, false consensus bias
    JEL: D03 D04 H00
    Date: 2019
  3. By: Christoph Kuzmics (University of Graz, Austria); Brian W. Rogers (Washington University in St. Louis, USA); Xiannong Zhang (Washington University in St. Louis, USA)
    Abstract: We perform two types of lab experiments to assess the normative and positive appeal of preference models exhibiting ambiguity aversion. Our first experiment is a simple extension of the Ellsberg [1961] two-color urn experiment in which there is an option that hedges ambiguity away completely and that dominates the options that correspond to Ellsberg behavior. 63% of subjects choose the dominated Ellsberg options, which compares similarly to the proportion of subjects choosing the risky urn in the standard two-color experiment. While subjective expected utility cannot explain this choice, also none of the classical models of ambiguity aversion can explain this choice. Our second experiment is also based on the Ellsberg two-color urn experiment. In this experiment, in various treatments, we provide advice in the form of short video clips in favor of, as well as against, the Ellsberg choice. We find suggestive, but not conclusive, evidence that subjects' choices are influenced by advice and, in these cases, mostly in the direction of abandoning the Ellsberg option.
    Keywords: Knightian uncertainty; Subjective expected utility; Ambiguity aversion; lab experiment
    JEL: C91 D81
    Date: 2019–08
  4. By: Sanjit Dhami; Junaid Arshad; Ali al-Nowaihi
    Abstract: Microfinance contracts have enormous economic and welfare significance. We study, theoretically and empirically, the problem of effort choice under individual liability (IL) and joint liability (JL) contracts when loan repayments are made either privately, or publicly in front of one’s social group. Our theoretical model identifies guilt from letting down the expectations of partners in a JL contract, and shame from falling short of normatively inadequate effort, under public repayment of loans, as the main psychological drivers of effort choice. Evidence from our lab-in-the-field experiment in Pakistan reveals large treatment effects and confirms the central roles of guilt and shame. Under private repayment, a JL contract increases effort by almost 100% relative to an IL contract. Under public repayment, effort levels are comparable under IL and JL contracts, which is consistent with recent empirical results. This indicates that shame-aversion plays a more important role as compared to guilt-aversion. Under IL, repayment in public relative to private repayment increases effort by 60%, confirming our shame-aversion hypothesis. Under JL, a comparison of private and public repayment shows that shame trumps guilt in explaining effort choices of borrowers.
    Keywords: microfinance, joint/individual liability, public/private repayment, belief-dependent motivations, guilt, shame, peer pressure, social capital, lab-in-the-field experiment
    JEL: C91 C92 D82 D91 G21
    Date: 2019
  5. By: Philippe Meier (Department of Business Administration, University of Zurich); Maximilian Rüdisser (Department of Business Administration, University of Zurich); Raphael Flepp (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich)
    Abstract: We examine how interruptions and personal and contextual factors affect the manifestation of psychological momentum (PM). Using men’s singles tennis point-by-point data from the two Grand Slam tournaments, Wimbledon and Roland Garros, between 2009 and 2014 (N=29,934), we employ realized break points as the potential triggers of PM and rest periods between two sequential games as the exogenous task interruptions. Controlling for player ability and the state of the match, we find that players are more likely to win the next game after realizing a break point only if there is no rest period between games. Thus, our results suggest that interruptions terminate the momentum effect. Further-more, we find that the effect of PM increases for players with a lesser relative ability and at a later stage within a match, showing the importance of personal and contextual factors for PM.
    Keywords: Psychological Momentum, Performance, Interruption, Behavioral Economics, Tennis
    JEL: D83 D91 L83
    Date: 2019–08
  6. By: Cristina Bicchieri, Eugen Dimant and Silvia Sonderegger (University of Pennsylvania); Eugen Dimant and Silvia Sonderegger (University of Pennsylvania); Silvia Sonderegger (University of Nottingham)
    Abstract: variant of the \dice under the cup" paradigm, in which subjects' beliefs are elicited in stage 1 before performing the dice task in stage 2. In stage 1, we elicit the subjects' beliefs about (i) majoritarian behavior or (ii) majoritarian normative beliefs in a previous session, and, in order to identify self-serving belief distortion, we vary whether participants are aware or unaware of the upcoming opportunity to lie in the dice task. We find that belief distortion occurs, but only with a specific kind of beliefs. When subjects are aware of the dice task ahead, they convince themselves that lying behavior is widespread in order to justify their lying. In contrast with beliefs about majority behavior, we find that beliefs about the extent to which lying is disapproved of are not distorted. Believing that the majority disapproves of lying does not inhibit own lying. These findings are consistent with a model where agents are conditional norm-followers, and where honest behavior is a strong indicator of disapproval of lying, but disapproval of lying is not a strong indicator of honest behavior.
    Keywords: Cheating, Experiment, Lying, Social Norms, Uncertainty
    Date: 2019–07
  7. By: Matthew Gould; Matthew D. Rablen
    Abstract: We focus on the preferences of an extremely salient group of highly-experienced individuals who are entrusted with making decisions that affect the lives of millions of their citizens, heads of government. We test for the presence of a fundamental behavioral bias, loss aversion, in the way heads of government choose decision rules for international organizations. If loss aversion disappears with experience and high-stakes it should not exhibited in this context. Loss averse leaders choose decision rules that oversupply negative (blocking) power at the expense of positive power (to initiate affirmative action), causing welfare losses through harmful policy persistence and reform deadlocks. We find evidence of significant loss aversion (λ = 4:4) in the Qualified Majority rule in the Treaty of Lisbon, when understood as a Nash bargaining outcome. World leaders may be more loss averse than the populous they represent.
    Keywords: loss aversion, behavioral biases, constitutional design, voting, bargaining, voting power, EU Council of Ministers
    JEL: D03 D81 D72 C78
    Date: 2019

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