Jeroen van de Ven

Aspiration Level, Probability of Success and Failure, and Expected Utility

Aspiration levels are a relevant aspect of decision making. We develop a model that includes the overall probabilities of success and failure relative to the aspiration level into an expected utility representation. This turns out to be equivalent to expected utility with a discontinuous utility function. We give a behavioral foundation to the proposed model and provide conditions to determine the relative weights of the overall probabilities of success and failure. An aspiration level reinforces loss aversion, can account for simultaneous risk-averse and risk-seeking behavior, and can explain choices violating the mean-variance approach.

Can Observers Predict Trustworthiness

We investigate whether experimental subjects can predict behavior in a prisoners dilemma played on a TV show. Subjects report probabilistic beliefs that a player cooperates, before and after the players communicate. Subjects correctly predict that women and players who make a voluntary promise are more likely to cooperate. They are able to distinguish truth from lies when a player is asked about her intentions by the host. Subjects are to some extent able to predict behavior; their beliefs are 7~percentage points higher for cooperators than for defectors. We also study their Bayesian updating. Beliefs do not satisfy the martingale property and display mean reversion.

Discretionary rewards as a feedback mechanism

This paper studies the use of discretionary rewards in a finitely repeated principal-agent relationship with moral hazard. The key aspect is that rewards have informational content. When the principal obtains a private subjective signal about the agents performance, she may pay discretionary bonuses to provide credible feedback to the agent. In accordance with the often observed compression of ratings, we show that in equilibrium the principal communicates the agents interim performance imperfectly, i.e., she does not fully differentiate good and bad performance. Furthermore, we show that small rewards can have a large impact on the agents effort, provided that the principals stake in the project is small.

Beauty and the sources of discrimination

We analyze discrimination against less attractive people on a TV game show with high stakes. The game has a rich structure that allows us to disentangle the relationship between attractiveness and the determinants of a players earnings. Unattractive players perform no worse than attractive ones, and are equally cooperative in the prisoners dilemma stage of the game. Nevertheless, they are substantially more likely to be eliminated by their peers, even though this is costly. We investigate third party perceptions of discrimination by asking subjects to predict elimination decisions. Subjects implicitly assign a role for attractiveness but underestimate its magnitude.

Goal Setting as a Self-Regulation Mechanism

We develop a theory of self-regulation based on goal setting for an agent with present-biased preferences. Preferences are assumed to be reference-dependent and exhibit loss aversion, as in prospect theory. The reference point is determined endogenously as an optimal self-sustaining goal. The interaction between hyperbolic discounting and loss aversion makes goals a credible and effective instrument for self-regulation. This is an entirely internal commitment device that does not rely on reputation building. We show that in some cases it is optimal to engage in indulgent behavior, and sometimes it is optimal to set seemingly dysfunctional goals. Finally, we derive a condition under which proximal (short term) goals are better than distal (long term) goals. Our results provide an implicit evolutionary rationale for the existence of loss aversion as a means of self-control.

Self-confidence and strategic behavior

We test experimentally an explanation of over and under confidence as motivated by (perhaps unconscious) strategic concerns, and find compelling evidence supporting this hypothesis in the behavior of participants who send and respond to others’ statements of confidence about how well they have scored on an IQ test. In two-player tournaments where the highest score wins, one is likely to enter at equilibrium when he knows that his stated confidence is higher than the other player’s, but very unlikely when the reverse is true. Consistent with this behavior, stated confidence by males is inflated when deterrence is strategically optimal and is instead deflated by males and females when hustling (encouraging entry) is strategically optimal. This behavior is consistent with the equilibrium of the corresponding signaling game. Based on the theory of salient perturbations, we propose a strategic foundation of overconfidence. Since overconfident statements are used in familiar situations in which it is strategically effective, it may also occur in the absence of strategic benefits, provided the environment is similar.

Bad News: An Experimental Study on the Informational Effects Of Rewards

Psychologists and economists have argued that rewards often have hidden costs. One possible reason is that the principal may have incentives to offer higher rewards when she knows the task is difficult. Our experiment tests if high rewards embody such bad news and if this is correctly perceived by their recipients. Our design allows us to decompose the overall effect of rewards on effort into a direct incentive and an informational effect. The results show that participants correctly interpret high rewards as bad news. In accordance with theory, the negative informational effect coexists with the direct positive effect.

Predictably Angry—Facial Cues Provide a Credible Signal of Destructive Behavior

Evolutionary explanations of anger as a commitment device hinge on two key assumptions. The first is that it is observable ex-ante whether someone will get angry when feeling badly treated. The second is that anger is associated with destructive behavior. We test the validity of these assumptions by studying whether observers are able to detect who rejected a low offer in an ultimatum game. We collected photos and videos of responders in an ultimatum game before they were informed about the game that they would be playing. We showed pairs of photos or videos, consisting of one responder who rejected a low offer and one responder who accepted a low offer, to an independent group of observers. We find support for the two assumptions. Observers do better than chance at detecting who rejected the low offer, especially for rejecters who get angry at low offers.

Friendships and Favouritism on the Schoolground – A Framed Field Experiment

We present experimental evidence on favouritism practices. Children compete in teams in a tournament. After the first round of a real effort task, children indicate which group member they would prefer to do the task in the second round, for the benefit of the team. Friends are much more likely to be chosen than others after controlling for performance. We also find that children who are favoured by their friend subsequently increase performance. Consequently, favouritism does not hurt efficiency. These results show the importance of observing performance ex post in order to properly evaluate the efficiency implications of favouritism.

How private is private information? The ability to spot deception in an economic game

We provide experimental evidence on the ability to detect deceit in a buyer–seller game with asymmetric information. Sellers have private information about the value of a good and sometimes have incentives to mislead buyers. We examine if buyers can spot deception in face-to-face encounters. We vary whether buyers can interrogate the seller and the contextual richness. The buyers’ prediction accuracy is above chance, and is substantial for confident buyers. There is no evidence that the option to interrogate is important and only weak support that contextual richness matters. These results show that the information asymmetry is partly eliminated by people’s ability to spot deception.