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on Cognitive and Behavioural Economics |
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Issue of 2023‒01‒23
ten papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alexander Vostroknutov (Maastricht University [Maastricht]); Giorgio Coricelli (USC - University of Southern California) |
| Abstract: | In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices, participants are affected only by regret about previously observed high prices (past regret), but when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales. (JEL C91, G12, G41) |
| Keywords: | stock market behavior, behavioral finance, regret avoidance, dynamic regret, dynamic discrete choice, structural models, experiments, multiple reference points |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:spmain:hal-03562318&r=cbe |
| By: | Klimm, Felix (LMU Munich and CESifo); Kocher, Martin G. (University of Vienna, CESifo and University of Gothenburg); Opitz, Timm (MPI and LMU Munich); Schudy, Simeon (LMU Munich and CESifo) |
| Abstract: | Perceived urgency and regret are common in many sequential search processes; for example, sellers often pressure buyers in search of the best offer, both time-wise and in terms of potential regret of forgoing unique purchasing opportunities. theoretically, these strategies result in anticipated and experienced regret, which systematically affect search behavior and thereby distort optimal search. In addition, urgency may alter decision-making processes and thereby the salience of regret. To understand the empirical relevance of these aspects, we study the causal effects of regret, urgency, and their interaction on search behavior in a pre-registered, theory-based, and well-powered experiment. Empirically, we and that anticipated regret does not affect search behavior either with or without time pressure, while experienced regret leads to systematic adjustments in search length. Urgency reduces decision times and perceived decision quality, but does not generally alter search length. Only very inexperienced decision-makers buy earlier when pressured. Thus, consumer protection measures against pressure selling tactics can help inexperienced consumers in particular. |
| Keywords: | sequential search; time pressure; regret; anticipated regret; experienced regret; |
| JEL: | C91 D01 D03 D18 D83 |
| Date: | 2022–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:359&r=cbe |
| By: | Giebe, Thomas (Linnaeus University); Ivanova-Stenzel, Radosveta (TU Berlin); Kocher, Martin G. (University of Vienna, CESifo and University of Gothenburg); Schudy, Simeon (LMU Munich and CESifo) |
| Abstract: | Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, 'cross-game learning' may rather be understood as 'cross-game transfer', as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders. |
| Keywords: | cognitive ability; cross-game learning; cross-game transfer; experiment; auction; heuristics; first-price auctions; second-price auctions; |
| JEL: | C72 C91 D44 D83 |
| Date: | 2022–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:358&r=cbe |
| By: | Angelova, Vera (TU Berlin); Tolksdorf, Michel (TU Berlin) |
| Abstract: | We investigate experimentally whether individuals or groups are more lied to, and how lying depends on the group size and the monetary loss inflicted by the lie. We employ an observed cheating game, where an individual's misreport of a privately observed number can monetarily benefit her while causing a loss to either a single individual, a group of two or a group of five. As the privately observed number is known to the experimenter, the game allows to study both, whether the report deviates from the observed number and also by how much. Treatments either vary the individual loss caused by a given lie (keeping the total loss constant), or the total loss (keeping the individual loss constant). We find more lies toward individuals than toward groups. Liars impose a larger loss with their lie when that loss is split among group members rather than borne individually. The size of the group does not affect lying behavior. |
| Keywords: | cheating; lying; groups; observed cheating game; laboratory experiment; |
| JEL: | C91 D82 D91 |
| Date: | 2022–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:350&r=cbe |
| By: | Madland, Kjetil Røiseland; Strømland, Eirik |
| Abstract: | This paper reports from a large-scale experiment conducted to study the effects of social norms on distributive decision-making. In an incentivized spectator experiment, subjects chose how to divide bonus earnings between a pair of stakeholders. Before choosing a distribution, our spectators stated their beliefs about, and received a signal about, the share of payoff-equalizing spectators in a reference group, randomly drawn from a previous study with the same distributive setting (Almås et al., 2020). This draw gives random variation in the intensity of the signal about the norm that applies in the current setting. We find a statistically significant but small effect of the number of payoff-equalizing spectators in the reference group on the probability of equalizing payoffs in the current setting. The redistribution choice is strongly correlated with spectators’ initial beliefs about the reference group. The effect of the signal about redistribution is primarily driven by the subgroup of participants who receive a large shock to their initial beliefs. |
| Date: | 2022–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:tnv3g&r=cbe |
| By: | Fehr, Dietmar (University of Heidelberg and CESifo); Kübler, Dorothea (WZB Berlin, TU Berlin and CESifo) |
| Abstract: | We study the endowment effect and expectation-based reference points in the field leveraging the setup of the Socio-Economic Panel. Households receive a small item for taking part in the panel, and we randomly assign respondents either a towel or a notebook, which they can exchange at the end of the interview. We observe a trading rate of 32 percent, consistent with an endowment effect, but no relationship with loss aversion. Manipulating expectations of the exchange opportunity, we find no support for expectation-based reference points. However, trading predicts residential mobility and is related to stock-market participation, i.e., economic decisions that entail parting with existing resources. |
| Keywords: | exchange asymmetry; reference-dependent preferences; loss aversion; field experiment; SOEP; |
| JEL: | C93 D84 D91 |
| Date: | 2022–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:353&r=cbe |
| By: | Bhargava, Palaash (Columbia University); Chen, Daniel L. (Toulouse School of Economics); Sutter, Matthias (Max Planck Institute for Research on Collective Goods); Terrier, Camille (University of Lausanne) |
| Abstract: | Social networks are a key factor of success in life, but they are also strongly segmented on gender, ethnicity, and other demographic characteristics (Jackson, 2010). We present novel evidence on an understudied source of homophily, namely behavioral traits. Behavioral traits are important determinants of life-time outcomes. While recent work has focused on how these traits are influenced by the family environment or how they can be affected by childhood interventions, little is still known about how these traits are associated to social networks. Based on unique data that we collected using incentivized experiments on more than 2, 500 French high-school students, we find high levels of homophily across all ten behavioral traits that we study (including social, risk, competitive preferences, and aspirations). Notably, the extent of homophily depends on similarities in demographic characteristics, in particular with respect to gender. Furthermore, the larger the number of behavioral traits that students share, the higher the overall homophily. Then, using network econometrics, we show that the observed homophily is not only an outcome of endogenous network formation, but is also a result of friends influencing each others' behavioral traits. Importantly, the transmission of traits is larger when students share demographic characteristics, such as gender, have been friends for longer or are friends with more popular individuals. |
| Keywords: | homophily, social networks, behavioral traits, peer effects, experiments |
| JEL: | D85 C91 D01 D90 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15840&r=cbe |
| By: | Jiang, Shuguang (Shandong University); Villeval, Marie Claire (CNRS, GATE) |
| Abstract: | We study cheating as a collective-risk social dilemma in a group setting in which individuals are asked to report their actual outcomes. Misreporting their outcomes increases the individual's earnings but when the sum of claims in the group reaches a certain threshold, a risk of collective sanction affects all the group members, regardless of their individual behavior. Because of the pursuit of selfish interest and a lack of coordination with other group members, the vast majority of individuals eventually earn less than the reservation payoff from honest reporting in the group. Over time, most groups are trapped in a "Tragedy of Dishonesty", despite the presence of moral costs of lying. The risk of collective sanction is triggered less frequently in small groups than in large ones, while priming a collectivist mindset has little effect on lying. |
| Keywords: | dishonesty, public bad, group size, collectivism, individualism, experiment |
| JEL: | C92 D01 D91 D62 H41 |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15813&r=cbe |
| By: | Benndorf, Volker (Goethe-Universität Frankfurt); Kübler, Dorothea (WZB Berlin, TU Berlin and CESifo); Normann, Hans-Theo (Universität Düsseldorf) |
| Abstract: | Information unraveling is an elegant theoretical argument suggesting that private information may be fully and voluntarily surrendered. The experimental literature has, however, failed to provide evidence of complete unraveling and has suggested senders' limited depth of reasoning as one behavioral explanation. In our novel design, decision-making is essentially sequential, which removes the requirements on subjects' reasoning and should enable subjects to play the standard Nash equilibrium with full revelation. However, our design also facilitates coordination on equilibria with partial unraveling which exist with other-regarding preferences. Our data confirm that the new design is successful in that it avoids miscoordination entirely. Roughly half of the groups fully unravel whereas other groups exhibit monotonic outcomes with partial unraveling. Altogether, we nd more information unraveling with the new design, but there is clear evidence that other-regarding preferences do play a role in impeding unraveling. |
| Keywords: | data protection; inequality aversion; information revelation; level-k reasoning; |
| JEL: | C72 C90 C91 |
| Date: | 2022–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:354&r=cbe |
| By: | Giuseppe Attanasi; James C. Cox; Vjollca Sadiraj |
| Abstract: | We run a staged field experiment during three concerts in the South of Italy, characterized by the same traditional music and a comparable average level of alcohol consumption by attendees. Individual blood alcohol concentration (BAC) is measured with electronic breathalyzers. The experimental games proposed to concert attendees are mini-games of payoff equivalent private and common property games (Cox et al. 2009). We find that alcohol consumption leads to less pro-social behavior independently of the version of the game, and that the rate of efficient choices is more than twice as high in the private property game than in the common property game. Efficiency of play decreases with alcohol consumption, increases with belief about the percentage of participants who are not inebriated, and is higher for tourists than local participants. |
| Keywords: | Staged Field Experiment, Alcohol, Private Property Game, Common Property Game, Reciprocity, Tourists |
| JEL: | C72 C93 Z10 Z32 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2022-03&r=cbe |