nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2022‒03‒07
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Negative Economic Shocks and the Compliance to Social Norms By Bogliacino, Francesco; Charris, Rafael Alberto; Gómez, Camilo Ernesto; Montealegre, Felipe
  2. An Equivalence between Rational Inattention Problems and Complete-Information Conformity Games By Pavel Ilinov; Ole Jann
  3. Human-centered mechanism design with Democratic AI By Raphael Koster; Jan Balaguer; Andrea Tacchetti; Ari Weinstein; Tina Zhu; Oliver Hauser; Duncan Williams; Lucy Campbell-Gillingham; Phoebe Thacker; Matthew Botvinick; Christopher Summerfield
  4. Selfish learning is more important than fair-minded conditional cooperation in public-goods games By Burton-Chellew, Maxwell; Guérin, Claire
  5. Humanoid psychological sentiments and enigma of investment By 子, 鬼谷
  6. Behavioral Finance During the Belle Époque: When the Actual Portfolios of French Individual Investors Met Behavioral Portfolio Theory By Maxime MERLI; Antoine PARENT
  7. Other-Regarding Preferences and Redistributive Politics By Fehr, Ernst; Epper, Thomas; Senn, Julien

  1. By: Bogliacino, Francesco (Universidad Nacional de Colombia); Charris, Rafael Alberto (Universidad Nacional de Colombia); Gómez, Camilo Ernesto (Centro de Investigaciones para el Desarrollo); Montealegre, Felipe (Universidad Nacional de Colombia)
    Abstract: This paper is about why suffering a Negative Economic Shock, i.e. a large loss, may trigger a change in behavior. We conjecture that people trade off a concern for money with a conditional preference to follow social norms, and that suffering a shock makes the first motivation more salient, leading to more norm violation. We study this question experimentally: After administering losses on the earnings from a Real Effort Task, we elicit decisions in set of pro-social and anti-social settings. To derive our predictions, we elicit social norms separately from behavior. We find that a shock increases deviations from norms in antisocial settings — more subjects cheat, steal, and avoid retaliation, with changes that are economically large. This is in line with our prediction. The effect on trust and cooperation is instead more ambiguous. Finally, we conducted an additional experiment to study the difference between an intentional shock and a random shock in a trust game. We found that the two induce partially different effects and that victims of intentional losses are more sensible to the in-group belief. This may explain why part of the literature studying shocks in natural settings found an increase in pro-social behavior, contrary to our prediction.
    Date: 2021–11–15
  2. By: Pavel Ilinov; Ole Jann
    Abstract: We consider two types of models: (i) a rational inattention problem (as known from the literature) and (ii) a conformity game, in which fully informed players find it costly to deviate from average behavior. We show that these problems are equivalent to each other both from the perspective of the participant and the outside observer: Each individual faces identical trade-offs in both situations, and an observer would not be able to distinguish the two models from the choice data they generate. We also establish when individual behavior in the conformity game maximizes welfare.
    Keywords: conformity; equivalence; rational inattention; social norms;
    JEL: D81 D83 D91
    Date: 2022–02
  3. By: Raphael Koster; Jan Balaguer; Andrea Tacchetti; Ari Weinstein; Tina Zhu; Oliver Hauser; Duncan Williams; Lucy Campbell-Gillingham; Phoebe Thacker; Matthew Botvinick; Christopher Summerfield
    Abstract: Building artificial intelligence (AI) that aligns with human values is an unsolved problem. Here, we developed a human-in-the-loop research pipeline called Democratic AI, in which reinforcement learning is used to design a social mechanism that humans prefer by majority. A large group of humans played an online investment game that involved deciding whether to keep a monetary endowment or to share it with others for collective benefit. Shared revenue was returned to players under two different redistribution mechanisms, one designed by the AI and the other by humans. The AI discovered a mechanism that redressed initial wealth imbalance, sanctioned free riders, and successfully won the majority vote. By optimizing for human preferences, Democratic AI may be a promising method for value-aligned policy innovation.
    Date: 2022–01
  4. By: Burton-Chellew, Maxwell; Guérin, Claire
    Abstract: Why does human cooperation often unravel in economic experiments despite a promising start? Previous studies have interpreted the decline as the reaction of disappointed cooperators retaliating in response to lesser cooperators (conditional cooperation). This interpretation has been considered evidence of a uniquely human form of cooperation, motivated by altruistic concerns for fairness and requiring special evolutionary explanations. However, experiments have typically shown individuals information about both their personal payoff and information about the decisions of their groupmates (social information). Showing both confounds explanations based on conditional cooperation with explanations based on individuals learning how to better play the game. Here we experimentally decouple these two forms of information, and thus these two learning processes, in public goods games involving 616 Swiss university participants. We find that payoff information leads to a greater decline, supporting a payoff-based learning hypothesis. In contrast, social information has small or negligible effect, contradicting the conditional cooperation hypothesis. We also find widespread evidence of both confusion and selfish motives, suggesting that human cooperation is maybe not so unique after all.
    Date: 2021–11–22
  5. By: 子, 鬼谷
    Abstract: Purpose: The primary goal of this study is to look at the behavioral factors that influence an individual's decision to invest in the Pakistan Stock Exchange (PSX). Design/methodology/approach: Existing behavioral finance theories serve as a foundation for hypotheses. Further hypotheses were investigated by disseminating questionnaire results from a number of individual Pakistani investors. Brokerage and asset management fund managers were also questioned in semi-structured interviews. The obtained data were analyzed using statistical package for the social sciences, and latent variables were identified using the structural equation model (SEM) and an asset management operating system (AMOS). Findings: Individual investor investment decisions in the PSX are influenced by five behavioral factors: herding, market, prospect, overconfidence and gambler fallacy and anchoring-ability bias. The majority of the variables have a modest impact; however, the market component has a significant impact. Only three behavioral elements, herding, prospect and heuristic, are found to influence investment performance among the behavioral factors stated above. Heuristic habits have been discovered to have the greatest positive impact on investment performance. Practical implications: This study is one of the few in Pakistan that looked at the factors that influence stock investment decisions using behavioral finance. Prior research has only considered the effects of a restricted number of behavioral characteristics on Pakistani individual investors; however, this study seeks to use a whole collection of behavioral factors to examine their impacts on Pakistani individual investors. Research limitations: The focus of the study remains on the individual investor, whereas the impact of institutional investors on investment behavior could bring different outcomes. Originality/value: This is among the few studies that investigated the impact of cognitive factors on investment decisions in the context of Pakistan and will help policy makers, opinion makers and individuals.
    Date: 2022–02–01
  6. By: Maxime MERLI (LaRGE Research Center, Université de Strasbourg); Antoine PARENT (OFCE, Université Paris 8, LED & CAC-IXXI, ENS Lyon)
    Abstract: In this article we unearth the first real portfolios of French individual investors of the Belle Époque by reinvestigating the study of Des Essars and the comments of his contemporaries (Coste, Neymarck, and Leroy Beaulieu). The results are striking: we find strong elements of behavioral finance during the first era of financial globalization. Both the actual portfolios and the comments and advice of the financial analysts of the time reveal traces of behavioral finance and, more specifically, echo very clearly behavioral portfolio theory a century before its modeling. This discovery is important not only from the point of view of the historical depth of behavioral finance, but also for the persistence and legitimacy of the questions that behavioral finance has always addressed to standard finance.
    Keywords: Financial History, Individual Investors, Behavioral Finance, Behavioral Portfolio Theory.
    JEL: G11 G14 G15 N20 N23
    Date: 2022
  7. By: Fehr, Ernst (University of Zurich); Epper, Thomas (University of Lille); Senn, Julien (University of Zurich)
    Abstract: Increasing inequality and associated egalitarian sentiments have again put redistribution on the political agenda. Other-regarding preferences may also affect support for redistribution, but knowledge about their distribution in the broader population and how they are associated with political support for redistributive policies is still scarce. In this paper, we take advantage of Swiss direct democracy, where people voted several times on strongly redistributive policies in national plebiscites, to study the link between other-regarding preferences and support for redistribution in a broad sample of the Swiss population. We document that inequality aversion and altruistic concerns play a quantitatively large positive role in the support for redistribution, in particular for more affluent individuals. In addition, previously identified key motives underlying opposition to redistribution – such as the belief that effort is an important driver of individual success – play no role for selfish individuals but are highly relevant for altruistic and egalitarian individuals. Finally, while inequality averse individuals display strong support for policies that primarily aim at reducing the incomes of the rich, altruistic individuals are considerably less supportive of such policies. Thus, knowledge about the fundamental properties and the distribution of individuals' other-regarding preferences also provides a deeper understanding about who is likely to support specific redistributive policies.
    Keywords: social preferences, altruism, inequality aversion, preference heterogeneity, demand for redistribution
    JEL: D31 D72 H23 H24
    Date: 2022–02

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