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on Cognitive and Behavioural Economics |
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Issue of 2021‒05‒03
thirteen papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Strittmatter, Anthony (University of St. Gallen); Sunde, Uwe (LMU Munich); Zegners, Dainis (Erasmus University Rotterdam) |
| Abstract: | This paper presents novel evidence for the prevalence of deviations from rational behavior in human decision making – and for the corresponding causes and consequences. The analysis is based on move-by-move data from chess tournaments and an identification strategy that compares behavior of professional chess players to a rational behavioral benchmark that is constructed using modern chess engines. The evidence documents the existence of several distinct dimensions in which human players deviate from a rational benchmark. In particular, the results show deviations related to loss aversion, time pressure, fatigue, and cognitive limitations. The results also demonstrate that deviations do not necessarily lead to worse performance. Consistent with an important influence of intuition and experience, faster decisions are associated with more frequent deviations from the rational benchmark, yet they are also associated with better performance. |
| Keywords: | Rational strategies; artificial intelligence; behavioral bias; |
| JEL: | D01 D9 C7 C8 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:246&r= |
| By: | Karle, Heiko (Frankfurt School of Finance & Management); Engelmann, Dirk (HU Berlin); Peitz, Martin (University of Mannheim) |
| Abstract: | In this paper, we match data on student performance in a multiple-choice exam with data on student risk preferences that are extracted from a classroom experiment. We find that more-loss-averse students leave more questions unanswered and perform worse in the multiple-choice exam when giving an incorrect answer is penalized compared to not answering. We provide evidence that loss aversion parameters extracted from lottery choices in a controlled experiment have predictive power in a field environment of decision making under uncertainty. Furthermore, the degree of loss aversion appears to be persistent over time, as the experiment was conducted three months prior to the exam. We also find important differences across genders; they are partly explained by differences in loss aversion. |
| Keywords: | loss aversion; decision making under uncertainty; multiple choice; |
| JEL: | C91 D01 D11 D83 |
| Date: | 2019–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:182&r= |
| By: | Utz Weitzel (Vrije Universiteit Amsterdam); Michael Kirchler (University of Innsbruck) |
| Abstract: | Financial misbehavior is widespread and costly. The Dutch government legally requires every employee in the financial sector to take a Hippocratic oath, the so-called ``banker's oath.'' We investigate whether moral nudges that directly and indirectly remind financial advisers of their oath affect their service. In a large-scale audit study, professional auditors confronted 201 Dutch financial advisers with a conflict of interest. We find that when auditors apply a moral nudge, referring to the banker's oath, advisers are less likely to prioritize bank's interests. In additional prediction tasks, we find that Dutch regulators expect stronger effects of the oath than observed. |
| Keywords: | experimental finance, audit study, banker’s oath, moral nudges, financial advice |
| JEL: | C92 D84 G02 G14 |
| Date: | 2021–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210032&r= |
| By: | Angelova, Vera (TU Berlin); Güth, Werner (MPI for Research on Collective Goods, Bonn); Kocher, Martin G. (University of Vienna) |
| Abstract: | We experimentally analyze leading by example in a public goods game with two permanent and two temporary group members. Our results show that leadership when permanent and temporary members interact leads to lower contributions than interaction without leadership. |
| Keywords: | cooperation; leadership; social dilemma; public goods provision; experiment; |
| JEL: | C91 D03 D64 |
| Date: | 2019–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:202&r= |
| By: | Bellemare, Charles (Université Laval); Deversi, Marvin (LMU Munich); Englmaier, Florian (LMU Munich) |
| Abstract: | Filing income tax returns or insurance claims often requires that individuals comply with complex rules to meet their obligations. We present evidence from a laboratory tax experiment suggesting that the effects of complexity on compliance are intrinsically linked to distributive fairness. We find that compliance remains largely unaffected by complexity when income taxes are distributed to a morally justified charity. Conversely, complexity significantly amplifies non-compliance when income taxes appear wasted as they are distributed to a morally dubious charity. Our data further suggest that this non-compliance pattern is facilitated through the ambiguity that evolves from mostly unstrategic filing mistakes. |
| Keywords: | complexity; compliance; distributive fairness; experiment; |
| JEL: | C91 D01 D91 H26 |
| Date: | 2019–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:190&r= |
| By: | Greta Meggiorini; Fabio Milani |
| Abstract: | This paper estimates a New Keynesian model with new and old behavioral elements. Agents in the model exhibit cognitive discounting, or myopia: they discount variables far into the future at higher rates than typically implied in the benchmark model. We investigate the model under different expectational assumptions: rational expectations, subjective expectations with infinite-horizon learning, and subjective expectations with Euler-equation learning. Under rational expectations, the model necessitates of large, possibly unrealistically so, degrees of myopia. The same result persists under infinite-horizon learning, given that agents are still remarkably far-sighted. But, under Euler-equation learning, the model can fit the data with only minimal estimated degrees of myopia. The results indicate that the empirical evidence for cognitive discounting may be sensitive to the modeling of expectations, and they highlight learning as a key behavioral feature to understand macroeconomic fluctuations. |
| Keywords: | behavioural macroeconomics, cognitive discounting, myopia, inattention, constant-gain learning, behavioural New Keynesian model |
| JEL: | E31 E32 E52 E58 E70 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9039&r= |
| By: | Christensen, Else (RBB Economics); Murooka, Takeshi (Osaka University) |
| Abstract: | We study a model of task completion with the opportunity to learn about own self-control problems over time. While the agent is initially uncertain about her future self-control, in each period she can choose to learn about it by paying a non-negative learning cost and spending one period. If the agent has time-consistent preferences, she always chooses to learn whenever the learning is beneficial. If the agent has time-inconsistent preferences, however, she may procrastinate such a learning opportunity. Further, if her time preferences exhibit inter-temporal conflicts between future selves (e.g., hyperbolic discounting), the procrastination of learning can occur even when the learning cost is zero. The procrastination also leads to a non-completion of the task. When the agent has multiple initially-uncertain attributes (e.g., own future self-control and own ability for the task), the agent’s endogenous learning decisions may be misdirected — she chooses to learn what she should not learn from her initial perspective, and she chooses not to learn what she should. |
| Keywords: | procrastination; self-control; naivete; hyperbolic discounting; misdirected learning; |
| JEL: | C70 D83 D90 D91 |
| Date: | 2019–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:192&r= |
| By: | Gärtner, Manja (DIW Berlin); Tinghög, Gustav (Linköping University); Västfjäll, Daniel (Linköping University) |
| Abstract: | We test the effects of dual processing differences in both individual traits and decision states on risk taking. In an experiment with a large representative sample (N = 1,832), we vary whether risky choices are induced to be based on either emotion or reason, while simultaneously measuring individual decision-making traits. Our results show that decision-making traits are strong and robust determinants of risk taking: a more intuitive trait is associated with more risk taking, while a more deliberative trait is associated with less risk taking. Experimentally induced states, on the other hand, have no effect on risk taking. A test of state-trait interactions shows that the association between an intuitive trait and risk taking becomes weaker in the emotion-inducing state and in the loss domain. In contrast, the association between a deliberative trait and risk taking is stable across states. These findings highlight the importance of considering state-trait interactions when using dual processing theories to predict individual differences in risk taking. |
| Keywords: | risk preferences; intuition; emotion; reason; experiment; |
| JEL: | C91 D81 D91 |
| Date: | 2019–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:195&r= |
| By: | Gärtner, Manja (DIW Berlin); Tinghög, Gustav (Linköping University); Västfjäll, Daniel (Linköping University) |
| Abstract: | We study the effects of dual processing differences that arise from the state level (through experimental manipulation of the decision mode), the trait level (using individual difference measures of the decision mode), and their interaction on cooperative behavior. In a survey experiment with a representative sample of the Swedish population (N = 1,828), we elicited the individuals’ primary decision mode and experimentally varied whether individuals could rely on their preferred mode or were induced to rely either on emotion or reason. Cooperation was measured across a series of commonly used and incentivized games (prisoner’s dilemma game, public goods game, trust game, dictator game). At the state level, our results show that average cooperation rates increased when emotions were induced rather than reason. At the trait level, our results show that individual decision modes and cooperation rates were not correlated when subjects could rely on their primary mode, but traits interacted with our processing manipulation: Experimentally inducing emotions increased cooperation among individuals who otherwise rely primarily on reason, but not among individuals who already rely primarily on emotion. These findings suggest that individuals integrate their traits with emotion-based states by substituting their trait rather than enhancing it. Thus, who is affected by emotions in their decision to cooperate crucially depends on state-trait interactions at the point of decision. |
| Keywords: | cooperation; intuition; emotion; reason; experiment; |
| JEL: | C71 C91 D91 |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:235&r= |
| By: | Bosch-Rosa, Ciril (TU Berlin); Gietl, Daniel (LMU Munich); Heinemann, Frank (TU Berlin) |
| Abstract: | This paper investigates whether limited liability affects risk-taking through motivated beliefs. To do so, we run a within-subject experiment in which subjects invest in a risky asset under full or limited liability. In both cases, before the investment is made, subjects observe a noisy signal that indicates whether the investment will succeed or fail. They then state the likelihood of the investment's success and decide how much to invest. Our results show a strong effect of limited liability on both the investment decision and the formation of motivated beliefs. Compared to subjects under full liability, subjects under limited liability not only invest larger amounts but are also significantly more optimistic about the success of their investments. Finally, we show that more than one-third of the increase in investment under limited liability can be explained through motivated beliefs. |
| Keywords: | limited liability; motivated beliefs; experiment ; |
| JEL: | C91 D84 G11 G41 |
| Date: | 2019–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:210&r= |
| By: | Fitzenberger, Bernd (HU Berlin); Mena, Gary (HU Berlin); Nimczik, Jan (ESMT Berlin); Sunde, Uwe (LMU Munich) |
| Abstract: | Despite the importance for socio-economic outcomes, there is an ongoing debate about the stability of personality traits over the life cycle. By disentangling age, period and cohort influences on personality traits, this paper adds to the existing empirical contributions, which often focus on age patterns and disregard cohort and period influences. We present the results from systematic specification tests that provide novel evidence for the separability of age, period, and cohort effects in almost all personality traits. Our estimates also document that for different cohorts, the evolution of personality traits across the life-cycle follows a stable, though non-constant, age-profile, while there are sizeable differences across time periods. |
| Keywords: | big five personality traits; locus of control; risk attitudes; age-period-cohort decomposition; life cycle; |
| JEL: | D8 J1 |
| Date: | 2019–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:214&r= |
| By: | Dennis A. Kramer II; Christina J. Lamb; Lindsay C. Page |
| Abstract: | We explore the role of defaults and choice architecture on student loan decision-making, experimentally testing the impact pre-populating either decline or accept decisions compared to an active choice, no pre-population, decision. We demonstrate that the default choice presented does influence student loan borrowing decisions. Specifically, compared to active choice, students presented within a pre-populated decline decision were almost five percent less likely to accept all packaged loans and borrowed between 4.6 and 4.8 percent less in federal educational loans. The reductions in borrowing appears to be concentrated within unsubsidized loans with those assigned to the opt-in condition borrowing 8.3 percent less in unsubsidized loans. These changes in borrowing did not induce substitution towards private or Parent PLUS loans nor did they negatively impact enrollment, academic performance, or on-campus work outcomes in the same academic year. |
| JEL: | I22 I23 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28703&r= |
| By: | Seres, Gyula (HU Berlin); Balleyer, Anna Helen (University of Groningen); Cerutti, Nicola (Berlin School of Economics and Law); Danilov, Anastasia (HU Berlin); Friedrichsen, Jana (DIW and HU Berlin); Liu, Yiming (HU and WZB Berlin); Süer, Müge (HU Berlin) |
| Abstract: | Governments across the world have implemented restrictive policies to slow the spread of COVID-19. Recommended face mask use has been a controversially discussed policy, among others, due to potential adverse effects on physical distancing. Using a randomized field experiment (N=300), we show that individuals keep a significantly larger distance from someone wearing a face mask than from an unmasked person. According to an additional survey experiment (N=456), masked individuals are not perceived as being more infectious than unmasked ones, but they are believed to prefer more distancing. This result suggests that, in times where mask use is voluntary, wearing a mask serves as a social signal for a preferred greater distance that is respected by others. Our findings provide strong evidence against the claim that mask use creates a false sense of security that would negatively affect physical distancing. |
| Keywords: | COVID-19; health policy; compliance; face masks; risk compensation; field experiment; |
| JEL: | C93 I12 |
| Date: | 2020–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:253&r= |