nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2022‒12‒19
three papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. On Social Norms and Observability in (Dis)honest Behavior By Huber, Christoph; Litsios, Christos; Nieper, Annika S.; Promann, Timo
  2. It’s a Sure Win! Experimental evidence on overconfidence in betting behavior By Martin Chegere; Paolo Falco; Marco Nieddiu; Lorenzo Pandolfi; Mattea Stein

  1. By: Huber, Christoph (WU Vienna University of Economics and Business); Litsios, Christos; Nieper, Annika S. (Vrije Universiteit Amsterdam); Promann, Timo
    Abstract: Transparency and observability have been shown to foster ethical decision-making as people tend to comply with an underlying norm for honesty. In a die-rolling experiment, we investigate whether observability can have detrimental effects, however, in situations implying a social norm for dishonesty. We thus introduce a norm nudge towards honesty or dishonesty and make participants' decisions observable and open to other participants' judgment in order to manipulate the observability of people's decisions as well as the underlying social norm. We find that a nudge towards honesty indeed increases the level of honesty, suggesting that such a norm nudge can successfully induce behavioral change. Our introduction of social image concerns via observability, however, does not affect honesty and does not interact with our norm nudge.
    Date: 2022–06–17
  2. By: Martin Chegere (University of Dar es Salaam); Paolo Falco (University of Copenhagen); Marco Nieddiu (University of Cagliari); Lorenzo Pandolfi (Università di Napoli Federico II and CSEF); Mattea Stein (Università di Napoli Federico II and CSEF)
    Abstract: We conduct an experiment with regular sports bettors in Tanzania to investigate how they value their bets and form expectations about winning probabilities. By comparing a sports bet to a neutral urn-and-balls lottery with identical odds, we find that subjects under the sports framing assign higher subjective values (certainty equivalents) to their bets and are significantly more optimistic about their chances of winning, even though, in fact, they are not more likely to win. This is consistent with bettors being overconfident in their ability to predict sports outcomes. Coupled with data on betting frequency and motives, our results suggest that, by leveraging gamblers’ overconfidence, sports betting magnifies their financial losses.
    Keywords: betting, overconfidence, expectations, framing, sports.
    JEL: C91 D84 D91 L83
  3. By: Imad Talhartit (Université Hassan 1er [Settat], Ecole Nationale de Commerce et Gestion - Settat, Laboratory of Finance, Audit and Organizational Governance Research); Sanae Ait Jillali (Université Hassan 1er [Settat], Ecole Nationale de Commerce et Gestion - Settat, Laboratory of Finance, Audit and Organizational Governance Research); Mounime El Kabbouri (Université Hassan 1er [Settat], Ecole Nationale de Commerce et Gestion - Settat, Laboratory of Finance, Audit and Organizational Governance Research)
    Abstract: Behavioral finance is the application of psychology to finance, dedicated to explaining anomalies in the financial market based on research and analysis of human behavior. This paper aims for studying from a conceptual side the main behavioral biases that impact traders operating in the financial market under uncertain circumstances. The current literature confirms the existence of cognitive and emotional biases, which could be caused by heuristics or framing faults impacting the decision-making process in investment and financing decisions alongside the performance of traders. In this vein, the findings affirm that although it is difficult to change people's emotions and control them completely, moreover the capacity for human introspection is limited, with the understanding of cognitive biases based on the knowledge and beliefs of the trader, the possibility of modifying or changing the individuals' way of reasoning is more or less feasible in order to moderate their behaviors within the market. Behavioral finance admitting a certain degree of inefficiency in the markets, and the existence of factors that influence the behavior of the trader, is calling for a precise set of rules and trading plans (such as money management), besides the mental and psychological control essential to succeed in the financial market. This theoretical informative paper enters into a series of works that challenge investors' rationality assumption and inferences about the efficiency of financial market information.
    Keywords: Financial markets,Behavioral finance,Behavioral biases,Investment decisions,Traders' performance
    Date: 2022–10–31

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