A04
Biases and Decision Impairments in Markets
Discussion Papers

Discussion Paper No. 190
October 16, 2019

Complexity and Distributive Fairness Interact in Affecting Compliance Behavior

Author:

Bellemare, Charles (Université Laval)
Deversi, Marvin (LMU Munich)
Englmaier, Florian (LMU Munich)

Abstract:

Filing income tax returns or insurance claims often requires that individuals comply with complex rules to meet their obligations. We present evidence from a laboratory tax experiment suggesting that the effects of complexity on compliance are intrinsically linked to distributive fairness. We find that compliance remains largely una ffected by complexity when income taxes are distributed to a morally justi fied charity. Conversely, complexity signi ficantly amplifi es non-compliance when income taxes appear wasted as they are distributed to a morally dubious charity. Our data further suggest that this non-compliance pattern is facilitated through the ambiguity that evolves from mostly unstrategic fi ling mistakes.

Keywords:

complexity; compliance; distributive fairness; experiment

JEL-Classification:

C91; D01; D91; H26

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Discussion Paper No. 180
August 19, 2019

Cash in Hand and Savings Decisions

Author:

Spantig, Lisa (LMU Munich)

Abstract:

Cash is an important means of transaction, generally assumed to be fungible. However, behavioral economics and consumer research show that 'cash in hand', physically holding on to cash and then handing it away, affects purchasing decisions. I study how cash in hand influences decisions in a different but very important domain: savings. Savings accounts are a promising tool for reducing poverty, but the use of savings accounts is often puzzlingly low. Holding on to cash that needs to be physically deposited into a savings account may increase the psychological costs of saving. This study experimentally identifies the causal effect of cash in hand on savings deposits of microfinance clients in the Philippines. In contrast to many laboratory and several field studies with similar interventions, I do not find reduced savings deposits due to cash in hand. I discuss reasons for and consequence of this surprising finding, in particular for developing economics where lots of transactions are still cash-based.

Keywords:

cash; savings; experiment

JEL-Classification:

D90; C90; G40

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Discussion Paper No. 134
December 20, 2018

Competition and Fatigue At Work

Authors:

Angelova, Vera (TU Berlin)
Giebe, Thomas (Linnaeus University)
Ivanova-Stenzel, Radosveta (TU Berlin)

Abstract:

We study theoretically and experimentally the role of fatigue and recovery within a competitive work environment. At work, agents usually make their effort choice in response to competition and monetary incentives. At the same time, they have to take into account fatigue, which accumulates over time if there is insufficient recovery. We model a sequence of work periods as tournaments that are linked through fatigue spillovers, inducing a non-time-separable decision problem. We also allow for variations in incentives in one work period, in order to analyze spillover effects to the work periods "before" and "after". Making recovery harder should, generally, reduce effort. This theoretical prediction is supported by the experimental data. A short-term increase in incentives in one period should lead to higher effort in that period, and, due to fatigue, to strategic resting before and after. Our experimental results confirm the former, whereas we do not find sufficient evidence for the latter. Even in the presence of fatigue, total effort should positively respond to higher-powered incentives. This is not supported by our data. Removing fatigue, we find the expected increase in total effort. For work environments, this may imply that the link between monetary incentives and effort provision becomes weaker in the presence of fatigue or insufficient recovery between work periods.

Keywords:

fatigue; recovery; incentives; experiment; tournament

JEL-Classification:

C72; C91; D09; J22; J33; M05; M52

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Discussion Paper No. 119
October 11, 2018

Show What You Risk – Norms for Risk Taking

Author:

Grimm, Stefan (LMU Munich)

Abstract:

Most economic decisions are embedded in a specific social context. In many such contexts, individual choices are influenced by their observability due to underlying social norms and social image concerns. This study investigates the impact of choices being observed, compared to anonymity of choices, on risk taking in a laboratory experiment. I relate participants' investments in a risky asset directly to social norms for risk taking that are elicited in an incentivized procedure. I find that risk taking is not affected by the choice being observed by a matched participant. Nor do investments follow elicited norms for risk taking more closely when observed. This holds when considering males and females separately. However, I provide strong evidence for gender-specific norms in risk taking. While these explain part of the existing gender gap in risk taking, males still "overshoot" by investing more than the norm dictates. This is particularly true for males being matched with a female participant.

Keywords:

risk taking; observability; social image; norms; gender

JEL-Classification:

C91; D01; D81; D91; G11

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Discussion Paper No. 115
September 6, 2018

Seasonal Scarcity and Sharing Norms

Author:

Bartos, Vojtech (University of Munich)

Abstract:

How does scarcity affect individual willingness to share and willingness to enforce sharing from others? Sharing in poor communities gains importance as an insurance mechanism during adverse shocks, yet shocks make it costlier to share. I conducted repeated economic experiments in both a lean and a relatively plentiful post-harvest season with the same group of Afghan subsistence farmers experiencing annual seasonal scarcities. I separate altruistic motives from enforcement effects using dictator and third party punishment games. While altruistic sharing remains temporally stable, the enforcement of sharing weakens substantially in times of scarcity. Temporal norms fluctuations seem to drive the results.

Keywords:

afghanistan; scarcity; seasonality; sharing; social norms

JEL-Classification:

C93; D63; I32; Z13

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Discussion Paper No. 108
July 30, 2018

Effects of Poverty On Impatience
Preferences or Inattention?

Authors:

Bartos, Vojtech (LMU Munich)
Bauer, Michal (CERGE-EI and Institute of Economic Studies)
Chytilova, Julie (Institute of Economic Studies)
Levely, Ian (Wageningen University)

Abstract:

We study two psychological channels how poverty may increase impatient behavior -- an effect on time preference and reduced attention. We measured discount rates among Ugandan farmers who made decisions about when to enjoy entertainment instead of working. We find that experimentally induced thoughts about poverty-related problems increase the preference to consume entertainment early and delay work. The effect is equivalent to a 27 p.p. increase in the intertemporal rate of substitution. Using monitoring tools similar to eye tracking, a novel feature for this subject pool, we show this effect is not due to a lower ability to sustain attention.

Keywords:

poverty; scarcity; time discounting; preferences; inattention; decision-making process

JEL-Classification:

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Discussion Paper No. 107
July 24, 2018

Sanctioning and Trustworthiness Across Ethnic Groups
Experimental Evidence From Afghanistan

Authors:

Levely, Ian (Wageningen University)
Bartos, Vojtech (University of Munich)

Abstract:

We show how sanctioning is more effective in increasing cooperation between groups than within groups. We study this using a trust game among ethnically diverse subjects in Afghanistan. In the experiment, we manipulate i) sanctioning and ii) ethnic identity. We find that sanctioning increases trustworthiness in cross-ethnic interactions, but not when applied by a co-ethnic. While we find higher in-group trustworthiness in the absence of sanctioning, the availability and use of the sanction closes this gap. This has important implications for understanding the effect of institutions in developing societies where ethnic identity is salient. Our results suggest that formal institutions for enforcing cooperation are more effective when applied between, rather than within, ethnic groups, due to behavioral differences in how individuals respond to sanctions.

Keywords:

sanctions; cooperation; crowding out; moral incentives; ethnicity; afghanistan

JEL-Classification:

D01; D02; C93; J41

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Discussion Paper No. 97
May 16, 2018

How Do Sellers Benefit From Buy-It-Now Prices in Ebay Auctions? — an Experimental Investigation

Authors:

Grebe, Tim ()
Ivanova-Stenzel, Radosveta (TU Berlin)
Kröger, Sabine (Laval University)

Abstract:

In Buy-It-Now (BIN, hereafter) auctions, sellers can make a "take-it-or-leave-it" price offer (BIN price) prior to an auction. We analyse experimentally how eBay sellers set BIN prices and whether they benefit from offering them. Using the real eBay environment in the laboratory, we find that the eBay auction format supports deviations from truthful bidding leading to auction prices substantially below those expected in second-price auctions. Our results reveal that the observed price deviations are not an artefact due to the existence of the BIN price, rather a consequence of the specific features of the eBay-auction format - a mixture between sealed-bid and open second-price auction with a fixed end-time. Moreover, we find that information available on eBay can be used as indicator for the price deviation and that sellers respond strategically to this information. Seller risk aversion does not affect BIN prices and more experienced sellers ask for higher BIN prices. The introduction of BIN prices to eBay auctions has an enhancing effect: the eBay BIN auction is more efficient and generates significantly higher revenue compared to a standard eBay auction without a BIN price.

Keywords:

experience; online markets; ebay; bin price; private value; experiment

JEL-Classification:

C72; C91; D44; D82; L01

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Discussion Paper No. 84
March 14, 2018

Risk, Time Pressure, and Selection Effects

Authors:

Kocher, Martin (University of Vienna)
Schindler, David (Tilburg University)
Trautmann, Stefan (University of Heidelberg)
Xu, Yilong (Uinversity of Heidelberg)

Abstract:

Time pressure is a central aspect of economic decision making nowadays. It is therefore natural to ask how time pressure affects decisions, and how to detect individual heterogeneity in the ability to successfully cope with time pressure. In the context of risky decisions, we ask whether a person's performance under time pressure can be predicted by measurable behavior and traits, and whether such measurement itself may be affected by selection issues. We find that the ability to cope with time pressure varies significantly across decision makers, leading to selected subgroups that differ in terms of their observed behaviors and personal traits. Moreover, measures of cognitive ability and intellectual efficiency jointly predict individuals' decision quality and ability to keep their decision strategy under time pressure.

Keywords:

risk; cognitive ability; selection; time pressure

JEL-Classification:

C91; D81

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Discussion Paper No. 83
March 12, 2018

Blaming the Refugees? Experimental Evidence On Responsibility Attribution

Authors:

Grimm, Stefan (LMU Munich)
Klimm, Felix (LMU Munich)

Abstract:

Do people blame refugees for negative events? We propose a novel experimental paradigm to measure discrimination in responsibility attribution towards Arabic refugees. Participants in the laboratory experience a positive or negative income shock, which is with equal probability caused by a random draw or another participant's performance in a real effort task. Responsibility attribution is measured by beliefs about whether the shock is due to the other participant's performance or the random draw. We find evidence for reverse discrimination: Natives attribute responsibility more favorably to refugees than to other natives. In particular, refugees are less often held responsible for negative income shocks. Moreover, natives with negative implicit associations towards Arabic names attribute responsibility less favorably to refugees than natives with positive associations. Since neither actual performance differences nor beliefs about natives' and refugees' performance can explain our finding of reverse discrimination, we rule out statistical discrimination as the driving force. We discuss explanations based on theories of self-image and identity concerns.

Keywords:

refugees; discrimination; responsibility attribution

JEL-Classification:

C91; D03; D83; J15

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