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on Cognitive and Behavioural Economics |
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Issue of 2023‒12‒11
four papers chosen by Marco Novarese, Università degli Studi del Piemonte Orientale |
| By: | Brian Jabarian; Simon Lazarus |
| Abstract: | We conduct an incentivized experiment on a nationally representative US sample (N=708) to test whether people prefer to avoid ambiguity even when it means choosing dominated options. In contrast to the literature, we find that 55% of subjects prefer a risky act to an ambiguous act that always provides a larger probability of winning. Our experimental design shows that such a preference is not mainly due to a lack of understanding. We conclude that subjects avoid ambiguity per se rather than avoiding ambiguity because it may yield a worse outcome. Such behavior cannot be reconciled with existing models of ambiguity aversion in a straightforward manner. |
| Keywords: | uncertainty, complexity, ambiguity, decision-making |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10745&r=cbe |
| By: | Giuseppe Attanasi (UNIROMA - Università degli Studi di Roma "La Sapienza" = Sapienza University [Rome]); Claire Rimbaud (Leopold Franzens Universität Innsbruck - University of Innsbruck); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We investigate whether a player's guilt aversion is modulated by the co-players' vulnerability. To this goal, we introduce new variations of a three-player Trust game in which we manipulate payoff vulnerability and endowment vulnerability. The former is the traditional vulnerability which arises when a player's material payoff depends on another player's action (e.g., recipient's payoff in a Dictator game). The latter arises when a player's initial endowment is entrusted to another player (e.g., trustor's endowment in a Trust game). Treatments vary whether trustees can condition their decision on the belief of a co-player who is payoff-vulnerable and/or endowment-vulnerable, or not vulnerable at all, and the decision rights of the vulnerable player. We find that trustees' guilt aversion is insensitive to both the dimension of the co-player's vulnerability and to the decision rights of the co-player. Guilt is activated even absent vulnerability of the co-player whose beliefs are disappointed. It is triggered by the willingness to respond to the co-player's beliefs on his strategy, regardless of whether this strategy concerns this player or a third player's vulnerability, that is, indirect vulnerability. |
| Keywords: | Guilt Aversion, Vulnerability, Psychological Game Theory, Trust Game, Dictator Game, Experiment |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03620418&r=cbe |
| By: | Ernst ⓡ Fehr; Thomas ⓡ Epper; Julien ⓡ Senn; Ernst Fehr |
| Abstract: | Parsimony is a desirable feature of economic models but almost all human behaviors are characterized by vast individual variation that appears to defy parsimony. How much parsimony do we need to give up to capture the fundamental aspects of a population’s distributional preferences and to maintain high predictive ability? Using a Bayesian nonparametric clustering method that makes the trade-off between parsimony and descriptive accuracy explicit, we show that three preference types—an inequality averse, an altruistic and a predominantly selfish type—capture the essence of behavioral heterogeneity. These types independently emerge in four different data sets and are strikingly stable over time. They predict out-of-sample behaviour equally well as a model that permits all individuals to differ and substantially better than a representative agent model and a state-of-the-art machine learning algorithm. Thus, a parsimonious model with three stable types captures key characteristics of distributional preferences and has excellent predictive power. |
| Keywords: | distributional preferences, altruism, inequality aversion, preference heterogeneity, stability, out-of-sample prediction, parsimony, Bayesian nonparametrics |
| JEL: | D31 D63 C49 C90 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10727&r=cbe |
| By: | Junqian Li (School of Economics, Shandong University); Yuqing Liu (School of Economics, University of Queensland, Brisbane, Australia); Nhan Buu Phan (School of Economics, University of Queensland, Brisbane, Australia); Shino Takayama (School of Economics, University of Queensland, Brisbane, Australia) |
| Abstract: | In this paper, we study the trading strategies of informed traders in a simulated asset market. There is a risky asset with two possible values, and participants receive private information about the value of the asset. Market maker’s quotes are computationally simulated. We study whether the trading behavior of informed traders—specifically, the frequency of manipulative trading versus honest trading—is influenced by various conditions, including the bid–ask spread, retrading possibilities, and the risk attitude of traders. Our findings suggest that manipulation occurs in both long (e.g., 15 periods) and short (e.g., five periods) trading rounds. Furthermore, there is a significant increase in the number of manipulators when the bid–ask spread is narrow rather than wide. Our results also indicate that risk-seeking participants engage in manipulation more frequently than other participants. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:665&r=cbe |