nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒10‒15
eight papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. On the Origin of Shared Beliefs (and Corporate Culture) By Van den Steen, Eric
  2. Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics By Teck H. Ho; Noah Lim; Colin Camerer
  3. Trust, reciprocity, and contract enforcement : experiments on satisfaction guaranteed By Andreoni,J.
  4. Revealing preferences for fairness in ultimatum bargaining By Andreoni,J.; Castillo,M.; Petrie,R.
  5. Beauty, gender and stereotypes : evidence from laboratory experiments By Andreoni,J.; Petrie,R.
  6. Demand Forecasting: Evidence-based Methods By J. Scott Armstrong; Kesten C. Green
  8. Bounding the Impact of Market Experience on Rationality: Evidence from a Field Experiment with Imperfect Compliance By List, John; Millimet, Daniel

  1. By: Van den Steen, Eric
    Abstract: This paper shows why members of an organization often share similar beliefs. I argue that there are two mechanisms. First, when performance depends on making correct decisions, people prefer to work with others who share their beliefs and assumptions, since such others 'will do the right thing'. Second, beliefs will converge over time through shared learning. While such homogeneity reduces agency problems, it does so at a cost. I show that, from an outsider's perspective, firms invest on average too much in homogeneity. The theory further predicts that homogeneity will be strongest in successful and older firms where employees make important decisions. Within a firm, homogeneity will be stronger among more important employees. Homogeneity will also be path-dependent, making managers more selective on early hires. Since shared beliefs are an important aspect of corporate culture (Schein 1985, Kotter and Heskett 1992), I finally show that the model matches some observations on corporate culture, such as the influence of a manager on her firm's culture and the persistence of culture in the face of turnover. A fundamental difference from earlier economic theories of corporate culture is that I show that culture, instead of being created for its own good, can be a side-effect of other purposeful actions. As a consequence, there can be too much culture in firms.
    Keywords: homogeneity, shared beliefs, differing priors, corporate culture,
    Date: 2005–09–23
  2. By: Teck H. Ho; Noah Lim; Colin Camerer
    Date: 2005–10–06
  3. By: Andreoni,J. (University of Wisconsin-Madison, Social Systems Research Institute)
    Date: 2005
  4. By: Andreoni,J.; Castillo,M.; Petrie,R. (University of Wisconsin-Madison, Social Systems Research Institute)
    Date: 2004
  5. By: Andreoni,J.; Petrie,R. (University of Wisconsin-Madison, Social Systems Research Institute)
    Date: 2004
  6. By: J. Scott Armstrong; Kesten C. Green
    Abstract: We looked at evidence from comparative empirical studies to identify methods that can be useful for predicting demand in various situations and to warn against methods that should not be used. In general, use structured methods and avoid intuition, unstructured meetings, focus groups, and data mining. In situations where there are sufficient data, use quantitative methods including extrapolation, quantitative analogies, rule-based forecasting, and causal methods. Otherwise, use methods that structure judgement including surveys of intentions and expectations, judgmental bootstrapping, structured analogies, and simulated interaction. Managers' domain knowledge should be incorporated into statistical forecasts. Methods for combining forecasts, including Delphi and prediction markets, improve accuracy. We provide guidelines for the effective use of forecasts, including such procedures as scenarios. Few organizations use many of the methods described in this paper. Thus, there are opportunities to improve efficiency by adopting these forecasting practices.
    Keywords: Accuracy, expertise, forecasting, judgement, marketing.
    JEL: C53 M30 M31
    Date: 2005–09
  7. By: Håkansson, Peter (European Institute of Japanese Studies); Sjöholm, Fredrik (European Institute of Japanese Studies)
    Abstract: Bosnia and Herzegovina has experienced a turbulent post-independence transition. It can be argued that the level of trust is likely to have been negatively affected by this turbulence and that it is important to restore trust to achieve sustainable political and economic development. This paper looks at trust in Bosnia and Herzegovina and puts a special focus on the role of ethnicity. We find generalized trust to be low in Bosnia and Herzegovina and it seems to have declined in recent years. Moreover, generalized trust is negatively affected by the degree of ethnic heterogeneity in the region. However, a further and more detailed examination of trust reveals a more complex relationship between ethnicity and trust: people tend to show low levels of trust in all other people irrespective of their ethnic belongings. We argue that ethnic distribution might capture some other regional specific characteristics that also affect the level of trust. One possibility is that ethnically heterogeneous regions tended to be severely affected by the war and that this has negatively affected the level of trust towards all people outside of a person’s family.
    Keywords: Trust; Social Capital; Ethnicity; Southeast Europe; Bosnia and Herzegovina
    JEL: O17 P20 Z13
    Date: 2005–10–06
  8. By: List, John (U of Chicago); Millimet, Daniel (SMU)
    Abstract: While laboratory experiments documenting some level of irrational behavior are now commonplace, explorations into whether such irrationalities exist in the field are rare. Equally as scarce are studies that explore the influence of market experience on the level and evolution of irrationality. Using field data gathered from more than 380 subjects of age 6-18, we investigate these issues using Generalized Axiom of Revealed Preference experiments. To circumvent the endogeneity of market experience, we exogenously induce such experience through the design of a field experiment. Compliance with the experiment was not perfect, however. We are, nevertheless, able to bound the average treatment effect using the sharp bounds derived in Balke and Pearl [Journal of the American Economic Association, 1997, 92, 1171-1776]. Empirical results indicate that deviations from rational behavior exist in the field, but that market experience is a significant contributor to the development of rational choice.
    Keywords: rationality, market learning, field experiment, imperfect compliance, treatment effects, nonparametric bounds, instrumental variables, intent-to-treat
    JEL: C14 C93
    Date: 2005–10

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.
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