nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2023‒01‒02
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Human frictions in the transmission of economic policy By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  2. Playing the victim behavior: An experimental study By AKIN, ZAFER
  3. Prospect theory and asset allocation By Fortin, Ines; Hlouskova, Jaroslava
  4. Honesty in the City By Martin Dufwenberg; Paul Feldman; Maros Servatka; Jorge Tarraso; Radovan Vadovic
  5. The Good of Rules: An experimental study on prosocial behavior By Caserta, Maurizio; Distefano, Rosaria; Ferrante, Livio
  6. The Impact of Behavioral Economics on Marketing: The Case of Multinational Consumer Companies in Egypt By Radi, Sherihan
  7. Epictetusian Rationality By Ponthiere, Gregory

  1. By: D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitiveability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.
    Keywords: Cognition,Behavioral Macroeconomics,Heterogeneous Agents,Fiscal and Monetary Policy,Beliefs,Redistribution,Inequality,Survey Data,Household Finance
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2021
  2. By: AKIN, ZAFER
    Abstract: This paper experimentally explores playing the victim behavior, how prevalent it is, its determinants, and potential mechanisms to mitigate it with a subject pool from two regions (UAE and North America). The possibility of playing the victim is introduced by letting some participants receive a negative shock to their initial endowments, after which they can apply for extra compensation even when they do not receive the shock. We fi�nd that the majority of participants play the victim. We then test whether defaults and signing an honesty oath influence this behavior. We �find, contrary to intuitions, that the omission treatments, where lying is a default, failed to increase misrepresentation, and if anything decreased it, while the oath substantially reduced it as expected. Moreover, the extent of pro-sociality and perceived social norms are found to be strongly related to playing the victim behavior. The findings are very similar across regions. Our findings offer some insights to design better policies to support victims, especially during crises such as the Covid-19 pandemic.
    Keywords: Playing the victim, dishonesty, defaults, honesty pledges
    JEL: C90
    Date: 2022–11–22
  3. By: Fortin, Ines (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria and Department of Economics, Faculty of National Economy, University of Economics in Bratislava, Slovak Republic)
    Abstract: We study the asset allocation of an investor with prospect theory (PT) preferences. First, we solve analytically the two-asset problem of the PT investor for one risk-free and one risky asset and find that loss aversion and the reference return affect differently less ambitious investors and more ambitious investors. Second, we empirically investigate the performance of a PT portfolio when diversifying among a stock market index, a government bond and gold, in Europe and the US. We focus on investors with PT preferences under different scenarios regarding the reference return and the degree of loss aversion and compare their portfolio performance with the performance of investors under CVaR, risk neutral, linear loss averse and in particular mean-variance (MV) preferences. We find that, in the US, PT portfolios signiffcantly outperform (in terms of returns) mean-variance portfolios in the majority of cases. Also with respect to riskadjusted performance, PT investment outperforms MV investment in the US. Similar results, however, can not be observed in Europe. Finally, we analyze asymmetric effects along economic uncertainty and observe that PT investment leads to higher returns than MV investment in times of larger economic uncertainty, especially in the US.
    Keywords: prospect theory, loss aversion, portfolio allocation, mean-variance portfolios, investment strategy
    JEL: D81 G02 G11 G15
    Date: 2022–12
  4. By: Martin Dufwenberg (University of Arizona); Paul Feldman (Texas A&M University); Maros Servatka (Macquarie Business School, University of Alaska Anchorage); Jorge Tarraso (Libretto); Radovan Vadovic (Carleton University)
    Abstract: Lab evidence on trust games involves more cooperation than conventional economic theory predicts. We explore whether this pattern extends to a field setting where we are able to control for (lack of) repeat-play and reputation: the taxi market in Mexico City. We find a remarkable degree of trustworthiness, even with price-haggling which was predicted to reduce trustworthiness.
    Keywords: trustworthiness, honesty, reciprocity, field experiment, haggling, taxis, Mexico City
    JEL: C72 C90 C93 D91
    Date: 2022–11
  5. By: Caserta, Maurizio; Distefano, Rosaria; Ferrante, Livio
    Abstract: In everyday life, individuals interact with relatives, friends and colleagues, share ideas and passions and cooperate with others to pursue common goals. Within each social domain, individuals recognize themselves as a group member with rights and duties to observe. Understanding the importance of social norms and encouraging mutually beneficial cooperation is crucial for societal and economic development. This paper presents an experimental study of an educational program for early adolescents of 11 years old from South Italy. The program introduces participants to institutions, civic engagement, sense of duty, and decision-making. Among other didactic activities, it includes guided tours and a role-taking game. Our results suggest that the program attendance positively affects cooperation in a one-shot Prisoner’s Dilemma and altruistic behavior in a Dictator Game. Our findings contribute to the nature-nurture debate, showing that promoting prosocial behavior can be effective in pursing the common good.
    Keywords: Experimental game theory; Group Decision Making; Cooperation; Prisoner’s Dilemma; Dictator Game.
    JEL: C72 C93 I20
    Date: 2022–02–07
  6. By: Radi, Sherihan
    Abstract: Since behavioral economics became popular, it is considered a top tool that provides marketers with observations and understanding of consumers’ behavior and preferences. The purpose of this descriptive research is to examine the impact of behavioral economics on marketing, particularly at multinational consumer companies in Egypt. The study population consisted of 750 employees working in 3 multinational consumer companies in Egypt. Stratified random sampling technique was used to sample 100 respondents while the measure of reliability was tested using Cronbach’s alpha at 0.7. Primary data was collected using a questionnaire and frequency distribution tables and figures were used to present the findings. Interpretation was done in prose form and simple regression analysis was conducted by the researcher in order to examine the relationship between behavioral economics and marketing. The inferential results on the impact of behavioral economics on marketing was R=0.623 indicating a significant positive correlation and R 2=0.389 indicating a significant positive impact of behavioral economics on marketing (t=7.522, p
    Keywords: behavioral economics, marketing, multinational consumer companies, Egypt.
    JEL: M20 M21
    Date: 2022–11–11
  7. By: Ponthiere, Gregory
    Abstract: According to Epictetus, mental freedom and happiness can be achieved by distinguishing between, on the one hand, things that are upon our con- trol (our acts, opinions and desires), and, on the other hand, things that are not upon our control (our body, property, offi ces and reputation), and by wishing for nothing that is outside our control. This article proposes two accounts of Epictetus's precept: the I account of Epictetus's precept requires indifference between outcomes differing only on circumstances, whereas the IB account requires indifference between outcomes involving the best replies to circumstances. We study the implications of these precepts on the preference relation and on the existence of Epictetusian rationality. The I account implies that the preference relation satisfies in- dependence of circumstances, whereas the IB account implies robustness to dominated alternatives. Unlike the IB account, the I account rules out (counter)adaptive preferences. Finally, when examining game-theoretical implications of Epictetusian rationality, we show that the two accounts of Epictetus's precept exclude the existence of prisoner's dilemmas.
    Keywords: rationality,Epictetus,preferences,indifference,independence,adaptive preferences
    JEL: B11 D01 D10
    Date: 2022

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