nep-cbe New Economics Papers
on Cognitive and Behavioural Economics
Issue of 2018‒01‒15
seven papers chosen by
Marco Novarese
Università degli Studi del Piemonte Orientale

  1. Regulation and Altruism By Izabela Jelovac; Samuel Kembou Nzale
  2. Screening procrastinators with automatiic-renewal contracts By JOHNEN Johannes
  3. Economics versus psychology.Risk, uncertainty and the expected utility theory By Schilirò, Daniele
  4. Deadlines and Cognitive Limitations By Altmann, Steffen; Traxler, Christian; Weinschenk, Philipp
  5. The Effect of Positive Mood on Cooperation in Repeated Interaction By Proto, Eugenio; Sgroi, Daniel; Nazneen, Mahnaz
  6. Rational Heuristics ? Expectations and behaviours in evolving economies with heterogeneous interacting agents. By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Joseph Stiglitz; Tania Treibich
  7. Complexity Theory, Game Theory, and Economics By Tim Roughgarden

  1. By: Izabela Jelovac (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Samuel Kembou Nzale (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)
    Abstract: We study optimal contracts in a regulator-agent setting with joint production, altruistic and selfish agents, and uneasy outcome measurement. Such a setting represents sectors of activities such as education and health care provision. The agents and the regulator jointly produce an outcome for which they all care to some extent that is varying from agent to agent. Some agents, the altruistic ones, care more than the regulator does while others, the selfish agents, care less. Moral hazard is present due to the agent’s effort that is not contractible. Adverse selection is present too since the regulator cannot a priori distinguish between altruistic and selfish agents. Contracts consist of a simple transfer from the regulator to the agents together with the regulator’s input in the joint production. We show that a screening contract is not optimal when we face both moral hazard and adverse selection.
    Keywords: altruism,moral hazard,adverse selection,regulator-agent joint production
    Date: 2017–10
  2. By: JOHNEN Johannes (CORE, Université catholique de Louvain)
    Abstract: Automatic contract renewals are a common feature in consumer markets and a frequent concern among policy makers. They can be used to exploit consumer inertia when consumers forgo benefits from switching to better alternatives. I consider two sources for th
    Keywords: Limited Attention, Automatic Contract Renewal, Price Discrimination, Present Bias, Naiveté
    JEL: D03 D18 D41 D42 D82
    Date: 2017–11–09
  3. By: Schilirò, Daniele
    Abstract: The present contribution examines the emergence of expected utility theory by John von Neumann and Oskar Morgenstern, the subjective the expected utility theory by Savage, and the problem of choice under risk and uncertainty, focusing in particular on the seminal work “The Utility Analysis of Choices involving Risk" (1948) by Milton Friedman and Leonard Savage to show how the evolution of the theory of choice has determined a separation of economics from psychology.
    Keywords: Rational Choice; Risk; Uncertainty; Expected Utility Theory
    JEL: C70 D80 D81
    Date: 2017–06
  4. By: Altmann, Steffen (University of Copenhagen); Traxler, Christian (Hertie School of Governance); Weinschenk, Philipp (University of Kaiserslautern)
    Abstract: This paper studies the interplay between deadlines and cognitive limitations. We analyze an agent's decision to complete a one-off task under a deadline. Postponing the task can be beneficial for the agent; missing the deadline, however, leads to a drop in the agent's rewards. If the agent exhibits cognitive limitations, postponing increases the risk of becoming inattentive and failing to complete the task in time. Our framework provides a rich set of predictions on the behavioral implications of deadlines. We test these predictions in a field experiment at a dental clinic, in which we exogenously vary deadlines and rewards for arranging check-up appointments. The empirical results underline the behavioral relevance of cognitive limitations. Imposing relatively tight deadlines induces patients to act earlier and at a persistently higher frequency than without a deadline. Evidence from a follow-up experiment and complementary surveys supports the notion that deadlines may serve as a powerful instrument when individuals' cognitive capacity is limited.
    Keywords: limited memory, cognitive limitations, deadlines, field experiment
    JEL: C93 D03 D91
    Date: 2017–11
  5. By: Proto, Eugenio (University of Warwick); Sgroi, Daniel (University of Warwick); Nazneen, Mahnaz (University of Warwick)
    Abstract: Existing research supports two opposing mechanisms through which positive mood might affect cooperation. Some studies have suggested that positive mood produces more altruistic, open and helpful behavior, fostering cooperation. However, there is contrasting research supporting the idea that positive mood produces more assertiveness and inward-orientation and reduced use of information, hampering cooperation. We find evidence that suggests the second hypothesis dominates when playing the repeated Prisoner's Dilemma. Players in an induced positive mood tend to cooperate less than players in a neutral mood setting. This holds regardless of uncertainty surrounding the number of repetitions or whether pre-play communication has taken place. This finding is consistent with a text analysis of the pre-play communication between players indicating that subjects in a more positive mood use more inward-oriented, more negative and less positive language. To the best of our knowledge we are the first to use text analysis in pre-play communication.
    Keywords: Prisoner's Dilemma, cooperation, positive mood
    JEL: C72 C91 D91
    Date: 2017–11
  6. By: Giovanni Dosi (Scuola Superiore Sant'Anna Pisa Italy); Mauro Napoletano (OFCE Sciences PO Paris Franc); Andrea Roventini (Scuola Superiore Sant'Anna Pisa Italy also OFCE Sciences Po Paris); Joseph Stiglitz (Columbia University, New York, USA); Tania Treibich (Maastricht University and Scuola Superiore Sant'Anna,Pisa Italy & OFCE Sciences Po Paris France)
    Abstract: We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information and coordination hurdles. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. In fact, more sophisticated, e.g. recursive least squares (RLS) expectations produce less accurate individual forecasts and also considerably worsen the performance of the economy. Finally, we experiment with agents that adjust simply to technological shocks, and we show that individual and aggregate performances dramatically degrade. Our results suggest that fast and frugal robust heuristics are not a second-best option: rather they are “rational” in macroeconomic environments with heterogeneous, interacting agents and changing “fundamentals”.
    Keywords: Complexity, expectations, heterogeneity, heuristics, learning, agent based model, computational economics
    JEL: C63 E32 E6 G01 G21 O4
    Date: 2017–12–14
  7. By: Tim Roughgarden
    Abstract: This document collects the lecture notes from my mini-course "Complexity Theory, Game Theory, and Economics," taught at the Bellairs Research Institute of McGill University, Holetown, Barbados, February 19--23, 2017, as the 29th McGill Invitational Workshop on Computational Complexity. The goal of this mini-course is twofold: (i) to explain how complexity theory has helped illuminate several barriers in economics and game theory; and (ii) to illustrate how game-theoretic questions have led to new and interesting complexity theory, including recent several breakthroughs. It consists of two five-lecture sequences: the Solar Lectures, focusing on the communication and computational complexity of computing equilibria; and the Lunar Lectures, focusing on applications of complexity theory in game theory and economics. No background in game theory is assumed.
    Date: 2018–01

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