nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2005‒09‒11
six papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Conventions for Implementing Conventions An Evolutionary and Experimental Analysis By Susanne Büchner; Werner Güth; Luis M. Miller
  2. Beliefs and trust : an experiment By Vyrastekova,Jana; Garikipati,Supriya
  3. Love Thy Neighbor: Bonding versus Bridging Trust By Poulsen, Odile; Svendsen, Gert Tinggaard
  4. The Economics of Shame: Evolutionary Dynamics for Large Populations in Games with Multiple Backward Induction Equilibria By Tomer Wexler
  5. Random Graphs and Social Networks: An Economics Perspective By Yannis M. Ioannides
  6. INFERENTIAL EXPECTATIONS By Gordon D. Menzies; Daniel John Zizzo

  1. By: Susanne Büchner; Werner Güth; Luis M. Miller
    Abstract: Conventions are interpreted in the narrow sense of coordinated equilibrium selection, i.e. a behavioral convention tells all players in a game with multiple strict equilibria which strict equilibrium to play. What we are interested in are more realistic environments where coordination takes place before learning about the games to be played. Here coordination aims at a normative convention, i.e. a principle of equilibrium selection, which selects a strict equilibrium for all games with multiple equilibria. In a subclass class of 2x2-bimatrix games with two strict equilibria we analyze the evolutionary stability of various normative conventions. In our experiment, we allow participants to first coordinate on a normative convention before playing various games. Agents in different treatments do this behind a complete (they know neither their role nor the game parameters), a partial (they know either their role or the game parameters) veil of ignorance, or with no ignorance (they know their role and the game parameters).
    Keywords: coordination games, conventions, experimental economics, evolutionary stability
    JEL: C72 C91
    Date: 2005–08
  2. By: Vyrastekova,Jana; Garikipati,Supriya (Tilburg University, Center for Economic Research)
    Abstract: In this paper, we address the concept of trust by combining (i) the self-reported trust and belief in trustworthiness of others from a general unpaid questionnaire, (ii) choices made in a social valuation task designed to measure subjects' distributional preferences, (iii) strategies submitted in the trust game in both roles of the game, and (iv) subjects' beliefs about the strategies of their co-player submitted in the form of probability distributions nad incentivized by the quadratic scoring rule. We show that trust can be expressed as a belief in positive reciprocity of the trustee, and answers to general questionnaire lack predictive power. Distributional preferences also play a role in the decision to trust in that they affect the subjects' beliefs about the positive reciprocity of others. Cooperative subjects are more optimistic in their beliefs and therefore trust more.
    Keywords: experimental economics;trust;beliefs;distributional preferences
    JEL: C72 C91
    Date: 2005
  3. By: Poulsen, Odile (Department of Economics, Aarhus School of Business); Svendsen, Gert Tinggaard (Aarhus University, Institut for Public Policy)
    Abstract: We study how trust is generated in society. In a two-sector <p> model, we analyze two communities. In the bonding community people do not <p> trust people outside their regular networks. In the bridging community people <p> choose to trust strangers when they meet them. The hypothesis is that when <p> trust is only bonding, it cannot accumulate. Our theoretical contribution is to <p> show that when trust is only bonding then the economy’s level of trust moves <p> to an unstable equilibrium that may under certain conditions ‡uctuate forever. <p> If, however, trust is also bridging, then trust will accumulate. Future research <p> should seek to establish the appropriate institutional framework for establishing <p> the optimal mix between both bonding and bridging social capital in society.
    Keywords: Trust; two-sector model; chaos
    JEL: A12 C61 D90 O41
    Date: 2005–09–02
  4. By: Tomer Wexler
    Abstract: This work follows “Evolutionary dynamics and backward induction” (Hart [2000]) in the study of dynamic models consisting of selection and mutation, when the mutation rate is low and the populations are large. Under the assumption that there is a single backward induction (or subgame perfect) equilibrium of a perfect information game, Hart [2000] proved that this point is the only stable state. In this work, we examine the case where there are multiple backward induction equilibria.
    Date: 2005–09
  5. By: Yannis M. Ioannides
    Abstract: This review of current research on networks emphasizes three strands of the literature on social networks. The first strand is composed of models of endogenous network formation from both the economics and the computer science literature. The review highlights the sen- sitive dependence of the topology of endogenous networks on parameters of the behavioral models employed. The second strand draws from the recent econophysics literature in order to review the recent revival of interest in the random graph theory. This mathematical tool allows one to study social networks that result from uncoordinated random action of indi- viduals in setting up connections with others. The review explores a number of examples to assess the potential of recent research on random graphs with arbitrary degree distributions in accommodating more general behavioral motivations for social network formation. The third strand focuses on a specific model of social networks, Markov random graphs, that is quite central in the mathematical sociology and spatial statistics literatures but little known outside those literatures. These are random graphs where the events that different edges are present are dependent, if edges are incident to the same node, and independent, otherwise. The paper assesses the potential for economic applications with this particular tool. The paper concludes with an assessment of observable consequences of optimizing behavior in networks for the purpose of estimation.
    Date: 2005
  6. By: Gordon D. Menzies; Daniel John Zizzo
    Abstract: We propose that the formation of beliefs be treated as statistical hypothesis tests, and we label such beliefs inferential expectations. If a belief is overturned through the build-up of evidence, agents are assumed to switch to the rational expectation. Rational expectations are shown to be a special (limiting) case of inferential expectations, with the test size alpha becoming a metric for rationality. We present the results of an experiment that supports inferential expectations. When inferential expectations are built into a Dornbusch-style model of the exchange rate, regression tests of Uncovered Interest Parity and the rational expectations version of the term structure both display downward bias in the slope coefficient.
    JEL: C91 D84 E50 F31
    Date: 2005–06

This nep-evo issue is ©2005 by Matthew Baker. 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.