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on Cognitive and Behavioural Economics |
| By: | Dalton, Patricio; Ghosal, Sayantan (CentRE, Tillburg University; University of Warwick) |
| Abstract: | We study the public policy implications of a model in which agents do not fully internalize all the conscequences of their actions. Such a model unifies seemingly disconected models with behavioral agents. We evaluate the scope of paternalistic and libertarian-parternalistic policies in the light of our model, and propose an alternative type of approach, called soft-libertarian, which guides the decision makers in the internalization of all the conscequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioral framework, policies that increase the set of opportunities or provide more information to the agent may not longer be individual welfare improving. |
| Keywords: | Behavioral Decisions, Revealed Preferences, Normative Preferences, Paternalism, Soft-Libertarian, Autonomy, Psychotherapy |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:37&r=cbe |
| By: | Anderson, Jon (University of Minnesota, Morris); Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Maurer, Karsten (Iowa State University); Nosenzo, Daniele (University of Nottingham); Potter, Ruth (University of Minnesota, Morris); Rocha, Kim (University of Minnesota, Morris); Rustichini, Aldo (University of Minnesota) |
| Abstract: | We use a sequential prisoner's dilemma game to measure the other-regarding behavior in samples from three related populations in the upper Midwest of the United States: 100 college students, 94 non-student adults from the community surrounding the college and 1,069 adult trainee truckers in a residential training program. Both of the first two groups were recruited according to procedures commonly used in experimental economics (i.e., via e-mail and bulletin-board advertisements) and therefore subjects self-selected into the experiment. Because the structure of their training program reduced the opportunity cost of participating dramatically, 91% of the solicited trainees participated in the third group, so there was little scope for self-selection in this sample. We find no differences in the elicited other-regarding preferences between the self-selected adults and the adult trainees, suggesting that selection into this type of experiment is unlikely to bias inferences with respect to non-student adult subjects. We also test (and reject) the more specific hypothesis that approval-seeking subjects are the ones most likely to select into experiments. At the same time, we find a large difference between the self-selected students and the self-selected adults from the surrounding community: the students appear considerably less pro-social. Regression results controlling for demographic factors confirm these basic findings. |
| Keywords: | methodology, selection bias, laboratory experiment, field experiment, other-regarding behavior, social preferences, truckload, trucker |
| JEL: | C90 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5389&r=cbe |
| By: | Simon Gaechter (University of Nottingham); Eric J. Johnson (Columbia University); Andreas Herrmann (University of St Gallen) |
| Abstract: | Loss aversion can occur in riskless and risky choices. Yet, there is no evidence whether people who are loss averse in riskless choices are also loss averse in risky choices. We measure individual-level loss aversion in riskless choices in an endowment effect experiment by eliciting both WTA and WTP from each of our 360 subjects (randomly selected customers of a car manufacturer). All subjects also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in the riskless choice task and loss aversion in the risky choice task are highly significantly and strongly positively correlated. We find that in both choice tasks loss aversion increases in age, income, and wealth, and decreases in education. |
| Keywords: | Loss aversion, endowment effect, field experiments |
| JEL: | C91 C93 D81 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2010-20&r=cbe |
| By: | Matthias Sutter; Martin G. Kocher; Daniela Rützler; Stefan T. Trautmann |
| Abstract: | We study risk attitudes, ambiguity attitudes, and time preferences of 661 children and adolescents, aged ten to eighteen years, in an incentivized experiment. We relate experimental choices to field behavior. Experimental measures of impatience are found to be significant redictors of health related field behavior and saving decisions. In particular, more impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money. Experimental measures for risk and ambiguity attitudes are only weak predictors of field behavior. |
| Keywords: | experiments with children and adolescents; risk; ambiguity; time preferences; health status; savings; external validity; field behavior. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2010-29&r=cbe |
| By: | Ulrich Witt |
| Abstract: | An evolutionary perspective on economic behavior has to account for the influences that the human genetic endowment has on the choices the agents make. Likely to have been fixed in times of fierce selection pressure, this endowment is presumably adapted to the living conditions of early humans. If at all, behavioral economics accounts for its influences on economic decision making in a way similar to the approach taken by evolutionary psychology, i.e. by focusing on decision heuristics and their tensions with modern rationality standards. In an evolutionary perspective, that focus needs to be extended so as to also embrace the motivational underpinnings of economic behavior. In the language of economics this means to inquire into the agents' preferences and to explain how they relate to the human genetic endowment and how they change over time. The paper discusses several implications of such an extension. |
| Keywords: | behavioral economics, evolutionary economics, Darwinism, decision heuristics, preferences, development, growth, welfare Length 21 pages |
| JEL: | A12 B25 B52 D01 D63 O10 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2010-17&r=cbe |
| By: | Kontek, Krzysztof |
| Abstract: | This paper presents the functional relationship between two areas of interest in contemporary behavioral economics: one concerning choices under conditions of risk, the other concerning choices in time. The paper first presents the general formula of the relationship between decision utility, the survival function, and the discounting function, where decision utility is an alternative to Cumulative Prospect Theory in describing choices under risk (Kontek, 2010). The stretched exponential function appears to be a simple functional form of the resulting discounting function. Solutions obtained using more complex forms of decision utility and survival functions are also considered. These likewise lead to the stretched exponential discounting function. The paper shows that the relationship may also have other forms, including the hyperbolic functions typically used to describe the intertemporal experimental results. This solution has however several descriptive disadvantages, which restricts its common use in the description of lottery and intertemporal choices, and in financial asset valuations. |
| Keywords: | Discounted Utility; Hyperbolic Discounting; Decision Utility; Prospect Theory; Asset Valuation |
| JEL: | E43 G12 D81 D90 C91 |
| Date: | 2010–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27541&r=cbe |
| By: | Benjamin Beranek (Department of Economics, Izmir University of Economics); Alper Duman (Department of Economics, Izmir University of Economics) |
| Abstract: | While the public good experiment has been used to analyze cooperation among various groups in Western Europe and North America, it has not been extensively used in other contexts such as Turkey. This project seeks to rectify that and explore how Turkish university students informally self govern. By employing the public good experiment among a cohort of students attending universities in Ýzmir, Turkey and Adýyaman, Turkey, we hope to quantitatively analyze the factors which lead to altruistic punishment, to antisocial punishment, and ultimately to enhanced cooperation in Turkish society. |
| Keywords: | Cooperation, Free Riding, Altruism, Punishment, Trust, Experimental Economics, Public Good Experiments |
| JEL: | C72 C91 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:izm:wpaper:1004&r=cbe |
| By: | van der Weele, Joël (Goethe University Frankfurt); Kulisa, Julija (Goethe University Frankfurt); Kosfeld, Michael (Goethe University Frankfurt); Friebel, Guido (Goethe University Frankfurt) |
| Abstract: | Several studies have shown that dictator-game giving declines substantially if the dictator can exploit situational "excuses" for not being generous. In this experimental study we investigate if this result extends to more natural social interactions involving reciprocal behavior. We provide the second mover in a reciprocal game with an excuse for not reciprocating, an excuse which has previously been shown to strongly reduce giving in dictator games. We do not find that the availability of the excuse has any effect at all on reciprocal behavior, and conclude that reciprocity is a more stable disposition than dictator game generosity. |
| Keywords: | reciprocity, moral wiggle room |
| JEL: | C72 C9 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5374&r=cbe |
| By: | Caliendo, Marco (IZA); Fossen, Frank M. (DIW Berlin); Kritikos, Alexander S. (DIW Berlin) |
| Abstract: | Experimental evidence reveals that there is a strong willingness to trust and to act in both positively and negatively reciprocal ways. So far it is rarely analyzed whether these variables of social cognition influence everyday decision making behavior. We focus on entrepreneurs who are permanently facing exchange processes in the interplay with investors, sellers, and buyers, as well as needing to trust others and reciprocate with their network. We base our analysis on the German Socio-Economic Panel and recently introduced questions about trust, positive reciprocity, and negative reciprocity to examine the extent that these variables influence the entrepreneurial decision processes. More specifically, we analyze whether i) the willingness to trust other people influences the probability of starting a business; ii) trust, positive reciprocity, and negative reciprocity influence the exit probability of entrepreneurs; and iii) willingness to trust and to act reciprocally influences the probability of being an entrepreneur versus an employee or a manager. Our findings reveal that, in particular, trust impacts entrepreneurial development. Interestingly, entrepreneurs are more trustful than employees, but much less trustful than managers. |
| Keywords: | entrepreneurship, trust, reciprocity |
| JEL: | D81 J23 M13 L26 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5370&r=cbe |
| By: | François Poinas (Toulouse School of Economics (University Toulouse 1 - GREMAQ) - Toulouse F-31000, France); Julie Rosaz (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France); Béatrice Roussillon (Université de Lyon, Lyon, F-69003, France ; Université Jean Monnet ; CNRS, GATE Lyon St Etienne,) |
| Abstract: | This article analyses belief updating when agents receive a signal that restricts the number of possible states of the world. We create an experiment on individual choice under uncertainty. In this experiment, the subject observes an urn, containing yellow and blue balls, whose composition is partially revealed. The subject has to assess the composition of the urn and form an initial belief. Then, he receives a signal that restricts the set of the possible urns from which the initial observed sample is drawn. Once again, he has to estimate the composition of the urn. Our results show that, on the whole, this type of signal increases the frequency of correct assessment. However, differences appear between validating and invalidating signals (i.e. signals that either confirm or disprove the initial belief). The later significantly increase the probability to make a correct assessment whereas validating signals reduce the frequency of correct estimations. We find evidences of lack of persistence in choice under uncertainty. The literature shows that people may persist with their choice even when they are wrong. We show that they may also change even if they are right. |
| Keywords: | Beliefs, Imperfect Information, Experiment |
| JEL: | D83 C91 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1033&r=cbe |
| By: | Constant, Amelie F. (DIW DC, George Washington University); Krause, Annabelle (IZA); Rinne, Ulf (IZA); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University) |
| Abstract: | In this paper we study the economic effects of risk attitudes, time preferences, trust and reciprocity while we compare natives and second generation migrants. We analyze an inflow sample into unemployment in Germany, and find differences between the two groups mainly in terms of risk attitudes and positive reciprocity. Second generation migrants have a significantly higher willingness to take risks and they are less likely to have a low amount of positive reciprocity when compared to natives. We also find that these differences matter in terms of economic outcomes, and more specifically in terms of the employment probability about two months after unemployment entry. We observe a significantly lower employment probability for individuals with a high willingness to take risks. Some evidence suggests that this result is channeled through reservation wages and search intensity. |
| Keywords: | unemployment, migration, personality traits, risk attitudes, time preferences, trust, reciprocity |
| JEL: | F22 J15 J61 J64 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5380&r=cbe |
| By: | Hendrik van Broekhuizen (Department of Economic, University of Stellenbosch); Dieter von Fintel (Department of Economic, University of Stellenbosch) |
| Abstract: | Both South Africa’s labour market and education system were directly influenced by the separate development policies of the apartheid regime. To this day, great inequalities persist in both domains. South Africa’s performance in standardized international test scores (such as TIMMS) is poor even relative to most developing countries. Furthermore, the better quality of outcomes in former white schools still leaves learners from former black schools at a disadvantage that feeds through to severe labour market inequalities. This study is the first in a series of papers that attempts to understand the role of school quality on labour market outcomes. Here we scrutinize the measurement of numeracy test scores in the National Income Dynamics Survey (NIDS) of 2008, particularly in light of potential sample selection issues. While this survey measures standard welfare and labour market indicators, it is one of the first in South Africa to also ask respondents to complete a concurrent numeracy test. Response rates on this module were particularly low, given that the test was taken on a voluntary basis. We develop a basic empirical model to understand who is likely to take the test. We postulate that discouraged workers’ low propensity to take the test is correlated with their reduced motivation to undertake job search, that the searching unemployed are highly motivated to take the test (as they wish to gauge their ability or practice assessments while embarking on the job search process), the poorest among the self-employed face severe time opportunity costs (as their low incomes are less secure than those of salaried workers) and the richest amongst the employed exhibit an income effect (in that the time opportunity costs of their high incomes reduce their willingness to respond to the numeracy test). Furthermore, locational effects suggest that those residing in geographical “points of entry” into the labour market are also more likely to take the test. The young (who are still in education) and the most educated (in the whole population) also tend to answer the test more readily. The latter observations indicate that some form of confidence in respondents’ own abilities drives their response patterns. To explain these observed features, we construct composite indices of motivation/emotional well-being and individuals’ confidence in their writing abilities using multiple correspondence analysis. While each of these psychological and behavioural factors is a strong predictor of test response, they do not entirely eliminate the independent contributions of each of the observed influences mentioned above. Coefficient magnitudes of each of the sociodemographic variables are, however, reduced, indicating that the particular behavioural influences introduced in later models tell some of the story. Additional uncaptured behavioural and motivational factors are therefore investigated. Firstly, we investigate the role of survey fatigue (by controlling for the time it took to complete the survey before the test was administered), which plays an important role in the black and coloured subpopulations. It furthermore explains why the wealthiest amongst the formally employed are less likely to complete the numeracy test. However, surprisingly, “pseudoaltruistic” effects appear amongst the (wealthier) white population, in that the longer the duration of the preceding questions, the more likely they are to care about answering the test. However, this result cannot be generalized to the whole white population, as response rates were very low among this group. Secondly, (household) peer effects are strong throughout the population, suggesting that a culture of learning is pivotal in understanding response patterns. The results of this paper suggest that broad sociodemographic and labour market features remain important determinants of test response, even after controlling for behavioural features. This suggests that subsequent labour market work must take these drivers into account to avoid the risk of sample selection bias. |
| Keywords: | education, behavioural economics, survey design, voluntary assessment, numeracy, survey non-response, sample selection bias, respondent confidence, motivation, culture of learning, South Africa |
| JEL: | C81 I21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers126&r=cbe |