nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒03‒06
six papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Does Wage Rank Affect Employees’ Wellbeing? By Brown, Gordon D. A.; Gardner, Jonathan; Oswald, Andrew; Qian, Jing
  2. Axiomatic Foundations for Satisficing Behavior By Christopher J.Tyson
  3. It's What You Say Not What You Pay By Jordi Brandts; David J. Cooper
  4. A learning-based model of repeated games with incomplete information By Juin-Kuan Chong; Colin F. Camerer; Teck H. Ho
  5. Agent-Based Modelling: A Methodology for Neo-Schumpeterian Economics By Andreas Pyka; Giorgio Fagiolo
  6. A behavioral model of consumption By GIAMBONI LUIGI; WALDMANN ROBERT

  1. By: Brown, Gordon D. A. (University of Warwick); Gardner, Jonathan (Watson Wyatt LLP); Oswald, Andrew (University of Warwick and IZA Bonn); Qian, Jing (University of Warwick)
    Abstract: What makes workers happy? Here we argue that pure ‘rank’ matters. It is currently believed that wellbeing is determined partly by an individual’s absolute wage (say, 30,000 dollars a year) and partly by the individual’s relative wage (say, 30,000 dollars compared to an average in the company or neighborhood of 25,000 dollars). Our evidence shows that this is inadequate. The paper demonstrates that range-frequency theory – a model developed independently within psychology and unknown to most economists – predicts that wellbeing is gained partly from the individual’s ranked position of a wage within a comparison set (say, whether the individual is number 4 or 14 in the wage hierarchy of the company). We report an experimental study and an analysis of a survey of 16,000 employees’ wage satisfaction ratings. We find evidence of rank-dependence in workers’ pay satisfaction.
    Keywords: job satisfaction, wages, rank, wellbeing
    JEL: J28 J30
    Date: 2005–03
  2. By: Christopher J.Tyson (Nuffield College, Oxford)
    Abstract: A theory of decision making is proposed that supplies an axiomatic basis for the concept of "satisficing" postulated by Herbert Simon. After a detailed review of classical results that characterize several varieties of preference-maximizing choice behavior, the axiomatization proceeds by weakening the inter-menu contraction consistency condition involved in these characterizations. This exercise is shown to be logically equivalent to dropping the usual cognitive assumption that the decision maker fully perceives his preferences among available alternatives, and requiring instead merely that his ability to perceive a given preference be weakly decreasing with respect to the relative complexity (indicated by set inclusion) of the choice problem at hand. A version of Simon's hypothesis then emerges when the notion of "perceived preference" is endowed with sufficiently strong ordering properties, and the axiomatization leads as well to a constraint on the form of satisficing that the decision maker may legitimately employ.
    Date: 2005–01–06
  3. By: Jordi Brandts; David J. Cooper
    Abstract: We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees' financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers' communication, the most effective messages specifically request a high effort, point out the mutual benefits of high effort, and imply that employees are being paid well.
    Keywords: Change, Incentives, Coordination, Communication, Experiments, Organizations
    JEL: C92 D23 J31 L23 M52
    Date: 2005–02–18
  4. By: Juin-Kuan Chong; Colin F. Camerer; Teck H. Ho
    Date: 2005–02–25
  5. By: Andreas Pyka (University of Augsburg, Department of Economics); Giorgio Fagiolo (Laboratory of Economics and Management, Pisa (Italy))
    Abstract: Modellers have had to wrestle with an unavoidable trade-off between the demand of a general theoretical approach and the descriptive accuracy required to model a particular phenomenon. A new class of simulation models has shown to be well adapted to this challenge, basically by shifting outwards this trade-off: So-called agent-based models (ABMs henceforth) are increasingly used for the modelling of socio-economic developments. Our paper deals with the new requirements for modelling entailed by the necessity to focus on qualitative developments, pattern formation, etc. which is generally highlighted within Neo-Schumpeterian Economics and the possibilities given by ABMs.
    Keywords: Simulation, Neo-Schumpeterian Economics, Agents
    JEL: B52 O30
    Date: 2005–02
    Abstract: This paper studies whether anomalies in consumption can be explained by a behavioral model in which agents do not have rational expectations and make predictable errors in forecasting income. We use a micro-data set containing subjective expectations about future income. The paper shows that, the null hypotheses of rational expectations is rejected in favor of the behavioral model, as that consumption responds to predictable forecast errors. On average agents who we predict are too pessimistic increase consumption after the predictable positive income shock. On average agents who are too optimistic reduce consumption. (JEL classification: D11, D12, D84)
    Date: 2004–04

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