Do MTurkers Exhibit Myopic Loss Aversion?

We present results from a highly powered online experiment with 937 participants on Amazon Mechanical Turk (MTurk) that examined whether MTurkers exhibit myopic loss aversion (MLA). The experiment consisted of measuring MLA-compliant behavior in two between-subjects treatments that differed only regarding the risk profile of the risky asset employed. We found no statistically significant evidence of MLA-compliant behavior among MTurkers in both treatments.

Cognitive and Behavioural Economics

Rational play in games: A behavioral approach

We argue in favor of a departure from the standard equilibrium approach in game theory in favor of the less ambitious goal of describing only the actual behavior of rational players. We investigate the notion of rationality in behavioral models of extensive-form games (allowing for imperfect information), where a state is described in terms of a play of the game instead of a strategy profile. The players' beliefs are specified only at reached decision histories and are modeled as pre-choice beliefs, allowing us to carry out the analysis without the need for (objective or subjective) counterfactuals. The analysis is close in spirit to the literature on self-confirming equilibrium, but it does..

Cognitive and Behavioural Economics

Crime as Conditional Rule Violation

Most of the time most individuals do not commit crime. Why? One explanation is deonto-logical. People abide by legal rules just because these are the rules. In this perspective, the power of normativity is critical. It is supported by experimental evidence. To an im-pressive degree, participants even abide by arbitrary, costly rules, in the complete absence of enforcement. Yet do they also do that if they learn that some of their peers violate the rule? The experiment shows that rule following is conditional on social information. The more peers violate the rule, the more participants are likely to do so as well, and the more severely the violation. This main finding replicates in a vignette..

Cognitive and Behavioural Economics

A Critical Perspective on the Conceptualization of Risk in Behavioral and Experimental Finance

Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term "risk", which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a latent trait), risk perceptions (how individuals judge whether something is risky), and risk-taking behavior as distinct concepts, and hence to guide future research on (individual-level) decision-making processes in this direction.

Cognitive and Behavioural Economics

The Supply of Motivated Beliefs

When people choose what messages to send to others, they often consider how others will interpret the messages. In many environments, particularly in politics, people are motivated to hold particular beliefs and distort how they process information in directions that favor their motivated beliefs. This paper uses two experiments to study how message senders are affected by receivers' motivated beliefs. Experiment 1, conducted using an online sample of social media users, analyzes the effect of incentivizing senders to be perceived as truthful. These incentives cause senders to send less truthful messages. When incentivized, senders send more false information when it aligns with receivers' p..

Cognitive and Behavioural Economics

Reference Points and the Tradeoff between Risk and Incentives

We conduct laboratory experiments to investigate basic predictions of principal-agent theory about the choice of piece rate contracts in the presence of output risk, and provide novel insights that reference dependent preferences affect the tradeoff between risk and incentives. Subjects in our experiments choose their compensation for performing a real-effort task from a menu of linear piece rate and fixed payment combinations. As classical principal-agent models predict, more risk averse individuals choose lower piece rates. However, in contrast to those predictions, we find that low-productivity risk averse workers choose higher piece rates when the riskiness of the environment increases. ..

Cognitive and Behavioural Economics

Contingent Reasoning and Dynamic Public Goods Provision

Individuals often possess private information about the common value of a public good. Their contributions toward funding the public good can therefore reveal information that is useful to others who are considering their own contributions. This experiment compares static and dynamic contribution decisions to determine how hypothetical contingent reasoning differs in dynamic decisions. The timing of individuals’ sequential contribution decisions is endogenous. Funding the public good is more efficient with dynamic than static decisions in equilibrium, but this requires decision-makers to understand that in the future they can learn from past events. Our results indicate that a substan..

Cognitive and Behavioural Economics

Reference Points and the Tradeoff between Risk and Incentives

We conduct laboratory experiments to investigate basic predictions of principal-agent theory about the choice of piece rate contracts in the presence of output risk, and provide novel insights that reference dependent preferences affect the tradeoff between risk and incentives. Subjects in our experiments choose their compensation for performing a real-effort task from a menu of linear piece rate and fixed payment combinations. As classical principal-agent models predict, more risk averse individuals choose lower piece rates. However, in contrast to those predictions, we find that low-productivity risk averse workers choose higher piece rates when the riskiness of the environment increases. ..

Cognitive and Behavioural Economics

Passive or Active? Behavioral changes in different designs of search experiments

While search experiments are available in several designs, accumulating experimental evidence suggests that individual search behavior depends on design details. This paper reports the first classification and comparison of several search experiment designs widely accepted in search studies. These designs can be categorized as passive, quasi-active, and active. We found individual- and aggregate-level significant differences in the results across designs, despite identical models. In the passive design, subjects tended to be more reluctant to search than in the active design, and risk-averse subjects quickly terminated their search. Our results highlight the importance and potentials of desi..

Cognitive and Behavioural Economics

"COVID-19 and Economics"

This paper points out the importance of two perspectives on preventive measures against COVID-19 as contributions of economics: (1) clarifying the trade-off between health and economy and implementing cost-effective measures, and (2) understanding people's behavior. Policy makers will choose among the trade-offs, which are drawn by economists. If a measure is not on the efficient frontier, economics can suggest an improvement. Restraints on individual behavior and on business operations led to the trade-off between health and freedom. In order to succeed in restricting activities based on requests without legal enforcement, we need to consider two questions: why do people comply with request..

Cognitive and Behavioural Economics

Paving the Road for Replications: Experimental Results from an Online Research Repository

Are users of a bibliographic database interested in learning about replications? Can we motivate them to learn? To answer these questions, we performed an experiment on a RePEc (Research Papers in Economics) website: Using randomized stratification, we allocated 324 replications and their corresponding original studies to clusters; we then drew from those clusters to select treatment and control groups. We added brightly colored tabs to the relevant webpages to alert visitors to the existence of a replication study or to the original study of a replication. We monitored traffic over three phases lasting several months: a) no treatment, b) treatment on one group, c) treatment on both groups. ..

Cognitive and Behavioural Economics

Evolutionary Foundation for Heterogeneity in Risk Aversion

We examine evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between aggregate risk and idiosyncratic risk. We show that the choices that maximize the long-run growth rate are induced by a heterogeneous population in which the least and most risk averse agents are indifferent between aggregate risk and obtaining its linear and harmonic mean for sure, respectively. Moreover, an approximately optimal behavior can be induced by a simple distribution according to which all agents have constant relative risk aversion, and the coefficient of relative risk aversion is uniformly distributed between zero and two.

Cognitive and Behavioural Economics

The impact of day of mailing on web survey response rate and response speed

The day of the week on which sample members are invited to participate in a web survey might influence propensity to respond, or to respond promptly. This effect could differ between sample members with different characteristics. We explore such effects using a large-scale experiment implemented on the Understanding Society Innovation Panel, in which some people received an invitation on a Monday and some on a Friday. Specifically, we test whether any effect of the invitation day is moderated by economic activity status, previous participation in the panel, or whether the invitation was sent only by post or by post and email simultaneously.Â

Cognitive and Behavioural Economics

Media negativity bias and tax compliance: Experimental evidence

We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in..

Cognitive and Behavioural Economics

The Effects of Temperature on Economic Preferences

The empirical evidence suggests that key accumulation decisions and risky choices associated with economic development depend, at least in part, on economic preferences such as willingness to take risk and patience. This paper studies whether temperature could be one of the potential channels that influences such economic preferences. Using data from the Indonesia Family Life Survey and NASAs Modern Era Retrospective Analysis for Research and Applications data we exploit quasi exogenous variations in outdoor temperatures caused by the random allocation of survey dates. This approach allows us to estimate the effects of temperature on elicited measures of risk aversion, rational choice violat..

Cognitive and Behavioural Economics

The Cost of Worrying About an Epidemic: Ebola Concern and Cognitive Function in the US

Do emotional responses to the spread of an infectious disease affect the quality of economic decision-making? In the context of an episode of heightened public concern about Ebola in the US in October 2014, I document that worrying about the possibility of an epidemic can impair cognitive function. My analysis relies on data from cognitive tests administered as part of a wave of survey interviews by a large US panel study, which I combine with measures of local concern about Ebola based on internet search volume. For identification, I exploit temporal and spatial variation in Ebola concern caused by the emergence of four cases of Ebola that were diagnosed in the US. Using proximity to the US..

Cognitive and Behavioural Economics

Evolutionary Foundation for Heterogeneity in Risk Aversion

We examine the evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between aggregate risk and idiosyncratic risk. We show that the choices that maximize the long-run growth rate are induced by a heterogeneous population in which the least and most risk averse agents are indifferent between aggregate risk and obtaining its linear and harmonic mean for sure, respectively. Moreover, approximately optimal behavior can be induced by a simple distribution according to which all agents have constant relative risk aversion, and the coefficient of relative risk aversion is uniformly distributed between zero and two.

Cognitive and Behavioural Economics

Reciprocity or community: Different cultural pathways to cooperation and welfare

In a laboratory experiment we compare voluntary cooperation in Iceland and the US. We furthermore compare the associated thought processes across cultures. The two countries have similar economic performance, but survey measures show that they differ culturally. Our hypotheses are based on two such measures, The Inglehart cultural world map and the Knack and Keefers scale of civic attitudes toward large-scale societal functioning. We prime the participants with different social foci, emphasizing in one a narrow grouping and in the other a larger social unit. In each country we implement this using two different feedback treatments. Under group feedback, participants only know the contributio..

Cognitive and Behavioural Economics

Socioemotional Skills and Refugees’ Language Acquisition

This paper contributes to the existing literature by extending Chiswick and Miller’s (2001) model to include socioemotional skills. While the theoretical model predicts that exposure, efficiency, and incentives determine language proficiency, we additionally assume that socioemotional skills influence these three constructs and thereby language proficiency. Specifically, we seek to answer the following research questions: How do socioemotional skills affect the language attainment of recent refugees? What is the relative importance of socioemotional skills in refugees’ language learning process? Given the findings of the prior literature that personality traits may compensate f..

Cognitive and Behavioural Economics

Intelligence promotes cooperation in long-term interaction: Experimental evidence in infinitely repeated public goods games

A growing body of literature in experimental economics examines how cognitive ability affects cooperation in social dilemma settings. We contribute to the existing literature by studying this relationship in a more complex and strategic environment when the number of partners increases in an infinitely repeated public goods game. We designed four treatments with different continuation probability under two conditions: whether cooperation can be sustained as risk dominance or not. We asked participants to decide whether to cooperate in every period in the first five rounds. They were further asked to decide if they should elicit their strategy at the beginning of each super game using the str..

Cognitive and Behavioural Economics

Early-Life War Experiences and Corporate Financial Outcomes

This paper examines early-life exposure to war experiences among a comprehensive sample of corporate managers and their subsequent tendency towards leverage, cash-holding, investments and M&A activity. Drawing data from the well-document and severe Japanese experience in WW2, we show managers who survived such experiences in their pre-adolescence demonstrate distinct behavioral patterns of financial decision-making in later life. Specifically, they tend to borrow more, hold less cash, invest more in capital expenditure but engage less in M&A deals. This can be understood in the context of ‘what doesn’t kill you makes you stronger' and in this case, more risk-seeking. Extended an..

Cognitive and Behavioural Economics

Truth, Honesty, and Strategic Interactions

We experimentally investigate how introducing the concept of truth in the natural context of a game affects player behavior using two games. Two players simultaneously make reimbursement claims for a damaged product, where players' payoffs depend only on their claims but not on the true price. Both games are dominance-solvable, and one of them has a strictly dominant strategy equilibrium, which many participants easily identified. Yet, claims in our experiments are significantly affected by the price. Analyzing the role of truth on participants' choices, we show that one needs strategic considerations and preferences for honesty to explain the results.

Cognitive and Behavioural Economics

Lack of Control: An experiment

We ran an experiment to study whether lack of control has an effect on experimental results. Subjects who were recruited following standard procedures completed the experiment online or in the laboratory. The experimental design is otherwise identical between conditions. Results suggest that there are no differences between conditions, except for a larger percentage of laboratory subjects donating nothing in the Dictator Game.

Cognitive and Behavioural Economics

A critical perspective on the conceptualization of risk in behavioral and experimental finance

Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term ``risk'', which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a latent trait), risk perceptions (how individuals judge whether something is risky), and risk-taking behavior as distinct concepts, and hence to guide future research on (individual-level) decision-making processes in this direction.

Cognitive and Behavioural Economics

Reflecting on reflection: prospect theory, our behaviours, and our environment

In a previously published article, I reported some tests of prospect theory’s reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Theref..

Cognitive and Behavioural Economics

Human frictions in the transmission of economic policy

Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitive ability agents. We conclude by discussing how our findings inform the..

Cognitive and Behavioural Economics

Ingroup Bias with Multiple Identities: The Case of Religion and Attitudes Towards Government Size

Group identity is known to exert a powerful socio-psychological influence on behaviour but to date has been largely explored as a uni-dimensional phenomenon. We consider the role of multiple dimensions of identity, asking what might happen to ingroup and outgroup perceptions and the resulting implications for cooperation. Carefully selecting two politically charged identity dimensions documented to have similar strength and to be largely orthogonal (religious belief and views about government size), we find that priming individuals to consider both dimensions rather than one has a noticeable effect on behaviour. Moving from one to two dimensions can produce a significant increase in ingroup ..

Cognitive and Behavioural Economics

Shallow Meritocracy: An Experiment on Fairness Views

Meritocracies aspire to reward effort and hard work but promise not to judge individuals by the circumstances they were born into. The choice to work hard is, however, often shaped by circumstances. This study investigates whether people’s merit judgments are sensitive to this endogeneity of choice. In a series of incentivized experiments with a large, representative US sample, study participants judge how much money two workers deserve for the effort they exerted. In the treatment condition, unequal circumstances strongly discourage one of the workers from working hard. Nonetheless, I find that individuals hold the disadvantaged worker fully responsible for his choice. They do so, even th..

Cognitive and Behavioural Economics

Artificial Intelligence in the Field of Economics

The history of AI in economics is long and winding, much the same as the evolving field of AI itself. Economists have engaged with AI since its beginnings, albeit in varying degrees and with changing focus across time and places. In this study, we have explored the diffusion of AI and different AI methods (e.g., machine learning, deep learning, neur al networks, expert systems, knowledge- based systems) through and within economic subfields, taking a scientometrics approach. In particular, we centre our accompanying discussion of AI in economics around the problems of economic calculation and social planning as proposed by Hayek. To map the history of AI within and between economic sub- fiel..

Cognitive and Behavioural Economics

Shallow Meritocracy: An Experiment on Fairness Views

Meritocracies aspire to reward effort and hard work but promise not to judge individuals by the circumstances they were born into. The choice to work hard is, however, often shaped by circumstances. This study investigates whether people's merit judgments are sensitive to this endogeneity of choice. In a series of incentivized experiments with a large, representative US sample, study participants judge how much money two workers deserve for the effort they exerted. In the treatment condition, unequal circumstances strongly discourage one of the workers from working hard. Nonetheless, I find that individuals hold the disadvantaged worker fully responsible for his choice. They do so, even thou..

Cognitive and Behavioural Economics