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on Experimental Economics |
| By: | Abhijit Ramalingam (University of East Anglia); Antonio J. Morales (Universidad de Malaga); James M. Walker (Indiana University) |
| Abstract: | Instruction length and content have been shown to affect comprehension levels and decision times of experimental subjects in public goods games. However, to date, there is no evidence of a significant impact on behaviour. We investigate the effects of instruction length and content on comprehension and behaviour in a more complicated setting – a public goods game with punishment. We find that longer instructions, that include examples that highlight the positive externality associated with public goods contributions, increase the comprehension levels of subjects, significantly lowering the time taken to answer the pre-experiment quiz and make decisions. Importantly, the differences in instructions are also associated with significant differences in behaviour. On average, groups that receive shorter instructions fail to use punishment effectively to raise contribution levels while those that receive longer instructions sustain higher contribution levels over time. In the former case, groups target low contributors less frequently than appears necessary to induce greater cooperation. |
| Keywords: | public goods, punishment, instruction length, decision times, contributions, punishment |
| JEL: | C72 C91 C92 H41 |
| Date: | 2015–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:15-22&r=exp |
| By: | Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw); Magdalena Smyk (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | Bibliometric studies show that male academics are more productive than their female counterparts and that the gap cannot be explained in terms of difference in abilities. In this project we wish to verify the hypothesis that this tendency is related to the greater support that men receive from their colleagues (“old boys network”). Towards this end we had e-mails sent by a male or female student asking academics for a minor favour. In Study 1 we asked authors of nearly 300 papers in experimental economics to share the raw data used in their study. We observed no difference in response rate or compliance rate between male and female senders. In Study 2 we sent 2775 e-mails to academics affiliated with prestigious schools from ten different fields , asking to either send us a copy of their recent article or meet the sender supposedly interested in pursuing a PhD program. Once again we manipulated gender of the senders but this time we also varied their physical attractiveness. We found a small but significant difference in the Article Treatment: attractive females’ requests were honoured less often. No such tendency was found in the Meeting Treatment and no general gender effect was observed. Overall, we find very little support for the claim that early-stage male researchers enjoy greater support than their female colleagues. |
| Keywords: | gender, beauty, women in academia, field experiment |
| JEL: | J16 C93 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2015-43&r=exp |
| By: | Morone, Andrea; Temerario, Tiziana |
| Abstract: | Previous research has begun to investigate how small groups make decisions when facing risky choices. However, no consensus has been reached. One stream of research found that groups are more risk averse, while another one reported the contrary and some studies did not even find any significant difference. This paper is meant to provide a clear comparison between two different experimental designs from Harrison et al. (2012) and Zhang and Casari, (2012). The former tests the risk preferences of groups of three members where group’s decision is taken with the majority rule; the latter, also tests risk preferences of three-members group, but using a different lottery set and aggregation rule, i.e. unanimity. These two experiments lead to different results: Harrison et al. (2012) did not find any substantial difference between individuals’ and groups’ preferences over risk, while Zhang and Casari (2012) found that groups tend to be more prone to the risk neutrality than individuals. Additionally, we present a replication study of Harrison et al. (2012) and Zhang and Casari (2012) in order to check to what extent the lottery set and the aggregation rule (majority or unanimity) adopted to elicit preferences may affect the final group choice. It results that individual and group choices are not significantly different, regardless of the lottery set and the aggregation rule used in the experimental design. |
| Keywords: | risk choice; decision-making under risk and uncertainty; experimental economics; group behavior; |
| JEL: | C92 D81 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68519&r=exp |
| By: | Hoppe, Eva I; Schmitz, Patrick W |
| Abstract: | We present the first large-scale laboratory experiment designed to capture the canonical hidden action problem as studied in contract theory, comparing treatments with unobservable effort to benchmark treatments with verifiable effort. In line with contract theory, when effort is a hidden action, the chosen effort levels crucially depend on the contractibility of the outcome. In our one-shot experiment the players endogenously negotiate contracts. In the absence of communication, they typically avoid gift-exchange situations. Even when the outcome is contractible and the hidden action problem is typically overcome with incentive-compatible contracts, communication is helpful since it may reduce strategic uncertainty. |
| Keywords: | Contract theory; Hidden action; Incentive theory; Laboratory experiments; Moral hazard |
| JEL: | C72 C92 D82 D86 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11002&r=exp |
| By: | Sonntag, Axel; Zizzo, Daniel |
| Abstract: | We present the results of an experiment that (a) shows the usefulness of screening out drop-outs and (b) tests whether different methods of payment and reminder intervals affect charitable giving. Following a lab session, participants could make online donations to charity for a total duration of three months. Our procedure justifying the exclusion of drop-outs consists in requiring participants to collect payments in person flexibly and as known in advance and as highlighted to them later. Our interpretation is that participants who failed to collect their positive payments under these circumstances are likely not to satisfy dominance. If we restrict the sample to subjects who did not drop out, but not otherwise, reminders significantly increase the overall amount of charitable giving. We also find that weekly reminders are no more effective than monthly reminders in increasing charitable giving, and that, in our three months duration experiment, standing orders do not increase giving relative to one-off donations. |
| Keywords: | drop-outs, methodology, charitable giving, payment method, reminders, nudges, dominance |
| JEL: | C91 D64 L31 |
| Date: | 2015–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68478&r=exp |
| By: | Belot, Michèle; Fafchamps, Marcel |
| Abstract: | We construct an experiment to study the role of other-regarding preferences in the process of partnership formation. The literature on decentralized matching describes the process of match formation as a market-like process while the literature on other-regarding preferences suggests that such preferences are particularly strong in small partnerships. So we ask: do people apply market-like heuristics when searching for a partner (i.e. behave selfishly); or do they behave more pro-socially, as they do once these partnerships or small entities are formed? And if they do behave differently, what motivates differences in behavior? We focus on one possible mechanism explaining differences in behavior: the saliency of the implications of choices on others. We compare partnership choices in three treatments, varying the saliency of the implications of choices on others. We find that a market-like situation reduces the `good samaritan' spirit in this environment as well: when choosing a partner agents are less likely to sacrifice their own material well-being to increase the well-being of others. |
| Keywords: | Efficiency; Inequality; Markets; Other-regarding preferences; Partnership formation |
| JEL: | A13 C91 D61 D63 D64 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11017&r=exp |
| By: | Theodore L. Turocy (University of East Anglia); Timothy N. Cason (Purdue University) |
| Abstract: | We report a laboratory experiment on first-price and second-price auctions in settings with independent signals and interdependent values. The environment includes independent private values and the common-value "wallet game" as limiting cases. We manipulate the degree of interdependence of values across sessions, while maintaining the same Bayes-Nash equilibrium bidding function. In contrast, cursed equilibrium predicts bids will be raised for lower signals. We find some support for cursed equilibrium, in that bids change as the degree of value interdependence changes. Contrary to both Bayes-Nash and cursed equilibrium, auction revenues are largest for intermediate levels of interdependence. We construct a model combining cursedness with an underweighting of the opportunity costs of higher bids, and find substantial bidder heterogeneity. A majority of bidders are either fully cursed and disregard completely the bad news that winning the auction entails, or are not cursed at all. We also find evidence for some systematic procedural differences in bidding between first-price and second-price auctions. |
| Keywords: | auctions, affiliated values, winner's curse, wallet game, experiments |
| JEL: | D44 C91 |
| Date: | 2015–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:15-23&r=exp |
| By: | Cadsby, Bram (University of Guelph); Engle-Warnick, Jim (McGill University); Fang, Tony (Memorial University of Newfoundland); Song, Fei (Ryerson University) |
| Abstract: | Tournaments are widely used to assign bonuses and determine promotions because of the link between relative performance and rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers and university students as a comparison group in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. We provided performance-ranking information both privately and publicly, with and without rank-based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for that of workers. Adding financial incentives based on rank provided little evidence of further improvement. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups financial and psychological incentive effects are both inversely related to individual levels of risk aversion, and are positive and significant both for workers and for students who are sufficiently risk-tolerant. |
| Keywords: | tournament, peer pressure, performance feedback, social comparison, incentives, risk aversion, artefactual field experiment |
| JEL: | J30 J24 J33 C93 C91 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9565&r=exp |
| By: | Bruno Cardinale Lagomarsino (Department of Economics, Universidad de San Andres); Matías Gutman (Department of Economics, Universidad de San Andres); Lucía Freira (Department of Economics, Universidad de San Andres & UTDT); María Laura Lanzalot (Department of Economics, Universidad de San Andres); Maximiliano Lauletta (Department of Economics, Universidad de San Andres); Leandro Malchik (Department of Economics, Universidad de San Andres); Felipe Montaño Campos (Department of Economics, Universidad de San Andres); Bianca Pacini (Department of Economics, Universidad de San Andres); Martín Rossi (Department of Economics, Universidad de San Andres); Christian Valencia (Department of Economics, Universidad de San Andres) |
| Abstract: | We provide experimental evidence on the effect of peer pressure on activities with externalities. Specifically, we study the effect of being exposed to an observer in a public restroom on hand-washing behavior. Our estimates show that being exposed to an observer increases the probability of hand-washing in 13 percentage points. We also observe urinal flushing behavior, with similar results. We find empirical support that peer pressure may provide an additional way of solving the social suboptimality arising from externalities. |
| Keywords: | peer pressure, externalities |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:sad:wpaper:125&r=exp |
| By: | G. Camera; M. Casari |
| Abstract: | Does monitoring past conduct facilitate intertemporal cooperation? We designed an experiment characterized by strategic uncertainty and multiple equilibria where coordinating on the efficient outcome is a challenge. Participants, interacting anonymously in a group, could pay a cost either to obtain information about their counterparts, or to create a freely available public record of individual conduct. Both monitoring institutions were actively employed. However, groups were unable to attain higher levels of cooperation compared to a treatment without monitoring. Information about past conduct alone thus appears to be ineffective in overcoming coordination challenges. |
| JEL: | C70 C90 D80 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1046&r=exp |
| By: | Grebe, Tim (InterVal GmbH); Ivanova-Stenzel, Radosveta (Technical University of Berlin); Kröger, Sabine (Université Laval) |
| Abstract: | We study experimentally the effect of bargaining power in two sequential mechanisms that offer the possibility to trade at a fixed price before an auction. In the "Buy-It-Now" format, the seller has the bargaining power and offers a price prior to the auction; whereas in the "Sell-It-Now" format, it is the buyer. Both formats are extensively used in online and offline markets. Despite very different strategic implications for buyers and sellers, results from our experiment suggest no effects of bargaining power on aggregate outcomes. There is, however, substantial heterogeneity within sellers. Sellers who ask for high prices not only benefit from having the bargaining power but also earn revenue above those expected in the auction. |
| Keywords: | Buy-It-Now price, Sell-It-Now price, private value auction, single item auction, sequential selling mechanism, fixed price |
| JEL: | C72 C91 D44 D82 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9566&r=exp |
| By: | Baert, Stijn (Ghent University) |
| Abstract: | We investigate whether the publicly available information on Facebook about job applicants affects employers' hiring decisions. To this end, we conduct a field experiment in which fictitious job applications are sent to real job openings in Belgium. The only characteristic in which these candidates differ is the unique Facebook profile that can be found online with their name. Candidates with the most beneficial Facebook picture obtain approximately 39% more job interview invitations compared to candidates with the least beneficial picture. In addition, we find suggestive evidence for a higher effect of Facebook profile picture appearance on hiring chances when candidates are highly educated and when recruiters are female. |
| Keywords: | hiring, screening, Facebook, Internet, personality, attractiveness |
| JEL: | C93 D83 J24 J79 L86 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9584&r=exp |
| By: | M. Bigoni; G. Camera; M. Casari |
| Abstract: | This study reveals the existence of a causal link between the availability of money and an expanded scale of interaction. We constructed an experiment where participants chose the group size, either a low-value partnership or a high-value group of strangers, and then faced an intertemporal cooperative task. Theoretically, a monetary system was inessential to achieve cooperation. Empirically, without a working monetary system, participants were reluctant to expand the scale of interaction; and when they did, they ended up destroying surplus compared to partnerships, because cooperation collapsed in large groups. This economic failure was reversed only when participants managed to concurrently develop a stable monetary system. |
| JEL: | C70 C90 D80 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1045&r=exp |
| By: | Nikita A. Novikov (National Research University Higher School of Economics); Dmitri V. Bryzgalov (National Research University Higher School of Economics); Anna A. Lapina (National Research University Higher School of Economics); Boris V. Chernyshev (National Research University Higher School of Economics) |
| Abstract: | Successful performance in complex tasks depends upon the functioning of the cognitive control system involving the maintenance of sustained attention, retention and activation of task rules, as well as the inhibition of preliminary responses. Failure of any of these functions can lead to performance errors. In this study, we investigated behavioral data obtained from participants performing the auditory condensation task, which is highly demanding of the level of cognitive control but does not require participants to inhibit or override any prepotent automatic responses. We identified pre-error speeding and error slowing, while post-error slowing was not evident. Our results suggest that there are three factors contributing to the variability within the behavioral measures obtained. The first factor is related to the overall response latency, the second to the main individual mechanism of performance errors, and the third to the subject’s ability to increase motor threshold in the event of uncertainty and choice ambiguity. The data obtained evidence that the auditory condensation task is a promising model for studying cognitive control |
| Keywords: | condensation task, cognitive control, inter-individual differences, response latency |
| JEL: | Z |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:56psy2015&r=exp |
| By: | Simon Gaechter (Department of Economics, University of Nottingham.); Leonie Gerhards (Department of Economics, University of Hamburg); Daniele Nosenzo (Department of Economics, University of Nottingham.) |
| Abstract: | WA burgeoning literature in economics has started examining the role of social norms in explaining economic behavior. Surprisingly, the vast majority of this literature has studied social norms in asocial decision settings, where individuals are observed to act in isolation from each other. In this paper we use a large-scale dictator game experiment (N = 850) to show that the presence of “peers†in the decision setting faced by an individual can have a profound influence on the individual’s perception of the decision situation and its underlying norms of sharing, as elicited in an incentive compatible way. However, we find limited evidence that this influence of peers in normative considerations translates into a corresponding effect in actual behavior. Partly, this is due to substantial heterogeneity in the extent to which dictators in our sample are willing to comply with norms of fair sharing. |
| Keywords: | social norms, norm compliance, peer effects, fair sharing, dictator game, framing, experiments |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-23&r=exp |
| By: | Adrian Hillenbrand (Max Planck Institute for Research on Collective Goods, Bonn); André Schmelzer (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | Financial disclosure documents provide investors with product details to facilitate informed investment decisions. We investigate whether the appearance – the visual frame – of disclosure documents impacts risk and return expectations and investment behavior. In our experiment, subjects decide about investments into real-life mutual funds. We nd that subjects expect a smaller return variance, invest more and gather less correct information if visual distractors are present in the visual frame. Results are in line with the distracted attention mechanism and suggest that disclosure policies should take the visual frame into account. |
| Keywords: | Portfolio choice, experiment, disclosure, mean-variance theory, attention |
| JEL: | C91 D03 D14 D18 D84 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2015_20&r=exp |
| By: | Eyster, Erik; Rabin, Matthew; Weizsäcker, Georg |
| Abstract: | We investigate experimentally whether social learners appreciate the redundancy of information conveyed by their observed predecessors' actions. Each participant observes a private signal and enters an estimate of the sum of all earlier-moving participants' signals plus her own. In a first treatment, participants move single-file and observe all predecessors' entries; Bayesian Nash Equilibrium (BNE) predicts that each participant simply add her signal to her immediate predecessor's entry. Although 75% of participants do so, redundancy neglect by the other 25% generates excess imitation and mild inefficiencies. In a second treatment, participants move four per period; BNE predicts that most players anti-imitate some observed entries. Such anti-imitation occurs in 35% of the most transparent cases, and 16% overall. The remaining redundancy neglect creates dramatic excess imitation and inefficiencies: late-period entries are far too extreme, and on average participants would earn substantially more by ignoring their predecessors altogether. |
| Keywords: | experiments; higher-order beliefs; redundancy neglect; social learning |
| JEL: | B49 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11020&r=exp |
| By: | Luis Miller (School of Economics, University of the Basque Country); Maria Montero (Department of Economics, University of Hamburg); Luis Miller (Department of Economics, University of Heidelberg) |
| Abstract: | We study a legislative bargaining game in which failure to agree in a given round may result in a breakdown of negotiations. In that case, each player receives an exogenous `disagreement value'. We characterize the set of stationary subgame perfect equilibria under all q-majority rules. Under unanimity rule, equilibrium payoffs are strictly increasing in disagreement values. Under all less-than-unanimity rules, expected payoffs are either decreasing or first increasing and then decreasing in disagreement values. We conduct experiments involving three players using majority and unanimity rule finding support for these predictions. |
| Keywords: | legislative bargaining; majority rule; unanimity rule; risk of breakdown; experiments |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2015-24&r=exp |
| By: | Oren Bar-Gill (Harvard Law School); Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | The Coase theorem posits: If [1] property rights are perfect, [2] contracts are enforceable, [3] preferences are common knowledge, and [4] transaction costs are zero, then the initial allocation of property rights only matters for distribution, not for efficiency. In this paper we claim that condition [1] can be dropped and show experimentally that this is also empirically true. This also holds when we frame taking as “stealing”, and when the initial possessor has to work for the good. |
| Keywords: | Coase theorem, absolute vs. relative right, bargaining, efficiency, distribution, fairness |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2015_19&r=exp |
| By: | Chaparro, Juan (University of Minnesota); Sojourner, Aaron J. (University of Minnesota) |
| Abstract: | The Infant Health and Development Program (IHDP) was designed to promote the development of low-birth weight (up to 2,500 grams) and premature (up to 37 weeks gestational age) infants. There is evidence that the IHDP intervention, a randomly-assigned bundle of services including primarily free, high-quality child care from 12 to 36 months, boosted cognitive and behavioral outcomes by the time participants at the end of the intervention. The literature has established that the intervention was more effective among the subsample of heavier low birth weight (2,000-2,500 grams) than among those born lighter. Among the heavier group, it was more effective for children from lower-income families. Families who participated in the intervention were diverse in key observable characteristics like income, race or ethnicity. In addition, families reallocated their time in different ways when then had the opportunity to use the free services provided by the IHDP. The goal of this paper is to understand the economic decisions and constraints faced by households who gained access to the IHDP and explain their differential behavior. In order to do so, we propose an economic model, construct measures of theoretically-relevant drivers of postnatal investment decisions, and explore patterns of heterogeneity in parental response and child development along these dimensions. |
| Keywords: | human capital, early childhood, experiment |
| JEL: | J13 J24 O15 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9552&r=exp |
| By: | Schniter, Eric; Sheremeta, Roman; Shields, Timothy |
| Abstract: | Many economic interactions are characterized by “all-or-nothing” action spaces that may limit the demonstrability of intended trust. We investigate whether restricting investment opportunities to all-or-nothing options affects the investment rate and propensity to reciprocate. We do this by manipulating the investor’s action space in two versions of the trust game. In the all-or-nothing game the investor can invest either $10 (all) or $0 (nothing), while in the continuous game the investor can invest any amount between $10 and $0. In both games, the trustee receives the tripled investment and then can return any amount to the investor. Results indicate that investments are higher in the all-or-nothing game than in the continuous game. However, higher investments in the all-or-nothing game do not lead to higher returns. To the contrary, conditional on $10 investments, on average trustees return less in the all-or-nothing game. Although the all-or-nothing action space results in greater wealth overall, it also appears to “backfire” for investors who do not benefit from the increased wealth. These results support the proposition that humans perceive intentions not only by evaluating what others do but also by evaluating what others choose not to do. |
| Keywords: | trust game, demonstrability, intentions, reciprocity, experiment |
| JEL: | C72 C91 |
| Date: | 2015–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68561&r=exp |
| By: | Cameron, Lisa A. (Monash University); Olivia, Susan (Monash University); Shah, Manisha (University of California, Los Angeles) |
| Abstract: | Billions of dollars have been spent on participatory development programs in the developing world. These programs give community members an active decision-making role. Given the emphasis on community involvement, one might expect that the effectiveness of this approach would depend on communities' pre-existing social capital stocks. Using data from a large randomised field experiment of Community-Led Total Sanitation in Indonesia, we find that villages with high initial social capital built toilets and reduced open defecation, resulting in substantial health benefits. In villages with low initial stocks of social capital, the approach was counterproductive – fewer toilets were built than in control communities and social capital suffered. |
| Keywords: | participatory development, social capital, sanitation, economic development, Indonesia |
| JEL: | O12 O22 I15 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9563&r=exp |
| By: | Marisa Bucheli (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Mariana Gerstenblüth (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | In this paper we are interested on the study of the effect of competition on the food intake from two perspectives: the overall consumption and the substitution between two snacks (a “healthy” and a “non-healthy” snack). For this purpose we do a laboratory experiment in which the participants are women. Participants are offered chocolate candies and raisings as they solve several tasks. Half of the participants solve the tasks under non- competitive piece rate and the other half, under a competitive a tournament incentive scheme. The results show that the intake of participants is higher under tournament than piece rate payment. Moreover, the increase of food intake is led by a rise of chocolate consumption. We interpret that competition increases the consumption of fat, calories and carbohydrates and thus, affect the eating behavior in favor of unhealthy patterns. This research contributes to the strand of the literature that focuses on factors that affect the eating behavior which influences health. |
| Keywords: | food intake, competition, laboratory experiment, women |
| JEL: | C91 D12 I19 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:0615&r=exp |
| By: | Pete Lunn; Jason J. Somerville |
| Abstract: | We present evidence from two experiments designed to quantify the impact of cognitive constraints on consumers’ ability to identify surpluses. Participants made repeated forced-choice decisions about whether products conferred surpluses, comparing one or two plainly perceptible attributes against displayed prices. Returns to attributes varied in linearity, scale and relative weight. Despite the apparent simplicity of this task, in which participants were incentivised and able to attend fully to all relevant information, surplus identification was surprisingly imprecise and subject to systematic bias. Performance was unaffected by monotonic non-linearities in returns, but non-monotonic non-linearities reduced the likelihood of detecting a surplus. Regardless of the shape of returns, learning was minimal and largely confined to initial exposures. Although product value was objectively determined, participants exhibited biases previously observed in subjective discrete choice, suggesting common cognitive mechanisms. These findings have implications for consumer choice models and for ongoing attempts to account for cognitive constraints in applied microeconomic contexts. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp522&r=exp |
| By: | Karla Hoff; Joseph E. Stiglitz |
| Abstract: | This paper is an attempt to broaden the standard economic discourse by importing insights into human behavior not just from psychology, but also from sociology and anthropology. Whereas the concept of the decision-maker is the rational actor in standard economics and, in early work in behavioral economics, the quasi-rational actor influenced by the context of the moment of decision-making, in some recent work in behavioral economics the decision-maker could be called the enculturated actor. This actor's preferences and cognition are subject to two deep social influences: (a) the social contexts to which he has become exposed and, especially accustomed; and (b) the cultural mental models—including categories, identities, narratives, and worldviews—that he uses to process information. We trace how these factors shape individual behavior through the endogenous determination of both preferences and the lenses through which individuals see the world—their perception, categorization, and interpretation of situations. We offer a tentative taxonomy of the social determinants of behavior and describe results of controlled and natural experiments that only a broader view of the social determinants of behavior can plausibly explain. The perspective suggests new tools to promote well-being and economic development. |
| JEL: | A12 D00 D01 D03 D20 D50 Z13 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21823&r=exp |
| By: | Elena Krugliakova (National Research University Higher School of Economics); Alexey Gorin (National Research University Higher School of Economics); Anna Shestakova (National Research University Higher School of Economics); Vasily Klucharev (National Research University Higher School of Economics) |
| Abstract: | To choose optimally, people must consider both the potential value and the probability of a desired outcome. This idea is reflected in the expected value theory, which considers both the potential value of different courses of action and the probability that each action will lead to a desired outcome. Accordingly, during decision-making people choose an alternative with the highest expected value. The dominant neurobiological models of decision-making assume that the sensory inputs to the decision-making neural networks are stationary. However, many cognitive studies have demonstrated experience-induced plasticity in the primary sensory cortex, suggesting that repeated decisions could modulate the sensory processing. We investigated experience-induced plastic changes in the neural representation of the acoustic cues coding different expected values using a repeated monetary incentive delay task (MID-task; Knutson et al., 2005). Subjects participated in two extensive sessions of an audio-version of the MID-task. Next, we investigated electrophysiological correlates of the experience-induced plasticity of the primary auditory cortex by comparing the mismatch negativity (MMN) component before and after the MID-task sessions. We found that after extensive MID-task training, the stimuli with largest expected value evoked larger MMN responses (as compared to the baseline oddball session) that probably reflects a more fine-grained stimulus discrimination of highly valued stimuli. After extensive MID-task training acoustic cues coding intermediate expected values evoked larger P3a component (as compared to the baseline oddball session), that can indicate a stronger involuntary attention switching toward moderately valued stimuli. Overall, our results show that continuing valuation during the MID-task evokes a short-term plastic changes in the auditory cortices associated with the improved stimulus discrimination and the involuntary attention towards auditory cues with the high expected value |
| Keywords: | expected value, auditory cortex, neuroplasticity, EEG, mismatch negativity, MMN, P300 |
| JEL: | Z |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:55psy2015&r=exp |