nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒03‒16
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Intelligence, Errors and Strategic Choices in the Repeated Prisoners' Dilemma By Proto, Eugenio; Rustichini, Aldo; Sofianos, Andis
  2. A Note on Adverse Selection and Bounded Rationality By Takeshi Murooka; Takuro Yamashita
  3. Media Bias and Tax Compliance: Experimental Evidence By Fišar, Miloš; Reggiani, Tommaso G.; Sabatini, Fabio; Špalek, Jiří
  4. Procrastination and Learning about Self-Control By Else Gry Bro Christensen; Takeshi Murooka
  5. Bribing the Self By Uri Gneezy; Silvia Saccardo; Marta Serra-Garcia; Roel van Veldhuizen
  6. Performance Feedback and Peer Effects By Marie Villeval
  7. When a Nudge Backfires: Combining (Im)Plausible Deniability with Social and Economic Incentives to Promote Behavioral Change By Gary E. Bolton; Eugen Dimant; Ulrich Schmidt
  8. "It's Not about the Money. It's about Sending a Message!" Unpacking the Components of Revenge By Andras Molnar; Shereen J. Chaudhry; George Loewenstein
  9. It's Not a Lie If You Believe the Norm Does Not Apply: Conditional Norm-Following with Strategic Beliefs By Cristina Bicchieri; Eugen Dimant; Silvia Sonderegger
  10. Folktale Narratives and Economic Behavior By Igor Asanov; Dominik P. Heinisch; Nhat Luong

  1. By: Proto, Eugenio (University of Glasgow); Rustichini, Aldo (University of Minnesota); Sofianos, Andis (Heidelberg University)
    Abstract: A large literature in behavioral economics has emphasized in the last decades the role of individual differences in social preferences (such as trust and altruism) and in influencing behavior in strategic environments. Here we emphasize the role of attention and working memory, and show that social interactions among heterogeneous groups are likely to be mediated by differences in cognitive skills. Our design uses a Repeated Prisoner's Dilemma, and we compare rates of cooperation in groups of subjects grouped according to their IQ, with those in combined groups. While in combined groups we observe higher cooperation rates and profits than in separated groups (with consistent gains among lower IQ subjects and relatively smaller losses for higher IQ subjects), higher IQ subjects become less lenient when they are matched with lower IQ subjects than when they play separately. We argue that this is an instance of a general phenomenon, which we demonstrate in an evolutionary game theory model, where higher IQ among subjects determines – through better working memory – a lower frequency of errors in strategy implementation. In our data, we show that players indeed choose less lenient strategies in environments where subjects have higher error rates. The estimations of errors and strategies from the experimental data are consistent with the hypothesis and the predictions of the model.
    Keywords: IQ, intelligence, cooperation, repeated Prisoner's Dilemma, strategy, error in transition
    JEL: C73 C91 C92
    Date: 2020–01
  2. By: Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Takuro Yamashita (Toulouse School of Economics, University of Toulouse)
    Abstract: There is accumulating evidence that some consumers are behavioral in the sense that they may make suboptimal decisions. This paper investigates adverse selection with general types of such behavioral biases. In our model, some buyers (i.e., consumers) may take actions that do not necessary optimize own payoffs, which encompass virtually any type of biases including subjective probability,framing, model misspecification, random errors, and inferential naivety. We focus on a situation in which there exists severe adverse selection where only no-trade outcome is possible under rational agents. We show that the no-trade theorem remains to hold without imposing any additional assumption on buyers' behavior. That is, if there is any trade under a mechanism which is incentive compatible for sellers, then the expected payoff from the trade is negative (i.e., ex ante individual rationality constraint is violated) for some type of buyers. Our result sheds light on a new trade-off between social surplus and payoff losses of boundedly-rational buyers.
    Keywords: adverse selection, bounded rationality, mechanism design, no-trade theorem
    JEL: D82 D83 D86 D90 D91
    Date: 2020–03
  3. By: Fišar, Miloš (Masaryk University); Reggiani, Tommaso G. (Cardiff University); Sabatini, Fabio (Sapienza University of Rome); Špalek, Jiří (Masaryk University)
    Abstract: We study the impact of media bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are significantly more compliant than the control group. The exposure to negative news, instead, does not prompt any significant reaction in respect to the neutral condition, suggesting that participants perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news act as a constant source of psychological priming and play a vital role in taxpayers' compliance decisions.
    Keywords: tax compliance, media bias, taxation game, laboratory experiment
    JEL: C91 D70 H26 H31
    Date: 2020–01
  4. By: Else Gry Bro Christensen (RBB Economics, Düsseldorf); Takeshi Murooka (Osaka School of International Public Policy, Osaka University)
    Abstract: We study a model of task completion with the opportunity to learn about own self-control problems over time. While the agent is initially uncertain about her future self-control, in each period she can choose to learn about it by paying a non-negative learning cost and spending one period. If the agent has time-consistent preferences, she always chooses to learn whenever the learning is beneficial. If the agent has time-inconsistent preferences, however, she may procrastinate such a learning opportunity. Further, if her time preferences exhibit inter-temporal conflicts between future selves (e.g., hyperbolic discounting), the procrastination of learning can occur even when the learning cost is zero. Such procrastination also leads to non-completion of the task. Our results help explain why people pursue implausible dreams and never start any task instead of taking better alternatives. When the agent has multiple initially uncertain attributes (e.g., own future self-control and own ability for the task), the agent's endogenous learning decisions may be misdirected – she chooses to learn what she should not learn from her initial perspective, and she chooses not to learn what she should.
    Keywords: procrastination, self-control, naivete, hyperbolic discounting, misdirected learning
    JEL: C70 D83 D90 D91
    Date: 2020–03
  5. By: Uri Gneezy; Silvia Saccardo; Marta Serra-Garcia; Roel van Veldhuizen
    Abstract: Expert advice is often biased in ways that benefit the advisor. We demonstrate how self-deception helps advisors be biased while preserving their self-image as ethical and identify limits to advisors’ ability to self-deceive. In experiments where advisors recommend one of two investments to a client and receive a commission that depends on their recommendation, we vary the timing at which advisors learn about their own incentives. When advisors learn about their incentives before evaluating the available investments, they are more likely to be biased than when they learn about their incentives only after privately evaluating the investments. Consistent with self-deception, learning about the incentive before evaluating the options affects advisors’ beliefs and preferences over the investments. Biased advice persists with minimal justifications but is eliminated when all justifications are removed. These findings show how self-deception can be constrained to improve advice provision.
    Keywords: advice, self-deception, self-image, motivated beliefs, laboratory experiment
    JEL: D03 D83 C91
    Date: 2020
  6. By: Marie Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper reviews studies conducted in naturally-occurring work environments or in the laboratory on the impact of performance feedback provision and peer effects on individuals' performance. First, it discusses to which extent feedback on absolute performance affects individuals' effort for cognitive or motivational reasons, and how evaluations can be distorted strategically. Second, this paper highlights the positive and negative effects of feedback on relative performance and rank on individuals' productivity and persistence, but also on the occurrence of antisocial behavior. Relative feedback stimulates effort by informing on the marginal return or the marginal cost of effort, and by activating behavioral forces even in the absence of monetary incentives. These behavioral mechanisms relate to self-esteem, status concerns, competitive preferences and social learning. Relative feedback sometimes discourages or distorts effort, notably if people collude or are disappointment averse. In addition to incentive schemes and social preferences, the management of self-confidence affects the way relative feedback impacts productivity. Third, the paper addresses the question of the identification of peer effects on employees' performance, their size, their direction and their heterogeneity along the hierarchy. The mechanisms behind peer effects include conformism, social pressure, rivalry, social learning and distributional preferences, depending on the presence of payoff externalities or technological and organizational externalities..
    Keywords: Feedback,performance,peer effects
    Date: 2020
  7. By: Gary E. Bolton; Eugen Dimant; Ulrich Schmidt
    Abstract: Both theory and recent empirical evidence on nudging suggest that observability of behavior acts as an instrument for promoting (discouraging) pro-social (anti-social) behavior. We connect three streams of literature (nudging, social preferences, and social norms) to investigate the universality of these claims. By employing a series of high-powered laboratory and online studies, we report here on an investigation of the questions of when and in what form backfiring occurs, the mechanism behind the backfiring, and how to mitigate it. We find that inequality aversion moderates the effectiveness of such nudges and that increasing the focus on social norms can counteract the backfiring effects of such behavioral interventions. Our results are informative for those who work on nudging and behavioral change, including scholars, company officials, and policy-makers.
    Keywords: anti-social behavior, nudge, pro-social behavior, reputation, social norms
    JEL: C91 D64 D90
    Date: 2020
  8. By: Andras Molnar; Shereen J. Chaudhry; George Loewenstein
    Abstract: We examine whether belief-based preferences - caring about what transgressors believe - play a crucial role in punishment decisions: Do punishers want to make sure that transgressors understand why they are being punished, and is this desire to affect beliefs often prioritized over distributive and retributive preferences? We test whether punishers derive utility from three distinct sources: material outcomes (their own and the transgressor’s payoff), affective states (the transgressor’s suffering), and cognitive states (the transgressor’s beliefs about the cause of that suffering). In a novel, preregistered experiment (N = 1,959) we demonstrate that consideration for transgressors’ beliefs affects punishment decisions on its own, regardless of the considerations for material outcomes (distributional preferences) and affective states (retributive preferences). By contrast, we find very little evidence for pure retributive preferences (i.e., to merely inflict suffering on transgressors). We also show that people who would otherwise enact harsh punishments, are willing to punish less severely, if by doing so they can tell the transgressor why they are punishing them. Finally, we demonstrate that the preference for affecting transgressors’ beliefs cannot be explained by deterrence motives (i.e., to make transgressors behave better in the future).
    Keywords: beliefs, belief-based utility, justice, fairness, morality, punishment, revenge
    JEL: C91 D63 D82 D83
    Date: 2020
  9. By: Cristina Bicchieri; Eugen Dimant; Silvia Sonderegger
    Abstract: We experimentally investigate whether individuals strategically distort their beliefs about dominant norms. Embedded in the context of lying, we systematically vary both the nature of elicited beliefs (descriptive about what others do, or normative about what others approve of) and whether subjects are aware of the forthcoming lying opportunity at the belief-formation stage. We build a dual-self model of belief distortion applied to the context of social norms and derive a number of precise predictions. Our findings provide a perspective on why, when and which norm-relevant beliefs are strategically distorted and show that not all belief distortions are created equal.
    Keywords: lying, social norms, strategic beliefs, uncertainty
    JEL: C72 C91 D80 D90
    Date: 2020
  10. By: Igor Asanov (University of Kassel); Dominik P. Heinisch (University of Kassel); Nhat Luong (University of Kassel)
    Abstract: Narratives – stories – prevail in social life, however little is known about their relation to economic behavior and outcomes. We shed light on this issue by studying the association between folktales’ motifs and economic behavior across the world. First, we explore possible relations between the prevalence of narratives and the observed behavior in economic experiments by connecting the Berezkin (2015) collection of narratives with individual choices in experiments performed across the world. Second, we construct a motif distance index that approximates the cultural distance between countries. Third, we provide evidence that motif distance is associated with economic performance.
    Date: 2020

This nep-cbe issue is ©2020 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.