nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒01‒16
eleven papers chosen by
Marco Novarese
Università del Piemonte Orientale

  1. Accounting for Evolution: An Assessment of the Population Method By J.S Metcalfe
  2. From Simplistic to Complex Systems in Economics By Prof John Foster
  3. Agent Learning Representation - Advice in Modelling Economic Learning By Thomas Brenner
  4. Noncooperative Support of Public Norm Enforcement in Large Societies By Josef Falkinger
  5. Envy Freeness in Experimental Fair Division Problems By Dorothea K. Herreiner; Clemens Puppe
  6. Why People Reject Advantageous Offers – Non-monotone Strategies in Ultimatum Bargaining By Heike Hennig-Schmidt; Zhu-Yu Li; Chaoliang Yang
  7. Experimenting over a Long Distance - A method to facilitate intercultural experiments By Gari Walkowitz; Clemens Oberhammer; Heike Hennig-Schmidt
  8. An Extended Reinforcement Algorithm for Estimation of Human Behaviour in Congestion Games By Thorsten Chmura; Thomas Pitz
  9. Detection Biases in Bluffing - Theory and Experiments By Holm, Håkan
  10. Walking inside the Potential Tax Evader's Mind By Juan Carlos Molero; Francesc Pujol
  11. History friendly simulations for modelling industrial dynamics By Garavaglia, C.

  1. By: J.S Metcalfe
    Abstract: Growth dynamics and structural change are the two central features of variation / selection processes within populations. This paper explores them in terms of three themes, or sets of accounts, namely Logistic Growth Accounting, Competition Accounting and the Price Theorem. The accounting concepts have in common a concern with 'population thinking' and are essential elements in the study of economic development interpreted as the transformation of initial populations of activities into new kinds of populations. Development can be uncovered at many levels in an economic system, for example in the competitive process at the level of industries, sectors and markets. Business rivalry, underpinned by differential innovative activity, is the basis of the differential survival and growth of competing economic activities and the strategies deployed to create sustainable differences in competitive selection characteristics are at the core of the capitalist dynamic interpreted as an adaptive, evolutionary process. This kind of evolutionary argument is necessarily concerned with growth rate dynamics and the explanation of the diversity of growth rates across entities in a population. The accounting relationships presented are a prelude to deeper causal explanations of evolution in institutions, economies and perhaps in knowledge itself.
    Date: 2004–12
  2. By: Prof John Foster (School of Economics, The University of Queensland)
    Abstract: The applicability of complex systems theory in economics is evaluated and compared with standard approaches to economic theorizing based upon constrained optimization. A complex system is defined in the economic context and differentiated from complex systems in physio-chemical and biological settings. It is explained why it is necessary to approach economic analysis from a network, rather than a production and utility function perspective, when we are dealing with complex systems. It is argued that much of heterodox thought, particularly in neo-Schumpeterian and neo-Austrian evolutionary economics, can be placed within a complex systems perspective upon the economy. The challenge is to replace prevailing 'simplistic' theories, based in constrained optimization, with 'simple' theories, derived from network representations in which value is created through the establishment of new connections between elements.
    Date: 2004
  3. By: Thomas Brenner
    Abstract: This paper presents an overview on the existing learning models in the economic literature. Furthermore, it discusses which of these models should be used under what circumstances and how adequate learning models can be chosen in simulation approaches. It gives advice for getting along with the many models existing and picking the right one for the own application.
  4. By: Josef Falkinger
    Abstract: In small groups norm enforcement is provided by mutual punishment and reward. In large societies we have enforcement institutions. This paper shows how such institutions can emerge as a decentralized equilibrium. In a first stage, individuals invest in a public enforcement technology. This technology generates a sanctioning system whose effectiveness depends on the aggregate amount of invested resources. In a second stage, in which individuals contribute to the provision of a public good, the sanctioning system imposes penalties and rewards on deviations from the endogenous norm contribution. It is shown that even if group size goes to infinity public norm enforcement is supported in a noncooperative equilibrium. Psychological factors are not necessary but can be favorable for the emergence of effective public norm enforcement.
    Keywords: norm enforcement, public goods, institutions, sanctioning
    JEL: H41 K40 Z13
    Date: 2004
  5. By: Dorothea K. Herreiner; Clemens Puppe
    Abstract: In the recent experimental literature several social preference models have been suggested that address observed behavior not reducible to the pursuit of self-interest. Inequality aversion is one such model where preferences are distributional. Frequently, envy is suggested as the underlying rationale for inequality aversion. Envy is a central criterion in the theoretical literature on fair division, whose definition (Foley 1967) differs from the more casual use of the word in the experimental literature. We present and discuss results from free-form bargaining experiments on fair division problems where the role of envy in Foley’s sense can be analyzed and compared to social preferences. We find that envy freeness does matter as a secondary criterion.
    Keywords: Fairness, Envy Freeness, Social Preferences, Bargaining
    JEL: A13 C78 C91 D63
    Date: 2004–12
  6. By: Heike Hennig-Schmidt; Zhu-Yu Li; Chaoliang Yang
    Abstract: When using the strategy method in ultimatum bargaining, many researchers ask responders for the minimal acceptable offer only implicitly assuming strategies to be monotone. Recent research has shown, however, that subjects decline disadvantageous and advantageous proposals. We report on an ultimatum game video experiment where more than 50 percent of the responders rejected advantageous offers. Proposers and responders acted together in groups of three people each and were video taped during decision making. The videotapes then were content analyzed. Our experimental design provides the unique opportunity to learn from participants’ spontaneous discussions about their motivations for rejecting advantageous offers. Main motives are social concern, non-expectancy of high offers, emotional, ethical, and moral reasons, group-specific decision rules and aversion against unpleasant numbers.
    Keywords: ultimatum game, video experiments, strategy method, content analysis, non-monotone strategies, social preferences
    JEL: C78 C81 C91 C92 F00 O53 O57
    Date: 2004–12
  7. By: Gari Walkowitz; Clemens Oberhammer; Heike Hennig-Schmidt
    Abstract: We report a new method for Experimenting over a Long Distance (ELD) allowing to simultaneously run decentralized interactive experiments in geographically separated subject pools. We apply ELD to an intercultural trust experiment with participants from Argentina, China and Germany.
    Keywords: interactive intercultural experiments, investment game, trust
    JEL: C72 C81 C91 F00 O57
    Date: 2004–06
  8. By: Thorsten Chmura; Thomas Pitz
    Abstract: The paper reports simulations applied on two similar congestion games: the first is the classical minority game. The second one is a asymmetric variation of the minority game with linear payoff functions. For each game simulation results based on an extended reinforcement algorithm are compared with real experimental statistics. It is shown that the extension of the reinforcement model is essential for fitting the experimental data and estimating the players behaviour.
    Keywords: congestion game, minority game, laboratory experiments, reinforcement algorithm, payoff sum model
    JEL: C91 C92 C15 R4
    Date: 2004–12
  9. By: Holm, Håkan (Department of Economics, Lund University)
    Abstract: People may be better at recognizing lies than truths or better at recognizing truths than lies. Such detection biases are analyzed theoretically and experimentally. The detection bias shrinks the equilibrium set to a unique non-pooling equilibrium, in which, the better a player is to detect lies the more often will the opponent player lie. In the experiment, subjects were telling the truth too often according to standard predictions. Other findings were a significant positive correlation between self-rated bluffing ability and actual bluffing performance. Furthermore, the subjects were more prone to lie to a woman than to a man.
    Keywords: Bluffing; Game theory; Truth detection; Lie detection; Experiment
    JEL: C72 C91 D82
    Date: 2004–12–22
  10. By: Juan Carlos Molero (School of Economics and Business Administration, University of Navarra); Francesc Pujol (School of Economics and Business Administration, University of Navarra)
    Abstract: The classical Allingham-Sandmo-Yitzhaki model explains tax evasion behavior based on the probability of being discovered, the amount of the fine imposed and the level of risk aversion. Nonetheless, empirical studies show that the decision and the level of tax evasion depends also on non economic considerations, usually named as the "psychological costs" associated to tax evasion. We build a theoretical model of tax evasion including non monetary considerations. We propose an empirical study on the determinants of the psychological costs of tax evasion, based on the theoretical taxonomy proposed by Lagares (1994). Data come from a questionnaire filled by 781 university students. The dependent variable is the percentage of students considering acceptable to evade taxes. Using a binomial logit model we find that the justification of tax evasion is statistically related with: the presence of grievance in absolute terms (those who feel that taxes are too high; waste of public funds) and grievances in relative terms (the suspected level of tax evasion by others, those accepting black economy labor). The sense of duty and the level of solidarity are also relevant factors, but in a lesser extent.
    JEL: H26
    Date: 2005–01
  11. By: Garavaglia, C. (CESPRI, Bocconi University, Milan, Italy and Cattaneo University, LIUC, Castellanza (VA), Italy)
    Keywords: simulation, models, industrial dynamics
    Date: 2004

This nep-cbe issue is ©2005 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.