Capitalism and Freedom

Poverty remains one of the most pressing problems facing the world; the mechanisms through which poverty arises and perpetuates itself, however, are not well understood. Here, we examine the evidence for the hypothesis that poverty may have particular psychological consequences that can lead to economic behaviors that make it difficult to escape poverty. The evidence indicates that poverty causes stress and negative affective states which in turn may lead to short-sighted and risk-averse decision-making, possibly by limiting attention and favoring habitual behaviors at the expense of goal-directed ones. Together, these relationships may constitute a feedback loop that contributes to the perpetuation of poverty. We conclude by pointing toward specific gaps in our knowledge and outlining poverty alleviation programs that this mechanism suggests.

http://science.sciencemag.org/content/sci/344/6186/862.full.pdf

On the psychology of poverty

Interpersonal relations — a theory of interdependence

One lingering puzzle is why voluntary contribu tions to public goods decline over time in experimental and real-w orld settings. We show that the decl ine of cooperation is driven by individual preferences for im perfect conditional cooperation. Many people’s desire to contribute less than oth ers, rather than changing beliefs of what others will contr ibute over time or people’s heterogeneity in preferences makes voluntary cooperation fragile. Universal free riding thus even tually emerges, despite the fact tha t m ost peop le a re not selfis h. (JEL C91, C72, H41, D64)

/pdf/social-preferences-beliefs-and-the-dynamics-of-free-riding-5djmyntr9e.pdf

Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Goods Experiments

The purpose of Plott and Zeiler (2005)—henceforth, PZ—was to investigate whether previously published experiments using consumption goods such as mugs and candy bars to measure gaps between willingness to pay (WTP) and willingnessto-accept (WTA) support endowment effect theory (EET). Our results demonstrate that the gap for commodities can be turned on and off by implementing procedures designed to control for subject misconceptions about the value elicitation procedures. Following experiments traditionally used to demonstrate the endowment effect, we used mug valuations to test EET. We used lottery rounds only to provide our subjects with paid practice using the value elicitation device prior to employing that device to elicit subjects’ mug valuations. In a footnote, we report evidence of contamination in the lottery data that rendered it inappropriate for our purposes (PZ 2005, fn. 15). Our footnote summarized the details of misconceptions reported in a data supplement provided to all who request our lottery data. The supplement was not referenced in our paper, so we make it available as an online Appendix to our Reply. 1 Andrea Isoni, Graham Loomes, and Robert Sugden (2011)—henceforth, ILS—use experimental procedures similar to ours and observe, just as we did, no gap in mug valuations. ILS claim that our 2005 paper is misleading and has misled researchers. They are concerned that our paper produces, and has been interpreted as producing, a set of procedures sufficient to remove all gaps, including gaps in lotteries. To justify their concern they focus on the wording of our abstract and overlook the context of paragraphs from which they quote sentences to support their thesis. The result is what we consider to be a misleading picture of the content of our paper and the facts that we report, namely that mug gaps disappear after we implement controls for misconceptions and that none of our data provides support for EET. We want to emphasize that our focus was on EET and not on more general theories of prefer ence formation, reference effects and decision processes that have emerged in the literature more recently and might explain our results. 2 In Section I, we demonstrate

The Willingness to Pay-Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations

Idiosyncratic risk attitudes are usually assumed to be commonly known and related to own payoffs only. However, the alternatives faced by a decision maker often involve risk about others’ payoffs as well. Motivated by the importance of other-regarding preferences in social interactions, this paper explores idiosyncratic attitudes toward own and others’ risk. We elicit risk attitudes in an experiment involving choices with and without strategic interaction. Regardless of the choice situation, the results do not support any relation between risk attitudes and other-regarding concerns.

/pdf/attitudes-toward-private-and-collective-risk-in-individual-45jj018ch0.pdf

Attitudes toward private and collective risk in individual and strategic choice situations

Indirect reciprocity in cyclical networks: An experimental study

We experimentally examine how group identity affects trust behavior in an investment game. In one treatment, group identity is induced purely by minimal groups. In other treatments, group members are additionally related by outcome interdependence established in a prior public goods game. Moving from the standard investment game (where no group identity is prompted) to minimal group identity to two-dimensional group identity, we find no significant differences in trust decisions. However, trust is significantly and positively correlated with contribution decisions, suggesting that "social" trust is behaviorally important.

Social identity and trust - An experimental investigation

We experimentally examine how group identity affects trust behavior in an investment game. In one treatment, group identity is induced purely by minimal groups. In other treatments, group members are additionally related by outcome interdependence established in a prior public goods game. Moving from the standard investment game (where no group identity is prompted) to minimal group identity to two-dimensional group identity, we find no significant differences in trust decisions. However, trust is significantly and positively correlated with contribution decisions, suggesting that “social” trust is behaviorally important.

Social identity and trust—An experimental investigation

When explaining risk taking, intertemporal allocation, and distributing behavior, economists rely on risk, time, and other-regarding preferences but offer no guidance on how these three crucial aspects are interrelated. We report on an experiment exploring such interrelation. For this sake, we compare evaluations of several prospects, each of which allocates certain or risky and immediate or delayed payoffs to the actor and to another participant. We find that individuals are selforiented as to social allocation of risk and delay and other-regarding with respect to expected payoffs .( JEL C91, D63, D81) There is ample empirical evidence that people do not behave rationally when rationality implies maximization of one’s own material rewards. To gain flexibility, economists have taken into account nonlinear evaluation of material rewards (e.g., in the familiar form of ‘‘utility of money’’ functions) as well as ‘‘social utilities’’ including other-regarding concerns, like altruism as in Andreoni and Miller (2002), inequality aversion as in Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), or quasi-maximin preferences as in Charness and Rabin (2002). Undeniably, this provides a rich toolbox for ‘‘neoclassical repair,’’ which allows aligning rational choice predictions with empirical data on decision behavior. Nonetheless, this toolbox may be

https://papers.ssrn.com/sol3/Delivery.cfm/ecin_67.pdf?abstractid=1120569&mirid=1&type=2

M. Vittoria Levati

Papers

Attitudes toward private and collective risk in individual and strategic choice situations

Indirect reciprocity in cyclical networks: An experimental study

Social identity and trust - An experimental investigation

Social identity and trust—An experimental investigation

On the social dimension of time and risk preferences: an experimental study