nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒07‒25
eight papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Learning, Institutions, and Economic Performance By Chrysostomos Mantzavinos; Douglas C. North; Syed Shariq
  2. Social Dilemmas, Revisited from a Heuristics Perspective By Christoph Engel
  3. The Role of Choice in Social Dilemma Experiments By Frank P. Maier-Rigaud; Jose Apesteguia
  4. Matching owner-managers´ cognitive style and organizational demands in family firms By JULIO DE CASTRO
  5. Mismatch between entrepreneurs and their firms: the role of cognitive fit / misfit By JULIO DE CASTRO
  6. The Institutional-Evolutionary Antitrust Model By Chrysostomos Mantzavinos
  7. The Neuroeconomics of Trust By Paul J. Zak
  8. The Effects of Beliefs versus Risk Preferences on Bargaining Outcomes By David L. Dickinson

  1. By: Chrysostomos Mantzavinos (Faculty of Economics and Business, Witten/Herdecke University); Douglas C. North (Washington University, St. Louis); Syed Shariq (Institute for International Studies, Stanford University)
    Abstract: In this article, we provide a broad overview of the interplay among cognition, belief systems, and institutions, and how they affect economic performance. We argue that a deeper understanding of institutions’ emergence, their working properties, and their effect on economic and political outcomes should begin from an analysis of cognitive processes. We explore the nature of individual and collective learning, stressing that the issue is not whether agents are perfectly or boundedly rational, but rather how human beings actually reason and choose, individually and in collective settings. We then tie the processes of learning to institutional analysis, providing arguments in favor of what can be characterized as “cognitive institutionalism.” Besides, we show that a full treatment of the phenomenon of path dependence should start at the cognitive level, proceed at the institutional level, and culminate at the economic level.
    Date: 2003–12
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn, Germany)
    Abstract: The standard tool for analysing social dilemmas is game theory. They are reconstructed as prisoner dilemma games. This is helpful for understanding the incentive structure. Yet this analysis is based on the classic homo oeconomicus assumptions. In many real world dilemma situations, these assumptions are misleading. A case in point is the contribution of households to climate change. Decisions about using cars instead of public transport, or about extensive air conditioning, are typically not based on ad hoc calculation. Rather, individuals rely on situational heuristics for the purpose. This paper does two things: it offers a model of heuristics, in the interest of making behaviour that is guided by heuristics comparable to behaviour based on rational reasoning. Based on this model, the paper determines the implications for the definition of social dilemmas. In some contexts, the social dilemma vanishes. In other contexts, it must be understood, and hence solved, in substantially different ways.
    Keywords: Heuristic, Social Dilemma, Public Good, Prisoner’s Dilemma
    JEL: A12 A13 C91 D62 H41 K32
  3. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Jose Apesteguia
    Abstract: On the basis of problems related to asymmetric information, self-governance has been proposed and often empirically found to be superior to the external imposition of rules in social dilemma situations. The present paper suggests and experimentally analyses a different line of argument, namely to what extent behavioral aspects can explain these findings. We study this hypothesis using the simplest, most general dilemma form: the prisoner’s dilemma (PD). We compare behavior when players are given the possibility of choosing between two different representations of the same PD, to behavior when players are externally assigned to play a specific game. We find that cooperation rates are significantly higher in the games that were chosen.
    Keywords: Freedom of Choice, Self-governance, Social Dilemmas, Framing
    JEL: H41 C90 C91
    Date: 2003–09
  4. By: JULIO DE CASTRO (Instituto de Empresa)
    Abstract: (WP 09/04 Clave pdf) Based on responses from 159 owners-managers in family firms, we examined the association between specific individual characteristics, firm characteristics, and the individual psychosocial outcomes of satisfaction, intentions to exit, and perceived fit. Hierarchical regression analyses indicated higher satisfaction, lower intentions to exit, and higher perceived fit for owner-managers whose dominant decision-making style complemented the levels of formalization in their firms.The results suggested that owner-managers with intuitive decision-making styles were better fitted to the demands corresponding to less structured firm environments than their analytic counterparts.
    Date: 2004–04
  5. By: JULIO DE CASTRO (Instituto de Empresa)
    Abstract: (WP 10/04 Clave pdf) This paper examines the relationship between cognitive fit/misfit, and burnout, satisfaction, and intentions to exit the firm in entrepreneurs. Given the disordinal (crossed) nature of the significant interactions, the results indicate when cognitive misfit in entrepreneurs (based on their dominant decision-making approach) is more likely lead them to experience negative outcomes, given the nature and degree of firm structure.
    Date: 2004–04
  6. By: Chrysostomos Mantzavinos (Faculty of Economics and Business, Witten/Herdecke University)
    Abstract: The purpose of this article is to provide an alternative antitrust model to the mainstream model that is used in competition policy. I call it the Institutional-Evolutionary Antitrust Model. In order to construct an antitrust model one needs both empirical knowledge and considerations of how to adequately deal with norms. The analysis of competition as an evolutionary process that unfolds within legal rules provides the empirical foundation for the model. The development of the normative dimension involves the elaboration of a comparative approach. Building on those foundations the main features of the Institutional-Evolutionary Model are sketched out and it is shown that its use leads to systematically different outcomes and conclusions than the dominant antitrust ideals.
    Keywords: Antitrust, Competition, Competition Policy, Evolutionary Process, Institutions
  7. By: Paul J. Zak (Claremont Graduate University)
    Abstract: The traditional view in economics is that individuals respond to incentives, but absent strong incentives to the contrary selfishness prevails. Moreover, this “greed is good” approach is deemed “rational” behavior. Nevertheless, in daily interactions and in numerous laboratory studies, a high degree of cooperative behavior prevails—even among strangers. A possible explanation for the substantial amount of “irrational” behavior observed in markets (and elsewhere) is that humans are a highly social species and to an extent value what other humans think of them. This behavior can be termed trustworthiness—cooperating when someone places trust in us. I also analyze the cross-country evidence for environments that produce high or low trust. A number of recent experiments from my lab have demonstrated that the neuroactive hormone oxytocin facilitates trust between strangers, and appears to induce trustworthiness. In rodents, oxytocin has been associated with maternal bonding, pro-social behaviors, and in some species long-term pair bonds, but prior to the work reviewed here, the behavioral effects of oxytocin in humans had not been studied. This presentation discusses the neurobiology of positive social behaviors and how these are facilitated by oxytocin. My experiments show that positive social signals cause oxytocin to be released by the brain, producing an unconscious attachment to a stranger. I also discuss recent research that manipulates oxytocin levels, and functional brain imaging research on trust.
    Keywords: Oxytocin, social capital, neuroeconomics, development, experiments
    JEL: C9
    Date: 2005–07–21
  8. By: David L. Dickinson
    Abstract: In bargaining environments with uncertain impasse outcomes (e.g., litigation or labor strike outcomes), there is an identification problem that confounds data interpretation. In such environments, the minimally acceptable settlement value from a risk-averse (risk-loving) but unbiased bargainer is empirically indistinguishable from what one could get with risk-neutrality and pessimism (optimism). This paper reports data from a controlled bargaining experiment where risk preferences and beliefs are both measured in order to assess their relative importance in bargaining outcomes. The average lab subject is risk-averse, yet optimistic, which is consistent with existing studies that examine each in isolation. I also find that the effects of optimism dominate those of risk-aversion. Optimistic bargainers are significantly more likely to dispute and have aggressive final bargaining positions. Dispute rates are not statistically affected by risk preferences, but there is some evidence that risk aversion leads to less aggressive bargaining positions and lower payoff outcomes. A key implication is that increased settlement rates are more likely achieved by minimizing impasse uncertainty (to limit the potential for optimism) rather than maximizing uncertainty (to weaken the reservation point of risk-averse bargainers), as has been argued in the dispute resolution literature.
    Keywords: risk preference, optimism, bargaining, experiments
    JEL: C91 D81 D84
    Date: 2005

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