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The Experimental method and Rational Economic Man: A Perspective from Economic Psychology Alan Lewis Department of Psychology University of Bath

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Presentation on theme: "The Experimental method and Rational Economic Man: A Perspective from Economic Psychology Alan Lewis Department of Psychology University of Bath"— Presentation transcript:

1 The Experimental method and Rational Economic Man: A Perspective from Economic Psychology Alan Lewis Department of Psychology University of Bath

2 The empirical part of this paper is based on: Individual, Cognitive and Cultural Differences in Tax Compliance: UK and Italy compared (in preparation) Alan Lewis, Sonia Carrera, John Cullis, Philip Jones

3 Questionnaire study based on 505 Italian psychology and economics students and 539 U.K. psychology and economics undergraduates. Participants take on the role of a small trader declaring income of 30,000. Dependent Variable: amount of income declared Independent Variables: 1. Detection rates – Repeated measures 1%, 5%, 25% 2. Instruction to maximise income or not (between subjects) 3. Framing effects (between subjects) 4. Degree studied 5. Gender 6. Country (culture)

4 The influence of detection rates, culture, framing, instrumentality, gender and degree choice on tax compliance* *Not to be reproduced without permission

5 External Validity and Justifications Tax evasion is covert Calculation of the extent of tax evasion is indirect Tax compliance is a mystery (given REM) Hypothetical experiments, simulations, self descriptions of behaviour all become highly relevant in these contexts I would not wish to claim the tax compliance figures derived from the study are a reflection of reality. Many reasons for this: 1. Hypothetical questions 2. Nature of sample 3. Repeated measures design for detection 4. Perceptions of audit rate

6 What I would claim to be true (and I believe has external validity )is: Audit rates influence tax compliance People and cultures are different Men and people who study economics are more instrumental Framing effects work Instructions to maximise wealth encouraged psychologists to declare less, while economists behaved instrumentally whether they were asked to or not. Instructions to maximise wealth will be asking many participants to behave unnaturally.

7 References Lewis, A. (1982). The psychology of taxation. Oxford: Blackwell Cullis, J., Jones, P., & Lewis, A. (2006). Tax framing, instrumentality and individual differences: are there two different cultures? Journal of Economic Psychology, 27, Lewis A., Carrera S., Cullis J., Jones P. (2008). Individual, Cognitive and Cultural Differences in Tax Compliance: UK and Italy compared (in preparation)


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