nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒09‒14
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. On the (ir)relevance of monetary incentives in risk preference elicitation experiments By Hackethal, Andreas; Kirchler, Michael; Laudenbach, Christine; Razen, Michael; Weber, Annika
  2. Lottery "strategies": monetizing players' behavioral biases By Raman Kachurka; Michał Wiktor Krawczyk
  3. Letting off Steam! Experimental Evidence on Inappropriate Punishment By Elina Khachatryan; Christoph Buehren
  4. Old habits die hard: The experience of inequality and persistence of low cooperation By Abhijit Ramalingam; Brock V. Stoddard
  5. Psychological pressure and the right to determine the moves in dynamic tournaments – Evidence from a natural field experiment By Mark Kassis; Sascha L. Schmidt; Dominik Schreyer; Matthias Sutter
  6. Confidence Snowballing and Relative Performance Feedback By Zahra Murad; Chris Starmer
  7. Does bonus cap curb risk taking? An experimental study of relative performance pay and bonus regulation By Harris, Qun; Tanaka, Misa; Soane, Emma
  8. The power of experiments: How big is your n? By Igor Asanov; Christoph Buehren; Panagiota Zacharodimou
  9. Secret and publicly observable contribution intentions in a public goods experiment By Werner Gueth; Anastasios Koukoumelis; Maria Vittoria Levati; Vincenzo Prete

  1. By: Hackethal, Andreas; Kirchler, Michael; Laudenbach, Christine; Razen, Michael; Weber, Annika
    Abstract: Incentivized experiments in which individuals receive monetary rewards according to the outcomes of their decisions are regarded as the gold standard for preference elicitation in experimental economics. These task-related real payments are considered necessary to reveal subjects' "true preferences". Using a systematic, large-sample approach with three subject pools of private investors, professional investors, and students, we test the effect of task-related monetary incentives on risk preferences elicited in four standard experimental tasks. We find no systematic differences in behavior between subjects in the incentivized and non-incentivized regimes. We discuss implications for academic research and for applications in the field.
    Keywords: Experimental Economics,Incentives,Risk Aversion,Risk Preferences
    JEL: C91 D01 D81
    Date: 2020
  2. By: Raman Kachurka (Faculty of Economic Sciences, University of Warsaw); Michał Wiktor Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The popularity of lotteries around the world is puzzling. In this paper, we study one factor, which might contribute to this phenomenon, namely lottery “strategies” that could allegedly improve players’ odds. In an online survey of lottery players we find that such strategies are popular and their use is related to more frequent lottery play and a number of personality traits and beliefs about gambling. Systematically searching for websites and books, we amass the largest dataset of lottery strategies in existence. We subsequently analyze their descriptions, categorize them, and investigate how they exploit their target audience’s behavioral biases, including the illusion of control, authority bias, magical thinking, the illusion of correlation, gambler’s fallacy, hot hand fallacy, representativeness heuristic, availability heuristic, and regret aversion. We find that the strategies maintain gamblers’ (false) beliefs about the possibility of controlling lottery results. This exploratory work contributes to a deeper understanding of (problem) gambling and lays the foundation for the design of experiments testing how the specific features of different strategies may interact with beliefs and trigger (excessive) lottery play.
    Keywords: decision making under risk, lottery strategy, illusion of control
    JEL: C91 D01 D81 D83 D91
    Date: 2020
  3. By: Elina Khachatryan (University of Kassel); Christoph Buehren (Clausthal University of Technology)
    Abstract: Aggression is displaced when provocations cannot be directly retaliated against and when it is redirected towards a target innocent of any wrongdoing. While this phenomenon is widespread, it has not been widely explored in experimental economics. We fill this gap and find that a sizeable proportion of subjects (37%), when treated unfairly, punish co-players who are not at all responsible for the unfairness. When in a disadvantaged position, inequity-aversion seems to be the driving force of punishment, yet when treated fairly, some subjects (17%) exhibit status-seeking behavior. Moreover, students affiliated with an armed forces university are much more likely than regular students to engage in displaced aggression.
    Keywords: Displaced Aggression; Punishment; Soldiers; Dictator Game, Experiment
    JEL: C91 D03 D63
    Date: 2020
  4. By: Abhijit Ramalingam; Brock V. Stoddard
    Abstract: Inequality reduces the ability of communities to work together. The theory of reciprocity suggests reducing inequality allows groups to increase cooperation. We experimentally test if, after experiencing inequality, unconditional income transfers to the poor increase contributions to public goods. Pure redistribution to eliminate inequality does not raise cooperation in groups that experienced inequality. Even additional resources directed to the poor without reducing resources of the rich fail to raise cooperation beyond levels observed in groups that were always equal. The experience of inequality locks groups in a low-level cooperation trap that they are unable to escape, despite moves towards equality. Key Words: reciprocity; inequality reduction; income transfers; cooperation; public goods; experiment
    JEL: C91 C92 D31 D63 H41
    Date: 2020
  5. By: Mark Kassis; Sascha L. Schmidt; Dominik Schreyer; Matthias Sutter
    Abstract: In this paper, we show that the right to determine the sequence of moves in a dynamic team tournament improves the chances of winning the contest. Because studying dynamic team tournaments – like R&D races – with interim feedback is difficult with company data, we examine decisions of highly paid professionals in soccer penalty shootouts and show that teams whose captains can decide about the shooting sequence are more likely to win the shootout. So, managerial decisions matter for outcomes of dynamic tournaments and we discuss potential reasons for this finding.
    Keywords: Dynamic tournament; sports professionals; psychological pressure; value of decision rights; penalty shoot-outs; behavioral economics
    JEL: C93 D00 D81 D91 Z20
    Date: 2020–08
  6. By: Zahra Murad (University of Portsmouth); Chris Starmer (University of Nottingham)
    Abstract: We investigate whether relative performance feedback can create biases in confidence leading it to ‘snowball’. We study elicited confidence about own performance, relative to other group members, in three stages. As subjects move across stages, we change group composition so that new groups contain either only top performers or only bottom performers, from the previous stage. Between treatments, we manipulate whether subjects know about their own past relative performance or that of currently matched group members. In the NoFeedback treatment, they know neither of these things and confidence remains calibrated and stable across the stages. In both of the other two treatments, we provide feedback on own performance and, in both of these treatments, confidence snowballs significantly in the direction of the feedback: confidence consistently rises among top performers and falls among bottom performers. In one of these treatments - the OwnFeedback treatment, which we interpret as inducing full reference group neglect – subjects are not told about how their reference group is changing. In the FullFeedback treatment, however, subjects do have a basis for judging that their own performance feedback is essentially uninformative, yet we still find strong evidence that confidence snowballs and only limited evidence that they are weaker than those arising from full reference group neglect. Hence, the results are broadly consistent with the reference group neglect hypothesis. The results suggest the possibility of confidence biases emerging and snowballing in a potentially wide range of field settings.
    Keywords: overconfidence, relative performance feedback, confidence updating
    Date: 2020–08
  7. By: Harris, Qun (Bank of England); Tanaka, Misa (Bank of England); Soane, Emma (London School of Economics and Political Science)
    Abstract: We conducted a lab experiment with 253 participants to examine how constraints on bonus akin to bonus regulations, such as bonus cap and malus, could affect individuals’ risk-taking in the presence of relative performance pay. Participants took greater risks when bonus was linked to investment performance relative to that of their peers (relative performance pay) than when it depended on their own performance only. In the absence of relative performance pay, bonus cap and malus reduced risk-taking. With relative performance pay, the risk-mitigating effects of bonus cap and malus were significantly weakened; but participants took less risk when bonus was made conditional on their team avoiding a loss.
    Keywords: Bonus cap; malus; bonus regulation; risk choice
    JEL: C91 G28 J31 J33 M52
    Date: 2020–08–14
  8. By: Igor Asanov (University of Kassel); Christoph Buehren (Clausthal University of Technology); Panagiota Zacharodimou (European Parliament)
    Abstract: The replicability and credibility crisis in psychology and economics sparked the debate on underpowered experiments, publication biases, and p-hacking. Analyzing the number of independent observations of experiments published in Experimental Economics, Games and Economic Behavior, and the Journal of Economic Behavior and Organization, we observe that we did not learn much from this debate. The median experiment in our sample has too few independent observations and, thus, is underpowered. Moreover, we find indications for biases in reporting highly significant results. We investigate for which papers and experiments it is more likely to find reporting biases, and we suggest remedies that could help to overcome the replicability crisis.
    Keywords: Statistical power; statistical significance; meta-study; balanced randomization; caliper test
    JEL: C10 C12 C18
    Date: 2020
  9. By: Werner Gueth (Max Planck Institute of Economics); Anastasios Koukoumelis (Department of Economics (University of Verona)); Maria Vittoria Levati (Department of Economics (University of Verona)); Vincenzo Prete (Department of Economics (University of Verona))
    Abstract: In a public goods experiment, subjects can vary, over a period of stochastic length, two contribution levels: one is publicly observable (their cheap talk stated intention), while the other is not seen by the other subjects (their secret intention). When the period suddenly stops, participants are restricted to choose as actual contribution either current alternative. Based on the two types of choice data for a partners and a perfect strangers condition, we confirm that final outcomes strongly depend on the matching protocol. As to choice dynamics, we find that they are affected by player types.
    Keywords: Public goods game, Cheap talk communication, Real-time protocol
    JEL: C72 H41 D82 D83
    Date: 2019–06

This nep-cbe issue is ©2020 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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