nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2005‒09‒29
eleven papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Biology & Political Science. Foundational Issues of Political Biology By Boari, Mircea
  2. Why humans care about sunk costs while animals don't. An evolutionary explanation By Felix Höffler
  3. A coordination game to elicit social networks: 3 classroom experiments By Pablo Brañas-Garza; Ramón Cobo-Reyes; Natalia Jiménez; Giovanni Ponti
  4. The trust game behind the veil of ignorance : a note on gender differences By Vyrastekova,Jana; Onderstal,Sander
  5. An Axiomatic Model of Non-Bayesian Updating By Larry Epstein
  6. Of Rats and Brands: A Learning-and-Memory Perspective on Consumer Decisions By Van Osselaer, S.M.J.
  7. What Is Rational About Identity? By Fernando Aguiar; Andrés de Francisco
  8. Human nature and institutional analysis By Benito Arruñada
  9. The Brain as a Hierarchical Organization By Brocas, Isabelle; Carrillo, Juan D
  10. Ambiguity Seeking as a Result of the Status Quo Bias By Mercè Roca; Robin Hogarth; A. John Maule
  11. Regions of rationality: Maps for bounded agents By Robin Hogarth; Natalia Karelaia

  1. By: Boari, Mircea (Department of Political Science, University of Bucharest, Visiting ESSEC)
    Abstract: In their classic formulations, valid to this day, the issue of self-preservation is foundational for both political science and economics. In order to fixate this concept, the Modern theorists relied upon various assumptions about human nature. Due to the advances of biology and evolutionary theory, we are today in the position of explicating these assumptions in the form of stable scientific certainties. A foundational concept in biological theory is that of "fitness". The paper indicates the relationship between the less determined concept of self-preservation and the more rigorous one of fitness. By that, it accomplishes two things: it gives more solidity to the foundation of political theory and political economy, by anchoring them in biology; it opens the path towards a unification between two social sciences and their immediate juxtaposed science, biology. The emphasis of the paper is on political science, aiming to define, on the basis of the above argument, its proper object of study. The notion of fitness extraction is thus defined. A lateral exposition differentiates between political action, thus understood, and economic action, defined more generally as fitness transfer. The distinction is to be eventually furthered in a separate study.
    Keywords: Biology; Evolution; Fitness; Foundational Theory; Foundations of Economics; Political Science
    JEL: A19 B52 C73 P00
    Date: 2005–06
  2. By: Felix Höffler (Max-Planck-Institute for Research on Collective Goods)
    Abstract: While humans often care about sunk investment, animals are not subject to this sort of sunk cost behavior or “Concorde fallacy”. This paper investigates a simple two stage decision problem under uncertainty. At the second stage, subjects can commit the Concorde fallacy by sticking to the first stage decision, independent of the state of nature revealed in-between. We investigate whether this can be beneficial in a standard payoff monotonic adaptation process. Committing the Concorde fallacy reduces the payoffs but accelerates the adaptation since it acts like “self-punishment”. It will, however, not only reduce the population growth rate in the long run but also the population size at any point in time in a biological evolutionary process. In this sense, animals can never benefit from the Concorde fallacy. Risk aversion gives an extra benefit to a behavior that more rapidly learns to avoid bad outcomes. If the wrong initial decision leads occasionally, albeit very infrequently, to a very low payoff, then risk averse humans will be better off by committing the Concorde fallacy.
    Keywords: Concorde fallacy, Sunk costs, Evolutionary game theory, Replicator Dynamics, Risk aversion
    JEL: C73 D81 D83
    Date: 2005–09
  3. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada); Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada); Natalia Jiménez (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante)
    Abstract: Experiments of social networks basically focus on coordination and cooperation games. Surprisingly, the economic literature does not provide a useful procedure to obtain existent networks. This paper proposes an innovative mechanism to elicit latent social networks. Subjects belonging to three different groups are invited to reveal their friends’ name and surname. In addition, they also have to define a score for each relationship. The latter, is one of the main innovations of our device. We obtained that a very large percentage of links sent are corresponded. According to our original purpose, this mechanism largely captures friendship relations and practically ignores weak relations. In order to further analyze individuals behavior, a model of friend—regarding preferences is developed.
    Keywords: friendship, networks, experiments, other—regarding preferences.
    JEL: C93 D85 Z13
    Date: 2005–09–12
  4. By: Vyrastekova,Jana; Onderstal,Sander (Tilburg University, Center for Economic Research)
    Abstract: We analyse gender differences in the trust game in a "behind the veil of ignorance" design. This method yields strategies that are consistent with actions observed in the classical trust game experiments. We observe that, on averge, men and women do not differ in "trust", and that women are slightly more "trustworthy". However, men's strategies are bimodal, peaking at the subgame perfect Nash equilibrium and the Pareto efficient frontier, while women's strategies are single peaked at moderate tranfers. Moreover, if a man [woman] exhibits low trust, he [she] is likely to be a money-maximizer [a risk or betrayal averse reciprocator].
    Keywords: trust game;experiment;strategy method behind the veil of ignorance; gender differences
    JEL: C72 C91
    Date: 2005
  5. By: Larry Epstein (University of Rochester)
    Abstract: This paper models an agent in a three-period setting who does not update according to Bayes'Rule, and who is self-aware and anticipates her updating behavior when formulating plans. The agent is rational in the sense that her dynamic behavior is derived from a single stable preference order on a domain of state-contingent menus of acts. A representation theorem generalizes the (dynamic version of) Anscombe-Aumann's theorem so that both the prior and the way in which it is updated are subjective.
    Keywords: Bayes' Rule, non-Bayesian updating, asset price volatility, no-trade theorems, agreeing to bet, common knowledge, temptation, self-control, conservatism, representativeness, overconfidence
    JEL: D81 D83 D9
    Date: 2005–09
  6. By: Van Osselaer, S.M.J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: When consumers evaluate or choose products, they rely on what they have learned and can remember about those products’ characteristics, such as brand names, ingredients, orfeatures. Severalexperimentssuggest that evenrathersophisticatedpatternsofproduct evaluation and choice can be explained by simple associative learning-and-memory processes,which show similarities to those found in rats,dogs,and other animals.Strategic implications for brand management and public policy, theoretical implications for the study of human learning and memory, and directions for future research are outlined.
    Keywords: Brand Management;Brand Equity;Co-branding;Ingredient Branding;Brand Extension;Consumer Decision Making;Learning;Memory;Consumer Behavior;Consumer Psychology;
    Date: 2004–10–29
  7. By: Fernando Aguiar; Andrés de Francisco
    Abstract: In this article we explore the positive use of “social identity” in order to explain certain instances of social action. We attempt to isolate its explanatory power alongside the two great motivational mechanisms of the sociological tradition: interests and instrumental rationality, on the one hand; and values, norms and practical reason, on the other. We discover an ample sphere for a reductionist strategy where identity is and must be translated to the language of either interests and preferences or norms and values with which the individual identifies himself. Nevertheless, in the final part of this paper we also explore the possibility and circumstances of the appearance of reasons of identity proper as independent and irreducible agency factors.
    Date: 2005
  8. By: Benito Arruñada
    Abstract: This essay reviews some findings in cognition sciences and examines their consequences for the analysis of institutions. It starts by exploring how humans’ specialization in producing knowledge ensures our success in dominating the environment but also changes fast our environment. So fast that it did not give time to natural selection to adapt our biology, causing it to be potentially maladapted in important dimensions. A main function of institutions is therefore to fill the gap between the demands of our relatively new environment and our biology, still adapted to our ancestral environment as hunter-gatherers. Moreover, institutions are built with the available elements, which include our instincts. A deeper understanding of both aspects, their adaptive function and this recruitment of ancestral instincts, will add greatly to our ability to manage institutions.
    Keywords: Evolution, biology, behavior, institutions
    Date: 2005–03
  9. By: Brocas, Isabelle; Carrillo, Juan D
    Abstract: We model the brain as a multi-agent organization. Based on recent neuroscience evidence, we assume that different systems of the brain have different time-horizons and different access to information. Introducing asymmetric information as a restriction on optimal choices generates endogenous constraints in decision-making. In this game played between brain systems, we show the optimality of a self-disciplining rule of the type 'work more today if you want to consume more today' and discuss its behavioural implications for the distribution of consumption over the life-cycle. We also argue that our split-self theory provides 'micro-microfoundations' for discounting and offer testable implications that depart from traditional models with no conflict and exogenous discounting. Last, we analyse a variant in which the agent has salient incentives or biased motivations. The previous rule is then replaced by a simple, non-intrusive precept of the type 'consume what you want, just don't abuse'.
    Keywords: dual self model; neuroeconomics
    JEL: D82 Z0
    Date: 2005–08
  10. By: Mercè Roca; Robin Hogarth; A. John Maule
    Abstract: Several factors affect attitudes toward ambiguity. What happens, however, when people are asked to exchange an ambiguous alternative in their possession for an unambiguous one? We present three experiments in which individuals preferred to retain the former. This status quo bias emerged both within- and between-subjects, with and without incentives, with different outcome distributions, and with endowments determined by both the experimenter and the participants themselves. Findings emphasize the need to account for the frames of reference under which evaluations of probabilistic information take place as well as modifications that should be incorporated into descriptive models of decision making.
    Keywords: Ambiguity, risk, status quo bias, decision making, uncertainty
    JEL: C91 D81
    Date: 2005–09
  11. By: Robin Hogarth; Natalia Karelaia
    Abstract: An important problem faced by boundedly rational agents is to identify “regions of rationality,” i.e., the areas for which simple, boundedly rational models are and are not effective. To map the contours of such regions, we derive probabilities that models identify the best of m alternatives (m > 2) characterized by k attributes (k > 1). The models include a single variable (lexicographic), variations of elimination-by-aspects, equal weighting, hybrids of the preceding, and models exploiting dominance. We compare all with multiple regression. We illustrate the theory with twenty simulated and four empirical datasets. Fits between predictions and realizations are excellent. However, the terrain mapped by our work is complex and no single model is “best.” We further provide an overview by regressing the performance of the different models on factors characterizing environments. We conclude with suggestions for further research as well as implications for the concept of rationality in economics.
    Keywords: Decision making, Bounded rationality, Lexicographic rules, Choice theory
    JEL: D81 M10
    Date: 2005–04

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