Date of Completion

6-22-2016

Embargo Period

7-14-2018

Keywords

behavioral economics, experimental economics

Major Advisor

Mikhael Shor

Associate Advisor

Richard Langlois

Associate Advisor

Delia Furtado

Field of Study

Economics

Degree

Doctor of Philosophy

Open Access

Open Access

Abstract

The focus of this dissertation is to understand how mental rules of thumb, cognitive biases, and individual differences can lead judgments and decisions to systematically deviate from the theoretical “optimal” choices. The first essay examines how a decision-maker’s subjective belief is determined by her risk preference in a coordination game. We conduct a laboratory experiment where the participants played a repeated, fixed-partner stag-hunt game. In the experiment, we elicited the participants’ subjective belief, risk aversion and cautiousness levels. Here, we confirm the findings from past studies that suggest that the traditional measure of risk aversion in economics cannot explain people’s behavior. Additionally, we find that the psychological concept of cautiousness plays a key role in determining the origin and the evolution of the decision-maker’s belief. Specifically, we find that cautiousness affects the way people form the mental representation of their partners. A decision-maker with a higher cautiousness level is less likely to believe that her partner will choose the risky option. When the stag-hunt game was played repeatedly, a high cautiousness level prevents the decision-maker from updating her belief effectively, and consequently impedes cooperation between the players. The second essay proposes and experimentally tests the hypothesis that cognitive dissonance associated with the context plays a key role in determining people’s decisions in economic experiments. We conduct a laboratory bribery game experiment where the cognitive dissonance levels are controlled using different treatments (familiar-context treatment, unfamiliar-context treatment, and context-free treatment). With the aid of an independent attitude survey, we find that people in the unfamiliar-context treatment and the context-free treatment experience the same cognitive dissonance level; meanwhile, we do not observe different behavior in the lab. We also find the familiar-context treatment triggers the most intensive cognitive dissonance level among all treatments where the subjects are much less likely to behave unethically. Our theory is able to unify the mixed results from past studies on the experimental context effects. In the third essay, using a unique data set from a sample of recent local college graduates in China, we investigate the effect of agreeableness on the respondents’ starting salary and perceived career satisfaction level. Results from our analyses indicates that agreeableness positively predict women’s starting salary. This effect is highly robust to change in model specifications. However, agreeableness does not impact the men’s starting salary. Our result here suggests that non-cognitive ability (such as personality traits) plays a vital role in determining labor market outcome. In addition, we find that agreeableness positively related with subjective job satisfaction level. But this result is not robust to changes in model specifications. When we add the respondents’ major as a control variable, the effect of agreeableness on job-satisfaction becomes negligible and not statistically significant. This result might suggest a self-sorted story when choosing major. Further examination is required to explore this possibility.

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