nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒04‒22
eleven papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Social Ties and Coordination on Negative Reciprocity: The Role of Affect By Ernesto Reuben; Frans van Winden
  2. A Simple Model of Self-Assessments By Silvia Dominguez Martinez; Otto H. Swank
  3. The Cultural Mind: Environmental Decision Making and Cultural Modeling Within and Across Populations By Scott Atran; Douglas Medin; Norbert Ross
  4. Aspiration Traps By Aviad Heifetz; Enrico Minelli
  5. Interacting Agents in Finance By Cars Hommes
  6. A Theory of Procedurally Rational Choice: Optimization without Evaluation By Stefano Ficco; Vladimir Karamychev; Peran van Reeven
  7. Promoting Helping Behavior with Framing in Dictator games. By Pablo Brañas-Garza
  8. Accounting for Framing-Effects - an informational approach to intensionality in the Bolker-Jeffrey decision model By Sacha Bourgeois-Gironde; Raphaël Giraud
  9. Metamimetic Games : Modeling Metadynamics in Social Cognition By David Chavalarias
  10. The Psychological Costs of Unsustainable Housing Commitments By David J. Pevalin; Mark P. Taylor; Jennifer Todd
  11. Understanding pensions: cognitive function, numerical ability and retirement saving By James Banks; Zoë Oldfield

  1. By: Ernesto Reuben (Department of Economics, University of Copenhagen); Frans van Winden (University of Amsterdam)
    Abstract: This is an experimental study of a three-player power-to-take game where a proposer is matched with two responders. We compare a treatment in which subjects are anonymous to each other (strangers) with one in which responders know each other from outside the lab (friends). We focus on the responders’ decisions, beliefs, and emotions. We find that friends punish the proposer more than strangers, and that they are more likely to coordinate their punishment (without communication). Both punishment and coordination are explained by the responders’ emotional reactions. Furthermore, the responders’ expectations are better predictors of emotions and destruction than their fairness perceptions.
    JEL: Z13 D74 C92 D63
  2. By: Silvia Dominguez Martinez (Faculty of Economics, Erasmus Universiteit Rotterdam); Otto H. Swank (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: We develop a simple model that describes individuals' self-assessments of their abilities. We assume that individuals learn about their abilities from appraisals of others and experience. Our model predicts that if communication is imperfect, then (i) appraisals of others tend to be too positive, and (ii) overconfidence leading to too much activism is more likely than underconfidence leading to too much passivity. The predictions of our model are consistent with findings in the social psychological literature.
    Keywords: self-assessments; learning about ability; coaching; overconfidence; underconfidence
    JEL: D81 D82 D83
    Date: 2006–01–17
  3. By: Scott Atran (IJN - Institut Jean-Nicod - - CNRS : UMR8129 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Normale Supérieure de Paris); Douglas Medin; Norbert Ross
    Abstract: This paper describes a cross-cultural research project on the relation between how people conceptualize nature (their mental models) and how they act in it. Mental models of nature differ dramatically among and within populations living in the same area and engaged in more or less the same activities. This has novel implications for environmental decision making and management, including dealing with commons problems. Our research also offers a distinct perspective on models of culture, and a unified approach to the study of culture and cognition. We argue that cultural transmission and formation does not consist primarily in shared rules or norms, but in complex distributions of causally-connected representations across minds in interaction with the environment. The cultural stability and diversity of these representations often derives from rich, biologically-prepared mental mechanisms that limit variation to readily transmissible psychological forms. This framework addresses a series of methodological issues, such as the limitations of conceiving culture to be a well-defined system or bounded entity, an independent variable, or an internalized component of minds.
    Date: 2005–01–25
  4. By: Aviad Heifetz; Enrico Minelli
    Abstract: Fundamental choices, like location or education, affect the attitudes and beliefs with which the individual will analyze future day to day decision problems. These effects cannot be assumed to be transparent to the individual. To restore methodological discipline in the analysis of such choices, we propose a solution concept based on an idea of consistency: the individual should not regret her fundamental choices after her preferences and beliefs have adjusted thereof. We show that even single person decision problems admit multiple, Pareto-ranked solutions: the individual might be stuck in an aspiration trap.
  5. By: Cars Hommes (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: Interacting agents in finance represent a behavioral, agent-based approach in which financial markets are viewed as complex adaptive systems consisting of many boundedly rational agents interacting through simple heterogeneous investment strategies, constantly adapting their behavior in response to new information, strategy performance and through social interactions. An interacting agent system acts as a noise filter, transforming and amplifying purely random news about economic fundamentals into an aggregate market outcome exhibiting important stylized facts such as unpredictable asset prices and returns, excess volatility, temporary bubbles and sudden crashes, large and persistent trading volume, clustered volatility and long memory.
    Keywords: heterogeneous agents; behavioral finance; bounded rationality; complexity
    JEL: G1 E3 D84
    Date: 2006–03–24
  6. By: Stefano Ficco (Erasmus Universiteit Rotterdam); Vladimir Karamychev (Erasmus Universiteit Rotterdam); Peran van Reeven (Erasmus Universiteit Rotterdam)
    Abstract: This paper analyses the behavior of an individual who wants to maximize his utility function, but he is not able to evaluate it. There are many ways to choose a single alternative from a given set. We show that a unique utility maximizing procedure exists. Choices induced by this optimal procedure are always transitive but generally violate the Weak Axiom. In other words, utility maximizing individuals who are unable to evaluate their objective functions fail to exhibit rational revealed preferences.
    Keywords: Bounded rationality; optimal selection procedure; procedural rationality
    JEL: D81
    Date: 2006–01–06
  7. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: A number of recent papers on double-blind dictator games have obtained significant generous behavior when information regarding the recipient or any other social context is provided. In contrast, the lack of information discourages other-regarding behavior and the subject’s behavior closely approximates the game-theoretic prediction based on the selfishness assumption. This paper uses framing to explore the role of helping—behavior in dictator games. The whole experiment includes both classroom and regular experiments for the baseline and the framing treatment. To promote these motivations we included a “non—neutral” sentence at the end of the instructions, which reads “Note that he relies on you”. Our baseline and framed DG are statistically different from each other, indicating that the additional sentence promotes generous-regarding behavior.
    Keywords: dictator game, framing effects, helping behavior, altruism.
    JEL: D63 D64 C91
    Date: 2006–04–08
  8. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - - CNRS : UMR8129 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Normale Supérieure de Paris); Raphaël Giraud
    Abstract: We suscribe to an account of framing-effects in decision theory in terms of an inference to a background informationa by the hearer when a speaker uses a certain frame while other equivalent frames were also available. This account was sketched by Craig McKenzie. We embed it in Bolker-Jeffrey decision model (or logic of action) - one main reason of this is that this latter model makes preferences bear on propositions. We can deduce a given anomaly or cognitive bias (namely framing-effects) in a formal decision theory. This leads to some philosophical considerations on the relationship between the rationality of preferences and the sensitivity to descriptions or labels of states of affairs (intensionality) in decision-making.
    Keywords: information-processing and decision-making, framing-effects, intensionality, Bolker-Jeffrey
    Date: 2005–12–23
  9. By: David Chavalarias (CREA - Centre de recherche en épistémologie appliquée - [CNRS : UMR7656] - [] - [Polytechnique - X])
    Abstract: Imitation is fundamental in the understanding of social system dynamics. But the diversity of imitation rules employed by modelers proves that the modeling of mimetic processes cannot avoid the traditional problem of endogenization of all the choices, including the one of the mimetic rules. Starting from the remark that human reflexive capacities are the ground for a new class of mimetic rules, I propose a formal framework, metamimetic games, that enable to endogenize the distribution of imitation rules while being human specific. The corresponding concepts of equilibrium - counterfactually stable state - and attractor are introduced. Finally, I give an interpretation of social differentiation in terms of cultural co-evolution among a set of possible motivations, which departs from the traditional view of optimization indexed to criteria that exist prior to the activity of agents.
    Keywords: Social cognition, imitation, cultural co-evolution, differentiation, reflexivity, metacognition, stochastic game theory, endogenous distributions, metamimetic games, counterfactual equilibrium.
    Date: 2006–04–05
  10. By: David J. Pevalin (Department of Health and Human Sciences, University of Essex); Mark P. Taylor (Institute for Social and Economic Research); Jennifer Todd (Department of Health and Human Sciences, University of Essex)
    Abstract: We explore the impact of unsustainable housing commitments on psychological well-being using data from the British Household Panel Survey. We test the hypotheses that (i) housing payment problems, housing arrears and the threat of eviction and repossession have adverse impacts on heads of household’s psychological well-being over and above those caused by financial hardship and (ii) these impacts are larger for homeowners than for tenants. Our results indicate that for both men and women persistent housing payment problems have significant psychological costs. We find that for men entering arrears and the imminent threat of home loss has deleterious impacts on psychological health. The sizes of these effects are independent of and larger in magnitude to those associated with financial hardship more generally. We also find housing payment arrears have a significantly greater impact on psychological well-being among homeowners than tenants.
    Date: 2006–03
  11. By: James Banks (Institute for Fiscal Studies and University College London); Zoë Oldfield (Institute for Fiscal Studies)
    Abstract: As the degree to which individuals are expected to provide their own resources for retirement increases, there is a correspondingly increasing importance of individuals being able to understand the financial choices they face and to choose savings products, portfolios and contribution rates accordingly. In this paper we look at numerical ability and other dimensions of cognitive function in a sample of older adults in England and examine the extent to which these abilities are correlated with various measures of wealth and retirement saving outcomes. The key findings are: a) Relatively large fractions of the population can be seen to have relatively low levels of financial numeracy and these numeracy levels decline systematically with age. b) Numeracy levels are correlated with measures of retirement saving and investment portfolios, even when we control for other cognitive ability and education. c) Numeracy is correlated with knowledge and understanding of pension arrangements, and with perceived financial security, even when we control for other cognitive ability, education and the level of overall retirement saving. The lessons of our analysis are threefold, even though at this point we have only crosssectional data available on which to base our analysis. Firstly, it shows yet another dimension in which inequalities amongst older individuals are apparent. Second, the analysis suggests that in the short run there may be a role for targeting simple retirement planning information at low numeracy, low wealth, low education groups. Third, it suggests that a longer run policy goal might want to target numeracy levels more generally in order to reduce the fraction of the population with low basic skills. Whether such a policy would have knock on effects on to retirement planning arrangements, however, is a more difficult question to answer on the basis of the conditional correlations we present here. On this topic in particular, there is much further work to be done.
    Date: 2006–03

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.
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