nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒11‒18
seven papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. We-thinking and 'double-crossing': frames, reasoning and equilibria By Smerilli, Alessandra
  2. Is Libertarian Paternalism an Oxymoron? By Christophe Salvat
  3. Follow the Leader: Simulations on a Dynamic Social Network By David Goldbaum
  4. In what sense do firms evolve? By Bart Nooteboom
  5. The Dynamics of Learning: An Economic Model of Student Motivation and Achievement By Barkley, Andrew
  6. Heterogeneity, Bounded Rationality and Market Dysfunctionality By Xue-Zhong He; Lei Shi
  7. Knowledge Creation and Sharing in Organisational Contexts: A Motivation-Based Perspective By Lam, Alice; Lambermont-Ford, Jean-Paul

  1. By: Smerilli, Alessandra
    Abstract: The idea of we-thinking, or we-reasoning, is increasingly drawing the attention of more and more economists. The two main contributors are Bacharach and Sugden, and they approach the topic in two different ways. Sugden's aim is to show that we-reasoning is a consistent and logical way of thinking, but he does not face the problem of how we-reasoning can arise. Bacharach's theory is based on frames and his never reached aim (because of his death) was to explain we-thinking in terms of Variable Frame Theory. But some of his intuitions conflict with the logical analysis he proposes. In the present paper, I take a different approach to the way in which we-thinking works. Based on a not fully developed intuition of Bacharach's, i.e. the `double-crossing' problem in Prisoners' Dilemma (PD) game, I propose a framework in which a person is allowed to have both I-thoughts, when she is we-reasoning, and we-concepts, when she is I-reasoning, and develop my analysis in terms of equilibrium concepts.
    Keywords: we-thinking; frames; we-equilibria
    JEL: D70 Z10 C70
    Date: 2008–11–02
  2. By: Christophe Salvat (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: In this article I have attempted to discuss two points brought up by Sunstein and Thaler's new perspective on paternalism. The first is that whatever individuals do, they have to take second rank decisions, i.e. decisions that are equally attractive for them but impact others' people welfare. They then face a three alternative choice: either they do not care of the collateral consequences of their choice and act randomly, either they select the option that will make others better off, either they pick the option that will make others worst off. The authors assume they will necessarily act benevolently. I argued this statement is mistaken, and that the authors did not sufficiently distinguish the functional and the personal motivations of the planners. This leads me to define paternalism as the personal benevolence of the planners. Because they do not have any professional or moral duty towards the non-planners, they have absolutely no obligation to be benevolent. In most cases, the easiest choice is to act randomly. This incertitude about the planners' choice has dramatic consequences on non-planners: unless they know and trust the planners they cannot expect them to be paternalistic. They are subsequently less prone to blindly adopt default rules. The second point of the authors is that one can conceive a paternalistic system based on planners' benevolence that would not infringe libertarian principles. Default rules can, for instance, be combined with absolute freedom of choice. I argued that freedom of choice would not contribute to individual freedom if choices are not voluntary. The easiest they set up opting out options the less discriminating their system is, and eventually the most inefficient it will be.
    Keywords: Libertarianism; Behavioral Economics; Paternalism; Voluntariness; Sunstein; Thaler
    Date: 2008
  3. By: David Goldbaum (School of Finance and Economics, University of Technology, Sydney)
    Abstract: An agent based model is developed in which a social hierarchy of leaders and followers emerges from a uniform or random social network. The formation of the social structure is driven by the desire to be an early adopter of a subsequently popular trend. The environment is related to a majority game, but introduces the importance of the timing of adoption. The proposed environment is relevant to a number of settings in which leadership and timing of decisions are important or being perceived as a trend setter is rewarded. The leadership position can be selfreinforcing. For a professional critic, for example, a cult-of-personality can dictate popular tastes, such as in art, food, and wine markets. A social hierarchy can also apply to the introduction of new products or ideas including academic research and financial market analysts.
    Keywords: dynamic network; social interaction; consumer choice
    Date: 2008–10–01
  4. By: Bart Nooteboom
    Abstract: Does evolutionary theory help, for a theory of the firm, or, more widely, a theory of organization? In this paper I argue that it does, to some but also limited extent. Evolutionary theories of economies, and of culture, have acquired considerable following, but have also been subject to considerable criticism. Most criticism has been aimed at inappropriate biological analogies, but recently it has been claimed that a 'universal Darwinism', purged of all such mistaken analogy, is both useful and viable. Why should we try to preserve evolutionary theory, and will such theory stand up to sustained critical analysis? How useful is it for theory of the firm? Evolutionary theory appears to be the most adequate theory around for solving the problem of agency and structure, avoiding both an overly rational, managerial 'strategic choice' view of organizations and a 'contingency' view of organizations as fully determined by their environment. Whether universal Darwinism stands up to critical analysis remains to be seen. Here, the focus is on evolutionary theory of organization and of knowledge. Use is made of a constructivist 'embodied cognition' view of cognition and of elements of a cognitive theory of the firm.
    Keywords: Length 33 pages
    Date: 2008–11
  5. By: Barkley, Andrew
    Abstract: This research presents the results of a mathematical model of learning, to identify the major determinants of a productive and successful learning environment for college-level students. The driving force of the research is the relationship between: (1) student capacity for learning (ability), and (2) the opportunity to learn provided by the instructor (challenge). The dynamic relationship between ability and challenge leads to the most effective steady state rate of knowledge acquisition (learning). Implications for both students and teachers are derived and explored, including the proposition that a stable and sustainable rate of learning occurs when ability and challenge are congruent.
    Keywords: Teaching/Communication/Extension/Profession,
    Date: 2008
  6. By: Xue-Zhong He (School of Finance and Economics, University of Technology, Sydney); Lei Shi (School of Finance and Economics, University of Technology, Sydney)
    Abstract: As the main building blocks of the modern finance theory, homogeneity and rational expectation have faced difficulty in explaining many market anomalies, stylized factors, and market inefficiency in empirical studies. As a result, heterogeneity and bounded rationality have been used as an alterative paradigm of asset price dynamics and this paradigm has been widely recognized recently in both academic and financial market practitioners. Within the framework of Chiarella, Dieci and He (2006a, 2006b) on mean-variance analysis under heterogeneous beliefs in terms of either the payoffs or returns of the risky assets, this paper examines the effect of the heterogeneity. We first demonstrate that, in market equilibrium, the standard one fund theorem under homogeneous belief does not held under heterogeneous belief in general, however, the optimal portfolios of investors are very close to the market efficient frontier. By imposing certain distribution assumption on the heterogeneous beliefs, we then use Monte Carlo simulations to show that certain heterogeneity among investors can improve the Sharpe and Treynor ratios of the portfolios and investors can benefit from the diversity in investors? beliefs. We also show that non-normality of market equilibrium return distributions is an outcome of the market aggregation of individual investors who make rational decisions based on their beliefs. Our results explain the empirical funding that that managed funds under-perform the market index on average and show that heterogeneity can improve the market efficiency.
    Keywords: heterogeneity; bounded rationality; heterogeneous CAPM; mean-variance efficiency; Sharpe and Treynor ratios
    JEL: G12 D84
    Date: 2008–10–01
  7. By: Lam, Alice; Lambermont-Ford, Jean-Paul
    Abstract: This paper develops a motivation-based perspective to explore how organisations resolve the social dilemma of knowledge sharing, and the ways in which different motivational mechanisms interact to foster knowledge sharing and creation in different organisational contexts. The core assumption is that the willingness of organisational members to engage in knowledge sharing can be viewed on a continuum from purely opportunistic behaviour regulated by extrinsic incentives to an apparently altruistic stance fostered by social norms and group identity. The analysis builds on a three-category taxonomy of motivation: adding ‘hedonic’ motivation to the traditional dichotomy of extrinsic and intrinsic motivation. Based on an analysis of empirical case studies in the literature, we argue that the interaction and mix of the three different motivators play a key role in regulating and translating potential into actual behaviour, and they underline the complex dynamics of knowledge sharing and creation in different organisational contexts.
    Keywords: Knowledge sharing; tacit knowledge; motivation; incentives; organizational learning; human resource practices
    JEL: L2 D83
    Date: 2008–07

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