nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒02‒26
nine papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Individuals and Organizations: Thoughts on a Micro-Foundations Project for Strategic Management and Organizational Analysis By Teppo Felin; Nicolai Foss
  2. One mans rags are another mans riches: Identifying adaptive preferences using panel data By Tania Burchardt
  3. Banking with sentiments. A model of fiduciary interactions in micro-credit programs By Vittorio Pelligra
  4. Innovation and the evolution of industries By Franco Malerba
  5. An Experimental Evaluation of Popular Well-Being Measures By Martin Kroh
  6. Bargaining Outside the Lab - A Newspaper Experiment of a Three-Person Ultimatum Game By Carsten Schmidt; Matthias Sutter; Werner Güth
  7. Need for closure, gender and social self-esteem of youngsters By Vermeir, I.; Geuens, M.
  8. Need for closure and media use and preference of youngsters By Vermeir,I.; Geuens, M.
  9. Stochastic Choice Under Risk By Pavlo R. Blavatskyy

  1. By: Teppo Felin; Nicolai Foss
    Abstract: Making links between micro and macro levels has been problematic in the social sciences, and the literature in strategic management and organization theory is no exception. The purpose of this chapter is to raise theoretical issues in developing micro-foundations for strategic management and organizational analysis. We discuss more general problems with collectivism in the social sciences by focusing on specific problems in extant organizational analysis. We introduce micro-foundations to the literature by explicating the underlying theoretical foundations of the origins of individual action and interaction. We highlight opportunities for future research, specifically emphasizing the need for a rational choice program in management research.
    JEL: L2 M1
    Date: 2006
  2. By: Tania Burchardt
    Abstract: One of the motivations frequently cited by Sen and Nussbaum for moving away from a utility metric towards a capabilities framework is a concern about adaptive preferences or conditioned expectations. If utility is related to the satisfaction of aspirations or expectations, and if these are affected by the individual's previous experience of deprivation or wealth, then utility cannot provide a basis for assessing well-being, equality or social justice which is independent of the initial distribution. This paper contributes to the identification of adaptive expectations by using ten years of panel data from the British Household Panel Survey to study the process of adaptation based on the individual's own previous experience. Subjective assessments of financial well-being at time t, for individuals with a given income level, are compared according to the income trajectory of the individual over the previous one to nine years. Descriptive statistics are followed by multivariate analysis, introducing controls for changes in need (family size and composition, disability), and possible social reference groups (for example, ethnicity and employment status). Fixed effects regressions allow for individual variation in the scaling of satisfaction. The results show that year on year, individuals who have experienced a fall in income since the previous year are less satisfied than those who have a steady income, suggesting that subjective assessments may be made in comparison with previous experience. Surprisingly, individuals who have experienced an increase in income are also less satisfied. This suggests that income is a poor proxy for satisfaction but it does not provide firm evidence for the existence of adaptation over the short term. Over a longer period, those who have experienced falling incomes are less satisfied than those who have had constant income, while those who have experienced rising incomes are no more satisfied than those who have had constant incomes. This suggests that over a longer period, adaptation to changes in income is asymmetric: people adapt to rising incomes but less so falling incomes. The paper concludes that satisfaction with income is influenced by objective circumstances, and to changes in objective circumstances, in complex ways. In particular, the process of adaptation to rises in income masks long-term differences in outcomes for individuals and makes subjective assessments of well-being a flawed basis for judgements of inequality or social justice. An objective normative standard, such as is offered by the capabilities framework, avoids social evaluations being unduly influenced by individuals' past experiences.
    Keywords: Adaptation, subjective well-being, satisfaction, income, panel data
    JEL: D63 I31 B50
    Date: 2004–12
  3. By: Vittorio Pelligra
    Abstract: The success of many micro-credit initiatives is difficult to account for in the traditional economic framework, where, mainly because of the assumption of self-interested behaviour, credit is rationed and provided only to those able to back it with collaterals. Having analysed different alternative explanations for such a success, the paper introduces the concept of trust responsiveness in the lender-borrower relationship and formalises it in a psychological game-theoretical model aimed at explaining the unusually high rate of repayment experienced in micro-credit programs. Three well-known psychological effects are introduced to discuss the factors that may positively or negatively affect borrowers’ trustworthiness. This model provides important normative implications for institutional design.
    Keywords: Microfinance; Trust responsiveness; Psychological Game Theory
    JEL: C72 O12
    Date: 2005
  4. By: Franco Malerba (CESPRI, Università Bocconi, Milano, Italy)
    Abstract: The analysis of innovation and the evolution of industries evolution has witnessed major progress in several areas. Contributions at the empirical, appreciative, econometric and modelling levels have greater advanced our understanding of innovation, industrial dynamics and the different evolution of industries. The main part of the paper is centred around four challenges that are required for a better understanding of the relationship between innovation and the evolution of industries: the analysis of demand, knowledge, networks and coevolution.
    Keywords: Innovation; Industrial Dynamics; Demand; Networks; Knowledge
    JEL: L1 L6 O32
    Date: 2005–07
  5. By: Martin Kroh
  6. By: Carsten Schmidt; Matthias Sutter; Werner Güth
    Abstract: In a large scale newspaper experiment 5,132 readers of the German weekly, Die Zeit, participated in a three-person bargaining game. In our data analysis we focus on (1) the influence of age, gender, profession and the medium chosen for participation on bargaining behavior and on (2) the external validity of student behavior (inside and outside the lab). We find that older participants and women care more about equal distributions and that Internet users are more self-regarding than those using mail or fax. Decisions made by students in the lab are rather similar to those made by students in the newspaper experiment. Furthermore, student behavior is not different from non-student behavior when the same age group is considered, indicating a high degree of external validity of student data.
    Keywords: ultimatum bargaining, newspaper experiment, Internet experiment
    JEL: C72 C93 D63
    Date: 2005–12
  7. By: Vermeir, I.; Geuens, M.
    Abstract: The present study focuses on social self-esteem of youngsters (i.e. esteem derived from approval of others), a widespread, important pursuit of youngsters in modern society. More specifically, we explored the relationship between social self-esteem on the one hand, and an individual difference measure, Need for Closure, and gender on the other hand. Results show that NFCL and gender significantly relate to social self-esteem values like eagerness for approval and tranquility, achievement pressure and competence orientation, individualism, independency and appearance mindedness. NFCL and gender also affect youngster’s social esteem related self-images. In addition, interesting interaction effects were identified. Limitations and directions for future research are suggested.
    Keywords: Need for Closure; Values; Self-Image, Gender, Social Self-Esteem
    Date: 2006–02–12
  8. By: Vermeir,I.; Geuens, M.
    Abstract: This study examines the explanatory power of an individual difference variable, Need for Closure (NFCL) for media use and preferences for specific media, genres and channels. Results of the study show that high and low NFCL youngsters do not differ in the amount of time spent on cognitive undemanding media (TV, radio, music). However, high (versus low) NFCL youngsters engage less in cognitive effortful activities like reading newspapers and surfing the Internet. Furthermore, high and low NFCL youngsters have a preference for a similar scope of genres and channels. More specifically, high NFCL youngsters prefer well-respected, conventional and less cognitive complex genres and channels. Low NFCL youngsters prefer more alternative, non-conformists, critical and intellectually stimulating genres and channels. Results are discussed and practical implications are provided.
    Keywords: Media use, media preferences, individual differences, motivation
    Date: 2006–02–12
  9. By: Pavlo R. Blavatskyy
    Abstract: An individual makes random errors when evaluating the expected utility of a risky lottery. Errors are symmetrically distributed around zero as long as an individual does not make transparent mistakes such as choosing a risky lottery over its highest possible outcome for certain. This stochastic decision theory explains many well-known violations of expected utility theory such as the fourfold pattern of risk attitudes, the discrepancy between certainty equivalent and probability equivalent elicitation methods, the preference reversal phenomenon, the generalized common consequence effect (the Allais paradox), the common ratio effect and the violations of the betweenness.
    Keywords: expected utility theory, stochastic utility, Fechner model, random error, risk
    JEL: C91 D81
    Date: 2006–02

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