nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒08‒14
nine papers chosen by
Marco Novarese
University of the Piemonte Orientale
  1. Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey By Thomas Dohmen; Armin Falk; David Huffman; Uwe Sunde; Juergen Schupp; Gert Wagner
  2. Do You Know That I Am Biased? An Experiment By Sandra Ludwig; Julia Nafziger
  3. Tipping as a strategic investment in service quality: An optimal-control analysis of repeated interactions in the service industry By Azar, Ofer H.; Tobol, Yossi
  4. Microfinance Games By Xavier Gine; Pamela Jakiela; Dean Karlan; Jonathan Morduch
  5. Identity and the Dynamics of Preferences By D. Dragone; M. Viviani
  6. The Canonical Space for Behavioral Types By Wolfgang Pesendorfer; Faruk Gul
  7. Deferred Acceptance Algorithms: History, Theory, Practice, and Open Questions By Alvin E Roth
  8. Self Control, Risk Aversion, and the Allais Paradox By Drew Fudenberg; David K Levine
  9. The control of game form recognition in experiments: Understanding dominant strategy failures in a simple two person “Guessing” game By Chou, Eileen; McConnell, Margaret; Nagel, Rosemarie; Plott, Charles R.
  1. By: Thomas Dohmen (Institute for the Study of Labor, IZA); Armin Falk (IZA and University of Bonn); David Huffman (Institute for the Study of Labor, IZA); Uwe Sunde (IZA and University of Bonn); Juergen Schupp (German Institute for Economic Research, DIW); Gert Wagner (Berlin University of Technology, DIW, and Cornell University)
    Abstract: This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks in general, on an 11-point scale, we find evidence of heterogeneity across individuals, and show that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. We test the behavioral relevance of this survey measure by conducting a complementary field experiment, based on a representative sample of 450 subjects, and find that the general risk question is a good predictor of actual risk-taking behavior. We then use a more standard lottery question to measure risk preferences in our sample of 22,000, and find similar results regarding heterogeneity and determinants of risk preferences, compared to the general risk question. The lottery question also makes it possible to estimate the coefficient of relative risk aversion for each individual in the sample. Using five questions about willingness to take risks in specific domains - car driving, financial matters, sports and leisure, career, and health - the paper also studies the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. Using data on a collection of risky behaviors from different contexts, including traffic offenses, portfolio choice, smoking, occupational choice, participation in sports, and migration, the paper compares the predictive power of all of the risk measures. Strikingly, the general risk question predicts all behaviors whereas the standard lottery measure does not. The best predictor for any specific behavior is typically the corresponding context-specific measure.
    Keywords: Risk Preferences, Experimental Validation, Field Experiment, SOEP, Gender Differences, Context, Age, Height, Subjective Well-Being, Migration, Occupational Choice, Health
    JEL: D0 D1 D80 D81 C91 C93 J16 J24 J61 I1
    Date: 2005–11
    URL: http://d.repec.org/n?u=RePEc:feb:wpaper:2096&r=cbe
  2. By: Sandra Ludwig; Julia Nafziger
    Abstract: This experiment explores whether individuals know that other people are biased. We confirm that overestimation of abilities is a pervasive problem, but observe that most people are not aware of it, i.e. they think others are unbiased. We investigate several explanations for this result. As a first one, we discuss a possible unfamiliarity with the task and the subjects' inability to distinguish between random mistakes and a real bias.  Second, we show how the relation between a subject's belief about others and his belief about himself might be driven by a false consensus effect or self-correction mechanism. Third, we identify a self-serving bias when comparing how a subject evaluates his own and other people's biases.
    Keywords: Bias, Overconfidence, Beliefs, Experimental Economics, Self-Serving Bias
    JEL: D83 C91 D01
    URL: http://d.repec.org/n?u=RePEc:bon:bonedp:bgse11_2007&r=cbe
  3. By: Azar, Ofer H.; Tobol, Yossi
    Abstract: We present an optimal-control model where tipping behavior creates reputation that affects future service. Tipping and reputation can evolve in four path prototypes: converging to an interior equilibrium; converging to minimum tips and reputation; and two prototypes that start differently but end with tips and reputation increasing indefinitely. Analyzing the interior equilibrium suggests that when reputation erodes more quickly (capturing lower patronage frequency), equilibrium reputation is lower. Interestingly, however, tips may be higher. Increasing the minimal tip raises tips by the same increase, and does not change reputation. A more patient customer leaves higher tips and reaches a higher reputation.
    Keywords: Tipping; Service Industry; Behavioral Economics; Social Norms; Service Quality
    JEL: C61 Z13 D11 L83
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:4393&r=cbe
  4. By: Xavier Gine (World Bank); Pamela Jakiela (University of California, Berkeley); Dean Karlan (Yale University); Jonathan Morduch (New York University)
    Abstract: Microfinance has been heralded as an effective way to address imperfections in credit markets. From a theoretical perspective, however, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. We created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted eleven different games that allow us to unpack microfinance mechanisms in a systematic way. We find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts. The work also provides an example of how to use framed field experiments as a methodological bridge between laboratory and field experiments.
    Keywords: microfinance, group lending, information asymmetries, contract theory, experimental economics
    JEL: O12 D92 D10 D21 D82 C93
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:feb:wpaper:2102&r=cbe
  5. By: D. Dragone; M. Viviani
    Date: 2007–05
    URL: http://d.repec.org/n?u=RePEc:bol:bodewp:596&r=cbe
  6. By: Wolfgang Pesendorfer; Faruk Gul
    Date: 2007–08–08
    URL: http://d.repec.org/n?u=RePEc:cla:levrem:843644000000000345&r=cbe
  7. By: Alvin E Roth
    Date: 2007–07–31
    URL: http://d.repec.org/n?u=RePEc:cla:levrem:843644000000000283&r=cbe
  8. By: Drew Fudenberg; David K Levine
    Date: 2007–08–02
    URL: http://d.repec.org/n?u=RePEc:cla:levarc:843644000000000332&r=cbe
  9. By: Chou, Eileen; McConnell, Margaret; Nagel, Rosemarie; Plott, Charles R.
    Date: 2007–08
    URL: http://d.repec.org/n?u=RePEc:clt:sswopa:1274&r=cbe
This nep-cbe issue is ©2007 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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