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on Cognitive and Behavioural Economics |
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Issue of 2014‒03‒08
eleven papers chosen by Marco Novarese Universita' del Piemonte Orientale Amedeo Avogadro |
| By: | Till Olaf Weber (The University of Nottingham); Jonas Fooken (Joint Research Centre); Benedikt Herrmann (Joint Research Centre) |
| Abstract: | Most traditional tax policies have been based on classical economic models of tax payers as decision makers.As in many fields where humans make decision, however, more integrated behavioural economic models, that is, models that take into account both psychological and purely economic factors can provide further insights.Therefore, a large literature in the field on the behavioural economics of taxation exists. This report summarizes central parts of this literature, reviewing mainly experimental and observational studies in the academic literature to be informative for policy-makers. It also provides a potential agenda for future research and application of behavioural economic policies with regard to tax compliance. |
| Keywords: | Tax compliance, behavioural economics, economic experiments, survey |
| JEL: | D03 H26 H41 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:tax:taxpap:0041&r=cbe |
| By: | Lauge N. Skovgaard Poulsen; Emma Aisbett |
| Abstract: | Using the international investment regime as its point of departure, the paper applies notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that consistently observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific ‘vivid’ instances to mind. |
| Keywords: | bounded rationality; international political economy; international economic law; bilateral investment treaties |
| JEL: | F00 F02 F13 F20 F21 F23 F51 F53 K33 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:45035&r=cbe |
| By: | Berger Ulrich (Department of Economics, Vienna University of Economics and Business); Ansgar Grüne |
| Abstract: | Indirect reciprocity describes a class of reputation-based mechanisms which may explain the prevalence of cooperation in groups where partners meet only once. The first model for which this has analytically been shown was the binary image scoring mechanism, where one's reputation is only based on one's last action. But this mechanism is known to fail if errors in implementation occur. It has thus been claimed that for indirect reciprocity to stabilize cooperation, reputation assessments must be of higher order, i.e. contingent not only on past actions, but also on the reputations of the targets of these actions. We show here that this need not be the case. A simple image scoring mechanism where more than just one past action is observed provides ample possibilities for stable cooperation to emerge even under substantial rates of implementation errors. |
| Keywords: | cooperation, prisoner's dilemma, donation game, indirect reciprocity, image scoring, first-order assessment, evolutionary stability, altruism |
| JEL: | C72 D83 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp168&r=cbe |
| By: | Yang-Yu Liu; Jose C. Nacher; Tomoshiro Ochiai; Mauro Martino; Yaniv Altshuler |
| Abstract: | Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are risk-averse with respect to gains and risk-seeking with respect to losses, a phenomenon called "loss aversion". Despite of the fact that prospect theory has been well developed in behavioral economics at the theoretical level, there exist very few large-scale empirical studies and most of them have been undertaken with micro-panel data. Here we analyze over 28.5 million trades made by 81.3 thousand traders of an online financial trading community over 28 months, aiming to explore the large-scale empirical aspect of prospect theory. By analyzing and comparing the behavior of winning and losing trades and traders, we find clear evidence of the loss aversion phenomenon, an essence in prospect theory. This work hence demonstrates an unprecedented large-scale empirical evidence of prospect theory, which has immediate implication in financial trading, e.g., developing new trading strategies by minimizing the effect of loss aversion. Moreover, we introduce three risk-adjusted metrics inspired by prospect theory to differentiate winning and losing traders based on their historical trading behavior. This offers us potential opportunities to augment online social trading, where traders are allowed to watch and follow the trading activities of others, by predicting potential winners statistically based on their historical trading behavior rather than their trading performance at any given point in time. |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1402.6393&r=cbe |
| By: | Jingnan Chen (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); Natalia Montinari (Lund School of Economics and Management, Lund University); Marco Piovesan (Department of Economics, University of Copenhagen) |
| Abstract: | The literature on pro-social behavior shows that older children are more generous than younger children; however, the level of individual generosity is heterogeneous even between children of the same age. This paper investigates whether a child’s popularity affects a child’s generosity. Our participants – 231 children, six to twelve years old – decide how many of their four colored wristbands they want to share with another anonymous child. We manipulate the visibility of this decision: in treatment Public, the decisions are revealed to the entire class at the end of the game, whereas in treatment Private children’s decisions remain secret. In addition, we elicited each child’s network of friends using an innovative “seating map†mechanism. Our results reveal that more popular children are more generous in Public than Private decision environments, while less popular children behave similarly in both cases. Moreover, older children in Public display greater generosity than (i) older children in Private and (ii) younger children in either Public or Private. Finally, in Public, older and more popular children share more than less popular older children, and more than younger children regardless of popularity; whereas, in Private there is no effect of popularity on children of any age. Length: 34 |
| Keywords: | popularity, children, field experiment, public decision making, pro-social behavior |
| JEL: | C93 J13 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1045&r=cbe |
| By: | Sotiris Georganas; Mirco Tonin; Michael Vlassopoulos |
| Abstract: | Peer effects arise in situations where workers observe each others’ work activity. In this paper we disentangle the effect of observing a peer from that of being observed by a peer, by setting up a real effort experiment in which we manipulate the observability of performance. In particular, we randomize subjects into three groups: in the first one subjects are observed by another subject, but do not observe anybody; in the second one subjects observe somebody else’s performance, but are not observed by anybody; in the last group subjects work in isolation, neither observing, nor being observed. We consider both a piece rate compensation scheme, where pay depends solely on own performance, and a team compensation scheme, where pay also depends on the performance of other team members. Overall, we find some evidence that subjects who are observed increase productivity at least initially when compensation is team based, while we find that subjects observing react to what they see when compensation is based only on own performance. |
| Keywords: | peer effects, piece rate, team incentives, real-effort experiment |
| JEL: | D03 J24 M52 M59 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_4572&r=cbe |
| By: | Schnellenbach, Jan; Schubert, Christian |
| Abstract: | Public choice theory has originally been motivated by the need to correct the asymmetry, widespread in traditional welfare economics, between the motivational assumptions of market participants and policymakers: Those who played the game of politics should also be considered rational and self-interested. History repeats itself with the rise of behavioral economics: Cognitive biases discovered in market participants often induce a call for rational governments to intervene. Recently, however, behavioral economics has also been applied to the explanatory analysis of the political process. This paper surveys the current state of the emerging field of 'behavioral public choice' and considers the scope for further research. -- |
| Keywords: | Behavioral Public Choice,Behavioral Economics,Rational Irrationality,Cognitive Biases,Social Norms,Voting,Paternalism |
| JEL: | D78 D03 A12 D72 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluord:1403&r=cbe |
| By: | Werner Güth; Matteo Ploner; Ivan Soraperra |
| Abstract: | Experimental studies of the WTP-WTA gap avoid social trading by implementing an incentive compatible mechanism for each individual trader. We compare a traditional random price mechanism and a novel elicitation mechanism preserving social trading, without sacrificing mutual incentive compatibility. Furthermore, we focus on risky goods - binary monetary lotteries - for which asymmetries in evaluations are more robust with respect to experimental procedures. For both elicitation mechanisms, the usual asymmetry in evaluation by sellers and buyers is observed. An econometric estimation sheds new light on its causes: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome. |
| Keywords: | WTP-WTA gap, risk, elicitation mechanisms, probability weighting |
| JEL: | D81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_4575&r=cbe |
| By: | Meub, Lukas; Proeger, Till |
| Abstract: | Economic small group research points to groups as more rational decision-makers in numerous economic situations. However, no attempts have been made to investigate whether groups are affected similarly by behavioral biases that are pervasive for individuals. If groups were also able to more effectively avoid these biases, the relevance of biases in actual economic contexts dominated by group decision-making might be questioned. We consider the case of anchoring as a prime example of a well-established, robust bias. Individual and group biasedness in three economically relevant domains are compared: factual knowledge, probability estimates and price estimates. In contrast to previous anchoring studies, we find groups to successfully reduce, albeit not eliminate, anchoring in factual knowledge tasks. For the other domains, groups and individuals are equally biased by external anchors. We thus suggest that group cooperation reduces biases prevalent on the individual level for predominantly intellective tasks, yet fails to improve decision-making when judgmental aspects are involved. -- |
| Keywords: | anchoring bias,group decision-making,heuristics and biases,incentives,laboratory experiment |
| JEL: | C91 C92 D8 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:188&r=cbe |
| By: | Epstein, Larry G.; Halevy, Yoram |
| Abstract: | We study choice between bets on the colors of two balls, where one ball is drawn from each of two urns. Though you are told the same about each urn, you are told very little, so that you are not given any reason to be certain that the compositions are identical. We identify choices that reveal an aversion to ambiguity about the relation between urns, thus identifying a source of uncertainty different from the usual Knightian distinction between risk and ambiguity. Choice behavior is studied in a controlled high-stakes laboratory experiment, and the ability of new and existing models to rationalize the experimental findings is examined. |
| Keywords: | ambiguity, uncertainty, correlation, Ellsberg |
| JEL: | D81 D91 |
| Date: | 2014–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:yoram_halevy-2014-9&r=cbe |
| By: | Geoffroy De Clippel; Kareen Rozen |
| Date: | 2014–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000904&r=cbe |