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on Evolutionary Economics |
| By: | Gerlinde Fellner; Matthias Sutter |
| Abstract: | Myopic loss aversion (MLA) has been established as one prominent explanation for the equity premium puzzle. In this paper we address two issues related to the effects of MLA on risky investment decisions. First, we assess the relative impact of feedback frequency and investment flexibility (via the investment horizon) on risky investments. Second, given that we observe higher investments with a longer investment horizon, we examine conditions under which investors might endogenously opt for a longer investment horizon in order to avoid the negative effects of MLA on investments. We find in our experimental study that investment flexibility seems to be at least as relevant as feedback frequency for the effects of myopic loss aversion. When subjects are given the choice to opt for a long or short investment horizon, there is no clear preference for either. Yet, if subjects face a default horizon (either long or short), there is rather little switching from the one to the other horizon, showing that a default might work to attenuate the effects of MLA. However, /if/ subjects switch, they are more often willing to switch from the long to the short horizon than vice versa, suggesting a preference for higher investment flexibility. |
| Keywords: | loss aversion, risk, investment, experiment |
| JEL: | C91 D80 G11 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:esi:discus:2005-15&r=evo |
| By: | Paul J. Zak (Claremont Graduate University) |
| Abstract: | The traditional view in economics is that individuals respond to incentives, but absent strong incentives to the contrary selfishness prevails. Moreover, this “greed is good” approach is deemed “rational” behavior. Nevertheless, in daily interactions and in numerous laboratory studies, a high degree of cooperative behavior prevails—even among strangers. A possible explanation for the substantial amount of “irrational” behavior observed in markets (and elsewhere) is that humans are a highly social species and to an extent value what other humans think of them. This behavior can be termed trustworthiness—cooperating when someone places trust in us. I also analyze the cross-country evidence for environments that produce high or low trust. A number of recent experiments from my lab have demonstrated that the neuroactive hormone oxytocin facilitates trust between strangers, and appears to induce trustworthiness. In rodents, oxytocin has been associated with maternal bonding, pro-social behaviors, and in some species long-term pair bonds, but prior to the work reviewed here, the behavioral effects of oxytocin in humans had not been studied. This presentation discusses the neurobiology of positive social behaviors and how these are facilitated by oxytocin. My experiments show that positive social signals cause oxytocin to be released by the brain, producing an unconscious attachment to a stranger. I also discuss recent research that manipulates oxytocin levels, and functional brain imaging research on trust. |
| Keywords: | Oxytocin, social capital, neuroeconomics, development, experiments |
| JEL: | C9 |
| Date: | 2005–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0507004&r=evo |
| By: | Thomas Gaube (Max Planck Institute for Research on Collective Goods, Bonn, Germany) |
| Abstract: | In this paper, an economy is analyzed where one group of agents, the altruists, cares about the well-being of another group of agents, the recipients. It is asked how changes in the size of these groups affect the altruists’ charitable giving in the Nash equilibrium. I show that a pure group size effect, i.e., a proportional expansion of both subgroups can lead to less free riding and to a lower degree of underprovision relative to the efficient level of charitable giving. |
| Keywords: | altruism, public goods, group size, charitable giving |
| JEL: | D64 H41 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2005_8&r=evo |
| By: | Chrysostomos Mantzavinos (Faculty of Economics and Business, Witten/Herdecke University); Douglas C. North (Washington University, St. Louis); Syed Shariq (Institute for International Studies, Stanford University) |
| Abstract: | In this article, we provide a broad overview of the interplay among cognition, belief systems, and institutions, and how they affect economic performance. We argue that a deeper understanding of institutions’ emergence, their working properties, and their effect on economic and political outcomes should begin from an analysis of cognitive processes. We explore the nature of individual and collective learning, stressing that the issue is not whether agents are perfectly or boundedly rational, but rather how human beings actually reason and choose, individually and in collective settings. We then tie the processes of learning to institutional analysis, providing arguments in favor of what can be characterized as “cognitive institutionalism.” Besides, we show that a full treatment of the phenomenon of path dependence should start at the cognitive level, proceed at the institutional level, and culminate at the economic level. |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2003_13&r=evo |
| By: | Martin Beckenkamp (Max Planck Institute for Research on Collective Goods, Bonn, Germany) |
| Abstract: | Simon’s (1955) famous paper was one of the first to cast doubt on the validity of rational choice theory; it has been supplemented by many more papers in the last three and a half decades. Nevertheless, rational choice theory plays a crucial role in classical and neoclassical economic theory, which presumes a completely rational agent. The central points characterizing such an agent are: (1) The agent uses all the information that is given to him. (2) The agent has clear preferences with respect to the results of different actions. (3) The agent has adequate competences to optimize his decisions. As an alternative to this conception, Simon (1955) himself suggests the concept of “bounded rationality”. In this context, Simon (1956) discusses a principle, which he names the “satisficing principle” (for explanations with respect to this notion cf. Gigerenzer & Todd 1999, p. 13). It assumes that, instead of searching for an optimal action, the search for an action terminates if an alternative has been found that satisfies a given “aspiration level”. It will be demonstrated that although the satisficing principle is nothing but a heuristic, there is a mathematical optimization at work when aspiration levels are used in this kind of problems. The question about the optimal aspiration level can be posed. Optimization within the framework of bounded rationality is possible. However, the way in which such an optimization can be achieved is very simple: Optimal thresholds in binary sequential decisions rest with the median. |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2004_15&r=evo |
| By: | Chrysostomos Mantzavinos (Faculty of Economics and Business, Witten/Herdecke University) |
| Abstract: | The purpose of this article is to provide an alternative antitrust model to the mainstream model that is used in competition policy. I call it the Institutional-Evolutionary Antitrust Model. In order to construct an antitrust model one needs both empirical knowledge and considerations of how to adequately deal with norms. The analysis of competition as an evolutionary process that unfolds within legal rules provides the empirical foundation for the model. The development of the normative dimension involves the elaboration of a comparative approach. Building on those foundations the main features of the Institutional-Evolutionary Model are sketched out and it is shown that its use leads to systematically different outcomes and conclusions than the dominant antitrust ideals. |
| Keywords: | Antitrust, Competition, Competition Policy, Evolutionary Process, Institutions |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2004_1a&r=evo |
| By: | JAVIER CARRILLO (Instituto de Empresa) |
| Abstract: | (WP 20/03 Clave pdf) The study described here aims to make a threefold contribution to the analysis of technology diffusion. It tries to offer a new approach to the study of the dynamic of innovation diffusion, not from the traditional perspective of the rate at which one new technology is fully adopted, but the extent of the diffusion of several technologies and the related phenomenon of standardization. It aims to show a broadened and evolutionary view of the process of technology standardization. Finally, it tries to identify and evaluate the relationships existing between the main characteristics of industries and the attributes of the technology standardization processes in them. |
| Keywords: | Agent-based models, Evolutionary models, Lock-in , Standardization, Technology difussion |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp03-20&r=evo |