nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2009‒11‒27
seven papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Does Information Change Behavior? By Huffman, Wallace
  2. On the Origin of Mass Extinctions: Darwin’s Nontrivial Error By Funk, Matt
  3. Group Membership, Team Preferences, and Expectations By Francesco Guala; Luigi Mittone; Matteo Ploner
  4. Strategic Vagueness and Appropriate Contexts By Kris De Jaegher; Robert van Rooij
  5. Trust in Banks? Evidence from normal times and from times of crises By Markus Knell; Helmut Stix
  6. Leadership in a Weak-Link Game By Joris Gillet; Edward Cartwright; Mark Van Vugt
  7. Son to Father Reciprocity and Encephalization in Early Humans By John M. Hartwick

  1. By: Huffman, Wallace
    Abstract: This paper reviews and synthesizes the theory of information economics and empirical evidence on how information changes the behavior of consumers, households and firms. I show that consumers respond to new information in food experiments but perhaps not in retirement account management. Some seeming perverse consumer/investor decision making may be a result of a complex decision with a low expected payoff.
    Keywords: information economics, consumer behavior, behavioral economics, moral hazard, adverse selection.
    JEL: A0
    Date: 2009–11–19
  2. By: Funk, Matt
    Abstract: Darwin's "Origin" launched evolution into theoretical orbit and it continues to influence its course. This magnum opus detailed a tenable solution to the most fundamental problem of human existence, and although this Promethean vision contains sundry trivial flaws, there is, however, one nontrivial error which misguides several crucial developments – not only in the evolving structure of evolutionary theory, but across the entire spectrum of science, including politico-economics. This problem has led social and evolutionary theorists alike to mistakenly favour earth-based inputs over cosmic inputs, to over-emphasize biological evolution, and to under-emphasize stellar evolution. These methodological and logical errors have, in turn, emphasized the significance of the individual “struggle against competitors” over the cooperative “struggle against inclement environments”, and thus, as a result, fashionable theories relating to Global Warming, The Problem of Sustainable Economic Development, and The Tragedy of the Commons have been erected on a false foundations – and, moreover, point toward inherently unstable solutions. And to these salient points, in light of the theory presented here, we discover that the effective coordination of global threat mitigation efforts requires unprecedented levels of international politico-economic cooperation.
    Keywords: tragedy of the commons; sustainable economic development; global warming; mass extinctions; ecological economics; ideological environmentalism; stellar evolution; cosmic inputs; global threat mitigation; international cooperation
    JEL: Q51 Q54 Q57
    Date: 2009–11–09
  3. By: Francesco Guala; Luigi Mittone; Matteo Ploner
    Abstract: Group membership increases cooperation in social dilemma games, altruistic donation in dictator games, and fair offers in ultimatum games. While the empirical study of group action has grown rapidly over the years, there is little agreement at the theoretical level on exactly why and how group membership changes individual behaviour. According to most theorists, the effect of group framing is channelled primarily via the beliefs of group members, while a dissenting minority identifies changes in preference as the key explanatory mechanism. We report an experiment using the minimal group paradigm and a prisoner’s dilemma with multiple actions, in which we manipulate players’ beliefs and show that mutual knowledge of group affiliation is not necessary for group action. Our results question previous empirical findings, refute theories of social norms based on mutual expectations, and support a specific theory of team preferences based on “circumspect reasoning”
    Keywords: group identity, team preferences, social dilemmas, experimental economics.
    JEL: C72 C91 H41
    Date: 2009
  4. By: Kris De Jaegher; Robert van Rooij
    Abstract: This paper brings together several approaches to vagueness, and ends by suggesting a new approach. The common thread in these approaches is the crucial role played by context. Using a single example where there is a conflict of interest between speaker and listener, we start by treating game-theoretic rationales for vagueness, and for the related concepts of generality and ambiguity. We argue that the most plausible application of these models to vagueness in natural language is one where the listener only imperfectly observes the context in which the speaker makes her utterances. We next look at a rationale for vagueness when there is no conflict between speaker and listener, and which is an application of Horn's rule. Further, we tackle the Sorites paradox. This paradox apparently violates standard axioms of rational behaviour. Yet, once it is taken into account that vague language is used in an appropriate context, these axioms are no longer violated. We end with a behavioural approach to vagueness, where context directly enters agents. preferences. In an application of prospect theory, agents think in terms of gains and losses with respect to a reference point. Vague predicates now allow agents to express their subjective valuations, without necessarily specifying the context.
    Keywords: Vagueness, signalling games, decision theory, prospect theory
    JEL: D82 D83
    Date: 2009–11
  5. By: Markus Knell (Oesterreichische Nationalbank, Economic Studies Division, Otto-Wagner Platz 3, POB 61, A-1011 Vienna); Helmut Stix (Oesterreichische Nationalbank)
    Abstract: Trust in financial institutions is of great importance for financial intermediation. Against this background, we study two questions: Has trust in banks declined during the global financial crisis and what factors determine the level of trust in banks? Employing survey evidence from Austrian households, we show that trust in banks is mainly affected by "subjective" variables like the individuals' assessment of the current economic and financial situation and by their future outlooks. After controlling for these variables we show that the financial crisis has caused a reduction in trust (around -7.5pp) which is sizable but not dramatic. Even at its lowest point (in the first quarter of 2009) 65% still report to have trust in the banking system, which is a higher percentage than for many other institutions. Furthermore, the drop is only slightly larger than the drop observed after a small, non-systemic crisis that occurred in 2006. Thus, the much-stressed notion of a genuine "trust crisis" is not reflected in our data. Finally, we provide evidence that the degree of individual information does not influence trust, that banking trust is contagious and that the extension of deposit insurance coverage in October 2008 had a positive effect on trust.
    Keywords: Trust, Banking Sector, Financial Crisis
    JEL: G21 Z13 O16
    Date: 2009–11–10
  6. By: Joris Gillet; Edward Cartwright; Mark Van Vugt
    Abstract: We investigate, experimentally, the effects of leadership in a four player weak-link game. A weak-link game is a coordination game with multiple Pareto-ranked Nash equilibria. Because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria. Previous studies have shown that leadership by example - in the form of one player acting publicly before the rest of the group - can lead to increased cooperation in collective action problems and we are interested in finding out whether this result extends to weak-link games. Our results suggest that leadership has no effect on initial behavior; the first time that they play the game participants behave the same with leadership as without. We also observe, however, that leadership can allow groups to raise efficiency over time and therefore overcome inefficiency. There doesn't appear to be a difference between voluntary leaders and leaders that are (randomly) appointed.
    Keywords: Leadership; coordination game; weak-link game; minimum-effort game
    JEL: C72 D01 H41
    Date: 2009–10
  7. By: John M. Hartwick (Queen's University)
    Abstract: Humans exhibit much more sharing of food harvested by prime-age hunter-gatherers with dependents relative to such sharing by lower-order primates. We investigate this behavior in a model in which a father provides generously to his dependent child-son in period t in the hope that this gesture will inspire his son to reciprocate in the next period when the father is in "retirement". In our formulation fathers provide better when (a) they are smarter hunters (b) they have a higher probability of living to experience a "retirement" and (c) when they are more con…dent that their child-sons will indeed provide generously for them in their "retirement". Better food provision by prime-age fathers is associated with brain-size expansion in our model.
    Keywords: reciprocity, encephalization, intertemporal division of labor
    JEL: J10 J12 J22
    Date: 2009–11

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