nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒02‒03
three papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Rationally Inattentive savers and Monetary Policy Changes: A Laboratory Experiment By Andrea Civelli; Cary Deck; Antonella Tutino
  2. How do we choose whom to trust? The effect of social networks on trust By Federica Alberti; Anna Conte; Daniela T. Di Cagno; Emanuela Sciubba
  3. Simple Belief Elicitation: an experimental evaluation By Schlag, Karl; Tremewan, James

  1. By: Andrea Civelli (University of Arkansas, Walton College of Business, Department of Economics); Cary Deck (University of Alabama; Economic Science Institute, Chapman University); Antonella Tutino (Federal Reserve Bank of Dallas)
    Abstract: We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward guidance. These ?ndings agree with recent empirical evidence on monetary policy e?ects on consumption behavior in U.S. and internationally.
    Keywords: Rational Inattention; Experimental Evidence' Information Processing Capacity; Consumption
    JEL: C91 D11 D8 E20
    Date: 2020
  2. By: Federica Alberti (Portsmouth Business School); Anna Conte (Sapienza University of Rome); Daniela T. Di Cagno (LUISS Guido Carli University); Emanuela Sciubba (Birkbeck University of London)
    Abstract: Our social lives are governed by trust. But how do we choose whom to trust? In this work, based on a laboratory experiment, we explore whether building relationships in a social network increases individuals' level of trust. We find that social interactions direct trust, but their impulse is not sufficiently strong to result beneficial.
    Keywords: Social network, Trust, Lab experiment
    JEL: C72 C91 C92 D82 D85
    Date: 2020–01–24
  3. By: Schlag, Karl; Tremewan, James
    Abstract: We present a method for eliciting beliefs about probabilities when multiple realisations of an outcome are available, the "frequency'' method. The method is applicable for any reasonable utility function. Unlike existing techniques that account for deviations from risk-neutrality, this method is highly transparent to subjects and easy to implement. Rather than identifying point beliefs these methods identify bounds on beliefs, thus trading off precision for generality and simplicity. An experimental comparison of this method and a popular alternative, the Karni method, shows that subjects indeed find the frequency method easier to understand. Significantly, we show that confusion due to the complexity of the Karni method leads to less cognitively able subjects erroneously stating a belief of 50%, a bias not present in the frequency method.
    Keywords: Belief elicitation; experiment
    JEL: C91
    Date: 2020–01–17

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