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on Cognitive and Behavioural Economics |
| By: | Paolo Crosetto; Antonio Filippin |
| Abstract: | This paper presents the Bomb Risk Elicitation Task (BRET), an intuitive procedure aimed at measuring risk attitudes. Subjects decide how many boxes to collect out of 100, one of which containing a bomb. Earnings increase linearly with the number of boxes accumulated but are zero if the bomb is also collected. The BRET requires minimal numeracy skills, avoids truncation of the data, allows to precisely estimate both risk aversion and risk seeking, and is not affected by the degree of loss aversion or by violations of the Reduction Axiom. We validate the BRET and test its robustness in a large-scale experiment, although the task can be performed in the field as well. Choices react significantly to the stakes and to the size of the choice set. Our experiment rationalizes the gender gap that often characterizes choices under uncertainty by means of a higher loss rather than risk aversion. |
| Keywords: | Risk Aversion, Loss Aversion, Elicitation Method |
| JEL: | C81 C91 D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp517&r=cbe |
| By: | Romero, José Gabriel; Kovarik, Jaromir; Mengel, Friederike |
| Abstract: | We report the findings of an experiment designed to study how people learn and make decisions in network games. Network games offer new opportunities to identify learning rules, since on networks (compared to e.g. random matching) more rules differ in terms of their information requirements. Our experimental design enables us to observe both which actions participants choose and which information they consult before making their choices. We use this information to estimate learning types using maximum likelihood methods. There is substantial heterogeneity in learning types. However, the vast majority of our participants' decisions are best characterized by reinforcement learning or (myopic) best-response learning. The distribution of learning types seems fairly stable across contexts. Neither network topology nor the position of a player in the network seem to substantially affect the estimated distribution of learning types. |
| Keywords: | experiments, game theory, heterogeneity, learning, maximum likelihood method, networks |
| JEL: | C72 C90 C91 D85 |
| Date: | 2012–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:9171&r=cbe |
| By: | Miklós Antal; Ardjan Gazheli; Jeroen van den Bergh |
| Abstract: | "Writings on sustainability transitions generally do not say much about the particularities of the behavior of individuals and organizations. This is somewhat surprising since an important problem which transition management needs to tackle is inertia or resistance to change. Transition policy needs to account for the bounded rationality and social interaction of agents so as to arrive at a more realistic view of the limits and opportunities for realizing a transition. System failures like lock-in, unpredictability and surprise in innovation systems, and network interaction between agents have received some attention, but their behavioral underpinnings can be improved. The identification of relevant stakeholders in transition processes and their unique behavioral features is crucial for understanding how to stimulate transitions. In this paper we investigate opportunities to integrate various theories and disciplinary views on behavior into thinking about sustainability transitions with the aim to arrive at recommendations for more effective policies. For this purpose, we combine insights from the literatures on agency in sustainability transitions, on environmental policy under bounded rationality and social interactions, and on behavioral foundations of learning and innovation." |
| Keywords: | Agency; behavioural economics; bounded rationality; innovation; learning; sustainability; transition |
| JEL: | D03 P28 P36 Q58 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfewop:y:2012:m:12:d:0:i:3&r=cbe |
| By: | Lynn, Peter |
| Abstract: | We consider the effect of a wave of mixed-mode data collection (telephone and face-to-face), in an otherwise face-to-face survey, on panel attrition and the extent to which this effect is dependent on the nature of the mode-switch protocol. Findings are reported from an experiment on a survey in which the objective is to interview each adult member of the household. One protocol involves making extended efforts to interview each household member by telephone before switching to face-to-face, while the other involves switching a household to face-to-face as soon as it is apparent that an interviewer visit will be needed for at least one household member. With both protocols response rate at the mixed-mode wave is lower than with face-to-face single mode data collection, but with the protocol involving extended efforts this response differential is eroded over the following two waves, while with the other protocol the difference remains. |
| Date: | 2012–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ese:iserwp:2012-28&r=cbe |
| By: | Paul Beer (AIAS, Universiteit van Amsterdam); Maarten Berg (AIAS, Universiteit van Amsterdam) |
| Abstract: | This paper studies experimentally the conditions and motives for voluntary solidarity, following a game theoretical approach. The ‘solidarity game’ that is used in this study consists of groups of four players and is based on the solidarity game of Selten and Ockenfels (1998). In each group, two winners, which are either randomly selected or on the basis of their performance on a quiz, distribute 20 credits each (reflecting real money). We tested four hypotheses regarding the effect of various conditions on voluntary sharing, related to the motives for solidary behaviour, viz. self-interest, fairness, neediness and meritocracy. For most of our hypotheses the experiments provided support, although there are a few exceptions. Players share more with others in the first round of the four shots game than in the one shot game, but their gifts decrease quickly as the game progresses, which confirms that they act largely out of self-interest. Players give more to a player from whom they have received money in the previous rounds (fairness, resulting in direct reciprocity). However, players do not give more to co-players who have been generous to others in the previous round, which would have been proof of indirect reciprocity. Players do not give more to a loser than to a winner in the current round, and, consequently, do not equalize the differences in revenue. However, they give more to players who have received relatively little in previous rounds, which suggests that neediness of the potential beneficiary is also a motive. Finally, winners give more in the random based conditions, when they do not really ‘deserve’ to be a winner, than in the performance based conditions, which offers support for the meritocracy hypothesis. The motives that the subjects expressed themselves for their sharing behaviour in answering some post-hoc questions, mirrors their actual behaviour pretty well. Additionally, we also analyse the effect of some personal characteristics, and the party preferences and media use of the players. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:aia:aiaswp:124&r=cbe |
| By: | Anat Bracha; Elke U. Weber |
| Abstract: | In spite of large number of financial crises, often depicted as episodes of financial panic, the notion of panic in financial markets is not very well understood. Many have argued that in order to understand financial crises, and in particular panic events, we need to go beyond classic economic arguments. This paper is an effort in that direction, in which we attempt to give a psychological account of panic and of panic in financial markets in particular, by discussing uncertainty, the desire for predictability and control, the illusion of control, and confidence. We suggest how one might incorporate these psychological insights into existing economic models. |
| Keywords: | Financial crises |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:12-7&r=cbe |
| By: | Inga Hillesheim; Mario Mechtel (Institute for Labour Law and Industrial Relations in the EU, University of Trier) |
| Abstract: | We conduct a classroom survey to investigate the willingness to sacrifice consumption in absolute terms in order to ascend above others in terms of consumption levels. In contrast to other studies using survey methodologies, participants are divided into a treatment and a control group. This allows us to distinguish whether choosing less in absolute terms is really induced by relative consumption concerns, or else by nonmonotonic preferences. We find that relative consumption concerns provide a good explanation for choosing less in the case of some goods, while this is not the case for a number of other goods. |
| Keywords: | status consumption, social status, behavioral economics, other-regarding preferences |
| JEL: | C91 D63 D10 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:201201&r=cbe |
| By: | Inga Hillesheim; Mario Mechtel (Institute for Labour Law and Industrial Relations in the EU, University of Trier) |
| Abstract: | We test concerns for relative standing with respect to private consumption, income, leisure, savings, and personal characteristics, using data from a classroom survey. Our results show highest degrees of positionality for personal characteristics and income. In order to explain positionality, we employ survey participants’ ratings of items with respect to (i) observability and (ii) non-psychological negative externalities on others. Based on these ratings, our results show that non-psychological externalities play an important role for an item’s degree of positionality. In contrast to previous research, we find that there is no statistically significant effect of an item’s observability on its degree of positionality. |
| Keywords: | behavioral economics, relative consumption, other-regarding preferences, relative standing |
| JEL: | C91 D63 D10 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:201210&r=cbe |
| By: | Stéphane Robin (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Katerina Straznicka (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); 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: | We explore the effects of competitive incentives and of their time horizon on the evolution of both asset prices and trading activity in experimental asset markets. We compare i) a no-bonus treatment based on Smith, Suchanek and Williams (1988) ; ii) a short-term bonus treatment in which bonuses are assigned to the best performers at the end of each trading period ; iii) a long-term bonus treatment in which bonuses are assigned to the best performers at the end of the 15 periods of the market. We find that the existence of bonus contracts does not increase the likelihood of bubbles but it affects their severity, depending on the time horizon of bonuses. Markets with long-term bonus contracts experience lower price deviations and a lower turnover of assets than markets with either no bonuses or long-term bonus contracts. Short-term bonus contracts increase price deviations but only when markets include a higher share of male traders. At the individual level, the introduction of bonus contracts increases the trading activity of males, probably due to their higher competitiveness. Finally, both mispricing and asset turnover are lower when the pool of traders is more risk-averse. |
| Keywords: | Asset market; bubbles; incentives; bonuses; risk attitudes; experiment |
| Date: | 2012–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00768434&r=cbe |
| By: | Sabrina Bruyneel; Laurens Cherchye; Sam Cosaert; Bram De Rock; Siegfried Dewitte |
| Abstract: | We conducted an experiment to collect data on consumption decisions made by children of different age categories. In particular, our experiment involves unsophisticated discrete consumption choices,and we present a rationality test that is specially designed for the resulting choice data. Our firstconclusion is that, in general, the observed children's consumption behavior is largely irrational. Next, we also investigate the relationship between the degree of rationality and the children's characteristics.Specically, we use teacher based assessments on several personal characteristics to investigate whether and to what extent smart children tend to behave more rational. Here, our main conclusion is that it is important to recognize the multidimensional nature of intelligence to obtain a balanced insight into the effect of intelligence on rationality. |
| Keywords: | rationality; children; revealed-preference; intelligence |
| JEL: | C14 C91 D12 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/134951&r=cbe |
| By: | Lahno, Amrei M.; Serra-Garcia, Marta |
| Abstract: | This paper examines the effect of peers on individual risk taking. In the absence of informational motives, we investigate why social utility concerns may drive peer effects. We test for two main channels: utility from payoff differences and from conforming to the peer. We show experimentally that social utility generates substantial peer effects in risk taking. These are mainly explained by utility from payoff differences, in line with outcomebased social preferences. Contrary to standard assumptions, we show that estimated social preference parameters change significantly when peers make active choices, compared to when lotteries are randomly assigned to them. |
| Keywords: | Peer Effects; Decision Making under risk; Social Comparison; Social Preferences; Laboratory Experiment |
| JEL: | C91 C92 D03 D83 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14309&r=cbe |
| By: | Eizo Akiyama (Faculty of Engineering, Information and Systems. University of Tsukuba); Nobuyuki Hanaki (Ryuchiro Ishikawa); |
| Abstract: | We investigate the extent to which price deviations from fundamental values in an experimental asset market are due to the uncertainty of subjects regarding others’ rationality. We do so by comparing the price forecasts submitted by subjects in two market environments: (a) all six traders are human subjects (6H), and (b) one human subject interacts with five profit-maximizing computer traders who assume all the traders are also maximizing profit (1H5C). The subjects are told explicitly about the behavioral assumption of the computer traders (in both 6H and 1H5C) as well as which environment they are in. Results from our experiments show that there is no significant difference between the distributions of the initial deviations of the forecast prices from the fundamental values in the two markets. However, as subjects learn by observing the realized prices, the magnitude of deviations becomes significantly smaller in 1H5C than in 6H markets. We also conduct additional experiments where subjects who have experienced the 1H5C market interact with five inexperienced subjects. The price forecasts initially submitted by the experienced subjects follow the fundamental value despite the fact that the subjects are explicitly told that the five other traders in the market are inexperienced subjects. These findings do not support the hypothesis that uncertainty about others’ rationality plays a major role in causing substantial deviation of forecast prices from the fundamental values in these asset market experiments. |
| Keywords: | Rationality, Common knowledge, Experiment, Asset Markets, Computer Traders. |
| JEL: | C90 D84 |
| Date: | 2012–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1234&r=cbe |
| By: | Pedro Robalo (University of Amsterdam); Rei S. Sayag (Erasmus University Rotterdam) |
| Abstract: | The supposed irrelevance of historical costs for rational decision making has been the subject of much interest in the economic literature. In this paper we explore whether individual decision making under risk is affected by the cost of the supplied information. Outside of the lab, it is difficult to disentangle the effect of the cost of information itself from the effect of self-selection by individuals who tend to gain the most from this information. We thus create an environment in the lab where subjects are offered additional, useful and identical information on the state of the world across treatments. By varying the cost of information we can distinguish between selection and sunk cost effects. We find a systematic effect of sunk costs on the manner in which subjects update their beliefs on the state of the world. Subjects over-weigh costly information relatively to free information, which results in a 'push' of beliefs towards the extremes. This shift does not necessarily lead to behavior more attuned with Bayesian updating. |
| Keywords: | sunk cost; information; Bayesian updating; decision under risk; heuristics and biases; lab experiment |
| JEL: | C91 D81 D83 |
| Date: | 2012–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120143&r=cbe |
| By: | Eva Ranehill; Frédéric Schneider; Roberto A. Weber |
| Abstract: | We study the stability of voluntary cooperation to entry by individuals coming from groups with low cooperation rates. We investigate the effect of varying entry rates on sustained cooperation. In a finitely-repeated public good game with economies of scale, we initially allot participants to small, “High-cooperation” groups and large, “Low-cooperation” groups. We then study movement from the “Low” groups into the “High” groups under two main treatment conditions that vary the rate of movement. We find that fast growth disrupts efficient public good provision; but when moved in slowly, members of “failed” groups adapt to contribution levels in cooperative groups. This behavior is generally consistent with a belief-driven explanation similar to Fischbacher and Gächter (2010). In a third condition, in which participants in the “High” group decide on the rate of entry by voting, growth generally occurs slowly but stops short of the efficient group size. Interestingly, newcomers, not incumbents, veto further entry. We conclude that the right rate of entry can greatly facilitate cooperation, but that overly cautious expansion may limit the realization of potential gains from growth. |
| Keywords: | Voluntary cooperation, experiment, public good game |
| JEL: | C92 C72 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:103&r=cbe |
| By: | Fabrizio Zilibotti (University of Zurich); Matthias Doepke (Northwestern University) |
| Abstract: | We develop a theory of the intergenerational transmission of risk preferences. Parents can instill either risk tolerance or risk aversion in their children, and face both altruistic and paternalistic motives in this process. Risk-tolerant children are more likely to benefit from profitable but risky opportunities, such as the career choice of being an entrepreneur. However, risk-tolerant children may also engage in other risky choices (such as smoking or riding motorcycles) that the parents disagree with. In our model, the transmission of risk preferences feeds back into the growth rate of the economy, because risk-taking entrepreneurs are essential for endogenous technological innovation. The theory has implications for how the extent and nature of risk in the economic environment affects the transmission of risk preferences, entrepreneurship, and growth. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:246&r=cbe |
| By: | Gianluca Grimalda (LEE & Economics Department, Universitat Jaume I, Castellón, Spain); Anirban Kar (Delhi School of Economics, University of Delhi, India); Eugenio Proto (Department of Economics, University of Warwick, UK) |
| Abstract: | We investigate experimentally the modification of initial chances to acquire advantaged positions in bargaining problems. In the baseline case players have equal opportunities to acquire the advantaged position. Chances become increasingly unequal across three treatments. We find: (1) The more unequal initial chances, the lower acceptance rates of a given split; consequently inequality decreases. (2) Players react significantly to being assigned a purely symbolic 1% chance of occupying the advantaged position compared to having no chance; (3) Players respond to the way opportunities are distributed across periods of time. These results confirm and extend cross-national survey evidence concerning the relevance of procedural fairness for redistributive preferences. |
| Keywords: | Procedural fairness, Initial opportunities, Symbolic opportunity, Ultimatum Game |
| JEL: | C99 C78 D63 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2012/21&r=cbe |
| By: | Toke Fosgaard (Institute of Food and Resource Economics, University of Copenhagen); Lars Gaarn Hansen (Institute of Food and Resource Economics, University of Copenhagen); Marco Piovesan (Institute of Food and Resource Economics, University of Copenhagen) |
| Abstract: | In this paper we investigate if people cheat more when they observe their peers cheating because they conform or because they become aware that cheating is something to actively consider. In our experiment subjects toss a coin in private and report the outcome (white or black). We reward only those who report white and leave them the possibility to cheat without being discovered. In our 2x2 experimental design, we manipulated subjects’ report sheet to i) suggest (or not) that cheating is an option; ii) suggest that their peers were honest (or dishonest). We find that increasing awareness of cheating as an option significantly increases the probability that women cheat; whereas men – who are already aware that cheating is an option - are not affected. When we suggest that peers have cheated, men cheat significantly more, whereas women do not. |
| Keywords: | cheating, norms, conformity, awareness, gender differences |
| JEL: | D63 K42 D81 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2012_15&r=cbe |
| By: | Erin Todd Bronchetti; Thomas S. Dee; David B. Huffman; Ellen Magenheim |
| Abstract: | Over the past decade, researchers have focused attention on a new approach for encouraging Americans to adopt beneficial behaviors. This approach relies on making the desired behavior occur automatically unless an individual chooses to opt out. A prominent example is automatic enrollment in 401(k plans, in which employees are signed up for the plan at a default contribution rate if they do not take any action. This policy has proven to be a potent way to boost participation rates. While such default design strategies can improve some saving decisions, researchers have begun exploring their potential limitations. For example, one recent study found that setting a very high default contribution rate for a workplace saving plan caused many workers to choose a different rate. This brief is based on a new study that also tests the limits to default design through an experiment to encourage low-income individuals to save about 10 percent of their tax refund. The discussion is organized as follows. The first section describes the behavioral theory behind default design. The second section explains how defaults were used to nudge some low-income tax-filers to buy U.S. Savings Bonds with a portion of their tax refund. The third section discusses the results: the tax filers who were “nudged” to invest in the bonds were no more likely than other low-income filers to participate, apparently because they already had plans to spend their refunds. The final section concludes that policies that rely on default design may not work when they clash sharply with individuals’ intentions. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2012-21&r=cbe |
| By: | Robert Dur (Erasmus University Rotterdam); Robin Zoutenbier (Erasmus University Rotterdam) |
| Abstract: | We examine differences in altruism and laziness between public sector employees and private sector employees. Our theoretical model predicts that the likelihood of public sector employment increases with a worker's altruism, and increases or decreases with a worker's laziness depending on his altruism. Using data from the German Socio-Economic Panel Study, we find that public sector employees are significantly more altruistic and lazy than observationally equivalent private sector employees. A series of robustness checks show that these patterns are stronger among higher educated workers; that the sorting of altruistic people to the public sector takes place only within the caring industries; and that the difference in altruism is already present at the start of people's career, while the difference in laziness is only present for employees with sufficiently long work experience. |
| Keywords: | public service motivation; altruism; laziness; sorting; public sector employment; personality characteristics |
| JEL: | H1 J45 M5 |
| Date: | 2012–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120135&r=cbe |
| By: | Katerina Straznicka (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | We examine the temporal stability of risk preference measures obtained by different elicitation methods in a controlled laboratory experiment at two distinct times. Our results indicate remarkable temporal stability of risk measures at the aggregated level and temporal instability at the individual level. We control for the impact of, first, personality traits, and second, performance realized in a market game. When better market performers demonstrate more stable risk preferences, the impact of personality traits is marginal. |
| Keywords: | Time stability; Risk Preferences; Personality Theory; Experimental economics |
| Date: | 2012–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00768437&r=cbe |
| By: | Lynn Conell-Price; Julian Jamison |
| Abstract: | We present new evidence on the relationship between health behaviors and experimental measures of risk and time preferences and introduce evidence that perceived control — a measure incorporated from the health psychology literature — is a stronger and more consistent predictor of health behaviors than economic preferences. |
| Keywords: | Health ; Human behavior |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:12-16&r=cbe |