nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒01‒02
fifteen papers chosen by
Marco Novarese
Universita del Piemonte Orientale

  1. Vertical Integration and Dis-integration of Computer Firms: A History Friendly Model of the Co-evolution of the Computer and Semiconductor Industries By Franco Malerba; Richard Nelson; Luigi Orsenigo; Sidney Winter
  2. Moral fictionalism, preference moralization and anti-conservatism: why metaethical error theory doesn’t imply policy quietism By D.Ross
  3. Trust Games Measure Trust By Houser, Daniel; Schunk, Daniel; Winter, Joachim
  4. Trust Responsiveness: On the Dynamics of Fiduciary Interactions By Vittorio Pelligra
  5. Trust, Communication and Contracts: An Experiment By Avner Ben-Ner; Louis Putterman
  6. Reciprocity and Payment Schemes: When Equality Is Unfair By Johannes Abeler; Steffen Altmann; Sebastian Kube; Matthias Wibral
  7. Gender based prescriptions: evidence for altruism By Fernando Aguiar; Pablo Brañas-Garza; Ramón Cobo-Reyes; Natalia Jiménez; Luis M. Miller
  8. On the Evolution of Investment Strategies and the Kelly Rule – A Darwinian Approach By Lensberg, Terje; Schenk-Hoppé, Klaus Reiner
  9. Life Satisfaction and Economic Outcomes in Germany Pre- and Post-Unification By Richard A. Easterlin; Anke C. Zimmermann
  10. Learning-by-Doing in an Ambiguous Environment By Jim Engle-Warnick; Sonia Laszlo
  11. A Simple Test of Learning Theory By Jim Engle-Warnick; Ed Hopkins
  12. On the absorbability of the Guessing Game Theory - A Theoretical and Experimental Analysis By Andrea Morone; Serena Sandri; Tobias Uske
  13. Road Traffic Congestion and Public Information: An Experimental Investigation By Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer
  14. Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence By Andrea Morone; Ozlem Ozdemir
  15. Leading by example with and without exclusion power in voluntary contribution experiments By Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden

  1. By: Franco Malerba; Richard Nelson; Luigi Orsenigo; Sidney Winter
    Abstract: In this paper we present a history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries. The model is "history friendly", in that it attempts at replicating some basic, stylized qualitative features of the evolution of vertical integration on the basis of the causal mechanisms and processes which we believe can explain the history. The specific question addressed in the model is set in the context of dynamic and uncertain technological and market environments, characterized by periods of technological revolutions punctuating periods of relative technological stability and smooth technical progress. The model illustrates how the patterns of vertical integration and specialization in the computer industry change as a function of the evolving levels and distribution of firms’ capabilities over time and how they depend on the co-evolution of the upstream and downstream sectors. Specific conditions in each of these markets - the size of the external market, the magnitude of the technological discontinuities, the lock-in effects in demand - exert critical effects and feedbacks on market structure and on the vertical scope of firms as time goes by. Length 32 pages
    Date: 2006–12
  2. By: D.Ross
    Abstract: The evolutionary explanation of human dispositions to prosocial behaviour and to moralization of such behaviour undermines the moral realist's belief in objective moral facts that hold independently of people's contingent desires. At the same time, advocacy of preferences for significant departures from hallowed policies (that is, for 'loud policies') is generally sure to be ineffective unless it is moralized. It may seem that this requires the economist who would advocate loud policies, but is also committed to a naturalistic account of human social and cognitive behaviour, to engage in wilful manipulation, morally hectoring people even when she knows that her doing so ought rationally to carry no persuasive force. Furthermore, it might be wondered on what basis just for herself an error theorist about morality advocates loud policies. I argue that understanding the role of moralized preferences in the maintenance of the self, and in turn understanding the economic rationale of such self-maintenance, allows us to see how and why preferences can be moralized by a believer in error theory without this implying hypocrisy or manipulation of others. Length 30 pages
    Date: 2006–12
  3. By: Houser, Daniel; Schunk, Daniel; Winter, Joachim
    Abstract: The relationship between trust and risk is a topic of enduring interest. Although there are substantial differences between the ideas the terms express, many researchers from different disciplines have pointed out that these two concepts become very closely related in personal exchange contexts. This raises the important practical concern over whether behaviors in the widely-used “trust game” actually measure trust, or instead reveal more about risk attitudes. It is critical to confront this question rigorously, as data from these games are increasingly used to support conclusions from a wide variety of fields including macroeconomic development, social psychology and cultural anthropology. The aim of this paper is to provide cogent evidence on the relationship between trust and risk in “trust” games. Subjects in our experiment participate either in a trust game or in its risk game counterpart. In the trust version, subjects play a standard trust game and know their counterparts are human. In the risk version, subjects know their counterparts are computers making random decisions. We compare decisions between these treatments, and also correlate behavior with subjects’ risk attitudes as measured by the Holt and Laury (2002) risk instrument. We provide evidence that trusting behavior is different than behavior under risk. In particular, (i) decisions patterns in our trust and risk games are significantly different; and (ii) risk attitudes correlate with decisions in the risk game, but not the trust game.
    Keywords: trust; risk attitudes; laboratory experiments
    JEL: C91 C92
    Date: 2006–12
  4. By: Vittorio Pelligra
    Abstract: Trust and trustworthiness are key elements, both at the micro and macro level, in sustaining the working of modern economies and their institutions. However, despite its centrality, trust continues to be considered as a “conceptual bumblebee”, it works in practice but not in theory. In particular, its behavioural rationale still represents a puzzle for traditional rational choice theory and game theory. In this paper “trust responsiveness”, an alternative explanatory principle that can account for trustful and trustworthy behaviour, is proposed. Such principle assumes that people can be motivated to behave trustworthily by trustful actions. The paper discusses the philosophical roots, the historical development, as well as the relational nature of this principle as well as its theoretical implications.
    Keywords: Trust, Trustworthiness, Game Theory, Adam Smith
    JEL: Z13 B31 C7
    Date: 2006
  5. By: Avner Ben-Ner; Louis Putterman
    Abstract: In the one-shot trust or investment game without opportunities for reputation formation or contracting, economic theory predicts no trusting because there is no incentive for trustworthiness. Under these conditions, theory predicts (a) no effect of pre-play communication, and (b) universal preference for moderate cost binding contracts over interacting without contracts. We introduce the opportunities to engage in pre-play communication and to enter binding or non-binding contracts, and find (a) communication increases trusting and trustworthiness, (b) contracts are largely unnecessary for trusting and trustworthy behaviors and are eschewed by many players, and (c) more trusting leads to higher earnings, and (d) both trustors and trustees favor “fair and efficient” proposals over the more unequal proposals predicted by theory.
    Keywords: trust game, trust, trustworthiness, reciprocity, commitment, communication. Comparative analysis of agency problems, Production of public goods
    JEL: C72 C91 D63
  6. By: Johannes Abeler (IZA Bonn and University of Bonn); Steffen Altmann (IZA Bonn and University of Bonn); Sebastian Kube (University of Karlsruhe); Matthias Wibral (IZA Bonn and University of Bonn)
    Abstract: A growing literature stresses the importance of reciprocity, especially for employment relations. In this paper, we study the interaction of different payment modes with reciprocity. In particular, we analyze how equal wages affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts and efficiency. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is rather driven by the fact that reciprocity is violated far more frequently in the equal wage treatment. Agents suffering from a violation of reciprocity subsequently withdraw effort. Our results suggest that individual reward and punishment opportunities are crucial for making reciprocity a powerful contract enforcement device.
    Keywords: laboratory experiment, wage setting, wage equality, gift exchange, reciprocity, social norms, incomplete contracts, multiple agents
    JEL: C92 J33 J41 M12 M52
    Date: 2006–12
  7. By: Fernando Aguiar (IESA/CSIC); Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada.); Natalia Jiménez (Department of Economic Theory and Economic History, University of Granada.); Luis M. Miller (IESA/CSIC)
    Abstract: This paper analyzes the way in which men and women are expected to behave differently in an experimental situation. To do so, we concentrate on a single topic: altruism. Since the dictator game provides the most suitable design for studying altruism and generosity in the lab setting, we use a modified version to study the beliefs involved in the game. Our results are substantial: men and women are expected to behave differently and both believe that women are more generous. These two premises affect their behavior.
    Keywords: prescriptions, dictator game, beliefs, generosity, gender
    JEL: C91 D64 J16
    Date: 2006–12–14
  8. By: Lensberg, Terje (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Schenk-Hoppé, Klaus Reiner (Leeds University Business School, University of Leeds)
    Abstract: This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term performance can emerge in markets populated by unsophisticated investors. Regardless whether the market is complete or incomplete and whether states are i.i.d. or Markov, the Kelly rule is obtained as the asymptotic outcome. With price-dependent rather than just state-dependent investment strategies, the market portfolio plays an important role as a protection against severe losses in volatile markets.
    Keywords: Evolutionary finance; portfolio choice; asset pricing; genetic programming
    JEL: C63 G11
    Date: 2006–12–19
  9. By: Richard A. Easterlin (University of Southern California and IZA Bonn); Anke C. Zimmermann (University of Southern California)
    Abstract: Throughout Germany real income has trended upward since 1991, but life satisfaction has risen in the East, fallen in the West, and been fairly stable for Germany as a whole. By 1997 the initial excess of West over East Germany was cut by over one-half; since then, the differential has changed very little, and even edged slightly upward. The post-unification decline in West Germany appears to be a break with the pattern in the seven years prior to unification and occurs among Germans, European foreigners, and Turkish foreigners. After 1997, Turkish foreigners, unlike the others, continue to decline in life satisfaction, and by 2004, their initial excess over East Germans largely disappears. The life satisfaction of postunification migrants from East Germany to the West is somewhat less than that of Germans and European foreigners in the West, but higher than that of Turkish foreigners and of Germans in East Germany. Migrants from the West to East Germany have life satisfaction about equal to that of Germans in that region. Trends and differences in overall life satisfaction are most systematically related to reports on satisfaction with income, next to the unemployment rate, and least of all, to absolute real income.
    Keywords: subjective well-being, domain satisfaction, German unification
    JEL: D60 I31 D1 O52
    Date: 2006–12
  10. By: Jim Engle-Warnick; Sonia Laszlo
    Abstract: We experimentally test whether risk aversion or ambiguity aversion can explain decisions in a learning-by-doing game. We first measure subjects' preferences toward risk and ambiguity, and then use these measures to predict behavior in the game. We find that ambiguity averse subjects pay more often to resolve ambiguity, and we find that less risk averse subjects earn more in the game. Our results, in light of a previous field study of farmers in a developing economy, provide further evidence of a link between ambiguity aversion and technology choice, as well as a link between risk aversion and farm profitability. <P>Une étude expérimentale a été menée afin de tester si l’aversion au risque ou l’aversion à l’ambiguïté peuvent expliquer les décisions prises par les sujets lors d’un jeu d’apprentissage par essais. Nous avons d’abord mesuré la préférence des sujets face au risque et à l’ambiguïté, et avons ensuite utilisé ces mesures pour prédire le comportement des sujets au cours du jeu. Nous avons pu constater que les sujets qui éprouvent de l’aversion à l’ambiguïté décident de payer plus souvent afin de clarifier cette ambiguïté. D’autre part, nous avons constaté que moins les sujets éprouvent de l’aversion au risque, plus leurs gains lors du jeu sont élevés. À la lumière d’une étude sur le terrain ayant eu lieu avec des fermiers travaillant dans une économie en développement, nos résultats confirment l'évidence d'un lien entre l'aversion à l'ambiguïté et les choix technologiques, ainsi que d'un lien entre l'aversion au risque et la rentabilité d'une ferme.
    Keywords: learning-by-doing, technology choice, risk preferences, risk measurement instruments, ambiguity aversion, experimental economics, apprentissage par essais, choix technologiques, préférences vis-à-vis du risque, instruments de mesure du risque, aversion à l’ambiguïté, économie expérimentale
    JEL: C91 D80
    Date: 2006–12–01
  11. By: Jim Engle-Warnick; Ed Hopkins
    Abstract: We report experiments designed to test the theoretical possibility, first discovered by Shapley (1964), that in some games learning fails to converge to any equilibrium, either in terms of marginal frequencies or of average play. Subjects played repeatedly in fixed pairings one of two 3 ´ 3 games, each having a unique Nash equilibrium in mixed strategies. The equilibrium of one game is predicted to be stable under learning, the other unstable, provided payoffs are sufficiently high. We ran each game in high and low payoff treatments. We find that, in all treatments, average play is close to equilibrium even though there are strong cycles present in the data. <P>Nous faisons le compte rendu d'expériences élaborées afin de tester la possibilité théorique, découverte par Shapley (1964), que dans certains jeux, l'apprentissage ne converge pas vers un équilibre, que ce soit en termes de fréquences marginales ou de jeu moyen. Les sujets ont joué à répétition en paires fixes à un de deux jeux 3 ´ 3, chaque jeu ayant un équilibre de Nash unique avec stratégies mixtes. On prévoit que l'équilibre du premier jeu soit stable après apprentissage, et le deuxième jeu instable, à condition que les gains soient suffisamment élevés. Pour chaque jeu, nous avons eu recours à deux différents traitements : un avec gains faibles et l’autre avec gains élevés. Nous avons constaté que dans tous les traitements, le jeu moyen est près de l'équilibre bien qu'il y ait présence de cycles importants dans les données.
    Keywords: games, learning, experiments, stochastic fictitious play, mixed strategy equilibria, jeux, apprentissage, expériences, jeu fictif stochastique, équilibres à stratégie mixte
    JEL: C72 C73 C92 D83
    Date: 2006–12–01
  12. By: Andrea Morone; Serena Sandri; Tobias Uske
    Abstract: Theory absorption, a notion introduced by Morgenstern and Schwödiauer (1972) and further elaborated by Güth and Kliemt (2004), discusses the problem whether a theory can survive its own acceptance. Whereas this holds for strategic equilibria according to the assumptions on which they are based, the problem if theories are absorbable by at most boundedly rational decision makers is hardly discussed. Based on guessing game experiments we discuss the requirements of equilibrium theory absorption and test experimentally the effects of informing none, some or all players about how to derive equilibrium predictions.
    Keywords: theory absorption, guessing game, p-beauty contest, individual behaviour, elimination of dominated strategies
    JEL: C72 C91
    Date: 2006–12
  13. By: Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer
    Abstract: This paper reports two laboratory studies designed to study the impact of public information about past departure rates on congestion levels and travel costs. Our experimental design is based on a discrete version of Arnott, de Palma, and Lindsey’s (1990) bottleneck model where subjects have to choose their departure time in order to reach a common destination. Experimental treatments in our first study differ in terms of the level of public information on past departure rates and the relative cost of delay. In all treatments, congestion occurs and the observed total travel costs match the predicted ones. In other words, subjects' capacity to coordinate is neither affected by the availability of public information on past departure rates nor by the relative cost of delay. This absence of treatment effects is confirmed by our finding that a parameter-free reinforcement learning model best characterizes individual behavior. The number of experimental subjects taking the role of drivers is four times larger in our second study than in our first study. We observe that subjects’ capacity to coordinate is not affected by the size of the population.
    Keywords: Travel behavior; Congestion; Information in intelligent transportation systems; Laboratory experiments
    JEL: C91 C92 D83 R40 R41
    Date: 2006–12
  14. By: Andrea Morone; Ozlem Ozdemir
    Abstract: The study investigates protective responses in low probability and high loss risk situations. Particularly, it (1) detects individual protection valuations to variations in probability versus to variations in loss for payment decisions and choice decisions, (2) elicits the threshold probability in individuals’ minds that make them consider having protective measure, (3)calculates relative risk aversion. The results of the experiment indicate that as the probability of loss and loss amount increases, individuals tend to buy/pay more for protection. They are more responsive to the variation in probabilities than to the variation in loss amounts when they decide whether to buy the protective measure or not: choice decision. Yet, the opposite is true when they decide the amount of willingness to pay for buying the protective measure: payment decision. In addition, bid expected loss values have a bimodal distribution. Consistent with previous studies, individuals (particularly women) are found to be risk averse for low probabilities.
    Keywords: experiments, risk, insurance
    JEL: C91 D81
    Date: 2006–12
  15. By: Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
    Abstract: We examine the effects of leading by example in voluntary contribution experiments. Leadership is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority in the form of granting the leader exclusion power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.
    Keywords: Voluntary contribution experiment, leadership, exclusion power, endogenous selection
    JEL: C72 C92 H41
    Date: 2006–12

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