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on Cognitive and Behavioural Economics |
| By: | Wilhelm J. Meester; Pieter H. Pellenbarg |
| Abstract: | Empirical studies on firm location and migration show that actual location decisions are often based on incomplete and inaccurate information about potential locations. Decision makers seem to be guided by their subjective interpretation of reality, not so much by reality itself. Twenty years ago this fundamental idea was the starting point for a research program of the Faculty of Spatial Sciences of the University of Groningen that focussed on the subjective rating of locations by Dutch entrepreneurs. The first picture of this subjective valuation, based on an extensive postal enquiry, was taken in 1983 (Pellenbarg 1985) and repeated by an identical project in 1993 (Meester 1999). A third enquiry, again identical to the first and second, was held in 2003. On the basis of the three projects a true comparison can now be made of the mental maps of Dutch entrepreneurs in the years 1983, 1993, and 2003. This paper describes and analyses the three mental maps. Moreover, the data are used in a factor analysis, to try to establish the basic influences that form the entrepreneurial mental maps. It shows that the basic shape of the mental maps (a dome with centrally located Utrecht as a summit) did not change much in twenty years. A closer look however, reveals that the dome is flattening. In the first period (1983-1993) we witness a decrease of appreciation of the locations on its West flank (the ‘old’ Randstad) while in the second period (1993-2003) this decrease extends to the Eastern parts of the Randstad. The factor analysis suggests that three fundamental dimensions determine the entrepreneurs’ judgments: potency, activity, and evaluation. Potency may be understood as centrality of location. Activity is correlated to agglomeration. It is hypothesized that landscape and culture determine the evaluative dimension. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p556&r=cbe |
| By: | Marco LiCalzi (University of Venice, Italy) |
| Abstract: | This paper studies a target-based procedure to rank lotteries that is normatively and observationally equivalent to the expected utility model. In view of this equivalence, the traditional utility-based language for decision making may be substituted with an alternative target-based language. Switching language may have significant modelling consequences. To exemplify, we contrast the utility-based viewpoint of prospect theory against the target-based viewpoint and provide an explanation of Allais’ paradox based on context dependence instead of distorted probabilities. |
| Keywords: | expected utility, prospect theory, target-based decisions, choice anomalies, benchmarking |
| JEL: | C7 D8 |
| Date: | 2005–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0509002&r=cbe |
| By: | Franz Tödtling; Patrick Lehner; Michaela Trippl |
| Abstract: | Knowledge has become a key source of competitiveness for advanced regions and nations, indicating a transformation of capitalism towards “knowledge-driven economies“. Know ledge intensive sectors in production and in services have a lead in this respect, they can be considered as role models for the future. The innovation process, the mechanisms of knowledge exchange and the respective linkages in those industries differ quite markedly from those in other sectors. Clustering and local knowledge spillovers are frequently stated phenomena, although it is still unclear to what extent regional networks and collective learning are indeed relevant and what the mechanisms of knowledge flows are. The aim of the paper is to examine in a differentiated way the character of the innovation process and the ype of interactions in those industries, in order to find out how strongly they are related to regional, national and international innovation systems. We will analyse the relevant types of actors, the respective mechanisms of knowledge exchange and the importance of collective learning and innovation. The paper will discuss relevant theoretical concepts and available evidence and it will be based on an empirical analysis for Austria. The data base is a recent firm survey which was carried out in the year 2003. From this analysis conclusions regarding the role of regional and other innovation systems for the development of knowledge-based industries will be drawn. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p167&r=cbe |
| By: | Michael Steiner |
| Abstract: | Clusters and networks have received renewed attention in recent years not only as a tool for regional development in general but as an institution of knowledge creation and diffusion between the knowledge infrastructure of a region and the firms within the clusters. They are therefore often regarded as geographically condensed forms of economic cooperation and knowledge exchange. The recent renaissance of interest in institutions as a factor shaping economic performance has therefore also implications for the creation and sustained existence of clusters and networks as a tool for knowledge management and as learning organisations within and across regions. This institutional perspective serves to identify additional factors influencing economic behaviour leading to cooperation. Different strands of institutional thinking –institutions as “social technologies” in the tradition of evolutionary economics, clusters as a form of Coase institution integrating positive external effects of technological knowledge, the importance of knowledge sharing in the context of the “New Institutional Economics” – emphasize that connectivity cannot be effectively coordinated by conventional markets. Clusters and networks are among the non-market devices by which firms seek to coordinate their activities with other firms and other knowledge-generating institutions. But it is also important to emphasize that clusters as coordinating institutions are not automatically just there but that they are the result of an evolving process shaped by policy activities and entrepreneurial behaviour responding to new challenges. Clusters as social technologies are co-evolving with new physical technologies and are therefore in constant need to change themselves. They can be regarded as an answer to the problems of achieving agreement and coordination in a context where there is a collective interest. They combine different additional elements that are important for regional development and economic growth. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p612&r=cbe |
| By: | H. Gürak |
| Abstract: | Capitalism’s inherent feature is “destructive creation”, said Marx. Decades later, in a similar fashion, Schumpeter stated that “Capitalist system incessantly revolutionizes the economic structure FROM WITHIN”. What are those dynamic forces causing the incessant changes in an economy? According to P. Drucker, A. Toffler, Baumol-McLennan and many others it is the productivity increases (growth) in general. P. Romer provides a more specific reply: technological change or the growth of new ideas. This paper goes deeper to the core and claims that all technological changes are produced by the intellectual labor of human mind. In other words, knowledge on production, i.e., technology or productive knowledge provides the premises and gives occasion to a dynamic and uninterrupted growth process, but technology itself is the product of mental labor. There is practically no limit to growth in the long-run since there is no limit to human creativity. The creative intellectual human labor is capable of incessantly introducing new technologies which transform (rearrange) the natural resources into so called capital and consumer goods. As long as human intellectual labor can produce new ideas, the growth will be assured and sustained, as well as, quite likely, cyclical. |
| Keywords: | Creative intelligence, mental labor, growth, technology, technological change. |
| JEL: | C6 D5 D9 |
| Date: | 2005–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpge:0508001&r=cbe |
| By: | George Korres; Emmanuel Marmaras; George Tsobanoglou |
| Abstract: | The importance of diffusion of technology for economic growth has been emphasised by economic literature. Much of the recent work on economic growth can be viewed as refining the basic economic insights of classical economists. The recent debate on the determinants of output growth has concentrated mainly on the role of knowledge, typically produced by a specific sector of the economy, and furthermore in the role of entrepreneurship and the implications on economic growth. This paper attempts to examine the role of entrepreneurship, and those of innovation activities (technical change, research and development and diffusion of technology) and the effects of output growth, according to the Schumpeterian lines. Following on the Schumpeterian tradition, this paper starts from the recognition that there are two main patterns of innovations: the first one is the creative destruction pattern and the second one is a creative accumulation pattern. Also, it emphasizes the role of entrepreneurship and the impact of the diffusion of technology in the inter-country and international economic contexts using some of the empirical implementation of epidemic, probit analysis and moreover from technological substitution models. Key Words: Entrepreneurship, Innovation Activities, Diffusion, Modernization, Competitiveness, Schumperer. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa04p169&r=cbe |
| By: | Nicola Dimitri |
| Abstract: | In a stimulating paper Piccione and Rubinstein (1997) argued how a decision maker could undertake dynamically inconsistent choices when, in an extensive form decision problem, she exhibits a particular type of imperfect recall named absentmindedness. Such imperfection obtains whenever an information set includes histories along the same decision path. Starting from work focusing on the Absentminded Driver example, and independently developed by Segal (2000) and Dimitri (1999), the main theorem of this paper provides a general result of dynamically consistent choices, valid for a large class of finite extensive form decision problems without nature. |
| JEL: | C72 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:455&r=cbe |
| By: | Nicola Dimitri |
| Abstract: | The paper shows that in a Prisoner’s Dilemma Knightian uncertainty, formalised by multiple priors, may entail cooperation at a generalised Nash Equilibrium. The main idea is that players may have an attitude towards uncertainty that depends upon their available strategies. In particular, if players anticipate to be sufficiently more optimistic when choosing to cooperate, than when defecting, then they may indeed cooperate. Though uncommon in economic modelling, choice-dependent uncertainty attitude formalises a behaviour which is well understood and widely accepted by cognitive psychologists, within the theory of Cognitive Dissonance. |
| Keywords: | Cooperation, Cognitive Dissonance, Equilibrium, Games, Uncertainty |
| JEL: | C72 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:457&r=cbe |
| By: | John Duffy (University of Pittsburgh); Tatiana Kornienko (University of Stirling) |
| Abstract: | We explore whether natural human competitiveness can be exploited to stimulate charitable giving in a controlled laboratory experiment involving three different treatments of a sequential ``dictator game.'' Without disclosing the actual amounts given and kept, in each period players are publicly ranked -- by the amount they give away, by the amount they keep for themselves, or spuriously. Our results are generally supportive of the hypothesis that competitive urges can encourage or frustrate altruistic behavior, depending on the competitive frame. We find some support for an alternative hypothesis that relative concerns are due to information-gathering rather than competition. |
| Keywords: | Dictator game, repeated decisions, charitable giving, altruistic behavior, competitive altruism, status, relative standing, tournaments, motivation, information-based relative concerns |
| JEL: | C91 D64 |
| Date: | 2005–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0508002&r=cbe |
| By: | Andreas Diekmann (ETH Zurich, Department of Social Sciences & Humanities); Wojtek Przepiorka (ETH Zurich, Department of Social Sciences & Humanities) |
| Abstract: | In online interactions in general, but especially in interactions between buyers and sellers on internet-auction platforms, the interacting parties must deal with trust and cooperation problems. Whether a rating system is able to foster trust and cooperation through reputation and without an external enforcer is an open question. We therefore explore through ecological analysis different buyer and seller strategies in terms of their success and their contribution to supporting or impeding trust and cooperation. In our agent-based model, the interaction between a buyer and a seller is defined by a one-shot trust game with a reputation mechanism. In every interaction, a buyer has complete information about a seller's past behavior. We find that cooperation evolves under two conditions even in the absence of an external sanctioning authority. On the one hand, some minimal fraction of buyers must make use of the sellers’ reputation in their buying strategies and, on the other hand, trustworthy sellers must be given opportunities to gain a good reputation through their cooperative behavior. Despite the apparent usefulness of the reputation mechanism, a small number of deceitful sellers are able to hold their ground. |
| Keywords: | trust game, reputation, agent-based simulation |
| JEL: | C9 |
| Date: | 2005–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0508005&r=cbe |
| By: | Luigi Bosco |
| Abstract: | Two recent research branches have called into question the hypothesis that the economic subject is rational and egoist, that is to say, that his/her sole objective is to maximize his/her own personal material interests. In the first place, the literature on the so-called happiness paradox has seriously put in question the given, widely diffused not only in the doctrine but also in the common perception, that a higher level of material welfare necessarily leads to a greater level of personal well being or happiness, on an individual level but even more so on a collective one. In the second place, experimental economics has produced a wealth of results that, vice versa, confirm something that the common sense and the personal observation of many had already suspected: economic subjects do not all and not always pursue exclusively the maximization of their own personal interests. This work critically discusses these two approaches and analyzes their interesting implications in economic policy |
| JEL: | I31 C92 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:459&r=cbe |
| By: | Camelia Kuhnen (Stanford Graduate School of Business); Brian Knutson (Stanford University Department of Psychology) |
| Abstract: | Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making. |
| Keywords: | neuroeconomics, neurofinance, brain, investing, emotions, affect |
| JEL: | D81 D83 D84 C91 G11 |
| Date: | 2005–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0509001&r=cbe |
| By: | Crescenzio GALLO (Università di Foggia-Dipartimento di Scienze Economiche, Matematiche e Statistiche) |
| Abstract: | The study of Artificial Neural Networks derives from first trials to translate in mathematical models the principles of biological “processing”. An Artificial Neural Network deals with generating, in the fastest times, an implicit and predictive model of the evolution of a system. In particular, it derives from experience its ability to be able to recognize some behaviours or situations and to “suggest” how to take them into account. This work illustrates an approach to the use of Artificial Neural Networks for Financial Modelling; we aim to explore the structural differences (and implications) between one- and multi- agent and population models. In one-population models, ANNs are involved as forecasting devices with wealth-maximizing agents (in which agents make decisions so as to achieve an utility maximization following non- linear models to do forecasting), while in multi-population models agents do not follow predetermined rules, but tend to create their own behavioural rules as market data are collected. In particular, it is important to analyze diversities between one-agent and one-population models; in fact, in building one-population model it is possible to illustrate the market equilibrium endogenously, which is not possible in one-agent model where all the environmental characteristics are taken as given and beyond the control of the single agent. A particular application we aim to study is the one regarding “customer profiling”, in which (based on personal and direct relationships) the “buying” behaviour of each customer can be defined, making use of behavioural inference models such as the ones offered by Artificial Neural Networks much better than traditional statistical methodologies. |
| Keywords: | Artificial Neural Network, Financial Modelling, Customer Profiling |
| JEL: | C9 |
| Date: | 2005–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0509002&r=cbe |
| By: | Richard Kum-yew Lai (Harvard Business School) |
| Abstract: | We posit a theory that runs counter to how conventional wisdom thinks about analyst bias, that it is the result of distorted incentives by “upstream” factors like the analysts’ employers. We suggest that analysts are also heavily influenced by the beliefs of investors downstream, the purported victims of analyst bias. We adapt Mullainathan-Shleifer’s theory of media bias to build a theory of how analysts cater to what investors believe. The theory also predicts that competition among analysts does not reduce their bias. We provide empirical support for this theory, using an enormous dataset built from over 6.5 million analyst estimates and 42.8 million observations on investor holdings, which we argue is a proxy for what investors’ beliefs. We use a simultaneous-equations model for estimation, with instruments to rule out alternative interpretations of the direction of causality. For additional robustness, we investigate the time series of analyst bias and heterogeneity in investor beliefs from 1987 through 2003. Dickey-Fuller tests show that both have unit roots, but we establish that cointegration holds. Further, we employ a vector- autoregressive model to show Granger-causality between the two. |
| Keywords: | Analyst bias, behavioral finance, media bias |
| JEL: | G10 G20 G39 |
| Date: | 2005–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0509004&r=cbe |