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on Cognitive and Behavioural Economics |
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Issue of 2024‒07‒29
five papers chosen by |
| By: | Keyu Wu; Ernst Fehr; Sean Hofland; Martin Schonger |
| Abstract: | Ambiguous prospects are ubiquitous in social and economic life, but the psychological foundations of behavior under ambiguity are still not well understood. One of the most robust empirical regularities is the strong correlation between attitudes towards ambiguity and compound risk which suggests that compound risk aversion may provide a psychological foundation for ambiguity aversion. However, compound risk aversion and ambiguity aversion may also be independent psychological phenomena, but what would then explain their strong correlation? We tackle these questions by training a treatment group’s ability to reduce compound to simple risks, and analyzing how this affects their compound risk and ambiguity attitudes in comparison to a control group who is taught something unrelated to reducing compound risk. We find that aversion to compound risk disappears almost entirely in the treatment group, while the aversion towards both artificial and natural sources of ambiguity remain high and are basically unaffected by the teaching of how to reduce compound lotteries. Moreover, similar to previous studies, we observe a strong correlation between compound risk aversion and ambiguity aversion, but this correlation only exists in the control group while in the treatment group it is rather low and insignificant. These findings suggest that ambiguity attitudes are not a psychological relative, and derived from, attitudes towards compound risk, i.e., compound risk aversion and ambiguity aversion do not share the same psychological foundations. While compound risk aversion is primarily driven by a form of bounded rationality – the inability to reduce compound lotteries – ambiguity aversion is unrelated to this inability, suggesting that ambiguity aversion may be a genuine preference in its own right. |
| Keywords: | ambiguity aversion, compound risk aversion, bounded rationality, reduction of compound lotteries |
| JEL: | C91 D01 D91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11150&r= |
| By: | Ann-Christin Posten (University of Limerick); Pınar Uğurlar (Özyeğin University, Istanbul); Sebastian Kube (University of Bonn); Joris Lammers (University of Cologne) |
| Abstract: | An effective way to foster cooperation is to monitor behaviour and sanction freeriding. Yet, previous studies have shown that cooperation quickly declines when sanctioning mechanisms are removed. We test if explicitly expressing trust in players’ capability to maintain cooperation after the removal of sanctions, i.e. vertical communication of trust, has the potential to alleviate this drop in compliance. Four incentivized public-goods experiments (N = 2423) find that the vertical communication of trust maintains cooperation upon the removal of centralized (Study 1), third-party (Study 2), and peer punishment (Study 3), and this effect extends beyond single interactions (Study 4). In all studies, vertical trust communication increases mutual trust among players, providing support to the idea that vertically communicating trust can be a self-fulfilling prophecy. Extrapolating our findings to natural environments, they suggest that authorities should carefully consider how they communicate the lifting of rules and sanctions. |
| Keywords: | Cooperation, Vertical Trust, Punishment, Public Good, Experiment |
| JEL: | H4 D91 C92 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:323&r= |
| By: | Emily Quiroga; Michael Tanner |
| Abstract: | The study on risk preferences and its potential changes amid natural catastrophes has been subject of recent study, producing contradictory findings. An often proposed explanation specifically distinguishes between the opposite effect of realized and unrealized losses on risk preferences. Moreover, higher-order risk preferences and its relation to post-disaster behaviors remain unexplored, despite potential theoretical implications. We address these gaps in the literature by conducting experiments with 600 individuals post Turkeys 2023 catastrophic earthquake, specifically heavily affected individuals who are displaced, those who are not and a control group. Results indicate higher risk-taking in heavily affected individuals when compared to unaffected individuals. Our results are specifically driven by affected females. We find no pre existing differences in risk preferences between earthquake and control areas using 2012 data. Within the heavily affected group of individuals, higher house damage, our proxy for realized losses, increases risk aversion. Regarding higher-order risk preferences for individuals heavily affected by the earthquake, we find that prudence is positively associated with selfprotective behaviors after the earthquake, specifically internal migration and/or displacement. While precautionary savings shows initially no correlation to prudence, a positive association emerges when considering that prudence is also related to occupational choices, with individuals with stable incomes and who save being more prudent. Our results contribute insights into how disasters influence risk preferences, specifically aiming to address contradictory findings in the literature, while presenting novel evidence on the relationship between prudence and post-natural disaster behaviors. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.15905&r= |
| By: | Arno Apffelstaedt (University of Cologne); Gönül Doğan (University of Cologne); Fabian Hoffmann (University of Cologne) |
| Abstract: | We introduce a novel concept, group image concerns, showing that individuals change their behavior and are willing to incur personal costs to cultivate a positive image of their groups. We develop an experimental method to identify and quantify group image concerns, and conduct a series of laboratory and online experiments to measure them in three distinct domains. In the first two experiments focused on charitable behavior, participants donate more when their contributions are publicly associated with their group, despite their individual identity remaining private. They also pay significant amounts to keep low donations from other group members private and to make high donations public. These findings emerge for students in the laboratory, using university affiliation as their group identity, as well as for online participants from the general U.S. population, using religious affiliation as their group identity. Additional online experiments explore group image concerns among Democrats and Republicans regarding their group’s knowledge of the U.S. national anthem, as a measure of patriotism, and among U.S. students concerning their university’s reputation for intelligence in solving matrix completion tasks. We isolate group image concerns from individual image concerns and benchmark them against individual image concerns in our laboratory experiment. Our results establish group image concerns as an important driver of individual behavior and a significant source of utility across various domains. |
| Keywords: | social identity and behavior, image concerns, experiments, charitable and prosocial behavior, intelligence, political identity, religious identity, real effort |
| JEL: | D01 D91 C92 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:324&r= |
| By: | William G. Morrison; Bradley J. Ruffle |
| Abstract: | We report on a laboratory experiment to investigate whether the price paid for insurance explains dishonesty in reporting an insurance claim. In the experiment, participants earn money in a realeffort task, but risk losing some of this income through one of four randomly assigned and privately observed loss amounts. Prior to observing and reporting their loss, participants indicate their reservation price for an insurance policy that pays an indemnity equal to their stated loss. Participants are insured if their randomly assigned premium is less than or equal to their stated reservation price. This mechanism provides data on each participant’s consumer surplus from the purchase of insurance. After receiving their cash earnings minus their assigned loss amount in private, participants report their loss. Our results indicate that the propensity to dishonestly report an inflated loss neither increases in the amount paid for insurance nor decreases in the consumer surplus associated with an insurance purchase. |
| Keywords: | experimental economics; insurance; dishonesty; claim buildup; known reporting distribution |
| JEL: | C91 D82 G22 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mcm:deptwp:2024-05&r= |