nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2008‒12‒01
thirteen papers chosen by
Marco Novarese
University of the Piemonte Orientale

  1. Learning, Rationality and Identity Building By David Cayla
  2. The Power of Reasoning: Experimental Evidence By Subhasish Dugar; Haimanti Bhattacharya
  3. Gift Exchange in the Workplace: Money or Attention? By Dur, Robert
  4. Pseudo-NK: an Enhanced Model of Complexity By Marco Valente
  5. The ABCs of Charitable Solicitation By Jonathan Meer; Harvey S. Rosen
  6. A Behavioral Laffer Curve: Emergence of a Social Norm of Fairness in a Real Effort Experiment By Louis Lévy-Garboua; David Masclet; Claude Montmarquette
  7. The Cultural Roots of Institutions By Mariko Klasing
  8. The Economic Performance of Great Religions By Paul Fudulu
  9. Height, Health and Cognitive Function at Older Ages By Anne Case; Christina Paxson
  11. BEHAVIOURS OF CONSERVATION ORGANIZATIONS AND THEIR ENVIRONMENTAL IMPLICATIONS. Analysis based on New (and not so new) Institutional Economics By Tisdell, Clem
  12. A Model of Religion and Death By Derek Pyne
  13. Behind the 2008 Capital Market Collapse By C-René Dominique

  1. By: David Cayla (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, IMRI - Institut pour le Management de la Recherche et de l'Innovation - Université Paris Dauphine - Paris IX)
    Abstract: This paper focuses on the link between the economic conceptions of rationality and learning. Traditionally, most economists believe that learning is just a way for agents to become fully rational. But being fully rational cannot describe a process, for there is only one way to be rational in the economic sense of the term. Therefore, what economists have in mind is not the process of learning, but the result of learning: ‘a fully rational agent’. Heterodox rationality conceptions such as the Simonian model of bounded rationality seem more compatible with the idea of learning. Bounded rationality implies that agents may act differently to the same stimulus; it is therefore compatible with the idea of diversity, one of the foundations of the evolutionary logic. But following Simon, learning should not be considered as a creative process that allows a lot of diverse answers. If diversity exists in the agents’ behaviors, the way they learn appears to be unique. As a consequence, learning should decrease the strength of the selection forces, both processes being contradictory (Dosi et al. 2003). Our paper aims to overcome this contradiction by showing how intentionality and identity, and more broadly Fransisco Varela’s ‘enaction’ theory, can help to invent a concept of ‘rational learning’ that is compatible with the evolutionary logic.
    Keywords: learning; rationality; identity; cognitive sciences; enaction; evolutionary theory
    Date: 2008–10–01
  2. By: Subhasish Dugar; Haimanti Bhattacharya
    Abstract: This paper presents an experimental investigation of how a systematic variation in the cognitive demands on subjects affects the optimal play. The innovation of this paper is the choice of a game, which we call the Game of Position. This is a two-player zero-sum game characterized by a dominant-strategy solution that involves iterative steps of reasoning. The equilibrium play is independent of mutual beliefs of players; hence inability of a subject to play the dominant-strategy unambiguously implies the failure of human reasoning prowess. We alter the two parameters of the game to vary the cognitive constraints, as represented by these steps of reasoning, on players. Our main substantive conclusion is that the frequency of the dominant-strategy play sharply increases as we limit the cognitive demands on players.
    Keywords: Non-cooperative game theory, cognition, laboratory experiment
    JEL: C72 D83 C91
    Date: 2008
  3. By: Dur, Robert (Erasmus University Rotterdam)
    Abstract: We develop a model of manager-employee relationships where employees care more for their manager when they are more convinced that their manager cares for them. Managers can signal their altruistic feelings towards their employees in two ways: by offering a generous wage and by giving attention. Contrary to the traditional gift-exchange hypothesis, we show that altruistic managers may offer lower wages and nevertheless build up better social-exchange relationships with their employees than egoistic managers do. In such equilibria, a low wage signals to employees that the manager has something else to offer − namely, a lot of attention − which will induce the employee to stay at the firm and work hard. Our predictions are well in line with some recent empirical findings about gift exchange in the field.
    Keywords: gift exchange, sabotage, extra-role behavior, wages, manager-employee relationships, social exchange, conditional altruism, reciprocity, signaling game
    JEL: D86 J41 M50 M54 M55
    Date: 2008–11
  4. By: Marco Valente
    Abstract: This paper is based on the acknowledgment that NK models are an extremely useful tool in order to represent and study the complexity stemming from interactions among components of a system. For this reason NK models have been applied in many domains, such as Organizational Sciences and Economics, as a simple and powerful tool for the representation of complexity. However, the paper suggests that NK suffers from un-necessary limitations and difficulties due to its peculiar implementation, originally devised for biological phenomena. We suggest that it is possible to devise alternative implementations of NK that, though maintaining the core aspects of the NK model, remove its major limitations to applications in new domains. The paper proposes one such a model, called pseudo-NK (pNK) model, which we describe and test. The proposed model appears to be able to replicate most, if not all, the properties of standard NK models, but also to offer wider possibilities. Namely, pNK uses real-valued (instead of binary) dimensions forming the landscape and allows for gradual levels of interaction among components (instead of presence-absence). These extensions provide the possibility to maintain the approach at the original of NK (and therefore, the compatibility with former results) and extend the application to further domains, where the limitations posed by NK are more striking.
    Keywords: NK model, Simulation models, Complexity, Interactions
    JEL: C15 D20 D83 L23 O31 O32
    Date: 2008–11–20
  5. By: Jonathan Meer (Stanford University); Harvey S. Rosen (Princeton University)
    Abstract: The “iron law of fundraising” says that people do not donate to a charity unless they are asked. We test the iron law using observational data on alumni giving at an anonymous research university, which we refer to as Anon U. At Anon U, volunteers use lists provided by the Devel-opment Office to telephone classmates and solicit them for donations. The names on these lists are always in alphabetical order. The volunteers who do the soliciting often run out of time be-fore they reach the end of their lists, and conditional on reaching the end of their lists, the solici-tations are likely to be done with less energy and enthusiasm. These observations suggest a sim-ple strategy for testing whether solicitation matters, viz., examine whether alumni with names toward the end of the alphabet are less likely to give than alumni with names toward the begin-ning, ceteris paribus. If so, then solicitation matters. Our main finding is that location in the alphabet--and hence, solicitation-- has a strong ef-fect on probability of making a gift, but not on the amount given, conditional on donating. This result is consistent with a theoretical model of charitable behavior developed by Andreoni and Payne [2003], in which solicitation reduces the transaction cost of making a gift. Our finding is also in line with a model in which individuals donate to charities in order to avoid the solicitor’s disapproval. In this case, the donation per se is perceived as eliminating the stigma; the amount given, conditional on giving, has no additional impact. We also find that women respond more strongly to solicitation than men. This is consistent with a robust result in the psychology litera-ture, that women find it more difficult than men to refuse requests that they perceive as being legitimate.
    Date: 2008–08
  6. By: Louis Lévy-Garboua (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CIRANO - Centre Interuniversitaire de Recherche en ANalyse des Organisations, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - Université du Québec à Montréal); David Masclet (CIRANO - Centre Interuniversitaire de Recherche en ANalyse des Organisations, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - Université du Québec à Montréal, CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université Rennes I - Université de Caen); Claude Montmarquette (CIRANO - Centre Interuniversitaire de Recherche en ANalyse des Organisations, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - Université du Québec à Montréal, Université de Montréal - Département de Sciences Economique - Université de Montréal)
    Abstract: This paper demonstrates, through a controlled experiment, that the “Laffer curve” phenomenon does not always reflect a conventional income - leisure trade-off. Whether out of reason or out of emotion, taxpayers may also be willing to punish intentionally unfair tax setters by working less than they would under the same exogenous circumstances. We conduct a real effort experiment in which a player A (the "tax receiver") is matched with a player B (the "worker") to elicit the conditions under which tax revenues will increase under a certain threshold and decrease thereafter. We ran four different treatments by manipulating work opportunities and the power to tax. Consistent with the history of tax revolts, the working partner overreacts to the perceived unfairness of taxation when the tax rate exceeds 50%, most strongly so in the high effort treatment. With two types of players, selfish and empathic, our model predicts the emergence of a social norm of fairness under asymmetric information, and elicits the optimal and emotional patterns of punishments and rewards consistent with the norm's enforcement. The social norm allows players to coordinate tacitly on a “focal equilibrium”, which offers a solution to the indeterminacy raised by the Folk theorem for infinitely-repeated games and a behavioral justification for the tit-for-tat strategy. The social norm of fairness enhances productive efficiency in the long run.
    Keywords: Taxation and labor supply; Laffer curve; experimental economics; fairness and efficiency; social norms and sanctions; informational asymmetry; emotions.
    Date: 2008–11–20
  7. By: Mariko Klasing
    Abstract: Do political institutions have cultural roots? Using a novel data set of cultural values we show that culture, defined as a society's collective beliefs and values, is an important determinant of institutions. We argue that the traditional proxies for culture used in the existing literature suffer from conceptual problems and find that they do not survive several robustness checks. Our results suggest, that individualist societies and societies with preference for a more equal distribution of power set up institutions that better protect individual property rights, place more constraints on governments and have more effective governments. We find that our measures of culture are robust to the inclusion of other control variables and across different samples and that they always dominate the effects of the traditional proxies.
    Keywords: Institutions, political institutions, culture, cultural values
    JEL: D02 O17 P00 P51
    Date: 2008–11
  8. By: Paul Fudulu (University of Bucharest)
    Abstract: Ultimately, institutions and cultural preferences are opportunity cost patterns in terms of allinclusive mega-goods wealth and power while cultural preferences are preference rankings of collectivities for the same mega-goods. It is this trans-cultural perspective on institutions and cultures which makes possible that the consistency of a religion with economic performance to be looked at by taking into account religious rules and values that directly characterize mega-good power and only indirectly mega-good wealth. Consequently, besides criteria that have a direct bearing on the easiness to get wealth – the preference for absolute wealth, the type of asceticism, encouragement of saving and productive investment, the level of prohibition for interest - more numerous and better depicted criteria related to power can be employed such as: priests and churches as salvation mediators, encouragement of obedience, the nature of divinity, the type of social justice which is encouraged, man’s power over woman, the kind of ecclesiastical organization. All of the five religions which are analyzed - Protestantism, Catholicism, Orthodoxism, Islamism, Confucianism and Buddhism - show almost the same rankings of consistency with economic performance for all direct and indirect criteria which are employed.
    Keywords: church, culture, economic growth,institutions,preferences
    Date: 2008–10–25
  9. By: Anne Case (Princeton University); Christina Paxson (Princeton University)
    Abstract: Research across a number of disciplines has highlighted the role of early life health and circumstance in determining health and economic outcomes at older ages. Nutrition in utero and in infancy may set the stage for the chronic disease burden that an individual will face in middle age (David J. Barker, 1998; Barker et al. 1989; Johann Eriksson et al. 2001). Childhood health may also have significant effects on economic outcomes in adulthood. Collectively, a set of childhood health measures can account for a large fraction of the explained variance in employment and social status observed among a British cohort followed from birth into adulthood (Anne Case, Angela Fertig and Christina Paxson 2005).
    Date: 2008–01
  10. By: Anne Case (Princeton University); Christina Paxson (Princeton University); Mahnaz Islam (Princeton University)
    Abstract: We use nine waves of the British Household Panel Survey (BHPS) to investigate the large labor market height premium observed in the BHPS, where each inch of height is associated with a 1.5 percent increase in wages, for both men and women. We find that half of the premium can be explained by the association between height and educational attainment among BHPS participants. Of the remaining premium, half can be explained by taller individuals selecting into higher status occupations and industries. These effects are consistent with our earlier findings that taller individuals on average have greater cognitive function, which manifests in greater educational attainment, and better labor market opportunities.
    Date: 2008–05
  11. By: Tisdell, Clem
    Abstract: This article draws mostly (but not entirely) on new institutional economics to consider the likely behaviours of non-government conservation organizations and the implications of these behaviours for biodiversity conservation. It considers how institutional factors may result in behaviour of conservation NGOs diverging from their objectives, including their support for biodiversity conservation; examines aspects of rent capture and conservation alliances; specifies social factors that may restrict the diversity of species supported by NGOs for conservation; considers bounded rationality in relation to the operation of conservation NGOs; and using game theory, shows how competition between NGOs for funding can result in economic inefficiencies and narrow the diversity of species supported for conservation. It also considers generally how the social role of conservation NGOs might be assessed.
    Keywords: Australia, biodiversity conservation, bounded rationality, civil society, Common Agricultural Policy, European Union, Landcare, mixed goods, new institutional economics, New Zealand, NGOs, principal-and-agent problem, political acceptability, Environmental Economics and Policy, Institutional and Behavioral Economics, Political Economy, Q00, Q2, Q5, Q57, Z13,
    Date: 2008
  12. By: Derek Pyne (Department of Economics. University of Waterloo, Canada)
    Abstract: This paper attempts to explain several empirical findings regarding religion. The main one is between religion and the fear of death. Some empirical evidence indicates moderately religious individuals fear death more than either atheists or extremely religious individuals. The model also explains the positive relationship often found between religious activity (e.g. church attendance) and age. It also provides an explanation of the positive relationship between education and religious activity despite a negative relationship between education and religious belief.
    Keywords: Fear, death, anxiety, religion
    JEL: Z12
    Date: 2008–10–26
  13. By: C-René Dominique
    Abstract: Greed and the unethical behavior of financial institutions obviously played a part in the collapse of the world capital market in 2008. But, this paper argues that the main culprits are the neo-liberal ideology (requiring ever smaller gov-ernments and privatization) and the flawed theories of risk assessment. It also finds that given the fact that market economies are fractal structures, the objective assessment and / or the quantification of risks is not even possible. It concludes with some recommendations as to how to avoid future collapses.
    Keywords: Efficiency and self-correction in market economies; Linear-positive and non-linear modelings; creative destruction of coefficients; determinism and randomness, and risk assessment.
    JEL: E22
    Date: 2008–10–26

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