- Human Cooperation Laboratory
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Human Cooperation Laboratory
Nudging consists of a variety of techniques that policy makers can utilize in order to signal or draw attention to a particular choice that may maximize the agent's well-being without foreclosing any option or significantly altering economic incentives. The notional prerequisite of nudging, as in all approaches of behavioral economics, is that agents are not rational in the classic economic sense, but rather rationally bounded and, as a consequence, they sometimes make biased decisions that are against their own best interests.
Some kind of paternalism is likely whenever such institutions set out arrangements that will prevail unless people affirmatively choose otherwise. In these circumstances, the goal should be to avoid random, arbitrary or harmful effects and to produce a situation that is likely to promote people's welfare, suitably defined Thaler and Sunstein, Nudging does not require legal regulation, and for this reason it is a simple and efficient tool that has already been applied to a wide variety of problems that arise from individuals behavior, such as smoking, consuming alcohol, dieting, or becoming organ or blood donors.
Moreover, an emerging research question is how can nudging influence economic policy and provide tools for enhancing policy impact, in particular, but not exclusively, in the fields of diet quality and food decisions, international development policy, labor market, finance and decision making in households1.
In rational choice theory, institutions structure the choices for the self- interested maximizer, ignoring how the brain works and how self-interest is learned. Behavioral economics, on the other hand, suggests that preferences are not fixed and may be formed in the way that a proposition is framed, giving policy makers the ability to shape perceptions and choices or, in other words, to nudge the consensus over a policy.
Understandably, this consensus building has a cost, which is a function of the number of necessary agreeing parties and the complexity of the agreement 1 See the forthcoming special issue Nudge and the impact of behavioral economics on policy of Applied Economic Perspectives and Policy Oxford Journal.
A tradeoff also exists between the cost of negotiating the agreement to change a policy and the costs of having to accept a policy that a subject does not desire Buchanan and Tullock, Consequently, the main objective of policy makers is to reduce the costs both of reaching an agreement and of being subject to an unwanted policy. Policy makers generate a substantial part of the environment in which agents make decisions and therefore can be called choice architects Thaler, Sunstein and Balz, If policy makers are making use of defaults, expecting errors, understanding mappings, giving feedback, structuring complex choices, or creating incentives in said environment, then they are putting into practice nudging techniques.
There have been many real world applications of nudging, including by the authors of Nudge who have been recruited by Barack Obama to the White House Sunstein , and consulted with the governments of Denmark, France and, above all, Britain, where David Cameron has established a Behavioural Insights Team Thaler. There have also been many local applications of nudging.
Following these examples and for the purpose of this study, the Provincia Autonoma di Trento PAT — the Autonomous Province of Trento and the Dipartimento Industria e Atigianato Department of Trade and Industry will participate in testing the application of nudging to generate consensus over redistributive norms.
The objective of this transformation is not merely to rationalize public expenditure, but also to motivate companies to invest in those activities that can generate greater value and growth for both the local economy and the company itself. This proposal is organized as follows.
The next Section presents a literature review on libertarian paternalism, nudging, consensus building and public good games. The following section develops the researchable problem and the final section explains the research design including the collection of data and methodology.
Axiomatic approach of probability ppt
More specifically the organization of this literature review is as follows: Section 2. Libertarian paternalism is not an oxymoron; 2. Choice architecture, or how the options are presented to the decision maker DM , has a large impact on both the decisional process and the final choice; and 3.
Choice architecture is inevitable: since options have to be presented in a way or another, and it makes sense to do so in the best interest of the DM Leonard, 2. Thaler and Sunstein describe a policy as paternalistic when it is chosen with the intention of influencing the choices of individuals in a way that will improve their status quo in an objective and measurable manner. Libertarian paternalism is more specifically a philosophy that advocates the preservation of freedom of choice, but at the same time authorizes private and public institutions to steer people in directions that will promote their welfare.
The objective is to avoid, as much as possible, random, arbitrary, or harmful effects of sub-optimal decisions without any kind of coercion. One of the most cited examples in the literature on libertarian paternalism is the Save More Tomorrow or SMarT program. Thaler and Benartzi , propose a four-step approach where individuals commit in advance to allocate a portion of their future salary increases towards a retirement savings plan, producing dramatic increases in the saving rates of US citizens, which is currently close to zero.
The SMarT plan, being a libertarian paternalistic approach, also provides the possibility of opting out of the plan, but the study found that people who were offered it not only decided to use it, but the majority also stuck with it. Although the results of the SMarT plan strikingly support the existence of nudging, many economists still believe that libertarian paternalism is an oxymoron and should simply be called paternalism.
Their main argument is that if individuals are really incapable of deciding what is best for them, nudging merely imposes a choice without any real freedom of opting for any one of the available alternatives. In other words, nudging shifts the choice from one option to another, and therefore it is straightforward paternalism.
The first misconception is that paternalism must be coercive, while the second is that paternalism has valid alternatives, and the false assumption is that people make choices that are better than the selection that would have been made for them by paternalists. Advocates of libertarian paternalism respond by argueing that nudging always leaves all the options available to the individual; that paternalistic experts usually have a better understanding than individuals and therefore make better choices; and, that since policy-makers must make a choice that will affect the behavior of others, it is best to do so in a way that benefits individuals.
The response is that there is no neutral choice architecture design and therefore is better to use current knowledge to improve it rather than simply ignoring its influence on choice and hope for the best Stewart, From this perspective, the relevant behavioral economics literature covers the issues of fairness and social preferences.
Such preferences include altruism, fairness, reciprocity, and inequity aversion. Laboratory tests comparing social preferences theories have generated mixed results especially on iniquity aversion, which is the dislike of people for inequitable outcomes — i. In order to nudge a consensus over a redistribution rule, it is crucial to consider some specific biases and heuristics related to iniquity aversion.
The informative representation of the redistributive norm could exploit the compromise and contrast effects Sunstein, and the framing effect Tversky and Kahneman, This approach should also consider the repercussions of the status quo Knetsch and Sinden, and anchoring and adjustment biases Tversky and Kahneman, For example, when entrepreneurs see their grant aids diminishing from one year to the next, they tend to be less supportive towards the industrial policy program, even if the same program has endowed them with additional benefits, such as lower taxes.
The result is that subjects in the positive frame condition are much more cooperative than subjects in the negative frame condition, since the tendency to free ride higher in the negative framing. Fehr and Gachter and have shown that there exists another way of pushing individuals towards cooperation in public good games.
They argue that individuals' willingness to punish freeriders with a monetary sanction favors the establishment of a common rule of behavior, even if the punishment causes a net reduction in the payoff for those who punishes. Enhancing cooperation can also be achieved with non-monetary punishments such as expressions of disapproval, even if over time, monetary sanctions are more effective and generate greater contributions than non-monetary ones Masclet, Noussair, Tucker and Villeval, Another way of improving cooperation is to allow for communication between subjects, either face-to-face, virtually, numerical cheap talking Bochet, Page and Putterman, , or passing advice in the form of a message for future generations of experimental subjects Chaudhuri, Graziano and Maitra, A further development has been made by Nikiforakis , who employed the two-stage game of Fehr and Gachter to show that the format used to provide feedback is essential for the effectiveness of peer punishment.
In particular, if individuals are given feedback consisting of information about the earnings of their counterparts they will cooperate less and generate lower efficiency compared to individuals that receive information about the contributions of their counterparts. The proposed research project aims to identify which behavioral economics findings can be used to increase the level of consensus over a redistributive policy.
More specifically, the core research goals are: RG1: Examine and evaluate different representations of the redistributive norm upon which consensus has to be built. RG2: Study the behavioral asymmetry between the cold-prickle of doing something bad and the warm-glow of doing something good as a potential tool to be exploited in order to increase consensus building. RG3: Transposition of laboratory experiments into the field in order to evaluate validity and statistical significance of the laboratory results.
RG4: Verify the feasibility of a neuroeconomics approach as a tool to help predict behavior under completely novel conditions, such as new and untried policies. These research goals will be developed in three interlocked studies, which will be illustrated in the next section. For this purpose, it is important to recall that experimentation in the laboratory is used to advise policy-makers in those areas where a theory has not yet been formulated Offerman, 7.
By introducing the rigid controls made in the lab to the field, stronger inferences about behavioral patterns can be made and consequently these predictions allow for sharper policy advice. Consensus and support towards a policy maker is greater when the same redistributive norm is presented to subjects exploiting certain biases and heuristics; 2. When a redistributive norm is framed as a public good rather than a public bad, the total amount of resources redistributed is greater.
The proposed experiment will involve N individuals, which will be divided in two groups representing either new or established companies, all randomly drawn. Each individual will be endowed with a non-homogeneous initial amount of money a show-up fee in order to represent conflicting interests between the two groups.
Specifically, individuals belonging to the group of new companies will receive a smaller initial endowment compared to subjects belonging to the group of established ones. Individuals will be enrolled by voluntary subscription among students of the University of Trento. At the beginning of each round of the two treatments T1, T2 subjects are informed about the same redistributive norm.
This rule will be used to allocate a share of the common pool, resulting from the public good or bad game, to each participant. The difference between treatments consists of a different representation of the same norm, generated using specific deviations from the homo economicus model. In this round that the public good Effect is redistributed following the same rule. The following step in the experiment will be to play either a public good or bad game. Formally, in a public good game there are two goods — one private and one public — and N individuals. The outcome of a public good experiment consists of two items: a level of public good Y and a reallocation of the private good for each agent x1, The outcome is evaluated by individuals using a utility function Ui xi, Y.
The public good and the public bad games should be able to capture framing effects, which occur when the decision process based on equivalent representations of a problem, systematically leads to completely different outcomes. The relevant framing effect for this research is the attribute framing. The standard finding of this type of experiment is a valence-consistent shift; items described positively are evaluated more favorably than objects described negatively Levin et al. Offerman showed that individuals tend to make more cooperative choices in the public good game compared to the public bad game.
One of the predictions made by Offerman , in line with Pruitt ; ; , is that in the public good game individuals consider the interdependence between themselves and other participants as higher than in the public bad game. The participants also value mutual cooperation more in the public good game. A prediction that holds for both individualists and cooperators Offerman, This finding shows that cooperation in public good games cannot be explained solely by pure altruism since the opportunities of free riding are the same independently of the frame Andreoni, If this result holds also in the proposed experimental environment, it will demonstrate that positively framing incentives for investments in fixed capital improves consensus.
In particular, the nudging action will consist of framing subsidies as fair redistributions rather than mis appropriation of contributions towards a public good. In his seminal work Olson showed that higher levels of public good contributions are achieved with higher levels of inequality.
Uler found that total contributions to the public good increase when redistribution is introduced and decline when redistribution is removed. Our hypotheses will be tested measuring the number of free riders and the total amount of contributions made towards the public good or the public bad. The structure of the hypothesis testing will be: 1. Each participant's LCP is the outcome of an ordinary least-squares regression of her contribution decisions on the mean contribution that she observed in the previous experimental round.
Individuals are therefore categorized as follows: i. Subjects with any other LCP are not classified. Despite the experimental design being carefully researched, some potential effects cannot be excluded and further controls will be accounted for. Potential issues include group effects, interdependence due to communication and other social factors. Field experiments can be divided in three categories Levit and List, : 1. Artefactual field experiments, which are the same as standard laboratory experiments but with a non-standard subject pool usually non-students ; 2.
Framed field experiments, which add to the artefactual field experiments some specific field context, either the commodity, task, or information set that the subjects use; and 3. Natural field experiments, where the subjects do not know that they are participants in an experiment.
Max-Planck-Institut für Ökonomik - Abteilung Strategische Interaktion - Discussion Papers
The proposed mechanism will be a framed field experiment where individuals will not be students, but rather a sample of the participants involved in the consultation process over incentives for investments in fixed capital by PAT. An additional field feature will be represented by a specific redistribution rule, chosen amongst one of those included in the criteria for the application of the law on investments in fixed capital.
This norm will substitute the general distribution rule used in the laboratory experiment. Reinhard Selten, Urs Fischbacher, You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdx:dpaper See general information about how to correct material in RePEc.
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Please note that corrections may take a couple of weeks to filter through the various RePEc services. Economic literature: papers , articles , software , chapters , books. The effects of incentivized belief elicitation in public goods experiments. Belief elicitation is an important methodological issue for experimental economists.
There are two generic questions: 1 Do incentives increase belief accuracy? We investigate these questions in the case of finitely repeated public goods experiments. We find that belief accuracy is significantly higher when beliefs are incentivized. The relationship between contributions and beliefs is slightly steeper under incentives. However, we find that incentivized beliefs tend to lead to higher contribution levels than either non-incentivized beliefs or no beliefs at all.