nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2021‒04‒12
ten papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Ambiguous Outcome Magnitude in Economic Decision Making with Low and High Monetary Stakes By Zbozinek, Tomislav Damir; Charpentier, Caroline Juliette; Qi, Song; mobbs, dean
  2. Elections and selfishness By Bjorvatn, K; Galle, S; Berge, LIO; Miguel, E; Posner, DN; Tungodden, B; Zhang, K
  3. Rationality and Emotions: A Model of Inner Games and Ego Identity By Liu, Fen
  4. Coevolution of actions, personal norms, and beliefs about others in social dilemmas By Gavrilets, Sergey
  5. Time Costs and Search Behavior By Hsiao, Yu-Chin; Kemp, Simon; Servátka, Maroš; Ward, Matt; Zhang, Le
  6. Rethinking the Role of the Representativeness Heuristic in Macroeconomics and Finance Theory By Roman Frydman; Morten Nyboe Tabor
  7. Do MTurkers Exhibit Myopic Loss Aversion? By Rene Schwaiger; Laura Hueber
  8. Learning to hesitate By Descamps, Ambroise; Massoni, Sébastien; Page, Lionel
  9. Boosting Citizens Towards Reduced Energy Consumption: A Field Experiment in the Principality of Monaco By Mira Toumi; Nathalie Lazaric
  10. A Critical Perspective on the Conceptualization of Risk in Behavioral and Experimental Finance By Felix Holzmeister; Christop Huber; Stefan Palan

  1. By: Zbozinek, Tomislav Damir (California Institute of Technology); Charpentier, Caroline Juliette; Qi, Song; mobbs, dean
    Abstract: Most of life’s decisions involve risk and uncertainty regarding whether reward or loss will follow. A major approach to understanding decision-making under these circumstances comes from economics research. While many economic decision-making experiments have focused on gains/losses and risk (<100% probability of a given outcome), relatively few have studied ambiguity (i.e., uncertainty about the degree of risk or magnitude of gains/losses). Within ambiguity, most studies have focused on ambiguous risk (uncertainty regarding likelihood of outcomes), but few studies have investigated ambiguous outcome magnitude (i.e., uncertainty regarding how small/large the gain/loss will be). In the present report, we investigated the effects of ambiguous outcome magnitude, risk, and gains/losses in an economic decision-making task with low stakes (Study 1; $3.60-$5.70; N = 367) and high stakes (Study 2; $6-$48; N = 210) using the same participants in Study 2 as in Study 1. We conducted computational modeling to determine individuals’ preferences/aversions for ambiguous outcome magnitudes, risk, and gains/losses. Our results show that increasing stakes increases ambiguous gain aversion, unambiguous loss aversion, and unambiguous risk aversion, but increases ambiguous loss preference. These results suggest that as stakes increase, people tend to avoid uncertainty and loss in most domains but prefer ambiguous loss.
    Date: 2021–04–02
  2. By: Bjorvatn, K; Galle, S; Berge, LIO; Miguel, E; Posner, DN; Tungodden, B; Zhang, K
    Abstract: Elections affect the division of resources in society and are occasions for political elites to make appeals rooted in voters' self-interest. Hence, elections may erode altruistic norms and cause people to behave more selfishly. We test this intuition using Dictator Games in a lab-in-the-field experiment involving a sample of more than 1000 individuals in Kenya and Tanzania. We adopt two approaches. First, we experimentally prime participants to think about the upcoming or most recent elections and find that this priming treatment reduces how much money participants are willing to give to other players. Second, we compare results obtained across lab rounds in Kenya taking place right before the country's 2013 national elections and eight months prior, and find that selfishness is greater in the lab round more proximate to the election. Our results suggest that elections may affect social behavior in important—and previously unrecognized—ways.
    Keywords: Elections, Altruism, Dictator Game, Clientelism, East-Africa, Africa, Clientelism Kenya, Tanzania, Selfishness, Kenya, Political Science, Political Science & Public Administration
    Date: 2021–02–01
  3. By: Liu, Fen
    Abstract: This paper develops a framework of Inner Games with Ego Identity to discuss an individual’s rationality and emotions in decision making. Following previous efforts of taking psychological insights into economics, this paper dives into the multi-faceted human psychology and proposes a new framework of the decision maker’s Inner Games with Ego Identity in the context of a relationship, and integrates the components of beliefs about oneself and the other one in a relationship into the structure. Moreover, I assume that individuals are motivated mainly by their Ego Identity other than by direct pleasure from consumption, and the utility is derived from the inner state at the moment of decision making. As an application, I define and understand emotions in the framework, such as anger, guilt, and disappointment. For example, I distinguish five types of anger, such as healthy anger to protect one’s personal boundary, and anger to threaten others for some purpose. I end with a discussion of several directions for future research.
    Keywords: Bounded Rationality; Full Rationality; Psychological Game; Emotion
    JEL: C79 D03
    Date: 2021–01–05
  4. By: Gavrilets, Sergey
    Abstract: Human decision-making is affected by a diversity of factors including material cost-benefit considerations, normative and cultural influences, learning, and conformity with peers and external authorities (e.g., cultural, religious, political, organizational). Also important are their dynamically changing personal perception of the situation and beliefs about actions and expectations of others as well as psychological phenomena such as cognitive dissonance, and social projection. To better understand these processes, I develop a modeling framework describing the joint dynamics of actions and attitudes of individuals and their beliefs about actions and attitudes of their group-mates. I consider which norms get internalized and which factors control beliefs about others. I predict that the long-term average characteristics of groups are largely determined by a balance between material payoffs and the values promoted by the external authority. Variation around these averages largely reflects variation in individual costs and benefits mediated by individual psychological characteristics. The efforts of an external authority to change the group behavior in a certain direction can, counter-intuitively, have an opposite effect on individual behavior. I consider how various factors can affect differences between groups and societies in tightness/looseness of their social norms. I show that the most important factors are social heterogeneity, societal threat, effects of the authority, cultural variation in the degree of collectivism/individualism, the population size, and the subsistence style. My results can be useful for achieving a better understanding of human social behavior, historical and current social processes, and in developing more efficient policies aiming to modify social behavior
    Date: 2021–04–05
  5. By: Hsiao, Yu-Chin; Kemp, Simon; Servátka, Maroš; Ward, Matt; Zhang, Le
    Abstract: Sequential search is often costly and time-consuming. The time cost is usually unknown ex ante and its presence and duration must be inferred as the search progresses. We disentangle the effect of time cost on search behavior from people’s (in)ability to perceive time delay between offers. We find that people are able to infer the existence of the time cost, but their inference is imperfect. We also compare the effect of time cost with the effect of monetary cost and find that the time cost reduces the amount of exerted search, but not as much as the monetary cost does. Discriminating between the effects is critical for increasing the empirical validity of search models and designing mechanisms capable of improving the quality of decisions, especially in unfamiliar or infrequently encountered situations.
    Keywords: Sequential Search, Time Cost, Search Cost, Experiment
    JEL: C6 C91 D83
    Date: 2021–01–19
  6. By: Roman Frydman (Department of Economics, New York University); Morten Nyboe Tabor (Institute for New Economic Thinking (INET))
    Abstract: We propose a novel interpretation and formalization of Kahneman and Tversky's findings in the Linda experiment which implies that subjects are rational in the sense of Muth's hypothesis and provides an approach to specifying rational assessment of uncertainty in macroeconomic models. Behavioral-finance theorists have appealed to Kahneman and Tversky's findings as an empirical foundation for a general approach replacing rational expectations. We show that behavioral models' specifications of participants' irrational forecasts and predictable errors are incompatible with Kahneman and Tversky's findings. Our interpretation of Kahneman and Tversky's findings is supportive of Lucas's compelling critique of inconsistent macroeconomic models.
    Keywords: Uncertainty in Economic Models; Kahneman and Tversky's Experimental Findings; Behavioral Finance; Muth's Hypothesis; REH.
    JEL: B41 D80 D81 D91 E71 G41
    Date: 2020–12–14
  7. By: Rene Schwaiger; Laura Hueber
    Abstract: We present results from a highly powered online experiment with 937 participants on Amazon Mechanical Turk (MTurk) that examined whether MTurkers exhibit myopic loss aversion (MLA). The experiment consisted of measuring MLA-compliant behavior in two between-subjects treatments that differed only regarding the risk profile of the risky asset employed. We found no statistically significant evidence of MLA-compliant behavior among MTurkers in both treatments.
    Keywords: online experiment, myopic loss aversion, risk, mturk
    JEL: G10 G11 G41
    Date: 2021–12
  8. By: Descamps, Ambroise; Massoni, Sébastien; Page, Lionel
    Abstract: We investigate how people make choices when they are unsure about the value of the options they face and have to decide whether to choose now or wait and acquire more information first. In an experiment, we find that participants deviate from optimal information acquisition in a systematic manner. They acquire too much information (when they should only collect little) or not enough (when they should collect a lot). We show that this pattern can be explained as naturally emerging from Fechner cognitive errors. Over time participants tend to learn to approximate the optimal strategy when information is relatively costly.
    Date: 2021–03–29
  9. By: Mira Toumi (Université Côte d'Azur, France; GREDEG CNRS); Nathalie Lazaric (Université Côte d'Azur; GREDEG-CNRS)
    Abstract: We investigate the complementarity between diverse behavioral tools called "boosts" (through information provision) and "goal setting" (ambitious or modest goals) in a field experiment in the Principality of Monaco which ran from December 2018 to May 2019. We collected data from 77 households in four groups: ambitious energy reduction goal combined with information (treatment 1), modest energy reduction goal combined with information (treatment 2), information only (treatment 3) and a control group (treatment 4). Treatments 1 and 2 increase the chances towards reduced energy consumption. We show that a modest but more realistic energy saving goal generates better energy conservation performance when combined with “boosts” (treatment 2). We explore the link between behavioral strategies and the household’s environmental concern in the context of the new ecological paradigm (NEP). The efficiency of the treatments depends heavily on the NEP profile. Households with a high NEP profile are more likely to reduce their electricity consumption whereas as those with a low NEP profile will not respond to behavioral interventions.
    Keywords: Boost, nudges, goal setting, energy consumption, field experiment, environmental profile
    JEL: C93 D04 D83 D91
    Date: 2021–04
  10. By: Felix Holzmeister; Christop Huber; Stefan Palan
    Abstract: Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term "risk", which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a latent trait), risk perceptions (how individuals judge whether something is risky), and risk-taking behavior as distinct concepts, and hence to guide future research on (individual-level) decision-making processes in this direction.
    Keywords: risk-taking behavior, risk preferences, risk perception
    JEL: D81 D91 G41
    Date: 2021–11

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