IDEAS home Printed from https://ideas.repec.org/p/uea/wcbess/15-20r.html
   My bibliography  Save this paper

Mathematics self-confidence and the "prepayment effect" in riskless choices

Author

Listed:
  • Lian Xue

    (University of East Anglia)

  • Stefania Sitzia

    (University of East Anglia)

  • Theodore L. Turocy

    (University of East Anglia)

Abstract

We extend the analysis of a riskless choice experiment reported recently by Hochman et al. (2014). 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. find that participants choose an earnings-maximizing card less frequently when another card is prepaid. We 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. Prior experience with economics experiments in general improves performance only modestly. The 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.

Suggested Citation

  • Lian Xue & Stefania Sitzia & Theodore L. Turocy, 2016. "Mathematics self-confidence and the "prepayment effect" in riskless choices," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-20R, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:15-20r
    as

    Download full text from publisher

    File URL: https://www.uea.ac.uk/documents/166500/14307614/CBESS-15-20R.pdf/08186cb1-d92a-4c3b-9bc6-657f824da5ec
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hunt Allcott, 2011. "Consumers' Perceptions and Misperceptions of Energy Costs," American Economic Review, American Economic Association, vol. 101(3), pages 98-104, May.
    2. Astrid Matthey & Tobias Regner, 2013. "On the independence of history: experience spill-overs between experiments," Theory and Decision, Springer, vol. 75(3), pages 403-419, September.
    3. Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    4. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    5. Peter D. Lunn, 2013. "Telecommunications Consumers: A Behavioral Economic Analysis," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(1), pages 167-189, April.
    6. Ben McQuillin & Robert Sugden, 2012. "Reconciling normative and behavioural economics: the problems to be solved," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(4), pages 553-567, April.
    7. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1067-1101.
    8. Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
    9. Anna Conte & M. Vittoria Levati & Natalia Montinari, 2019. "Experience in public goods experiments," Theory and Decision, Springer, vol. 86(1), pages 65-93, February.
    10. Michael D. Grubb & Matthew Osborne, 2015. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," American Economic Review, American Economic Association, vol. 105(1), pages 234-271, January.
    11. Stefania Sitzia & Jiwei Zheng & Daniel Zizzo, 2015. "Inattentive consumers in markets for services," Theory and Decision, Springer, vol. 79(2), pages 307-332, September.
    12. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 97-135.
    13. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December.
    14. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    15. Thomas Buser & Muriel Niederle & Hessel Oosterbeek, 2014. "Gender, Competitiveness, and Career Choices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1409-1447.
    16. Alexia Gaudeul & Robert Sugden, 2012. "Spurious Complexity and Common Standards in Markets for Consumer Goods," Economica, London School of Economics and Political Science, vol. 79(314), pages 209-225, April.
    17. Arthur Schram, 2005. "Artificiality: The tension between internal and external validity in economic experiments," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 225-237.
    18. KalaycI, Kenan & Potters, Jan, 2011. "Buyer confusion and market prices," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 14-22, January.
    19. Hochman, Guy & Ayal, Shahar & Ariely, Dan, 2014. "Keeping your gains close but your money closer: The prepayment effect in riskless choices," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 582-594.
    20. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    21. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    22. Becker, Sw & Ronen, J & Sorter, Gh, 1974. "Opportunity Costs - Experimental Approach," Journal of Accounting Research, Wiley Blackwell, vol. 12(2), pages 317-329.
    23. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    24. Stefania Sitzia & Daniel Zizzo, 2011. "Does product complexity matter for competition in experimental retail markets?," Theory and Decision, Springer, vol. 70(1), pages 65-82, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Subhasish M. Chowdhury & Anwesha Mukherjee & Theodore L. Turocy, 2020. "That’s the ticket: explicit lottery randomisation and learning in Tullock contests," Theory and Decision, Springer, vol. 88(3), pages 405-429, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    2. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    3. Timothy J. Richards & Gordon J. Klein & Celine Bonnet & Zohra Bouamra-Mechemache, 2020. "Strategic Obfuscation and Retail Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(4), pages 859-889, December.
    4. Filippin, Antonio & Gioia, Francesca, 2018. "Competition and subsequent risk-taking behaviour: Heterogeneity across gender and outcomes," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 75(C), pages 84-94.
    5. Gu, Yiquan & Wenzel, Tobias, 2015. "Putting on a tight leash and levelling playing field: An experiment in strategic obfuscation and consumer protection," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 120-128.
    6. Paolo Crosetto & Alexia Gaudeul, 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Jena Economics Research Papers 2014-026, Friedrich-Schiller-University Jena.
    7. Lian Xue & Stefania Sitzia & Theodore L. Turocy, 2015. "Mathematics self-confidence and the "prepayment effect" in riskless choices," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-20, School of Economics, University of East Anglia, Norwich, UK..
    8. Kalaycı, Kenan, 2015. "Price complexity and buyer confusion in markets," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 154-168.
    9. Lana Friesen & Peter E. Earl, 2020. "An Experimental Analysis of Regulatory Interventions for Complex Pricing," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 1241-1266, January.
    10. Griffin, Míde & Lyons, Sean & Mohan, Gretta & Joseph, Merin & Domhnaill, Ciarán Mac & Evans, John, 2022. "Intra-operator mobile plan switching: Evidence from linked survey and billing microdata," Telecommunications Policy, Elsevier, vol. 46(7).
    11. Stefania Sitzia & Jiwei Zheng & Daniel Zizzo, 2015. "Inattentive consumers in markets for services," Theory and Decision, Springer, vol. 79(2), pages 307-332, September.
    12. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    13. Ernst Fehr & Keyu Wu, 2021. "Obfuscation in competitive markets," ECON - Working Papers 391, Department of Economics - University of Zurich, revised Feb 2023.
    14. Paolo Crosetto & Alexia Gaudeul, 2011. "Do consumers prefer offers that are easy to compare? An experimental investigation," Jena Economics Research Papers 2011-044, Friedrich-Schiller-University Jena.
    15. Lunn, Pete & Somerville, Jason J., 2015. "Surplus Identification with Non-Linear Returns," Papers WP522, Economic and Social Research Institute (ESRI).
    16. Ashworth, Laurence & Darke, Peter R. & McShane, Lindsay & Vu, Tiffany, 2019. "The rules of exchange: The role of an exchange surplus in producing the endowment effect," Organizational Behavior and Human Decision Processes, Elsevier, vol. 152(C), pages 11-24.
    17. Victor H. Gonzalez-Jimenez, 2019. "Contracting Probability Distortions," Vienna Economics Papers vie1901, University of Vienna, Department of Economics.
    18. Wenner, Lukas M., 2018. "Do sellers exploit biased beliefs of buyers? An experiment," Games and Economic Behavior, Elsevier, vol. 110(C), pages 194-215.
    19. Paolo Crosetto & Alexia Gaudeul, 2017. "Choosing not to compete: Can firms maintain high prices by confusing consumers?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 897-922, December.
    20. Yiquan Gu & Tobias Wenzel, 2017. "Consumer confusion, obfuscation and price regulation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(2), pages 169-190, May.

    More about this item

    Keywords

    loss aversion; prepayment; replication; mathematics self-confidence; lab rats;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uea:wcbess:15-20r. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cara Liggins (email available below). General contact details of provider: https://edirc.repec.org/data/esueauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.