nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒01‒24
nineteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Common reasoning in games: a resolution of the paradoxes of ‘common knowledge of rationality’ By Robin Cubitt; Robert Sugden
  2. On Collective Intentions: Collective Action in Economics and Philosophy By Nicholas Bardsley
  3. Social Identity Strategies in Recent Economics By John B. Davis
  4. Social memory, social stress, and economic behaviors By Taiki Takahashi
  5. An Economic Anatomy of Culture: Attitudes and Behaviour in Inter- and Intra-National Ultimatum Game Experiments By Swee-Hoon Chuah; Robert Hoffmann; Martin Jones; Geoffrey Williams
  6. The Importance of Emotions for the Effectiveness of Social Punishment By Astrid Hopfensitz; Ernesto Reuben
  7. Ostracism and the Provision of a Public Good, Experimental Evidence By Frank P. Maier-Rigaud; Peter Martinsson; Gianandrea Staffiero
  8. Heterogeneous social preferences and the dynamics of free riding in public goods By Urs Fischbacher; Simon Gächter
  9. Inequality and Trust: Some Inequalities are More Harmful than Others By Gustavsson, Magnus; Jordahl, Henrik
  10. Altruism or Artefact? A Note on Dictator Game Giving By Nicholas Bardsley
  11. fairness: a survey By Ottone, Stefania
  12. Knowledge-based Entrepreneurship : The Organizational Side of Technology Commercialization By Ulrich Witt; Christian Zellner
  13. Cognition, Incentives, and Public Governance:Laboratory Federalism from the Organizational Viewpoint By Giampaolo Garzarelli
  14. Economists on Darwin’s theory of social evolution and human behaviour By A. Marciano
  15. The Difficult Reception of Rigorous Descriptive Social Science in the Law By Christoph Engel
  16. Psychological Factors in Job Satisfaction By Enzo VALENTINI
  17. Decision making over imprecise lotteries. By Yann Rébillé
  18. Vicarious Learning and Socio-Economic Transformation in Indian Trans-Himalaya: An evolutionary tale of economic development and policy making By K. Chandrasekhar; S. Bhaduri
  19. The Origin of Prospect Theory, or Testing the Intuitive Statistician By Floris Heukelom

  1. By: Robin Cubitt (School of Economics, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximization with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning in which the analogue of common knowledge is provability in common reason. We show that a range of standards of decision-theoretic practical rationality can be assumed without inconsistency to be provable in common reason in models of this class. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.
    JEL: C72
    Date: 2005–09
  2. By: Nicholas Bardsley (CeDEx, University of Nottingham)
    Abstract: Philosophers and economists write about collective action from distinct but related points of view. This paper aims to bridge these perspectives. Economists have been concerned with rationality in a strategic context. There, problems posed by “coordination games” seem to point to a form of rational action, “team thinking,” which is not individualistic. Philosophers’ analyses of collective intention, however, sometimes reduce collective action to a set of individually instrumental actions. They do not, therefore, capture the first person plural perspective characteristic of team thinking. Other analyses, problematically, depict intentions ranging over others’ actions. I offer an analysis of collective intention which avoids these problems. A collective intention aims only at causing an individual action, but its propositional content stipulates its mirroring in other minds.
    Keywords: intention, cooperation, collective action
    Date: 2005–01
  3. By: John B. Davis (Faculty of Economics and Econometrics, University of Amsterdam)
    Abstract: This paper reviews three distinct strategies in recent economics for using the concept of social identity in the explanation of individual behavior: Akerlof and Kranton’s neoclassical approach, Sen’s commitment approach, and Kirman et al.’s complexity approach. The primary focus is the multiple selves problem and the difficulties associated with failing to explain social identity and personal identity together. The argument of the paper is that too narrow a scope for reflexivity in individual decision-making renders the problem intractable, but that enlarging this scope makes it possible to explain personal and social identity together in connection with an individual behavior termed comparative value-objective evaluation. The paper concludes with recommendations for treating the individual objective function as a production function.
    Keywords: identity; personal identity; reflexivity; individual objective function
    JEL: D63 Z13
    Date: 2005–08–10
  4. By: Taiki Takahashi (Hokkaido University)
    Abstract: Social memory plays a pivotal role in social behaviors, from mating behaviors to cooperative behaviors based on reciprocal altruism. More specifically, social/person recognition memory is supposed, by behavioral-economic and game-theoretic analysis, to be required for tit- for-tat like cooperative behaviors to evolve under the N-person iterated prisonerfs dilemma game condition. Meanwhile, humans are known to show a social stress response during face-to-face social interactions, which might affect economic behaviors. Furthermore, it is known that there are individual differences in a social stress response, which might be reflected in individual differences in various types of economic behaviors, partially via different capacities of social memory. In the present study, we investigated the acute effects of social stress- induced free cortisol (a stress hormone) elevation on hippocampus- dependent social memory by utilizing the Trier social stress test (consisting of a public speech and a mental arithmetic task).We also examine the correlation between an economic behavior-related personality trait (i.e., general trust scale) and social stress-induced cortisol elevations. We found that (1) social stress acutely impairs social memory during social interaction and (2) interpersonal trust reduces social stress response. Together, interpersonal trust may modulate economic behaviors via stress hormonefs action on social cognition- related brain regions.
    Keywords: neuroeconomics, hormone, trust, game theory, social cognition, stress, social memory
    JEL: C9
    Date: 2005–12–27
  5. By: Swee-Hoon Chuah (Nottingham University Business School); Robert Hoffmann (Nottingham University Business School); Martin Jones (Department of Economic Studies, University of Dundee Nethergate); Geoffrey Williams (University of Nottingham Malaysia Campus)
    Abstract: The processes by which culture influences economic variables need to be exposed in order for the concept to be a useful tool for prediction and policy formulation. We investigate the attitudes and experimental behaviour of Malaysian and UK subjects to shed light on the nature of culture and the mechanisms by which it affects economic behaviour. Attitudinal dimensions of culture which significantly influence experimental game play are identified. This approach is offered towards a method to suitably quantify culture for economic analysis.
    Keywords: culture, ultimatum game, attitudes, world values survey, experiments
    JEL: C72 C91 D64 Z13
    Date: 2005–05
  6. By: Astrid Hopfensitz (Faculty of Economics and Econometrics, University of Amsterdam); Ernesto Reuben (Faculty of Economics and Econometrics, University of Amsterdam)
    Abstract: This paper experimentally explores how the enforcement of cooperative behavior in a social dilemma is facilitated through institutional as well as emotional mechanisms. Recent studies emphasize the importance of negatively valued emotions, such as anger, which motivate individuals to punish free riders. However, these types of emotions also trigger retaliatory behavior by the punished individuals. This makes the enforcement of a cooperative norm more costly. We show that in addition to anger, ‘social’ emotions like shame and guilt need to be present for punishment to be an effective deterrent of uncooperative actions. They play a key role by subduing the desire of punished individuals to retaliate and by motivating them to behave more cooperatively in the future.
    Keywords: Emotions; Punishment; Retaliation; Counter punishment; Social Norms; Fairness; Cooperation
    JEL: Z13 C92 D74 H41
    Date: 2005–08–02
  7. By: Frank P. Maier-Rigaud (Max Planck Institute for Research on Common Goods and Department of Economics, University of Bonn); Peter Martinsson (Department of Economics, Göteborg University); Gianandrea Staffiero (IESE Business School, University of Navarra)
    Abstract: We analyze the effects of ostracism on cooperation in a linear public good experiment. Our results show that introducing ostracism increases contributions. Despite reductions in group size due to ostracism, the net effect on earnings is positive and significant.
    Keywords: Experiment, Public Good, Ostracism
    JEL: C92 H41
    Date: 2005–11
  8. By: Urs Fischbacher; Simon Gächter
    Abstract: We provide a direct test of the role of social preferences in voluntary cooperation. We elicit individuals’ cooperation preference in one experiment and make a point prediction about the contribution to a repeated public good. This allows for a novel test as to whether there are "types" of players who behave consistently with their elicited preferences. We find clear-cut evidence for the existence of "types". People who express free rider preferences show the most systematic deviation from the predicted contributions, because they contribute in the first half of the experiment. We also show that the interaction of heterogeneous types explains a large part of the dynamics of free riding.
    Keywords: Public goods games, experiments, voluntary contributions, conditional cooperation, free riding
    JEL: C91 C72 H41 D64
    Date: 2005–12
  9. By: Gustavsson, Magnus (Department of Economics); Jordahl, Henrik (Department of Economics)
    Abstract: We present new evidence on the influence of income inequality on generalized trust. Using individual panel data from Swedish counties together with an instrumental variable strategy we find that differences in disposable income, and especially differences among people in the bottom half of the income distribution, are associated with lower trust. The relationship between income inequality and trust is particularly strong for people with a strong aversion against income differentials. We also find that the proportion of people born in a foreign country is negatively associated with trust.
    Keywords: trust; social capital; inequality
    JEL: C23 D31 Z13
    Date: 2006–01–17
  10. By: Nicholas Bardsley (CeDEx, Nottingham School of Economics, University of Nottingham)
    Abstract: Experimental dictator games have been used to explore unselfish behaviour. Evidence is presented here, however, that subjects’ generosity can be reversed by allowing them to take money from a partner. Dictator game giving therefore does not stem from orthodox social preferences. It can be interpreted plausibly as an artefact of experimentation. Alternatively the evaluation of an action depends on the composition of the choice set. Implications of these possibilities are explored for experimental methodology and charitable donations respectively. The artefact interpretation is empirically superior, and implies that researchers should investigate demand characteristics of experimental protocols.
    Keywords: altruism, artificiality, experiments, methodology
    JEL: C91 C70 D63 D64
    Date: 2005–04
  11. By: Ottone, Stefania
    Abstract: In this paper I provide an excursus, as complete as I could, of the most important theoretical and experimental works concerning fairness. The aim is twofold. First of all, I want to underline the importance of the role played by experimental economics in testing and improving models on this topic. Secondly, I want to mention some evidence that, even for fair-minded people, economic factors such as competition and costs, still matter in their decisional process.
    Date: 2006–01
  12. By: Ulrich Witt (Max-Planck-Institute Jena, Evolutionary Economics group); Christian Zellner (Ecole Polytechnique Fédérale de Lausanne, Chaire en Economie et Management de l'Innovation)
    Abstract: New knowledge with commercial potential is continually created in academic institutions. How is it turned into economically valuable businesses? This paper argues that the transfer is an entrepreneurial process. To understand this, the actions and the constraints characteristic for the entrepreneurial reshaping of the division of labor must be recognized. In the case of knowledge-based entrepreneurship, specific constraints result from the peculiarities of scientific knowledge – epitomized by constrasting tacit and encoded knowledge. Scientifically trained labor is required for transferring both forms of knowledge. However, the mode of transfer differs crucially and shapes the organizational form of commercializing new scientific knowledge.
    Keywords: entrepreneurship, knowledge transfer, technology commercialization
    JEL: L23 M13 O31 O32
    Date: 2005–05
  13. By: Giampaolo Garzarelli (University of Rome 'La Sapienza')
    Abstract: The Second Generation Theory (SGT) of fiscal federalism, which draws upon contemporary economic and industrial organization theory, hitherto focuses only on the negative benefits of public decentralization: the potentially superior ability to align perverse incentives vis-à-vis the centralized governance alternative. The SGT neglects the positive benefits of decentralization (mistake-ridden learning, flexibility, and option discovery), although the limitations of organization theory do not justify such neglect. By likening intergovernmental grants to incomplete contracts, this work shows that the SGT can include the laboratory nature of decentralization.
    Keywords: Experimentation, incomplete contracts, intergovernmental grants, learning, Second Generation Theory of fiscal federalism.
    JEL: D6 D7 H
    Date: 2005–12–29
  14. By: A. Marciano
    Abstract: The purpose of this article is to analyse the way economists interested in social and economic evolution cite, mention or refer to Darwin. We focus on the attitude of economists towards Darwin’s theory of social evolution – an issue he considered as central to his theory. We show that economists refer to and mention Darwin as a biologist and neglect or ignore his theory of social and cultural evolution. Three types of reference are identified: first, economists view and quote Darwin as having borrowed concepts from classical political economists, Malthus and Smith. Darwin is then mentioned to emphasize the existence of economic theories of social evolution. Second, economists refer to and cite Darwin from the perspective of the use of biological concepts in social sciences. Darwin's biological theories are then equated with those of Spencer. From these two perspectives, Darwin's theory of social evolution is ignored and Darwin considered as a biologist exclusively. Third, economists acknowledge the existence of Darwin's general (biological and social) theory of evolution. Darwin is then considered and quoted as a biologist and a social evolutionist.
    Keywords: Darwin, social evolution, evolutionary economics, bioeconomics
    JEL: A11 B52
    Date: 2006–01
  15. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Mutual disdain is an effective border patrol at the demarcation lines between disciplines. Social scientists tend to react with disdain when they observe how their findings are routinely stripped of all the caveats, assumptions and careful limitations once they travel into law. Likewise, lawyers tend to react with disdain when they read all the laborious proofs and checks for what looks to them like a minuscule detail in a much larger picture. But mutual disdain comes at a high price. All cross-border intellectual trade is stifled. This paper explores the social science/law border from the legal side. The natural barriers turn out to be significant, but not insurmountable. Specifically the paper looks at the challenges of integrating rigorous descriptive social science into the application of the law in force by courts and administrative authorities. This is where the gap is most difficult to bridge. The main impediments are implicit value judgments inherent in models, conceptual languages and strictly controlled ways of generating empirical evidence; the difference between explanation, hypothesis testing and prediction, on the one hand, and decision-making, on the other; the ensuing difference between theoretical and practical reasoning, and the judicial tradition of engaging in holistic thinking; last but not least, the strife of the legal system for autonomy, in order to maintain its viability. If a legal academic assumes the position of an outside observer, she may entirely ignore all these concerns and simply follow the methodological standards of descriptive social science. This is, for instance, what most of law and economics does. The legal academic may, instead, choose to contribute to the making of new law. She will then find it advisable to partly ignore the strictures of rigorous methodology in order to be open to more aspects of the regulatory issue. But it is not difficult, at least, to follow the standards of the social sciences for analysing the core problem. The integration is most difficult if an academic does doctrinal work. But it is precisely here where the division of intellectual labour between legal practice and legal academia is most important. Academics who themselves are versatile in the respective social science translate the decisive insights into suggestions for a better reading of statutory provisions or case law.
    Keywords: law and economics, law and statistics, explanation vs. decision-making, practical reasoning, psychology of judicial decision-making
    JEL: A12 K00
    Date: 2006–01
  16. By: Enzo VALENTINI
    Abstract: In recent years, researchers have paid increasing attention to "factors" in job satisfaction. The relevance of this topic derives from considering that it can affect labor market behavior in relevant ways influencing productivity, effort, absenteeism, and quits. In this paper, I analyze data from the "Working in Britain, 2000" questionnaire and what I find confirms the effects of the personal condition on job satisfaction, as shown in previous studies. In advance, the analysis I have carried out gives results that are compatible with intuitions coming from studies on psychological incentives: it is important to spread information and to give voice, but it is necessary to choose means perceived as really democratic and credible; pay methods based on material incentives can hit job satisfaction, in particular if they are strictly linked to definite and explicit targets; the presence of a supervisor can be considered as a help, but it must not become a merely control activity organizing work in teams it could be an easily way to introduce informal mechanisms of control and, at the same time, to increase job satisfaction; the aim of favoring job satisfaction in a gift exchange view could be a good explanation for general training implemented by firms.
    Keywords: HRM practices, gift exchange, job satisfatcion, workers' partecipation
    JEL: D23 J28 J53
    Date: 2005–02
  17. By: Yann Rébillé (CERMSEM)
    Abstract: Since von Neuman and Morgenstern's (1944) contribution to game theory, the expected utility criterion has become the standard functional to evaluate risky prospects. Risky prospects are understood to be lotteries on a set of prizes. In which case a decision maker will receive a precise prize with a given probability. A wide interest on imprecise object has been developped since Zadeh's (1978) contribution to artificial intelligence, through the use of possibility function (see Dubois Prade (1988)). In this setting a decision maker is uncertain about the precise features of the object he is dealing with. A first step has been readily made to rank imprecise objects in Rébillé (2005). Our objective is to build a decision theory which deals with imprecise lotteries i.e. lotteries on imprecise prizes, a typical situation encountered in Ellsberg's experiment (1961).
    Keywords: Non-additive measures, possibility theory, Choquet integral, decision making.
    JEL: D81
    Date: 2005–12
  18. By: K. Chandrasekhar; S. Bhaduri
    Abstract: Recently, it has been suggested that the process of economic development should ideally be viewed as a socioeconomic transformation. Such a view requires a comprehensive understanding of how agents learn and change their behaviour. However, these aspects have only been inadequately addressed in development theory. This paper argues that social-cognitive vicarious learning theories can become a useful methodological tool by incorporating a triadic interaction between personal factors (beliefs, values), behaviour and environment. Our analysis is based on a survey of the Indian trans-Himalayan regions. The development trajectory of these regions suggests that a proper understanding of the vicarious learning mechanism provides crucial insight into the speed of socioeconomic transformations. It also helps to identify appropriate change agents within a society and, in turn, underscores the need for a comprehensive, yet flexible, development policy framework.
    Keywords: development, socio-economic transformation, vicarious learning, evolution, traditional societies
    Date: 2006–01
  19. By: Floris Heukelom (Faculty of Economics, Universiteit van Amsterdam)
    Abstract: The origin of prospect theory is the desire to test the intuitive statistician in the real world. The development of this theory by the cognitive psychologists Kahneman and Tversky can be traced to the formers work in cognitive psychophysics, in which deviations from average behavior are termed (statistical) errors; and the latters work on decision theory, with its normative vs. descriptive framework. The combination of these two types of probabilistic psychology culminated in a new descriptive theory of human decision making in the real world, coined Heuristics and Biases. The 1979 Econometrica article applies this new descriptive theory to economists EUT. It equates the intuitive statistician with the rational economic man and shows how it descriptively fails.
    Keywords: Kahneman and Tversky; Prospect Theory; Intuitive Statistician; Heuristics and Biases
    JEL: B31 B41 D81
    Date: 2005–12–08

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