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on Evolutionary Economics |
| By: | Stefan Bauernschuster (University of Jena, Graduate College "The Economics of Innovative Change"; Max Planck Institute for Economics); Oliver Falck (Ifo Institute for Economic Research, Munich); Niels Daniel Grosse (University of Jena, Graduate College "The Economics of Innovative Change") |
| Abstract: | There is extensive literature, both theoretical and empirical, on the effects of social identity on a wide range of economic and non-economic outcomes. However, there is only scarce knowledge about how social identity is affected by policies or market structure. We address the question how competition among suppliers of finance interacts with trust and trustworthiness in a laboratory one-shot trust game. In order to disentangle pure effects of competition and effects of competition that concern social identity, we apply a 2 x 2 treatment design. We induce social identity by letting subjects play coordination games with clear focal points, which leads to higher investments and trustworthiness in the trust game. Our results show that competition has no significant effects on trust and trustworthiness of individuals in a strangers' framework. However, in a framework with competition of in-group and out-group investors we see that competition leads to crowding out of social identity by reducing trustworthiness. We suggest that once competition comes into play, trustees see in-group trustors' investments as the outcomes of a competitive bidding process rather than voluntary trust, which crowds out reciprocity. |
| Keywords: | Trust Game, Social Identity, Competition |
| JEL: | C92 G11 Z13 L14 |
| Date: | 2009–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-052&r=evo |
| By: | Weinberg, Bruce A. (Ohio State University) |
| Abstract: | People use information about their ability to choose tasks. If more challenging tasks provide more accurate information about ability, people who care about and who are risk averse over their perception of their own ability will choose tasks that are not sufficiently challenging. Overestimation of ability raises utility by deluding people into believing that they are more able than they are in fact. Moderate overestimation of ability and overestimation of the precision of initial information leads people to choose tasks that raise expected output, however extreme overconfidence leads people to undertake tasks that are excessively challenging. Consistent with our results, psychologists have found that moderate overconfidence is both pervasive and advantageous and that people maintain such beliefs by underweighting new information about their ability. |
| Keywords: | overconfidence, behavioral economics, information processing |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4285&r=evo |