nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2011‒02‒19
six papers chosen by
Marco Novarese
University Amedeo Avogadro

  1. Resources, Capabilities, and Routines in Public Organization By Klein, Peter G.; Mahoney, Joseph T.; McGahan, Anita M.; Pitelis, Christos N.
  2. Attracted but Unsatisfied: The Effects of Arousing Contents on Television Consumption Choices By Luca Stanca; Marco Gui; Marcello Gallucci
  3. Bounded Rationality By Penelope Hernandez; Coralio Ballester
  4. Social Norm, Costly Punishment and the Evolution to Cooperation By Tongkui, Yu; Shu-Heng, Chen; Honggang, Li
  5. Behavioral Economics Perspectives on Public Sector Pension Plans By Beshears, John; Choi, James J.; Laibson, David; Madrian, Brigitte C.
  6. History-Dependent Risk Attitude By David Dillenberger; Kareen Rozen

  1. By: Klein, Peter G. (University of Missouri); Mahoney, Joseph T. (University of Illinois, Urbana-Champaign); McGahan, Anita M. (University of Toronto); Pitelis, Christos N. (Unviersity of Cambridge)
    Abstract: States, state agencies, multilateral agencies, and other non-market actors are relatively under-studied in the strategic entrepreneurship literature. While important contributions examining public decision makers have been made within the agency-theoretic and transaction-cost traditions, there is little research that builds on resource-based, dynamic capabilities, and behavioral approaches to organizations. Yet public organizations can be usefully characterized as stocks of physical, organizational, and human resources; they interact with other organizations in pursuing a type of competitive advantage; they can possess excess capacity, and may grow and diversify in part according to Penrosean (dynamic) capabilities and behavioral logic. Public organizations may be managed as stewards of resources, capabilities, and routines. This paper shows how resource-based, (dynamic) capabilities, and behavioral approaches shed light on the nature and governance of public organizations and suggests a research agenda for public entrepreneurship that reflects insights gained from applying strategic management theory to public organization.
    Date: 2011
  2. By: Luca Stanca; Marco Gui; Marcello Gallucci
    Abstract: This paper investigates experimentally the effects of arousing contents on viewing choices and satisfaction in television consumption. We test the hypothesis that the portrayal of arousing content combines high attraction and low satisfaction and is thus responsible for sub- optimal choices. In our experiment, subjects can choose among three programs during a viewing session. In the experimental condition, one of the three programs portrays a violent verbal conflict, whereas in the control condition the same program portrays a calm debate. A post-experimental questionnaire is used to assess subjects' satisfaction with the programs and the overall viewing experience. The results support the hypothesis: the presence of arousing content causes sub- jects to watch more of a given program, although they experience lower content-specific and overall satisfaction. Arousing contents also significantly increase the discrepancy between actual and desired viewing.
    Keywords: Rational Choice, Audience, Television, Satisfaction, Arousing content, Laboratory Experiments.
    JEL: D63 C78 C91
    Date: 2011–02
  3. By: Penelope Hernandez (ERI-CES); Coralio Ballester (University Alicante)
    Abstract: The observation of the actual behavior by economic decision makers in the lab and in the field justifies that bounded rationality has been a generally accepted assumption in many socio-economic models. The goal of this paper is to illustrate the difficulties involved in providing a correct definition of what a rational (or irrational) agent is. In this paper we describe two frameworks that employ different approaches for analyzing bounded rationality. The first is a spatial segregation set-up that encompasses two optimization methodologies: backward induction and forward induction. The main result is that, even under the same state of knowledge, rational and non-rational agents may match their actions. The second framework elaborates on the relationship between irrationality and informational restrictions. We use the beauty contest (Nagel, 1995) as a device to explain this relationship.
    Keywords: Behavioral economics, bounded rationality, partial information
    JEL: C61 C73
    Date: 2011–01
  4. By: Tongkui, Yu; Shu-Heng, Chen; Honggang, Li
    Abstract: Both laboratory and field evidence suggest that people tend to voluntarily incur costs to punish non-cooperators. While costly punishment typically reduces the average payoff as well as promotes cooperation. Why does the costly punishment evolve? We study the role of punishment in cooperation promotion within a two-level evolution framework of individual strategies and social norms. In a population with certain social norm, players update their strategies according to the payoff differences among different strategies. In a longer horizon, the evolution of social norm may be driven by the average payoffs of of all members of the society. Norms differ in whether they allow or do not allow for the punishment action as part of strategies, and, for the former, they further differ in whether they encourage or do not encourage the punishment action. The strategy dynamics are articulated under different social norms. It is found that costly punishment does contribute to the evolution toward cooperation. Not only does the attraction basin of cooperative evolutionary stable state (CESS) become larger, but also the convergence speed to CESS is faster. These two properties are further enhanced if the punishment action is encouraged by the social norm. This model can be used to explain the widespread existence of costly punishment in human society.
    Keywords: social norm; costly punishment; cooperative evolutionary stable state; attraction basin; convergence speed
    JEL: C02 D64 C73
    Date: 2011–02–01
  5. By: Beshears, John (Stanford University); Choi, James J. (Yale School of Management); Laibson, David (Harvard University); Madrian, Brigitte C. (Harvard Kennedy School)
    Abstract: We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee's work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers' need to save for retirement in other accounts. There is also substantial heterogeneity across jurisdictions in the savings generated in primary DC plans because of differences in the level of mandatory employer and employee contributions. One notable difference between public and private sector DC plans is that public sector primary DC plans are characterized by required employee or employer contributions (or both), whereas private sector plans largely feature voluntary employee contributions that are supplemented by an employer match. We conclude by applying lessons from savings behavior in private sector savings plans to the design of public sector plans.
    JEL: G23 G28 H76
    Date: 2011–02
  6. By: David Dillenberger (Department of Economics, University of Pennsylvania); Kareen Rozen (Department of Economics, Yale University and Cowles Foundation for Research in Economics)
    Abstract: We propose a model of history-dependent risk attitude (HDRA), allowing the attitude of a decision-maker (DM) towards risk at each stage of a T-stage lottery to evolve as a function of his history of disappointments and elations in prior stages. We establish an equivalence between the existence of an HDRA representation and two documented cognitive biases. First, the DM’s risk attitudes are reinforced by prior experiences: he becomes more risk averse after suffering a disappointment and less risk averse after being elated. Second, the DM displays a primacy effect: early outcomes have the strongest effect on risk attitude. Furthermore, the DM lowers his threshold for elation after a disappointing outcome and raises it after an elating outcome; this makes disappointment more likely after elation and vice-versa, leading to statistically reversing risk attitudes. “Gray areas” in the elation-disappointment assignment are connected to optimism and pessimism in determining endogenous reference points.
    Keywords: history-dependent risk attitude, statistically reversing risk attitudes, reinforcement effect, primacy effect, endogenous reference dependence, betweenness, optimism, pessimism
    JEL: D81 D91
    Date: 2011–02–14

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