nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒05‒12
thirteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Institutions as Knowledge Capital: Ludwig M. Lachmann’s Interpretative Institutionalism By Foss, Nicolai; Garzarelli, Giampaolo
  2. Organizations as cognitive systems: what do they process and deliver? By Biggiero, Lucio
  3. Discrimination and In-Group Favoritism in a Citywide Trust Experiment By Armin Falk; Christian Zehnder
  4. Testing Theories of Reciprocity: Does Motivation Matter? By Luca Stanca, Luigino Bruni, Luca Corazzini
  5. Selfish in the end? An investigation of consistency and stability of individual behaviour By Jeanette Brosig; Thomas Riechmann; Joachim Weimann
  6. Five Indefinitely Repeated Games in the Laboratory By Jim Engle-Warnick
  7. Droft and Equilibrium Selection with Human and Computer Players By Mauro Caminati; Alessandro Innocenti; Roberto Ricciuti
  8. Like Mother Like Son? Experimental Evidence on the Transmission of Values from Parents to Children By Marco Cipriani; Paola Giuliano; Olivier Jeanne
  9. Gender and Self-Selection Into a Competitive Environment: Are Women More Overconfident Than Men? By Nekby, Lena; Skogman Thoursie , Peter; Vahtrik, Lars
  10. Do Consumers Pay Voluntarily? The Case of Online Music By Tobias Regner; Javier A. Barria
  11. Competition in product design: An experiment exploring innovation behavior By Uwe Cantner; Werner Güth; Andreas Nicklisch; Torsten Weiland
  12. Iterative Reasoning in an Experimental "Lemons" Market. By Annette Kirstein; Roland Kirstein
  13. Individual learning: theory formation, and feedback in a complex task By Novarese, Marco; Lanteri, Alessandro

  1. By: Foss, Nicolai; Garzarelli, Giampaolo
    Abstract: The paper revisits the socioeconomic theory of the Austrian School economist Ludwig M. Lachmann. By showing that the common claim that Lachmann’s idiosyncratic (read: eclectic and multidisciplinary) approach to economics entails nihilism is unfounded, it reaches the following conclusions. (1) Lachmann held a sophisticated institutional position to economics that anticipated developments in contemporary new institutional economics. (2) Lachmann’s sociological and economic reading of institutions offers insights for the problem of coordination. (3) Lachmann extends contemporary new institutional theory without simultaneously denying the policy approach of comparative institutional analysis.
    Keywords: Comparative institutional analysis; coordination; expectations; institutional evolution; interpretative institutionalism
    JEL: D80 B52 B53 B31
    Date: 2006
  2. By: Biggiero, Lucio
    Abstract: The substitution of knowledge to information as the entity that organizations process and deliver raises a number of questions concerning the nature of knowledge. The dispute on the codifiability of tacit knowledge and that juxtaposing the epistemology of practice vs. the epistemology of possession can be better faced by revisiting two crucial debates. One concerns the nature of cognition and the other the famous mind-body problem. Cognition can be associated with the capability of manipulating symbols, like in the traditional computational view of organizations, interpreting facts or symbols, like in the narrative approach to organization theory, or developing mental states (events), like argued by the growing field of organizational cognition. Applied to the study of organizations, the mind-body problem concerns the possibility (if any) and the forms in which organizational mental events, like trust, identity, cultures, etc., can be derived from the structural aspects (technological, cognitive or communication networks) of organizations. By siding in extreme opposite positions, the two epistemologies appear irreducible one another and pay its own inner consistency with remarkable difficulties in describing and explaining some empirical phenomena. Conversely, by legitimating the existence of both tacit and explicit knowledge, by emphasizing the space of human interactions, and by assuming that mental events can be explained with the structural aspects of organizations, Nonaka’s SECI model seems an interesting middle way between the two rival epistemologies.
    Keywords: cognition; emergent properties; knowledge; mental states; organization
    JEL: L20
    Date: 2007–05–08
  3. By: Armin Falk (IZA, University Bonn and CEPR); Christian Zehnder (University of Zurich and IZA)
    Abstract: This paper provides field experimental evidence on the prevalence and determinants of discrimination and in-group favoritism in trust decisions. We observe choices of about 1,000 inhabitants of the city of Zurich who take part in a sequential trust game, in which first movers can condition their investments on the residential districts of second movers. Our main results can be summarized as follows: First movers discriminate significantly in their investment choices, i.e., strangers receive different investments depending on the district they live in. The systematics of the discrimination pattern is underlined by data from an additional newspaper study, where participants correctly guessed the outcome of the study. In terms of district characteristics two factors seem to be key for a district's reputation: while expected trustworthiness of a district increases in the socio-economic status it decreases in the degree of ethnic heterogeneity. Observed discrimination is not just based on mistaken stereotypes but can at least partly be classified as statistical discrimination. This can be inferred from the fact that, on a district level, both expected return on investment and actual investments are positively correlated with actual back transfers. First movers correctly anticipate different levels of trustworthiness and discriminate accordingly. Furthermore, we provide evidence of in-group favoritism, i.e., people trust strangers from their own district significantly more than strangers from other districts. Finally, we discuss individual determinants of discrimination and in-group favoritism.
    Keywords: discrimination, in-group favoritism, trust, trustworthiness, reciprocity, social capital, city development
    JEL: C90 D63
    Date: 2007–04
  4. By: Luca Stanca, Luigino Bruni, Luca Corazzini (ISLA, Universita' Bocconi, Milano)
    Abstract: One of the key issues for understanding reciprocity is how people evaluate the kindness of an action. In this paper we argue that the motivation driving an action plays an important role for the reciprocating response to that action. We test experimentally the hypothesis that reciprocal behavior is stronger in response to actions driven by intrinsic motivation, as opposed to extrinsic motivation. Our results indicate that reciprocity is significantly stronger when extrinsic motivation can be ruled out, both at the aggregate and the individual level. These findings suggest that models of reciprocal behavior should take into account not only outcomes but also intentions and, in particular, motivations: the type of motivation of an action matters for its perceived kindness and, as a consequence, for reciprocity.
    Keywords: Reciprocity, Intrinsic Motivation, Laboratory Experiments.
    JEL: D63 C78 C91
    Date: 2007–05
  5. By: Jeanette Brosig (Department of Economics, University of Cologne); Thomas Riechmann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Joachim Weimann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper puts three of the most prominent specifications of ‘other-regarding’ preferences to the experimental test, namely the theories developed by Charness and Rabin, by Fehr and Schmidt, and by Andreoni and Miller. In a series of experiments based on various dictator and prisoner’s dilemma games, we try to uncover which of these concepts, or the classical selfish approach, is able to explain most of our experimental findings. The experiments are special with regard to two aspects: First, we investigate the consistency of individual behavior within and across different classes of games. Second, we analyze the stability of individual behavior over time by running the same experiments on the same subjects at several points in time. Our results demonstrate that in the first wave of experiments, all theories of other-regarding preferences explain a high share of individual decisions. Other-regarding preferences seem to wash out over time, however. In the final wave, it is the classical theory of selfish behavior that delivers the best explanation. Stable behavior over time is observed only for subjects, who behave strictly selfish. Most subjects behave consistently with regard to at least one of the theories within the same class of games, but are much less consistent across games.
    Keywords: individual preferences, consistency, stability, experimental economics
    JEL: C91 C90 C72 C73
    Date: 2007–02
  6. By: Jim Engle-Warnick
    Abstract: I experimentally test play in five indefinitely repeated games: a hawk-dove game, a game of chicken, a trust game, a coordination game, and a constant-sum game. I compare the different game histories that affect decision making in each of the games. <P>Une étude expérimentale a été menée afin de tester les décisions prises lors de cinq jeux répétés où le nombre de répétitions est inconnu : un jeu de type hawk-dove, un jeu de type chicken, un jeu de confiance, un jeu de coordination et un jeu à somme constante. Les historiques des différents jeux sont comparés afin d’analyser les prises de décisions des participants dans chaque jeu.
    Keywords: experimental economics, repeated games, économie expérimentale, jeux répétés
    Date: 2007–05–01
  7. By: Mauro Caminati; Alessandro Innocenti; Roberto Ricciuti
    Abstract: The theory of drift (Binmore and Samuelson 1999) concerns equilibrium selection in which second order disturbances may have first-order effects in the emergence of one equilibrium over the other. We provided experimental evidence with human players supporting the model in Caminati, Innocenti and Ricciuti (2006). In this paper we test it with conditioning by computer players. When computers are removed and humans are matched against each other, the comparative static properties of the model are confirmed.
    Keywords: drift, equilibrium selection, evolutionary games, experiments.
    JEL: C72 C92
    Date: 2007–04
  8. By: Marco Cipriani (George Washington University); Paola Giuliano (Harvard University, IMF and IZA); Olivier Jeanne (IMF)
    Abstract: This paper studies whether prosocial values are transmitted from parents to their children. We do so through an economic experiment, in which a group of Hispanic and African American families play a standard public goods game. The experimental data presents us with a surprising result. We find no significant correlation between the degree of cooperation of a child and that of his or her parents. Such lack of cooperation is robust across age groups, sex, family size and different estimation strategies. This contrasts with the typical assumption made by the theoretical economic literature on the inter-generational transmission of values. The absence of correlation between parents' and children's behavior, however, is consistent with part of the psychological literature, which emphasizes the importance of peer effects in the socialization process.
    Keywords: culture, intergenerational transmission, public good games
    JEL: C92 H41 Z1
    Date: 2007–04
  9. By: Nekby, Lena (Dept. of Economics, Stockholm University); Skogman Thoursie , Peter (Dept. of Economics, Stockholm University); Vahtrik, Lars (Dept. of Economics, Stockholm University)
    Abstract: Using a large running race in Sweden, this study shows that there are male-dominated environments in which the selection of women who participate are more likely to be confident/competitive and that, within this group, performance improves equally for both genders.
    Keywords: Overconfidence; Competitiveness; Gender Differences
    JEL: J16 J20 J71
    Date: 2007–05–08
  10. By: Tobias Regner (University of Jena, School of Busniess and Economics); Javier A. Barria (Intelligent Systems & Networks group, Department of Electrical and Electronic Engineering, Imperial College London)
    Abstract: The paper analyses the payment behaviour of customers of the online music label Magnatune. Customers may pay what they want for albums, as long as the payment is within a given price range ($5-$18). Magnatune’s comprehensive pre-purchase access facilitates music discovery and allows an informed buying decision setting it apart from conventional online music stores. On average customers pay $8.20, far more than the minimum of $5 and even higher than the recommended price of $8. We analyse the relationship between artists/labels and customers in online music. We consider social preferences, in particular concerns for reciprocity. The resulting sequential reciprocity equilibrium corresponds to the observed pattern of behaviour. We conclude that Magnatune’s open contracts design can encourage people to make voluntary payments and may be a viable business option.
    Keywords: social preferences, reciprocity, music industry, experience goods, psychological game theory, emotions
    JEL: C24 C70 C93 D82 L82
    Date: 2007–05–01
  11. By: Uwe Cantner (University of Jena, School of Busniess and Economics); Werner Güth (Max Planck Institute of Economics Jena, Strategic Interaction Unit); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Torsten Weiland (Max Planck Institute of Economics Jena, Strategic Interaction Unit)
    Abstract: We experimentally investigate competition in innovation in a patent race scenario. Pairs of subjects compete as seller firms on a duopoly market, engaging in risky search investments. Successful innovation is rewarded through temporary monopoly rents. Throughout the interaction, subjects receive feedback on own and other’s search success and profit margin. Partitioning subjects into subgroups of investor types reveals that the majority of subjects condition investments on the degree of competition as measured by sales shares, while for others no correlation is ascertained. Heterogeneity in individual risk attitudes and differing experiences with related search tasks may explain this finding.
    Keywords: innovation, competition, imitation, patent race
    JEL: D81 L11 O31
    Date: 2007–05–07
  12. By: Annette Kirstein; Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In this paper we experimentally test a theory of boundedly rational behavior in a "lemons" market. We analyze two different market designs, for which perfect rationality implies complete and partial market collapse, respectively. Our empirical observations deviate substantially from the predictions of rational choice theory: Even after 20 repetitions, the actual outcome is closer to efficiency than expected. We examine to which extent the theory of iterated reasoning contributes to the explanation of these observations. Perfectly rational behavior requires a player to perform an infinite number of iterative reasoning steps. Boundedly rational players, however, carry out only a limited number of such iterations. We have determined the iteration type of the players independently from their market behavior. A significant correlation exists between the iteration types and the observed price offers.
    Keywords: bounded rationality, market failure, adverse selection, regulatory failure, paternalistic regulation
    JEL: D8 C7 B4
    Date: 2007–04
  13. By: Novarese, Marco; Lanteri, Alessandro
    Abstract: We present an experiment for the study of learning in a complex task which requires both memorisation and the ability to process several pieces of information. The outcome of an action, for which immediate feedback is given, depends on the context (i.e. one of thirty-two sequences of three features) which is know and visible to the subjects. Subjects develop some theories of the experimental world, which result in the stable repetition of some actions in response to certain conditions. These theories are modified after feedback, however mistaken answers are repeated and correct answers abandoned. During the game, theories become more effective (i.e. they afford more correct answers and a higher score), yet the improvements slow down. The theories follow from only a portion of the available information and when they become successful (i.e. towards the end of the experiment) the subjects start refining them to include a larger subset of the information, this causes more stable mistakes.
    Keywords: cognitive economics; complexity; experiments; feedback; learning; theory formation; Heiner
    JEL: A12 D83 C91
    Date: 2007–04–26

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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