nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒04‒27
eight papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Adaptive Rationality in Strategic Interaction: Do Emotions Regulate Thinking about Others? By Timo Ehrig; Monica Jaison Manjaly; Aditya Singh; Shyam Sunder
  2. Self-Selection Into Strategic Environments By Guillaume HOLLARD; Fabien PEREZ
  3. Revisiting a Remedy Against Chains of Unkindness By Schnedler, Wendelin; Stephan, Nina
  4. The Aversion to Monetary Incentives for Changing Behavior By Viola S. Ackfeld
  5. Is your heart weighing down your prospects? Interoception, risk literacy and prospect theory By Anthony Newell
  6. The ratchet effect in social dilemmas By Gallier, Carlo; Sturm, Bodo
  7. Artificial Intelligence against COVID-19: An Early Review By Naudé, Wim
  8. Do Quarantine Experiences and Attitudes Towards COVID-19 Affect the Distribution of Psychological Outcomes in China? A Quantile Regression Analysis By Lu, Haiyang; Nie, Peng; Qian, Long

  1. By: Timo Ehrig (Max Planck Institute for Mathematics in the Sciences, Leipzig); Monica Jaison Manjaly (Indian Institute of Technology, Gandhinagar); Aditya Singh (Indian Institute of Technology, Gandhinagar); Shyam Sunder (School of Management and Cowles Foundation, Yale University)
    Abstract: Forming beliefs or expectations about others’ behavior is fundamental to strategy, as it co-determines the outcomes of interactions in and across organizations. In the game theoretic conception of rationality, agents reason iteratively about each other to form expectations about behavior. According to prior scholarship, actual strategists fall short of this ideal, and attempts to understand the underlying cognitive processes of forming expectations about others are in their infancy. We propose that emotions help regulate iterative reasoning, that is, their tendency to not only reflect on what others think, but also on what others think about their thinking. Drawing on a controlled experiment, we ï¬ nd that a negative emotion (fear) deepens the tendency to engage in iterative reasoning, compared to a positive emotion (amusement). Moreover, neutral emotions yield even deeper levels of reasoning. We tentatively interpret these early ï¬ ndings and speculate about the broader link of emotions and expectations in the context of strategic management. Extending the view of emotional regulation as a capability, emotions may be building blocks of rational heuristics for strategic interaction and enable interactive decision-making when strategists have little experience with the environment.
    Date: 2020–04
  2. By: Guillaume HOLLARD (CREST Ecole polytechnique CNRS); Fabien PEREZ (CREST, INSEE)
    Abstract: Self-selection is common in naturally-occurring situations, including those where players can choose to engage in strategic interactions, but is absent from most lab experiments. A better understanding of the effect of self-selection will therefore enhance the external validity of behavioral game theory. We here gauge the impact of self-selection on strategic interactions in one-shot games by adding an explicit self-selection stage to a lab experiment so as to address our two main questions: (1) What are the determinants of self-selection? and (2) What are the consequences of self-selection on the composition of the pool of subjects and, in turn, on the strategies played? We consider three potential drivers of self-selection: risk aversion, past strategies and a new (in this context) measure of confidence. One side-product of the present study is thus the first assessment of the relevance of confidence judgments in experimental games. We find that risk-aversion and confidence explain a large part of the individual heterogeneity in self-selection. We also find a substantial change in the strategies used under self-selection (as compared to no self-selection), with the main effect coming from the filtering out of ”poor” strategies (i.e. dominated strategies or strategies leading to low payoffs). As a result, we can predict that self-selected subjects in the field act morein accordance with Nash-equilibrium predictions, although there are still large deviations from equilibrium.
    Keywords: Experiments; Self-selection; non-cooperative games; External Validity.
    JEL: C72 C9
    Date: 2020–04–11
  3. By: Schnedler, Wendelin; Stephan, Nina
    Abstract: Previous experiments observe a chain of unkindness: unkindly treated people treat an innocent third party unkindly. As a remedy, it has been proposed that the unkindly treated person engages in emotional regulation by writing a letter to the unkind person. Indeed, subjects who received little money were willing to leave more to a third person when they were writing a letter rather than waiting. Here, we examine whether emotional regulation is indeed behind this observation. In line with emotional regulation, we find that letter writing also leads to more giving if the person is treated unkindly by being assigned to a frustrating rather than a pleasant job. Being able to write, however, does not affect self-reported happiness differently from having to wait. Even more strikingly, subjects assigned to pleasant jobs also give more when writing rather than waiting. This is not consistent with emotional regulation.
    Keywords: experimental economics,chain of unkindness,emotional closure,cooling down
    JEL: D91 C91 D03
    Date: 2020
  4. By: Viola S. Ackfeld
    Abstract: In this paper, I study an aversion to monetary incentives to make other people change their behavior. Particularly, I provide evidence that monetary incentives are disliked because they are powerful in changing what people do but not why they do it besides for money. In an experiment, one group of participants decides about interventions which try to change others' behavior. Between treatments, I vary whether the intervention consists of convincing information or monetary incentives. I find that participants consider monetary incentives as more effective in changing behavior than informative interventions. Nonetheless, they are less willing to intervene by monetary incentives compared to informative interventions to foster their preferred outcome. A comprehensive set of elicited beliefs supports the idea that this aversion to incentives stems from incentives' lack of changing one's reason to act.
    Date: 2020–04–14
  5. By: Anthony Newell
    Abstract: The ability to make a beneficial financial choice varies greatly among individuals. One of the ways this variability may present itself is through probability weighting, where on aggregate small probabilities are overweighted and large probabilities are underweighted. This paper investigates if the combination of risk literacy and the neuro-biological concept of interoception plays a role in mediating the over and under-weighting of a prospects likelihood. I find that high risk literacy increases the perception of changes in probability and as such reduces underweighting/overweighting while high interoceptive ability reduces overoptimism towards gambles in males but induces pessimism towards gambles for females.
    Keywords: Behavioural finance, Interoception, probability weighting, neuro-economics, lottery choice, revealed preference.
    JEL: D81 D91
    Date: 2020–04–14
  6. By: Gallier, Carlo; Sturm, Bodo
    Abstract: In this paper, we investigate whether dynamic incentive schemes lead to a ratchet effect in a social dilemma. We test whether subjects strategically restrict their contribution levels at the beginning of a cumulative public goods game in order to avoid high obligations in the future and how this affects efficiency. The incentive schemes prescribe that individual contributions have to be at least as high as, or strictly higher than, contributions in the previous period. We observe a substantial and statistically significant ratchet effect. Participants reduce their public good contribution levels at the beginning of the game, anticipating that higher contributions imply higher minimum contribution levels in the future, which increases the risk of being exploited by freeriders. While the dynamic incentive schemes lead to increasing contribution levels over the course of the game, this increase is not strong enough to compensate the efficiency losses at the beginning.
    Keywords: Public goods,dynamic incentives,minimum contribution rules,ratchet effect
    JEL: C72 C92 H41
    Date: 2020
  7. By: Naudé, Wim (RWTH Aachen University)
    Abstract: Artificial Intelligence (AI) is a potentially powerful tool in the fight against the COVID- 19 pandemic. Since the outbreak of the pandemic, there has been a scramble to use AI. This article provides an early, and necessarily selective review, discussing the contribution of AI to the fight against COVID-19, as well as the current constraints on these contributions. Six areas where AI can contribute to the fight against COVID-19 are discussed, namely i) early warnings and alerts, ii) tracking and prediction, iii) data dashboards, iv) diagnosis and prognosis, v) treatments and cures, and vi) social control. It is concluded that AI has not yet been impactful against COVID-19. Its use is hampered by a lack of data, and by too much data. Overcoming these constraints will require a careful balance between data privacy and public health, and rigorous human-AI interaction. It is unlikely that these will be addressed in time to be of much help during the present pandemic. In the meantime, extensive gathering of diagnostic data on who is infectious will be essential to save lives, train AI, and limit economic damages.
    Keywords: data science, health, Coronavirus, COVID-19, artificial intelligence, development, technology, innovation
    JEL: O32 O39 I19 O20
    Date: 2020–04
  8. By: Lu, Haiyang; Nie, Peng; Qian, Long
    Abstract: While quarantine has become a widely used control measure during the outbreak of the 2019 novel coronavirus disease (COVID-19), empirical research on whether and to what extent quarantine and attitudes towards COVID-19 influence psychological outcomes is scant. Using a cross-sectional online survey, this paper is the first to investigate the heterogeneous impact of quarantine experiences and attitudes towards COVID-19 on the whole distribution of psychological well-being in China. We find that credibility of real-time updates and confidence in the epidemic control are associated with a decline in depression but an increase in happiness. Such effects are stronger in the upper distribution of depression and the median of happiness. We also discern that individuals with severe depressive symptoms (or lower levels of happiness) are more susceptible to the severity of the pandemic. Moreover, home self-quarantine is associated a decrease in depression but an increase in happiness, by contrast, community-level quarantine discourages happiness, especially in the lower distribution of happiness.
    Keywords: Quarantine,Attitudes,Quantile regression,Psychological well-being
    JEL: I10 I31
    Date: 2020

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