nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒04‒16
nineteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. How Do Aspiration Levels come About? Bounded Rationality and Dynamic Search By Mie Augier; Volker Mahnke
  2. The Knowledge-Based Approach: An Organizational Economics Perspective By Kirsten Foss; Nicolai Foss
  3. Edith Penrose and the Penrosians - or, why there is still so much to learn from The Theory of the Growth of the Firm. By Nicolai J. Foss
  4. Path dependence, its critics and the quest for ‘historical economics’ By Paul A.David
  5. At last, a remedy for chronic QWERTY-skepticism! By Paul A. David
  6. SimCode: Agent-based Simulation Modelling of Open-Source Software Development By Jean-Michel Dalle; Paul A. David
  7. On-the-job learning and earnings By Guillaume Destré; Louis Lévy-Garboua; Michel Sollogoub
  8. When Punishment Fails: Research on Sanctions, Intentions and Non- Cooperation By Daniel Houser; Erte Xiao; Kevin McCabe; Vernon Smith
  9. Emotion expression in human punishment behavior By Erte Xiao; Daniel Houser
  10. Why emotional capital matters in education and in labour? toward an Optimal exploitation of human capital and knowledge management By Bénédicte Gendron
  11. Trust in surveys and games - a matter of money and location? By Holm, Håkan; Nystedt, Paul
  12. Coffee, Tea or …? : Gender and Politeness in Computer Mediated Communication (CMC) By Kaul Asha; Kulkarni Vaibhavi
  13. Trust among Strangers By Teck-Hua Ho; Keith Weigelt
  14. The Individual Behavior in a Public Goods game By Walid HICHRI
  15. Gradual Nash Bargaining with Endogenous Agenda: A Path-Dependent Model By Julian J. Arevalo
  16. How Expert Are the Experts? By J. S. Armstrong
  17. Brief vs. Comprehensive Descriptions in Measuring Intentions to Purchase By JS Armstrong; Terry Overton
  18. Knowing what is good for you. Empirical analysis of personal preferences and the 'objective good' By Orsolya Lelkes
  19. Brown's Original Fictitious Play By Ulrich Berger

  1. By: Mie Augier; Volker Mahnke
    Abstract: Although the Behavioral Theory of the Firm has served as continuing stimulus in diverse field of inquiry such as organizational learning, the theory of the firm, and decision making research more generally and there is good reason to expect that this influence continues to remain significant, the reach of the theory as it stands in situation of genuine uncertainty remains limited. This paper seeks to address this gap by taking steps towards extending the theory of search. A key departure from earlier approaches to the theory of search is the inclusion of the question How do aspiration levels come about? in addition to the received question How do aspiration levels change. This approach highlights the significance of an extended model of search in situations of Knightian uncertainty and Shacklian surprise. For instance, the concept of dynamic search sheds light on the role of 1) experimentation and play in the creation of aspirations, 2) creating disbelief in situations of lacking prior experience, and 3) disengaging limits of imagination. This paper develops aspects of the theoretical foundations of the concept of dynamic search and clarifies processes leading to new aspirations that guide subsequently firm adaptation. While many implications of dynamic search are still unexplored, building on insights from specifically the economists Shackle, Knight and the recent work of March and more generally from the ‘bounded rationality’ - tradition appears to be a promising avenue for new advances in organization science.
  2. By: Kirsten Foss; Nicolai Foss
    Abstract: Proponents of the emerging knowledge-based (resource-based, competence-based, etc.) theory of the firm have subjected more traditional economics of organization theories to strong critiques. Rather than directly answering this critique, we examine key ideas of the knowledge-based approach, and argue that these are not necessarily in conflict with basic ideas from organizational economics (particularly ideas relating to the property rights approach), but are either complementary to or consistent with these. In fact, property rights economics and other organizational economics ideas may at least to some extent constitute a much needed micro-foundation for the knowledge-based perspective. The purpose of this exercise is 1) to facilitate dialogue, 2) to dispel false claims of insurmountable differences between the two approaches, and 3) to establish what is genuinely different in the knowledge-based approach.
    Keywords: economic organization; firm knowledge, governance
    JEL: M21 B49
  3. By: Nicolai J. Foss
    Keywords: firm growth; capabilities; firm strategy
    JEL: L21 L22 M2
  4. By: Paul A.David (All Souls College, Oxford & Stanford University)
    Abstract: The concept of path dependence refers to a property of contingent, non- reversible dynamical processes, including a wide array of biological and social processes that can properly be described as 'evolutionary.' To dispell existing confusions in the literature, and clarify the meaning and significance of path dependence for economists, the paper formulates definitions that relate the phenomenon to the property of non-ergodicity in stochastic processes; it examines the nature of the relationship between between path dependence and 'market failure,' and discusses the meaning of 'lock-in.' Unlike tests for the presence of non-ergodicity, assessments of the economic significance of path dependence are shown to involve difficult issues of counterfactual specification, and the welfare evaluation of alternative dynamic paths rather than terminal states. The policy implications of the existence of path dependence are shown to be more subtle and, as a rule, quite different from those which have been presumed by critics of the concept. A concluding section applies the notion of 'lock-in' reflexively to the evolution of economic analysis, suggesting that resistence to historical economics is a manifestation of 'sunk cost hysteresis' in the sphere of human cognitive development.
    Keywords: path dependence, non-ergodicity, irreversibility, lock-in, counterfactual analysis
    JEL: N
    Date: 2005–02–10
  5. By: Paul A. David (All Souls College, Oxford)
    JEL: N
    Date: 2005–02–10
  6. By: Jean-Michel Dalle (University Pierre-et-Marie-Curie & IMRI- Dauphine); Paul A. David (Stanford University & Oxford Internet Institute)
    Abstract: We present an original modeling tool, which can be used to study the mechanisms by which free/libre and open source software developers’ code-writing efforts are allocated within open source projects. It is first described analytically in a discrete choice framework, and then simulated using agent-based experiments. Contributions are added sequentially to either existing modules, or to create new modules out of existing ones: as a consequence, the global emerging architecture forms a hierarchical tree. Choices among modules reflect expectations of peer- regard, i.e. developers are more attracted a) to generic modules, b) to launching new ones, and c) to contributing their work to currently active development sites in the project. In this context, we are able – particularly by allowing for the attractiveness of “hot spots”-- to replicate the high degree of concentration (measured by Gini coefficients) in the distributions of modules sizes. The latter have been found by empirical studies to be a characteristic typical of the code of large projects, such as the Linux kernel. Introducing further a simple social utility function for evaluating the mophology of “software trees,” it turns out that the hypothesized developers’ incentive structure that generates high Gini coefficients is not particularly conducive to producing self-organized software code that yields high utility to end-users who want a large and diverse range of applications. Allowing for a simple governance mechanism by the introduction of maintenance rules reveals that “early release” rules can have a positive effect on the social utility rating of the resulting software trees.
    JEL: L
    Date: 2005–02–09
  7. By: Guillaume Destré (TEAM); Louis Lévy-Garboua (TEAM); Michel Sollogoub (TEAM)
    Abstract: A simple model of informal learning on-the-job, which combines learning by oneself and learning from others, is proposed in this paper. It yields a closed-form solution that revises Mincer-Jovanovic's (1981) treatment of tenure in the human capital earnings function by relating earnings to the individual's learning potential from jobs and firms. We estimate the structural parameters of this non-linear model on a large French survey with matched employer-employee data. We find that workers on average can learn from others ten percent of their own human capital on entering the firm, and catch half of their learning potential in just two years. The measurement of worker's learning potential in their jobs and establishments provides a simple characterization of primary-type and secondary-type jobs and establishments. We find a strong relationship between the job-specific learning potential and tenure. Predictions of dual labor market theory regarding the positive match of primary-type firms (which offer high learning opportunities) with highly endowed workers (educated, high wages) are visible at the establishment level but seem to vanish at the job's level.
    Keywords: Human capital, earnings functions, informal training, learning from others, learning by oneself, returns to tenure, dualism
    JEL: J24 J31 I2
    Date: 2005–03
  8. By: Daniel Houser (ICES, Department of Economics, George Mason University); Erte Xiao (ICES, Department of Economics, George Mason University); Kevin McCabe (ICES, Department of Economics, George Mason University); Vernon Smith (ICES, Department of Economics, George Mason University)
    Abstract: People can become less cooperative when threatened with sanctions, and researchers have pointed to both 'intentions' and incentives as sources of this effect. This paper reports data from a novel experimental design aimed at determining the relative importance of intentions and incentives in producing non-cooperative behavior in a personal exchange environment. Subjects play one-shot investment games in pairs. Investors send an amount to trustees and request a return on this investment and, in some treatments, are given the option to threaten sanctions to enforce this return request. The decisions of trustees who face credible threats intentionally imposed (or not) by their investors are compared to the decisions of trustees who face threats randomly imposed (or not) by nature. When not threatened, trustees typically decide to return a positive amount that is less than the investor requested. When threatened with sanctions this decision becomes least common. In particular, under severe sanction threats most trustees return the desired amount, while under weak threats the most common decision is to return nothing. Critically, these results do not depend on whether the trustee is threatened intentionally by their investor or randomly by nature: trustees who are threatened with weak sanctions are significantly more likely to provide a zero return to their investors, even when they know that their investors had no role in imposing the threat. Our findings lend support to the view that credible threats of sanctions generate a “cognitive shift” that crowds-out norm-based motivations and increases the likelihood of income-maximizing behavior.
    Keywords: punishment, intentions, cooperation, trust, reciprocity, experimental and behavioral economics
    JEL: C9
    Date: 2005–02–07
  9. By: Erte Xiao (George Mason University); Daniel Houser (George Mason University)
    Abstract: Evolutionary theory reveals that punishment is effective in promoting cooperation and maintaining social norms. Although it is accepted that emotions are connected to punishment decisions, there remains substantial debate over why humans use costly punishment. Here we show experimentally that constraints on emotion expression can increase the use of costly punishment. We report data from Ultimatum Games11, where a proposer offers a division of a sum of money and a responder decides whether to accept the split, or reject and leave both players with nothing. Compared to the treatment where expressing emotions directly to proposers is prohibited, rejection of unfair offers is significantly less frequent when responders can convey their feelings to the proposer concurrently with their decisions. These data support the view that costly punishment might itself be used to express negative emotions, and suggest that future studies will benefit by recognizing that human demand for emotion expression can have significant behavioral consequences in social environments including families, courts, companies and markets.
    Keywords: ultimatum game, emotion expression, sanctions, cooperation
    JEL: C9
    Date: 2005–04–08
  10. By: Bénédicte Gendron (MATISSE)
    Abstract: From the perspective of the Chicago school, there is no behaviour that is not interpretable as economic. In this paper, we discuss the assertion in the perspective of an optimal constitution and exploitation of Human Capital, through our conceptual framework named Emotional Capital (EC). Referring to emotional intelligence, we show that emotional capital, more than an additional capital, is a booster capital potentializing or energyzing the human, social and cultural capitals, EC is critical to enable human capital formation, accumulation and, its optimal exploitation for individuals and crucial in knowledge management in the today's increasingly complex and competitive global workplace for companies and organisations. Our conceptual model enables to understand student academic success or failure on the one hand, the different occupational and jobs choices and career prospect between men and women, and organizations or companies successes as well, on the other hand.
    Keywords: Human capital, emotional capital, skills, occupational choice, economics of gender, economics education, education, labour, knowledge management, organizational behavior, personnel management, labor management
    JEL: A2 D23 D83 I21 J2 J21 J24 J16 M12 M54
    Date: 2004–12
  11. By: Holm, Håkan (Department of Economics, Lund University); Nystedt, Paul (Department of Economics, Lund University)
    Abstract: This paper explores methods to study trust. Answers to survey questions and choices in a trust game are obtained from subjects approached by mail executing their tasks at home as well as from classroom subjects. No discernable differences between the results obtained by these methods were observed. Furthermore, one group of subjects played the trust game with hypothetical payments. This changed trust behavior dramatically, whereas trustworthiness was unaffected. Subjects without financial incentives exhibited less trust. Trust choices with hypothetical payments were significantly correlated with survey trust answers whereas there was no such correlation for the corresponding choices with real payments.
    Keywords: Trust; Financial incentives; Location; Survey answers
    JEL: C72 C81 C90 C93
    Date: 2005–04–07
  12. By: Kaul Asha; Kulkarni Vaibhavi
    Abstract: Research shows that electronic communication has affected written language significantly. The increasing importance of use of Computer Mediated Communication (CMC) in organizations has multiple implications for use of written language at workplace. This study focuses on the influence of gender and politeness on writing style in CMC, specifically work related emails, in the Indian context. Grice’s Cooperative Principle (CP) and Leech’s maxims of Politeness have been used to analyze samples of 494 work related emails written by both men and women. On the basis of this analysis, an attempt has been made to study the relationship between gender, politeness and email content. On the basis of the data, it is concluded that: 1. Different politeness maxims across genders are used in work related emails. 2. Politeness maxims are used in clusters. 3. Variations in use of politeness maxims across genders are highest in directives. 4. Violations of politeness maxims are higher in men than in women.
    Date: 2005–04–12
  13. By: Teck-Hua Ho (University of California, Berkeley); Keith Weigelt (University of Pennsylvania)
    Abstract: The trust building process is basic to social science. We investigate it in a laboratory setting using a novel multi-stage trust game where social gains are achieved if players trust each other in each stage. And in each stage, players have an opportunity to appropriate these gains or be trustworthy by sharing them. Players are strangers because they do not know the identity of others and they will not play them again in the future. Thus there is no prospect of future interaction to induce trusting behavior. So, we study the trust building process where there is little scope for social relations and networks. Standard game theory, which assumes all players are opportunistic, untrustworthy, and should have zero trust for others is used to construct a null hypothesis. We test whether people are trusting or trustworthy and examine how inferring the intentions of those who trust affects trustworthiness. We also investigate the effect of stake on trust, and study the evolution of trust. Results show subjects exhibit some degree of trusting behavior though a majority of them are not trustworthy and claim the entire social gain. Players are more reluctant to trust in later stages than in earlier ones and are more trustworthy if they are certain of the trustee’s intention. Surprisingly, subjects are more trusting and trustworthy when the stake size increases. Finally, we find the sub- population who invests in initiating the trust building process modifies its trusting behavior based on the relative fitness of trust.
    Keywords: Experimental Economics, Behavioral Economics
    JEL: C79 C91 D64
    Date: 2005–04–14
  14. By: Walid HICHRI (GREQAM & University of Aix-Marseille III)
    Abstract: Generally, with a standard linear public goods game, one observes at the aggregate level that contributions lay between the Nash equilibrium and the social optimum and decrease over time with an end-effect.Our purpose is to see whether these general aggregate results remain available at the group and at the individual levels. To do so, we formed six groups of four persons and made them play a public goods game. At the aggregate level, we find that our results correspond almost to the standard experimental findings in literature.Using the classification of Isaac et al. (1984), we find that at the group level, only two groups adopt the standard behavior and only two groups present a behavior similar to what we obtain at the aggregate level. At the individual level, we compare contributions over time of each subject to the group and the aggregate results and classify them into types. Only in one of the 6 groups individuals adopt an homogeneous behavior. In the five other groups, individuals have different behaviors.
    Keywords: Public Goods; Free-Riding; Aggregate level; Individual Behavior; Experiments.
    JEL: H4
    Date: 2005–02–21
  15. By: Julian J. Arevalo (Universidad Externado de Colombia)
    Abstract: This article proposes a method for considering the bargaining agenda as an endogenous phenomenon in gradual bargaining games, understood as being path-dependent processes. Some short, medium and long-term results for bargaining are presented, as well as a possible application for the model.
    Keywords: Game theory, Bargaining, Path-Dependent Processes
    JEL: C7 D8
    Date: 2005–02–07
  16. By: J. S. Armstrong (The Wharton School)
    Abstract: If you want good forecasts for your industry, you should hire the best experts. Right? Well, maybe not. Certainly experts are in demand. Businessmen pay economists generously to tell them how the economy will change; brokerage firms give stock analysts large salaries to forecast company earnings; and politicians part with substantial fees for expert predictions, too.
    Keywords: experts, forecasting
    JEL: A
    Date: 2005–02–04
  17. By: JS Armstrong (The Wharton School); Terry Overton
    Abstract: In forecasting demand for expensive consumer goods, direct questioning of potential consumers about their future purchasing plans has had considerable predictive success [1, 2, 4]. Any attempt to apply such 'intention to purchase' methods to forecast demand for proposed products or services must determine some way to convey product information to the potential consumer [3]. Indeed, all the prospective consumer knows about the product or service is what he may infer from the information given to him by the researcher. This paper presents a study of the effect upon intention to purchase of this seemingly crucial element—the extent and type of description of the new service. How extensive must the description of the new service be in order to measure intention to purchase?
    Keywords: forecasting, purchase intentions
    JEL: A
    Date: 2005–02–11
  18. By: Orsolya Lelkes (European Centre)
    Abstract: This paper aims to test empirically if certain frequently used measures of well-being, which are regarded as valuable properties of human life, are actually desired by people. In other words, it investigates whether the “expert judgments” in social science overlap with social consensus on what the “good life” is. The starting hypothesis is that there is an overlap between these two in the case of basic needs. For the analysis, individuals’ self-reported life satisfaction is used as a proxy for “utility”, based on survey data, which includes about 30 000 individuals from 21 different European countries. The results indicate that the commonly used measures of well-being - labour market situation, health, housing conditions and social relations - significantly influence people’s satisfaction, ceteris paribus. Next, the stability of preferences is tested using Hungarian data from the 1990s. The results indicate that there was only very limited change in the relationship between life satisfaction and basic measures of well-being despite the landslide of societal and economic transformation.
    Keywords: quality of life, capabilities, happiness, basic needs, economic transition
    JEL: D63 I31
    Date: 2005–02–01
  19. By: Ulrich Berger (Vienna Univrsity of Economics)
    Abstract: What modern game theorists describe as 'fictitious play' is not the learning process George W. Brown defined in his 1951 paper. His original version differs in a subtle detail, namely the order of belief updating. In this note we revive Brown's original fictitious play process and demonstrate that this seemingly innocent detail allows for an extremely simple and intuitive proof of convergence in an interesting and large class of games: nondegenerate ordinal potential games.
    Keywords: Fictitious Play, Learning Process, Ordinal Potential Games
    JEL: C72
    Date: 2005–03–21

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