nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒08‒10
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Trust and Trustworthiness After Negative Random Shocks By Hernán Bejarano; Joris Gillet; Ismael Rodriguez-Lara
  2. Locus of Control, Savings and Propensity to Save By Bucciol, Alessandro; Trucchi, Serena
  3. Strategic Problems with Risky Prospects By Alessandro Sontuoso; Christina Bicchieri; Alexander Funcke; Einav Hart
  4. Driven to succeed? Teenagers' drive, ambition and performance on high-stakes examinations By John Jerrim; Nikki Shure; Gill Wyness
  5. The Positive Impact of Moral Reasoning and Moral Identity on Whistleblowing when Accounting for Personal Costs: Theory and Experimental Evidence By Mir Djawadi, Behnud; Schäfers, Sabrina
  6. Risk framing and business model adaptation: A conceptualization based on threat-rigidity theory By Aarøen, Camilla; Selart, Marcus
  7. Do economic preferences of children predict behavior? By Breitkopf, Laura; Chowdhury, Shyamal K.; Priyam, Shambhavi; Schildberg-Hörisch, Hannah; Sutter, Matthias
  8. The Effect of Payment Medium on Effort By Elif Incekara-Hafalir; Raymond Kumar
  9. The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed using a Natural Field Experiment By Marvin Cardoza; Justin Holz; John List; Joaquin Zentner; Alejandro Zentner

  1. By: Hernán Bejarano (Center of Economics Research and Teaching (CIDE); Economic Science Institute (ESI), Chapman University); Joris Gillet (Middlesex University, Business School); Ismael Rodriguez-Lara (Universidad de Granada, Departamento de Teoría e Historia Económica)
    Abstract: We investigate experimentally the effect of a negative endowment shock in a trust game to assess whether different causes of inequality have different effects on trust and trustworthiness. In our trust game there may be inequality in favor of the second mover and this may (or may not) be the result of a negative random shock (i.e., the outcome of a die roll) that decreases the endowment of the firstmover. Our findings suggest that inequality leads to differences in behavior. First-movers send more of their endowment and second-movers return more when there is inequality. However, we do not find support for the hypothesis that the cause of the inequality matters. Behavior after the occurrence of a random shock is not significantly different from the behavior when the inequality exists from the outset. Our results highlight that we have to be cautious when interpreting the effects on trust and trustworthiness of negative random shocks that occur in the field (e.g., natural disasters). Our results suggest that these effects are largely driven by the inequality caused by the shock and not by any of the additional characteristics of the shock like saliency or uncertainty.
    Keywords: Trust Game; Endowment Heterogeneity; Random Shocks; Inequality Aversion; Experimental Economics
    JEL: C91 D02 D03 D69
    Date: 2020
  2. By: Bucciol, Alessandro (University of Verona, Department of Economics); Trucchi, Serena (Cardiff Business School)
    Abstract: We study the relationship between saving choices and a key psychological characteristic such as locus of control using data from a longitudinal survey representative of the Dutch population. Locus of control measures the extent to which individuals perceive their life outcomes to be determined by their own actions, as opposed to external factors. Our findings show that those who believe to be in control of future outcomes save more, both at the extensive (probability to save) and intensive margins (amount of savings). We also investigate the mechanisms behind the relationship. Locus of control may affect both the propensity to save for general purposes and savings to achieve a specific purchase goal (e.g. buying a house). We find that both channels are significant, the latter being more sizeable.
    Keywords: Locus of Control; Saving decisions; Propensity to save; Mediation analysis.
    JEL: D14 D91
    Date: 2020–07
  3. By: Alessandro Sontuoso (Smith Institute for Political Economy and Philosophy, Chapman University; Center for Social Norms and Behavioral Dynamics, University of Pennsylvania); Christina Bicchieri (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania); Alexander Funcke (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania); Einav Hart (Center for Social Norms and Behavioral Dynamics, University of Pennsylvania)
    Abstract: We study games where the impact of strategic uncertainty (i.e., ambiguity arising from uncertainty about other players’ actions and beliefs) is compounded by the simultaneous presence of risky prospects (chance moves with commonly-known conditional probabilities). We embed such games in an experimental environment that allows us to test if risk-taking behavior is affected by information that reduces the extent of strategic uncertainty. In doing so, we test some implications of expected utility theory, while making minimal assumptions about individual-level (risk or ambiguity) attitudes. Our analysis provides evidence for an effect of the information: notably, we find that the effect on choice behavior is triggered in some cases by a rational belief revision about others’ actions, and in other cases by a reversal in risk preferences.
    Keywords: Strategic Uncertainty; Risk Preferences; Belief Revision; Mixed-Motive games; Network
    JEL: C72 C92 D81 D83
    Date: 2020
  4. By: John Jerrim (Department of Social Science, UCL Institute of Education, University College London); Nikki Shure (Department of Social Science, UCL Institute of Education, University College London); Gill Wyness (Centre for Education Policy and Equalising Opportunities, UCL Institute of Education, University College London)
    Abstract: There has been much interest across the social sciences in the link between young people's socio- emotional (non-cognitive) skills and their educational achievement. But much of this research has focused upon the role of the Big Five personality traits. This paper contributes new evidence by examining two inter-related non-cognitive factors that are rarely studied in the literature: ambition and drive. We use unique survey-administrative linked data from England, gathered in the lead-up to high-stakes compulsory school exams, which allow us to control for a rich set of background characteristics, prior educational attainment and, unusually, school fixed effects. Our results illustrate substantial gender and immigrant gaps in young people's ambitiousness, while the evidence for socio-economic differences is more mixed. Conversely, we find a strong socio-economic gradient in drive, but no gender gap. Both academically ambitious and driven teenagers achieve grades around 0.36 standard deviations above their peers, even controlling for prior academic attainment and school attended.
    Keywords: socio-economic gaps, gender gaps, aspirations, secondary school, higher education
    JEL: I24 J24
    Date: 2020–07
  5. By: Mir Djawadi, Behnud; Schäfers, Sabrina
    Abstract: While it has been assumed that employees who blow the whistle in organizations are simply those with higher than average moral standards, to understand whistleblowing behavior only in relation to moral functioning has been empirically questioned. We claim that the missing empirical link is rooted in a view of morality that demands too much personal sacrifice from even the most moral employees. Instead, our conceptual model posits that the decision to blow the whistle always involves a trade-off between an individual’s level of moral standard and the extent of the personal costs they would incur, and that employees with postconventional moral reasoning or a strong moral identity are less concerned with those costs and more willing to fulfil their moral duty in order to prevent harm to others. The results of our experiment support this proposition. However, actions are not always chosen to create the optimal outcome for the higher good. Rather, study participants weigh up personal interests in their decision to act morally. By demonstrating that moral functioning and personal costs are much more intertwined than previously assumed under a normative lens, our study offers new insights to whistleblowing research and valuable implications for management practice.
    Keywords: whistleblowing, moral functioning, moral reasoning, moral identity, moral motivation, personal costs, laboratory experiment
    JEL: C91 D23 M50
    Date: 2020–06
  6. By: Aarøen, Camilla; Selart, Marcus
    Abstract: Firm leaders’ inclination to adapt their business model is sensitive to how risk is framed (as an external threat or an opportunity) in the macro-economic environment. We apply threat-rigidity theory to examine the relationship between risk framing and business model adaptation. We also investigate if emotionality has explanatory value for how managers adapt to business models. We test our hypotheses in a field experiment involving 134 Scandinavian managers. Here, we relate managers’ inclinations to adapt to different business models to different risk scenarios. The results reveal that, in general, managers are more risk seeking in gain scenarios than in loss scenarios. This finding is in line with the threat-rigidity theory. Emotionality was found to relate more to risk aversion than to risk seeking in the domain of potential gain. We argue that emotionality has explanatory value for how managers adapt to business models, because emotions are key influences on risk perception.
    Date: 2020–06–08
  7. By: Breitkopf, Laura; Chowdhury, Shyamal K.; Priyam, Shambhavi; Schildberg-Hörisch, Hannah; Sutter, Matthias
    Abstract: Economic theory and empirical evidence establish that economic preferences predict behavior and life outcomes for children, adolescents, and adults. In this paper, we use novel data on 4,282 siblings aged 6 to 16 that combine incentivized measures of time, risk, and social preferences with comprehensive information on child behavior and family environment. Using standard cross-sectional specifications, our results confirm the predictive power of children's preferences for behavior. However, when estimating household fixed effects models that allow controlling forall characteristics that are shared by siblings, this predictive power largely vanishes. We discuss implications for research on children's preferences and behavior.
    Keywords: time preferences,risk preferences,social preferences,experiments with children,origins of preferences,human capital,behavior,household fixed effects,siblings
    JEL: C91 D01 J13
    Date: 2020
  8. By: Elif Incekara-Hafalir (University of Technology Sydney); Raymond Kumar (Allianz, Australia)
    Abstract: There are a number of payment mediums that are used to pay participants in Economics lab experiments, with cash payments being common practice. However, institutional barriers or funding constraints may prevent researchers using this conventional payment medium. Alternative payment mediums may have different psychological effects on participants, and thereby change the behaviour in the lab. In this paper, we investigate the effect of using different payment mediums on participants. We find that different payment mediums affect participantsÕ effort when a fixed payment scheme is used but does not influence effort when a performance-based scheme is used.
    Keywords: payment medium; monetary incentives; social norms; market norms
    Date: 2019–09–01
  9. By: Marvin Cardoza; Justin Holz; John List; Joaquin Zentner; Alejandro Zentner
    Abstract: This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic's tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic's GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges.
    Date: 2020

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