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on Cognitive and Behavioural Economics |
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Issue of 2020‒04‒20
six papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Benjamin Enke; Uri Gneezy; Brian Hall; David Martin; Vadim Nelidov; Theo Offerman; Jeroen van de Ven |
| Abstract: | Despite decades of research on heuristics and biases, empirical evidence on the effect of large incentives – as present in relevant economic decisions – on cognitive biases is scant. This paper tests the effect of incentives on four widely documented biases: base rate neglect, anchoring, failure of contingent thinking, and intuitive reasoning in the Cognitive Reflection Test. In pre-registered laboratory experiments with 1,236 college students in Nairobi, we implement three incentive levels: no incentives, standard lab payments, and very high incentives that increase the stakes by a factor of 100 to more than a monthly income. We find that cognitive effort as measured by response times increases by 40% with very high stakes. Performance, on the other hand, improves very mildly or not at all as incentives increase, with the largest improvements due to a reduced reliance on intuitions. In none of the tasks are very high stakes sufficient to de-bias participants, or come even close to doing so. These results contrast with expert predictions that forecast larger performance improvements. |
| Keywords: | cognitive biases, incentives |
| JEL: | D01 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8168&r=all |
| By: | Andreas Ziegler (University of Kassel) |
| Abstract: | This paper empirically examines whether environmental values are correlated with economic preferences from behavioral economics and considers possible consequences when independence is assumed. The data for this analysis stem from a large-scale computer-based survey among more than 3700 German citizens. Our indicators for environmental values are based on the New Ecological Paradigm (NEP), which is a standard instrument in social and behavioral sciences and increasingly common in economic studies. The econometric analysis with Generalized Poisson regression models reveals strong correlations between two NEP scales and several economic preferences, which are based on established experimental measures: While social preferences (measured in an incentivized dictator game) and positive reciprocity are significantly positively correlated, trust and (less robust) negative reciprocity are significantly negatively correlated with the NEP scales, respectively. Only risk and time preferences (also measured in an incentivized experiment) are not robustly significantly correlated with the NEP scales. These estimation results strongly recommend the additional inclusion of economic preferences in econometric analyses that use a NEP scale as explanatory factor of main interest for environmentally relevant behavior. In particular, not considering social preferences, trust, and positive and negative reciprocity can lead to strong distortions due to omitted variable biases. This conclusion is illustrated in an empirical example that reveals biased estimation results for the effect of a NEP scale on donation activities if not all relevant economic preferences are included as control variables. |
| Keywords: | Environmental values, New Ecological Paradigm (NEP), economic prefer-ences, individual behavior, artefactual field experiments |
| JEL: | Q50 D01 D91 Q57 A13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202020&r=all |
| By: | Basu, Arnab K. (Cornell University); Dimova, Ralitza (University of Manchester) |
| Abstract: | Using data from the Rural Ethiopian Household Survey, which contains a behavioral module, we explore the link between adult risk and time preferences and the incidence and the intensity of child labor. While as expected child labor at both the extensive and the intensive margin is a result of high time discount rates, the narrative behind the positive relationship between adult risk aversion and child labor is more complex. While child labor is clearly the result of risk aversion, more risk averse parents react to their uncertain environments by combining child labor and work as opposed to substituting schooling for child labor. |
| Keywords: | risk and time preferences, education, child labor, Ethiopia |
| JEL: | C93 J43 O55 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13011&r=all |
| By: | Bougherara, Douadia; Friesen, Lana; Nauges, Céline |
| 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 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124180&r=all |
| By: | Eugen Dimant; Gerben A. van Kleef; Shaul Shalvi |
| Abstract: | We examine framing effects in nudging honesty, in the spirit of the growing norm-nudge literature, by utilizing a high-powered and pre-registered study. Across four treatments, participants received one random truthful norm-nudge that emphasized ‘moral suasion’ based on either what other participants previously did (empirical message) or approved of doing (normative message) and varied in the framing (positive or negative) in which it was presented. Subsequently, participants repeatedly played the ‘mind game’ in which they were first asked to think of a number, then rolled a digital die, and then reported whether the two numbers coincide, in which case a bonus was paid. Hence, whether or not the report was truthful remained unobservable to the experimenters. We find compelling null effects with tight confidence intervals showing that none of the norm-nudge interventions worked. A follow-up experiment reveals the reason for these convincing null-effects: the information norm-nudges did not actually change norms. Notably, our secondary results suggest that a substantial portion of individuals misremembered norm-nudges such that they conveniently supported deviant behavior. This subset of participants indeed displayed significantly higher deviance levels, a behavior pattern in line with literature on motivated misremembering and belief distortion. We discuss the importance of this high-powered null finding for the flourishing norm-nudge literature and derive policy implications. |
| Keywords: | norm-nudges, nudge, social information, social norms |
| JEL: | B41 D01 D90 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8170&r=all |
| By: | Orland, Andreas; Rostam-Afschar, Davud |
| Abstract: | In the past years, work time in many industries has become increasingly flexible opening up a new channel for intertemporal substitution. To study this, we set up a two-period model with wage uncertainty. This extends the standard saving model by allowing a worker to allocate a fixed time budget between two work-shifts or to save. To test the existence of these channels, we conduct laboratory consumption/saving experiments. A novel feature of our experiments is that we tie them to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our four main findings are: (i) subjects exercise more effort under certainty than under risk; (ii) savings are strictly positive for at least 85 percent of subjects (iii) a majority of subjects uses time allocation to smooth consumption; (iv) saving and time shifting are substitutes, though not perfect substitutes. |
| Keywords: | precautionary saving,labor supply,intertemporal substitution,experiment |
| JEL: | D14 E21 J22 C91 D81 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hohdps:042020&r=all |