nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒03‒09
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. The Value of Verbal Feedback in Allocation Decisions By Robert J., Schmidt; Christiane, Schwieren; Martin, Vollmann
  2. The Nollywood Nudge : An Entertaining Approach to Saving By Coville,Aidan; Di Maro,Vincenzo; Dunsch,Felipe Alexander; Zottel,Siegfried
  3. Monetary incentives and overconfidence in academic performance: An experimental study By Noemí Herranz-Zarzoso; Gerardo Sabater-Grande
  4. How Do Expectations Affect Learning About Fundamentals? Some Experimental Evidence By Kieran Marray; Nikhil Krishna; Jarel Tang
  5. Self-selection bias in a field experiment: Recruiting subjects under different payment schemes By Noemí Herranz-Zarzoso; Gerardo Sabater-Grande

  1. By: Robert J., Schmidt; Christiane, Schwieren; Martin, Vollmann
    Abstract: Depending on the context at hand, people’s preference for receiving feedback might differ. Especially in allocation decisions that directly concern another individual, feedback from the affected person can have positive or negative value. We study such preferences in a laboratory experiment by eliciting the willingness-to-pay to receive or to avoid verbal feedback from subjects that were previously affected by an allocation decision. We find that most decision makers exhibit a positive willingness-to-pay for having control about whether feedback occurs or not. Specifically, decision makers that equally shared their endowment with the recipient revealed a positive willingness-to-pay for receiving, but not for avoiding feedback. By contrast, among decision makers that behaved selfishly, we identify both: subjects that were willing to pay for receiving and subjects that were willing to pay for avoiding feedback. The stated motivations indicate that curiosity, the desire to receive social approval and giving the recipient the chance to express his/her feelings are the main reasons for feedback acquisition, while shame and fear of negative feedback are the main reasons for avoidance.
    Keywords: feedback; communication; non-instrumental information; social preferences; information avoidance; curiosity
    Date: 2020–02–28
  2. By: Coville,Aidan; Di Maro,Vincenzo; Dunsch,Felipe Alexander; Zottel,Siegfried
    Abstract: This paper investigates the immediate and medium-term behavioral response to an emotional trigger designed to affect biases in intertemporal financial decisions. The emotional trigger is provided by a narrative portraying the catastrophic consequences of poor financial choices. Even when people are fully aware of the most appropriate action to take, cognitive biases may prevent this knowledge from translating into action. The paper contributes to the literature by directly testing the importance of linking emotional stimulus to financial messages, to influence borrowing and saving decisions, and identifying the interaction between emotional stimulus and the opportunity to act on this stimulus. The study randomly assigned individuals to a featured production -- a Nollywood (the Nigerian Hollywood) movie -- on the financial consequences of poor borrowing and saving behavior. This treatment is interacted with the option of opening a savings account at the screening of the movie. At the exit of the screening, individuals in the financial education movie treatment are more likely to open a savings account than individuals in the placebo movie treatment. However, the effects dissipate quickly. When savings and borrowing behavior is measured four months later, the study finds no differences between treatments. The paper concludes that emotional triggers delivered in the context of a one-time feature film might not be enough to secure sustained changes in behavior.
    Keywords: Educational Sciences,Primary Metals,Gender and Development,Financial Literacy,Access to Finance
    Date: 2019–06–27
  3. By: Noemí Herranz-Zarzoso (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Gerardo Sabater-Grande (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper, we analyze students’ overconfidence bias regarding potential and actual academic performance under both hypothetical and real monetary incentives. Students enrolled in a Microeconomics course were offered the possibility to set their own goal before performing different types of exams and, immediately after completing them, to postdict their own grade. Controlling for potential driving factors of students’ overconfidence such as their cognitive abilities, academic record, risk preferences, and self-reported academic confidence, we find that real monetary incentives mitigate overestimation of potential achievements and eliminate overestimation of actual achievements. This finding is compelling, given the common interpretation of overconfidence as a conscious bias: if monetary incentives can eliminate subjects’ overconfidence, as our results indicate, it might suggest that overconfidence is not a psychological bias at all. Moreover, the use of real money does not reduce but instead enhances the presence of the Dunning-Kruger bias when we use students’ academic records to measure their actual skill.
    Keywords: overconfidence bias, Dunning-Kruger cognitive bias, self-chosen goals, prediction, postdiction, real monetary incentives
    JEL: C93 D03
    Date: 2020
  4. By: Kieran Marray (Mathematical Institute, University of Oxford; Institute for New Economic Thinking at the Oxford Martin School, University of Oxford); Nikhil Krishna (Trinity College, University of Oxford); Jarel Tang (The Queen's College, University of Oxford)
    Abstract: Individuals' output often depends not just on their ability and actions, but also on external factors or fundamentals, whose effect they cannot separately identify. At the same time, many individuals have incorrect beliefs about their own ability. Heidhues et al. (2018) characterise overconfident and underconfident individuals' equilibrium beliefs and learning process in these situations. They argue overconfident individuals will act sub-optimally because of how they learn. We carry out the first experimental test their theory. Subjects take incorrectly marked tests, and we measure how they learn about the marker's accuracy over time. We use machine learning to identify heterogeneous effects. Overconfident subjects have lower beliefs about the fundamental, as Heidhues et al. predict, and thus would make sub-optimal decisions. But we find no evidence it is because of how they learn.
    Date: 2020–02
  5. By: Noemí Herranz-Zarzoso (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Gerardo Sabater-Grande (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper, we examine a potential self-selection bias in different samples of subjects depending on the payment scheme offered in the recruiting process. We ran four field experiments in which students enrolled in a microeconomics course were invited to set their own goal for the final exam of the course. Subjects were informed that they could be given a monetary reward if their grade were higher than or equal to their self-chosen goal. We aim to study whether subjects’ willingness to participate depends on their expected performance under diverse announced reward criteria, like a rank-order tournament and piece-rate pay. Given that judgments about future performance are closely tied to previous performance, the midterm exam scores from the current academic course are compared between participants and non-participants in order to analyze sample-sorting effects. We find that only when a rank-order tournament is offered, either exclusively or in combination with another type of payment mechanism, are high-performing students more likely to participate in the experiment than low-performing ones.
    Keywords: self-selection bias, piece-rate, rank-order tournament
    JEL: C81 C93
    Date: 2020

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