nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2007‒01‒13
three papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Social Change By Jeremy Greenwood; Nezih Guner
  2. Optimal cheating in monetary policy with individual evolutionary learning By Jasmina Arifovic; Olena Kostyshyna
  3. Optimal Choice and Beliefs with Ex Ante Savoring and Ex Post Disappointment By Christian Gollier; Alexander Muermann

  1. By: Jeremy Greenwood; Nezih Guner
    Abstract: Social norms are influenced by the technological environment that a society faces. Behavioral modes reflect purposive decision making by individuals, given the environment they live in. Thus, as technology changes, so might social norms. There were big changes in social norms during the 20th century, especially in sexual mores. In 1900 only six percent of unwed women engaged in premarital sex. Now, three quarters do. It is argued here that this was the result of technological improvement in contraceptives, which lowered the cost of premarital sex. The evolution from an abstinent to a promiscuous society is studied using an equilibrium matching model
    Keywords: Social change; the sexual revolution; technological progress in contraceptives, bilateral search.
    JEL: E1 J1 O3
    Date: 2006–12–03
  2. By: Jasmina Arifovic; Olena Kostyshyna
    Abstract: We study individual evolutionary learning in the setup developed by Deissenberg and Gonzalez (2002). They study a version of the Kydland-Prescott model in which in each time period monetary authority optimizes weighted payoff function (with selfishness parameter as a weight on its own and agent's payoffs) with respect to inflation announcement, actual inflation and the selfishness parameter. And also each period agent makes probabilistic decision on whether to believe in monetary authority's announcement. The probability of how trustful the agent should be is updated using reinforcement learning. The inflation announcement is always different from the actual inflation, and the private agent chooses to believe in the announcement if the monetary authority is selfish at levels tolerable to the agent. As a result, both the agent and the monetary authority are better off in this model of optimal cheating. In our simulations, both the agent and the monetary authority adapt using a model of individual evolutionary learning (Arifovic and Ledyard, 2003): the agent learns about her probabilistic decision, and the monetary authority learns about what level of announcement to use and how selfish to be. We performed simulations with two different ways of payoffs computation - simple (selfishness weighted payoff from Deissenberg/Gonzales model) and "expected" (selfishness weighted payoffs in believe and not believe outcomes weighted by the probability of agent to believe). The results for the first type of simulations include those with very altruistic monetary authority and the agent that believes the monetary authority when it sets announcement of inflation at low levels (lower than critical value). In the simulations with "expected" payoffs, monetary authority learned to set announcement at zero that brought zero actual inflation. This Ramsey outcome gives the highest possible payoff to both the agent and the monetary authority. Both types of simulations can also explain changes in average inflation over longer time horizons. When monetary authority starts experimenting with its announcement or selfishness, it can happen that agent is better off by changing her believe (not believe) action into the opposite one that entails changes in actual inflation
    JEL: C63 E5
    Date: 2005–11–11
  3. By: Christian Gollier (University of Toulouse); Alexander Muermann (University of Pennsylvania, The Wharton School)
    Abstract: We propose a new decision criterion under risk in which people extract both utility from anticipatory feelings ex ante and disutility from disappointment ex post. The decision maker chooses his degree of optimism, given that more optimism raises both the utility of ex ante feelings and the risk of disappointment ex post. We characterize the optimal beliefs and the preferences under risk generated by this mental process and apply this criterion to a simple portfolio choice/insurance problem. We show that these preferences are consistent with the preference reversal in the Allais’ paradoxes and predict that the decision maker takes on less risk compared to an expected utility maximizer. This speaks to the equity premium puzzle and to the preference for low deductibles in insurance contracts. Keywords: endogenous beliefs, anticipatory feeling, disappointment, optimism, decision under risk, portfolio allocation.
    Keywords: Endogenous Beliefs, Anticipatory Feeling, Disappointment, Optimism, Decision Under Risk, Portfolio Allocation
    JEL: D81 G11
    Date: 2006–12–08

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