nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒08‒05
thirteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Mutual Monitoring in Teams: Theory and Experimental Evidence on the Importance of Reciprocity By Jeffery Carpenter; Samuel Bowles; Herbert Gintis
  2. Minimally acceptable altruism and the ultimatum game By Julio J. Rotemberg
  3. Fairness under Uncertainty By Thibault Gajdos; Jean-Marc Tallon
  4. Decision Making with Imprecise Probabilistic Information By Thibault Gajdos; Jean-Christophe Vergnaud; Jean-Marc Tallon
  5. Selling Favors in the Lab: Experiments on Campaign Finance Reform By Daniel Houser; Thomas Stratmann
  6. Intentions and Social Interactions By J. Atsu Amegashie
  7. People's Trust: the design of a survey-based experiment By John F. Ermisch; Diego Gambetta
  8. Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories By Zvi Safra; Uzi Segal
  9. Cultural Diversity Determining the Memory of a Controversial Social Event By Elena Paspalanova
  10. Happiness and Loss Aversion: When Social Participation Dominates Comparison By Maarten Vendrik; Geert Woltjer
  11. Dynamic Testing of Wholesale Power Market Designs: An Open-Source Agent-Based Framework By Sun, Junjie; Tesfatsion, Leigh S.
  12. Altruism and Workers' Remittances: Evidence from Selected Countries in the Middle East and Central Asia By Jacques Bouhga-Hagbe
  13. Unity in Diversity Through Art? Joseph Beuys’ Models of Cultural Dialogue By Christa-Maria Lerm Hayes

  1. By: Jeffery Carpenter; Samuel Bowles; Herbert Gintis
    Abstract: Monitoring by peers is often an effective means of attenuating incentive problems. Most explanations of the efficacy of mutual monitoring rely either on small group size or on a version of the Folk theorem with repeated interactions which requires reasonably accurate public information concerning the behavior of each player. We provide a model of team production in which the effectiveness of mutual monitoring depends not on these factors, but rather on strong reciprocity: the willingness of some team members to engage in the costly punishment of shirkers. This alternative does not require small group size or public signals. An experimental public goods game provides evidence for the behavioral relevance of strong reciprocity in teams.
    Date: 2006–08
  2. By: Julio J. Rotemberg
    Abstract: I suppose that people react with anger when others show themselves not to be minimally altruistic. With heterogeneous agents, this can account for the experimental results of ultimatum and dictator games. Moreover, it can account for the surprisingly large fraction of individuals who offer an even split, with parameter values that are more plausible than those required to explain outcomes in these experiments with the models of Levine (1998), Fehr and Schmidt (1999), Dickinson (2000), and Bolton and Ockenfels (2000).
    Keywords: Game theory
    Date: 2006
  3. By: Thibault Gajdos (CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique]); Jean-Marc Tallon (EUREQUA - Equipe de Recherche en Economie Quantitative - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Ever since its introduction by Foley [1967] and Varian [1974], the notion of fairness has been one of the most extensively used notion to evaluate allocations on an ethical basis. Whereas there is an extensive literature on the efficiency properties of allocations in economies with uncertainty the concept of an envy-free allocation has not been widely studied in economies with uncertainty. We introduce two very natural notions of equity in an economy under uncertainty, namely ex ante and ex post equity, show they can contradict efficiency requirements. In particular, the set of ex ante efficient and ex post envy-free allocations may be empty. We nevertheless show that, under special circumstances, one may prove the existence of allocations that are both ex ante efficient and ex post envy-free. Such is the case, in particular, in an economy with individual risk and no aggregate risk.
    Keywords: Fairness, uncerainty, envy
    Date: 2006–07–17
  4. By: Thibault Gajdos (CREST - Centre de Recherche en Économie et Statistique - [INSEE] - [ École Nationale de la Statistique et de l'Administration Économique]); Jean-Christophe Vergnaud (EUREQUA - Equipe de Recherche en Economie Quantitative - [Université Panthéon-Sorbonne - Paris I]); Jean-Marc Tallon (EUREQUA - Equipe de Recherche en Economie Quantitative - [Université Panthéon-Sorbonne - Paris I])
    Abstract: We develop an axiomatic approach to decision under uncertainty that explicitly takes into account the information available to the decision maker. The information is described by a set of priors and a reference prior. We define a notion of imprecision for this informational setting and show that a decision maker who is averse to information imprecision maximizes the minimum expected utility computed with respect to a subset of the set of initially given priors. The extent to which this set is reduced can be seen as a measure of imprecision aversion. This approach thus allows a lot of flexibility in modelling the decision maker attitude towards imprecision. In contrast, applying<br />Gilboa-Schmeidler [1989] maxmin criterion to the initial set of priors amounts to assuming extreme pessimism.
    Keywords: Uncertainty, Decision, Multiple Priors
    Date: 2006–07–17
  5. By: Daniel Houser; Thomas Stratmann
    Abstract: Substantial academic interest and public policy debate centers on campaign finance reform. Campaign resources can provide benefits to constituencies if candidates use them to fund the distribution of useful information. On the other hand, voters can potentially be harmed if candidates trade policy favors to special interests in exchange for contributions. Unfortunately, because informative field data on this topic are very difficult to obtain, the effects of different campaign finance strategies on election outcomes and economic welfare remain largely uninformed by empirical analyses. This paper reports data from novel laboratory experiments designed to shed light on the campaign finance debate. Our experiment is based on a model where power-hungry candidates are motivated to trade favors for campaign contributions. Our data is consistent with the model’s predictions. We find that voters’ revise their beliefs in response to candidate advertising in a way that is consistent with theory. Moreover, in relation to privately financed electoral competitions, in publicly financed campaigns (i) high-quality candidates are elected more frequently, and (ii) margins of victory are larger. Both of these outcomes are predicted by theory. We conduct policy experiments on various campaign finance strategies, including the widely suggested caps on private fundraising. Our results suggest that caps can improve voter welfare but do not increase the likelihood that high-quality candidates will be elected.
    JEL: C90 D72
    Date: 2006
  6. By: J. Atsu Amegashie
    Abstract: In psychological games, higher-order beliefs, emotions, and motives - in addition to actions - affect players’ payoffs. Suppose you are tolerated as opposed to being genuinely accepted by your peers and “friends”. In particular, suppose you are invited to a party, movie, dinner, etc not because your company is desired but because the inviter would feel guilty if she did not invite you. In all of these cases, it is conceivable that the intention behind the action will matter and hence will affect your payoffs. I model intentions in a dynamic psychological game under incomplete information. I find a complex social interaction in this game. In particular, a player may stick to a strategy of accepting every invitation with the goal of discouraging insincere invitations. This may lead one to erroneously infer that this player is eagerly waiting for an invitation, when indeed his behavior is driven more by strategic considerations than by an excessive desire for social acceptance. I discuss how being tolerated but not being truly accepted can explain the rejection of mutually beneficial trades, the choice of identity, social exclusion, marital divorce, and its implication for political correctness and affirmative action.
    Keywords: guilt, intentions, psychological game, second-order beliefs, social interaction
    JEL: C73 J16 Z13
    Date: 2006
  7. By: John F. Ermisch (Institute for Social and Economic Research); Diego Gambetta (University of Oxford)
    Abstract: In this paper we present the design of a two-stage experiment which aims to measure trusting and trustworthiness in a representative sample of the population. In the first part we discuss the shortcomings of the most common design of the 'trust-game' experiment in eliciting information about clear and cogent notions of trusting and trustworthiness, and in the second part we present an alternative design, which we call the 'framed binary trust game'. The basic design will be administered to a sample of 200 subjects who were formerly members of the British Household Panel Survey (BHPS). In the third part of the paper, we extend this design to allow the 'truster' to purchase some information about the 'trustee' so as to make the experiment a better representation of real-life trust decisions. We plan in a second stage to run the extended experiment on a larger sample of about 1000 subjects.
    Keywords: inequality, inference, poverty, sample, welfare index
    Date: 2006–07
  8. By: Zvi Safra (Tel Aviv University); Uzi Segal (Boston College)
    Abstract: Rabin proved that a low level of risk aversion with respect to small gambles leads to a high, and absurd, level of risk aversion with respect to large gambles. Rabin's arguments strongly depend on expected utility theory, but we show that similar arguments apply to almost all non-expected utility theories and even to theories dealing with uncertainty. The set of restrictions needed in order to avoid such absurd behavior may suggest that the assumption of universality of preferences over final wealth is too strong.
    Date: 2005–12–05
  9. By: Elena Paspalanova (New Bulgarian University)
    Abstract: A social event from the near past socio-political policy in Bulgaria – “State policy of changing the names of Turkish population living in Bulgaria” as a major element of the state revival process aiming at exterminating the ethnic differences in Bulgaria – was chosen to study the influence of cultural diversity on memories of that event. The study aims at revealing the hypothesized complex structure of indicators of cultural diversity, which determines memory of the social event. In respect to the controversial event being an object of the memory, the following indices of cultural diversity are chosen: Ethnicity (Bulgarians vs Turks), Religion (Christian Orthodox vs Muslim), Maternal language (Bulgarian vs Turkish), National identity (Bulgarian / Turkish vs European). The research focuses on the “cultural” characteristics of the self as an “experiencer” / “rememberer” as well, namely social orientation (individualistic vs collectivistic). A final set of control variables is the panel of socio-demographic characteristics (gender, age, educational level, and monthly income) included in order to clarify the expected multifaceted picture of the cultural diversity influencing the memory of a social event.
    Keywords: Controversial Event, Memory, Individualism, Collectivism, Cultural Diversity Indices
    Date: 2006–04
  10. By: Maarten Vendrik (Maastricht University and IZA Bonn); Geert Woltjer (Maastricht University)
    Abstract: A central finding in happiness research is that a person’s income relative to the average income in her social reference group is more important for her life satisfaction than the absolute level of her income. This dependence of life satisfaction on relative income can be related to the reference dependence of the value function in Kahneman and Tversky’s (1979) prospect theory. In this paper we investigate whether the characteristics of the value function like concavity for gains, convexity for losses, and loss aversion apply to the dependence of life satisfaction on relative income. This is tested with a new measure for the reference income for a large German panel for the years 1984-2001. We find concavity of life satisfaction in positive relative income, but unexpectedly strongly significant concavity of life satisfaction in negative relative income as well. The latter result is shown to be robust to extreme distortions of the reported-life-satisfaction scale. It implies a rising marginal sensitivity of life satisfaction to more negative values of relative income, and hence loss aversion (in a wide sense). This may be explained in terms of increasing financial obstacles to social participation.
    Keywords: life satisfaction, relative income, value function, loss aversion, social participation
    JEL: I31 D6
    Date: 2006–07
  11. By: Sun, Junjie; Tesfatsion, Leigh S.
    Abstract: In April 2003 the U.S. Federal Energy Regulatory Commission proposed a complicated mar- ket design - the Wholesale Power Market Platform (WPMP) – for common adoption by all U.S. wholesale power markets. Versions of the WPMP have been implemented in New Eng- land, New York, the mid-Atlantic states, the Midwest, and the Southwest, and adopted for implementation in California. Strong opposition to the WPMP persists among some indus- try stakeholders, however, due largely to a perceived lack of adequate performance testing. This study reports on the development and open-source implementation (in Java) of a com- putational wholesale power market organized in accordance with core WPMP features and operating over a realistically rendered transmission grid. The traders within this market model are strategic profit-seeking agents whose learning behaviors are based on data from human-subject experiments. Our key experimental focus is the complex interplay among structural conditions, market protocols, and learning behaviors in relation to short-term and longer-term market performance. Findings for a dynamic 5-node transmission grid test case are presented for concrete illustration.
    Keywords: Wholesale power market restructuring; Empirical input validation; Market design; Behavioral economics; Learning; Market power; Agent-based modeling; AMES wholesale power market framework; Java; RepastJ.
    JEL: C6 D8 L1 L9
    Date: 2006–07–27
  12. By: Jacques Bouhga-Hagbe
    Abstract: Workers' remittances have been playing an increasingly important role in the balance of payments of many countries and can significantly contribute to the strength of their external positions. Assessing the likely stability of remittance flows could be a valuable input to the analysis of their external vulnerabilities. This paper argues that "altruism," as a motive to send money home, would contribute to the stability of these flows. Using a simple framework that relates workers' remittances to agricultural GDP, which is used as an indicator of economic "hardship" in the home country, evidence suggests that altruism could have played an important role in the flow of remittances to Egypt, Jordan, Morocco, Pakistan, and Tunisia in recent years.
    Keywords: Workers remittances , Egypt , Jordan , Morocco , Pakistan , Tunisia , Middle East and Central Asia , Balance of payments positions ,
    Date: 2006–05–31
  13. By: Christa-Maria Lerm Hayes (University of Ulster)
    Abstract: This essay proposes the artist Joseph Beuys and his work as paradigmatic for art that through its own diversity of approach can show possibilities for addressing diverse audiences, diverging receptions and modes of participation. It arises from a symposium on the occasion of the 20th anniversary of the artist’s death held at the Goethe Institut Dublin, 23 January 2006. The argument focuses on Beuys practice from his Ulysses-Extension to the Migration Workshop at documenta 6, 1977, the FIU, as well as his work (and legacy) in Ireland. Relevant theories include Ecos openness and Adorno’s negative and positive representation, since Beuys works relationship to the Holocaust and trauma turns out to be central. Beuys is offered as predecessor of current discourse such as Bourriaud’s Relational Aesthetics and Documenta11. The article concludes with a new theoretization of participation in culture, Irit Rogoff’s Looking Away. It is supported by Beuys multi-layered, diversity-sustaining practice.
    Keywords: Cultural Dialogue, Joseph Beuys, Diversity, Reception, Participation, Migration, documenta, FIU, Ireland, Openness, Holocaust, Trauma, Relational Aesthetics
    JEL: Z13 Z19
    Date: 2006–04

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