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on Cognitive and Behavioural Economics |
| By: | Andreas Blume (Department of Economics, University of Pittsburgh); April Mitchell Franco (Rotman School of Management, University of Toronto); Paul Heidhues (Lufthansa Chair in Competition and Regeulation, ESMT) |
| Abstract: | We investigate dynamic coordination among members of a problem solving team who re- ceive private signals about which of their actions are required for a (static) coordinated solution and who have repeated opportunities to explore different action combinations. In this environment ordinal equilibria, in which agents condition only on how their signals rank their actions and not on signal strength, lead to simple patterns of behavior that have a natural interpretation as routines. These routine spartially solve the team’s coor- dination problem by synchronizing the team’s search efforts and prove to be resilient to changes in the environment by being expost equilibria, to agents having only a coarse understanding of other agents’ strategies by being fully cursed, and to natural forms of agents’ overconfidence. The price of this resilience is that optimal routines are frequently not optimal equilibria. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:355&r=cbe |
| By: | Mathieu Lefebvre (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium); Pierre Pestieau (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium ; CORE, University of Louvain, CEPR and PSE); Arno Riedl (School of Economics and Business, Maastricht University, P.O. Box 616, NL-6200 Maastricht, The Netherlands; CESifo Munich, Germany; IZA, Bonn, Germany); Marie-Claire Villeval (Université de Lyon, Lyon, F-69003, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a "registered" income, the realization of which will be known to the tax authority for sure, and an "unregistered" income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on wether reporting their income or not, knowing the risk od detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment ; (ii) many subjects choose and option that allows for tax evasion or welfare fraud but report their income honestly anyway ; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence ; (iv) tax evasion is more frequent in France and the Netherlands ; Wallons evade taxes less than Flemish. There is no cross-country difference in welfare dodging. |
| Keywords: | tax evasion, social fraud, social comparisons,cross-country comparisons, experiments |
| JEL: | H26 H31 I38 C91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1116&r=cbe |
| By: | Daniel Klein (Department of Economics, George Mason University); Xiaofei (Sophia) Pan (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Gonzalo Schwartz (Department of Economics, George Mason University) |
| Abstract: | The idea of political community is appealing on a gut-level. Hayek suggested that certain genes and instincts still dispose us toward the ethos and mentality of the hunter-gatherer band, and that modern forms of political collectivism have, in part, been atavistic reassertions of such tendencies. Picking up on Hayek, Klein (2005) has suggested a combination of yearnings: 1) a yearning for coordinated sentiment (like Smithian sympathy); and 2) a yearning that the sentiment encompass the whole group. This paper reports on an experiment designed to explore the demand for encompassment by having subjects sing together. In each trial, one person in the room was designated not to sing unless every one of the others in the room had made a payment sufficient so as to have that person sing. Subjects chose to sacrifice money to achieve encompassment 47.4 percent of the time, with 59.6 percent of the subjects doing so in at least one trial. An exit questionnaire showed that subjects‘ chief reason for making such a sacrifice was a belief that the singing would be more enjoyable if it encompassed the whole group, and reported enjoyment is significantly higher with encompassment. We discuss the experiment as a parable for a penchant toward political collectivism. |
| Keywords: | Encompassment, political psychology, Hayek, the people's romance |
| JEL: | A13 H89 Z1 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1020&r=cbe |
| By: | Li Hao (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University) |
| Abstract: | We report data from a two-stage prediction game, where the accuracy of predictions (in the first stage) regarding die roll outcomes (in the second stage) is rewarded using a proper scoring rule. Thus, given the opportunity to self-report the die roll outcomes, participants have an incentive to bias their predictions to maximize elicitation payoffs. However, we find participants to be surprisingly unresponsive to this incentive, despite clear evidence that they cheated when self-reporting die roll outcomes. These data lend support to Akerlof's (1983) suggestion that people may prefer to appear honest without actually being honest. In particular, the vast majority (95%) of our subjects were willing to incur a cost to preserve an honest appearance. At the same time, only 44% exhibited intrinsic preference for honesty. Moreover, we found that after establishing an honest appearance people cheat to the greatest possible extent. These results suggest that “incomplete cheating” behavior frequently reported in the literature can be attributed more to a preference for maintaining appearances than an intrinsic aversion to maximum cheating. |
| Keywords: | cheating, honest appearance, partial cheating, experimental design |
| JEL: | C91 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1021&r=cbe |
| By: | Charlotte Gaston-Breton |
| Abstract: | This research addresses the persuasive effect of 99-ending prices and carries out a choice-based conjoint analysis among 318 shoppers. We propose that 99-ending prone consumers engage in a heuristic process either consciously — they consider a 99-ending as a signal for a “good deal”— or unconsciously — they round down 99-ending prices. This conceptual framework leads to non-intuitive and completely new sets of hypotheses in the examination of the drivers, mediator and moderators of 99-ending preferences. Results indicate that consumers who are more price conscious are more likely to choose 99-ending prices. Indeed, low involved shoppers (especially those with a low hedonic and symbolic involvement profile), low educated, low income and younger shoppers are prone to choose the 99-ending option. We also demonstrate that the magnitude of this 99-ending effect depends on the price level of the product category and the positioning of the brands. The theoretical contributions to the manner in which consumers process 99-endings has implications for retailers, pricing managers and social welfare |
| Keywords: | 99-ending prices, Price information processing, Conjoint analysis |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb110503&r=cbe |
| By: | Lefebvre, Mathieu; Vieider, Ferdinand M. |
| Abstract: | Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if compensated through options. Compensation through restricted company stock reduces the uptake of excessive risks. Even under stock-ownership, however, experimental executives continue to take excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive hypotheses on what may be driving excessive risk taking in the experiment. Testing those hypotheses, we find that most of them are indeed borne out by the data. We thus conclude that a prospect-theory-based model is more apt at explaining risk attitudes under different compensation regimes than traditional principal-agent models grounded in expected utility theory. |
| Keywords: | prospect theory; expected utility theory; risk attitude; executive compensation; reference dependence; experimental finance |
| JEL: | G28 G32 J33 L22 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:12210&r=cbe |
| By: | Cary Deck; Maroš Servátka; Steven Tucker (University of Canterbury) |
| Abstract: | Charness and Dufwenberg (2006) find that promises increase cooperation and suggest that the behavior of subjects in their experiment is driven by guilt aversion. By modifying the procedures to include a double blind social distance protocol we test an alternative explanation that promise keeping was due to external influence and reputational concerns. Our data are statistically indistinguishable from those of Charness and Dufwenberg and therefore provide strong evidence that their observed effects regarding the impact of communication are due to internal factors and not due to an outside bystander. |
| Keywords: | Experiment; promises; partnership; guilt aversion; psychological game theory; trust; lies; social distance; behavioral economics; hidden action |
| JEL: | C70 C91 |
| Date: | 2011–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/14&r=cbe |
| By: | Jan-Erik Lönnqvist; Markku Verkasalo; Gari Walkowitz; Philipp C. Wichardt |
| Abstract: | This paper compares two prominent empirical measures of individual risk attitudes - the Holt and Laury (2002) lottery-choice task and the multi-item questionnaire advocated by Dohmen, Falk, Huffman, Schupp, Sunde and Wagner (forthcoming) - with respect to (a) their within-subject stability over time (one year) and (b) their correlation with actual risk-taking behaviour in the lab - here the amount sent in a trust game (Berg, Dickaut, McCabe, 1995). As it turns out, the measures themselves are uncorrelated (both times) and, most importantly, only the questionnaire measure exhibits test-re-test stability ( · =.78), while virtually no such stability is found in the lottery-choice task. In addition, only the questionnaire measure shows the expected correlations with a Big Five personality measure and is correlated with actual risk-taking behaviour. The results suggest that the questionnaire is the more adequate measure of individual risk attitudes for the analysis of behaviour in economic (lab) experiments. Moreover, with respect to trust, the high re-test stability of trust transfers ( ·= .70) further supports the conjecture that trusting behaviour indeed has a component which itself is a stable individual characteristic (Glaeser, Laibson, Scheinkman and Soutter, 2000). |
| Keywords: | Risk attitudes, trust, personality, lab experiments |
| JEL: | D81 C91 Z10 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp370&r=cbe |
| By: | James Alm (Department of Economics, Tulane University) |
| Abstract: | "Behavioral economics", or the application of methods and evidence from other social sciences to economics, has increased greatly in significance in the last two decades. An important method by which many of its predictions have been tested has been via laboratory experiments. In this paper I survey and assess experimental tests of various applications of behavioral economics to the specific area of public economics, or "behavioral public economics". I discuss the basic elements of behavioral economics, the methodology of experimental economics, applications of experimental methods to behavioral public economics, and topics in which future applications should prove useful. |
| Keywords: | experimental methods, behavioral economics |
| JEL: | C9 H0 H3 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1102&r=cbe |
| By: | Maroš Servátka; Steven Tucker; Radovan Vadovič (University of Canterbury) |
| Abstract: | Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive |
| Keywords: | Communication; content analysis; experimental economics; gift giving; investment game; message; trust; trustworthiness |
| JEL: | C70 C91 |
| Date: | 2011–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/13&r=cbe |
| By: | Thöni, Christian |
| Abstract: | Antisocial punishment - punishment of pro-social cooperators - has shown to be detrimental for the efficiency of informal punishment mechanisms in public goods games. The motives behind antisocial punishment acts are not yet well understood. This article shows that inequality aversion predicts antisocial punishment in public goods games with punishment. The model by Fehr and Schmidt (1999) allows to derive conditions under which antisocial punishment occurs. With data from three studies on public goods games with punishment I evaluate the predictions. A majority of the observed antisocial punishment acts are not compatible with inequality aversion. These results suggest that the desire to equalize payoffs is not a major determinant of antisocial punishment. |
| Keywords: | Antisocial punishment, inequality aversion |
| JEL: | H41 C72 C91 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2011:11&r=cbe |
| By: | Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Alexander James (Departement of Economics and Finance, University of Wyoming - University of Wyoming); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Jason Shogren (Departement of Economics and Finance, University of Wyoming - University of Wyoming) |
| Abstract: | The field of social psychology explores how a person behaves within the context of other people. The social context can play a substantive role in non-market allocation decisions given peoples choices and values extend beyond the classic market-based exchange institution. Herein we explore how social psychology has affected one aspect of environmental economics: preference elicitation through survey work. We discuss social representation, social isolation, framing through cheap talk, and commitment theory through an oath. |
| Keywords: | Social psychology, Commitment, Persuasive communication, Preference elicitation |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00584247&r=cbe |
| By: | Cobb-Clark, Deborah A. (University of Melbourne); Schurer, Stefanie (Victoria University of Wellington) |
| Abstract: | Empirical studies of the role of non-cognitive skills in driving economic behavior often rely heavily on the assumption that these skills are stable over the relevant time frame. We analyze the change in a specific non-cognitive skill, i.e. locus of control, in order to directly assess the validity of this assumption. We find that short- and medium-run changes in locus of control are rather modest on average, are concentrated among the young or very old, do not appear to be related to the demographic, labor market, and health events that individuals experience, and are unlikely to be economically meaningful. Still, there is no evidence that locus of control is truly time-invariant implying that the use of lagged measures results in an errors-in-variables problem that could downward bias the estimated wage return to locus of control by as much as 50 percent. Those researchers wishing to analyze the economic consequences of non-cognitive skills should consider (i) restricting their analysis to the working-age population for whom there is little evidence of systematic change in skill levels and (ii) accounting for error in the skill measures they employ. |
| Keywords: | non-cognitive skills, locus of control, stability, measurement error, endogeneity, life events |
| JEL: | J24 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5630&r=cbe |
| By: | Berninghaus, Siegfried K.; Neumann, Thomas; Vogt, Bodo |
| Abstract: | Our study analyzes theories of learning for strategic interactions in networks. Participants played two of the 2 x 2 games used by Selten and Chmura (2008) and in the comment by Brunner, Camerer and Goeree (2009). Every participant played against four neighbors and could choose a different strategy against each of them. The games were played in two network structures: a lattice and a circle. We compare our results with the predictions of different theories (Nash equilibrium, quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium, and impulse balance equilibrium) and the experimental results of Selten and Chmura (2008). One result is that the majority of players choose the same strategy against each neighbor. As another result we observe an order of predictive success for the stationary concepts that is different from the order shown by Selten and Chmura. This result supports our view that learning in networks is different from learning in random matching. -- |
| Keywords: | experimental economics,networks,learning |
| JEL: | C70 C73 C91 D83 D85 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:15&r=cbe |
| By: | Hengelbrock, Jördis; Theissen, Erik; Westheide, Christian |
| Abstract: | Recent empirical research suggests that measures of investor sentiment have predictive power for future stock returns over the intermediate and long term. Given the widespread publication of sentiment indicators, smart investors should trade on the information conveyed by such indicators and thus trigger an immediate market response to their publication. The present paper is the first to empirically analyze whether an immediate response can be identified from the data. We use survey-based sentiment indicators from two countries (Germany and the US). Consistent with previous research we find there is predictability at intermediate time horizons. For the US, however, the predictability disappears after 1994. Using event study methodology we find that the publication of sentiment indicators affects market returns. The sign of the immediate response is the same as that of the predictability over the intermediate term. This finding is consistent with the idea that sentiment is related to mispricing, but is inconsistent with the idea that the sentiment indicator provides information about future expected returns. -- |
| Keywords: | Investor Sentiment,Event Study,Return Predictability |
| JEL: | G12 G14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1101&r=cbe |