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Cognitive Dissonance, Pessimism, and Behavioral Spillover Effects

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Author Info

  • Dickinson, David

    ()
    (Appalachian State University)

  • Oxoby, Robert J.

    ()
    (University of Calgary)

Abstract

This paper reports results from a unique two-stage experiment designed to examine the spillover effects of optimism and pessimism. In stage 1, we induce optimism or pessimism onto subjects by randomly assigning a high or low piece rate for performing a cognitive task. We find that participants receiving the low piece rate are significantly more pessimistic with respect to performance on this task. In stage 2 individuals participate in an ultimatum game. We find that minimum acceptable offers are significantly lower for pessimistic subjects, though this pessimism was generated in a completely unrelated environment. These results highlight the existence of important spillover effects that can be behaviorally and economically important – for example, pessimism regarding one’s initial conditions (e.g., living in poverty) may have spillover effects on one’s future labor market outcomes.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2832.

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Length: 29 pages
Date of creation: Jun 2007
Date of revision:
Publication status: published in: Journal of Economic Psychology, 2011, 32 (3), 295-306
Handle: RePEc:iza:izadps:dp2832

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Keywords: experiments; bargaining; pessimism; optimism;

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References

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  1. Todd L. Cherry & Thomas Crocker & Jason F. Shogren, 2001. "Rationality Spillovers," Working Papers 01-02, Department of Economics, Appalachian State University.
  2. McLeish, Kendra N & Oxoby, Robert J, 2006. "Measuring Impatience: Elicited Discount Rates and the Barratt Impulsiveness Scale," MPRA Paper 1524, University Library of Munich, Germany.
  3. Brad M. Barber & Terrance Odean, 2001. "Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 261-292, February.
  4. Rabin, Matthew, 2000. "Inference by Believers in the Law of Small Numbers," Department of Economics, Working Paper Series qt4sw8n41t, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  7. Olivier Armantier, 2006. "Do Wealth Differences Affect Fairness Considerations?," CIRANO Working Papers 2006s-13, CIRANO.
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  10. Dickinson, David L., 2006. "The chilling effect of optimism: The case of final-offer arbitration," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 17-30, February.
  11. Terrance Odean, 1998. "Volume, Volatility, Price and Profit When All Traders Are Above Average," Finance 9803001, EconWPA.
  12. Cherry, Todd L. & Shogren, Jason F., 2007. "Rationality crossovers," Journal of Economic Psychology, Elsevier, vol. 28(2), pages 261-277, April.
  13. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
  14. Jeremy Clark & Lana Friesen, 2009. "Overconfidence in Forecasts of Own Performance: An Experimental Study," Economic Journal, Royal Economic Society, vol. 119(534), pages 229-251, 01.
  15. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
  16. Jeremy Clark & Bonggeun Kim & Richie Poulton & Barry Milne, 2006. "The role of low expectations in health and education investment and hazardous consumption," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1151-1172, November.
  17. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing : A Longitudinal Study of Medium-Sized Lottery Wins," The Warwick Economics Research Paper Series (TWERPS) 754, University of Warwick, Department of Economics.
  18. McLeish, Kendra N. & Oxoby, Robert J., 2007. "Gender, Affect and Intertemporal Consistency: An Experimental Approach," IZA Discussion Papers 2663, Institute for the Study of Labor (IZA).
  19. Clare Anderson & David L. Dickinson, 2009. "Bargaining and Trust: The Effects of 36hr Total Sleep Deprivation on Socially Interactive Decisions," Working Papers 09-01, Department of Economics, Appalachian State University.
  20. Erik Hoelzl & Aldo Rustichini, 2005. "Overconfident: Do You Put Your Money On It?," Economic Journal, Royal Economic Society, vol. 115(503), pages 305-318, 04.
  21. Robert J. Oxoby, 2004. "Cognitive dissonance, status and growth of the underclass," Economic Journal, Royal Economic Society, vol. 114(498), pages 727-749, October.
  22. Mónica C. Capra, 2004. "Mood-Driven Behavior in Strategic Interactions," American Economic Review, American Economic Association, vol. 94(2), pages 367-372, May.
  23. Robert Oxoby & Kendra McLeish, 2007. "Measuring Impatience: Elicited Discount Rates and the Barratt Impulsiveness Scale," Working Papers 2007-01, Department of Economics, University of Calgary, revised 26 Oct 2007.
  24. Terrance Odean, 1998. "Volume, Volatility, Price, and Profit When All Traders Are Above Average," Journal of Finance, American Finance Association, vol. 53(6), pages 1887-1934, December.
  25. Goldsmith, Arthur H & Veum, Jonathan R & Darity, William, Jr, 1997. "The Impact of Psychological and Human Capital on Wages," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 815-29, October.
  26. Timothy N. Cason & Anya Savikhin & Roman M. Sheremeta, 2009. "Cooperation Spillovers in Coordination Games," Working Papers 09-06, Chapman University, Economic Science Institute.
  27. Oxoby, Robert J. & McLeish, Kendra N., 2004. "Sequential decision and strategy vector methods in ultimatum bargaining: evidence on the strength of other-regarding behavior," Economics Letters, Elsevier, vol. 84(3), pages 399-405, September.
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Cited by:
  1. Savikhin, Anya & Sheremeta, Roman, 2012. "Simultaneous Decision-Making in Competitive and Cooperative Environments," MPRA Paper 46809, University Library of Munich, Germany.

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