nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2007‒07‒20
six papers chosen by
Marco Novarese
University of the Piemonte Orientale
  1. Returns in Cost Diseased Markets with Psychic Benefits: Two Apparently Conflicting Models of Equilibrium By William J. Baumol
  2. The Leader as Catalyst: On Leadership and the Mechanics of Institutional Change By Sumon Majumdar; Sharun Mukand
  3. Prospect Theory and Reference Point Adaptation: Evidence from the US, China, and Korea By Arkes, Hal; Hirshleifer, David; Danling, Jiang; Sonya, Lim
  4. Conformism and Cooperation in a Local Interaction Model By Mengel, Friederike
  5. Stimulating Strategically Aligned Behaviour Among Employees By Riel, C.B.M. van; Berens, G.; Dijkstra, M.
  6. The Effectiveness of Business Codes: A Critical Examination of Existing Studies and the Development of an Integrated Research Model By Kaptein, M.; Schwartz, M.
  1. By: William J. Baumol
    Keywords: Baumol's Disease, Return on Investment in Art
    JEL: G11 Z11
    Date: 2007–06
    URL: http://d.repec.org/n?u=RePEc:use:tkiwps:0716&r=cbe
  2. By: Sumon Majumdar (Queen's University); Sharun Mukand (Tufts University)
    Abstract: Individual leaders have been central to the transformation of organizations, political institutions and many instances of social and economic reform. In this paper we take a first step towards analyzing the role of leadership to ask: when and how does a leader engineer change? We show that while underlying structural conditions and institutions are important, there is an independent first-order role for individual agency in bringing about change and thus transforming the institutions. We emphasize the key nature of the symbiotic relationship between followers decisions' to willingly entrust their faith in the leader and the leader's initiative at leading them. This two-way interaction can endogenously give rise to threshold effects; slight differences in the leader's ability or the underlying structural conditions can dramatically improve the prospects for successful change. Given the centrality of this leader-follower relationship, we further explore conditions under which an individual may deliberately prefer to follow an ambitious leader with divergent interests rather than a benevolent one with congruent preferences. Thus by virtue of having followers, both `good' and `bad' leaders may be effective at bringing about change.
    Keywords: Leadership, Followers, Change
    JEL: P41 D72 D78 D83 O43
    Date: 2007–06
    URL: http://d.repec.org/n?u=RePEc:qed:wpaper:1128&r=cbe
  3. By: Arkes, Hal; Hirshleifer, David; Danling, Jiang; Sonya, Lim
    Abstract: We examined prospect theory and reference point adaptation following gains or losses using participants from China, Korea, and the US. Supporting prospect theory, we found in Studies 1 and 2 that subjects from all three countries generally exhibited loss aversion and a greater propensity for risk seeking in the loss domain than in the gain domain. In Study 3 we used the Becker, DeGroot, and Marschak (1964) procedure to ascertain the valuation subjects placed on a gamble after either a prior gain or a prior loss on a stock. After inferring the shift in each subject’s reference point following this prior gain or loss, we found that reference point adaptation following a gain exceeded that following a loss in all three countries. In our third study we also had subjects sell and then immediately repurchase a stock that had experienced a prior gain or loss, which was designed to “punctuate” or close the mental account containing the prior gain or loss. This manipulation caused an increase in reference point adaptation among the Americans but a decrease among the Asians.
    Keywords: prospect theory; cross-cultural differences; reference point adaptation; mental accounting
    JEL: D81 G11
    Date: 2007–07–09
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:4009&r=cbe
  4. By: Mengel, Friederike
    Abstract: We present and analyze a local interaction model where agents play a bilateral prisoner's dilemma game with their neighbors. Agents learn about behavior through payoff-biased imitation of their interaction neighbors (and possibly some agents beyond this set). We find that the [Eshel, I., L. Samuelson and A. Shaked, 1998, Altruists, Egoists and Hooligans in a Local Interaction Model, Am. Econ. Rev 88] result that polymorphic states are stochastically stable in such a setting is not robust. In particular whenever agents use information also of some agents beyond their interaction neighbors the unique stable outcome is one where everyone chooses defection. Introducing a sufficiently strong conformist bias into the imitation process we find that full cooperation always emerges. Conformism is thus identified as a new mechanism that can stabilize cooperation.
    Keywords: Cooperation; Imitation; Local Interaction; Conformism.
    JEL: C72 C73
    Date: 2007–04
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:4051&r=cbe
  5. By: Riel, C.B.M. van; Berens, G.; Dijkstra, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In recent years it has become increasingly important for companies to ensure strategically aligned behaviour, i.e., employee actions that are consistent with the company?s strategy. This study provides insights into the way companies can stimulate such behaviour through motivating and informing their employees, and by providing them with the necessary capabilities. The results of surveys conducted in three organisations suggest that motivating, informing, and providing the necessary capabilities are essential conditions for strategically aligned behaviour to occur; however, this only holds when a company has not sufficiently engaged in one or more of these practices in the past. For example, in the case that employees have already been sufficiently informed about the company?s strategy, it would be of greater benefit to then reduce efforts to inform them and increase efforts to motivate and develop capabilities.
    Keywords: Capability development;Employee behaviour;Information;Motivation;Strategic alignment;
    Date: 2007–05–10
    URL: http://d.repec.org/n?u=RePEc:dgr:eureri:300011305&r=cbe
  6. By: Kaptein, M.; Schwartz, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Business codes are a widely used management instrument. Research into the effectiveness of business codes has, however, produced conflicting results. The main reasons for the divergent findings are: varying definitions of key terms; deficiencies in the empirical data and methodologies used; and a lack of theory. In this paper, we propose an integrated research model and suggest directions for future research.
    Keywords: Business codes;Effectiveness;Organization;Ethics;
    Date: 2007–05–24
    URL: http://d.repec.org/n?u=RePEc:dgr:eureri:300011306&r=cbe
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