nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒12‒01
eleven papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Bargaining under Large Risk - An Experimental Analysis - By Werner Guth; Sabine Kroger; Ernst Maug
  2. Do Individuals Recognize Cascade Behavior of Others? - An Experimental Study - By Tim Grebe; Julia Schmid; Andreas Stiehler
  3. The Origins of Fair Play By Ken Binmore
  4. How Does Opportunistic Behavior Influence Firm Size? By Christian Cordes; Peter J. Richerson; Richard McElreath; Pontus Strimling
  5. Metamimetic Games : Modeling Metadynamics in Social Cognition By David Chavalarias
  6. Can the Theory of Motivation Explain Migration Decisions? By Natálie Reichlová
  7. How to manage people who think. A structural approach. By Beckerman, Carina
  8. Knowledge structuring-Knowledge domination. Two interrelated concepts By Beckerman, Carina
  9. Heterogeneity of saving behaviours: does gender matter? By BETTIO FRANCESCA; CARETTA ALESSANDRA
  10. Advertising as a Distortion of Social Learning By Brekke, Kjell Arne; Rege, Mari
  11. Advertising as Distortion of Learning in Markets with Network Externalities By Brekke, Kjell Arne; Rege, Mari

  1. By: Werner Guth; Sabine Kroger; Ernst Maug
    Abstract: We present an experimental study to learn about behavior in bargaining situations under large risks. In order to implement realistic risks involved in the field, we calibrate the experimental parameters from an environment involving substantial variation in profits, the motion picture industry. The leading example is the production of a movie that may give rise to a sequel, so actors and producers negotiate sequentially. We analyze the data in light of alternative behavioral approaches to understanding bargaining behavior under large risk.
    Keywords: Bargaining, Large Risk, Equity, Experiments, Calibration
    JEL: C72 C91 D81
    Date: 2006
  2. By: Tim Grebe; Julia Schmid; Andreas Stiehler
    Abstract: In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.
    Keywords: Information Cascades, Bayes' Rule, Decision Under Risk and Uncertainty, Experimental Economics.
    JEL: C91 D81 D82
    Date: 2006–11
  3. By: Ken Binmore
    Abstract: This paper gives a brief overview of an evolutionary theory of fairness. The ideas are fleshed out in Binmore's book 'Natural Justice' (Oxford University Press, New York, 2005.), which is itself a condensed version of his earlier two-volume book 'Game Theory and the Social Contract' (MIT Press, Cambridge, MA, 1994 and 1998). Length 29 pages
    Date: 2006–11
  4. By: Christian Cordes; Peter J. Richerson; Richard McElreath; Pontus Strimling
    Abstract: This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms’ size small.
    Keywords: Theory of the Firm, Transaction Cost Economics, Cultural Evolution, Opportunism, Cooperation Length 21 pages
    JEL: D21 D23 D01 M14 C61
    Date: 2006–11
  5. 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
  6. By: Natálie Reichlová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: According to Abraham Maslow's motivational theory, human action is motivated by five groups of human needs. The model introduced in this paper exploits Maslow's theory to explain migration flows between regions. In the model, movement from one place to another influences migrant's utility through three various ways. First, through change in wage caused by different wage levels in each location. Second, through changes in utility connected with individuals safety needs and finally, through disarrangement of individual's social networks. When safety and social needs are added to the model, equilibria arise in which wage differential between regions persists.
    Keywords: agent-based modeling; decision making; migration; motivation; networks
    JEL: J61 F22 I31 O15
    Date: 2005
  7. By: Beckerman, Carina (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: This is a paper about creativity, diversity and other often used buzzwords. It is also a paper about how to manage people who think. Today we live in a world in which computers and mobile phones have become the key artifacts. Nokia´s slogan ”connecting people” expresses in a brilliant way what it is all about. When we connect people information is transfered and new knowledge hopefully created. And innovations, ideas and individuals are central for everything that takes place. We are all supposed to be flexible, exercising our knowledge in a setting characterized by diversity. This setting is also characterized by paradoxes that I will write more about further down. But transformations such as the globalization and implementing of new information technology race crucial questions about how to deal with a changing economic landscape and new mindsets and changing attitudes. The pages that follow is based on extensive reading of the literature and participating in many conferences and work-shops. In addition to this I have interviewed managers and employees at Electrolux, Ericsson, TeliaSonera and The Confederation of Swedish Enterprise. I have asked people in the above mentioned organizations how they react to concepts such as the knowledge society and the practice of managing knowledge, creativity, diversity and flexibility. This paper is written with a Scandinavian perspective. It is also written with a social constructionist perspective. The theoretical framework includes theories about knowledge management, structuration theory and cognitive theories. The findings are based on interpretative research and I have systematically reflected over the material I have collected. I direct myself towards people in business who think and worry about the future. The purpose is to inspire to further discussions about these very important matters.
    Keywords: Knowledge management; structuration theory; knowledge society; globalization; creativity; diversity; flexibility.
    Date: 2006–11–21
  8. By: Beckerman, Carina (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: <p> “Sociology for me is not only about the big institutions, such as governments, organizations, business firms or societies as a whole. It is very much about the individual and our individual experiences. We come to understand ourselves much better through grasping the wider social forces that influence our lives.” ( Anthony Giddens, published at, a leading social science and humanities publisher. ) <p> This quotation helps identify one reason for integrating ideas about knowledge management with concepts from Anthony Giddens structuration theory in the theoretical framework that I use as an analytical tool in this research. Structuration theory concerns itself with the “social forces that influence our lives” and these forces interest me. In the same article Giddens continuous: ”We live in a world of quite dramatic change…There are three major sets of changes happening in contemporary societies and it is the task of sociology to analyze what they mean for our lives today. First there is globalisation….The second big influence is that of technological change. Information technology is altering many of the ways in which we work and in which we live. The nature of the jobs people do, for example, has been transformed….The third fundamental set of changes is in our everyday lives. Our lives are structured less by the past than by our anticipated future”. <p> In this paper I agure that there is a continous structuring going on in society. I therefore concern myself with a pair of twin concepts that are interrelated. The first one is knowledge structuring; the second is knowledge domination. These two concepts are of vital importance when trying to understand, assess and monitor implications of transformations of work processes and tools at work.
    Keywords: Knowledge structuring; knowledge domination; knowledge management; structuration theory; cognitive theories; transformations; information technology; globalisation.
    Date: 2006–11–22
    Abstract: This paper focuses on the gender heterogeneity of saving rates within the tradition of those empirical investigations that analyse saving behaviour directly for different groups of the population. We explore these issues by means of econometric estimation of a reduced form life cycle equation of savings and the subsequent simulation of saving rates. The investigation is conducted for Italy and the UK with a view to also verifying the extent to which outcomes reflect country specific factors. In order to isolate the role of preferences from that of family roles we confine the analysis to the subsample of the ‘singles’ in the population. Our results strongly suggest that (single) women do not display a greater taste for saving, but provide mixed support for the reverse possibility. Preliminary exploration of gendered consumption patterns suggests that higher expenditure on rent by women may contribute to lowering their savings with respect to men.
    Date: 2005–12
  10. By: Brekke, Kjell Arne (The Ragnar Frisch Centre for Economic Research); Rege, Mari (University of Stavanger)
    Abstract: By combining a theory of herding behavior with the phenomenon of availability heuristic, this paper shows that non-informative advertisements can affect people’s choices by influencing their perception of product quality. We present a model in which people can learn about product quality by observing the choices of others. Consumers are, however, not able to fully distinguish between the observations of real people and fictitious characters in advertisements. Even if a person is aware of this limitation and updates his beliefs accordingly, it is still rational for him to choose the product he has observed most often. In equilibrium the most observed product is always most likely to be of the highest quality. The analysis has important policy implications.
    Keywords: Advertising; availability heuristic; herding behavior; information; product quality
    JEL: D21 L15 M37
    Date: 2006–11–14
  11. By: Brekke, Kjell Arne (The Ragnar Frisch Centre for Economic Research); Rege, Mari (University of Stavanger)
    Abstract: We present a theory of how advertising can break a lock-in by distorting beliefs about market shares in markets with network externalities. On the background of the availability heuristic we assume that people learn about market shares by observing product adoption of others, but are not able to fully distinguish between observations of real people and …ctitious characters in advertisements. We look at a game between an incumbent and an entrant producing close substitutes. Our analysis shows that if the entrant’s product is of su¢ ciently high quality, then the entrant will use advertising in order to break the lock-in and the incumbent will not advertise at all. However, if the quality di¤erential between the two products is small, then the incumbent may advertise and make it unpro…table for the entrant to break the lock-in.
    Keywords: Advertising; availability heuristic; herding behavior; information; lock-in
    JEL: D21 L10 M37
    Date: 2006–11–23

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