nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2020‒12‒14
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Personal norms — and not only social norms — shape economic behavior By Bašic, Zvonimir; Eugenio Verrina
  2. Human and machine: The impact of machine input on decision-making under cognitive limitations By Tamer Boyaci,; Caner Canyakmaz,; Francis de Véricourt,
  3. Cognitive Skills, Strategic Sophistication, and Life Outcomes By Fe, Eduardo; Gill, David; Prowse, Victoria L.
  4. Herd Behavior of Investments: An Assessment of Indian Stock Market By , AISDL
  5. The adaptive value of probability distortion and risk-seeking in macaques' decision-making By Aurélien Nioche; Nicolas P. Rougier; Marc Deffains; Sacha Bourgeois-Gironde; Sébastien Ballesta; Thomas Boraud
  6. Enjoying life takes time and needs people, but economic progress runs and offers things By Pugno, Maurizio
  7. Belief Error and Non-Bayesian Social Learning: Experimental Evidence By Bo\u{g}a\c{c}han \c{C}elen; Sen Geng; Huihui Li
  8. The impact of public health messaging and personal experience on the acceptance of mask wearing during the COVID-19 pandemic By Todd L. Cherry; Alexander G. James; James J. Murphy
  9. Modeling Consumption and Saving Decision Making Behavior of People in the Settings of Urban Eastern Ethiopian Communities : A Heterodox Economics Approach. By Demiessie, Habtamu

  1. By: Bašic, Zvonimir (Max Planck Institute for Research on Collective Goods, Bonn); Eugenio Verrina (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: While social norms have received great attention within economics, little is known about the role of personal norms. We propose a simple utility framework — which assumes that people care about monetary payoff, social norms and personal norms — and design a novel two-part experiment to investigate the predictive value of personal norms across four economic games. We show that personal norms — together with social norms and monetary payoff — are highly predictive of individuals’ behavior. Moreover, they are: i) inherently distinct from social norms across a series of economic contexts, ii) robust to an exogenous increase in social image concerns, which increases the predictive value of social norms but does not weaken that of personal norms, and iii) complementary to social norms in predicting behavior, as a model with both personal and social norms outperforms a model with only one of the two norms. Taken together, our results support personal norms as a key driver of economic behavior, relevant in a wide array of economic settings.
    Keywords: Personal norms, social norms, social image, reputation, elicitation method, normative conflict
    JEL: C91 D01 D63 D64 D91
    Date: 2020–10
  2. By: Tamer Boyaci, (ESMT European School of Management and Technology); Caner Canyakmaz, (ESMT European School of Management and Technology); Francis de Véricourt, (ESMT European School of Management and Technology)
    Abstract: The rapid adoption of AI technologies by many organizations has recently raised concerns that AI may eventually replace humans in certain tasks. In fact, when used in collaboration, machines can significantly enhance the complementary strengths of humans. Indeed, because of their immense computing power, machines can perform specific tasks with incredible accuracy. In contrast, human decision-makers (DM) are flexible and adaptive but constrained by their limited cognitive capacity. This paper investigates how machine-based predictions may affect the decision process and outcomes of a human DM. We study the impact of these predictions on decision accuracy, the propensity and nature of decision errors as well as the DM's cognitive efforts. To account for both flexibility and limited cognitive capacity, we model the human decision-making process in a rational inattention framework. In this setup, the machine provides the DM with accurate but sometimes incomplete information at no cognitive cost. We fully characterize the impact of machine input on the human decision process in this framework. We show that machine input always improves the overall accuracy of human decisions, but may nonetheless increase the propensity of certain types of errors (such as false positives). The machine can also induce the human to exert more cognitive efforts, even though its input is highly accurate. Interestingly, this happens when the DM is most cognitively constrained, for instance, because of time pressure or multitasking. Synthesizing these results, we pinpoint the decision environments in which human-machine collaboration is likely to be most beneficial.
    Keywords: Machine-learning, rational inattention, human-machine collaboration, cognitive effort
    Date: 2020–11–30
  3. By: Fe, Eduardo (University of Strathclyde); Gill, David (Purdue University); Prowse, Victoria L. (Purdue University)
    Abstract: We investigate how childhood cognitive skills affect strategic sophistication and adult outcomes. In particular, we emphasize the importance of childhood theory-of-mind as a cognitive skill. We collected experimental data from more than seven hundred children in a variety of strategic interactions. First, we find that theory-of-mind ability and cognitive ability both predict level-k behavior. Second, older children respond to information about the cognitive ability of their opponent, which provides support for the emergence of a sophisticated strategic theory-of-mind. Third, theory-of-mind and age strongly predict whether children respond to intentions in a gift-exchange game, while cognitive ability has no influence, suggesting that different measures of cognitive skill correspond to different cognitive processes in strategic situations that involve understanding intentions. Using the ALSPAC birth-cohort study, we find that childhood theory-of-mind and cognitive ability are both associated with enhanced adult social skills, higher educational participation, better educational attainment, and lower fertility in young adulthood. Finally, we provide evidence that school spending improves theory-of-mind in childhood.
    Keywords: cognitive skills, theory-of-mind, cognitive ability, fluid intelligence, children, experiment, strategic sophistication, level-k, bounded rationality, non-equilibrium thinking, intentions, gift-exchange game, competitive game, strategic game, ALSPAC, social skills, adult outcomes, life outcomes, education, fertility, labor market, wages, employment, school spending, childhood intervention
    JEL: C91 D91 J24
    Date: 2020–11
  4. By: , AISDL
    Abstract: Behavioral finance theorists contradict market efficiency and propose that investment decision making is not always rational. Investors base their decisions on factors in addition to stock fundamentals and such factors include cognitive biases such as loss aversion, herd behavior, regret aversion, price anchoring and the like. This paper makes an attempt to analyze the influence of two major factors – herd behavior and market factors on investment decision making and in turn it's mediating effect on perception of investment performance. Structured questionnaire was used for collecting the sample for study and structural equation modeling was performed. The study presents evidence to ascertain significant influence of both the factors – herd behavior and market – on investment decision making. The mediating effect of investment decision making on perception of investment performance was also observed to be strong and significant.
    Date: 2019–07–09
  5. By: Aurélien Nioche (Department of Communications and Networking [Aalto] - Aalto University); Nicolas P. Rougier (Mnemosyne - Mnemonic Synergy - LaBRI - Laboratoire Bordelais de Recherche en Informatique - CNRS - Centre National de la Recherche Scientifique - École Nationale Supérieure d'Électronique, Informatique et Radiocommunications de Bordeaux (ENSEIRB) - Université Sciences et Technologies - Bordeaux 1 - Université Bordeaux Segalen - Bordeaux 2 - Inria Bordeaux - Sud-Ouest - Inria - Institut National de Recherche en Informatique et en Automatique - IMN - Institut des Maladies Neurodégénératives [Bordeaux] - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Marc Deffains (IMN - Institut des Maladies Neurodégénératives [Bordeaux] - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Sacha Bourgeois-Gironde (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Université, IJN - Institut Jean-Nicod - DEC - Département d'Etudes Cognitives - ENS Paris - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - Département de Philosophie - ENS Paris - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres); Sébastien Ballesta (UNISTRA - Université de Strasbourg); Thomas Boraud (IMN - Institut des Maladies Neurodégénératives [Bordeaux] - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In humans, the attitude toward risk is not neutral and is dissimilar between bets involving gains and bets involving losses. The existence and prevalence of these decision features in non-human primates are unclear. In addition, only a few studies have tried to simulate the evolution of agents based on their attitude toward risk. Therefore, we still ignore to which extent Prospect theory's claims are evolutionary rooted. To shed light on this issue, we collected data in 9 macaques that performed bets involving gains or losses. We confirmed that their overall behaviour is coherent with Prospect theory's claims. In parallel, we used a genetic algorithm to simulate the evolution of a population of agents across several generations. We showed that the algorithm selects progressively agents that exhibit risk-seeking and an inverted S-shape distorted perception of probability. We compared these two results and found that monkeys' attitude toward risk when facing losses only is congruent with the simulation. This result is consistent with the idea that gambling in the loss domain is analogous to deciding in a context of life-threatening challenges where a certain level of risk-seeking behaviours and probability distortions may be adaptive.
    Keywords: Genetic algorithm,Cognitive biases,Monkey,Autonomous Cognitive Testing,Experimental economics
    Date: 2021–01–21
  6. By: Pugno, Maurizio
    Abstract: People gain enjoyment from exercising their agency and interacting with others in order to accomplish projects and change reality, as is evident from the successful evolution of homo sapiens. Hence, time can be enjoyable in both pursuing and achieving socially valued goals. Since modern economic progress offers products in growing abundance, thus increasingly exploiting individuals’ time and interaction, people are tempted to seek enjoyment in another way, i.e. in consumption itself, as homo economicus would suggest. On the basis of various evidence, the paper argues that people can choose between these two ways leading to well-being; that the homo economicus way is less effective or even perverse; and that economic progress weakens people’s skill to undertake the homo sapiens way. These arguments help explain why the economy of a country, such as the USA, can grow over decades whereas its citizens become less able to enjoy their lives.
    Keywords: Time, Skills, Social relationships, Well-being, Human development
    JEL: D91 J22 O15
    Date: 2020–11–26
  7. By: Bo\u{g}a\c{c}han \c{C}elen (University of Melbourne); Sen Geng (Xiamen University); Huihui Li (Xiamen University)
    Abstract: This paper experimentally studies whether individuals hold a first-order belief that others apply Bayes' rule to incorporate private information into their beliefs, which is a fundamental assumption in many Bayesian and non-Bayesian social learning models. We design a novel experimental setting in which the first-order belief assumption implies that social information is equivalent to private information. Our main finding is that participants' reported reservation prices of social information are significantly lower than those of private information, which provides evidence that casts doubt on the first-order belief assumption. We also build a novel belief error model in which participants form a random posterior belief with a Bayesian posterior belief kernel to explain the experimental findings. A structural estimation of the model suggests that participants' sophisticated consideration of others' belief error and their exaggeration of the error both contribute to the difference in reservation prices.
    Date: 2020–11
  8. By: Todd L. Cherry (University of Wyoming); Alexander G. James (University of Alaska Anchorage); James J. Murphy (University of Alaska Anchorage)
    Abstract: Face coverings have been shown to slow the spread of COVID-19, yet their use is not universal and remains controversial in the United States. Designing effective nudges for widespread adoption is important when federal mandates are politically or legally infeasible. We report the results from an online survey experiment in which subjects were exposed to one of three video messages from President Trump, and then indicated their preference for wearing a mask. In the first video, the President simply recited the Centers for Disease Control and Prevention (CDC) guidelines. In the second, the President additionally emphasized that wearing a mask is optional. In the third video, the President added that he will not personally wear a mask. We find that exposure to the presidential messages can increase the stated likelihood of wearing a mask—particularly among the President’s supporters. We also explore experiential effects of COVID-19, and find that people (especially supporters of the President) are more likely to support wearing a mask if they know someone who has tested positive for COVID-19, especially if that person died as a result. These results offer guidance to policy makers and practitioners interested in understanding the factors that influence viral risk mitigation strategies.
    Keywords: experimental economics, COVID-19, Face masks, Pro-social behavior, Nudges, Field Experiment
    JEL: I1 D71 D9 C93 D62 H12 H42
    Date: 2020–11
  9. By: Demiessie, Habtamu
    Abstract: This study is aimed at modeling the essential behavioral and institutional aspects of the economic fabric of urban eastern Ethiopian communities with an emphasis on consumption/saving regime. Analysis made was based on interdisciplinary approach. The principles of a hypothetical research govern key aspects of inferences made. The study hypothesized that the essential construct of the consumption/saving regime is by product of shared value system in the communities of interest. In this regard, the shared value system is the result of a more or commonly shared environment (economic, socio-cultural, political, past governance, geographic and geo-political) by urban eastern Ethiopian communities in the past and present. The importance of shared value system is interpreted in shaping consumption/saving decision making behavior of people in its implications to making life uncertain/risky. The study found out that the constructs of prevailing consumption/saving regime is behavioral and institutional response mechanisms people/households/communities design to cope up the uncertain/risky nature of life in general and that of their economic life in particular. As prevailing uncertainties in life are not faced and/or felt equally by people/households/communities, generalization made on behavioral and institutional features of the consumption/saving regime is not linear across the board. In this regard, the potency of behavioral and institutional modeling made on consumption/saving regime is subjected to variations across individuals/communities of various entities: income/ occupational/ consumption groups; generations; locations (urban versus rural); socio demographic variables, among others. The study further concludes that consumption/saving decision of individuals and/or the overall economic fabric in the settings of eastern Ethiopian communities is a complex phenomenon which is not only motivated by economic factors, but triggered by a host of non economic determinants attributed to psychological,psychosocial, sociological, anthropological and geographical variables. Therefore, academic and policy interventions meant to study/influence the consumption/saving regime in the case of urban eastern Ethiopian communities requires considering the mentioned economic and non economic variables with an interdisciplinary/multi sectoral tools/approaches.
    Keywords: Eastern Ethiopia Shared Value System Consumption Decision Process Group Decision Making
    JEL: B52 E21 J17 Z1
    Date: 2020–11–13

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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