nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒08‒16
sixteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Policies from Evidence that Risk Starvation Causes Dementias and Depressions and May Contribute to a Range of Other Brain Morbidities By Robin Pope
  2. Rationality around the clock. Sleep and time-of-day effects on guessing game responses By David L. Dickinson; Todd McElroy
  3. Flying Airplanes: Realizing Circadian Effects (FARCE) By David L. Dickinson
  4. Nominalist Heuristics and Economic Theory By Robin Pope; Reinhard Selten; Sebastian Kube
  5. On the Truly Noncooperative Game of Island Life II: Evolutionary Stable Economic Development Strategy in Brief By Funk, Matt
  6. Neural networks as a learning paradigm for general normal form games By Spiliopoulos, Leonidas
  7. The endogenous nature of social preferences By Smith, John
  8. Theory of Values By Andreas Georgiadis; Alan Manning
  9. Public Sector Employees: Risk Averse and Altruistic? By Margaretha Buurman; Robert Dur; Seth Van den Bossche
  10. Punishment with Uncertain Outcomes in the Prisoner’s Dilemma By Peter Duersch; Maroš Servátka
  11. Moral Judgments in Social Dilemmas: How Bad is Free Riding? By Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
  12. Attitudes to Ambiguity in One-Shot Normal-Form Games: An Experimental Study By Asen Ivanov
  13. Social Effects in a Multi-Agent Investment Game. An Experimental Analysis By Luigi Mittone; Matteo Ploner
  14. Self-Deception and Choice By Igor Kopylov; Jawwad Noor
  15. 09-02 "Economic Writing on the Pressing Problems of the Day: The Roles of Moral Intuition and Methodological Confusion" By Julie A. Nelson
  16. Economic Institutions and the Boundaries of the Firm: The Case of Business Groups By Richard N. Langlois

  1. By: Robin Pope
    Abstract: In rich countries, the population percentage under drug therapy for depressions is rising rapidly decade by decade for children, adolescent and young adults with no evidence of any long term success for this chronic ailment. There is also in rich countries relative to most poor ones, for each age cohort, a dramatically higher incidence of dementias. This paper takes a fresh look at these evidences of happiness problems that are so much more prevalent in rich than poor countries...
    Keywords: brain morbidities; brain exercise; decision making; dementia; depression; environmental factors; risk processing; risk starvation; whiffs of danger; frequent, tiny, varied chances and challenges, damaging social security welfare, socio-economic changes, societal interactions, societal contributions, pharmaceutical advertising' pharmaceutical sponsorship
    Date: 2009–07
  2. By: David L. Dickinson; Todd McElroy
    Abstract: We administer a unique online version of the Guessing Game where subject responses are collected across all 24 hours of the day. While time-of-day itself does not affect guesses, when combined with a trait-level sleepiness measure and previous night sleep, adverse sleep states lead to responses significantly farther from equilibrium. These results have implications for shift workers and others whose constraints or choices lead to adverse sleep parameters. Key Words:
    JEL: C7 C9 J2
    Date: 2009
  3. By: David L. Dickinson
    Abstract: People differ in their diurnal (time-of-day) preferences—some are morning-types and others are evening-types. These differences are explored in a unique experiment design in which subjects are randomly assigned to produce paper airplanes at either 8:00 a.m. or 10:00 p.m. Our results show that evening-types at their more optimal time-of-day (10:00 p.m.) produce planes that fly statistically significantly farther than those produced by morning-types at their more optimal time-of-day (8:00 a.m.). Evidence also indicates that planes produced by evening-types fly straighter. These results have implications for hiring practices and shift work design in aeronautical engineering and aircraft production. Key Words:
    JEL: C9 J22 J24
    Date: 2009
  4. By: Robin Pope; Reinhard Selten; Sebastian Kube
    Abstract: This paper introduces a new theoretic entity, a nominalist heuristic, defined as a focus on prominent numbers, indices or ratios. Abstractions used in the evaluation stage of decision making typically involve nominalist heuristics that are incompatible with expected utility theory which excludes the evaluation stage, and are also incompatible with prospect theory which assumes that, while the evaluation procedure can involve systematic mistakes, the overall decision situation is nevertheless sufficiently simple: 1) for economists and psychologists to identify what is a mistake, and 2) to be compatible with maximisation. But in the typical complex situation giving rise to nominalist heuristics neither 1) nor 2) hold, and therefore what is required is a fundamentally different class of models that allow for the progressive anticipated changes in knowledge ahead faced under risk and uncertainty, namely models under the umbrella of SKAT, the Stages of Knowledge Ahead Theory. A sequel paper. Pope et al 2009b, shows field and laboratory evidence of heuristics in the form of prominent numbers entering exchange rate determination.
    Keywords: nominalism, money illusion, heuristic, unpredictability, experiment, SKAT the Stages of Knowledge Ahead Theory, prominent numbers, prominent indices, prominent ratios, equality, historical benchmarks, complexity, decision costs, evaluation
    JEL: D80 D81 F31 F33
    Date: 2009–08
  5. By: Funk, Matt
    Abstract: This paper offers a solution to 'The Problem of Sustainable Economic Development' on islands. This hypothesis offers a foundational, sub-game solution to The Island Survival Game, a counterintuitive, dominant economic development strategy for ‘islands’ (and relatively insular states). This discourse also tables conceptual building blocks, prerequisite analytical tools, and a guiding principle for The Earth Island Survival Game, a bounded delay supergame which models 'The Problem of Sustainable Economic Development' at the global level. We begin our exploration with an introduction to The Principle of Relative Insularity, a postulate which informs ESS for ‘island’ and ‘continental’ players alike. Next, we model ‘island’ economic development with two bio-geo-politico-economic models and respective strategies: The Mustique Co. Development Plan, and The Prince Edward Island Federal-Provincial Program for Social and Economic Advancement. These diametrically opposed strategies offer an extraordinary comparative study. One island serves as a highly descriptive model for 'The Problem of Sustainable Economic Development'; the other model informs ESS. 'The Earth Island Survival Game' serves as a remarkable learning tool, offering lessons which promote islander survival, resource holding power, cooperative behaviour, and independence by illuminating the illusive path toward sustainable economic development.
    Keywords: Non-cooperative games; evolutionary game theory; relative insularity; islands; tragedy of the commons; sustainable economic development; theory of value; resource holding power; evolutionary stable strategy; natural selection; long distance dispersal
    JEL: O1 O13 C72
    Date: 2009–08–13
  6. By: Spiliopoulos, Leonidas
    Abstract: This paper addresses how neural networks learn to play one-shot normal form games through experience in an environment of randomly generated game payoffs and randomly selected opponents. This agent based computational approach allows the modeling of learning all strategic types of normal form games, irregardless of the number of pure and mixed strategy Nash equilibria that they exhibit. This is a more realistic model of learning than the oft used models in the game theory learning literature which are usually restricted either to repeated games against the same opponent (or games with different payoffs but belonging to the same strategic class). The neural network agents were found to approximate human behavior in experimental one-shot games very well as the Spearman correlation coefficients between their behavior and that of human subjects ranged from 0.49 to 0.8857 across numerous experimental studies. Also, they exhibited the endogenous emergence of heuristics that have been found effective in describing human behavior in one-shot games. The notion of bounded rationality is explored by varying the topologies of the neural networks, which indirectly affects their ability to act as universal approximators of any function. The neural networks' behavior was assessed across various dimensions such as convergence to Nash equilibria, equilibrium selection and adherence to principles of iterated dominance.
    Keywords: Behavioral game theory; Learning; Global games; Neural networks; Agent-based computational economics; Simulations; Complex adaptive systems; Artificial intelligence
    JEL: C45 C70 C73
    Date: 2009–08–12
  7. By: Smith, John
    Abstract: This paper presents evidence which challenges the view that techniques which are designed to measure the social preferences of subjects can always be accomplished in a nonintrusive manner. We find evidence that such measurements can influence the preferences which they are designed to measure. Researchers often measure social preferences by posing a series of dictator game allocation decisions; we use a particular technique, Social Value Orientation (SVO). In our experiment we vary the order of the SVO measurement and a lager stakes dictator game. We find that subjects with prosocial preferences act even more prosocially when the SVO measurement is administered first, whereas those with selfish preferences are unaffected by the order of the measurement. Additionally, we find evidence that this difference is driven by the presence of choices involving the size of surplus.
    Keywords: Other-Regarding Preferences; Social Value Orientation; Dictator Game
    JEL: D64 C91
    Date: 2009–08–04
  8. By: Andreas Georgiadis; Alan Manning
    Abstract: Economists have a well-developed theory of value but the theory of why people hold thevalues they do is rudimentary at best. In spite of the fact that it is common to argue thatvalues are important, most work on values is normative and the positive theory of values isrelatively under- developed. In this paper we propose a simple yet general way to think aboutvalues - they are about how one trades-off one own's utility against that of others - and arguethat we can draw on the large literature on pro-social behavior for hypotheses on how peoplewill choose values. Then, using data from the UK's Citizenship Survey we show howmodels of self-interest, fairness, reciprocity and identity, can explain many of the patternsthat we observe in the data across a wide variety of values.
    Keywords: Values, Pro-Social Behaviour
    JEL: D63 Z13
    Date: 2009–07
  9. By: Margaretha Buurman (Erasmus University Rotterdam); Robert Dur (Erasmus University Rotterdam); Seth Van den Bossche (TNO Work and Employment)
    Abstract: We assess whether public sector employees have a stronger inclination to serve others and are more risk averse than employees in the private sector. A unique feature of our study is that we use revealed rather than stated preferences data. Respondents of a large-scale survey were offered a substantial reward and could choose between a widely redeemable gift certificate, a lottery ticket, or making a donation to a charity. Our analysis shows that public sector employees are significantly less likely to choose the risky option (lottery) and, at the start of their career, significantly more likely to choose the pro-social option (charity). However, when tenure increases, this difference in pro-social inclinations disappears and, later on, even reverses. Our results further suggest that quite a few public sector employees do not contribute to charity because they feel that they already contribute enough to society at work for too little pay.
    Keywords: public service motivation; risk aversion; revealed preferences data
    JEL: H1 J45 M52
    Date: 2009–07–31
  10. By: Peter Duersch (Department of Economics, Universität Heidelberg); Maroš Servátka (Department of Economics and Finance, University of Canterbury)
    Abstract: This paper experimentally investigates whether risk-averse individuals punish less if the outcome of punishment is uncertain than when it is certain. Our design includes three treatments: Baseline in which the one-shot prisoner’s dilemma game is played; Certain Punishment in which the prisoner’s dilemma game is followed by a punishment stage allowing subjects to decrease the other player’s payoff by 2 Euros; and Uncertain Punishment in which subjects could decrease the other player’s payoff with a 50% probability by 1 Euro and with a 50% probability by 3 Euros. We find that in all cases the risk-averse subjects are equally likely to cooperate in the prisoner’s dilemma and equally likely to punish in the second stage in either of the two punishment treatments.
    Keywords: experiment, prisoner’s dilemma, punishment, risk aversion, uncertainty
    JEL: C72 C91
    Date: 2009–07
  11. By: Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
    Abstract: In the last thirty years economists and other social scientists investigated people's normative views on principles of distributive justice. Here we study people's normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people's moral judgments empirically. We vary others' contributions, the framing ("give-some" vs. "take-some") and whether contributions are simultaneous or sequential. We find that moral judgments depend strongly on others' behaviour; and that failing to give is condemned more strongly than withdrawing all support.
    Keywords: moral judgments, framing effects, public goods experiments, free riding
  12. By: Asen Ivanov (Department of Economics, VCU School of Business)
    Abstract: Based on an experiment in the lab, we classify behavior in one-shot normal-form games along three important dimensions. The first dimension, which is of main interest, is about whether subjects are ambiguity-loving, ambiguity-neutral, or ambiguity-averse. The second dimension is about whether subjects are risk-loving, risk-neutral, or risk-averse. The third dimension is about whether subjects are naive or strategic. Our main result is that, in our main treatment, 32/46/22 percent of subjects are classified as ambiguity-loving/ambiguity-neutral/ ambiguity-averse.
    Keywords: games, experiments, beliefs, ambiguity, risk
    JEL: C72 C92 C51 D81 D84
    Date: 2009–08
  13. By: Luigi Mittone; Matteo Ploner
    Abstract: We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the well-known Investment Game (Berg et al., 1995). In our setting four agents (i.e., trustees) and one principal (i.e., trustor) are interacting and the access to choices of peers in the group of trustees is experimentally manipulated. Overall, subjects are positively influenced by peer's choices they observe. However, the positive interaction between choices is not strong enough to raise the reciprocity of those observing at the same level of those whose choices are observed.
    Date: 2009
  14. By: Igor Kopylov; Jawwad Noor
    Date: 2009–08–10
  15. By: Julie A. Nelson
    Abstract: Economists are often called on to help address pressing problems of the day, yet many economists are uncomfortable about disclosing the values that they bring to this work. This essay explores how an inadequate understanding of the role of methodology, as related to ethics and human emotions of concern, underlies this reluctance and compromises the quality of economic advice. The tension between caring about the problems, on the one hand, and writing within the existing culture of the discipline, on the other, are illustrated with examples from U.S. policymaking, behavioral economics, and the economics of climate change and global poverty. Potential steps towards a more responsible, "strongly objective," and policy-useful economics are discussed.
  16. By: Richard N. Langlois (University of Connecticut)
    Abstract: Business groups in all of their manifestations are informational mechanisms for coordinating complementary activities -- for "gap filling." This is well known in the literature on business groups outside the Anglo-American sphere. Especially in developing economies, where markets are thin and institutions (including both political institutions and what I call market-supporting institutions) are weak or non-existent, coordination is often more cheaply undertaken within the boundaries of business groups organized as financial pyramids, typically under family control. These organizations are intimately linked to the coalition of territorial rulers that North and his coauthors (2009) call a natural state; and, indeed, such business groups are arguably themselves examples of a natural state, in that they represent a self-enforcing coalition with its own rules, norms, and mechanisms of enforcement. But even in ÈdevelopedÉ economies, novelty and change create the sorts of gaps that call for business groups in the widest sense, including less-formal sets of "intermediate" relationships, as, for example, in industrial districts. In this sense, the economics of organization generally has perhaps more to learn from the literature on business groups than the other way around.
    Keywords: business groups, vertical integration, transaction costs, institutional economics, business history.
    JEL: L2 L63 N62 O33 O34
    Date: 2009–07

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