nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒03‒03
fourteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Naïve, Resolute or Sophisticated? A Study of Dynamic Decision Making By John D Hey; Gianna Lotito
  2. Noise and Bias in Eliciting Preferences By John D Hey; Andrea Morone; Ulrich Schmidt
  3. Modeling Industrial Evolution in Geographical Space By Giulio Bottazzi; Giovanni Dosi; Giorgio Fagiolo; Angelo Secchi
  4. Routines and representations at work - observing the architecture of conceptual design By Mike Hales; Joe Tidd
  5. The Impact of Naïve Advice and Observational Learning in Beauty-contest Games By Martin G. Kocher; Matthias Sutter; Florian Wakolbinger
  7. Living with risk By Larry G. Epstein
  8. Why and How Identity Should Influence Utility By Philipp C. Wichardt
  9. Evolutionary Thinking in Environmental Economics By Jeroen C.J.M. van den Bergh
  10. Contracting out: Dutch municipalities reject the solution for the VAT-distortion By Wassenaar, M.C.; Dijkgraaf, E.; Gradus, R.H.J.M.
  11. Communication and Renegotiation in Two-stage Games By Andersson , Ola; Wengström, Erik
  12. Learning mode of small business owners By Willem, A.; Van den Broeck, H.
  13. A Life experiment of development Mountain tourism in Portugal observed from the point of view of theories of Complexity, Complication and Self-organization By Carvalho, Pedro G.; Sonis, Michael
  14. Social Learning of Efficiency Enhancing Trade With(out) Market Entry Costs - An experimental study By Nadine Chlaß; Werner Güth; Christoph Vanberg

  1. By: John D Hey; Gianna Lotito
    Abstract: Dynamically inconsistent decision makers have to decide, implicitly or explicitly, what to do about their dynamic inconsistency. Economic theorists have identified three possible responses - to act naively (thus ignoring the dynamic inconsistency), to act resolutely (not letting their inconsistency affect their behaviour) or to act sophisticatedly (hence taking into account their inconsistency). We use data from a unique experiment (which observes both behaviour and perferences) in order to distinguish these three possibilities. We find that the majority of subjects are resolute, a substantial proportion are naïve and very few are sophisticated. These results have important implications for predicting the behaviour of people in dynamic situations.
    Keywords: Dynamic decision making, naivety, sophistication, resoluteness, dynamic inconsistencies
    JEL: D90 D80 C91
    Date: 2007–02
  2. By: John D Hey; Andrea Morone; Ulrich Schmidt
    Abstract: In the context of eliciting preferences for decision making under risk, we ask the question: "which might be the 'best' method for eliciting such preferences?". It is well known that different methods differ in terms of the bias in the elicitation; it is rather less well-known that different methods differ in terms of their noisiness. The optimal trade-off depends upon the relative magnitutdes of these two effects. We examine four different elicitation mechanisms (pairwise choice, willingness-to-pay, willingness-to-accept, and certainty equivalents) and estimate both effect. Our results suggest that economists might be better advised to use what appears to be a relatively inefficient elicitation technique (i.e. pairwise choice) in order to avoid trhe bias in better-known and more widely-used techniques.
    Keywords: Pairwise choice, willingness-to-pay, willingness-to-accept, errors, noise, biases
    JEL: C91 C81
    Date: 2007–02
  3. By: Giulio Bottazzi; Giovanni Dosi; Giorgio Fagiolo; Angelo Secchi
    Abstract: In this paper we study a class of evolutionary models of industrial agglomeration with local positive feedbacks, which allow for a wide set of empirically-testable implications. Their roots rest in the Generalized Polya Urn framework. Here, however, we build on a birth-death process over a finite number of locations and a finite population of firms. The process of selection among production sites that are heterogeneous in their ?intrinsic attractiveness? occurs under a regime of dynamic increasing returns depending on the number of firms already present in each location. The general model is presented together with a few examples of small economies which help to illustrate the properties of the model and characterize its asymptotic behavior. Finally, we discuss a number of empirical applications of our theoretical framework. The basic model, once taken to the data, is able to empirically disentangle the relative strength of technologically-specific agglomeration drivers (affecting differently firms belonging to different industrial sectors in each location) from site-specific geographical forces (horizontally acting upon all sectors in each location).
    Keywords: Industrial Location, Agglomeration, Dynamic Increasing Returns, Markov Chains, Polya Urns.
    Date: 2007–03–01
  4. By: Mike Hales (SPRU, University of Sussex); Joe Tidd (SPRU, University of Sussex)
    Keywords: routines, representations, artifacts, product development, workplace observation, evolutionary economics, chip manufacturing
    JEL: O32 D23
    Date: 2007–02–27
  5. By: Martin G. Kocher (Universiteit van Amsterdam); Matthias Sutter (University of Innsbruck); Florian Wakolbinger (University of Innsbruck)
    Abstract: We study the impact of advice or observation on the depth of reasoning in an experimental beauty-contest game. Both sources of information trigger faster convergence to the equilibrium. Yet, we find that subjects who receive naïve advice outperform uninformed subjects permanently, whereas subjects who observe others’ past behavior before making their decision do only have a temporary advantage over uninformed subjects. We show in a simulation that the latter result is due to subjects failing to make the most out of observing others.
    Keywords: social learning; advice; observational learning; beauty-contest game
    JEL: C70 C72 C91
    Date: 2007–01–29
  6. By: Carlos Rodríguez-Sickert; Ricardo Andrés Guzmán; Juan Camilo Cárdenas
    Abstract: We model the dynamic effects of external enforcement on the exploitation of a common pool resource. Fitting our model to the results of experimental data we find that institutions influence social preferences. We solve two puzzles in the data: the increase and later erosion of cooperation when commoners vote against the imposition of a fine, and the high deterrence power of low fines. When fines are rejected, internalization of a social norm explains the increased cooperation; violations (accidental or not), coupled with reciprocal preferences, account for the erosion. Low fines stabilize cooperation by preventing a spiral of negative reciprocation.
    Date: 2006–07–05
  7. By: Larry G. Epstein (University of Rochester)
    Abstract: Living with risk can lead to anticipatory feelings such as anxiety or hopefulness. Such feelings can a¤ect the choice between lotteries that will be played out in the future - choice may be motivated not only by the (static) risks involved but also by the desire to reduce anxiety or to promote savoring. This paper provides a model of preference in a three-period setting that is axiomatic and includes a role for anticipatory feelings. It is shown that the model of preference can accommodate intuitive patterns of demand for information such as information seeking when a favorable outcome is very likely and information aversion when it is more likely that the outcome will be unfavorable. Behavioral meaning is given to statements such as "individual 1 is anxious" and "2 is more anxious than 1". Finally, the model is di¤erentiated sharply from the classic model due to Kreps and Porteus.
    Keywords: risk, anxiety, savoring, anticipatory feelings, demand for commitment, demand for information, temporal resolution of risk, temptation
    JEL: D80 D81
    Date: 2007–02
  8. By: Philipp C. Wichardt (Economic Theory 3, University of Bonn, Adenauerallee 24-26, D-53113 Bonn, Germany.
    Abstract: This paper provides an argument for the advantage of a preference for identity-consistent behaviour from an evolutionary point of view. Within a stylised model of social interaction, we show that the development of cooperative social norms is greatly facilitated if the agents of the society possess a preference for identity consistent behaviour. As cooperative norms have a positive impact on aggregate outcomes, we conclude that such preferences are evolutionarily advantageous. Furthermore, we discuss how such a preference can be integrated in the modelling of utility in order to account for the distinctive cooperative trait in human behaviour and show how this squares with the evidence.
    Keywords: cognitive dissonance, fairness, identity, reciprocity, social Norms, social preferences, utility
    JEL: A13 C70 C90 D01 Z13
    Date: 2007–01
  9. By: Jeroen C.J.M. van den Bergh (Vrije Universiteit Amsterdam)
    Abstract: Evolutionary and environmental economics have a potentially close relationship. This paper reviews past and identifies potential applications of evolutionary concepts and methods to environmental economics. This covers a number of themes: resource use and ecosystem management; growth and environmental resources; economic and evolutionary progress; and individual behavior and environmental policy. The treatment will cover both biological and economic – including institutional, organizational and technological – evolutionary phenomena. Attention will be drawn to the fact that evolutionary economics shows a surprising neglect of environmental and natural resource factors.
    Keywords: Coevolution; economic growth; environmental policy; innovation; progress; self-regulation; renewable resources; resilience; social preferences
    JEL: B52 O3 O4 Q2 Q5
    Date: 2007–02–08
  10. By: Wassenaar, M.C. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Dijkgraaf, E.; Gradus, R.H.J.M.
    Abstract: In 2003, the Dutch government introduced a VAT-compensation fund in order to create a level-playing field for local governments with respect to Value Added Tax (VAT). By introducing this fund the tax difference between governments that supply services themselves and governments that contract out to the private sector was eliminated. This paper shows, however, that according to most of the municipalities differences in VAT treatment did not hinder the contracting out of public services. Therefore, the fund lacks a great deal of its legitimacy. More important, the fund is not effective, as the number of contracted public services has hardly increased since the introduction. In general, municipalities have a negative opinion about this fund. They state that more than the budgetary effects, other arguments are relevant in the decision-making on the outsourcing of activities such as the quality of services and the employment in the own municipality. As the budgetary position for a number of municipalities will decline in the near future, the fund still may stimulate the outsourcing of public services in future.
    Keywords: VAT; Contracting out; Municipalities; Compensation fund
    JEL: H25 H32 L33
    Date: 2007
  11. By: Andersson , Ola (Department of Economics, Lund University); Wengström, Erik (Department of Economics, Lund University)
    Abstract: In this paper we experimentally investigate cooperation and non-binding communication in a two-stage game. The game has a subgame perfect equilibrium where subjects can sustain cooperation in the first stage by threatening to punish deviant behavior in the second stage. In contrast, renegotiation-proofness rules out cooperation in the first stage when intra-play communication is possible. Our results provide some support for this argument. We observe less cooperation in the first stage when intra-play communication is possible. Moreover, pre-play communication only has a significant impact on actions when intra-play communication is not allowed. The experimental design also enables us to perform an in-depth analysis of communication.
    Keywords: Renegotiation; Communication; Cooperation; Experiments
    JEL: C72 C92
    Date: 2007–02–21
  12. By: Willem, A.; Van den Broeck, H.
    Abstract: The aim of the paper is to explore the learning mode of small business owners, from a theoretical stance, and based on empirical evidence. We distinguish between the required learning mode, the actual learning mode and the supported learning mode. Data were collected using the focus group method in a very heterogeneous sample of Belgian small business owners. The results indicate several gaps between the required, actual and supported learning modes, of which many are due to unawareness of learning needs and lack of reflective learning among small business owners. The data also indicate among others that solutions to fill learning gaps proposed in the literature are not applicable to all owners, e.g. not all owners are able to learn through networks.
    Keywords: Belgium, learning capability, learning mode, learning gaps, learning process, learning support, reflective learning, research paper, small business owners, focus groups
    Date: 2007–02–27
  13. By: Carvalho, Pedro G.; Sonis, Michael
    Abstract: This paper is an attempt to use the ideas of deepening complexity and self organization theory to a life experiment in developing tourism in a Portuguese mountain region da Estrela.
    Keywords: innovation diffusion; complexity; alternative choice; social innovation; learning process; tourism; portugal
    JEL: R58 O22 O52 O31 O18
    Date: 2007–01–13
  14. By: Nadine Chlaß; Werner Güth; Christoph Vanberg
    Abstract: We investigate experimentally whether entry costs have an impact on the evolution of cooperation in a social dilemma game. In particular, subjects repeatedly play the so-called takeover game with anonymous partners randomly drawn from a fixed population of participants. The game represents a social dilemma because selfishly rational players can fail to make efficient trades due to information asymmetries. In order to create a potential for social learning, we provide subjects with feedback about average results in the population. Our interest lies in observing the extent to which cooperative behaviors facilitating trade are adopted. Our main conjecture is that market entry costs inspire more trade. This is only partly confirmed by the data.
    Keywords: Cooperation, sunk costs, social learning, takeover game
    JEL: C78 C91 C92
    Date: 2007–01

This nep-cbe issue is ©2007 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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