nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒03‒30
five papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Power to Ignore: An Experimental Study By Chulyoung Kim; Sang-Hyun Kim; Myunghwan Lee
  2. What You See Is All There Is By Benjamin Enke
  3. Overestimate yourself or underestimate others? Two sources of bias in bargaining with joint production By Quentin Cavalan; Vincent Gardelle; Jean-Christophe Vergnaud
  4. Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains? By Barron, Kai
  5. An inquiry into the nature and causes of the Description - Experience gap By Robin Cubitt; Orestis Kopsacheilis; Chris Starmer

  1. By: Chulyoung Kim (Yonsei Univ); Sang-Hyun Kim (Yonsei Univ); Myunghwan Lee (Yonsei Univ)
    Abstract: Recent studies in experimental economics have documented that communication encourages individuals' altruism and charitable giving in various contexts. Building upon these findings, this paper incorporates and studies the influence of power differences in communication on giving behavior. We conducted a variant of dictator game experiments where a dictator is explicitly allowed to ignore a recipient's message before deciding the split. Power differences between players varied across different treatments on provision of information regarding the dictator’s reception of the message and framing on the property right of the endowment. We find evidence that dictators tend to be more generous toward recipients' messages when recipients cannot verify whether dictators have read the message. We interpret these behaviors as a demonstration of psychological mechanisms of individuals being more generous to less powerful counterparts. However, recipient behaviors imply that they have failed at anticipating dictators behaviors, as they asked for more when they had more power and asked less otherwise.
    Keywords: Dictator game; Communication; Power; Empathy gap
    JEL: C91 D91
    Date: 2020–03
  2. By: Benjamin Enke
    Abstract: News reports and communication are inherently constrained by space, time, and attention. As a result, news sources often condition the decision of whether to share a piece of information on the similarity between the signal and the prior belief of the audience, which generates a sample selection problem. This paper experimentally studies how people form beliefs in these contexts, in particular the mechanisms behind errors in statistical reasoning. I document that a substantial fraction of experimental participants follows a simple “what you see is all there is” heuristic, according to which they exclusively take into account information that is right in front of them, and directly use the sample mean to estimate the population mean. A series of treatments aimed at identifying mechanisms suggests that for many participants unobserved signals do not even come to mind. I provide causal evidence that the frequency of such incorrect mental models is a function of the computational complexity of the decision problem. These results point to the context-dependence of what comes to mind and the resulting errors in belief updating.
    Keywords: bounded rationality, mental models, complexity, beliefs
    JEL: D03 D80 D84
    Date: 2020
  3. By: Quentin Cavalan (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics); Vincent Gardelle (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique)
    Abstract: Although conflicts in bargaining have attracted a lot of attention in the literature, situations in which bargainers have to share the product of their performance have been rarely investigated theoretically and empirically. Here, by decomposing the well-known overplacement effect, we show that two types of biases can lead to conflict in these situations: players might be overconfident in their own production (overconfidence bias) and / or underestimate the production of others (other-underestimation bias). To quantify these biases, we develop a novel experimental setting using a psychophysically controlled production task within a bargaining game. In comparison to Bayesian agents, participants tend to disagree too often, partly because they exhibit both cognitive biases. We test interventions to mitigate these biases, and are able to increase settlements mainly by reducing the other-underestimation bias. Our approach illustrates how combining psychophysical methods and economic analyses could prove helpful to identify the impact of cognitive biases on individuals' behavior.
    Keywords: overconfidence,bargaining,joint production,belief updating
    Date: 2020–02
  4. By: Barron, Kai
    Abstract: Bayes' statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Some recent research has questioned the use of Bayes' rule in descriptive models of behavior, presenting evidence that people overweight 'good news' relative to 'bad news' when updating ego-relevant beliefs. In this paper, we present experimental evidence testing whether this 'good-news, bad-news' effect is present in a financial decision making context (i.e. a domain that is important for understanding much economic decision making). We find no evidence of asymmetric updating in this domain. In contrast, in our experiment, belief updating is close to the Bayesian benchmark on average. However, we show that this average behavior masks substantial heterogeneity in individual updating behavior. We find no evidence in support of a sizeable subgroup of asymmetric updators.
    Keywords: economic experiments,Bayes' rule,belief updating,belief measurement,proper scoring rules,motivated beliefs
    JEL: C11 C91 D83
    Date: 2020
  5. By: Robin Cubitt (University of Nottingham); Orestis Kopsacheilis (University of Nottingham); Chris Starmer (University of Nottingham, School of Economics)
    Abstract: According to the Description-Experience gap (DE gap), people act as if overweighting rare events when information about those events is derived from descriptions but as if underweighting rare events when they experience them through a sampling process. Due to the variety of experimental designs and measures reported in previous literature, the nature, causes and implications of the phenomenon for economic theory remain unclear. We present a new experiment which examines in a unified design four distinct causal mechanisms that might drive the DE gap, attributing it respectively to information differences (sampling bias), to a feature of preferences (ambiguity sensitivity) or to aspects of cognition (likelihood representation and memory). Our design permits model-free and model-mediated tests for these mechanisms and for the DE gap itself. Using a model-free approach, we elicit a DE gap similar in direction and size to the literature’s average and find that, when each factor is considered in isolation, sampling bias stemming from under-represented rare events, is the only significant driver. Yet, model-mediated analysis shows that rare events are overweighted even in experience. Moreover, this level of analysis reveals the potential of a smaller DE gap, existing even without information differences.
    Keywords: Decisions from Description, Decisions from Experience, Risk Preferences, Cumulative Prospect Theory, Ambiguity
    Date: 2019

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.