Essays on gains, losses and focality

Xue, Lian (2017) Essays on gains, losses and focality. Doctoral thesis, University of East Anglia.

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    Abstract

    Decision makers face gains and losses decisions on an everyday basis. Unlike conventional economic theories, the real decisions people make are influenced by various factors. Focality, for example, is an important payoff-irrelevant factor that significantly influences individual decision makings. In this thesis, we report three studies of decision makings influenced by focality from a behavioural perspective.

    In the second chapter, we extend the analysis of a riskless choice experiment reported recently by Hochman et al. (2014). I run an experiment where participants select from among sets of standard playing cards valued by a simple formula. In some sessions, participants are given a prepayment associated with some of the cards, which need not be the earnings-maximizing ones. Hochman et al. (2014) find that participants choose an earnings maximizing card less frequently when another card is prepaid. I find our experiment replicate this result under the original instructions, but not with instructions which explain the payment process more explicitly. Participants who state they do not consider themselves good at mathematics make earnings-maximizing choices much less frequently overall, but those who express self-confidence in mathematics drive the treatment effect. Our results suggest that even when comparisons among choices require only simple quantitative reasoning steps, market designers and regulators may need to pay close attention to how the terms of offers are expressed, explained, and implemented.

    In the third chapter, inspired by a historical event–“the treaty of Hong Canal”, I use experimental methods to test the effects of joint endowment on coordination success in tacit bargaining games. It has been well established that people use existing focal points to facilitate coordination and the power of such cues declines as payoff becomes increasingly unequal. I conduct an experiment in which two players jointly engaged in an interactive team building activity and together earned the stakes over which they bargain. In the team building exercise, two players jointly complete a shortest route task in a metaphor of a treasure hunt. After the two treasure hunters complete the journey, they independently decide how to divide their rewards using a tacit bargaining table. I find that when participants bargain over the fruits that result from joint activity, they are more likely to coordinate the focal point equilibrium. We contribute to the existing literature of team reasoning and focal point by direct testing the influence of increased group identity on tacit bargaining games.

    In the fourth chapter, I run an experiment of a dynamic real-time bargaining and report the results. The experiment captures a situation where two players have the opportunity to cooperate and share economic surplus in continuous time (peace), however at any point of time, both players can turn the fruitful assets into battlefield at non-recoverable costs (wars). The objective of the game is to capture players’ bargaining stances during dynamic interactions and examine the influence of personal traits on bargaining outcomes. The results show that majority of the participants exert costly efforts into “wars”, which results substantial efficiency loss. Focality has little influence on the efficiency attribute of bargaining outcomes; however has significant influence on the distributive features of bargaining outcomes. Moreover, I find players who do not come into “wars” systematically use turn-taking strategies to achieve relatively equal and efficient outcomes; And finally, females incur higher costs of wars; pairs with opposite Locus of Control traits incur least costs of conflict.

    Item Type: Thesis (Doctoral)
    Faculty \ School: Faculty of Social Sciences > School of Economics
    Depositing User: Jackie Webb
    Date Deposited: 16 May 2018 15:21
    Last Modified: 16 May 2018 15:21
    URI: https://ueaeprints.uea.ac.uk/id/eprint/67092
    DOI:

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