nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2022‒02‒07
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Procedurally justifiable strategies: Integrating context effects into multistage decision making By Kemper, Fynn; Wichardt, Philipp C.
  2. Personality Traits Across the Life Cycle: Disentangling Age, Period, and Cohort Effects By Bernd Fitzenberger; Gary Mena; Jan Nimczik; Uwe Sunde
  3. You can’t always get what you want—An experiment on finance professionals' decisions for others By Matthias Stefan; Martin Holmén; Felix Holzmeister; Michael Kirchler; Erik Wengström
  4. Exposure to COVID-19 is associated with increased altruism, particularly at the local level By Grimalda, Gianluca; Buchan, Nancy R.; Ozturk, Orgul G.; Pinate, Adriana C.; Urso, Giulia; Brewer, Marilynn B.
  5. Decreasing Incomes Increase Selfishness By Nickolas Gagnon; Riccardo D. Saulle; Henrik W. Zaunbrecher
  6. The Disparate Effect of Nudges on Minority Groups By Maya Haran Rosen; Orly Sade

  1. By: Kemper, Fynn; Wichardt, Philipp C.
    Abstract: This paper proposes a simple framework to model contextual influences on procedural decision making. In terms of utility, we differentiate between monetary payoffs and contextual psychological ones, e.g. deriving from the subjects' normative frame of reference. Monetary payoffs are treated as common knowledge while psychological payoffs are treated as partly unforeseeable. Regarding behaviour, we assume that players act optimal given their local perception of the game. As perceptions may be incorrect, we do not consider common equilibrium conditions but instead require strategies to be procedurally justifiable. As we will argue, various common inconsistencies considered in behavioural economics can be understood as procedurally justifiable behaviour. With the present framework, we add an abstract tool to the discussion which allows to consider also the behavioural implications of players foreseeing the corresponding behavioural effects̶ which is often not considered in the respective original models.
    Keywords: behavioural inconsistencies,context effects,limited foresight,procedural decision making,utility
    JEL: C70 D01 D91
    Date: 2021
  2. By: Bernd Fitzenberger; Gary Mena; Jan Nimczik; Uwe Sunde
    Abstract: Economists increasingly recognise the importance of personality traits for socio-economic outcomes, but little is known about the stability of these traits over the life cycle. Existing empirical contributions typically focus on age patterns and disregard cohort and period influences. This paper contributes novel evidence for the separability of age, period, and cohort effects for a broad range of personality traits based on systematic specification tests for disentangling age, period and cohort influences. Our estimates 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: 2021
  3. By: Matthias Stefan; Martin Holmén; Felix Holzmeister; Michael Kirchler; Erik Wengström
    Abstract: To study whether clients benefit from delegating financial investment decisions to an agent, we run an investment allocation experiment with 408 finance professionals (agents) and 550 participants from the general population (clients). In several between-subjects treatments, we vary the mode of decision-making (investment on one's own account vs. investments on behalf of clients) and the agents' incentives (aligned vs. fixed). We find that finance professionals show higher decision-making quality than participants from the general population when investing on their own account. However, when deciding on behalf of clients, professionals' decision-making quality does not significantly differ from their clients', neither when compensated with a fixed payment nor when facing aligned incentives. Our results further identify a considerable challenge in risk communication between agents and clients: While finance professionals tend to take into account principals' desired risk levels, the constructed portfolios by professionals show considerable overlaps in portfolio risk across different risk levels requested by principals. We argue that this result is due to differences in risk perception.
    Keywords: Experimental finance, finance professionals, delegated decision-making, risk communication
    JEL: C93 G11 G41
    Date: 2022–02
  4. By: Grimalda, Gianluca; Buchan, Nancy R.; Ozturk, Orgul G.; Pinate, Adriana C.; Urso, Giulia; Brewer, Marilynn B.
    Abstract: Theory posits that situations of existential threat will enhance prosociality in general and particularly toward others perceived as belonging to the same group as the individual (parochial altruism). Yet, the global character of the COVID-19 pandemic may blur boundaries between ingroups and outgroups and engage altruism at a broader level. In an online experiment, participants from the U.S. and Italy chose whether to allocate a monetary bonus to a charity active in COVID-19 relief efforts at the local, national, or international level. The purpose was to address two important questions about charitable giving in this context: first, what influences the propensity to give, and second, how is charitable giving distributed across different levels of collective welfare? We found that personal exposure to COVID-19 increased donations relative to those not exposed, even as levels of environmental exposure (numbers of cases locally) had no effect. With respect to targets of giving, we found that donors predominantly benefitted the local level; donations toward country and world levels were half as large. Social identity was found to influence charity choice in both countries, although an experimental manipulation of identity salience did not have any direct effect.
    Date: 2021
  5. By: Nickolas Gagnon (Aarhus University); Riccardo D. Saulle (University of Padova); Henrik W. Zaunbrecher (Maastricht University)
    Abstract: We use a controlled laboratory experiment to study the causal impact of income decreases within a time period on redistribution decisions at the end of that period, in an environment where we keep fixed the sum of incomes over the period. First, we inves-tigate the effect of a negative income trend (intra-personal decrease), which means a decreasing income compared to one’s recent past. Second, we investigate the effect of a negative income trend relative to the income trend of another person (inter-personal decrease). If intra-personal or inter-personal decreases create dissatisfaction for an individual, that person may become more selfish to obtain compensation. We formal-ize both effects in a multi-period model augmenting a standard model of inequality aversion. Overall, conditional on exhibiting sufficiently-strong social preferences, we find that individuals indeed behave more selfishly when they experience decreasing incomes. While many studies examine the effect of income inequality on redistribution decisions, we delve into the history behind one’s income to isolate the effect of income changes.
    Keywords: Income Inequality, Income Change, Social Preferences, Social Comparison, Income Redistribution
    JEL: C91 D31 D63
    Date: 2021–12
  6. By: Maya Haran Rosen (Bank of Israel); Orly Sade
    Abstract: We use an experiment in Israel to compare the effect of short text messages sent via mobile phones on the actions of minority groups versus the general population regarding the âSavings for Every Childâ program. Financial institutions and regulators are increasingly using digital text messages to raise awareness or encourage participation in programs and initiatives. We study the effect of these messages on individual behavior, and the size of this effect for different segments of the population. Our unique setting and proprietary data reveal that the text message had an overall positive effect, but a significantly smaller effect on minority groups. By combining our proprietary data with a dedicated survey, we provide additional insights on potential barriers (low digital literacy, low financial literacy, and low trust) that contribute to the differential effect. The research points to the importance of using specific measures that focus on minorities in order to raise the success of government initiatives.
    Date: 2021–12

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