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on Cognitive and Behavioural Economics |
| By: | Graziano , Mario; Schilirò, Daniele |
| Abstract: | The paper critically discusses the issue of rationality and choices in economics in both the behavioural and evolutionary approaches. Our study aims, on the one hand, to highlight the scientific contributions of psychology in economics, since psychology, and with it the theoretical approach of the behavioral economics, has made more complex and problematic the analysis of economic choices, showing the limits of rationality. On the other hand, the work offers a reinterpretation of the theory of Alfred Marshall in a biologicalevolutionary perspective. The reinterpretation of Marshall's theory in a evolutionary perspective aims to show that, historically, economics has not been a discipline aligned in a homogenous way to a single and undifferentiated thought, locked into the idea of perfect rationality, but, on the opposite, is a discipline that has enriched itself and continually is enriching by contributions and significant contaminations with other research fields. |
| Keywords: | rationality; choices; behavioral economics; evolutionary theories; biology; |
| JEL: | D03 D81 B52 D90 B13 D01 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35971&r=cbe |
| By: | Peter Earl (School of Economics, The University of Queensland); Lana Friesen (School of Economics, The University of Queensland); Kristin Hatherley (School of Economics, The University of Queensland) |
| Abstract: | This paper draws lessons about the allocation of resources to research aimed at studying the efficiency of consumer decision making in complex, fast-moving markets. These lessons emerged during research involving a large-sample survey of choices of mobile phone service plans by Australian consumers. In this kind of market, researchers will run into difficulties in collecting and evaluating data, and market conditions will not stand still while they address these problems. It is even possible that what seems suboptimal to researchers will sometimes actually be highly appropriate choice for consumers. The paper concludes by advocating the use of simpler methods to approximate the prevalence of decision-making inefficiency—such as collaborative work with owners of websites that try to assist consumers—as knowledge of optimal choices is not essential for understanding the sources of inefficiency or devising methods by which better choices might be made. |
| Date: | 2011–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:449&r=cbe |
| By: | Thorsten Chmura (Department of Economics, Ludwig-Maximilians-Universitat Munich); Sebastian Goerg (Max Planck Institute for Research on Collective Goods, Bonn); Reinhard Selten (cLaboratory for Experimental Economics (BonnEconLab), University of Bonn) |
| Abstract: | In this paper, we introduce two new learning models: impulse-matching learning and action-sampling learning. These two models together with the models of self-tuning EWA and reinforcement learning are applied to 12 different 2 x 2 games and their results are compared with the results from experimental data. We test whether the models are capable of replicating the aggregate distribution of behavior, as well as correctly predicting individuals' round-by-round behavior. Our results are two-fold: while the simulations with impulse-matching and action-sampling learning successfully replicate the experimental data on the aggregate level, individual behavior is best described by self-tuning EWA. Nevertheless, impulse-matching learning has the second highest score for the individual data. In addition, only self-tuning EWA and impulse-matching learning lead to better round-by-round predictions than the aggregate frequencies, which means they adjust their predictions correctly over time. |
| Keywords: | learning, 2 x 2 games, Experimental data |
| JEL: | C92 C72 C91 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_26&r=cbe |
| By: | Kocher, Martin G. (Dept of Economics, University of Munich, and CESifo Munich, and Dept of Economics, University of Gothenburg); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Myrseth, Kristian Ove R. (ESMT European School of Technology and Management); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | We develop a model relating self-control, risk preferences and conflict identification to cooperation patterns in social dilemmas. We subject our model to data from an experimental public goods game and a risk experiment, and we measure conflict identification and self-control. As predicted, we find a robust association between self-control and higher levels of cooperation, and the association is weaker for more risk-averse individuals. Free riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place. Our model accounts for the data at least as well as do other models.<p> |
| Keywords: | self-control; cooperation; public good; risk; experiment |
| JEL: | C91 D03 H40 |
| Date: | 2012–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0523&r=cbe |
| By: | Duffy, Sean; Smith, John |
| Abstract: | We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). We find that the behavior of the subjects in the low load condition converges to the Subgame Perfect Nash Equilibrium prediction at a faster rate than those in the high load treatment. However, we do not find the corresponding relationship involving outcomes in the game. Specifically, there is no evidence of a significantly different convergence of game outcomes across treatments. As an explanation of these two results, we find evidence that low load subjects are better able to condition their behavior on the outcomes of previous periods. |
| Keywords: | cognitive resources; experimental economics; experimental game theory; public goods game |
| JEL: | C72 C91 |
| Date: | 2012–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35906&r=cbe |
| By: | Flora Felso (Delft University of Technology); Adriaan R. Soetevent (University of Amsterdam) |
| Abstract: | There are two important reasons for consumers to spend gift certificates differently than gifts in cash or non-gift income: a) they are forced to change their shopping pattern because of the conditions imposed by the issuer of the certificates, or b) they purposely separate gift certificates from other sources of income. The first reason implies a welfare loss, the second reason does not. We survey consumers who have just redeemed one or more gift certificates. For the gift certificate considered in our empirical application, we find that consumers are not constrained by the set of accepting merchants but that they do make some small changes in the timing of expenditures because of the certificate's no-refund policy. About 14 percent of recipients separate their gift certificates from other income sources in order to buy a product they really love to have. Males tend to spend the certificates on ordinary items, whereas females are more likely to treat themselves by buying more personalized items. |
| Keywords: | gift giving; labeling |
| JEL: | D11 D12 D31 |
| Date: | 2012–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120002&r=cbe |
| By: | Rousseau, Sandra (Hogeschool-Universiteit Brussel (HUB), Belgium); Vranken, Liesbet |
| Abstract: | Organic labels potentially play an important role in shaping consumer preferences for organic food products. Information implied by the presence of labels can be used by consumers to facilitate their consumption decisions. Therefore, we investigate the influence of the provision of objective information on the willingness-to-pay of consumers for labeled organic apples in Flanders (Belgium). Initially, we find that Flemish consumers are willing to pay a positive price premium of approximately 33 eurocent per kilogram for labeled organic apples. After the provision of information on the actual environmental and health effects of organic apple production, this price premium becomes even more pronounced and amounts to approximately 56 eurocent per kilogram. |
| Keywords: | Organic food production; willingness-to-pay; choice experiment; apples |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:hub:wpecon:201104&r=cbe |
| By: | Anton Cheremukhin; Anna Popova; Antonella Tutino |
| Abstract: | We show that rational inattention theory of Sims (2003) provides a rationalization of choice models à la Luce and gives a structural interpretation to probability curvature parameters as reflecting costs of processing information. We use data from a behavioral experiment to show that people behave according to predictions of the theory. We estimate attitudes to risk and costs of information for individual participants and document overwhelming heterogeneity in these parameters among a relatively homogeneous sample of people. We characterize, both theoretically and empirically, the aggregation biases this heterogeneity implies and find these biases to be substantial. |
| Keywords: | Risk management ; Econometrics |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1112&r=cbe |
| By: | Giovanna Devetag; Hykel Hosni; Giacomo Sillari |
| Abstract: | This paper presents the results of an experiment on mutual versus common knowl- edge of advice in a two-player weak-link game with random matching. Our experimen- tal subjects play in pairs for thirteen rounds. After a brief learning phase common to all treatments, we vary the knowledge levels associated with external advice given in the form of a suggestion to pick the strategy supporting the payoff-dominant equilib- rium. In the mutual knowledge of level 1 treatment, the suggestion appears on every subject's monitor at the beginning of every round, with no common knowledge that everybody sees the same suggestion. In the mutual knowledge of level 2 treatment, the same suggestion appears on each subject's monitor, accompanied by the request to "send" the suggestion to the partner in the round, followed by a notification that the message has been read. Finally, in the common knowledge treatment, the suggestion is read aloud by the experimenter at the end of the learning phase. Our results are somewhat surprising and can be summarized as follows: in all our treatments both the choice of the efficiency-inducing action and the percentage of efficient equilibrium play are higher with respect to the control treatment, revealing that even a condition as weak as mutual knowledge of level 1 is sufficient to significantly increase the salience of the efficient equilibrium with respect to the absence of advice. Furthermore, and contrary to our hypothesis, mutual knowledge of level 2 (as the one occurring in our "message" treatment) induces successful coordination more frequently than common knowledge. |
| Keywords: | Coordination games; experimental philosophy; epistemic attitudes, weak-link game; conventions |
| JEL: | D01 D83 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpce:1201&r=cbe |
| By: | Marchegiani, Lucia (University of Rome 3); Reggiani, Tommaso (University of Bologna); Rizzolli, Matteo (Free University of Bozen/Bolzano) |
| Abstract: | In our simple model the supervisor: i) cannot observe the agent's effort; ii) aims at inducing the agent to exert high effort; but iii) can only offer rewards based on performance. Since performance is only stochastically related to effort, evaluation errors may occur. In particular, deserving agents that have exerted high effort may not be rewarded (Type I errors) and undeserving agents that have exerted low effort may be rewarded (Type II errors). We show that, although the model predicts both errors to be equally detrimental to performance, this prediction fails with a lab experiment. In fact, failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. We discuss our result in the light of some economic and managerial theories of behavior. Our result may have interesting implications for strategic human resource management and personnel economics and may also contribute to the debate about incentives and organizational performance. |
| Keywords: | agency theory, organizational justice, compensation, type I and type II errors, real effort |
| JEL: | C91 M50 J50 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6254&r=cbe |
| By: | Maria Bigoni (Department of Economics, University of Bologna); Marco Casari (Department of Economics, University of Bologna); Andrzej Skrzypaczx (Graduate School of Business, Stanford University); Giancarlo Spagnolo (SITE, Tor Vergata, EIEF and CEPR) |
| Abstract: | Frequent interaction may dramatically increase subjects ability to cooperate. In an experiment, we study the impact of different time horizons on cooperation in (quasi) continuous time prisoner's dilemmas. We find that cooperation levels are similar or higher when the horizon is deterministic rather than stochastic. Moreover, a de- terministic duration generates different aggregate patterns and indi- vidual strategies than a stochastic one. For instance, the data reveal a higher initial cooperation and a strong end-of-period reversal to defection under a deterministic horizon. However, they suggest that subjects do not learn to apply backward induction but to postpone defection closer to the end. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1116&r=cbe |
| By: | Toke Fosgaard (Institute of Food and Resource Economics, University of Copenhagen) |
| Abstract: | Pro-social behavior made when buying private goods is becoming increasingly popular. Several findings from behavioral and experimental economics however emphasizes that people are less pro-social in such situations, compared to pro-social decisions in non-market contexts. This paper suggests that emotional responses are important explanations of this finding. It is first argued that the emotional response to a pro-social decision combined with private good purchase is different from the response to a similar decision in a non-market situation. Through evidence from a laboratory experiment, it is then found, that deciding on a social choice in a market exchange involves a less positive emotional reaction to others, compared to non-market situations. Moreover, subjects in market contexts are found to be less responsive to other subjects’ contribution behavior, relative to the non-market contexts. |
| Keywords: | Emotions; market exchange; pro-social behavior |
| JEL: | C92 H41 M14 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2012_1&r=cbe |
| By: | Jona Linde (University of Amsterdam, CREED); Joep Sonnemans (University of Amsterdam, CREED) |
| Abstract: | Social preference models were originally constructed to explain two things: why people spend money to affect the earnings of others and why the income of others influences reported happiness. We test these models in a novel experimental situation where participants face a risky decision that affects only their own earnings. In the social (individual) treatment participants do (not) observe the earnings of others. In the social treatment gambles therefore not only affect absolute but also relative earnings. Outcome-based social preference models therefore predict a treatment difference. We find that decisions are generally the same in both treatments, in line with rule-based social preference models, like procedural fairness. |
| Keywords: | fairness; social preferences; decision making under risk; experiment |
| JEL: | C91 D63 D81 |
| Date: | 2012–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120003&r=cbe |
| By: | Tilman Betsch (University of Erfurt, Department of Psychology); Stefanie Lindow (University of Erfurt, Department of Psychology); Christoph Engel (Max Planck Institute for Research on Collective Goods); Corinna Ulshöfer (University of Bern, Switzerland); Janet Kleber (Max Planck Institute for Research on Collective Goods) |
| Abstract: | In two experiments we studied the effects of behavioral models on routine deviation decisions in observers. Participants repeatedly chose among four card-deck lotteries together with a human model (confederate, Exp. 1) or a non-human model (computer, Exp. 2) that made correct decisions in the majority of the trials. In a learning phase, participants acquired a choice routine (preferring one deck over others). In a subsequent test phase, participants had to adapt to changes in the payoff structure that required them to deviate from their routine. We found a strong tendency to maintain the routine despite negative feedback (routine effect). In a social situation (Exp.1), models decrease routine effects more intensely than in non social situations (Exp.2). The process of adaptation follows a belief updating process. Results indicate that the model effect is not due to an increase of the sample of relevant information nor to application of a simply copy heuristic. Rather, deviation models may provide a cue for change that fosters reevaluation of the situation in the observer. |
| Keywords: | Experienced-based decision making, routine, habit, adaptation, social influence, Bayesian updating, novelty |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2011_21&r=cbe |
| By: | Jeffrey V. Butler (EIEF); Luigi Guiso (European University Institute and EIEF); Tullio Jappelli (University of Naples Federico II and CSEF) |
| Abstract: | Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1107&r=cbe |
| By: | Koellinger, Ph.D.; Michl, T. |
| Abstract: | This study examines the influence of joy on absolute and relative overconfidence in a decision experiment with monetary incentives. We used a general knowledge task of medium difficulty to measure overconfidence. Participants’ moods were measured at the beginning of the experiment using subscales from the Positive and Negative Affect Schedule (PANAS-X). On average, participants were in a slightly joyful mood. In the experimental treatment, we made participants aware of the irrelevant source of their joyful mood by showing them a humorous film clip and subsequently asking them about their mood again. Our results show that self-reported joy increased overconfidence in the control group, whereas the participants in the treatment group had well-calibrated judgments, on average. Our results are consistent with the mood-as-information hypothesis, which suggests that affective states with a non-salient and irrelevant cause have an informative function that can lead to overconfidence. However, if the cause of the affective state is salient and obviously irrelevant (i.e., a humorous film clip), the informative function is deactivated, leading to better judgments and decisions. |
| Keywords: | judgment;mood;overconfidence;underconfidence;joy |
| Date: | 2012–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765030805&r=cbe |
| By: | Kosse, Fabian (University of Bonn); Pfeiffer, Friedhelm (ZEW Mannheim) |
| Abstract: | Using experimental data of children and their mothers, this paper explores the intergenerational relationship of impatience. The child's impatience stems from a delay of gratification experiment. Mother's impatience has been assessed by a choice task where the mothers faced trade-offs between a smaller-sooner and a larger-later monetary reward with a delay of six or twelve months. The findings demonstrate an intergenerational relationship in short-run decision making. Controlling for mother's and child's characteristics the child's impatience at preschool age is significantly correlated with the six month maternal reservation interest rate. |
| Keywords: | time preferences, impatience, intergenerational transmission, field experiments |
| JEL: | C93 D03 D90 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6247&r=cbe |
| By: | Philomena M. Bacon (Department of Economics, Lancaster University Management School, United Kingdom); Anna Conte (University of Westminster, London, UK, and Max-Planck-Institute of Economics, Jena); Peter G. Moffatt (School of Economics, University of East Anglia, Norwich, United Kingdom) |
| Abstract: | The determinants of risk attitude amongst family members are explored using data from the German Socio-Economic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 0-10 Likert scale. We respect both the ordinality and the panel structure of the data by estimating the random effects ordered probit model. We divide household members into thee types: heads, spouses and offspring. Of the three types, we find that spouses are the most risk averse, and offspring the least risk averse. In view of these findings, we estimate the model separately for the three groups and find different results between the three. For example, household income has a positive effect (on risk-taking) for heads and spouses (particularly strong for spouses), but no effect on offspring. Some effects are similar between the the three groups; for example, risk aversion always increases with age. In the offspring equation, we include both the head's and the spouse's risk attitude as explanatory variables, and find that both have a significantly positive effect on the offspring's risk-attitude, indicating that children tend to inherit the risk attitude of their guardians. We then focus on couples in the data set, and we apply the random effects bivariate ordered probit model to the analysis of the simultaneous determination of the male's and the female's risk attitude. In this model, the individual-specific effects for the male and the female are assumed to have a non-zero correlation, which is estimated to be +0.412. This significantly positive correlation is interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude. The importance of respecting the ordinality of the data is confirmed when a straightforward (linear) seemingly unrelated model is applied to the same problem; this gives a correlation of only +0.27: a seriously downward-biased estimate of this key parameter. |
| Keywords: | Multiple Equation Models, Panel Data, Risk Attitude |
| JEL: | C33 D81 |
| Date: | 2012–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-069&r=cbe |
| By: | Giovanna Devetag; Hykel Hosni; Giacomo Sillari |
| Abstract: | This paper presents the results of an experiment on mutual versus common knowl- edge of advice in a two-player weak-link game with random matching. Our experimen- tal subjects play in pairs for thirteen rounds. After a brief learning phase common to all treatments, we vary the knowledge levels associated with external advice given in the form of a suggestion to pick the strategy supporting the payo-dominant equilib- rium. In the mutual knowledge of level 1 treatment, the suggestion appears on every subject's monitor at the beginning of every round, with no common knowledge that everybody sees the same suggestion. In the mutual knowledge of level 2 treatment, the same suggestion appears on each subject's monitor, accompanied by the request to "send" the suggestion to the partner in the round, followed by a notication that the message has been read. Finally, in the common knowledge treatment, the suggestion is read aloud by the experimenter at the end of the learning phase. Our results are somewhat surprising and can be summarized as follows: in all our treatments both the choice of the efficiency-inducing action and the percentage of e cient equilibrium play are higher with respect to the control treatment, revealing that even a condition as weak as mutual knowledge of level 1 is sufficient to signicantly increase the salience of the e cient equilibrium with respect to the absence of advice. Furthermore, and contrary to our hypothesis, mutual knowledge of level 2 (as the one occurring in our "message" treatment) induces successful coordination more frequently than common knowledge. |
| Keywords: | Coordination games; experimental philosophy; epistemic attitudes, weak-link game; conventions |
| JEL: | D01 D83 |
| Date: | 2012–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2012/01&r=cbe |