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on Cognitive and Behavioural Economics |
| By: | Azar, Ofer H. |
| Abstract: | The field of behavioral economics is one of the fastest-growing fields in economics in recent years. Not long ago this was a small field, but over the last decade or so, the field gained more recognition, and today it seems clear that psychological motivations and biases affect economic behavior in many important ways. Insights from psychology were incorporated in several areas of economics. This paper offers a short review of the application of behavioral economics to industrial organization, which can be denoted “behavioral industrial organization,” and on the relationship between behavioral industrial organization, firm strategy, and consumer economics. |
| Keywords: | industrial organization; behavioral economics; strategy; firm strategy; business strategy; economic psychology; behavioral industrial organization; consumer behavior; consumer economics |
| JEL: | D40 L10 M20 A12 M30 D10 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4484&r=cbe |
| By: | Gabriele Camera; Marco Casari |
| Abstract: | We study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely and lacking formal enforcement institutions. In all treatments the efficient outcome is sustainable as an equilibrium. We address the following questions: can these economies achieve full efficiency? Which institutions for monitoring and enforcement promote cooperation? Finally, what classes of strategies are employed to achieve high efficiency? We find that, first, cooperation can be sustained even in anonymous settings; second, some type of monitoring and punishment institutions significantly promote cooperation; and, third, subjects dislike indiscriminate strategies and prefer selective strategies. |
| Keywords: | experiments, repeated games, cooperation, equilibrium selection, prisoners’ dilemma, random matching |
| JEL: | C70 C92 D44 D51 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1201&r=cbe |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany; University of Trento, Italy) |
| Abstract: | Contrary to the models of deterministic life cycle saving, we take it for granted that uncertainty of one's future is the essential problem of saving decisions. However, unlike the stochastic life cycle models, we capture this crucial uncertainty by a non-Bayesian scenario-based satisï¬cing approach. Decision makers ï¬rst form aspirations for a few relevant scenarios, and then search for saving plans satisï¬cing these aspirations. In addition to formally specifying scenario-based satisï¬cing in saving, we explore it experimentally. The results conï¬rm that optimal intertemporal allocations are diffcult to derive, and suggest that satisï¬cing allocations can be reached easily when aspirations are incentivized. |
| Keywords: | Intertemporal allocation decisions, Bayesian updating, Satisï¬cing behavior |
| JEL: | C91 D81 D90 |
| Date: | 2007–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-049&r=cbe |
| By: | Östling, Robert (Dept. of Economics, Stockholm School of Economics); Wang, Joseph Tao-yi (Department of Economics, National Taiwan University); Chou, Eileen (Management and Organization, Kellogg School of Management, Northwestern University); Camerer, Colin F. (Division for the Humanities and Social Sciences, California Institute of Technology) |
| Abstract: | In the lowest unique positive integer (LUPI) game, players pick positive integers and the player who chose the lowest unique number (not chosen by anyone else) wins a fixed prize. We derive theoretical equilibrium predictions, assuming fully rational players with Poisson-distributed uncertainty about the number of players. We also derive predictions for boundedly rational players using quantal response equilibrium and a cognitive hierarchy of rationality steps with quantal responses. The theoretical predictions are tested using both field data from a Swedish gambling company, and laboratory data from a scaled-down version of the field game. The field and lab data show similar patterns: in early rounds, players choose very low and very high numbers too often, and avoid focal ("round") numbers. However, there is some learning and a surprising degree of convergence toward equilibrium. The cognitive hierarchy model with quantal responses can account for the basic discrepancies between the equilibrium prediction and the data. |
| Keywords: | Population uncertainty; Poisson game; QRE; congestion game; guessing game; experimental methods; behavioral game theory; cognitive hierarchy |
| JEL: | C72 C92 C93 L83 |
| Date: | 2007–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hastef:0671&r=cbe |
| By: | Fernando Aguiar (IESA-CSIC); Pablo Branas-Garza (Departamento de Teoria Economica, Universidad de Granada); Luis M. Miller (IESA-CSIC; Strategic Interaction Group, Max Planck Institute of Economics) |
| Abstract: | We perform an experimenta linvestigation using a dictator game in which individuals must make a moral decision - to give or not to give an amount of money to poor people in the Third World. A questionnaire in which the subjects are asked about the reasons for their decision shows that, at least in this case, moral motivations carry a heavy weight in the decision: the majority of dictators give the money for reasons of a consequentialist nature. Based on the results presented here and of other analogous experiments, we conclude that dicator behavior can be understood in terms of moral distance rather than social distance and that it systematically deviates from the egoism assumption in economic models and game theory. |
| Keywords: | Keywords: Dictator game, moral distance, moral motivations, experimental economics. |
| JEL: | A13 C72 C91 |
| Date: | 2007–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-047&r=cbe |
| By: | Andersson, Henrik (VTI); Lindberg, Gunnar (VTI) |
| Abstract: | This study uses the contingent valuation method to elicit individuals' preferences for their own and others' safety in road-traffic. Whereas one group is asked about a private safety device for themselves, other groups are asked about safety devices for their children, household, relatives and the public. Support is found for the hypothesis that individuals are not purely selfish when it comes the safety of others. |
| Keywords: | Safety; Willingness to pay; Altruism; Road-traffic |
| JEL: | D61 D64 H51 I10 |
| Date: | 2007–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2007_004&r=cbe |
| By: | Steven Gjerstad; Jason M. Shachat |
| Abstract: | The demonstration by Smith [1962] that prices and allocations quickly converge to the competitive equilibrium in the continuous double auction (CDA) was one of the first – and remains one of the most important results in experimental economics. His initial experiment, subsequent market experiments, and models of price adjustment and exchange have added considerably to our knowledge of how markets reach equilibrium, and how they respond to disruptions. Perhaps the best known model of exchange in CDA market experiments is the random behavior in the “zero-intelligence” (ZI) model by Gode and Sunder [1993]. They conclude that even without trader rationality the CDA generates efficient allocations and “convergence of transaction prices to the proximity of the theoretical equilibrium price,” provided only that agents meet their budget constraints. We demonstrate that – by any reasonable measure – prices don’t converge in their simulations. Their budget constraint requires that a buyer’s currency never exceeds her value for the commodity, which is an unnatural restriction. Their conclusion that market efficiency results from the structure of the CDA independent of traders’ profit seeking behavior rests on their claim that the constraints that they impose are a part of the market institution, but this is not so. We show that they in effect impose individual rationality, which is an aspect of agents’ behavior. Researchers on learning in markets have been misled by their interpretation of the ZI simulations, with deleterious effects on the debate on market adjustment processes. |
| Keywords: | Bounded rationality; double auction; exchange economy; experimental economics; market experiment; “zero intelligence” model |
| JEL: | C70 C92 D44 D51 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1204&r=cbe |
| By: | W. Bentley MacLeod (Columbia University); Mark Pingle (Department of Economics, University of Nevada, Reno) |
| Abstract: | When rationality is bounded, a variety of factors may influence how far a choice is from optimal. We examine the willingness to search among alternatives. We find fixed individual differences in this temperament measure. People may be usefully typed according to how they obtain improved choices. More patient subjects obtain improvement by effectively using decision resources, performing better when the decision is more complex. More decisive subjects obtain improvement by conserving valuable decision resources, performing better when the decision problem is simple. We find that a bonus incentive frame encourages patience, while a penalty frame encourages decisiveness. These results suggest an organization can enhance its performance by matching individual temperaments and incentive frames to decision tasks at hand. |
| Keywords: | framing, deliberation cost, bounded rationality, heuristics, incentives |
| JEL: | D01 D81 D83 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:07-004&r=cbe |
| By: | Sebald, Alexander |
| Abstract: | Different to other scientific disciplines traditional economic theory has remained remarkably silent about procedural aspects of strategic interactions. Much to the contrast, among psychologists there is by now a broad consensus that not only expected outcomes shape human behavior, but also procedures that are used to take decisions. It is argued that procedural concerns are especially pervasive in the resolution of conflicts. In our paper we show that procedural concerns are in fact an inherent feature of the interaction of reciprocal agents. More precisely, using Dufwenberg and Kirchsteiger (2004)’s theory of sequential reciprocity we demonstrate that procedural choices determine the responsibility that people have for outcomes. The responsibility for outcomes in turn influences peoples’ evaluations of intentions and, hence, subsequent reactions. Two applications are discussed to highlight the impact and importance of procedural concerns in strategic interactions. |
| Keywords: | Psychological Games; Procedural Concerns; Reciprocity |
| JEL: | C70 D01 |
| Date: | 2007–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4508&r=cbe |
| By: | TIROLE, Jean |
| JEL: | D23 D82 L22 D86 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:7039&r=cbe |
| By: | Frank Caliendo (Department of Economics, Colorado State University); Kevin X.D. Huang (Department of Economics, Vanderbilt University) |
| Abstract: | Overconfidence is a widely documented phenomenon. In this paper, we study the implications of consumer overconfidence in a life-cycle consumption/saving model. Our main analytical result is a necessary and sufficient condition under which any degree of overconfidence concerning the mean return on savings can produce a hump in the work-life consumption profile. This condition is almost always met in the data. We show by simulations that overconfidence concerning the variance of the return can have little effect on the long-run average behavior of consumption over the life cycle, and that our basic conclusion is fairly robust with various realistic modifications to the baseline model. We interpret the general applicability of our analytical framework and discuss our numerical results in the light of aggregate consumption data. |
| Keywords: | Overconfidence, consumption, life cycle, time inconsistency, hump shape, elasticity of intertemporal substitution <br><br> |
| JEL: | D91 E21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0712&r=cbe |
| By: | Matsushita, Raul; Baldo, Dinora; Martin, Bruna; Da Silva, Sergio |
| Abstract: | We assess the biological basis of expected utility anomalies through an experiment of the Allais paradox. A questionnaire study of 120 subjects replicates the anomalies and further gathers information about the respondents’ bio-characteristics, such as gender, age, parenthood, handedness, second to fourth digit ratio, current emotional state, past negative experiences, and religiousness. We find that some of those bio-characteristics matter for the anomalies. |
| Keywords: | expected utility anomalies; risky choice; Allais paradox; experimental economics |
| JEL: | D81 C91 |
| Date: | 2007–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4520&r=cbe |
| By: | Matthias Sutter; Christina Strassmair |
| Abstract: | We study the effects of communication in an experimental tournament between teams. When teams, rather than individuals, compete for a prize there is a need for intra-team coordination in order to win the inter-team competition. Introducing communication in such situations may have ambiguous effects on effort choices. Communication within teams may promote higher efforts by mitigating the internal free-rider problem. Communication between competing teams may lead to collusion, thereby reducing efforts. In our experiment we control the channels of communication by letting subjects communicate through an electronic chat. We find, indeed, that communication within teams increases efforts and communication between teams reduces efforts. We use team members’ dialogues to explain these effects of communication, and check the robustness of our results. |
| Keywords: | Tournament, Team decision making, Communication, Collusion, Free-riding, Experiment |
| JEL: | C92 J33 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2007-19&r=cbe |
| By: | Lundborg, Petter (Free University Amsterdam); Andersson, Henrik (VTI) |
| Abstract: | Among younger cohorts, the smoking rate of females has surpassed that of males in many western countries. This is a departure from the common observation that males engage more frequently in risky behaviors. The underlying reasons for gender differences in smoking behavior, and thus for the recent trends, are not well understood. Using a sample of 8,592 Swedish adolescents aged 15-18, this paper contributes to the literature by exploring gender differences in smoking risk perceptions and in the responses to the latter. The results show significant gender differences in the perception of smoking mortality risk and in the perception of the addictiveness of smoking. Girls perceive the mortality risk of smoking as significantly greater than boys do, but they also perceive the addictiveness of cigarettes as less. These results persist after controlling for a wide range of background characteristics, including smoking risk information sources. Moreover, the findings suggest that while smoking information from sources such as teachers, pals, and own search, affect smoking mortality perceptions in a significant and positive manner among boys, no such effects are obtained among girls. Finally, no evidence is found for gender differences in the effect of perceived risks of smoking on the probability of being a smoker. |
| Keywords: | Gender; smoking; risk perceptions; information |
| JEL: | D81 I10 J13 |
| Date: | 2007–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2007_005&r=cbe |
| By: | Itzhak Gilboa; Andrew Postlewaite; David Schmeidler |
| Date: | 2007–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:843644000000000357&r=cbe |