nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒11‒04
nine papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Learning in Games with Unstable Equilibria By Michel Benaim; Josef Hofbauer; Ed Hopkins
  2. Information Processing, Learning and Analogy-based Expectation: an Experiment By Steffen Huck; Philippe Jehiel; Tom Rutter
  3. Choosing Between Adaptive Agents: Some Unexpected Implications of Level of Scrutiny By Yaakov Kareev; Judith Avrahami
  4. Overconfidence in Forecasts of Own Performance: An Experimental Study By Jeremy Clark; Lana Friesen
  5. Testing Fair Wage Theory By John D. Burger; Stephen J.K. Walters
  6. The Existence and Persistence of a Winner’s Curse: Some Field Evidence By John D. Burger; Stephen J.K. Walters
  7. Evolution of Division Rules By Birendra K. Rai
  8. Cognitive Ability and Scale Bias in the Contingent Valuation Method - An Analysis of Willingness to Pay to Reduce Mortality Risks By Svensson, Mikael; Andersson, Henrik
  9. Innovate or Die? A critical review of the literature on innovation and performance By Stefano Brusoni; Elena Cefis; Luigi Orsenigo

  1. By: Michel Benaim; Josef Hofbauer; Ed Hopkins
    Date: 2006–10–27
  2. By: Steffen Huck; Philippe Jehiel; Tom Rutter
    Date: 2006–10–27
  3. By: Yaakov Kareev; Judith Avrahami
    Date: 2006–10–27
  4. By: Jeremy Clark (University of Canterbury); Lana Friesen
    Abstract: Overconfidence can have important economic consequences, but has received little direct testing within the discipline. We test for overconfidence in forecasts of own absolute or relative performance in two unfamiliar experimental tasks. Given their choice of effort at the tasks, participants have incentives to forecast accurately, and have opportunities for feedback, learning and revision. Forecast accuracy is evaluated at both the aggregate level, and at the individual level using realized outcomes. We find very limited evidence of overconfidence, with zero mean error or under-confidence more prevalent. Under-confidence is greatest in tasks with absolute rather than relative win criteria, often among subjects using greater or "smarter" effort.
    Keywords: Overconfidence; forecast errors; self-assessment
    JEL: C91 D83 D84 J24
    Date: 2006–03–01
  5. By: John D. Burger (Department of Economics, Loyola College in Maryland); Stephen J.K. Walters (Department of Economics, Loyola College in Maryland)
    Abstract: Fairness considerations often are invoked to explain wage differences that appear unrelated to worker characteristics or job conditions, but non-experimental tests of fair wage models are rare and weak because of the limits of available market-generated data. In particular, such data rarely permit researchers to (a) identify suitable reference points that employees and employers might use in determining what is fair and (b) control for employees’ marginal output and its value. This study utilizes a unique dataset from the baseball labor market that solves both problems. We find no support for fair wage theory in this market. We also find that fairness premia can be illusory: Wages appear to be adjusted upward for reasons of fairness in regressions that control for variation in individuals’ physical output, but such premia evaporate when the value of that output (which can be market- or firm-specific) is held constant. This suggests that avoiding proxy measures of workers’ marginal revenue products in wage studies might reduce the number of labor market "anomalies" economists must resolve.
    Keywords: fairness, efficiency wages, wage differentials
    JEL: J31 J41 D63
    Date: 2006–10
  6. By: John D. Burger (Department of Economics, Loyola College in Maryland); Stephen J.K. Walters (Department of Economics, Loyola College in Maryland)
    Abstract: In a 1980 article in this journal, Cassing and Douglas provided widely-cited field evidence for the existence of a Winner’s Curse in the baseball labor market. This study takes advantage of recent developments in the measurement and valuation of individual output in this market to, first, reassess their finding of considerable overbidding for baseball free agents during the late 1970s. We find no evidence of negative average returns to teams on player contracts in these early years of free agency, though we do find evidence that teams had difficulty efficiently adjusting their bids in accord with available information, especially about risk. Next, we examine winning bids in a more recent and larger sample of players to test whether such systematic errors have persisted over time. The evidence indicates that teams continue to overvalue inconsistent (risky) free agents and are unable to limit their bids to conform to players’ lower values in small markets, though on average returns to winning bidders are non-negative. This is consistent with experimental evidence that finds bounded-rational behavior when bidders are faced with complex valuation problems involving multiple elements.
    Keywords: market efficiency, bounded rationality, overbidding
    JEL: D44 D81 J41 C93
    Date: 2006–10
  7. By: Birendra K. Rai
    Abstract: This paper shows that the efficient division rules for allocating a scarce resource among competing claimants are the unique long run outcomes of a dynamic model in which the stage interaction involves the claimants bargaining amongst themselves. The division suggested by the (constrained equal awards rule) truncated claims proportional rule emerges as the long run outcome when bargaining between the agents occurs subject to the rules of the (Nash demand game) contracting game and the axiom of claims boundedness which requires that no agent be awarded more than her initial claim.
    Keywords: fair division, stochastic stability
    JEL: C73 C78 D63
    Date: 2006–10
  8. By: Svensson, Mikael (Department of Business, Economics, Statistics and Informatics); Andersson, Henrik (Department of Transport Economics)
    Abstract: This study investigates whether or not the scale bias found in contingent valuation (CVM) study on mortality risk reductions is a restraint on cognitive restraints amont respondents. Scale bias refers to insensitivity and non near-proportionality of the respondents' willingness to pay (WTP) to the size of the risk reduction. Two hundred Swedish students participated in an experiment where their cognitive ability was tested before they took part in a CVM-study where they were asked about their WTP to reduce bus-mortality risk. The results imply that WTP answers from respondents with a higher cognitive ability are less flawed by scale bias.
    Keywords: Cognitive Ability; Contingent Valuation; Mortality Risk; Near-Proportionality; Scale Bias
    JEL: D80 I10 Q51
    Date: 2006–10–26
  9. By: Stefano Brusoni (CESPRI-CRORA, Bocconi University and Silvio Tronchetti-Provera Foundation, Milano,Italy.); Elena Cefis (Utrecht School of Economics, Utrecht University and Bergamo University); Luigi Orsenigo (University of Brescia and CESPRI, Bocconi University, Italy)
    Abstract: The idea that innovation leads to positive economic performance has become a sort of truism in recent years. However, empirical evidence showing that innovating organizations and countries outperform non-innovating ones remains scant and scattered. In many ways, the jury is still out. First of all, there is still little agreement about what ‘performance’ means. The range of indicators adopted in the literature varies widely: financial performance, market shares, new products introduced into the market, patents, GDP growth, and so on. Second, the time lag between innovative efforts and performance is often so large, and so industry specific, that it remains just very hard to produce reliable estimates. Third, it is still unclear at what level of analysis one should go looking for positive economic performance. Studies exist that look at the relationship between performance and innovation at the level of design teams, projects, firms, networks, industries, and countries. This paper aims at critically reviewing the wide, yet remarkably scattered literature that aims at measuring and explaining the relationship between innovation and performance. It builds upon an extensive review of contributions in economics, management and organisation sciences to identify trends and results that are consistent and robust. In a nutshell, this paper argues that country- and sectoral-level approaches which emphasize the role that knowledge, spillovers and human capital play in fostering economic growth trough innovation need to consider the fundamental role played by competition among heterogeneous organisations in igniting the growth process. In this respect, micro-and firm-level studies can provide useful insights about how competition fosters learning, innovation and ultimately growth.
    Keywords: Innovation, Growth, Knowledge, Performance, Competition.
    JEL: O14 O33 O40
    Date: 2006–08

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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