nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒05‒09
six papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Satisficing in sales competition: experimental evidence By Siegfried Berninghaus; Werner Güth; M. Vittoria Levati; Jianying Qiu
  2. Bottlenose Dolphins (Tursiops truncatus) Prefer to Cooperate When Petted: Integrating Proximate and Ultimate Explanations II By Amir Perelberg; Richard Schuster
  3. The Evolution of Fairness under an Assortative Matching Rule in the Ultimatum Game By Shirata, Yasuhiro
  4. Play to Learn? An Experiment By Martin Dufwenberg; J. Todd Swarthout
  5. Understanding Risk Attitudes in two Dimensions: An Experimental Analysis By Jianying Qiu; Eva-Maria Steiger
  6. Loss aversion and mental accounting: The favorite-longshot bias in pari-mutuel betting By Jianying Qiu

  1. By: Siegfried Berninghaus; Werner Güth; M. Vittoria Levati; Jianying Qiu
    Abstract: In a duopoly market, aspiration levels express how much sellers want to earn given their expectations about the other’s behavior. We augment the sellers’ decision task by eliciting their profit aspiration. In a first experimental phase, whenever satisficing is not possible, sales choices, point beliefs, or aspiration levels have to be adapted. This allows us to investigate which of these three aspects individuals revise more often. In a second phase, testing the absorption of satisficing, participants are free to select non-satisficing sales profiles. The results reveal that most participants are satisficers who tend to adjust aspiration levels if they cannot be satisfied.
    Keywords: Satisficing behavior; Duopoly; Profit aspiration; Theory absorption
    JEL: C92 C72 D43
    Date: 2009–05
  2. By: Amir Perelberg; Richard Schuster
    Abstract: Cooperation poses theoretical problems because the behaviors of individuals can benefit others. Evolutionary and game-theory explanations that focus on maximizing one's own material outcomes are usually supported by experimental models with isolated and anonymous subjects. Cooperation in the natural world, however, is often a social act whereby familiar individuals coordinate behaviors for shared outcomes. Social cooperation is also associated with a cooperation bias expressed as a preference for cooperation even when noncooperation is immediately more beneficial. The authors report on evidence for such a bias in a captive group of bottlenose dolphins that voluntarily preferred to receive petting from human guides by using a pairwise coordinated approach, even though this was more difficult, and total petting amount was thereby reduced. To explain why this bias occurs, the authors propose an integrated behavioral-evolutionary approach whereby performance is determined by two kinds of immediate outcomes: material gains and intrinsic affective states associated with cooperating. The latter can provide reinforcement when immediate material gains are reduced, delayed, or absent. Over a lifetime, this proximate mechanism can lead to cooperative relationships whose long-term ultimate consequences can be adaptive.
    Date: 2009–03
  3. By: Shirata, Yasuhiro
    Abstract: This paper studies how a matching rule affects the evolution of fairness in an ultimatum mini game. Gale et al. [1995] show that only selfish behaviour survives in the deterministic replicator dynamics under the random matching rule. In contrast, this paper shows that, under an assortative matching rule, the fair behaviour may survive at an asymptotically stable state.
    Date: 2008–12
  4. By: Martin Dufwenberg; J. Todd Swarthout
    Abstract: Does playing a game in class improve students' ability to analyze the game using game theory? We report results from an experimental design which allows us to test a series of related hypotheses. We fail to find support for the conjectured learning-enhancing effects and discuss what lessons can be learned substantially and methodologically.
    JEL: A22 C70
    Date: 2009–04
  5. By: Jianying Qiu; Eva-Maria Steiger
    Abstract: Despite extensive studies, the nature of risk attitudes remains a vigorously discussed question in economics and psychology. In expected utility theory, attitudes towards risk originate from changes in marginal utility. Cumulative prospect theory (CPT) adds an additional dimension: the weighting of probabilities. By examining both dimensions, we strive to gain more insight on the relation between the curvature of utility function and probability weighting, and on possible relations to cognitive limitations. Our findings from a controlled laboratory experiment suggest that the two dimensions capture quite different characteristics. Though, most individuals exhibit concave utility and convex probability weighting, the two dimensions show no significant correlation. In addition, only probability weighting, not the curvature of utility function, is correlated with educational background and decision time, which suggests its relation to cognitive limitations.
    Keywords: Risk attitudes, cumulative prospect theory, experimental study
    JEL: C91 D81
    Date: 2009–05
  6. By: Jianying Qiu
    Abstract: In this paper it is shown that the combination of mental accounting and loss aversion can fundamentally changes people's way of evaluating risky alternatives. The observation is applied in a market setting: Parimutuel betting markets. In parimutuel betting markets it has been found that for horses with lowest odds (favorites), market estimates of winning probabilities are smaller than objective winning probabilities; for horses with highest odds (longshot) the opposite is observed (the favorite-longshot bias). I build a game theoretical model and show that the favorite-longshot bias is the equilibrium play of the players with loss aversion, and that the degree of the favorite-longshot bias depends on the mental accounting process the players use.
    Keywords: loss aversion, mental accounting, parimutuel betting, the favorite-longshot bias.
    JEL: C72 D40 D81 G10
    Date: 2009–05

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