nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒02‒09
ten papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Betting on Own Knowledge: Experimental Test of Overconfidence By Pavlo R. Blavatskyy
  2. Selection and Mode Effects in Risk Preference Elicitation Experiments By Gaudecker, H.M. von; Soest, A.H.O. van; Wengstrom, E.
  3. An Experimental Investigation of Violations of Transitivity in Choice under Uncertainty By Michael H. Birnbaun; Ulrich Schmidt
  4. Probability and Uncertainty in Economic Modeling, Second Version By Itzhak Gilboa; Andrew Postlewaite; David Schmeidler
  5. Trust and Reciprocity in 2-node and 3-node Networks By Alessandra Cassar, ac; Mary Rigdon, mr
  6. Better-Reply Dynamics with Bounded Recall By Andriy Zapechelnyuk
  8. On the Paradigm of Loss Aversion By Horst Zank
  10. Managing the Evolution of Cooperation By Julian Dormann; Thomas Ehrmann

  1. By: Pavlo R. Blavatskyy
    Abstract: This paper presents a new incentive compatible method for measuring confidence in own knowledge. This method consists of two parts. First, an individual answers several general knowledge questions. Second, the individual chooses among three alternatives: 1) one question is selected at random and the individual receives a payoff if he or she has answered this question correctly; 2) the individual receives the same payoff with a probability equal to the percentage of correctly answered questions; 3) either the first or the second alternative is selected. The choice of the first (second) alternative reveals overconfidence (underconfidence). The individual is well calibrated if he or she chooses the third alternative. Experimental results show that subjects, on average, exhibit underconfidence about their own knowledge when the incentive compatible mechanism is used. Their confidence in own knowledge does not depend on their attitude towards risk/ambiguity.
    Keywords: Overconfidence, underconfidence, lottery, experiment, risk aversion
    JEL: C91 D81
    Date: 2008–01
  2. By: Gaudecker, H.M. von; Soest, A.H.O. van; Wengstrom, E. (Tilburg University, Center for Economic Research)
    Abstract: We combine data from a risk preference elicitation experiment conducted on a representative sample via the Internet with laboratory data on student subjects for the same experiment in order to investigate effects of implementation mode and of subject pool selection. We find that the frequency of errors in the lab experiment is drastically below that of the representative sample in the Internet experiment, and average risk aversion is lower as well. Considering the student-like subsample of the Internet subjects and comparing a traditional lab design with an Internet-like design in the lab gives us two ways to decompose these differences into differences due to subject pool selection and differences due to implementation mode. Both lead to the conclusion that the differerences are due to selection and not to implementation mode. An analysis of the various steps leading to participation or non-participation in the Internet survey leads to the conclusion that these processes are selective in selecting subjects who make fewer errors, but do not lead to biased conclusions on risk preferences. These findings point at the usefulness of the Internet survey as an alternative to a student pool in the laboratory if the ambition is to use the experiments to draw inference on a broad population.
    Keywords: Risk aversion;Internet surveys;Laboratory experiments
    JEL: C90 D81
    Date: 2008
  3. By: Michael H. Birnbaun; Ulrich Schmidt
    Abstract: Several models of choice under uncertainty imply systematic violations of transitivity of preference. Our experiments explored whether people show patterns of intransitivity predicted by these models. To distinguish “true” violations from those produced by “error,” a model was fit in which each choice can have a different error rate and each person can have a different pattern of true preferences that does not need to be transitive. Error rate for a choice is estimated from preference reversals between repeated presentations of the same choice. Our results showed that very few people repeated intransitive patterns. We can retain the hypothesis that transitivity best describes the data of the vast majority of participants.
    Keywords: decision making, errors, regret theory, transitivity
    JEL: C91 D81
    Date: 2008–01
  4. By: Itzhak Gilboa (Department of Economic, Tel-Aviv University); Andrew Postlewaite (Department of Economics, University of Pennsylvania); David Schmeidler (Department of Economics, Ohio State University)
    Abstract: Economic modeling assumes, for the most part, that agents are Bayesian, that is, that they entertain probabilistic beliefs, objective or subjective, regarding any event in question. We argue that the formation of such beliefs calls for a deeper examination and for explicit modeling. Models of belief formation may enhance our understanding of the probabilistic beliefs when these exist, and may also help up characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.
    Keywords: Decision making, Bayesian, Behavioral Economics
    JEL: B4 D8
    Date: 2007–08–01
  5. By: Alessandra Cassar, ac; Mary Rigdon, mr
    Abstract: In this paper we focus on the interaction between exogenous network structure and bargaining behavior in a laboratory experiment. Our main question is how competition and cooperation interact in bargaining environments based on networked versions of the investment game. We focus on 3-node networked markets and vary the network structure to model competition upstream (multiple sellers paired with a monopsonistic buyer) and competition downstream (a monopolistic seller paired with multiple buyers). We describe two kinds of models of trust for such networked environments, absolute and relativized models, and use this structure to generate a general hypothesis about these environments: that information crowds in cooperation on the competitive side of the market. The experimental results support this hypothesis.
    Keywords: networks; trust; reciprocity; experiments; investment game
    JEL: L14 D00 C91
    Date: 2008–01–26
  6. By: Andriy Zapechelnyuk (Kyiv School of Economics)
    Abstract: A decision maker is engaged in a repeated interaction with Nature. The objective of the decision maker is to guarantee to himself the average payoff as large as the best-reply payoff to Nature's empirical distribution of play, no matter what Nature does. The decision maker with perfect recall can achieve this objective by a simple better-reply strategy. In this paper we demonstrate that the relationship between perfect recall and bounded recall is not straightforward: The decision maker with bounded recall may fail to achieve this objective, no matter how long recall he has and no matter what better-reply strategy he employs.
    Keywords: Better-reply dynamics, regret, bounded recall, fictitious play, approachability
    JEL: C73 D81 D83
    Date: 2008–01
  7. By: Bill Gibson (University of Massachusetts Amherst)
    Abstract: Since the "closure debate" of the 1980s it is well known that com- parative static derivatives in analytical macro models are highly sensitive to the closure rule selected. This led Keynesians to conclude that Keynesian closures were superior to those favored by the orthodoxy and vice-versa. It is argued that with the advent of agent-based or multi-agent systems, the clo- sure debate is superseded. While elements of both Keynesian and neoclassical models survive the transition to the more synthetic environment, an agent- based approach eliminates the need for drastic simplification that was at the root of the debate from the beginning.
    Keywords: Agent-based models, multi-agent systems, macroeconomic closure.
    Date: 2008–01
  8. By: Horst Zank
    Date: 2007
  9. By: Sampaio, José; Moniz, António
    Abstract: Cognitive task automation may lead to over trust, complacency and loss of the necessary work environment situation awareness. This is a major constraint in complex work organizations teamwork, ending up into an operational gap, between system developments and its understanding and usability, by operators. This document presents a summary of the main results of author’s research on operational decision processes and occupational competences, applied to the air traffic control operational reality. Introducing a human/technological complementary approach to virtual team’s conceptualisation, the results show there is a dimension to be followed in human/machine integration, which stands beyond interface design, and calls for a deeper human comprehension of technological agent’s structure and functionalities, which will, ultimately, require the development of an operational cognitive framework, where work processes and technological behaviour are integrated in professional competences, as he two faces of the same coin.
    Keywords: automation; situation awareness; work organization; teamwork; decision process; occupational competences; human/machine interface
    JEL: D81 C92 L86 J20
    Date: 2007–09
  10. By: Julian Dormann; Thomas Ehrmann
    Abstract: Management scholars have long stressed the importance of evolutionary processses for inter-firm cooperation but have mostly missed the promising opportunity to incorporate ideas from evolutionary theories into the analysis of collaborative arrangements. In this paper, we first present three rules for the evolution of cooperation - kinship selection, direct reciprocity, and indirect reciprocity. Second, we apply our theoretical considerations, enriched with ideas from cultural anthropology, to the context of a specific and particularly attractive type of cooperative arrangement, the franchise form of organization. Third, we provide a preliminary empirical test with regards to conditions under which evolutionary modes can secure cooperative behavior. We conclude by summarizing our results and deriving fertile areas for further research.
    Keywords: Length 46 pages
    Date: 2008–01

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