nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2021‒02‒08
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Time Preferences in the Gain and Loss Domains: An Incentivized Experiment By Shohei Yamamoto; Shotaro Shiba; Nobuyuki Hanaki
  2. Intertemporal Altruism By Chopra, Felix; Eisenhauer, Philipp; Falk, Armin; Graeber, Thomas W
  3. Online Belief Elicitation Methods By Valeria Burdea; Jonathan Woon
  4. Can Charitable Appeals Identify and Exploit Belief Heterogeneity? By Michalis Drouvelis; Benjamin M. Marx
  5. Social Volatility and Temporal Foci as Accelerators of Economic Trends By Julia M. Puaschunder
  6. Competing Social Identities and Intergroup Discrimination: Evidence from a Framed Field Experiment with High School Students in Vietnam By Tam Kiet Vuong; Ho Fai Chan; Benno Torgler
  7. Pecunia Non Olet: on the Self-selection Into (Dis)honest Earning Opportunities By Kai A. Konrad; Tim Lohse; Sven A. Simon
  8. Behavioral Strong Implementation By Takashi Hayashi; Ritesh Jain; Ville Korpela; Michele Lombardi
  9. Financial stress, cognition and vaccine use: Dual-processing and changes in risk preference. By Iles, Richard; Marsh, Thomas; Mwangi, Thumbi; Palmer, Guy
  10. Two-stage Budgeting with Bounded Rationality By Pretnar, Nick; Olivola, Christopher Y.; Montgomery, Alan

  1. By: Shohei Yamamoto (Hitotsubashi University Business School); Shotaro Shiba (Waseda University); Nobuyuki Hanaki (Osaka University)
    Abstract: Present-biased preferences in intertemporal decisions have been actively investigated. While these preferences have been elicited through incentivized experiments in the gain domain to avoid potential hypothetical bias, they have been elicited only through hypothetical experiments in the loss domain. We conducted a two-stage experiment that enabled us to elicit these preferences in the gain and loss domains in an incentive-compatible way. We found that present bias, which is exhibited in both domains, is more severe in the loss domain.
    Keywords: Intertemporal choice; Present bias; Gains and losses
    JEL: C91 D91
    Date: 2020–09
  2. By: Chopra, Felix (University of Bonn); Eisenhauer, Philipp (University of Chicago); Falk, Armin (briq, University of Bonn); Graeber, Thomas W (Harvard Business School)
    Abstract: Standard consumption utility is linked in time to a consumption event, whereas the timing of prosocial utility flows is ambiguous. Prosocial utility may depend on the actual utility consequences for others – it is consequence-dated – or it may be related to the act of giving and is thus choice-dated. Even though most prosocial decisions involve intertemporal trade-offs, existing models of other-regarding preferences abstract from the time signature of utility flows, limiting their explanatory scope. Building on a canonical intertemporal choice framework, we characterize the behavioral implications of the time structure of prosocial utility. We conduct a high-stakes donation experiment that allows us to identify non-parametrically and calibrate structurally the different motives from their unique time profiles. We find that the universe of our choice data can only be explained by a combination of choice- and consequence-dated prosocial utility. Both motives are pervasive and negatively correlated at the individual level.
    Keywords: altruism, donation, intertemporal decision-making, time inconsistency
    JEL: C91 D12 D64 D90
    Date: 2021–01
  3. By: Valeria Burdea; Jonathan Woon
    Abstract: We evaluate the quality of beliefs elicited from online respondents, comparing several characteristics of two widely used elicitation mechanisms (the Binarized Scoring Rule - BSR - and a stochastic variation of the Becker-deGroot-Marshak mechanism -BDM) against a flat fee baseline for a variety of beliefs (induced probabilities, first-order factual knowledge, second-order knowledge of others). We find the flat-fee method is the most time-efficient, the BDM is the most difficult to understand, and there are no differences in the average accuracy of induced beliefs across conditions. However, the methods are significantly different in terms of the frequency of first-order and second-order beliefs reported at exactly 50%: the flat-fee method leads to the most mass on this belief, followed by BDM and BSR. We also find that incentives increase accuracy for less-educated participants, and that attention, numeracy, and education are positively associated with the quality of induced beliefs across methods. Our results suggest that the quality of beliefs elicited in online environments may depend less on the formal incentive compatibility properties of the elicitation procedure (whether the procedure prevents “dishonest” reporting) than on the difficulty of comprehending the task and how well incentives induce cognitive effort (thereby inducing subjects to quantify or construct their beliefs).
    Keywords: belief elicitation, incentives, online experiment
    JEL: C81 C89 D83 D91
    Date: 2021
  4. By: Michalis Drouvelis; Benjamin M. Marx
    Abstract: Charitable fundraisers frequently announce giving by others, and research shows that this can increase donations. However, this mechanism may not put information about peers to the most efficient use if it is costly to inform individuals who are indifferent to peer actions or causes some individuals to give less. We investigate whether a simple mechanism without incentives can predict heterogeneity in charitable responses to peer decisions. We elicit beliefs about donations in a baseline solicitation, and in subsequent solicitations we randomly assign information about others’ donations. We find that elicited beliefs are often logically inconsistent and that many subjects fail to update beliefs when treated. However, elicited beliefs can predict heterogeneous treatment effects if individuals are engaged and the information is salient.
    Keywords: charitable, donation, norm, social preferences, peer effects, experiment
    JEL: D01 D64 A13
    Date: 2021
  5. By: Julia M. Puaschunder (The New School, Department of Economics, School of Public Engagement, New York, USA)
    Abstract: : Based on the COVID-19 economic fallout, the article outlines that the finance world has different temporal perceptions than the actual chronological time measurement in contrast to the real economy. In the real economy, concrete constraints create a more emotional and destructive reaction to the general information about COVID-19. Social online media plays a role in loading these two groups with different affects. Comparing the economic consequence of the endogenous crunch of the 2008 World Financial Recession with the external economic shock of the COVID-19 pandemic aids to retrieve crisis-specific recovery recommendations in the overall discussion. Understanding how the social compound forms economic outcomes promises to explain how market outcomes are developed in society and can be shaped by strategic communication with special attention to new media technologies.
    Keywords: Affect, Collective moods, Communication, Consumption, Coronavirus, COVID-19, Digitalization, Economic fundamentals, External shock, Information, Lockdown, News, Pandemic, Social volatility, Socio-Economics, Socio-Psychological Foundations, 2008/09 World Financial Crisis
    Date: 2020–12
  6. By: Tam Kiet Vuong; Ho Fai Chan; Benno Torgler
    Abstract: We conducted a framed field experiment to explore a situation where individuals have potentially competing social identities to understand how group identification and socialization affect in- group favoritism and out-group discrimination. The Dictator Game and the Trust Game were conducted in Vietnams Ho Chi Minh City on two groups of high school students with different backgrounds, i.e., French bilingual and monolingual (Vietnamese) students. We find strong evidence for the presence of these two phenomena: our micro-analysis of within- and between- school effects show that bilingual students exhibit higher discriminatory behavior toward non- bilinguals within the same school than toward other bilinguals from a different school, implying that group identity is a key factor in the explanation of intergroup cooperation and competition.
    Keywords: socialization; in-group favouritism; out-group discrimination; cooperation; trust; trustworthiness; fairness; altruism; risk preference
    JEL: C93 C70 D74
    Date: 2021–01
  7. By: Kai A. Konrad; Tim Lohse; Sven A. Simon
    Abstract: We study self-selection into earning money in an honest or dishonest fashion based on individuals' attitudes toward truthful reporting. We propose a decision-theoretic framework where individuals' willingness to pay for honest earnings is determined by their (behavioral) lying costs. Our laboratory experiment identifies lying costs as the decisive factor causing self-selection into honest earning opportunities for individuals with high costs and into cheating opportunities for those prepared to misreport. Our experimental setup allows us to recover individual lying costs and their distribution in the population.
    Keywords: lying behavior, lying costs, misreporting, honest earnings, self-selection, laboratory experiment
    JEL: C91 D81 D91 K42
    Date: 2020–11
  8. By: Takashi Hayashi (Adam Smith Business School, University of Glasgow); Ritesh Jain (Institute of Economics, Academia Sinica); Ville Korpela (Turku School of Economics, University of Turku FI-20014, Finland); Michele Lombardi (Adam Smith Business School, University of Glasgow; Department of Economics and Statistics, University of Naples "Federico II")
    Abstract: Choice behavior is rational if it is based on the maximization of some context-independent preference relation. This study re-examines the questions of implementation theory in a setting where players’ choice behavior need not be rational and coalition formation must be taken into account. Our model implies that with boundedly rational players, the formation of groups greatly affects the design exercise. As a by-product, we also propose a notion of behavioral efficiency and we compare it with existing notions.
    Keywords: Strong equilibrium, implementation, state-contingent choice rules, bounded rationality
    JEL: D11 D60 D83
    Date: 2021–01
  9. By: Iles, Richard (Washington State University); Marsh, Thomas (Washington State University); Mwangi, Thumbi (Washington State University); Palmer, Guy (Washington State University)
    Abstract: Decision-making in economics is largely framed by notions of risk preferences, consumption smoothing and stochastic changes in discounting. However, more recent empirical evidence indicates that direct measures of cognitive processes provide a more nuanced and predictively robust understanding of economic decision-making. The theoretical link between financial stress, changes in cognitive capacity and economic decision-making has become clearer due to the strong association between cognition and dual-processing theory. A need exists to better understand the potentially dynamic role of cognition on economic decision-making, particularly in low-income settings where poverty and associated financial stress are most prevalent. A short, unbalanced panel is used to estimate the effects of changing financial stress on household livestock expenditure in rural Kenya. Estimated negative changes in heuristic use on changes in livestock and educational expenditure provide further empirical evidence of the effect of changes in cognition on economic decision-making.
    Keywords: Poverty; cognition; heuristics; livestock; Kenya
    JEL: D91 I12 I32
    Date: 2019–06–12
  10. By: Pretnar, Nick; Olivola, Christopher Y.; Montgomery, Alan
    Abstract: We construct a unifying theory of two-stage budgeting and bounded rationality with mental accounting features. Mental accounting and rational inattention induce behavioral wedges between first-stage and second-stage expenditure budgets. Because reviewing one’s financial activities is cognitively costly, consumers might reassess only a subset of their spending budgets every period. Over- or under-spending affects future budgeting and expenditure decisions. We apply latent Bayesian inference to agent-level weekly expenditure data in order to structurally estimate the degree to which low-income consumers appear rationally constrained with respect to budgeting. Our findings provide insight into how consumers may respond to interventions that encourage more disciplined budgeting behavior, like push notifications in budgeting apps. If consumers are acutely aware of budget misses, they may adjust budgets upward to avoid the dis-utility of over-expenditure, driving savings rates and balances downward. In this manner, push notifications that warn consumers about budget thresholds could backfire and actually lead to budgeting behavior that reduces savings and wealth in the long-run.
    Keywords: budgeting, mental accounting, bounded rationality, expenditure, savings
    JEL: D11 D12 D91
    Date: 2021–01–15

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