nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒03‒25
eight papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Markets vs. Government when Rationality Is Unequally Bounded: Some Consequences of Cognitive Inequalities for Theory and Policy By Pelikan, Pavel
  2. Do Attitudes Towards Corruption Differ Across Cultures? Experimental Evidence from Australia, India, Indonesia andSingapore By L. Cameron; A. Chaudhuri; N. Erkal; L. Gangadharan
  3. Team incentives in public organisations; an experimental study. By Jana Vyrastekova; Sander Onderstal; Pierre Koning
  4. Does Contributing Sequentially Increase the Level of Cooperation in Public Goods Games ? An Experimental Investigation By David Masclet; Marc Willinger
  5. A Practical Guide to Inference in Simulation Models By T. Brenner; C. Werker
  6. Artificial Neural Networks in Financial Modelling By Crescenzio Gallo; Giancarlo De Stasio; Cristina Di Letizia
  7. The Determinants of Trust By Bjørnskov, Christian
  8. Methods of Social Comparison in Games of Status By Ed Hopkins; Tatiana Kornienko

  1. By: Pelikan, Pavel (Prague University of Economics and The Ratio Institute)
    Abstract: In addition to recognizing that human rationality has bounds, these are recognized to be unequal across individuals. Unequally bounded rationality is found to be a special scarce resource, tied to individuals and used for deciding on its own uses. In consequence, its allocation to uses in society cannot approach efficiency without a trial-and-error evolution. Important differences are found between the institutions (“the rules of the game”) that can shape this evolution on markets and the ones that can shape it within governments. The policy implications appear ideologically mixed: against all national planning, selective industrial policies, and government ownership of enterprises in production, but for some paternalism and redistribution in final consumption.
    Keywords: Rationality; institutions; organizations; entrepreneurs: owners
    JEL: A10 D61 G10 H10 O16 P51
    Date: 2006–03–21
  2. By: L. Cameron; A. Chaudhuri; N. Erkal; L. Gangadharan
    Abstract: This paper examines cultural differences in attitudes towards corruption by analysing individual-decision making in a corrupt experimental environment. Attitudes towards corruption play a critical role in the persistence of corruption. Our experiments differentiate between the incentives to engage in corrupt behaviour and the incentives to punish corrupt behaviour and allow us to explore whether, in environments characterized by lower levels of corruption, there is both a lower propensity to engage in corrupt behaviour and a higher propensity to punish corrupt behaviour. Based on experiments run in Australia (Melbourne), India (Delhi), Indonesia (Jakarta) and Singapore, we find that there is more variation in the propensities to punish corrupt behaviour than in the propensities to engage in corrupt behaviour across cultures. The results reveal that the subjects in India exhibit a higher tolerance towards corruption than the subjects in Australia while the subjects in Indonesia behave similarly to those in Australia. The subjects in Singapore have a higher propensity to engage in corruption than the subjects in Australia. We also vary our experimental design to examine the impact of a more effective punishment system and the effect of the perceived cost of bribery.
    Keywords: Corruption, Experiments, Punishment, Cultural Analysis
    JEL: C91 D73 O17 K42
    Date: 2005
  3. By: Jana Vyrastekova; Sander Onderstal; Pierre Koning
    Abstract: Using a simple production game, we investigate whether public firms perform better when they increase the power of their workers’ incentive schemes. In a laboratory experiment, subjects choose between a ‘public firm’ and a ‘private firm’ with team and individual incentives, respectively. When exposed to individual incentives, workers in the public firm increase effort in one parametrisation, but show a decrease in another. One reason for the latter observation is that reciprocators self-select in the public firm, rendering cooperation profitable.
    Keywords: Personnel Economics; Game theory; Experiments; Nonprofit organizations and public enterprise
    JEL: M5 C7 C9 L3
    Date: 2006–03
  4. By: David Masclet (CREM - Centre de Recherche en Economie et Management - - [CNRS : UMR6211] - [Université Rennes I][Université de Caen] - []); Marc Willinger (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - - [CNRS : UMR5474][INRA] - [Université Montpellier I] - [Ecole Nationale Supérieure Agronomique de Montpellier])
    Abstract: We run a series of experiments in which subjects have to choose their level of contribution to a pure public good. Our design differs from the standard public good game with respect to the decision procedure. Instead of deciding simultaneously in each round, subjects are randomly ordered in a sequence which differs from round to round. We compare sessions in which subjects can observe the exact contributions from earlier decisions ("Sequential treatment with Information") to sessions in which subjects decide sequentially but cannot observe earlier contributions ("Sequential treatment without information"). Furthermore, we investigate the effect of group size on aggregate contributions. Our result indicate that contributing sequentially increases the level of contribution to the public good when subjects are informed about the contribution levels of lower ranked subjects. Moreover, we observe that earlier players in the sequence try to influence positively the contributions of subsequent decision makers in the sequence, by making a large contribution. Such behaviour is motivated by the belief that subsequent players will reciprocate by also making a large contribution.
    Keywords: Public good; sequential Game; contribution
    Date: 2006–03–17
  5. By: T. Brenner; C. Werker
    Abstract: This paper introduces a categorization of simulation models. It provides an explicit overview of the steps that lead to a simulation model. We highlight the advantages and disadvantages of various simulation approaches by examining how they advocate different ways of constructing simulation models. To this end, it discusses a number of relevant methodological issues, such as how realistic simulation models are obtained and which kinds of inference can be used in a simulation approach. Finally, the paper presents a practical guide on how simulation should and can be conducted.
    Keywords: Methodology, Simulation Models, Practical Guide
    JEL: B41 B52 C63
    Date: 2006–03
  6. By: Crescenzio Gallo; Giancarlo De Stasio; Cristina Di Letizia
    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 multipopulation 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.
    Keywords: artificial neural network, financial modelling, population model, market equilibrium.
    JEL: C53 C69 C90 D58
    Date: 2006–01
  7. By: Bjørnskov, Christian (Aarhus School of Business)
    Abstract: During the last 15 years, the social capital literature has grown rapidly. In particular after Robert Putnam’s (1993) study of regional governments in Italy, the interest among economists and politologists exploded as Putnam showed that the concept could be used in quantitative explanations of a series of social and economic phenomena. The early literature was unavoidably indiscriminate as to distinguishing between the various elements of social capital, but more recent literature has stressed the need to distinguish between the constituent elements of Putnam’s social capital concept, in particular emphasizing the role of social trust. This is in turn defined as the confidence people have that strangers, i.e. fellow citizens on whom they have no specific information, will not take advantage of them (Uslaner, 2002; Bjørnskov, 2006). Using the answers to the World Values Survey question “In general, do you think that most people can be trusted?”, the by now quite substantial literature has found that social trust is associated with a set of different macroeconomic outcomes: economic growth, the rule of law and overall quality of governance, corruption, education, the extent of violent crime and subjective well-being are all influenced by the propensity of people within any nation to trust each other. The questions are therefore where trust comes from and whether or not it can be affected by public policy. The answers to these questions seem to divide researchers into two camps: the optimists and the pessimists. The former group may be best represented by Knack and Zak (2002) who estimate the effects of education and the rule of law alongside a set of factors that cannot be influenced in the short to medium run. The pessimist group, on the other hand, does not find much of a role for policy as they argue that the empirical associations between social trust and e.g. education or rule of law reflect the reverse causal direction, i.e. that trust has caused part of the cross-country differences in these factors. The aim of this paper is to assess the impact of a number of the central factors proposed in the literature and sort out which of those factors are associated with social trust. Although it to some extent rests on earlier work in Uslaner (2002) and Bjørnskov (2005), the paper differs from earlier studies in using a much larger sample of countries and including extra factors. It moreover distinguishes between factors affecting individuals’ trust radii and social distance, respectively, and explores indirect effects.
    Keywords: trust; social capital; institutions; rule of law
    JEL: Z13
    Date: 2006–03–23
  8. By: Ed Hopkins; Tatiana Kornienko
    Date: 2006–03–03

This nep-cbe issue is ©2006 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.