http://repub.eur.nl/res/concept/jel-C91/ Recent publications classified by JEL Code C91 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/38218/ 2012-10-01T00:00:00Z The supposed irrelevance of historical costs for rational decision making has been the subject of much interest in the economic literature. In this paper we explore whether individual decision making under risk is affected by the cost of the supplied information. Outside of the lab, it is difficult to disentangle the effect of the cost of information itself from the effect of self-selection by individuals who tend to gain the most from this information. We thus create an environment in the lab where subjects are offered additional, useful and identical information on the state of the world across treatments. By varying the cost of information we can distinguish between selection and sunk cost effects. We find a systematic effect of sunk costs on the manner in which subjects update their beliefs on the state of the world. Subjects over-weigh costly information relatively to free information, which results in a 'push' of beliefs towards the extremes. This shift does not necessarily lead to behavior more attuned with Bayesian updating. Robalo, P. Sayag, R.S. http://repub.eur.nl/res/pub/34914/ 2012-09-01T00:00:00Z Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects' error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks. Baltussen, G. Post, G.T. Assem, M.J. van den Wakker, P.P. http://repub.eur.nl/res/pub/32102/ 2012-03-26T00:00:00Z Growing interest in using personality variables in economic research leads to the question whether personality as measured by psychology is useful to predict economic behavior. Is it reasonable to expect values on personality scales to be predictive of behavior in economic games? It is undoubted that personality can influence large-scale economic outcomes. Whether personality variables can also be used to understand micro-behavior in economic games is however less clear. We discuss reasons in favor and against this assumption and test in our own experiment, whether and which personality factors are useful in predicting behavior in the trust or investment game. We can also use the trust game to understand how personality measures fare relatively in predicting behavior when situational constraints vary in strength. This approach can help economists to better understand what to expect from the inclusion of personality variables in their models and experiments, and where further research might be useful and needed. Muller, J. Schwieren, C. http://repub.eur.nl/res/pub/32031/ 2012-03-20T00:00:00Z The application of the classical "linear" model of incentive pay to the case when the noise is multiplicative to effort generates two predictions for a given strength of incentives: 1) more risk-averse workers will put in less effort, and 2) setting a performance target will weaken the negative risk aversion--effort link. The data from a real-effort laboratory experiment involving 85 student participants support both these predictions. Implications of the model and empirical findings to the literature on, and practice of, personnel management are discussed. Zubanov, N.V. http://repub.eur.nl/res/pub/30805/ 2012-01-03T00:00:00Z Joy is a potential transient cause of overconfidence. We study its effects on absolute and relative overconfidence in an incentive compatible decision experiment. In the experiment, a general knowledge task of medium difficulty is used to measure confidence. We report two main results. First, joy indeed increases the tendency to be overconfident. Second, making an irrelevant cause of joy salient to people (i.e. by showing them a humorous movie clip) leads to well-calibrated judgments. Our results are consistent with the affect-as-information hypothesis, which suggests that affective states with a non-salient and irrelevant cause have an informative function that can lead to biased judgments. However, if the cause of the affective state is salient and obviously irrelevant (i.e. a humorous movie), the informative function is deactivated, leading to better judgments and decisions. Koellinger, Ph.D. Michl, T. http://repub.eur.nl/res/pub/23269/ 2011-04-01T00:00:00Z We often deal with uncertain events for which no probabilities are known. Several normative models have been proposed. Descriptive studies have usually been qualitative, or they estimated ambiguity aversion through one single number. This paper introduces the source method, a tractable method for quantitatively analyzing uncertainty empirically. The theoretical key is the distinction between different sources of uncertainty, within which subjective (choice-based) probabilities can still be defined. Source functions convert those subjective probabilities into willingness to bet. We apply our method in an experiment, where we do not commit to particular ambiguity attitudes but let the data speak. Abdellaoui, M. Baillon, A. Placido, L. Wakker, P.P. http://repub.eur.nl/res/pub/21096/ 2010-04-01T00:00:00Z ABSTRACT. This paper introduces time-tradeoff (TTO) sequences as a new tool to analyze time inconsistency and intertemporal choice. TTO sequences simplify the measurement of discount functions, requiring no assumption about utility. They also simplify the qualitative testing of time inconsistencies, and allow for quantitative measurements thereof. TTO sequences can easily be administered using only pencil and paper. They readily show which subjects are most prone to time inconsistencies. We further use them to axiomatically analyze and empirically test (quasi-)hyperbolic discount functions. An experiment demonstrates the feasibility of measuring TTO sequences. Our data falsify (quasi-)hyperbolic discount functions and call for the development of models that can accommodate increasing impatience. Attema, A.E. Bleichrodt, H. Rohde, K.I.M. Wakker, P.P. http://repub.eur.nl/res/pub/21460/ 2010-01-01T00:00:00Z ABSTRACT. In economic decisions we often have to deal with uncertain events for which no probabilities are known. Several normative models have been proposed for such decisions. Empirical studies have usually been qualitative, or they estimated ambiguity aversion through one single number. This paper introduces the source method, a tractable method for quantitatively analyzing uncertainty empirically that can capture the richness of ambiguity attitudes. The theoretical key in our method is the distinction between different sources of uncertainty, within which subjective (choice-based) probabilities can still be defined. Source functions convert those subjective probabilities into willingness to bet. We apply our method in an experiment, where we do not commit to particular ambiguity attitudes but let the data speak. Abdellaoui, M. Baillon, A. Placido, L. Wakker, P.P. http://repub.eur.nl/res/pub/15910/ 2009-05-07T00:00:00Z In content- and knowledge-based recommender systems often a measure of (dis)similarity between products is used. Frequently, this measure is based on the attributes of the products. However, which attributes are important for the users of the system remains an important question to answer. In this paper, we present two approaches to determine attribute weights in a dissimilarity measure based on product popularity. We count how many times products are sold and based on this, we create two models to determine attribute weights: a Poisson regression model and a novel boosting model minimizing Poisson deviance. We evaluate these two models in two ways, namely using a clickstream analysis on four different product catalogs and a user experiment. The clickstream analysis shows that for each product catalog the standard equal weights model is outperformed by at least one of the weighting models. The user experiment shows that users seem to have a different notion of product similarity in an experimental context. Kagie, M. Wezel, M.C. van Groenen, P.J.F. http://repub.eur.nl/res/pub/18280/ 2009-01-01T00:00:00Z We study the role of gender beliefs for cooperation in a public goods game experiment. Controlling for risk preferences and for subjects’ unconditional willingness to cooperate, we find that gender beliefs affect behavior in homogenous groups where the group composition was announced. Staveren, I.P. van Sent, E-M. Vyrastekova, J. http://repub.eur.nl/res/pub/13977/ 2008-05-27T00:00:00Z In experimental investigations of the effect of real incentives, accountability—the implicit or explicit expectation of a decision maker that she may have to justify her decisions in front of somebody else—is often confounded with the incentives themselves. This confounding of accountability with incentives makes causal attributions of any effects found problematic. We separate accountability and incentives, and find different effects. Accountability is found to reduce preference reversals between frames, for which incentives have no effect. Incentives on the other hand are found to reduce risk seeking for losses, where accountability has no effect. In a choice task between simple and compound events, accountability increases the preference for the simple event, while incentives have a weaker effect going in the opposite direction. It is thus shown that the confounding of accountability and incentives is relevant for studies on the effect of the latter, and that existing conclusions on the effect of incentives need to be reconsidered in light of this issue. Vieider, F.M. http://repub.eur.nl/res/pub/14061/ 2008-04-30T00:00:00Z This study investigates loss aversion when the reference point is state-dependent. Using a state-dependent structure, prospects are more attractive if they depend positively on the reference point and are less attractive in case of negative dependence. In addition, the structure is neutral in the sense that it avoids an inherent aversion to risky prospects and yields no loss when the prospect and the reference point are the same. Related to this, the preferred personal equilibrium equals the optimal consumption solution when the reference point is selected completely endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component. De Giorgi, E.G. Post, G.T. http://repub.eur.nl/res/pub/11655/ 2006-10-01T00:00:00Z This article argues that the notion of focal points is important in understanding bargaining processes. Recent literature confines a discussion of the usefulness of the notion to coordination problems, and when bargaining experiments result in outcomes that are inconsistent with a straightforward interpretation of economic theory, some notion of “fairness” is invoked. This article uses symmetry requirements to formalize the notion of focal points. By doing so, it explains the focality of equal split division and it re-interprets recent experimental evidence in bargaining games. Experimental economists should try to empirically disentangle the importance of focal points from other explanatory factors (such as fairness). One way to do so would be to study modal (instead of average) responses more systematically. Future theoretical research should focus on the strategic implications of proposing a frame (focal point) to conceive of the bargaining problem. Janssen, M.C.W. http://repub.eur.nl/res/pub/7683/ 2006-04-26T00:00:00Z This paper argues that the notion of focal points is important in understanding bargaining processes. Recent literature confines a discussion of the usefulness of the notion to coordination problems and when bargaining experiments result in outcomes that are inconsistent with a straightforward interpretation of economic theory, some notion of ‘fairness’ is invoked. This paper uses symmetry requirements to formalize the notion of focal points. By doing so, it explains the focality of equal split division and it re-interprets recent experimental evidence in bargaining games. Experimental economists should try to empirically disentangle the importance of focal points from other explanatory factors (such as fairness). One way to do so, would be to study modal (instead of average) responses more systematically. Future theoretical research should focus on the strategic implications of proposing a frame (focal point) to conceive of the bargaining problem. Janssen, M.C.W. http://repub.eur.nl/res/pub/12219/ 1998-08-01T00:00:00Z In the present article we argue that the extent to which potential traders are susceptible to the endowment effect, is related to the comparability of the to be traded goods. This hypothesis was tested in an experimental market in which participants endowed with a bottle of wine were offered the opportunity to trade their wine for another wine. Results of our study support the hypothesis, and corroborate the generalization that the endowment effect is a manifestation of loss aversion. Dijk, E. van Knippenberg, D.L. van http://repub.eur.nl/res/pub/12399/ 1998-01-01T00:00:00Z The theoretical literature exploring various ramifications and applications of Tullock's (1980) rent-seeking model is extensive and rapidly growing. In contrast, there exist as yet only a few experimental evaluations of this model, with ambiguous results. Moreover, these studies focus on one particular case (proportional probabilities) and use a problematic experimental design. With an appropriate design we investigate the extreme cases of proportional probabilities and perfect discrimination, which offer the starkest contrast in theoretical predictions. We find substantial evidence for the predictive power of the rent-seeking model, particularly if one allows for the fact that people sometimes make mistakes or are confused about what to do. Potters, J.J.M. Vries, C.G. de Winden, F.A.A.M. van http://repub.eur.nl/res/pub/11024/ 1997-04-01T00:00:00Z This paper compares the relative performance of quality adjusted life years (QALYs) based on quality weights elicited by rating scale (RS), time trade-off (TTO) and standard gamble (SG). The standard against which relative performance is assessed is individual preference elicited by direct ranking. The correlation between predicted and direct ranking is significantly higher for TTO-QALYs than for RS-QALYs and SG-QALYs. This holds both based on mean Spearman rank correlation coefficients calculated per individual and based on two social choice rules: the method of majority voting and the Borda rule. Undiscounted TTO-QALYs are more consistent with direct ranking than discounted TTO-QALYs Bleichrodt, H. Johannesson, M. http://repub.eur.nl/res/pub/12233/ 1996-08-01T00:00:00Z An experimental market was used to investigate whether exchange goods may be susceptible to the endowment effect. Previous research (Kahneman et al., 1990) suggested that the endowment effect will not be observed in exchange goods. The present study demonstrates that it may be observed, but only when traders are uncertain about future exchange prices. It is argued that this is a manifestation of loss aversion due to the difficulty of computing the net gains and losses of trade when exchange rates are uncertain. Dijk, E. van Knippenberg, D.L. van