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Behavioural Economics Presentation

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by

Jake Kaye

on 9 December 2013

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Transcript of Behavioural Economics Presentation

First step in understanding why people contribute to public goods

Confirms theories of complements in contributions

Not consistent with altruism theories or theories of substitutes
Hypotheses
Model of Substitutes
Model of Complements
Conclusion
Two classes of theories:
Contributions are Substitutes
Contributions are Complements
Behavioural Economics Presentation
"A Field Experiment in Charitable Contribution: The Impact of Social Information on the Voluntary Provision of Public Goods"
Public Radio Setting
Two elements:
Field Experiments
Public Goods
Non-rival
Non-excludable
Model of Substitutes
Altruism
- individuals gain utility from their own consumption plus the consumption of others (Becker, 1974)
UGiver = CGiver + dCRecipient

Impure

Altruism
- altruism model combined with 'warm-glow' (Andreoni, 1989)
UGiver = CGiver + dCRecipient + gGiver

Thresholds
- minimum contribution level for provision (Andreoni, 1989)
Model of Complements
Reciprocity
- contribute as much as the least generous giver (Sugden, 1984)

Conformity
- individuals care not just about intrinsic preferences, but also about status (Bernheim, 1994)

Quality
(Vesterlund, 2003),
Social

Approval
(Hollanderm 1990),
Fair

Share
(Sen, 1977),
Signal

of

Wealth
(Glazer & Konrad, 1996)
H1A: One's own giving is negatively related to others giving
H1B: One's own giving is positively related to others giving
Social Information = Contributions
The 90th percentile was the most effective social information level

Result was significant for new donors

No crowding out
Longer-term Impacts of Social Influence
New donors were twice as likely to contribute a year later when provided with social information

Those who did contribute gave more money
The fact that higher social information positively influences contributions is consistent with theories of:

Reciprocity
Conformity
Norms

And inconsistent with theories of:

Altruism (pure or impure)
Fixed costs
Most significant results
Social information has a positive effect on contributions
Shown in each social information level
Hypothesis of substitutes for contributions is rejected
Conforming to social norms - status
May be dependent on other factors
No large differences in proportion of very high contributions (>$300)
When people decide to donate, do they already have a figure in their heads?
How much influence can a previous donation figure have?
Anchoring effects
Social information less effective at middle level ($180)
Not effective for renewing donors
Achievable but uninspiring?
Too modest a contribution?
What other reasons could there be for this result?

Social information likely to have a bigger effect on new members
Ambiguity
Less aware of the 'right' donation
What are the implications of these results?
Generates higher expected revenue from the control condition in the subsequent year
Increased contributions by 12%
$75 median donation - no affect as social information
Social information should target new donors rather than those renewing
What are the wider applications of these
results?
Labour markets
Welfare
Savings and consumption
Profit seeking entitlements
Conclusion
Analysis and Evaluation of the Experimental Design
The significance of a
Field Experiment
A general word on the advantages and disadvantages
Croson & Gachter's 10 Commandments
"The Science of Experimental Economics" (2010)
Evaluation of commandments 7 and 8 and their presence in the paper:

Experimentalists should choose experimental parameters and designs that provide true tests of theories, ideally differentiating them from from competing theories

Experimentalists shall replicate and encourage replications, including making your data, instructions and software publicly avialable
The use of Incentive Thresholds - Spiky Distribution
Spikiness of data

Influence of gift levels

Special discount hours
The Public Radio Station - Specificities
The unspecified nature of the station
The potential impact of a specific demographic group
Role of Experimenters
Their behaviour was tricky to control
Potential impact of dialogue delivery
Thank you for listening

We will now take
any questions
Characteristics specific to public radio:
Large fixed costs
Ambiguous as to correct donation amount

Industry:
800 public radio stations in US
Total Revenue = over $2.5bil
Over $640mil in donations (2005)
Evidence
Laboratory Experiments
Bohnet and Zechauser
(2004)

Social comparisons in ultimatum bargaining

Show that the size of the offer and the probability of rejections are influenced by whether responders are told the average offer received by others.
Cason and Mui
(1998)

Social influence in the sequential dictator game

a sequential dictator game; individuals act as dictators, learn the dictator decision of another subject ) and then make a second dictator decision.

Field Experiments
List and Lucking-Reiley
(2002)

Falk
(2005)

The effects of seed money and refunds on charitable giving

Examined the impact of seed money and of refunds on charitable giving in a field experiment.

Total contributions increase with the amount of seed money available

Charitable giving as a gift exchange

10,000 letters sent 1/3 no gift 1/3 large 1/3 small

Including gifts gave rise to substantially different donation patterns

Frey, B. and Meier, S.
(2004)
Social Comparisons and Pro-social Behaviour
Asked to contribute to two funds (or none at all); one for foreign students and one for those who are suffering from financial difficulties.
Some students receive a letter telling them that 64% of other students had previously contributed. Other students receive a letter telling them that 46% of other students had previously contributed
77% of students in the 64% treatment (high social comparison) contribute to at least one fund, while 74.7% of students in the 46% treatment (low social comparison) contribute to at least one fund.
They concluded the behaviour resulting from conditional cooperation is consistent with at least three theoretical approaches conformity, reciprocity and as a signal of the quality of the public good.


But based on participation not contribution

The
Experiment
Design and Implementation
Details of the experiment
Aims
Results
Social information yields higher contributions Depends on fund-raising drive
Primary result:
Social information results in positive contributions from new donor
Further Tests
Separate regression analysis for new and renewing donors
Investigation of spread of contributions around the social information contribution amount
Long-term Impacts
Increased contribution comes at a cost
Further investigation into long term impact on new donors
Full transcript