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on Cognitive and Behavioural Economics |
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Issue of 2024‒08‒26
four papers chosen by |
| By: | Anujit Chakraborty; Luca Henkel |
| Abstract: | In prosocial decisions, decision-makers are inherently uncertain about how their decisions impact others’ utility – we call this interpersonal uncertainty. We show that people’s response to interpersonal uncertainty shapes well-known patterns of prosocial behavior. First, using standard social allocation decisions, we replicate the classic patterns of ingroup favoritism, merit-based fairness ideals, and self-favoring behavior in dictator games. We then show that these patterns also arise in non-social decisions which have no consequences for others and instead solely reflect responses to interpersonal uncertainty. Behavior across social and non-social decisions is highly correlated, and self-reported interpersonal uncertainty predicts behavior in both situations. Moreover, exogenously varying interpersonal uncertainty shifts prosocial behavior in the direction that avoids such uncertainty. Our results quantify how beliefs in the form of inter-personal uncertainty influence prosocial behavior, which we estimate to be of similar importance to social preferences. |
| Keywords: | prosocial behaviour, social preferences, ingroup versus outgroup decisions, dictator games, fairness preferences, interpersonal uncertainty |
| JEL: | C91 D01 D91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11193 |
| By: | Gill, David (Purdue University); Knepper, Zachary (Purdue University); Prowse, Victoria L. (Purdue University); Zhou, Junya (University of Texas at Dallas) |
| Abstract: | We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game (where the Nash equilibrium action is zero). Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose zero 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 zero. |
| Keywords: | cognitive ability, judgment, fluid intelligence, matrix reasoning, beauty contest, strategic sophistication, level-k, experiment, game theory |
| JEL: | C92 C72 D91 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17168 |
| By: | Yonas Alem; John Loeser; Aprajit Mahajan |
| Abstract: | The implications of commonly used money earlier or later (MEL) games for intertemporal behavior depend critically upon subjects’ choice bracketing. If subjects bracket narrowly, responses reflect preferences independent of subjects’ financial environment. Alternatively, if subjects bracket broadly, responses reflect subjects’ marginal returns to investment. We test both hypotheses in a lab-in-the-field experiment, which involves repeated MEL games, a large unconditional cash transfer, and an illiquid savings product. Subjects do not narrowly bracket – randomized cash transfers induce greater patience in MEL choices. Subjects do not broadly bracket either – they fail to arbitrage across equivalent MEL and savings opportunities. We develop a conceptual framework and present evidence that narrowly bracketing subjects drive the predictive power of MEL outcomes for financial choices, providing a rationale for the common practice of interpreting MEL choices as a proxy for time preferences rather than financial environment. |
| JEL: | O10 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32683 |
| By: | Felipe Araujo; Alex Imas; Alistair Wilson |
| Abstract: | We demonstrate the pitfalls when extrapolating behavioral findings across different contexts and decision environments. We focus on regret theory and the use of “regret lotteries” for motivating behavior change. Here, findings from one-shot settings have been used to promote regret as a tool to boost incentives in recurrent decisions across many settings. Using theory and experiments, we replicate regret lotteries as the superior one-shot incentive; however, for repeated decisions the comparative static is entirely reversed. Moreover, the effects are extremely sensitive to details of regret implementation. Our results suggest caution should be used when designing incentive schemes that exploit regret. |
| JEL: | D0 D03 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32759 |