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on Cognitive and Behavioural Economics |
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Issue of 2019‒06‒10
seven papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences) |
| Abstract: | Risk and time preferences are fundamentally important for financial decisions. We study such preferences for business group members based on field experiments in Ethiopia. The relationship between risk preferences and time preferences has been subject to intensive research and debate among behavioral and experimental economists lately. We aim to contribute to this literature based on a Double Multiple Choice List approach used in an incentivized field experiment. First, we provide strong evidence of diminishing impatience in our data that cannot be explained by present bias. Next, we assess whether measures of diminishing impatience can be associated with measures of risk aversion and probabilistic sensitivity. We also assess whether measurement error in the risk experiment could be the culprit and create spurious correlations between measures of risk aversion and discount rate elasticities with respect to time horizon. Using a random coefficient model, we find strong evidence of diminishing impatience and large and highly significant individual variation in discount rate elasticities with respect to time horizon. We find only weak support for the idea that diminishing impatience is explained by probabilistic sensitivity due to uncertainty about delayed payouts in the discount rate experiments. Risk aversion and optimism/pessimism were unrelated to model noise. More pessimistic and more risk averse respondents had more hyperbolic time preferences and these results were not sensitive to measurement error. Surprisingly, more consistent responses in the risk experiments (lower measurement error) were found for respondents with more hyperbolic time preferences and respondents with higher probabilistic insensitivity. |
| Keywords: | Time preferences; risk preferences; diminishing impatience; probability weighting |
| JEL: | C93 D83 |
| Date: | 2019–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nlsclt:2019_004&r=all |
| By: | Deborah A. Cobb-Clark; Sarah Dahmann; Nathan Kettlewell |
| Abstract: | Depression affects the way that people process information and make decisions, including those involving risk and uncertainty. Our objective is to analyze the way that depressive episodes shape risk preferences and risk-taking behaviors. We are the first to address this issue using large-scale, representative panel data that include both behavioral and stated risk preference measures and a theoretical framework that accounts for the multiple pathways through which depression affects risk-taking. We find no disparity in the behavioral risk preferences of the mentally well vs. depressed; yet depression is related to people’s stated risk preferences and risk-taking behaviors in ways that are context-specific. Those who are likely to be experiencing a depressive episode report less willingness to take risks in general, but more willingness to take health risks, for example. We investigate these patterns by developing a conceptual model — informed by the psychological literature — that links depression to risk-taking behavior through the key elements of a standard intertemporal choice problem (e.g., time preferences, expectations, budget constraints). This motivates a mediation analysis in which we show that differences in risk-taking behavior are largely explained by depression-related disparities in behavioral traits such as locus of control, optimism and trust. Overall, we find that there is no overarching tendency for those who are depressive to engage in either more or less risk-taking. Instead, the decision-making context matters in ways that largely align with our theoretical expectations. |
| Keywords: | Risk preferences, depression, mental health, risk-taking |
| JEL: | D91 I12 D14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp1038&r=all |
| By: | Altmann, Steffen (IZA and University of Copenhagen); Grunewald, Andreas (Goethe University Frankfurt); Radbruch, Jonas (IZA) |
| Abstract: | Passive behavior is ubiquitous - even when facing various alternatives to choose from, people commonly fail to take decisions. This paper provides evidence on the cognitive foundations of such "passive choices" and studies implications for policies that encourage active decision-making. In an experiment designed to study passive behavior, we document three main results. First, we demonstrate that scarcity of cognitive resources leads to passive behavior. Second, policies that encourage active choice succeed in reducing passivity and improve decisions in the targeted domain. Third, however, these benefits of choice-promoting policies come at the cost of negative cognitive spillovers to other domains. |
| Keywords: | passivity, cognitive resources, scarcity, spillover effects, active decision-making, default options |
| JEL: | D91 D01 D04 C91 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12337&r=all |
| By: | Giovanni Di Bartolomeo; Martin Dufwenberg; Stefano Papa; Francesco Passarelli |
| Abstract: | Why do people keep their promises? Vanberg (2008) and Ederer & Stremitzer (2017) provide causal evidence in favor of, respectively, an intrinsic preference for keeping one’s word and Charness & Dufwenberg’s (2006) expectations-based account based on guilt aversion. The overall picture is incomplete though, as no study disentangles effects in a design that provides exogenous variation of both (the key features of) promises and beliefs. We present an experimental design that does so. |
| Keywords: | Promises; Expectations; Guilt aversion; Moral commitment; Causation |
| JEL: | A13 C91 D03 D64 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp185&r=all |
| By: | Florian Ederer (Cowles Foundation, Yale University); Frédéric Schneider (Yale School of Management) |
| Abstract: | Using a large-scale hybrid laboratory and online trust experiment with pre-play communication this paper investigates how the passage of time affects trust, trustworthiness, and cooperation. We provide evidence for the persistent power of communication. Even when three weeks pass between messages and actual choices and even when these choices are made outside of the lab, communication (predominantly through the use of promises) raises cooperation, trust, and trustworthiness by about 50 percent. Delays between the beginning of the interaction and the time to reciprocate neither substantially alter trust or trustworthiness nor affect how subjects choose to communicate. |
| Keywords: | Trust, Promises, Persistence, Trustworthiness, Delay |
| JEL: | C91 C72 D83 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2129r&r=all |
| By: | Gary Charness (Department of Economics, University of California at Santa Barbara); Thomas Garcia (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France; QuBE - School of Economics and Finance, QUT, Brisbane, Australia); Theo Offerman (CREED and Tinbergen Institute, University of Amsterdam, Amsterdam, Netherlands); Marie Claire Villeval (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France; IZA, Bonn, Germany) |
| Abstract: | We consider the external validity of laboratory measures of risk attitude. Based on a large-scale experiment using a representative panel of the Dutch population, we test if these measures can explain two different types of behavior: (i) behavior in laboratory risky financial decisions, and (ii) behavior in naturally-occurring field behavior under risk (financial, health and employment decisions). We find that measures of risk attitude are related to behavior in laboratory financial decisions and the most complex measures are outperformed by simpler measures. However, measures of risk attitude are not related to risk-taking in the field, calling into question the methods currently used for the purpose of measuring actual risk preferences. We conclude that while the external validity of measures of risk attitude holds in closely related frameworks, this validity is compromised in more remote settings. |
| Keywords: | Risk preferences, elicitation methods, lab-in-the-field experiment |
| JEL: | C91 C93 D81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1921&r=all |
| By: | Bershadskyy, Dmitri; Othman, Ehsan; Saxen, Frerk |
| Abstract: | This paper illustrates how audio-visual data from pre-play face-to-face communication can be used to identify groups which contain free-riders in a public goods experiment. It focuses on two channels over which face-to-face communication influences contributions to a public good. Firstly, the contents of the face-to-face communication are investigated by categorising specific strategic information and using simple meta-data. Secondly, a machine-learning approach to analyse facial expressions of the subjects during their communications is implemented. These approaches constitute the first of their kind, analysing content and facial expressions in face-to-face communication aiming to predict the behaviour of the subjects in a public goods game. The analysis shows that verbally mentioning to fully contribute to the public good until the very end and communicating through facial clues reduce the commonly observed end-game behaviour. The length of the face-to-face communication quantified in number of words is further a good measure to predict cooperation behaviour towards the end of the game. The obtained findings provide first insights how a priori available information can be utilised to predict free-riding behaviour in public goods games. |
| Keywords: | automatic facial expressions recognition,content analysis,public goods experiment,face-to-face communication |
| JEL: | C80 C92 D91 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:92019&r=all |