Essays in Behavioral and Experimental .1 Introduction? Behavioral economics has improved the understanding

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  • Essays in Behavioral and Experimental Economics

    Inaugural-Dissertation

    zur Erlangung des Grades eines Doktorsder Wirtschafts- und Gesellschaftswissenschaften

    durch

    die Rechts- und Staatswissenschaftliche Fakultt derRheinischen Friedrich-Wilhelms-Universitt Bonn

    vorgelegt von

    Frederik Schwerter

    aus Iserlohn

    2016

    Tag der Promotion: 4. Mai 2016

  • Dekan: Prof. Dr. Rainer HttemannErstreferent: Prof. Dr. Armin FalkZweitreferent: Prof. Dr. Sebastian KubeTag der mndlichen Prfung: 4. Mai 2016

  • Contents

    List of Figures iii

    List of Tables v

    1 Introduction 1References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

    2 Social Reference Points and Risk Taking 52.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.2 Evidence for Social Reference Point Effects . . . . . . . . . . . . . 12

    2.2.1 Main Experiment . . . . . . . . . . . . . . . . . . . . . . . . 122.2.2 Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.2.3 Results of the Main Experiment . . . . . . . . . . . . . . . 182.2.4 Discussion of the Main Experiment . . . . . . . . . . . . . 21

    2.3 Social vs. Nonsocial Reference Points . . . . . . . . . . . . . . . . 222.3.1 Nonsocial Control Experiment . . . . . . . . . . . . . . . . 232.3.2 Peer-Lottery Control Experiment . . . . . . . . . . . . . . . 25

    2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302.A Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332.B Screenshots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

    3 Concentration Bias in Intertemporal Choice 373.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373.2 Evidence for Concentration Bias . . . . . . . . . . . . . . . . . . . 42

    3.2.1 Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423.2.2 Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493.2.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

    3.3 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643.A Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

  • ii | Contents

    3.B Choice Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693.C Choice Lists: Schematic Illustrations . . . . . . . . . . . . . . . . . 733.D Choice Lists: Comparison between CONCb and DISPb . . . . . . 76

    4 How Stable Is Trust? 774.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774.2 Experimental Design . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

    4.2.1 Main Experiment . . . . . . . . . . . . . . . . . . . . . . . . 804.2.2 Control Experiment . . . . . . . . . . . . . . . . . . . . . . . 824.2.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

    4.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 834.3.1 Results of the Main Experiment . . . . . . . . . . . . . . . 844.3.2 Main versus Control Experiment . . . . . . . . . . . . . . . 85

    4.4 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874.A Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

  • List of Figures

    2.1 Overview of all Risk-Taking Experiments . . . . . . . . . . . . . . 92.2 Average Risk Taking per Experiment . . . . . . . . . . . . . . . . . 102.3 Properties of the Lotteries . . . . . . . . . . . . . . . . . . . . . . . . 132.4 Frequencies of Risk Taking in the Main Experiment per Treatment 202.5 Frequencies of Risk Taking in the Nonsocial Control Experiment

    per Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252.6 Frequencies of Risk Taking in the Peer-Lottery Control per Treat-

    ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272.B.1 Decision Screen of the Main Experiment and Peer-Lottery Control,

    HI Treatment (Slider Position 1) . . . . . . . . . . . . . . . . . . . 352.B.2 Decision Screen of the Main Experiment and Peer-Lottery Control,

    HI Treatment (Slider Position 2) . . . . . . . . . . . . . . . . . . . 362.B.3 Decision Screen of the Nonsocial Control, HI Treatment . . . . 36

    3.1 Budget Sets: CONCa and DISPa Conditions . . . . . . . . . . . . . 433.2 Budget Sets: CONCb and DISPb Conditions . . . . . . . . . . . . 443.3 Screenshots of a CONCa and a DISPa8 Decision . . . . . . . . . . 463.4 Budget Sets: Screenshots of a CONCb and DISPb8 Decision . . . 473.5 Budget Sets: Screenshots of a DISPb8 Condition in the Main (top)

    and in the Respective Condition in the Control (bottom) Experi-ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

    3.C.1 Choice Lists: CONCCL Conditions . . . . . . . . . . . . . . . . . . . 733.C.2 Choice Lists: DISPaCL Conditions . . . . . . . . . . . . . . . . . . . 743.C.3 Choice Lists: DISPbCL Conditions . . . . . . . . . . . . . . . . . . . 75

    4.1 Average of Entrusted Amounts per Experiments and Conditions 834.2 Frequencies of Entrusted Amounts in the Main Experiment per

    Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844.3 Frequencies of Entrusted Amounts in the Control Experiment per

    Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

  • iv | List of Figures

  • List of Tables

    2.1 Choice List to Measure Private Risk Attitudes . . . . . . . . . . . 152.2 Treatment Effect in Risk Taking, Main Experiment . . . . . . . . 192.3 Comparing Treatment Effects between the Main Experiment and

    the Nonsocial Control . . . . . . . . . . . . . . . . . . . . . . . . . . 262.4 Comparing Treatment Effects between the Peer-Lottery Control

    and the Nonsocial Control . . . . . . . . . . . . . . . . . . . . . . . 28

    3.1 Set of Earnings Sequences for Each Allocation Technology . . . 493.2 Testing Concentration Bias, d, against Zero . . . . . . . . . . . . 563.3 Frequencies of the Two Measures of Concentration Bias, da and

    db, Being Positive, Zero, or Negative . . . . . . . . . . . . . . . . . 573.4 Regression of the Measure of Concentration Bias, d, on a Measure

    of Mathematical Ability and CRT Scores . . . . . . . . . . . . . . . 583.5 Difference-in-Difference Analysis of Concentration Bias, d, in the

    Main Experiment (Dispersed over Time) vis--vis the Control Ex-periment (Dispersed within a Day) . . . . . . . . . . . . . . . . . . 61

    4.1 Comparing Treatment Effects on Trust betweenMain and ControlExperiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

  • vi | List of Tables

  • 1

    Introduction?

    Behavioral economics has improved the understanding of economic phenom-ena by enriching the understanding of economic decision making with insightsfrom psychology, sociology, and anthropology. Rigorous empirical investigationsof individual behaviorwhich commonly involve the use of laboratory experi-mentshave been at the heart of behavioral economics and have lead to newtheoretical accounts of decision making. The following three insights gave riseto influential branches of behavioral economics. First, the context in which indi-viduals make decisions often unleash behavioral influences that go beyond thoseidentified by standard economic theory. In particular, individual preferences com-monly depend on contextual features, as has been highlighted by the literatureson reference-dependent preferences (Kahneman and Tversky, 1979), and de-fault effects (Thaler and Sunstein, 2003). Second, individuals perception andprocessing of information often does not live up to the high demands of standardeconomic theory. Instead, individuals seem to employ simple heuristics (Tverskyand Kahneman, 1974) and attention-based decision rules (Kahneman, 2003) incomplex environments. Third, while standard economic theory typically con-strains individuals motives to pure self-interest, a more comprehensive view onindividuals behavior in social interactions uncovers that individuals often caredirectly about the well-being of others as well as about how they are viewed andtreated by others (Fehr and Falk, 2002).

    This thesis consists of three chapters that each contribute to one of thesethree building blocks of research in behavioral economics.

    In Chapter 2, I investigate the consequences of social reference points fordecision making under risk in a series of laboratory experiments. In the main ex-periment, decision makers observe the predetermined earnings of peer subjectsbefore making a risky choice. I exogenously manipulate peers earnings and finda significant treatment effect: decision makers make riskier choices in case of

    ? I would like to thank Holger Gerhardt for outstanding TeXnical assistance and numeroushelpful comments.

  • 2 | 1 Introduction

    larger peers earnings. The treatment effect is consistent with the predictions ofa model featuring social-comparisonbased reference points and loss aversion.In two control experiments, I demonstrate that nonsociale.g., expectations-basedreference points do not explain the treatment effect.

    In Chapter 3, I present novel results on individuals intertemporal choices injoint work with Holger Gerhardt and Louis Strang. Our findings cannot be ex-plained by exponential and hyperbolic discou