nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2005‒10‒08
three papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Playing the wrong game: An experimental analysis of relational complexity and strategic misrepresentation By Giovanna Devetag; Massimo Warglien
  2. Necessary Conditions for Improving Civic Competence: A Scientific Perspective By Arthur Lupia
  3. The gain-loss asymmetry and single-self preferences By Antoni Bosch; Joaquim Silvestre

  1. By: Giovanna Devetag; Massimo Warglien
    Abstract: It has been suggested that players often produce simplified and/or misspecified mental representations of interactive decision problems (Kreps, 1990). We submit that the relational structure of players’ preferences in a game induces cognitive complexity, and may be an important driver of such simplifications. We provide a formal classification of order structures in two-person normal form games based on the two properties of monotonicity and projectivity, and present experiments in which subjects must first construct a representation of games of different relational complexity, and subsequently play the games according to their own representation. Experimental results support the hypothesis that relational complexity matters. More complex games are harder to represent, and this difficulty is correlated with measures of short term memory capacity. Furthermore, most erroneous representations are less complex than the correct ones. In addition, subjects who misrepresent the games behave consistently with such representations according to simple but rational decision criteria. This suggests that in many strategic settings individuals may act optimally on the ground of simplified and mistaken premises.
    Keywords: pure motive, mixed motive, preferences, bi-orders, language, cognition, projectivity, monotonicity, short term memory, experiments
    JEL: C70 C72 C91
    Date: 2005
  2. By: Arthur Lupia (University of Michigan)
    Abstract: Many attempts to increase civic competence are based on premises about communication and belief change that are directly contradicted by important insights from microeconomic theory and social psychology. At least two economic literatures are relevant to my effort to improve matters. One is the literature on strategic communication, which includes Spence (1974), Crawford and Sobel (1982), Banks (1991), and Lupia and McCubbins (1998). The other is the literature on mechanism design, which includes Green and Laffont (1977), Myerson (1983) and Palfrey (1992). While both literatures have the potential to convey important insights, many scholars and practitioners do not yet see a need for such insights. This paper lays such a foundation. It explains how greater attention to basic scientific principles can help people who want to increase civic competence use the generosity of donors and the hard work of well-intentioned citizens more effectively. The paper continues as follows. First, I discuss the topic of competence more precisely. Then, I introduce the necessary conditions for increasing civic competence described above. Next, I describe implications and applications of these conditions – focusing in this paper on the growing contention that deliberation is an effective way to increase civic competence. Applying the necessary conditions to this topic reveals a need to revise and clarify common expectations about what deliberation can accomplish. A brief concluding section follows.
    Keywords: incomplete information, strategic communication, learning, behavioral economics,
    JEL: D6 D7 H
    Date: 2005–10–05
  3. By: Antoni Bosch; Joaquim Silvestre
    Abstract: Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a “reflection effect” which occurs when an individual prefers a sure gain of $ pz to an uncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz. We focus on this class of choices (actuarially fair), and explore the extent to which the reflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences. We decompose the reflection effect into two components, a “probability switch” effect, which is compatible with single-self preferences, and a “translation effect,” which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label “homothetic” and “weakly homothetic.” In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth. We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.
    Keywords: Reflection, gains, losses, experiments, risk attitude
    JEL: D11 D81
    Date: 2005–09

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