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on Cognitive and Behavioural Economics |
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Issue of 2021‒11‒29
six papers chosen by Marco Novarese Università degli Studi del Piemonte Orientale |
| By: | Thomas Giebe; Radosveta Ivanova-Stenzel; Martin G. Kocher; Simeon Schudy |
| Abstract: | Overbidding in second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, cross-game learning has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher ability bidders. |
| Keywords: | cognitive ability, cross-game learning, experiment, auction, heuristics, first-price auctions, second-price auctions |
| JEL: | C72 C91 D44 D83 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9396&r= |
| By: | Bougherara, Douadia; Friesen, Lana; Nauges, Céline |
| Keywords: | We study the interaction between risk taking and skewness seeking behavior among the French population using an experiment that elicits certainty equivalent over lotteries that vary the second and third moments orthogonally. We find that the most common behavior is risk avoidance and skewness seeking. On average, we find no interaction between the two, and a weakly significant interaction only in some segments of the population. That is, in most cases, skewness seeking is not affected by the variance of the lotteries involved, nor is risk taking affected by the skewness of the lotteries. We also find a significant positive correlation between risk avoiding and skewness seeking behavior. Older and female participants make more risk avoiding and more skewness seeking choices, while less educated people and those not in executive occupations are more skewness seeking. |
| JEL: | C93 D81 |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126183&r= |
| By: | Aurelien Baillon; Yoram Halevy; Chen Li |
| Abstract: | Facing several decisions, people may consider each one in isolation or integrate them into a single optimization problem. Isolation and integration may yield different choices, for instance, if uncertainty is involved, and only one randomly selected decision is implemented. We investigate whether the random incentive system in experiments that measure ambiguity aversion provides a hedge against ambiguity, making ambiguity-averse subjects who integrate behave as if they were ambiguity neutral. Our results suggest that about half of the ambiguity averse subjects integrated their choices in the experiment into a single problem, whereas the other half isolated. Our design further enable us to disentangle properties of the integrating subjects' preferences over compound objects induced by the random incentive system and the choice problems in the experiment. |
| Keywords: | hedging, random incentives, Ellsberg, ambiguity aversion, design of experiments, integration, isolation, narrow bracketing, narrow framing |
| JEL: | C81 C91 D81 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-712&r= |
| By: | Aurelien Baillon; Yoram Halevy; Chen Li |
| Abstract: | We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first - risk, second - uncertainty), incentive compatibility may be restored. |
| Keywords: | incentive compatibility, certainty equivalent, probability equivalents, broad bracketing, Ellsberg, BDM, choice list, MPL |
| JEL: | C81 C91 D81 |
| Date: | 2021–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-711&r= |
| By: | Rhosyn A. Almond (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich) |
| Abstract: | We investigate the effect of worthiness framing on donation behaviour – both the propensity to donate and magnitude of donation. People prefer to donate to ‘worthy’ causes. Prosocial behaviour is strongly influenced by value judgements based on the individual’s perception of a situation and are therefore highly context-dependent. In this experiment, the target of manipulation is the context of a donation decision. We invited participants to donate to the local food bank and used selected questions from the World Values Survey to measure perceptions about the context of inequality. We find a treatment effect of worthiness framing– but only for those with certain beliefs about the context of inequality. We use hardworking and unlucky frames to highlight the worthiness of the recipient group and find this framing is only effective in increasing donations if it challenges an individual’s prior beliefs. Framing a recipient as worthy only increases donations from those whose beliefs suggest they consider the poor less worthy. |
| Keywords: | prosocial behaviour, charity, worthiness, framing, deservingness |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:21-03&r= |
| By: | Despina Gavresi (University of Ioannina); Anastasia Litina (Department of Economics, University of Macedonia); Christos A. Makridis (Arizona State University and Stanford University) |
| Abstract: | Do environmental factors affect financial decision-making and how might personality traits mediate these effects? Using plausibly exogenous variation in individuals' exposure to within-country fluctuations in temperature between 2004 and 2018 across 28 European countries and Israel, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with individual personality characteristics. We find that a 10% increase in temperature is associated with a 0.1 percentage point (pp) rise in the probability that an optimist invests in bonds and a 0.12 pp decline in the probability for stocks. However, among pessimists, we find null effects. We find similar results when we focus on the intensive margin of investment as well. We explain the mechanism behind these results with a stylized model where optimists are involved in more cognitively-demanding activities and sensitive to external stimuli. Our results are consistent with behavioral finance models where expectations moderate the transmission of shocks onto financial decision-making. |
| Keywords: | Behavioral Finance; Expectations; Optimism; Stocks; Temperature |
| JEL: | D87 D91 G11 G41 G51 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2021_16&r= |