nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒02‒10
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Student Performance and Loss Aversion By Heiko Karle; Dirk Engelmann; Martin Peitz
  2. Fast then slow: A choice process explanation for the attraction effect By Alexia Gaudeul; Paolo Crosetto
  3. A Comparison of Individual and Group Behavior in a Competition with Cheating Opportunities By Astrid Dannenberg; Elina Khachatryan
  4. Property is Dummy Proof: An Experiment By Oren Bar-Gill; Christoph Engel
  5. Behavioral Biases and Legal Compliance: A Field Experiment By Emanuel, Natalia; Ho, Helen

  1. By: Heiko Karle; Dirk Engelmann; Martin Peitz
    Abstract: In this paper, we match data on student performance in a multiple-choice exam with data on student risk preferences that are extracted from a classroom experiment. We find that more-loss-averse students leave more questions unanswered and perform worse in the multiple-choice exam when giving an incorrect answer is penalized compared to not answering. We provide evidence that loss aversion parameters extracted from lottery choices in a controlled experiment have predictive power in a field environment of decision making under uncertainty. Furthermore, the degree of loss aversion appears to be persistent over time, as the experiment was conducted three months prior to the exam. We also find important differences across genders; they are partly explained by differences in loss aversion.
    Keywords: loss aversion, decision making under uncertainty, multiple choice
    JEL: C91 D01 D11 D83
    Date: 2020–01
  2. By: Alexia Gaudeul (Georg-August-University [Göttingen]); Paolo Crosetto (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: In this paper we provide choice-process experimental evidence that the attraction effect is a short-term phenomenon, that disappears when individuals are given time and incentives to revise their choices.The attraction (or decoy) effect is the most prominent example of context effects, and it appears when adding a dominated option to a choice set increases the choice share of the now dominant option at the expense of other options. While widely replicated, the attraction effect is usually tested in hypothetical or payoff-irrelevant situations and without following the choice process. We run a laboratory experiment where we incentivize choice, vary the difference in utility between options and track which option participants consider best over time. We find that the effect is a transitory phenomenon that emerges only in the early stages of the choice process to later disappear. Participants are fast then slow: they first choose the dominant option to avoid the dominated decoy and then progressively revise their choices until choice shares come to correspond to price differences only. We expand our analysis by considering differences in utility among options and differences in the presentation of options (numerical or graphical). We also consider differences in the choice processes followed by individuals (intuitive vs. deliberative). This allows us to ascribe more precisely the role of fast and slow cognitive process in the emergence and disappearance of the attraction effect.
    Keywords: asymmetric dominance,attraction effect,induced preferences,choice process,time constraint,rationality,context effects,JEL codes : C91,D12,D83
    Date: 2019–12–09
  3. By: Astrid Dannenberg (University of Kassel); Elina Khachatryan (University of Kassel)
    Abstract: While it is well established that individuals and groups make different economic decisions, the reasons for the behavioral differences are still not fully understood. We experimentally compare individual and group behavior in a competitive setting where cheating can be used to outperform the competitor. Our design allows us to exogenously control for the type of the decision maker, the type of the competitor, and expectations about the competitor’s performance. The results show that there is much more cheating in inter-group competition than inter-individual competition which is in line with findings from other interactive games. We show furthermore that this difference is not caused by a higher propensity to cheat of groups per se, but instead by expectations about the competitor. Once we control for the type of the competitor and the decision makers’ expectations, we no longer find differences between individuals and groups.
    Keywords: individual behavior; group behavior; lying; honesty; competition
    JEL: C91 D63 H26
    Date: 2020
  4. By: Oren Bar-Gill (Harvard Law School); Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: Law is for humans. Humans suffer from cognitive limitations. Legal institutions can help humans by making these limitations irrelevant. This experiment shows that strong property rights serve this function. In theory, efficient outcomes obtain even without strong property rights. In a hypothetical world where cognitive ability is perfect, individuals would not engage in wasteful taking wars. A party would not take another’s good, if she expects that the good will ultimately be taken back. By contrast, the large majority of experimental subjects takes a token good when interacting with a computer they know to maximize profit, and that has a symmetric ability to take the good back. Experience mitigates the inefficiency, but does not eliminate it; and in the real world relevant experience is often lacking. We show that cognitive limitations prevent weak property rights – imperfectly enforced property rules and liability rules with low damages – from securing efficient outcomes. Strong property rights should be preferred, because they are dummy proof.
    Keywords: Property, Liability, Cost of Appropriation, Cognitive Limitations, Sophistication, Descriptive and Normative Beliefs
    JEL: C91 D02 D47 D61 K11
    Date: 2020–01
  5. By: Emanuel, Natalia; Ho, Helen
    Abstract: Many defendants fail to appear (FTA) for court despite the prospect of legal consequences. In a field experiment, we compare the effectiveness of text message reminders to an intervention that combines reminders with personalized assistance. The treatments are equally effective, reducing FTA by 8 percentage points from a 21 percent baseline rate. However, personalized assistance facilitates greater take-up of court accommodations such as rescheduling and payment plans. For more serious cases, the treatments reduce arrests by two percentage points, implying FTAs have a large effect on arrests. For the least serious cases, an FTA has small effects on fines.
    Date: 2020–01–20

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