Simultaneous Over- and Underconfidence: Evidence from Experimental Asset Markets

In this paper we investigate individual overconfidence within the context of an experimental asset market. Overall, 72 participants traded one risky asset on six markets of 12 participants each. Our results indicate that participants are not generally prone to overconfidence. A comparison of two different measures of overconfidence, (i) subjective confidence intervals and (ii) differences between objective accuracy and subjective certainty, lead to a different classification of behavior in our data-set. We observe well-calibration as well as over- and underconfidence.     

Targeting occupations with varying reputations to increase tax revenue

If the government's goal is to raise tax revenue in a cost-effective manner, which (if any) occupation categories could be targeted with a higher probability of an audit to yield increased revenue? Looking beyond mere opportunity to evade (e.g., self-employment) and starting from the premise that taxpayers in certain occupations evade more than others, the issue is whether these taxpayers respond to a change in the audit rate. Theory suggests that compliance increases in response to higher audit rates; the occupations with the higher evaders could therefore be targeted. This theory is tested by drawing a connection between occupation, reputation, and tax compliance. We assume that taxpayers in occupations with high need for reputation respond to a lower extent to increased tax audits than taxpayers whose achievement does not depend on reputation. The results support the effectiveness of raising tax revenue by targeting specific occupations, non-managers, with a higher probability of an audit.     

Regulatory fit effects on perceived fiscal exchange and tax compliance

Paying taxes can be considered a contribution to the welfare of a society. But even though tax payments are redistributed to citizens in the form of public goods and services, taxpayers often do not perceive many benefits from paying taxes. Information campaigns about the use of taxes for financing public goods and services could increase taxpayers’ understanding of the importance of taxes, strengthen their perception of fiscal exchange and consequently also increase tax compliance. Two studies examined how fit between framing of information and taxpayers’ regulatory focus affects perceived fiscal exchange and tax compliance. Taxpayers should perceive the exchange between tax payments and provision of public goods and services as higher if information framing suits their regulatory focus. Study 1 supported this hypothesis for induced regulatory focus. Study 2 replicated the findings for chronic regulatory focus and further demonstrated that regulatory fit also affects tax compliance. The results provide further evidence for findings from previous studies concerning regulatory fit effects on tax attitudes and extend these findings to a context with low tax morale.     

Misperception of chance and loss repair: On the dynamics of tax compliance

Previous experimental studies on tax behavior have been particularly concerned with determining the absolute effect of detection rate and punishment on tax filing, leading to mixed results. In this paper, we shed some additional light on the effectiveness of audit probability and sanctions by drawing upon a dynamic setting with particular focus on the time lag between audits. Our results showed that tax compliance decreased immediately after a random audit, suggesting that subjects were prone to misperception of chance. Sanctions decreased compliance to a lesser extent; they were, however, associated with the tendency of subjects to repair their losses by increasing their capital stock.     

Marital relationships and purchasing decisions — to buy or not to buy,that is the question

Wives and husbands from 47 households rated their wellbeing in situations, where they imagined either to buy or not to buy a desired product, with their spouse either agreeing or disagreeing with the purchase. The product was female-specific for wives and male-specific for husbands. For 23 households the product was relatively cheap, for 24 households the subjects imagined to desire an expensive commodity. The approach was similar to Kelley and Thibaut's (1978) analysis of interdependence matrices. The data, in general, support the following hypotheses: (a) When the partner objects the purchase, the utility of the product will outweigh the perceived social costs more for husbands than for wives, especially in male-dominated families; (b) the wife's wellbeing with purchase decisions will depend more than her husband's wellbeing upon the partner's agreement, especially in male-dominated families, (c) the husband's wellbeing in conflict (buying a product despite the partner's objection) will be positively related with his dominance and vice versa; (d) mutual appraisal of situations will correspond higher in happy than in unhappy couples.The results are discussed with respect to differences in male and female strategies to cope with authority and social emotions in buying decisions. Shortcomings of economic theories on determinants of family consumer decisions are pointed out.     

Job loss and mood

Using the method of time sampling diary, this study explores the well-being of unemployed people during the first six months. At randomly selected points of time 30 subjects indicated their current mood, their predominant needs, their attribution of mood and their perceived freedom during the first, second, third and sixth months of unemployment. Furthermore, the actual situation was to be described by the respondents, and the subjects answered the 16-PF test and interview questions. The results show that, during the period of unemployment, well-being was worse than while being employed. Furthermore, the data suggest that there exists a cycle of psychological adjustment to unemployment. Unemployed persons indicated bad mood when they felt needs for physical comfort, power, affiliation, sentience, and achievement were actualized. Also, bad mood was frequently attributed internally, or to family members, or to the economic situation.     

The hot hand belief and the gambler’s fallacy in investment decisions under risk

We conduct experiments to analyze investment behavior in decisions under risk. Subjects can bet on the outcomes of a series of coin tosses themselves, rely on randomized ‘experts’, or choose a risk-free alternative. We observe that subjects who rely on the randomized experts pick those who were successful in the past, showing behavior consistent with the hot hand belief. Obviously the term ‘expert’ suffices to attract some subjects. For those who decide on their own, we find behavior consistent with the gambler’s fallacy, as the frequency of betting on heads (tails) decreases after streaks of heads (tails).     

Twenty-five years of the Journal of Economic Psychology (1981–2005): A report on the development of an interdisciplinary field of research

Economic Psychology has gained considerable momentum through the introduction of the Journal of Economic Psychology (JoEP) in 1981. Twenty-five years later, economic psychology has a clear profile as an interdisciplinary field of research. A content analysis of articles published in the JoEP together with a bibliometric analysis of references and citing journals identified the topics, the sources and the impact of JoEP. Results indicate the high degree of interdisciplinarity reached in the field, taking its ideas from social psychology, economics and consumer research, and its recognition in business and psychology. Implications for journal policy are discussed.     

Uncertainty resolution in tax experiments: Why waiting for an audit increases compliance

Tax compliance in a between-subjects experiment was higher when the uncertainty about the occurrence of an audit was not resolved until three weeks after participants had filed their tax returns than in a control treatment with immediate uncertainty resolution. Results have important implications for experimental tax research where providing immediate feedback whether participants are audited is common practice.