A theory is said to be fully absorbable whenever its own acceptance by all of the individuals belonging to a certain population does not question its predictive validity. This accounts for strategic equilibria and can be related to the logic underlying convergence of behaviour and intentional herding in sequential games. This paper discusses the absorbability of informational cascades' theory by bounded rational decision-makers and analyses whether providing individuals with theoretic information on informational cascades affects overall probability of herding phenomena to occur as well as whether an incorrect cascade can be reversed because of bounded rational adapting of the theory's prescriptive.
ABSTRACTThis paper provides an experimental test of the traveller's dilemma. Our investigation aims to address the research hypothesis that introducing a reference point à la Schelling (set equal to the Pareto optimal solution) might drive people away from rationality even when the size of the penalty/reward is high. Experimental findings reported in this paper provide answers to this question showing that the reference point did not encourage coordination around the Pareto optimal choice.
ABSTRACTDifferent from previous experiments that used three representations of uncertain information for probabilities: best estimate, interval and sets of probabilities, we use visual display to represent different levels of uncertainty through varying amount of probabilistic information provided to subjects. Results confirm that the individuals' willingness to pay is higher when a larger amount of information is available. Further, individuals are found uncertainty averse for high probability of gain and uncertainty seekers for low probability of gain. Similarities in results across different representations of uncertainty indicate that the representation tested here is a viable method for communicating uncertainty to decision makers.
This paper investigates experimentally a market inspired by two strands of literature: on herd behaviour in non‐market situations, and on the aggregation of private information in markets. The first strand suggests that socially undesirable herd behaviour may result when information is private; the second suggests that in a market context the price mechanism may cause the private information to be aggregated correctly and efficiently. This latter therefore suggests that socially undesirable behaviour may be eliminated through the market. We test this experimentally, and find that socially undesirable behaviour may result: the market is misled by agents privately optimizing.
AbstractDespite the extensive literature examining determinants of tax morale, little is still known about the relationship between the associational involvement of citizens and their willingness to pay taxes. Given the insights offered by the social capital literature regarding the role of voluntary organizations in shaping civic engagement, this study empirically investigates how membership of different types of associations could influence individual tax morale in Europe. With this in mind, we exploit the information available in the fifth wave of the European Values Study for citizens of 34 countries. Unlike previous studies on tax morale, we classify the types of voluntary associations depending on their potential to build out‐group "bridging" or in‐group "bonding" social ties. In this study, to carry out the classification, three alternative approaches are considered which are based on the sociodemographic heterogeneity within associations, the interconnections between them, and a combination of both. Our findings show that, after controlling for different individual characteristics and country‐specific unobserved heterogeneity, those survey respondents involved in bridging associations tend to exhibit higher levels of tax morale, while the opposite is found for bonding associations. The results are quite robust for the three approaches and different estimation strategies, including an instrumental‐variables methodology.
PurposeExpanding on the real-world financial market framework and considering the current market turmoil, with cryptocurrencies (where contracts for difference (CFDs) are extremely common) (Hasso et al., 2019) displaying unprecedented volatility, the authors aim to test in an online laboratory setting whether displaying a risk warning message is truly effective in reducing the level of risk taken and whether the placement of this method makes a difference.Design/methodology/approachTo explore the impact of risk disclosure framing on risk-taking behavior, the authors conducted an online pair-wise lottery choice experiment. In addition to manipulating risk awareness through the presence or absence of risk warning messages of varying intensity, the authors also considered dynamic inconsistency, cognitive ability and questionnaire-based financial risk tolerance (FRT) scores. The authors aimed to identify potential relationships between these variables and experimentally elicited risk aversion. The authors' study offers valuable insights into the complex nature of risky decision-making and sheds light on the importance of considering dynamic inconsistency in addition to risk awareness and aversion.FindingsThe authors' results provide statistical evidence for the efficacy of informative and very salient messages in mitigating risky decision, hinting at several policy implications. The authors also provide some statistical evidence in support of the relationship between cognitive abilities and risk preferences. The authors detect that individual with low cognitive abilities scores display great risk aversion.Originality/valueThis study investigates the impact of risk warning messages on investment decisions in an online laboratory setting – a unique approach. However, the authors go beyond this and also examine the potential influence of dynamic inconsistency on decision-making, adding further value to the literature on this topic. To ensure a comprehensive understanding of the participants, the authors collect data on cognitive ability and FRT using questionnaires. This study provides a simple and cost-effective framework that can be easily replicated in future research – a valuable contribution to the field.
PurposeThe authors believe that comparing individuals to groups' decision making is crucial provided that many important choices in society are made by groups, i.e. committees, governing bodies, juries, business partners and families. This study aims to discuss the aforementioned topic.Design/methodology/approachThe authors analyze risky decision making in the context of the television game show Deal or No Deal – Italian edition. Specifically, the authors scrutinize and compare individual (standard "Deal or No Deal" edition) and group (special edition) choices in the risky choice context provided by programe.FindingsAfter analyzing contestant's behavior in the standard edition episodes plus a special edition the authors calculate a risk index observing that no statically significant difference is present between individuals' and groups' actions.Originality/valueIn the "Deal or No Deal" special edition contestant were groups of two strangers. It is not uncommon to have couples playing on TV, however the individuals usually know each other well and have relationships in real life. The special edition therefore provides a unique setting (absent to best of the authors' knowledge in the literature) for investigation and could offer real-world insight. Indeed, in many instances the authors have to contract/make decisions with people the authors do not know/know very little (i.e. occasional business partners, representative at other companies/institutions, insurance/finance advisors, new work colleagues, etc.).
Tras la reciente etapa de agitación en los mercados financieros, tanto los académicos como las instituciones reguladoras han iniciado un debate sobre el papel de las agencias de rating en la inestabilidad financiera. Parece ser que sus recomendaciones optimistas han sido seguidas por la gran mayoría de los inversores, a pesar de que con posterioridad se han revelado erróneas. Como ejemplo, en el caso de Islandia, las agencias de rating no fueron capaces de predecir su inminente colapso en 2008. Como consecuencia de ello, en los últimos meses se ha agudizado el debate sobre agencias de rating y su contribución en las turbulencias en los mercados financieros. Así, un gran número de comisiones gubernamentales y grupos de investigación a nivel mundial han propuesto diferentes reformas del sistema financiero. Entre ellas está aumentar el número de agencias de rating, dado que uno de los factores que pueden favorecer un comportamiento colusivo entre ellas es su reducido número. Como ejemplo Standard and Poor's, Moody's y Fitch controlan el 90 % del mercado. ; Following the recent period of unease on the financial markets, both academics and regulatory institutions have begun a debate on the role played by rating agencies in financial instability. It seems that their optimistic recommendations have been followed by the vast majority of investors, even though they later proved to be mistaken. As an example, the rating agencies were unable to predict Island's imminent collapse in 2008. Consequently, in the last few months the debate on rating agencies and their contribution to the turbulences of the financial markets has become more pronounced. Thus, a large number of governmental commissions and research groups around the world have proposed different reforms to the financial system. One of these changes would be to increase the number of rating agencies, since one of the factors that can favour collusive behaviour among them is the fact that they are very few in number. Standard and Poor's, Moody's and Fitch, for example, control 90% of the market.
This paper uses a two-person linear voluntary contribution mechanism with stochastic marginal benefits from a public good to examine the effect of imperfect information on contributions. Estimates of individual risk preferences are obtained using data from second-price auctions over lotteries. The results show that limited information about the value of the public good significantly lowers average contributions in all periods but the last. Moreover, the results support the interpretation that subjects bid 'as if' they were risk averse, and suggest that 'as if' risk-averse behavior is negatively correlated with willingness to contribute. Adapted from the source document.
