nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2023‒02‒06
six papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Behavioral forces driving information unraveling By Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
  2. Willingness to Accept, Willingness to Pay, and Loss Aversion By Jonathan Chapman; Mark Dean; Pietro Ortoleva; Erik Snowberg; Colin Camerer
  3. Lying Aversion and Vague Communication: An Experimental Study By Keh-Kuan Sun; Stella Papadokonstantaki
  4. Human vs. Machine: Disposition Effect among Algorithmic and Human Day Traders By Karolis Liaudinskas
  5. Betting on diversity: Occupational segregation and gender stereotypes By Fischbacher, Urs; Kübler, Dorothea; Stüber, Robert
  6. Biased Memory and Perceptions of Self-Control By Afras Y. Sial; Justin R. Sydnor; Dmitry Taubinsky

  1. By: Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
    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, decisionmaking 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 find 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
  2. By: Jonathan Chapman; Mark Dean; Pietro Ortoleva; Erik Snowberg; Colin Camerer
    Abstract: We use four incentivized representative surveys to study the endowment effect for lotteries in 4, 000 U.S. adults. We replicate the standard finding of an endowment effect—the divergence between Willingness to Accept (WTA) and Willingness to Pay (WTP), but document three new findings. First, we find little evidence that the endowment effect is related to loss aversion for risky prospects, counter to predictions of popular theories in economics. Second, WTA and WTP not only diverge, but are, at best, weakly correlated. Third, WTA and WTP strongly relate to other aspects of risk preferences. The structure of these behaviors points to different theories of the endowment effect.
    JEL: C90 D81 D91
    Date: 2023–01
  3. By: Keh-Kuan Sun; Stella Papadokonstantaki
    Abstract: An agent may strategically employ a vague message to mislead an audience's belief about the state of the world, but this may cause the agent to feel guilt or negatively impact how the audience perceives the agent. Using a novel experimental design that allows participants to be vague while at the same time isolating the internal cost of lying from the social identity cost of appearing dishonest, we explore the extent to which these two types of lying costs affect communication. We find that participants exploit vagueness to be consistent with the truth, while at the same time leveraging the imprecision to their own benefit. More participants use vague messages in treatments where concern with social identity is relevant. In addition, we find that social identity concerns substantially affect the length and patterns of vague messages used across the treatments.
    Date: 2023–01
  4. By: Karolis Liaudinskas
    Abstract: This paper studies whether and why algorithmic traders exhibit one of the most broadlydocumented behavioral puzzles – the disposition effect. We use trade data from the NASDAQ Copenhagen Stock Exchange merged with the weather data. We find that on average, the disposition effect for human traders is substantial and increases significantly on colder days, while for similarly-trading algorithms, it is insignificant and insensitive to the weather. This provides causal evidence of the link between human psychology and the disposition effect and suggests that algorithms can reduce psychology-related human errors. Considering the ongoing AI adoption, this may have broad implications.
    Keywords: Disposition effect, Algorithmic trading, High-frequency trading, Decision making, Financial markets, Rationality
    JEL: D8 D91 G11 G12 G23 G41 O3
    Date: 2022–06–01
  5. By: Fischbacher, Urs; Kübler, Dorothea; Stüber, Robert
    Abstract: Many occupations and industries are highly segregated with respect to gender. This segregation could be due to perceived job-specific productivity differences between men and women. It could also result from the belief that single-gender teams perform better. We investigate the two explanations in a lab experiment with students and in an online experiment with personnel managers. The subjects bet on the productivity of teams of different gender compositions in tasks that differ with respect to gender stereotypes. We obtain similar results in both samples. Women are picked more often for the stereotypically female task and men more often for the stereotypically male task. Subjects do not believe that homogeneous teams perform better but bet more on diverse teams, especially in the task with complementarities. Elicited expectations about the bets of others reveal that subjects expect the effect of the gender stereotypes of tasks but underestimate others' bets on diversity.
    Keywords: Gender segregation, hiring decisions, teams, discrimination, stereotypes
    JEL: C91 D9 J16
    Date: 2022
  6. By: Afras Y. Sial; Justin R. Sydnor; Dmitry Taubinsky
    Abstract: Using data from a field experiment on exercise, we analyze the relationship between imperfect memory and people's awareness of their limited self-control. We find that people overestimate past gym attendance, and that larger overestimation of past attendance is associated with (i) more overestimation of future attendance, (ii) a lower willingness to pay to motivate higher future gym attendance, and (iii) a smaller gap between goal and forecasted attendance. We organize these facts with a structural model of quasi-hyperbolic discounting and naivete, estimating that people with more biased memories are more naive about their time inconsistency, but not more time-inconsistent.
    JEL: D9 I12
    Date: 2023–01

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