nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2006‒12‒04
seventeen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Entrepreneurship and Economic Theory By Khalil, Elias
  2. How does An Entrepreneur’s Ability Influence the Propensity to Exploit Novel Opportunities? The Moderating Role of Personality and Environment By Lee, Lena; Wong, Poh Kam
  4. The Economics of Rhetoric: On Metaphors as Institutions By Lanteri, Alessandro; Yalcintas, Altug
  5. Evolving Economics: Synthesis By Stanton, Angela A.
  6. What Citizens Know Depends on How You Ask Them: Political Knowledge and Political Learning Skills By Lupia, Arthur; Prior, Markus
  7. Stories of Error and Vice Matter: Path Dependence, Paul David, and Efficiency and Optimality in Economics By Yalcintas, Altug
  8. Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making By Lombardelli, Clare; Proudman, James; Talbot, James
  9. Technological knowledge and the theory of the firm: The role of idiosyncratic factors in the quest for the economics of distinctive competences By Antonelli Cristiano
  10. When Can Politicians Scare Citizens Into Supporting Bad Policies? A Theory of Incentives with Fear-Based Content By Lupia, Arthur; Menning, Jesse
  11. Information Theory and Knowledge-Gathering By Murphy, Roy E
  12. Mixed Tournaments, Common Shocks, and Disincentives: An Experimental Study By Wu, Steven; Roe, Brian; Sporleder, Thomas
  13. Innovation creation and diffusion in a social network: an agent based approach By Lamieri, Marco; Ietri, Daniele
  14. Cluster dynamics and innovation in SMEs: the role of culture By Callegati Enrico; Grandi Silvia
  15. Beating the tit for tat: using a genetic algorithm to nuild an effective adaptive behavior By Fontana Magda; Ferraris Gianluigi
  16. Computability of simple games: A characterization and application to the core By Kumabe, Masahiro; Mihara, H. Reiju
  17. WHATEVER HAPPENED TO MICROFOUNDATIONS? By Mauro Boianovsky; Roger Backhouse

  1. By: Khalil, Elias
    Abstract: Let us define entrepreneurship as creativity and the evolution of novelty. Let us suppose, the main thesis of the chapter, that entrepreneurship is an action that does not differ from everyday action such as walking, driving, or chewing gum. If the definition and supposition are granted we can conclude that the theory of everyday action, such as walking or chewing gum, is one and the same as the theory of evolution. The conclusion is definitely strange if not extraordinary. It is based on a subtle but subversive thesis: There is no difference between everyday action and creativity or evolution. This conclusion is extraordinary only because it goes against the dominant dogmas in economics (i.e., neoclassical theory) and evolutionary biology (i.e., neo-Darwinian theory). Both dogmas draw a radical divide between action and evolution. For neo-Darwinian theory, action is phenotype ultimately determined by genotype—while the genotype evolves according to another mechanism. For neoclassical economics, action is determined by rational calculation of the efficient allocation of given resources—while resources evolve according to another mechanism. To undermine the radical divide between the theory of action and the theory of evolution, this chapter shows how everyday action—from walking, fetching water, to fishing—is entrepreneurial at first level of approximation—and hence should be the basis of the theory of evolution.
    Keywords: Action; Evolution; neo-Darwinism; neoclassical theory; Austrian Economics; classical economics; Alfred Whitehead; John Dewey.
    JEL: D29 D20
    Date: 2006–10–13
  2. By: Lee, Lena; Wong, Poh Kam
    Abstract: While prior research has examined the influence of entrepreneurs’ ability and personality on entrepreneurial behavior separately, our study’s contribution is to confirm their joint effects, as well as their interaction effects with the dynamism of the environment on entrepreneurs’ opportunity exploitation behavior. Our study’s findings are consistent with the emerging opportunity-exploiter nexus framework of Shane and Venkataraman, which posits that the rate and nature of entrepreneurial exploitation activities are jointly determined by the nexus of environmental factors that shape the emergence of opportunities and the supply of opportunity-seekers with the right entrepreneurial personalities and abilities to exploit such opportunities. Specifically, we found that highly critical entrepreneurs who are high in extraversion, agreeableness, openness to experience, independence, and emotional stability have higher propensity to exploit novel opportunities in uncertain environments.
    Keywords: Personality; ability; opportunity exploitation
    JEL: M2
    Date: 2006
  3. By: David Dequech
    Date: 2006
  4. By: Lanteri, Alessandro; Yalcintas, Altug
    Abstract: The professional life of economists takes place within the boundaries of the institution of academic economics. Belonging to the institution enable economists in many ways. It provides a context wherein their contribution is meaningful. But it constrains, too, what economists are allowed to do or say. Thus, institutions both enable and constrain individual action. Metaphors do the same and are therefore, in this respect, institutions. They are place-holders to communicate our beliefs, feelings, and thoughts. So far, there is nothing wrong. This may become a problem, however, as Richard Rorty has once said, when the “happenstance of our cultural development [is] that we got stuck so long with place-holders.” In the essay we focus on the enabling and disabling roles of metaphors as institutions in the rhetoric of economics. We argue, from the perspective of economics of rhetoric, that some of the metaphors can lead us to path dependent circumstances where the performance of the metaphors is not as desirable as it was when the metaphors were first introduced. Sometimes certain metaphors undergo exaptation, and are employed with new functions. Altogether, we believe, the tools of institutional economics can be fruitfully employed to study metaphors.
    Keywords: Economics of rhetoric; metaphors as Institutions; path Dependence; exaptation.
    JEL: B52 B25 B41
    Date: 2006–04
  5. By: Stanton, Angela A.
    Abstract: This paper reviews the literature of behavioral-, experimental-, and neuro-economics research with the ultimatum and the dictator games. “One may wonder whether Adam Smith, were he working today, would not be a neuroeconomi[st]” Aldo Rustichini 2005
    Keywords: Literature Review of behavioral-; experimental- and neuro-economics using ultimatum and dictator game
    JEL: D01 A10
    Date: 2006–04–26
  6. By: Lupia, Arthur; Prior, Markus
    Abstract: Surveys provide widely-cited measures of political knowledge. Do unusual aspects of survey interviews reduce their relevance? To address this question, we embedded a set of experiments in a representative survey of over 1200 Americans. A control group answered political knowledge questions in a typical survey context. Respondents in treatment groups received the same questions in different contexts. One group received a monetary incentive for answering questions correctly. Others were given more time to answer the questions. The treatments increase the number of correct answers by 11-24 percent. Our findings imply that conventional knowledge measures confound respondents’ recall of political information and their motivation to engage the survey question. The measures also provide unreliable assessments of respondents’ abilities to access information that they have stored in places other than their immediately available memories. As a result, existing knowledge measures likely underestimate peoples’ capacities for informed decision making.
    Keywords: political knowledge; economic knowledge; experimental economics; incentives; survey
    JEL: H30 H31 C90
    Date: 2005
  7. By: Yalcintas, Altug
    Abstract: Abstract: History books are full of success stories. Intellectuals are interested in such stories because they are important in human history – they are important especially for those who are willing to know more about how we have reached the peak points of human civilization. History books, however, do not always credit issues of human failure and error. The social element – that is, the set of undesirable consequences of the imperfect character of human doings – are thus left out as irrelevant. Oddities and wrongheadedness, for instance, are not at the forefronts of human notice. They are seen only as peculiarities to be corrected sooner or later. Human failure and error are important as they are often left uncorrected in time. That is to say, we keep repeating the same errors through time. Uncorrected errors of the past sometimes generate undesirability, dissatisfaction, and disappointment in the future, because such errors prevent us from producing pragmatic solutions to practical problems in the economy and society. They prevent us from reaching “the general equilibrium.” They prevent us from getting at “the fundamental truth.” The world is, therefore, not the best of all possible worlds. The world, unlike the portrayals of neo-classical economics in general and Paul Samuelson in particular, is a world of transaction costs, as Ronald Coase argued, in the form of human failure and error. Consequences of such errors, which do not disappear easily and without causing further trouble, make the idea impossible – the idea that perfection in the world of humans is achievable. I illustrate in the paper that there are such errors in human history that cause path dependence in the economy and society. Many errors in the past, I argue, are not corrected – they linger. History is therefore not only a bunch of success stories in the form of efficiencies and optimizations. History is also the stories of error – stories of path dependence. And such errors, too, should matter for historical economists.
    Keywords: Path dependence; Paul David; Efficiency and Optimality
    JEL: B52 B25 B41
    Date: 2006–11
  8. By: Lombardelli, Clare; Proudman, James; Talbot, James
    Abstract: We report the results of an experimental analysis of monetary policy decision making under uncertainty. A large sample of economics students played a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. We also attempt to establish why this is so. Some of the improvement is related to the ability of committees to strip out the effect of bad play, but there is a significant additional improvement, which we associate with players learning from each other’s interest rate decisions.
    Keywords: Monetary policy; experimental economics; central banking; uncertainty
    JEL: G00 G0
    Date: 2005–02–08
  9. By: Antonelli Cristiano (University of Turin)
    Abstract: This paper elaborates a theory of the firm that combines the intuitions of Edith Penrose with the analysis of localized technological knowledge. The analysis of the characteristics of knowledge indivisibility and of idiosyncratic factors pIay a key role in shaping the intentionai strategy of firms about the direction of technology strategies. The firm is viewed as a Iearning agent that, induced by market forces and buiIding upon Iearning processes, elaborates and impiements intentionally strategies of knowledge generation. These strategies include the necessary identification of the externai sources of compiementary technoiogicai knowledge and of the idiosyncratic production factors that is convenient to lise intensiveIy. Learning, in fact is a necessary, but not sufficient condition for the generation of new knowledge. The anaIysis of the conditions for the intentional generation of technoiogicai and organizationai knowledge becomes crociato The analysis of the combined effects of internai Iearning, externai knowledge and intensive lise of idiosyncratic factors by means of the introduction of biased technological change CUlli intentional decision­making provides key inputs to understanding the path dependent and idiosyncratic features of the knowledge generated by the firm as the basis for its distinctive competences.
    Date: 2005–07
  10. By: Lupia, Arthur; Menning, Jesse
    Abstract: Analysts make competing claims about when and how politicians can use fear to gain support for suboptimal policies. Using a model, we clarify how common attributes of fear affect politicians’ abilities to achieve self-serving outcomes that are bad for voters. In it, a politician provides information about a threat. His statement need not be true. How citizens respond differs from most game-theoretic models – we proceed from more dynamic (and realistic) assumptions about how citizens think. Our conclusions counter popular claims about how easily politicians use fear to manipulate citizens, yield different policy advice than does recent scholarship on counterterrorism, and highlight issues (abstract, distant) and leaders (secretive) for which recent findings by political psychologists and public opinion scholars will – and will not – generalize.
    Keywords: emotions; behavioral economics; game theory; political science; incentives
    JEL: D83 H30 C72
    Date: 2005
  11. By: Murphy, Roy E
    Abstract: It is assumed that human knowledge-building depends on a discrete sequential decision-making process subjected to a stochastic information transmitting environment. This environment randomly transmits Shannon type information-packets to the decision-maker, who examines each of them for relevancy and then determines his optimal choices. Using this set of relevant information-packets, the decision-maker adapts, over time, to the stochastic nature of his environment, and optimizes the subjective expected rate-of-growth of knowledge. The decision-maker’s optimal actions, lead to a decision function that involves his view of the subjective entropy of the environmental process and other important parameters at each stage of the process. Using this model of human behavior, one could create psychometric experiments using computer simulation and real decision-makers, to play programmed games to measure the resulting human performance.
    Keywords: decision-making; dynamic programming; entropy; epistemology; information theory; knowledge; sequential processes; subjective probability
    JEL: C61
    Date: 2006
  12. By: Wu, Steven; Roe, Brian; Sporleder, Thomas
    Abstract: Experimental economics is used to investigate two important hypotheses proposed in the economics literature on tournaments. Specifically, we test for a hypothesized “disincentives effect” which can occur in tournaments with mixed ability agents. We also test the well known hypothesis that, when common shocks are an important source of risk, tournaments can filter out this common shock and reduce earnings risk to workers. We find that disincentive effects arose in our tournament experiments, although these effects are not as strong as we predicted in our theoretical model and simulations. We also find that tournaments can be very effective at reducing earnings variation when common shocks are important. Taken together, these results suggest that the benefits of risk reduction from eliminating common shocks might outweigh the disincentive effects arising from mixed tournaments. We also find that the difference in average earnings between low and high ability agents is greater under tournaments than under absolute performance contracts.
    Keywords: mixed tournaments; incentives; relative performance contracts; experimental economics
    JEL: D86 J33
    Date: 2006–09
  13. By: Lamieri, Marco; Ietri, Daniele
    Abstract: Market is not only the result of the behaviour of agents, as we can find other forms of contact and communication. Many of them are determined by proximity conditions in some kind of space: in this paper we pay a particular attention to relational space, that is the space determined by the relationships between individuals. The paper starts from a brief account on theoretical and empirical literature on social networks. Social networks represent people and their relationships as networks, in which individuals are nodes and the relationships between them are ties. In particular, graph theory is used in literature in order to demonstrate some properties of social networks summarised in the concept of Small Worlds. The concept may be used to explain how some phenomena involving relations among agents have effects on multiple different geographical scales, involving both the local and the global scale. The empirical section of the paper is introduced by a brief summary of simulation techniques in social science and economics as a way to investigate complexity. The model investigates the dynamics of a population of firms (potential innovators) and consumers interacting in a space defined as a social network. Consumers are represented in the model in order to create a competitive environment pushing enterprises into innovative process (we refer to Schumpeter’s definition): from interaction between consumers and firms innovation emerges as a relational good.
    Keywords: Innovation; small world; computational economics; network; complexity
    JEL: L20 L10 C63 O33 D24
    Date: 2004–04–27
  14. By: Callegati Enrico; Grandi Silvia
    Abstract: The territorial agglomeration of interdependent enterprises has a positive influence on the competitiveness, the performance and the development of national economies. This is a widely accepted intuition in economie theory, and it dates back to the works of Alfred Marshall. In particular, these phenomena have been depicted through the theoretical framework of the "IndustriaI Districts". Another signifieant impulse to the debate was provided by the GREMI (Groupe de Recherche Européen sur les Milieux Innovateurs), through the concepì of milieu innovateur. Later, Michael Porter's studies and dissemination works granted great visibility to the dynamics of agglomeration of industries, which since then afe better known among policy makers as "clusters". At any rate, the importance of the cultural element in the concepts of "cluster", milieu, and "district" is undeniable. This is evident also when observing the phenomenon from a historieal perspective. Evidence shows that the strength of a loeal economie system, and its eapacity to grow and 10 innovate, afe closely related 10 the pattern of knowledge (thus cultural) stratifieation, to the territory itself and to learning eapacity. Moreover, one can observe that cultural socio­economie elements afe embedded in technology, thus they play a key role when considering the dynamics of innovation process and growth opportunities for Small and Medium Enterprises (SMEs). With this respect, the paper wìll present some relevant case studies of technical assistance earried out by in the field of industriai cooperation with several non-ED Mediterranean countries. In particular, the paper will present those case studies where initiatives were sei up with a view 10 encourage cluster dynamics in regions (i.e. Aleppo, Syria or Yazd, Iran), where the main sector of activity (textile and clothing industry) is his1orically and culturally based. In particular, several factors were involved, such as the cohesion of stakeholders for the creation of innovation, the development of new products, and the competìtive advantages for the loeal productìve system. The project approach and its conclusions confirm the fundamental role of culture and culture-based activities in the process of economie development, especially when considering SMEs, where culture represents both an embedded strategie foundatìon for the creation of cluster dynamics, and a signifieant potential for their future development affecting innovation trajectories.
    Date: 2005–03
  15. By: Fontana Magda (University of Turin); Ferraris Gianluigi
    Abstract: Agents capable of adaptive behavior can be obtained by means of AI tools. Thanks to these, they develop the ability to vary their Behavior in order to achieve satisfying results in the simulated environment. In the paper, artificially intelligent agents play an iterated prisoner' s dilemma against agents that reproduce (in a fix way) strategies that have emerged in Axelrod' s toumament. The objective of the adaptive agent is to earn a payoff higher than one of the Tit-for-tat, the strategy which has shown the better performance in the Axelrod's experimental setup. In the work, Genetic Algorithms are employed to produce and modify rules that are apt to achieve the set task. The adaptive dynamics is analysed in depth in order to understand the issues related to the codification of knowledge and to the evaluation of diverse strategies. In order to highlight different nuances of these matters we have amended the method as to improve it and experimented different knowledge's codifications.
    Date: 2006–04
  16. By: Kumabe, Masahiro; Mihara, H. Reiju
    Abstract: It was shown earlier that the class of algorithmically computable simple games (i) includes the class of games that have finite carriers and (ii) is included in the class of games that have finite winning coalitions. This paper characterizes computable games, strengthens the earlier result that computable games violate anonymity, and gives examples showing that the above inclusions are strict. It also extends Nakamura’s theorem about the nonemptyness of the core and shows that computable simple games have a finite Nakamura number, implying that the number of alternatives that the players can deal with rationally is restricted.
    Keywords: Voting games; infinitely many players; recursion theory; Turingcomputability; computable manuals and contracts
    JEL: D90 C69 D71 C71
    Date: 2006–07
  17. By: Mauro Boianovsky; Roger Backhouse
    Date: 2006

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