nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2022‒08‒22
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Does power corrupt the mind? The influence of power on moral reasoning and self-interested behavior By Giurge, Laura M.; Van Dijke, Marius; Zheng, Michelle Xue; De Cremer, David
  2. Political Ideology, Mood Response, and the Confirmation Bias By Dickinson, David L.
  3. Increasing Autonomy in Charitable Giving: The Effect of Choosing the Number of Recipients on Donations By Fehérová, Martina; Heger, Stephanie; Péliová, Jana; Servátka, Maroš; Slonim, Robert
  4. Morally Monotonic Choice in Public Good Games By James C. Cox; Vjollca Sadiraj; Susan Xu Tang
  5. Price Expectations and Reference-Dependent Preferences By Rutledge, Robert; Alladi, Vinayak; Cheung, Stephen L.
  6. May Bad Luck Be Without You: The Effect of CEO Luck on Strategic Risk-taking By Pascal Flurin Meier; Raphael Flepp; David Oesch

  1. By: Giurge, Laura M.; Van Dijke, Marius; Zheng, Michelle Xue; De Cremer, David
    Abstract: We test whether leaders' power shapes their reasoning about moral issues and whether such moral reasoning subsequently influences leaders' display of self-interested behavior. We use an incentivized experiment to manipulate two components of leader power: power over more versus fewer followers and power to enforce one's will by having discretion over more versus fewer payout options to allocate between oneself and one's followers. We find that having power over more followers decreased leaders' principled moral reasoning, whereas having higher power to enforce one's will enabled leaders to engage in self-interested behavior. We also find suggestive evidence that power over increases self-interested behavior by decreasing principled moral reasoning; the effect of power to was not mediated by moral reasoning. These results illustrate that power activates self-interest within and outside the context in which power is held. They also show that moral reasoning is not a stable cognitive process, but that it might represent an additional path via which power affects self-interested behavior.
    Keywords: power; moral reasoning; moral development; self-interested behavior
    JEL: J50
    Date: 2021–08–01
  2. By: Dickinson, David L. (Appalachian State University)
    Abstract: The confirmation bias is a well-known form of motivated reasoning that serves to protect an individual from cognitive discomfort. Hearing rival viewpoints or belief-opposing information creates cognitive dissonance, and so avoiding exposure to, or discounting the validity of, dissonant information are rational strategies that may help avoid or mitigate negative emotion. Because there is often systematic thought involved in generating the confirmation bias, deliberation tends to promote this behavioral bias. Nevertheless, the importance of negative emotion in triggering the need for this bias is underappreciated. This paper addresses a gap in the literature by examining mood and the confirmation bias in the political domain. Using results from two studies and three distinct decision tasks, we present data on over 1100 participants documenting the confirmation bias in different settings. All methods (recruitment and sample size, hypotheses, variables, analysis plans, etc.) were preregistered on the Open Science Framework. Our data show evidence of a confirmation bias across distinct dimensions of belief and preference formation. As hypothesized, the data show a strong increase in self-reported negative mood states after viewing political statements or information that are dissonant with one's political ideology. Finally, while not as robust across tasks, we report evidence that supports our hypothesis that negative mood will moderate the strength of the confirmation bias. Together, these results highlight the importance of mood response in understanding the confirmation bias, which helps further our understanding of how this bias may be particularly difficult to combat.
    Keywords: confirmation bias, sleep, deliberation, cognitive reflection, motivated reasoning
    JEL: C91 D91 D89
    Date: 2022–07
  3. By: Fehérová, Martina; Heger, Stephanie; Péliová, Jana; Servátka, Maroš; Slonim, Robert
    Abstract: In many contexts people can choose how many charities to help. This paper presents results from a laboratory experiment that varies whether the subjects have a choice in the number of charities to donate to and whether they are given an option to opt out. We find that the choice increases donation frequency but does not influence donation amounts. If the choice also includes the opt-out option, there is no increase in the donation frequency or amount.
    Keywords: Altruism, Choice, Charitable Giving, Choice Architecture, Opt-out
    JEL: C91 D64
    Date: 2022–06–30
  4. By: James C. Cox; Vjollca Sadiraj; Susan Xu Tang
    Abstract: Consequentialist rational choice theory, including models of (unconditional) social preferences, is challenged by decades of robust data from payoff-equivalent public good games with provision or appropriation as well as by robust data showing contributions to public goods, funded by lump-sum taxation, do not crowd out voluntary contributions on a one-for-one basis. This paper offers an extension of rational choice theory that incorporates observable moral reference points. This morally monotonic choice theory is consistent with robust data in the literature and has idiosyncratic features that motivate new experimental designs that introduce nonbinding quotas on appropriations or floors on provisions. Data, from three previous experiments and our new experiment, favor moral monotonicity over alternative theoretical models including rational choice theory, prominent belief-based models of kindness, and popular reference-dependent models with loss aversion.
    Keywords: choice theory, public goods, experiment, payoff equivalence, non-binding contractions, moral reference points, belief-based psychological models, reference-dependent choices
    JEL: C91 D03 H41
    Date: 2022–07
  5. By: Rutledge, Robert (University of Sydney); Alladi, Vinayak (University of Sydney); Cheung, Stephen L. (University of Sydney)
    Abstract: We experimentally test Kőszegi and Rabin's (2006, 2007) theory of reference-dependent preferences in the context of price expectations. In an incentivised valuation task, participants are endowed with a mug and provide their willingness to accept (WTA) to sell it. We manipulate the sale price in a separate, exogenous forced sale scenario, which is predicted to produce a 'comparison effect', moving WTA in the opposite direction to the forced sale price. Consistent with the theory, we observe a treatment effect of between AUD $0.79 and $2.06 in the hypothesised direction; however, it is statistically insignificant. We also elicit participants' loss aversion to account for heterogeneity in the theorised effect; however, controlling for the interaction between our treatment and loss aversion does not consistently strengthen our result.
    Keywords: reference dependence, price expectations, comparison effect, loss aversion
    JEL: C91 D90
    Date: 2022–06
  6. By: Pascal Flurin Meier (Department of Business Administration, University of Zurich); Raphael Flepp (Department of Business Administration, University of Zurich); David Oesch (Department of Business Administration, University of Zurich)
    Abstract: We investigate how luck, namely, changes in a firm’s performance beyond the CEO’s control, affects strategic risk-taking. Fusing upper echelons theory with insights from psychology and behavioral strategy research, we hypothesize that there is a positive association between luck and strategic risk-taking and that this effect is stronger for bad luck than for good luck. We further argue that these effects vary depending on whether CEOs have experienced negative events earlier in their professional careers. Measuring luck as the exogenous component of recent firm performance, we show empirically that CEOs react to bad luck by adopting more conservative risk-taking policies while showing no reactions to good luck. This effect predictably varies with the strength of bad luck signals, and it is stronger for CEOs who have experienced negative events during their professional careers. We contribute to the literature by providing the first evidence on the role of luck in corporate strategic risk-taking.
    Keywords: Strategic Risk-Taking; Chief Executive Offers; Luck; Upper Echelons; Behavioral Strategy
    JEL: D22 D91 G30 M10 L20
    Date: 2022–06

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