nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2023‒09‒04
seven papers chosen by
Marco Novarese, Università degli Studi del Piemonte Orientale

  1. Sharing, Social Norms, and Social Distance: Experimental Evidence from Russia and Western Alaska By E. Lance Howe; James J. Murphy; Drew Gerkey; Olga B. Stoddard; Colin Thor West
  2. Precautionary Savings, Loss Aversion, and Risk: Theory and Evidence By Sanjit Dhami; Narges Hajimoladarvish; Konstantinos Georgalos
  3. Behavioural Responses to Unfair Institutions: Experimental Evidence on Rule Compliance, Norm Polarisation and Trust By Simon Columbus; Lars P. Feld; Matthias Kasper; Matthew D. Rablen
  4. Intrinsic Motivation vs. Corruption? Experimental Evidence on the Performance of Officials By Lambsdorff, Johann Graf; Grubiak, Kevin; Werner, Katharina
  5. The Robustness of Preferences during a Crisis: The Case of Covid-19 By Paul Bokern; Jona Linde; Arno Riedl; Peter Werner
  6. The Economics of Financial Stress By Sergeyev, Dmitriy; Lian, Chen; Gorodnichenko, Yuriy
  7. The floating duck syndrome: biased social learning leads to effort-reward imbalances By Akcay, Erol; Ohashi, Ryotaro

  1. By: E. Lance Howe (Department of Economics, University of Alaska Anchorage); James J. Murphy (Department of Economics, University of Alaska Anchorage); Drew Gerkey (Oregon State University); Olga B. Stoddard (Department of Economics, Bringham Young University); Colin Thor West (University of North Carolina, Chapel Hill)
    Abstract: This paper investigates how dictator giving varies by social context and worthiness of the recipient. We conduct lab-in-the-field experiments in Kamchatka, Russia, and Western Alaska, as well as a lab experiment with university students, in which we vary social distance and recipient characteristics across treatments. We ask what motivates individuals to share and whether offers from a dictator game, where dictators give from own-earnings, can tell us something more fundamental about social norms and sharing. Results indicate that subjects living in rural Indigenous communities, in both Russia and Alaska, who depend heavily on wild food harvests and possess strong sharing norms, are significantly more likely to give positive amounts compared to university students. We also find that in Indigenous communities, family relations and financial needs are prioritized in giving decisions. We suggest that treatment differences correspond to social norm differences in our study areas.
    Keywords: dictator game, experimental economics, lab-in-the-field experiments, sharing, risk pooling
    JEL: C93 D64
    Date: 2023–07–18
  2. By: Sanjit Dhami; Narges Hajimoladarvish; Konstantinos Georgalos
    Abstract: We consider a simple, two period, consumption-savings model with future income uncertainty that examines the interplay of savings, precautionary savings, loss aversion, and risk. We provide the relevant theory, followed by empirical tests based on subject-specific choices, and the measurement of subject-specific behavioral parameters such as loss aversion and present bias. We predict, and show empirically, that loss aversion reduces savings, and that those who are more loss averse are less likely to engage in precautionary savings. Present-bias reduces savings. We also show that decision makers save more in response to a mean preserving spread of future random incomes, and this response is strengthened by loss aversion. We term this as the loss aversion-hedging motive.
    Keywords: income uncertainty, precautionary savings, loss aversion, loss aversion-hedging
    JEL: D01 D91
    Date: 2023
  3. By: Simon Columbus; Lars P. Feld; Matthias Kasper; Matthew D. Rablen
    Abstract: This study investigates the effects of unfair enforcement of institutional rules on public good contributions, personal and social norms, and trust. In a preregistered online experiment (n = 1, 038), we find that biased institutions reduce rule compliance compared to fair institutions. However, rule enforcement – fair and unfair – reduces norm polarisation compared to no enforcement. We also find that social heterogeneity lowers average trust and induces ingroup favouritism in trust. Finally, we find consistent evidence of peer effects: higher levels of peer compliance raise future compliance and spillover positively into norms and trust. Our study contributes to the literature on behavioural responses to institutional design and strengthens the case for unbiased rule enforcement.
    Keywords: public goods, compliance, social norms, trust, audits, biased rule enforcement, polarisation
    JEL: H41 C72 C91 C92
    Date: 2023
  4. By: Lambsdorff, Johann Graf; Grubiak, Kevin; Werner, Katharina
    Abstract: There are conflicting views as to whether corruption or intrinsic motivation plays a greater role in determining the performance of public officials. We run an experiment that incorporates both viewpoints and assess the relative strength and interplay of these respective factors. The design introduces some realism into an everyday exchange between an Estimator (businessperson) and an Auditor (public official) and induces a gray area between intrinsic motivation, extortion and bribery. The Estimator can make a large transfer in the hope of avoiding unfair treatment (extortion) or obtaining an undeserved benefit (bribery). The Auditor may be intrinsically motivated to fulfill her duty or may be corrupted by transfers. We find that intrinsic motivation has a much higher impact on the performance of Auditors than corruption. In a treatment with punishment, Auditors are significantly less likely to accept a large transfer. But punishment fails to bring about favorable welfare effects due to two forces offsetting each other on the individual level. Intrinsic motivation increases for some subjects, supporting the “expressive law” literature, while it decreases for others, supporting the “crowding-out” literature. We infer that punishing officials is an unproblematic tool for fighting corruption, but its effectiveness is called into question. Policies should focus more on preserving officials’ intrinsic motivation and worry less about their corruptibility.
    Keywords: Bribery; crowding-out; expressive law; extortion; intrinsic motivation
    JEL: C92 D73 K42
    Date: 2023–05–24
  5. By: Paul Bokern; Jona Linde; Arno Riedl; Peter Werner
    Abstract: We investigate how preferences have been affected by exposure to the COVID-19 crisis. Our main contributions are: first, our participant pool consists of a large general population sample; second, we elicited a wide range of preferences (risk, time, ambiguity, and social preferences) using different incentivized experimental tasks; third, we elicited preferences before the onset of the crises and in three additional waves during the crises over a time period of more than a year, allowing us to investigate both short-term and medium-term preference responses; fourth, besides the measurement of causal effects of the crisis, we also analyze within each wave during the crisis, how differential exposure to the crisis in the health and financial domain affects preferences. We find that preferences remain remarkably stable during the crisis. Comparing them before the start and during the crisis, we do not observe robust differences in any of the elicited preferences. Moreover, individual differences in the exposure to the crisis at best show only weak effects in the financial domain.
    Keywords: preference robustness, crisis, risk-, time-, ambiguity- and social preferences, Covid-19
    JEL: C90 D01
    Date: 2023
  6. By: Sergeyev, Dmitriy (Bocconi University); Lian, Chen (UC Berkeley); Gorodnichenko, Yuriy (University of California, Berkeley)
    Abstract: We study the psychological costs of financial constraints and their economic consequences. Using a representative survey of U.S. households, we document the prevalence of financial stress in U.S. households and a strong relationship between financial stress and measures of financial constraints. We incorporate financial stress into an otherwise standard dynamic model of consumption and labor supply. We emphasize two key results. First, a psychology-based theory of poverty traps requires two equally important components: financial stress itself and naivete about financial stress. Specifically, sophisticates save enough to escape high-stress states, because they understand that doing so alleviates the economic consequences of financial stress. On the other hand, naifs dis-save, fall into a poverty trap, and incur high welfare losses. Second, the financial stress channel can reverse the counterfactual negative wealth effect on labor supply because relieving stress frees up cognitive resources for productive work. Financial stress also has macroeconomic implications on wealth inequality and fiscal multipliers.
    Keywords: household finance, survey, stress, behavioral economics
    JEL: E7 G5
    Date: 2023–07
  7. By: Akcay, Erol (University of Pennsylvania); Ohashi, Ryotaro
    Abstract: An increasingly common phenomenon in modern work and school settings is individuals taking on too many tasks and spending effort without commensurate rewards. Such an imbalance of efforts and rewards leads to myriad negative consequences, such as burnout, anxiety, and disease. Here, we develop a model to explain how such effort-reward imbalances can come about as a result of biased social learning dynamics. Our model is based on a phenomenon that on some US college campuses is called "the floating duck syndrome." This phrase refers to the social pressure on individuals to advertise their successes but hide the struggles and the effort put in to achieve them. We show that a bias against revealing the true effort results in social learning dynamics that lead others to underestimate the difficulty of the world. This in turn leads individuals to both invest too much total effort and spread this effort over too many activities, reducing the success rate from each activity and creating effort-reward imbalances. We also consider potential ways to counteract the floating duck effect: we find that solutions other than addressing the root cause, biased observation of effort, are unlikely to work.
    Date: 2023–08–04

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