nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2023‒12‒04
three 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. Contingent Belief Updating By Chiara Aina; Andrea Amelio; Katharina Brütt
  3. How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment By Gill, David; Knepper, Zachary; Prowse, Victoria; Zhou, Junya

  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, privacy
    JEL: C72 C90 C91
    Date: 2023
  2. By: Chiara Aina (Department of Economics, Harvard University); Andrea Amelio (Bonn Graduate School of Economics, University of Bonn); Katharina Brütt (School of Business & Economics, Vrije Universiteit Amsterdam)
    Abstract: We study how contingent thinking – that is, reasoning through all possible contingencies without knowing which is realized – affects belief updating. According to the Bayesian benchmark, beliefs updated after exposure to new information should be equivalent to beliefs assessed for the contingency of receiving such information. Using an experiment, we decompose the effect of contingent thinking on belief updating into two components: (1) hypothetical thinking (updating on a piece of not-yet-observed information) and (2) contrast reasoning (comparing multiple contingencies during the updating process). Our results show that contingent thinking increases deviations from Bayesian updating and that this effect can be attributed to hypothetical thinking.
    Keywords: Belief Updating; Contingent Thinking; Experiment
    JEL: C91 D83 D91
    Date: 2023–11
  3. By: Gill, David (Department of Economics, Purdue University); Knepper, Zachary (Department of Economics, Purdue University); Prowse, Victoria (Department of Economics, Purdue University); Zhou, Junya (Department of Economics, Purdue University)
    Abstract: We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game. Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose the Nash equilibrium action less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose the equilibrium action.
    Keywords: cognitive ability; judgment; fluid intelligence; matrix reasoning; beauty contest; strategic sophistication; level-k; experiment; game theory JEL Classification: C92; C72; D91
    Date: 2023

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