nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2021‒10‒18
nine papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Media negativity bias and tax compliance: Experimental evidence By Fisar, Milos; Reggiani, Tommaso; Sabatini, Fabio; Spalek, Jirí
  2. Adaptive Rationality in Strategic Interaction: Do Emotions Regulate Thinking about Others? By Timo Ehrig; Monica Jaison Manjaly; Aditya Singh; Shyam Sunder
  3. Predictably competitive? What faces can tell us about competitive behavior By Loukas Balafoutas; Helena Fornwagner; Brit Grosskopf
  4. On the Stability of Risk Preferences: Measurement Matters By Joop Adema; Till Nikolka; Panu Poutvaara; Uwe Sunde; Joop Age Harm Adema
  5. A reassessment of the potential for loss-framed incentive contracts to increase productivity: a meta-analysis and a real-effort experiment By Paul J. Ferraro; J. Dustin Tracy
  6. The Effects of Temperature on Economic Preferences By Michelle Escobar Carias; David Johnston; Rachel Knott; Rohan Sweeney
  7. Evolutionary Foundation for Heterogeneity in Risk Aversion By Heller, Yuval; NEHAMA, Ilan
  8. How to Best Nudge Taxpayers? The Impact of a Tailored Letter Experiment in Eswatini By Santoro, Fabrizio; Groening, Edward; Mdluli, Winnie; Shongwe, Mbongeni
  9. The impact of day of mailing on web survey response rate and response speed By Lynn, Peter; Bianchi, Annamaria; Gaia, Alessandra

  1. By: Fisar, Milos; Reggiani, Tommaso (Cardiff Business School); Sabatini, Fabio; Spalek, Jirí
    Abstract: We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in taxpayers' compliance decisions.
    Keywords: tax compliance, media bias, taxation game, laboratory experiment.; tax compliance, media bias, taxation game, laboratory experiment.
    JEL: C91 D70 H26 H31
    Date: 2021–10
  2. By: Timo Ehrig (Max Planck Institute for Mathematics in the Sciences, Leipzig); Monica Jaison Manjaly (Indian Institute of Technology, Gandhinagar); Aditya Singh (Indian Institute of Technology, Gandhinagar); Shyam Sunder (School of Management and Cowles Foundation, Yale University)
    Abstract: Forming beliefs or expectations about others’ behavior is fundamental to strategy, as it co-determines the outcomes of interactions in and across organizations. In the game theoretic conception of rationality, agents reason iteratively about each other to form expectations about behavior. According to prior scholarship, actual strategists fall short of this ideal, and attempts to understand the underlying cognitive processes of forming expectations about others are in their infancy. We propose that emotions help regulate iterative reasoning, that is, their tendency to not only reflect on what others think, but also on what others think about their thinking. Drawing on a controlled experiment, we ï¬ nd that a negative emotion (fear) deepens the tendency to engage in iterative reasoning, compared to a positive emotion (amusement). Moreover, neutral emotions yield even deeper levels of iterative reasoning. We tentatively interpret these early ï¬ ndings and speculate about the broader link of emotions and expectations in the context of strategic management. Extending the view of emotional regulation as a capability, emotions may be building blocks of rational heuristics for strategic interaction and enable interactive decision-making when strategists have little experience with the environment.
    Date: 2020–04
  3. By: Loukas Balafoutas (Department of Public Finance, University of Innsbruck); Helena Fornwagner (Institute of Economics and Econometrics, University of Regensburg); Brit Grosskopf (Department of Economics, University of Exeter)
    Abstract: Competition for limited resources is ubiquitous in social and economic life and has sparked a large body of research on the determinants of competitive behavior. While we know a lot about the role of contextual factors and personality traits, no link has been established between competitive behavior and physical appearance. In this study, we document for the first time a strong positive association between attractiveness, measured through ratings of headshots from experimental participants, and the competitive behavior of female participants in the form of opting for a tournament payment scheme in a real-effort task. We also show that individuals are sometimes better than chance at predicting the competitiveness of experimental participants, just by looking at their headshots. These findings significantly advance our understanding of the factors that underlie competitive attitudes and of the role of observable physical characteristics as telltale signs of behavior.
    Date: 2021–08–08
  4. By: Joop Adema; Till Nikolka; Panu Poutvaara; Uwe Sunde; Joop Age Harm Adema
    Abstract: We exploit the unique design of a repeated survey experiment among students in four countries to explore the stability of risk preferences in the context of the COVID-19 pandemic. Relative to a baseline before the pandemic, we find that self-assessed willingness to take risks decreased while the willingness to take risks in an incentivized lottery task increased, for the same sample of respondents. These findings suggest domain specificity of preferences that is partly reflected in the different measures.
    Keywords: stability of risk preferences, measurement of risk aversion, Covid-19
    JEL: D12 D91 G50
    Date: 2021
  5. By: Paul J. Ferraro (arey Business School & Whiting School of Engineering, Johns Hopkins University); J. Dustin Tracy (Economic Science Institute, Chapman University)
    Abstract: Behavioral scientists have reported substantial increases in worker productivity when incentives are framed as losses rather than gains. Loss-framed incentive contracts have also been reported to be preferred by workers. These claims are challenged by results from our meta-analysis and real-effort experiment. Whereas the summary effect size from loss-framed contracts in laboratory experiments is a 0.4 SD increase in productivity, the summary effect size from ï¬ eld experiments is 0.0 SD. Although this difference may reflect differing labor environments in the laboratory and ï¬ eld, we detect evidence of publication biases among laboratory experiments. In a new laboratory experiment that addresses prior design weaknesses, we estimate an effect size of 0.1 SD. This result, in combination with evidence from the meta-analysis, suggests that the difference between the effect size estimates in published laboratory and ï¬ eld experiments does not stem from the limited external validity of laboratory experiments, but may instead stem from a mix of underpowered laboratory designs and publication biases. Moreover, in our experiment, most workers preferred the gain-framed contract and the increase in average productivity is only detectable in the subgroup of workers (∼20%) who preferred the loss-framed contracts. This result suggests that employers may ï¬ nd using these contracts in real labor environments challenging. Based on the results from our experiment and meta-analysis, we believe that further research is warranted to assess the robustness and magnitude of the impacts from loss-framed contracts before advocating for their adoption by private and public sector actors.
    Keywords: framing effects, incentive contracts, meta-analysis, real-effort experiment, and behavioral insights
    JEL: C91 J24 J33
    Date: 2021
  6. By: Michelle Escobar Carias; David Johnston; Rachel Knott; Rohan Sweeney
    Abstract: The empirical evidence suggests that key accumulation decisions and risky choices associated with economic development depend, at least in part, on economic preferences such as willingness to take risk and patience. This paper studies whether temperature could be one of the potential channels that influences such economic preferences. Using data from the Indonesia Family Life Survey and NASAs Modern Era Retrospective Analysis for Research and Applications data we exploit quasi exogenous variations in outdoor temperatures caused by the random allocation of survey dates. This approach allows us to estimate the effects of temperature on elicited measures of risk aversion, rational choice violations, and impatience. We then explore three possible mechanisms behind this relationship, cognition, sleep, and mood. Our findings show that higher temperatures lead to significantly increased rational choice violations and impatience, but do not significantly increase risk aversion. These effects are mainly driven by night time temperatures on the day prior to the survey and less so by temperatures on the day of the survey. This impact is quasi linear and increasing when midnight outdoor temperatures are above 22C. The evidence shows that night time temperatures significantly deplete cognitive functioning, mathematical skills in particular. Based on these findings we posit that heat induced night time disturbances cause stress on critical parts of the brain, which then manifest in significantly lower cognitive functions that are critical for individuals to perform economically rational decision making.
    Date: 2021–10
  7. By: Heller, Yuval; NEHAMA, Ilan
    Abstract: We examine evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between aggregate risk and idiosyncratic risk. We show that the choices that maximize the long-run growth rate are induced by a heterogeneous population in which the least and most risk averse agents are indifferent between aggregate risk and obtaining its linear and harmonic mean for sure, respectively. Moreover, an approximately optimal behavior can be induced by a simple distribution according to which all agents have constant relative risk aversion, and the coefficient of relative risk aversion is uniformly distributed between zero and two.
    Keywords: Evolution of preferences, risk interdependence, long-run growth rate.
    JEL: D81
    Date: 2021–10–13
  8. By: Santoro, Fabrizio; Groening, Edward; Mdluli, Winnie; Shongwe, Mbongeni
    Abstract: Very little is known about why taxpayers in sub-Saharan Africa (SSA) remit their taxes. In collaboration with the Eswatini Revenue Authority (SRA), this study implements a nationwide randomised controlled trial nudging more than 20,000 income tax payers with behaviourally-informed mailings. This study attempts to shed new light on the drivers of SSA taxpayers’ compliance, and how can these be leveraged by resource-constrained tax authorities. While the tax nudge literature has boomed in OECD countries and Latin America, only a handful of studies can be found on SSA – this paper contributes significantly to these. First, thanks to the wealth of administrative data available, this study is the first of its kind to target three different categories of taxpayers at the same time – non-filers, nil-filers and active; most of the existing literature focusses on positive filers. Second, we tailor the content of letters to be specific to each taxpayer category. Third, we are able to target both companies and individuals, and explore heterogeneity of results along a number of dimensions, including past filing behaviour. We find that non-filers significantly respond to the nudges, while nil- and active filers do not. The best performing nudges build on the deterrence and taxpayer-assistance paradigms. Perverse responses are found from large companies. With the causal evidence produced, we are able to formulate policy recommendations on how best to target the complex ecosystem of income tax payers.
    Keywords: Economic Development, Finance, Governance,
    Date: 2020
  9. By: Lynn, Peter; Bianchi, Annamaria; Gaia, Alessandra
    Abstract: The day of the week on which sample members are invited to participate in a web survey might influence propensity to respond, or to respond promptly. This effect could differ between sample members with different characteristics. We explore such effects using a large-scale experiment implemented on the Understanding Society Innovation Panel, in which some people received an invitation on a Monday and some on a Friday. Specifically, we test whether any effect of the invitation day is moderated by economic activity status, previous participation in the panel, or whether the invitation was sent only by post or by post and email simultaneously.Â
    Date: 2021–10–07

This nep-cbe issue is ©2021 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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