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on Cognitive and Behavioural Economics |
| By: | Angela Duckworth (University of Pennsylvania); David Weir (University of Michigan) |
| Abstract: | In a previous study, we found the family of personality traits known as conscientiousness to be associated in cross-sectional analyses with both lifetime earnings and wealth. In this study, we used data from an Internet survey of HRS respondents in the second quarter of 2009 to test whether conscientiousness and other Big Five factors prospectively predicted responses to the financial crisis of 2008/09. In addition, to improve the targeting and design of behavioral interventions for “at-risk” individuals, we examined two specific facets of conscientiousness (i.e., self-control and perseverance) that may be more highly related to these economic outcomes than other facets. Finally, we used data from the Consumption and Activities Mail Survey (CAMS) to examine whether personality is related to the proportion of income saved vs. spent. Missing data precluded sufficiently powerful prospective analyses of personality and responses to the financial crisis. Likewise, data on self-control and perseverance from the 2010 experimental module were not sufficient at the time of final reporting to come to definitive conclusions about how these facets relate to economic outcomes. We did find that conscientious adults save more and spend less of their incomes, whereas adults who are higher in openness to experience (e.g., adventurous, sophisticated) save less and spend more of their income. The robust associations between conscientiousness and economic outcomes suggests further investigation of interventions that improve conscientiousness as well as policies that specifically target less conscientious individuals (e.g., default choices for retirement savings). |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp260&r=cbe |
| By: | Hsee, Christopher K. (University of Chicago); Rottenstreich, Yuval (New York University); Stutzer, Alois (University of Basel) |
| Abstract: | Standard economic analysis assumes that people make choices that maximize their utility. Yet both popular discourse and other fields assume that people sometimes fail to make optimal choices and thus adversely affect their own happiness. Most social sciences thus frequently describe some patterns of decision as suboptimal. We review evidence of suboptimal choices that arise for two reasons. First, people err in predicting the utility they may accrue from available choice options due to the evaluation mode. Second, people choose on the basis of salient rules that are unlikely to maximize utility. Our review is meant to highlight the possibility of a research program that combines economic analysis with measures of experienced individual well-being to improve people's happiness. |
| Keywords: | suboptimal choice, individual well-being, experienced utility, evaluation mode, salient rule, utility misprediction |
| JEL: | D01 D11 D60 D91 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6346&r=cbe |
| By: | David Dickinson (Department of Economics - Appalachian State University); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | An important issue in personnel economics is the design of efficient job allocation rules. Firms often use promotions both to sort workers across jobs and to provide them with incentives. However, the Peter Principle states that employees' output tends to fall after a promotion. Lazear (2004) suggests that self-selection may improve job allocation efficiency while preserving incentive effects. We reproduce this Peter Principle in the laboratory and compare the efficiency of a promotion standard with subjects self-selecting their task. We find no evidence of effort distortion, as predicted by theory. Furthermore, we find that when the Peter Principle is not severe, promotion rules often dominate self-selection efficiency of task assignment. Results are consistent with imperfect appraisal of transitory ability and a lack of strategic behavior. |
| Keywords: | Promotion, Peter Principle, Sorting, Experiment |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00664665&r=cbe |
| By: | Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Natalia Montinari (Max Planck Institute for Economics); Marco Piovesan (Harvard Business School) |
| Abstract: | Substantial research with adult populations has found that selfish impulses are less likely to be pursued when decisions are publicly observable. To the best of our knowledge, however, this behavioral regularity has not been systematically explored as potential solution to social dilemmas. This paper takes a step in that direction. We report data on the self-control decisions of children aged 6 to 11 who participated in games that require one to resist a selfish impulse for several minutes in order to benefit others. In one condition children make decisions in public view of the group of other participants, while in another they can make decisions either publicly or privately. In both conditions, we allow the group size to vary. We find that children aged 9 and higher are better able to resist selfish impulses in public environments. Younger children, however, display no such effect. Further, we find self-control substantially impacted by group size. When decisions are public, larger groups lead to better self-control, while in the private condition the opposite holds. Our findings suggest that announcing decisions publicly and to large groups may be part of a solution to some social dilemmas. In addition, the fact that public decision-making promotes pro-social behavior only in older children suggests this positive effect may stem from a desire to avoid shame. Length: 28 |
| Keywords: | Experimental Economics |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1034&r=cbe |
| By: | Gächter, Simon (University of Nottingham); Nosenzo, Daniele (University of Nottingham); Sefton, Martin (University of Nottingham) |
| Abstract: | We compare social preference and social norm based explanations for peer effects in a three-person gift-exchange game experiment. In the experiment a principal pays a wage to each of two agents, who then make effort choices sequentially. In our baseline treatment we observe that the second agent's effort is influenced by the effort choice of the first agent, even though there are no material spillovers between agents. This peer effect is predicted by a model of distributional social preferences (Fehr-Schmidt, 1999). As we show from a norms-elicitation experiment, it is also consistent with social norms compliance. A conditional logit investigation of the explanatory power of payoff inequality and elicited norms finds that the second agent's effort can be best explained by the social preferences model. In further treatments with modified games we find that the presence/strength of peer effects changes as predicted by the social preferences model. As with the baseline treatment, a conditional logit analysis favors an explanation based on social preferences, rather than social norms following for these treatments. Our results suggest that, in our context, the social preferences model provides a parsimonious explanation for the observed peer effect. |
| Keywords: | peer effects, social influence, gift-exchange, experiment, social preferences, inequity aversion, measuring social norms |
| JEL: | A13 C92 D03 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6345&r=cbe |
| By: | Akay, Alpaslan (IZA); Martinsson, Peter (University of Gothenburg) |
| Abstract: | This paper uses both subjective well-being and survey experimental data to analyze how people's positional concerns regarding income and goods vary with age. The subjective well-being approach is mainly based on German panel data for the period 1984-2009 (German Socio-Economic Panel), while the survey experimental approach is based on a tailor-made experimental design conducted among Swedish adults. Our analysis suggests that the degree of positional concerns is not homogenous across the life cycle. Our different analytical approaches show a robust life cycle pattern of positional concerns: young people experience no or a low degree of positional concerns, yet the level of concerns for income increases gradually and significantly with age. The results also differ across goods: while car consumption is similar to income, the positional concern for leisure time decreases through the life cycle. |
| Keywords: | positional concerns, life cycle, subjective well-being, survey experiment |
| JEL: | C90 D63 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6342&r=cbe |
| By: | Anthony Ziegelmeyer (Max Planck Institute of Economics, Jena); Christoph March (Paris School of Economics); Sebastian Krügel (Max Planck Institute of Economics, Jena, IMPRS "Uncertainty") |
| Abstract: | Weizsäcker (2010) estimates the payoff of actions to test rational expectations and to measure the success of social learning in information cascade experiments. He concludes that participants perform poorly when learning from others and that rational expectations are violated. We show that his estimated payoffs rely on estimates of the publicly known prior and signal qualities which may lead the formulated test of rational expectations to generate false positives. We rely on the true values of the prior and signal qualities to estimate the payoff of actions. We confirm that the rational expectations hypothesis is rejected, but we measure a much larger success of social learning. |
| Keywords: | Information Cascades, Laboratory Experiments, Quantal Response Equilibrium |
| JEL: | C92 D82 |
| Date: | 2012–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-006&r=cbe |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Jena, Germany, and Department of Economics, University of Verona, Verona, Italy); Natalia Montinari (Max Planck Institute of Economics, Jena, Germany) |
| Abstract: | We introduce a procedurally fair rule to study a situation where people disagree about the value of three alternatives in the way captured by the voting paradox. The rule allows people to select a final collective ranking by submitting a bid vector with six components (the six possible rankings of the three alternatives). In a laboratory experiment we test the robustness of the rule to the introduction of subsidies and taxes. We have two main results. First, in all treatments, the most frequently chosen ranking is the socially efficient one. Second, subsidies slightly enhance overbidding. Furthermore, an analysis of individual bid vectors reveals interesting behavioral regularities. |
| Keywords: | Bidding behavior, Procedural fairness, Voting paradox |
| JEL: | C92 D02 D71 |
| Date: | 2012–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-005&r=cbe |
| By: | Tim R. Adam; Chitru S. Fernando; Evgenia Golubeva |
| Abstract: | We show that managerial overconfidence, which has been found to influence a number of corporate financial decisions, also affects corporate risk management. We find that managers increase their speculative activities using derivatives following speculative gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response follows from selective selfattribution: successes tend to be attributed to one’s own skill, while failures tend to be attributed to bad luck. Thus, our results show that managerial behavioral biases can also impact corporate risk management. |
| Keywords: | corporate risk management, behavioral biases, managerial overconfidence, speculation |
| JEL: | G11 G14 G32 G39 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2012-018&r=cbe |
| By: | Andrweas Leibbrandt (Department of Economics, Monash University, Australia); Abhijit Ramalingam (School of Economics and Centre for Behavioural and Experimental Social Science, and University of East Anglia, Norwich, United Kingdom); Lauri Sääksvuori (Strategic Interaction Group, Max Planck Institute of Economics, Jena, Germany); James M. Walker (Department of Economics and Workshop in Political Theory and Policy Analysis, Indiana University, United States) |
| Abstract: | Abundant evidence suggests that high levels of contributions to public goods can be sustained through self-governed monitoring and sanctions. This experimental study investigates the effectiveness of decentralized sanctioning institutions where punishment opportunities are restricted to agents who are linked through alternative punishment networks. We find that the structure of the punishment network significantly impacts contributions to the public good, but not overall efficiencies. Contributions collapse over decision rounds in groups with limited punishment opportunities, even if the absolute punishment capacity corresponds to the complete punishment network where all agents are allowed to punish each other. However, after allowing for the costs of sanctions, efficiencies are similar across the different networks that allow for punishment and the no-punishment network. |
| Keywords: | public goods experiment, punishment, cooperation, networks |
| JEL: | C92 D01 D03 H41 |
| Date: | 2012–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-004&r=cbe |
| By: | Rudd, Melanie (Stanford University); Vohs, Kathleen D. (University of MN); Aaker, Jennifer (Stanford University) |
| Abstract: | When do people feel as if they are rich in time? Not often, research and daily experience suggest. However, three experiments showed that participants who felt awe, relative to other emotions, felt they had more time available (Experiments 1, 3) and were less impatient (Experiment 2). Participants who experienced awe were also more willing to volunteer their time to help others (Experiment 2), more strongly preferred experiences over material products (Experiment 3), and experienced a greater boost in life satisfaction (Experiment 3). Mediation analyses revealed that these changes in decision making and well-being were due to awe's ability to alter the subjective experience of time. Experiences of awe bring people into the present moment, which underlies awe's capacity to adjust time perception, influence decisions, and make life feel more satisfying than it would otherwise. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:2095&r=cbe |
| By: | Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Giacomo Degli Antoni (University of Milano - Bicocca); Stefania Ottone (University of Milano - Bicocca); nazaria Solferino (University of Calabria) |
| Abstract: | We document that being spectators (no effect on personal payoffs) and, to a lesser extent, stakeholders without information on relative payoffs, induces subjects who can choose distribution criteria after task performance to prefer rewarding talent (vis à vis effort, chance or strict egalitarianism) after guaranteeing a minimal egalitarian base. Information about distribution of payoffs under different criteria reduces dramatically such choice since most players opt or revise their decision in favor of the criterion which maximizes their own payoff (and, by doing so, end up being farther from the maximin choice). Large part (but not all) of the stakeholders’ choices before knowing the payoff distribution are driven by their performance beliefs since two thirds of them choose the criterion in which they assume to perform and earn relatively better. |
| Keywords: | Distributive Justice; Perceived Fairness; Meritocracy; Talent; Chance; Effort |
| JEL: | C91 D63 |
| Date: | 2012–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:221&r=cbe |
| By: | Menachem Brenner; Yehuda Izhakian; Orly Sade |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:11-06&r=cbe |
| By: | Karen Macours; Norbert Schady; Renos Vakis |
| Abstract: | Cash transfer programs have become extremely popular in the developing world. There is a large literature on the effects of these programs on schooling, health and nutrition, but relatively little is known about possible impacts on child development. This paper analyzes the impact of a cash transfer program on cognitive development in early childhood in rural Nicaragua. Identification is based on random assignment. We show that children in households assigned to receive benefits had significantly higher levels of development nine months after the program began. There is no fadeout of program effects two years after the program had ended and transfers were discontinued. We show that the changes in child development we observe are unlikely to be a result of the cash component of the program alone. |
| Keywords: | Social Development :: Poverty, Education :: Early Childhood Education, Social Development :: Youth & Children, child development, transfers |
| JEL: | D12 I2 I3 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:62538&r=cbe |
| By: | Valentina Conti (Faculty of Economics, University of Rome "Tor Vergata"); Joanna Kopinska (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | This paper studies intergenerational transmission of cognitive abilities from parents to children. We create a measure of parental cognitive evolution across time, which combines cognitive tests scores obtained at the age of 16 with the ones at the age of 50. We are thus able to identify cognitive aging patterns and assess their impact in the intergenerational perspective. The British National Child Development Study (NCDS) allows us to investigate the effect of parental cognition on two distinct offspring's outcomes: cognitive abilities and educational attainment. Our analysis provides novel results concerning the role of parental cognitive transition during adult life. We find that children benefit not only from the stock of cognitive abilities their mothers and fathers hold as adolescents, but also from cognitive evolution their parents achieve as adults. This outcome is significant and robust under various model specifications. Finally, we investigate the determinants of parental cognitive transition. We find that cognitive aging is attenuated for individuals who undergo multiple job variations, follow on-the-job trainings and engage in leisure activities. This analysis delivers new evidence on the role of policy interventions aimed at fostering cognitive function during adult life, which aside from improving individual outcomes, has positive externalities for the subsequent generations. |
| Keywords: | intergenerational mobility, cognitive ability |
| JEL: | I20 J24 J62 |
| Date: | 2012–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:219&r=cbe |
| By: | Christoph March (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sebastian Krügel (Max Planck Institute of Economics - Max Planck Institute of Economics); Anthony Ziegelmeyer (Max Planck Institute of Economics - Max Planck Institute of Economics) |
| Abstract: | We investigate whether experimental participants follow their private information and contradict herds in situations where it is empirically optimal to do so. We consider two sequences of players, an observed and an unobserved sequence. Observed players sequentially predict which of two options has been randomly chosen with the help of a medium quality private signal. Unobserved players predict which of the two options has been randomly chosen knowing previous choices of observed and with the help of a low, medium or high quality signal. We use preprogrammed computers as observed players in half the experimental sessions. Our new evidence suggests that participants are prone to a 'social-confirmation' bias and it gives support to the argument that they naively believe that each observable choice reveals a substantial amount of that person's private information. Though both the 'overweighting-of-private-information' and the 'social-con firmation' bias coexist in our data, participants forgo much larger parts of earnings when herding naively than when relying too much on their private information. Unobserved participants make the empirically optimal choice in 77 and 84 percent of the cases in the human-human and computer-human treatment which suggests that social learning improves in the presence of lower behavioral uncertainty. |
| Keywords: | Information cascades ; Laboratory Experiments ; Naive herding |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00671378&r=cbe |