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on Evolutionary Economics |
| By: | Patrick Leoni |
| Abstract: | This paper extends the convergence result on Bayesian learning in Kalai and Lehrer (1993a, 1993b) to a class of games where players have a payoff function continuous for the product topology. Provided that 1) every player maximizes her expected payoff against her own beliefs, 2) every player updates her beliefs in a Bayesian manner, and 3) prior beliefs other players’ strategies have a grain of truth, we show that after some finite time the equilibrium outcome of the above game is arbitrarily close to a Nash equilibrium. Those assumptions are shown to be tight. |
| Keywords: | learning, product topology |
| JEL: | C73 D83 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:215&r=evo |
| By: | Bruno S. Frey; Alois Stutzer |
| Abstract: | Individuals make systematic mistakes in their decisions, because they mispredict utility from choice options. When deciding, extrinsic attributes of choice options are more salient than intrinsic attributes. Adaptation is neglected, recollection of feelings is distorted, decisions are rationalized and wrong intuitive theories of happiness are applied. People overestimate extrinsic attributes and therefore put too much emphasis on acquiring income and gaining status. In contrast, they underestimate intrinsic attributes and devote too little time to their family, friends or hobbies, which lowers their utility level. The theoretical analysis is consistent with an econometric study on commuting decisions using reported subjective well-being data. |
| Keywords: | adaptation, extrinsic/intrinsic attributes, individual decision-making, misprediction, subjective well-being, time allocation |
| JEL: | A12 D11 D12 D84 I31 J22 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:218&r=evo |
| By: | Itzhak Gilboa (Eitan Berglas School of Economics, Tel Aviv University); Andrew Postlewaite (Department of Economics, University of Pennsylvania); David Schmeidler (Eitan Berglas School of Economics, Tel Aviv University) |
| Abstract: | Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. Third, this lack of information is even more acute when we address the beliefs that can be attributed to a society. We hold that one needs to explore other approaches to the representation of information and of beliefs, which may be helpful in describing the formation of Bayesian as well as non-Bayesian beliefs. |
| Keywords: | Decision making; Bayesian; Behavioral Economics |
| JEL: | D81 |
| Date: | 2004–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:04-011&r=evo |
| By: | Olivier Compte (Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS)); Andrew Postlewaite (Department of Economics, University of Pennsylvania) |
| Abstract: | There is ample evidence that emotions affect performance. Positive emotions can improve performance, while negative ones may diminish it. For example, the fears induced by the possibility of failure or of negative evaluations have physiological consequences (shaking, loss of concentration) that may impair performance in sports, on stage or at school. There is also ample evidence that individuals have distorted recollection of past events, and distorted attributions of the causes of successes of failures. Recollection of good events or successes is typically easier than recollection of bad ones or failures. Successes tend to be attributed to intrinsic aptitudes or own effort, while failures are attributed to bad luck. In addition, these attributions are often reversed when judging the performance of others. The objective of this paper is to incorporate the first phenomenon above into an otherwise standard decision theoretic model, and show that in a world where performance depends on emotions, biases in information processing enhance welfare. |
| Keywords: | Confidence, Perception, Psychology |
| JEL: | D8 |
| Date: | 2001–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:04-023&r=evo |