nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2023‒10‒02
three papers chosen by
Marco Novarese, Università degli Studi del Piemonte Orientale

  1. Is There a Dividend of Democracy? Experimental Evidence from Cooperation Games By Thomas Markussen; Jean-Robert Tyran
  2. Managing Mental Accounts: Payment Cards and Consumption Expenditures By Michael Gelman; Nikolai Roussanov
  3. An Experiment on a Dynamic Beauty Contest Game By Nobuyuki Hanaki; Yuta Takahashi

  1. By: Thomas Markussen; Jean-Robert Tyran
    Abstract: Do democratically chosen rules lead to more cooperation and, hence, higher efficiency, than imposed rules? To discuss when such a “dividend of democracy” obtains, we review experimental studies in which material incentives remain stacked against cooperation (i.e., free-riding incentives prevail) despite adoption of cooperation-improving policies. While many studies find positive dividends of democracy across a broad range of cooperation settings, we also report on studies that find no dividend. We conclude that the existence of a dividend of democracy cannot be considered a stylized fact. We discuss three channels through which democracy can produce such a dividend: selection, signaling, and motivation. The evidence points to the role of “culture” in conditioning the operation of these channels. Accepting a policy in a vote seems to increase the legitimacy of a cooperation-inducing policy in some cultures but not in others.
    Keywords: voting collective decision making, public goods
    JEL: C90 D70 D90 H40
    Date: 2023
  2. By: Michael Gelman; Nikolai Roussanov
    Abstract: Does mental accounting matter for total consumption expenditures? We exploit a unique setting in which individuals exogenously received a new credit card, without requesting one. Using random variation in the time of receipt we show that individuals temporarily increase total consumption expenditure by making purchases with the new card without reducing spending on the others. We do not observe a corresponding increase in indebtedness. Total consumption expenditure rises even for the least liquidity-constrained individuals. The evidence is consistent with consumers treating methods of payment as nonfungible budget categories, as suggested by models of mental accounting and narrow bracketing.
    JEL: D01 D12 D31 D91 D99 G02 G40 G41 G5 G50 G51 G53
    Date: 2023–08
  3. By: Nobuyuki Hanaki; Yuta Takahashi
    Abstract: We present and conduct a novel experiment on a dynamic beauty contest game motivated by the canonical New-Keynesian model. Participants continuously provide forecasts for prices spanning multiple future periods. These forecasts determine the price for the current period and participants’ payoffs. Our findings are threefold. First, the observed prices in the experiment deviate more from the rational expectations equilibrium prices under strategic complementarity than under strategic substitution. Second, participants’ expectations respond to announcements of future shocks on average. Finally, participants employ heuristics in their forecasting; however, the choice of heuristic varies with the degree of strategic complementarity.
    Date: 2023–09

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