nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2005‒12‒09
thirteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Localized Learning Revisited By Anders Malmberg; Peter Maskell
  2. Institutions, Institutional Change, Language, and Searle By Dolfsma, W.; McMaster, R.; Finch, J.
  3. Reflexivity in Teams: A Measure and Correlates By Schippers, M.; Hartog, D.N. den; Koopman, P.L.
  4. The Psychological Benefits of Superstitious Rituals in Top Sport By Schippers, M.; Lange, P.A.M. van
  5. Job-worker Mismatch and Cognitive Decline By Grip,Andries,de; Bosma,Hans; Willems,Dick; Boxtel,Martin,van
  6. Coordination in Networks Formation: Experimental Evidence on Learning and Salience By Matteo Galizzi; Michele Bernasconi
  7. Fairness and the labour market; A theoretical and empirical analysis of layoffs in Germany By Pfeifer, Christian
  8. Choosing Opponents in Prisoners' Dilemma: An Evolutionary Analysis By Engseld, Peter; Bergh, Andreas
  9. The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems By William E. Encinosa III; Martin Gaynor; James B. Rebitzer
  10. The effect of precommitment and past-experience on insurance choices : an experimental study. By Thomas Papon
  11. Satisfaction in Choice as a Function of the Number of Alternatives: When "Goods Satiate" but "Bads Escalate" By Elena Reutskaja; Robin Hogarth
  12. Preferences, Choices, and Satisfaction in a Bargaining Game By Angela Amborino; Alessandro Lanteri; Marco Novarese
  13. Regret in Dynamic Decision Problems By Daniel Krähmer; Rebecca Stone

  1. By: Anders Malmberg; Peter Maskell
    Abstract: The concept of localized learning outlines how local conditions and spatial proximity between actors enable the formation of distinctive cognitive repertoires and influence the generation and selection of skills, processes and products within a field of knowledge or activity. The localized learning argument consists of two distinct yet related elements. One has to do with localized capabilities that enhance learning while the other concerns the possible benefits that firms with similar or related activities may accrue by locating in spatial proximity of one another. In this essay, we disentangle these two inherent elements of the concept, review some of the critique that has been raised against it, and sort out some misunderstandings that we think are attached to its present use.
    Date: 2005
  2. By: Dolfsma, W.; McMaster, R.; Finch, J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper endeavours to contribute to the growing institutionalist literature on the conception of the institution. We draw from John Davis? (2003) analysis of the individual in posing the questions: what differentiates institutions, and how can changing institutions be identified through time and space? Our analysis develops Searle?s (2005) argument that language is the fundamental institution. Searle?s argument is rather functionalist, however, and does not convey the ambiguity of language. Moreover, language and understanding, surely when related to most institutions in real life, delineate and circumscribe a community. A community cannot function without a common language, as Searle argued, but language also constitutes a community?s boundaries, and excludes unsavoury outsiders or alien topics for discussion. This is how institutions both constrain and enable. By drawing upon Luhmann?s (1995) systems analysis and notions of discourse, communication, and text we aim to augment the existing analytical role ascribed to habit in institutional analysis. Thus, we submit, understanding institutional change and thus durability may progress.
    Keywords: Institutions;Institutional Change;Language;Discourse Re-Indentification;
    Date: 2005–11–29
  3. By: Schippers, M.; Hartog, D.N. den; Koopman, P.L. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Reflexivity -the extent to which teams reflect upon and modify their functioning- has been identified as a possible key factor in the effectiveness of work teams. The aim of the present study was to develop a questionnaire to measure (aspects of) reflexivity, with a focus on team reflection. The questionnaire was tested in two different samples, namely a first sample of 59 teams from fourteen different organizations (Study 1) and a confirmation sample of 59 school management teams (Study 2). In both samples, two factors of reflection were identified. These were labeled evaluation/learning and discussing processes/principles. Scale statistics showed good psychometric properties for the scales in both studies. We conclude that the scales form a parsimonious and valid instrument to assess reflexivity in teams.
    Keywords: Teams;Reflexivity;Team Learning;Questionnaire;
    Date: 2005–11–29
  4. By: Schippers, M.; Lange, P.A.M. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The current research addresses the psychological benefits of superstitious rituals in top sport, examining the circumstances under which top-class sportsmen are especially committed to enacting rituals prior to a game (ritual commitment). Consistent with hypotheses, findings revealed that ritual commitment is greater when (a) uncertainty is high rather than low, and (b) the importance of the game is high rather than low. Complementary analyses revealed that the state of psychological tension mediated both the effect of importance and uncertainty on ritual commitment. Moreover, players with an external locus of control exhibited greater levels of ritual commitment than players with an internal locus of control. The results are discussed in terms of the tension-regulation function of superstitious rituals in top sport.
    Keywords: Superstition;Top Sport;Ritual Commitment;Psychological Tension;Locus of Control;
    Date: 2005–11–29
  5. By: Grip,Andries,de; Bosma,Hans; Willems,Dick; Boxtel,Martin,van (ROA rm)
    Abstract: We use longitudinal test data on various aspects of persons’ cognitive abilities to analyze whether overeducated workers are more vulnerable to cognitive decline, and undereducated workers are less vulnerable. We find that the job-worker mismatch induces cognitive decline with respect to immediate and delayed recall abilities, cognitive flexibility and verbal fluency. Our findings indicate that, to some extent, it is the adjustment of the ability level of the overeducated and undereducated workers that adjusts initial mismatch. This adds to the relevance of preventing overeducation, and shows that being employed above one’s level of education contributes to workers’ cognitive resilience.
    Keywords: education, training and the labour market;
    Date: 2005
  6. By: Matteo Galizzi (Università di Brescia); Michele Bernasconi (Università dell’Insubria)
    Abstract: We present experiments on repeated non-cooperative network formation games, based on Bala and Goyal (2000). We treat the one-way and the two-ways flow models, each for high and low link costs. The models show both multiple equilibria and coordination problems. We conduct experiments under various conditions which control for salient labeling and learning dynamics. Contrary to previous experiments, we find that coordination on non-empty Strict Nash equilibria is not an easy task for subjects to achieve, even in the mono-directional model where the Strict Nash equilibria is a wheel. We find that salience significantly helps coordination, but only when subjects are pre-instructed to think of the wheel network as a reasonable way to play the networking game. Evidence on learning behavior provides support for subjects choosing strategies consistent with various learning rules, which include as the main ones Reinforcement and Fictitious Play.
    Keywords: Experiments, Networks, Behavioral game theory, Salience, Learning dynamics
    JEL: C92 C72 D83
    Date: 2005–09
  7. By: Pfeifer, Christian
    Abstract: In recent years layoffs have increasingly become the focus of public attention. So far, however, there has been no representative study for Germany of how far and under what conditions layoffs are accepted by the population - in other words by people who are not immediately affected. Principles of distributive justice, rules of procedural justice, attribution theory, and psychological contract theory form the framework of the analysis. On this basis, hypotheses are generated, which are tested empirically in a telephone survey conducted among East and West Germans in 2004 (n=3039).
    Keywords: distributive justice, downsizing, fairness, layoffs, procedural justice
    JEL: D63 J63 M12 M51
    Date: 2005–11
  8. By: Engseld, Peter (Department of Economics, Lund University); Bergh, Andreas (Department of Economics, Lund University)
    Abstract: We analyze a cooperation game in an evolutionary environment. Agents make noisy observations of opponents’ propensity to cooperate, called reputation, and form preferences over opponents based on their reputation. A game takes place when two agents agree to play. Pareto optimal cooperation is evolutionarily stable when reputation perfectly reflects propensity to cooperate. With some reputation noise, there will be at least some cooperation. Individual concern for reputation results in a seemingly altruistic behavior. The degree of cooperation is decreasing in anonymity. If reputation is noisy enough, there is no cooperation in equilibrium.
    Keywords: Cooperation; Conditioned Strategies; Prisoners Dilemma; Signaling; Reputation; Altruism; Evolutionary Equilibrium
    JEL: C70 C72
    Date: 2005–11–29
  9. By: William E. Encinosa III (Agency for Health Care Research and Quality); Martin Gaynor (Carnegie Mellon University, NBER and Leverhulme Centre for Market and Public Organisation); James B. Rebitzer (Case Western Reserve University, NBER, Levy Institute and IZA Bonn)
    Abstract: When working together, people engage in non-contractual and informal interactions that constitute the sociology of the group. We use behavioral models and a unique survey of medical groups to analyze how group sociology influences physician incentive pay and behavior. We conclude that informal interactions among group members influence pay practices and behaviors, but the relationship is complex. No single aspect of group sociology is entirely consistent with all the patterns in the data. Factors emphasized in the economic theory of agency, notably risk aversion, also shape pay policies but these factors cannot account for all the observed empirical relationships.
    Keywords: incentives, social norms, physicians
    JEL: D21 J40 J41
    Date: 2005–11
  10. By: Thomas Papon (EUREQua)
    Abstract: This paper reports results from an experimental study that investigates insurance behaviours in low-probability high-loss risk situations. This study reveals that insurance behaviours may depend on the individual prior experience towards risk. It may also depend on the duration of the commitment period, namely the period during which individuals commit themselves to maintain the same insurance decision. Non-additive decision models such as Dual Theory and Cumulative Prospect Theory seem to have a higher descriptive power than Expected Utility Theory when explaining subjects' behaviours. This paper presents a direct experimental test of the prediction of Myopic Prospect Theory relative to insurance demand. This study is also designed to test the significance of gambler's fallacy and availability bias in the insurance decision process. These theoretical concepts help to understand many behaviours commonly observed in reality but which remain unexplained within the E.U framework. In particular, this paper provides new explanations about the puzzling fact that people usually fail to obtain insurance against disaster-type risks such as natural disasters, even when premiums are close to actuarially fair levels. According to our experimental results, the deficiency of insurance demand for natural disasters may be due to the lack of individual prior experience towards such risks ; as well as the relatively short commitment period of insurance policies (usually one fiscal year) compared with the empirical frequency of major natural hazards (centennial and even more).
    Keywords: Insurance demand, Low-probability high-consequence risks, heuristics and bias in risk perception, experimental methodology, Cumulative Prospect Theory, Dual Theory.
    JEL: C90 C91 D1 D81 D84 G22 M31
    Date: 2004–09
  11. By: Elena Reutskaja; Robin Hogarth
    Abstract: People often prefer to choose from small as opposed to large sets of alternatives. We propose that satisfaction from choice is an inverted U-shaped function of the number of alternatives. This proposition is derived theoretically by considering the benefits and costs of different numbers of alternatives and is supported by three experimental studies. Because, in large sets, the perceptual costs of processing alternatives varying in shape are greater than for alternatives varying in color, we also predict and demonstrate greater satisfaction from choosing from the latter. We further show that the "satisfaction function" is affected by gender and cultural background.
    Keywords: Consumer choice, perception of variety, tyranny of choice, visual perception, cultural differences
    JEL: D12 M10 M31
    Date: 2005–11
  12. By: Angela Amborino (Università di Torino); Alessandro Lanteri (Erasmus Institute for Philosophy & Economics – Erasmus University Rotterdam); Marco Novarese (Centre for Cognitive Economics - Università Amedeo Avogadro)
    Abstract: The first aim of this contribution is to study the role of cheap talk in the determination of a focal point in a bargaining game. A general discussion was therefore conducted before the bargaining, followed by a poll in which players must find a common solution to an abstract bargaining problem. On this issue, our conclusions are negative: no signifcant effect seems to emerge. This is not entirely unexpected; since the common discussion and the voting procedure staged the confrontation of different viewpoints, there has been no unanimous result. On the other hand, we can conclude that knowing individual preferences may help predicting towards which solutions players will converge, at least in a social setting, and understanding their satisfaction. These considerations refer to variables traditionally left out of economic analysis, which focuses instead on the final payoff and not on its relation to preferences or satisfaction, which are deemed non-measurable. On the contrary, this work has shown that consistent data emerge by simply asking players to express preferences and satisfaction. This makes us confident in formulating new hypotheses aiming at uncovering and understanding individual behaviour. Even if our results do not allow drawing strong final conclusions, they point out new possible answers, new ideas and topics for discussion.
    Keywords: bargaining, cheap-talk, expectations, preferences, satisfaction, cognitive economics
    JEL: C78 C90
    Date: 2005–12–02
  13. By: Daniel Krähmer (Freie Universität Berlin, Institut für Wirtschaftstheorie, Boltzmannstr. 20, 14195 Berlin, Germany, +49-(0)30-83855223,; Rebecca Stone (ELSE - Department of Economics, University College London, Gower Street, London WC1E 6BT, UK, +44-(0)20-7679 5894,
    Abstract: The paper proposes a framework to extend regret theory to dynamic contexts. The key idea is to conceive of a dynamic decision problem with regret as an intra-personal game in which the agent forms conjectures about the behaviour of the various counterfactual selves that he could have been. We derive behavioural implications in situations in which payoffs are correlated across either time or contingencies. In the first case, regret might lead to excess conservatism or a tendency to make up for missed opportunities. In the second case, behaviour is shaped by the agent’s self-conception. We relate our results to empirical evidence.
    Keywords: Regret, Counterfactual Reasoning, Reference Dependence, Information Aversion
    JEL: C72 D11 D81
    Date: 2005–07

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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