|
on Cognitive and Behavioural Economics |
|
Issue of 2020‒04‒06
eight papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Quentin Cavalan (Centre d'Economie de la Sorbonne - Université Paris 1 panthéon-Sorbonne, Paris School of Economics; https://centredeconomiesorbonne.univ-paris1.fr); Vincent De Gardelle (Centre d'Economie de la Sorbonne - CNRS, Paris School of Economics; https://centredeconomiesorbonne.univ-paris1.fr); Jean-Christophe Vergnaud (CNRS - Centre d'Economie de la Sorbonne; https://centredeconomiesorbonne.univ-paris1.fr) |
| 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 |
| JEL: | C91 D03 D74 D81 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:20003&r=all |
| By: | Zhang, Quing ⓡ; Greiner, Ben |
| Abstract: | We experimentally study the relationship between time inconsistency, sophistication about time inconsistency, and self-commitment. Previous research has interpreted demand for commitment devices as evidence for the sophistication of a time-inconsistent decision-maker. In our laboratory experiment, we attempt to measure sophistication directly by way of a cognitive test. We then test the hypothesis that people who are both time-inconsistent and show high cognitive capacity take up commitment devices when offered in the strategic game between their current and their future self. For experimental laboratory commitment choices, we cannot detect a moderating effect of cognition on commitment demand of time-inconsistent subjects. However, we find that the existence of time-inconsistent preferences and sophistication (proxied by cognitive performance) can predict the demand for savings commitment in our hypothetical survey vignette question. |
| Keywords: | time-inconsistency, sophistication, present bias, future bias |
| Date: | 2020–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus055:7530&r=all |
| By: | Argenton, Cedric (Tilburg University, TILEC); Wang, Xiaoyu (Tilburg University, TILEC) |
| Abstract: | In this paper, we investigate how loss aversion affects people's behavior in civil litigation. We find that a loss-averse plaintiff demands a higher offer for small claims to maintain her threat to proceed to trial compared to a loss- neutral plaintiff. For larger claims, a loss-averse plaintiff demands a lower offer to increase the settlement probability as loss pains her extra in trial. We also investigate how various policies affect loss-averse litigants' settlement decisions. Only a reduction in the asymmetry of information about trial odds uniformly leads to higher settlement rates. |
| Keywords: | settlement; loss aversion; Asymmetric Information |
| JEL: | D82 K41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutil:3a267c4a-2f7d-41c9-966b-efc7d23d0894&r=all |
| By: | Argenton, Cedric (Tilburg University, Center For Economic Research); Wang, Xiaoyu (Tilburg University, Center For Economic Research) |
| Abstract: | In this paper, we investigate how loss aversion affects people's behavior in civil litigation. We find that a loss-averse plaintiff demands a higher offer for small claims to maintain her threat to proceed to trial compared to a loss- neutral plaintiff. For larger claims, a loss-averse plaintiff demands a lower offer to increase the settlement probability as loss pains her extra in trial. We also investigate how various policies affect loss-averse litigants' settlement decisions. Only a reduction in the asymmetry of information about trial odds uniformly leads to higher settlement rates. |
| Keywords: | settlement; loss aversion; Asymmetric Information |
| JEL: | D82 K41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:b6c48abc-9b47-4c3b-848b-3213082fe848&r=all |
| By: | Diogo Geraldes; Franziska Heinicke; Duk Gyoo Kim |
| Abstract: | Abstract |
| Keywords: | laboratory experiment, lying |
| JEL: | C91 D03 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8142&r=all |
| By: | Fortuna Casoria; Arno Riedl; Peter Werner |
| Abstract: | This paper reviews experimental studies that investigate the effects of communication on be-havior in organizational settings. Two main classes of studies are identified: (a) studies on coordination and competition, which include experimental research that tests whether com-munication can help to overcome coordination failure within organizations, and (b) studies that analyze the role of communication in alleviating problems arising from information asym-metries at the workplace. The evidence from these studies indicates that communication is suited to improve efficient coordination within firms and to mitigate information problems in employer-employee relationships. In addition, studies are presented that focus on the interac- tion between communication and monetary incentive schemes in companies. |
| Keywords: | communication, organization, experiment, behavior |
| JEL: | C90 D82 D83 J53 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8140&r=all |
| By: | Jesus Fernandez-Villaverde (University of Pennsylvania) |
| Abstract: | Can arti?cial intelligence, in particular, machine learning algorithms, replace the idea of simple rules, such as ?rst possession and voluntary exchange in free markets, as a foundation for public policy? This paper argues that the preponderance of the evidence sides with the interpretation that while arti?cial intelligence will help public policy along important aspects, simple rules will remain the fundamental guideline for the design of institutions and legal environments where markets operate. “Digital socialism” might be a hipster thing to talk about in Williamsburg or Shoreditch, but it is as much of a chimera as “analog socialism.” |
| Keywords: | Arti?cial intelligence, machine learning, economics, law, rule of law |
| JEL: | D85 H10 H30 |
| Date: | 2020–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-010&r=all |
| By: | Giuseppe Attanasi (Université Côte d'Azur; CNRS, GREDEG, France); Samuele Centorrino (Stony Brook University); Elena Manzoni (University of Verona) |
| Abstract: | We study two well-known electronic markets: an over-the-counter (OTC) market, in which each agent looks for the best counterpart through bilateral negotiations, and a double auction (DA) market, in which traders post their quotes publicly. We focus on the DA-OTC efficiency gap and show how it varies with different market sizes (10, 20, 40, and 80 traders). We compare experimental results from a sample of 6,400 undergraduate students in Economics with zero-intelligent (ZI) agent-based simulations. Simulations with ZI traders show that the traded quantity (with respect to the efficient one) increases with market size under both DA and OTC. Experimental results with human traders confirm the same tendency under DA, while the share of periods in which the traded quantity is higher (lower) than the efficient one decreases (increases) with market size under OTC, ultimately leading to a DA-OTC efficiency gap increasing with market size. We rationalize these results by putting forward a novel game-theoretical model of OTC market as a repeated bargaining procedure under incomplete information on buyers' valuations and sellers' costs, showing how efficiency decreases slightly with size due to two counteracting effects: acceptance rates in earlier periods decrease with size, and earlier offers increase, but not always enough to compensate the decrease in acceptance rates. |
| Keywords: | Market Design, Classroom Experiment, Agent-based Modelling, Game-theoretic Modelling |
| JEL: | C70 C91 C92 D41 D47 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-10&r=all |