nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒04‒13
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. When choosing is painful: anticipated regret and psychological opportunity cost By Emmanuelle GABILLON
  2. Shaking Things Up: On the Stability of Risk and Time Preferences By Beine, Michel; Charness, Gary; Dupuy, Arnaud; Joxhe, Majlinda
  3. Risk Taking with Left- and Right-Skewed Lotteries By Douadia Bougherara; Lana Friesen; Céline Nauges
  4. Norm Compliance in an Uncertain World By Toke Fosgaard; Lars Gårn Hansen; Erik Wengström
  5. Why Do We Procrastinate? Present Bias and Optimism By Breig, Zachary; Gibson, Matthew; Shrader, Jeffrey G.
  6. An economist and a psychologist form a line: What can imperfect perception of length tell us about stochastic choice? By Duffy, Sean; Smith, John
  7. Ancient Origins of the Global Variation in Economic Preferences By Becker, Anke; Enke, Benjamin; Falk, Armin
  8. The effect of ethical responsibility on performance By Stein, Caroline; Untertrifaller, Anna
  9. Cognition, Optimism and the Formation of Age-Dependent Survival Beliefs By Nils Grevenbrock; Max Groneck; Alexander Ludwig; Alexander Zimper

  1. By: Emmanuelle GABILLON
    Abstract: This paper is a contribution to regret theory, which we generalize in two ways. Since the intensity of regret depends on the information the decision-maker has about the results of the foregone strategies (feedback), we build a model of choice which accommodates any feedback structure. We also show that the reference point, which characterizes the regret utility function introduced by Quiggin (1994), does not always represent an anticipated feeling of regret. It can also correspond to another negative feeling related to the act of choosing, which we call psychological opportunity cost (POC), borne at the very moment of choosing. We find behavioral deviations from the predictions of the classical Expected Utility Theory. We obtain correlation loving, greater reluctance to take on risk, and information avoidance at decision time. Our model also offers a theoretical framework for experimental studies about inaction inertia.
    Keywords: Choice; Correlation loving; Inaction inertia; Information; Regret; Risk aversion
    JEL: D80 D81 D91
    Date: 2020
  2. By: Beine, Michel (University of Luxembourg); Charness, Gary (University of California, Santa Barbara); Dupuy, Arnaud (University of Luxembourg); Joxhe, Majlinda (University of Luxembourg)
    Abstract: We conduct a survey and incentivized lab-in-the-field experimental tasks in Tirana, Albania. While the original purpose of our study was to examine whether and how deep parameters such as time and risk preferences affect the intention to migrate, our study was transformed into a natural experiment owing to two large earthquakes that shook the Tirana area during our data-collection period. These events provide us with a rare opportunity to gather evidence (including a preearthquake control) on the effect of natural disasters on time and risk preferences. We find unambiguous effects towards more risk aversion and impatience for affected individuals. Moreover, as it turns out, the second earthquake amplified the effect of the first one, suggesting that experiences cumulate in their influence on these preferences.
    Keywords: time preferences, risk preferences, natural disaster, Albania, migration
    JEL: B49 C90 D91 F22
    Date: 2020–03
  3. By: Douadia Bougherara (CEE-M, Univ. Montpellier, CNRS, INRAE, Institut Agro, Montpellier, France); Lana Friesen (School of Economics, University of Queensland); Céline Nauges (Toulouse School of Economics, INRAE, University of Toulouse Capitole, Toulouse, France)
    Abstract: While much literature has focused on preferences regarding risk, preferences over skewness also have significant economic implications. An important and understudied aspect of skewness preferences is how they affect risk taking. In this paper, we design a novel laboratory experiment that elicits certainty equivalents over lotteries where the variance and skewness of the outcomes are orthogonal to each other. This design enables us to cleanly measure both skewness seeking/avoiding and risk taking behavior, and their interaction, without needing to make parametric assumptions. Our experiment includes both left- and right-skewed lotteries. The results reveal that the majority of subjects are skewness avoiding risk takers who correspondingly also take more risk when facing less skewed lotteries. Our second contribution is to link these choices to individual rank-dependent utility preference parameters estimated using a separate lottery choice protocol. Using a latent-class model, we are able to identify two classes of subjects: skewness avoiders with the classic inverse s-shaped probability weighting function and skewness neutral subjects that do not distort probabilities. Our results thus demonstrate the link between probability distortion and skewness seeking/avoidance choices. They also highlight the importance of accounting for individual heterogeneity.
    Keywords: Risk; Skewness; Laboratory Experiment; Probability Weighting
    JEL: C91 D81
    Date: 2020–04–02
  4. By: Toke Fosgaard (Department of Food and Resource Economics, University of Copenhagen); Lars Gårn Hansen (Department of Food and Resource Economics, University of Copenhagen); Erik Wengström (Department of Economics, Lund University; Department of Finance and Economics, Hanken School of Economics, Helsinki)
    Abstract: In many situations, social norms govern behavior. While the existence of a norm may be clear to someone entering the situation, it is often less clear precisely what behavior is required in order to comply with the norm. We investigate how people react to uncertainty about the prevailing norm using a modified version of the dictator game. Since the behavioral effects of social norms are tightly linked to the degree of anonymity in a situation, we also vary the extent to which subjects’ behavior is observable. We find that when behavior is anonymous, uncertainty about which norm guides partners reduces aggregate norm compliance. However, when others can observe behavior, introducing a small degree of norm uncertainty increases aggregate norm compliance. This implies that norm uncertainty may actually facilitate interaction as long as behavior is observable and uncertainty is sufficiently small. We also document that reactions to norm uncertainty are heterogeneous with one group of people reacting to norm uncertainty by increasing compliance (over-compliers), while another group reacts by reducing compliance (under-compliers). The main effect of increased observability operates through the intensive margin of the under-compliers; they reduce their negative reaction to norm uncertainty when their actions become more visible.
    Keywords: Social norms, Uncertainty, Audience
    JEL: C92 D9
    Date: 2020–03
  5. By: Breig, Zachary (University of Queensland); Gibson, Matthew (Williams College); Shrader, Jeffrey G. (Columbia University)
    Abstract: Research has shown that procrastination has signicant adverse effects on individuals, including lower savings and poorer health. Procrastination is typically modeled as resulting from present bias. In this paper we study an alternative: excessively optimistic beliefs about future demands on an individual's time. The models can be distinguished by how individuals respond to information on their past choices. Experimental results refute the hypothesis that present bias is the sole source of dynamic inconsistency, but they are consistent with optimism. These findings offer an explanation for low takeup of commitment and suggest that personalized information on past choices can mitigate procrastination.
    Keywords: discounting, beliefs, dynamic inconsistency, real effort
    JEL: D90 D84 J22
    Date: 2020–03
  6. By: Duffy, Sean; Smith, John
    Abstract: Standard choice experiments are hampered by the fact that utility is either unknown or imperfectly measured by experimenters. As a consequence, the inferences available to researchers are limited. By contrast, we design a choice experiment where the objects are valued according to only a single attribute with a continuous measure and we can observe the true preferences of subjects. Subjects have an imperfect perception of the choice objects but can improve the precision of their perception with cognitive effort. Subjects are given a choice set involving several lines of various lengths and are told to select one of them. They strive to select the longest line because they are paid an amount that increases with the length of their choice. Our design allows us to observe the search history, the response times, and make unambiguous conclusions about the optimality of choices. We find a negative relationship between the demanding nature of the choice problems and the likelihood that subjects select the optimal lines. We also find a positive relationship between the demanding nature of the choice problems and the response times. However, we find evidence that suboptimal choices are associated with longer response times than are optimal choices. This result appears to be consistent with Fudenberg, Strack, and Strzalecki (2018). Additionally, our experimental design permits a multinomial discrete choice analysis. Our results suggest that the errors in our data are better described as having a Gumbel distribution rather than a normal distribution. We also observe effects consistent with memory decay and attention. Finally, we find evidence that choices in our experiment exhibit the independence from irrelevant alternatives (IIA) property.
    Keywords: judgment, memory, response times, independence from irrelevant alternatives
    JEL: C91 D03
    Date: 2020–04–02
  7. By: Becker, Anke (University of Bonn); Enke, Benjamin (University of Bonn); Falk, Armin (briq, University of Bonn)
    Abstract: Variation in economic preferences is systematically related to both individual and aggregate economic outcomes, yet little is known about the origins of the worldwide preference variation. This paper uses globally representative data on risk aversion, time preference, altruism, positive reciprocity, negative reciprocity, and trust to uncover that contemporary preference heterogeneity has its roots in the structure of the temporally distant migration patterns of our very early ancestors: In dyadic regressions, differences in preferences between populations are significantly increasing in the length of time elapsed since the ancestors of the respective groups broke apart from each other. To document this pattern, we link genetic and linguistic distance measures to population-level preference differences (i) in a wide range of cross-country regressions, (ii) in within-country analyses across groups of migrants, and (iii) in analyses that leverage variation across linguistic groups. While temporal distance drives differences in all preferences, the patterns are strongest for risk aversion and prosocial traits.
    Keywords: risk preferences, time preferences, social preferences, origins of preferences
    JEL: D01 D03
    Date: 2020–03
  8. By: Stein, Caroline; Untertrifaller, Anna
    Abstract: In a laboratory real-effort experiment, we study the effect of responsibility on performance. Specifically, we analyze whether being responsible for an ethical or unethical work environment affects workers’ performance. Using a specific randomization technique, we can separate the responsibility effect from a possible selection effect. We find that workers who prefer to work in an ethical work environment perform better if they are also responsible for it, compared to a situation where it was imposed on them. We do not find this positive incentive effect of responsibility for workers that prefer an unethical work environment. Moreover, we observe that if an unethical environment was imposed, workers who prefer an ethical environment perform worse than those whose preference are aligned with the environment.
    Keywords: real-effort experiment, responsibility, decision rights, incentive, ethical behavior
    JEL: C91 M59
    Date: 2020–03
  9. By: Nils Grevenbrock (European University Institute); Max Groneck (University of Groningen); Alexander Ludwig (SAFE, University of Mannheim); Alexander Zimper (University of Pretoria)
    Abstract: This paper investigates the roles psychological biases play in deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions. Our estimates suggest that implied measures for cognitive weakness increase and relative optimism decrease with age. We document that direct measures of cognitive weakness and optimism share these trends. Our regression analyses conrm that these factors play strong quantitative roles in the formation of subjective survival beliefs. Our main finding is that cognitive weakness rather than optimism is an increasingly important contributor to the well-documented overestimation of survival chances in old age.
    Keywords: subjective survival beliefs, probability weighting function, confirmatory bias, cognition, optimism, pessimism
    JEL: D83 D91 I10
    Date: 2020–03

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