nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2010‒12‒23
fourteen papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Impatience, Anticipatory Feelings and Uncertainty: A Dynamic Experiment on Time Preferences By Marco Casari; Davide Dragone
  2. Doing good with other people's money: A charitable giving experiment with students in environmental sciences and economics By Frederik Carlsson; Mitesh Kataria; Elina Lampi; M. Vittoria Levati
  3. Learning in agent based models By Alan Kirman
  4. Epidemics of rules, information aggregation failure and market crashes By Kartik Anand; Alan Kirman; Matteo Marsili
  5. A note on Fairness and Redistribution By Rafael Di Tella; Juan Dubra
  6. Context and Interpretation in Laboratory Experiments: The Case of Reciprocity By Maria Vittoria Levati; Topi Miettinen; Birendra K. Rai
  7. Generosity in bargaining: Fair or fear? By Breitmoser, Yves; Tan, Jonathan H.W.
  8. Same Work, Lower Grade? Student Ethnicity and Teachers’ Subjective Assessments By Reyn van Ewijk
  9. Network Formation with Adaptive Agents By Schuster, Stephan
  10. Behavioral Aspects of Organizational Learning and Adaptation By Chatterjee, Sidharta
  11. The computational complexity of boundedly rational choice behavior By Thomas DEMUYNCK
  12. Perceptions, Expectations, and Entrepreneurship: The Role of Extreme Events By Brück, Tilman; Llussá, Fernanda; Tavares, José
  13. Bounded Rationality In Finite Automata By Ioannou, Christos A; Nompelis, Ioannis
  14. The effect of early cognitive ability on earnings over the life-cycle By Falch , Torberg; Sandgren Massih, Sofia

  1. By: Marco Casari (University of Bologna); Davide Dragone (University of Bologna)
    Abstract: We study time preferences in a real-effort experiment with a one-month horizon. We report that two thirds of choices suggest negative time preferences. Moreover, choice reversal over time is common even if temptation plays no role. We propose and measure three distinct concepts of choice reversal over time to study time consistency. This evidence calls for an important role for anticipatory feelings and uncertainty in intertemporal behavior.
    Keywords: negative time preferences, choice reversal, risk, time inconsistency, real-effort experiment
    JEL: C91 D01 D80 D90
    Date: 2010–12–13
  2. By: Frederik Carlsson (Department of Economics, University of Gothenburg); Mitesh Kataria (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Elina Lampi (Department of Economics, University of Gothenburg); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena)
    Abstract: We augment a standard dictator game to investigate how preferences for an environmental project relate to willingness to limit others' choices. We explore this issue by distinguishing three student groups: economists, environmental economists, and environmental social scientists. We find that people are generally disposed to grant freedom of choice, but only within certain limits. In addition, our results are in line with the widely held belief that economists are more selfish than other people. Yet, against the notion of consumer sovereignty, economists are not less likely to restrict others' choices and impose restrictions closer to their own preferences than the other student groups.
    Keywords: dictator game, charitable giving, social preferences, paternalism
    JEL: C92 D64
    Date: 2010–12–15
  3. By: Alan Kirman (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 (EHESS) - CNRS : UMR6579)
    Abstract: This paper examines the process by which agents learn to act in economic environments. Learning is particularly complicated in such situations since the environment is, at least in part, made up of other agents who are also learning. At best, one can hope to obtain analytical results for a rudimentary model. To make progress in understanding the dynamics of learning and coordination in general cases one can simulate agent based models to see whether the results obtained in skeletal models translate into the more general case. Using this approach can help us to understand which are the crucial assumptions in determining whether learning converges and, if so, to which sort of state. Three examples are presented, one in which agents learn to form trading relationships, one in which agents misspecify the model of their environment and a last one in which agents may learn to take actions which are systematically favourable, (or unfavourable) for them. In each case simulating models in which agents operate with simple rules in a complex environment, allows us to examine the role of the type of learning process used by the agents the extent to which they coordinate on a final outcome and the nature of that outcome.
    Keywords: Learning; agent based models; simulations; equilibria; asymmetric outcomes
    Date: 2010–12–09
  4. By: Kartik Anand (The Abdus Salam International Center for Theoretical Physics - The Abdus Salam International Center for Theoretical Physics - Commencez à saisir le nom d'un établissementThe Abdus Salam International Center for Theoretical Physics); Alan Kirman (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 (EHESS) - CNRS : UMR6579); Matteo Marsili (The Abdus Salam International Centre for Theoretical Physics - ICTP Trieste)
    Abstract: This short paper argues that rationally motivated coordination between agents is an important ingredient to understand the current economic crisis. We argue that changes in parameters that model the structure of a macro-economy or financial markets are not exogenous but arise as agents adopt rules that appear to be the norm around them. For example, if a rule is adopted by the majority of ones' neighbors it will become acceptable or, alternatively, if agents learn that changing their rule leads to greater gains, they will modified their rules. However, as rules develop and spread they may have consequences at the aggregate level which are not anticipated by individuals. These rules may be adopted by implicit consensus as they turn out to be profitable for individuals, but they may also weaken the constraints imposed by regulators. Indeed, the emergence of new rules or the modification of old ones may render the whole system more fragile, which may then cease to function. To illustrate this we develop a simple model, motivated by the 2007-2008 crisis in credit derivatives markets, to show how coordination on simple and apparently profitable rules may cause a market to collapse.
    Keywords: Coordination; economic crisis; economic rules; information aggregation
    Date: 2010–12–09
  5. By: Rafael Di Tella (Harvard Business School, Business, Government and the International Economy Unit); Juan Dubra (Universidad de Montevideo)
    Abstract: We note some problems in Alesina and Angeletos (2005) and suggest a way to maintain the key insight of that paper, which is that a demand for fairness could lead to different economic systems such as those observed in France versus the US (multiple equilibria).
    Keywords: Inequality, taxation, redistribution, political economy.
    JEL: D31 E62 H2 P16
    Date: 2010–12
  6. By: Maria Vittoria Levati (Max Planck Institute of Economics, Jena); Topi Miettinen (Aalto School of Economics, Alto); Birendra K. Rai (Monash Univeristy, Clayton)
    Abstract: The existing literature acknowledges that a mismatch between the experimenter's and the subjects' models of an experimental task can adversely affect the interpretation of data from laboratory experiments. We discuss why the two common experimental designs (between-subjects and within-subjects) used to conduct experiments may fail to sufficiently account for this concern. An alternative design for laboratory experiments is proposed which may alleviate this concern especially in studies of social preferences. The proposed design is used to answer some questions that have attracted continued attention in the literature on social preferences in general and reciprocity in particular.
    Keywords: Experimental design, Context, Trust game
    JEL: C70 C90 D63 D64
    Date: 2010–12–14
  7. By: Breitmoser, Yves; Tan, Jonathan H.W.
    Abstract: Are "generous" bargaining offers made out of fairness or in fear of rejection? We disentangle risk and social references by analyzing experimental behavior in three majority bargaining games: (1) a random-proposer game with infinite time horizon; 2) a one round proposer game with disagreement payoffs equal to the infinite horizon continuation payoffs; and, (3) a demand commitment game. Inequity aversion predicts very differently across these games, but risk aversion does not. Observed strategies violate neither stationarity nor truncation consistency. This allows us to use structural models of bargaining behavior to estimate the latent type shares of subjects with CES, inequity averse, and Prospect theoretic preferences. The Prospect theoretic, i.e. reference-dependent, model of utility explains the observations far better than any mixture of alternative models.
    Keywords: coalitional bargaining; non-cooperative modeling; random utility model; quantal response equilibrium; laboratory experiment
    JEL: C78 D78 C72
    Date: 2010–12–14
  8. By: Reyn van Ewijk (VU University Amsterdam, and Netspar)
    Abstract: Previous research shows that ethnic minority students perform poorer in school when they are taught by ethnic majority teachers. Why this is the case was unclear. This paper focuses on one important potential explanation: I examine whether ethnic majority teachers grade minority and majority students differently for the same work. Using an experiment, I rule out the existence of such a direct grading bias. I do find indirect evidence for alternative explanations: teachers report lower expectations and unfavorable attitudes that both likely affect their behavior towards minority students, potentially inducing them to perform below their ability level. Effects of having majority teachers on minority students' grades hence seem more likely to be indirect than direct.
    Keywords: Ethnicity; Discrimination; Grading; Experiment
    JEL: I2 J15
    Date: 2010–12–13
  9. By: Schuster, Stephan
    Abstract: In this paper, a reinforcement learning version of the connections game first analysed by Jackson and Wolinsky is presented and compared with benchmark results of fully informed and rational players. Using an agent-based simulation approach, the main nding is that the pattern of reinforcement learning process is similar, but does not fully converge to the benchmark results. Before these optimal results can be discovered in a learning process, agents often get locked in a state of random switching or early lock-in.
    Keywords: agent-based computational economics; strategic network formation; network games; reinforcement learning
    JEL: C63 D85
    Date: 2010
  10. By: Chatterjee, Sidharta
    Abstract: In this paper, I seek to understand the behavioral basis of higher organizational learning and adaption as a teleological dynamic equilibrium process to decipher the underlying psycho-physiological aspects of individual cognitive learning related to organizational adaption. Dynamics of cognitive learning has some differential paths within the neural circuitry which follows certain patterns that leads to individual as well as organized evolution in course of a learning process. I undertake a comparative analysis of human cognitive and behavioral changes and the active mechanisms underlying animal behavior and learning processes to understand the differential patterns of these adaptive changes in these two species. Cognitive behavioral learning processes have certain economic perspectives which help an individual to attain efficiency in workplace adaptation and in learning which however, the individual when being part of an alliance, ember positive influence on the society or organization as a whole. Comparatively, in primates, I review some empirical evidences drawn from chronological studies about cognitive behavioral learning process and adaptation as well as the presence of the capacity of making attributions about mental states, which exists in rudimentary form in chimpanzees and apes. Following this, I apply the outcomes of the findings on different aspects of human cognitive and adaptive behavioral learning-induced evolutionary changes and how human beings are able to exploit the presence of these additive advantages under cluster settings.
    Keywords: Animal behavior; cognitive economics; motivational energy; neural adaptation; neuroscience; Organizational learning; organizational adaptation; teleological process
    JEL: D23 Z1 D83 M54 M51 J2 D87
    Date: 2010–12–05
  11. By: Thomas DEMUYNCK
    Abstract: This research examines the computational complexity of two boundedly rational choice models that use multiple rationales to explain observed choice behavior. First, we show that the notion of rationalizability by K rationales as introduced by Kalai, Rubinstein, and Spiegler (2002) is NP-complete for K greater or equal to two. Second, we show that the question of sequential rationalizability by K rationales, introduced by Manzini and Mariotti (2007), is NP-complete for K greater or equal to three if choices are single valued, and that it is NP-complete for K greater or equal to one if we allow for multi-valued choice correspondences. Motivated by these results, we present two binary integer feasibility programs that characterize the two boundedly rational choice models and we compute their power. Finally, by using results from descriptive complexity theory, we explain why it has been so difficult to obtain `nice' characterizations for these models.
    Date: 2010–07
  12. By: Brück, Tilman (DIW Berlin); Llussá, Fernanda (Universidade Nova de Lisboa); Tavares, José (Universidade Nova de Lisboa)
    Abstract: We provide, for the first time, comparative evidence of the impact of various types of extreme events – natural disasters, terrorism, and violent conflicts – on the perceptions of entrepreneurs concerning some key entrepreneurial issues – such as fear of failure in starting a business venture, whether individuals expect that good opportunities are likely to emerge in the next six months, and the expected level of competition stemming from creating new ventures. The occurrence of extreme events is likely to be exogenous to the perceptions affecting it so that we can identify a causal link from events to entrepreneurs and their perceptions. Using individual-level data from 43 countries from the period 2002 to 2005, we find that neither indicator of the intensity of extreme events has a significant impact on entrepreneurial activity, when country characteristics are not controlled for. Once invariant country characteristics are taken into account, we find that Terrorist Attacks have a positive and significant impact on business creation, Natural Disasters have a positive and negative impact on entrepreneurial activity, and Violent Conflict has no significant effect. These results are consistent with differential impacts of extreme events on perception variables such as Fear of Failure, Expected Business Opportunities, and Expected Level of Competition. Our results suggest that extreme events, while costly at the aggregate level, may induce a positive response in terms of entrepreneurial activity in specific circumstances. There is hence scope for entrepreneurs, and policies supporting them, to create growth from the ruins of extreme events.
    Keywords: natural disaster, terrorism, violent conflict, entrepreneur
    JEL: F0
    Date: 2010–12
  13. By: Ioannou, Christos A; Nompelis, Ioannis
    Abstract: A model of adaptive learning and innovation is used to simulate the evolution of finite automata in the repeated Prisoner's Dilemma stage-game. The automata are prone to two types of errors: (a) implementation errors and (b) perception errors. The computational experiments incorporate different levels of errors in an effort to assess whether and how the distribution of outcomes and structures in the population changes. Under the proposed framework, the incorporation of implementation and perception errors is sufficient to reduce cooperative outcomes. In addition, the study identifies a threshold error-level. At and above the threshold error-level, the prevailing structures converge to the open-loop (history-independent) automaton Always-Defect. On the other hand, below the threshold, the prevailing structures are closed-loop (history-dependent) and diverse. The diversity thus impedes our inferential projections on the superiority of a particular automaton. Yet, the analysis still identifies some broad characteristics of the automata that work "reasonably well" in such environments. In particular, the complexity of the automata is decreasing in the probability of errors. Furthermore, the prevailing structures tend to exhibit low reciprocal cooperation and low tolerance to defections. These results show that the evolution of cooperative automata is considerably weaker than expected; and the change in the model is ecologically plausible: errors are common in strategic situations. <br><br> Keywords; Automata, Repeated Games, PrisonerÂ’s Dilemma, Bounded Rationality, Algorithms. <br><br> JEL Classification: C72, C80, C90
    Date: 2010–12–01
  14. By: Falch , Torberg (Department of Economics, Norwegian University of Science and Technology); Sandgren Massih, Sofia (Uppsala Center for Labor Studies)
    Abstract: This paper utilizes information on cognitive ability at age ten and earnings information from age 20 to 65 to estimate the return to ability over the life-cycle. Cognitive ability measured at an early age is not influenced by the individual’s choices of schooling. We find that most of the unconditional return to early cognitive ability goes through educational choice. The conditional return is increasing for low levels of experience and non-increasing for experience above about 15-25 years. The return is similar for men and women, and highest for individuals with academic education. Only a small part of the return can be explained by higher probability to have a supervisory position.
    Keywords: Cognitive ability; life-cycle; earnings; IQ; employer learning *
    JEL: I29 J31
    Date: 2010–01–19

This nep-cbe issue is ©2010 by Marco Novarese. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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