nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒10‒13
eight papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Threats and demonstrations of power: experimental results on bilateral bargaining By Noemí Navarro; Róbert Veszteg
  2. New perspectives on realism, tractability, and complexity in economics By Smith, Peter
  3. Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing By Park, Andreas; Sgroi, Daniel
  4. Individual behavior and group membership: Comment By Matthias Sutter
  5. Risk Taking and Social Comparison - A Comment on “Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States” By Gary E Bolton; Axel Ockenfels
  6. Three Field Experiments on Procrastination and Willpower By Nicholas Burger; Gary Charness; John Lynham
  7. Managers and Students as Newsvendors - How Out-of-Task Experience Matters By Gary E Bolton; Axel Ockenfels; Ulrich Thonemann
  8. Goal Setting as a Self-Regulation Mechanism By Anton Suvorov; Jeroen van de Ven

  1. By: Noemí Navarro (Department of Economic Theory, Universidad de Málaga); Róbert Veszteg (Institute of Social and Economic Research, Osaka University)
    Abstract: We test the empirical effectiveness of threats in equilibrating bargaining power in simple bilateral bargaining games. Our experimental design is based on the two-player versions of the multibidding game (Pérez-Castrillo and Wettstein, 2001) and the bid-and-propose game (Navarro and Perea, 2005) that build on the ultimatum game and balance parties' bargaining power by auctioning the role of the proposer in the first stage. We show that, while both mechanisms implement the fair split in their subgame-perfect Nash-equilibrium, they induce different results in the laboratory. Subjects do not react to threats that lie off the the equilibrium path in the expected way, even if these threats are theoretically credible as they belong to the subgame-perfect Nash equilibrium. In particular, it seems that subjects feel the need to show their bargaining power as if punishment that never happens could not constitute a credible threat.
    Keywords: bargaining, experiments, fairness, Myerson value, ultimatum game
    JEL: C72 C91 D63
    Date: 2008–10
  2. By: Smith, Peter
    Abstract: Fuzzy logic and genetic algorithms are used to rework more realistic (and more complex) models of competitive markets. The resulting equilibria are significantly different from the ones predicted from the usual static analysis; the methodology solves the Walrasian problem of how markets can reach equilibrium, starting with firms trading at disparate prices. The modified equilibria found in these complex market models involve some mutual self-restraint on the part of the agents involved, relative to economically rational behaviour. Research (using similar techniques) into the evolution of collaborative behaviours in economics, and of altruism generally, is summarized; and the joint significance of these two bodies of work for public policy is reviewed. The possible extension of the fuzzy/ genetic methodology to other technical aspects of economics (including international trade theory, and development) is also discussed, as are the limitations to the usefulness of any type of theory in political domains. For the latter purpose, a more differentiated concept of rationality, appropriate to ill-structured choices, is developed. The philosophical case for laissez-faire policies is considered briefly; and the prospects for change in the way we ‘do economics’ are analysed.
    Keywords: Fuzzy logic; genetic algorithms; complexity; emergence; rationality; ill-structured choice; equilibrium; Walrasian Crier; paradigm change;
    JEL: B0 C61 B41
    Date: 2008–10–02
  3. By: Park, Andreas (University of Toronto); Sgroi, Daniel (University of Warwick)
    Abstract: We undertook the first market trading experiments that allowed heterogeneously informed subjects to trade in endogenous time, collecting over 2000 observed trades. Subjects’ decisions were generally in line with the predictions of exogenous-time financial herding theory when that theory is adjusted to allow rational informational herding and contrarianism. While herding and contrarianism did not arise as frequently as predicted by theory, such behavior occurs in a significantly more pronounced manner than in comparable studies with exogenous timing. Types with extreme information traded earliest. Of those with more moderate information, those with signals conducive to contrarianism traded earlier than those with information conducive to herding.
    Keywords: Herding ; Contrarianism ; Endogenous-time ; Informational Efficiency, Experiments
    JEL: C91 D82 G14
    Date: 2008
  4. By: Matthias Sutter (Department of Public Finance, University of Innsbruck, and Department of Economics, University of Gothenburg.)
    Abstract: Charness et al. (2007) have shown that group membership has a strong effect on individual decisions in strategic games when group membership is salient through payoff commonality. In this comment I show that their findings also apply to non-strategic decisions, even when no outgroup exists, and I relate the effects of group membership on individual decisions to joint decision making in teams. I find in an investment experiment that individual decisions with salient group membership are largely the same as team decisions. This finding bridges the literature on team decision making and on group membership effects.
    Keywords: Individual behavior, group membership, team decision-making, experiment
    JEL: C91 C92 D71
    Date: 2008–10–07
  5. By: Gary E Bolton; Axel Ockenfels
    Date: 2008–09–30
  6. By: Nicholas Burger; Gary Charness; John Lynham
    Date: 2008–10–05
  7. By: Gary E Bolton; Axel Ockenfels; Ulrich Thonemann
    Abstract: We compare how freshmen business students, graduate business students and experienced procurement managers perform on a simple inventory ordering task. We find that, qualitatively, managers exhibit ordering behavior similar to students, including biased ordering towards average demand. Experience, however, affects subjects’ utilization of information. The managers’ work experience seems most valuable when there is only historical demand data to guide decision making, while students better utilize analytical information and task training. As a result, when information necessary to solve the problem to optimality is added to historical information, students catch up to the managers, and students with classroom experience in operations management outperform managers.
    Date: 2008–08–25
  8. By: Anton Suvorov (CEFIR, NES); Jeroen van de Ven
    Abstract: We develop a theory of self-regulation based on goal setting for an agent with present-biased preferences. Preferences are assumed to be reference-dependent and exhibit loss aversion, as in prospect theory. The reference point is determined endogenously as an optimal self-sustaining goal. The interaction between hyperbolic discounting and loss aversion makes goals a credible and effective instrument for self-regulation. This is an entirely internal commitment device that does not rely on reputation building. We show that in some cases it is optimal to engage in indulgent behavior, and sometimes it is optimal to set seemingly dysfunctional goals. Finally, we derive a condition under which proximal (short term) goals are better than distal (long term) goals. Our results provide an implicit evolutionary rationale for the existence of loss aversion as a means of self-control.
    Keywords: self-regulation, goals, time inconsistency, loss aversion, indulgence, compulsiveness, proximal and distal
    JEL: D00 D80 D90
    Date: 2008–10

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