nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒09‒11
eight papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Tom Sawyer and the construction of value By Dan Ariely; George Loewenstein; Drazen Prelec
  2. Large stakes and big mistakes By Dan Ariely; Uri Gneezy; George Loewenstein; Nina Mazar
  3. Conventions for Implementing Conventions An Evolutionary and Experimental Analysis By Susanne Büchner; Werner Güth; Luis M. Miller
  4. Beliefs and trust : an experiment By Vyrastekova,Jana; Garikipati,Supriya
  5. What do People Value when they Negotiate? Mapping the Domain of Subjective Value in Negotiation By Curhan, Jared R.; Elfenbein, Hillary Anger; Xu, Heng
  6. The Grip of History and the Scope for Novelty: Some Results and Open Questions on Path Dependence in Economic Processes By Carolina Castaldi; Giovanni Dosi
  7. Firms as Realizations of Entrepreneurial Visions By U. Witt
  8. What Buys Happiness? Analyzing Trends in Subjective Well-Being in 15 European Countries, 1973-2002 By Christian Bjørnskov; Nabanita Datta Gupta; Peder J. Pedersen

  1. By: Dan Ariely; George Loewenstein; Drazen Prelec
    Abstract: This paper challenges the common assumption that economic agents know their tastes. After reviewing previous research showing that valuation of ordinary products and experiences can be manipulated by non-normative cues, we present three studies showing that in some cases people do not even have a pre-existing sense of whether an experience is good or bad – even when they have experienced a sample of it.
    Keywords: Microeconomics
    Date: 2005
  2. By: Dan Ariely; Uri Gneezy; George Loewenstein; Nina Mazar
    Abstract: Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on performance, which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases produce supra-optimal motivation, resulting in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments at MIT, the University of Chicago, and rural India. Subjects in our experiment worked on different tasks and received performance-contingent payments that varied in amount from small to large relative to their typical levels of pay. With some important exceptions, we observed that high reward levels can have detrimental effects on performance.
    Keywords: Microeconomics
    Date: 2005
  3. By: Susanne Büchner; Werner Güth; Luis M. Miller
    Abstract: Conventions are interpreted in the narrow sense of coordinated equilibrium selection, i.e. a behavioral convention tells all players in a game with multiple strict equilibria which strict equilibrium to play. What we are interested in are more realistic environments where coordination takes place before learning about the games to be played. Here coordination aims at a normative convention, i.e. a principle of equilibrium selection, which selects a strict equilibrium for all games with multiple equilibria. In a subclass class of 2x2-bimatrix games with two strict equilibria we analyze the evolutionary stability of various normative conventions. In our experiment, we allow participants to first coordinate on a normative convention before playing various games. Agents in different treatments do this behind a complete (they know neither their role nor the game parameters), a partial (they know either their role or the game parameters) veil of ignorance, or with no ignorance (they know their role and the game parameters).
    Keywords: coordination games, conventions, experimental economics, evolutionary stability
    JEL: C72 C91
    Date: 2005–08
  4. By: Vyrastekova,Jana; Garikipati,Supriya (Tilburg University, Center for Economic Research)
    Abstract: In this paper, we address the concept of trust by combining (i) the self-reported trust and belief in trustworthiness of others from a general unpaid questionnaire, (ii) choices made in a social valuation task designed to measure subjects' distributional preferences, (iii) strategies submitted in the trust game in both roles of the game, and (iv) subjects' beliefs about the strategies of their co-player submitted in the form of probability distributions nad incentivized by the quadratic scoring rule. We show that trust can be expressed as a belief in positive reciprocity of the trustee, and answers to general questionnaire lack predictive power. Distributional preferences also play a role in the decision to trust in that they affect the subjects' beliefs about the positive reciprocity of others. Cooperative subjects are more optimistic in their beliefs and therefore trust more.
    Keywords: experimental economics;trust;beliefs;distributional preferences
    JEL: C72 C91
    Date: 2005
  5. By: Curhan, Jared R.; Elfenbein, Hillary Anger; Xu, Heng
    Abstract: Four studies provide support for the development and validation of a framework for understanding the range of social psychological outcomes valued subjectively as consequences of negotiations. Study 1 inductively elicited and coded elements of subjective value among students, community members, and negotiation practitioners, revealing 20 categories that negotiation theorists in Study 2 sorted to reveal four underlying dimensions: Feelings about Instrumental Outcomes, the Self, Process, and Relationship. Study 3 proposed a new Subjective Value Inventory (SVI) questionnaire and confirmed its 4-factor structure, and Study 4 presents convergent, discriminant, and predictive validity data for this SVI. Results suggest the SVI is a promising tool to systematize and encourage research on the subjective outcomes of negotiation.
    Keywords: Negotiation, social psychological outcomes, subjective value,
    Date: 2005–07–29
  6. By: Carolina Castaldi; Giovanni Dosi
    Abstract: -
    Keywords: Path dependence, irreversibility, increasing returns, learning, lock-in.
  7. By: U. Witt
    Abstract: In the debate on why firms exist, the question of who chooses between firms and markets and on what basis is rarely addressed. This paper argues that the choice is a core element of the entrepreneurial pursuit of visions or conceptions of business opportunities. To successfully organize resources into the envisioned businesses – be it via firms or markets – resource owners must be coordinated on the entrepreneur’s conception of the business and be motivated to perform properly. To solve the dual problem, the organizational form of the firm offers the entrepreneur unique advantages not feasible under the organizational form of markets.
    Date: 2005–09
  8. By: Christian Bjørnskov (Aarhus School of Business); Nabanita Datta Gupta (Danish National Institute of Social Research and IZA Bonn); Peder J. Pedersen (University of Aarhus, Danish National Institute of Social Research and IZA Bonn)
    Abstract: Trends in life satisfaction are examined across 15 European countries employing a modified version of Kendall’s Tau. Analyses show that GDP growth relative to growth in the preceding period is a significant determinant of the trends; the same holds for the growth in life expectancy while the contemporaneous growth in the current account balance exerts a positive influence. Relative unemployment growth becomes significant when interacted with a measure of the long-run political ideology of the median voter. The effects of relative GDP growth vary with the political ideology variable.
    Keywords: subjective well-being, economic factors
    JEL: I31
    Date: 2005–07

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