|
on Evolutionary Economics |
| By: | Mengel, Friederike; Fosco, Constanza |
| Abstract: | We develop a simple model to study the coevolution of interaction structures and action choices in prisoners' dilemma games. Agents are boundedly rational and choose both actions and interaction partners via payoff-biased imitation. The dynamics of imitation and exclusion yields polymorphic outcomes under a wide range of parameters. Whenever agents hold some information beyond their interaction neighbors defectors and cooperators always coexist in disconnected components. Otherwise polymorphic networks can emerge with a center of cooperators and a periphery of defectors. Any stochastically stable state has at most two disconnected components. Simulations confirm our analytical results and show that the share of cooperators increases with the speed at which the network evolves, increases with the radius of interaction and decreases with the radius of information. |
| Keywords: | Game Theory; Cooperation; Imitation Learning; Network Formation. |
| JEL: | C70 C73 C72 |
| Date: | 2007–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5258&r=evo |
| By: | Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Selima Ben Mansour (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Clotilde Napp (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]) |
| Abstract: | It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias towards pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question Imagine that a coin will be flipped 10 times. Each time, if heads, you win 10€. How many times do you think that you will win? The average answer is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more pessimistic than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology. |
| Keywords: | pessimism, judged probability, lottery |
| Date: | 2006–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00176518_v1&r=evo |
| By: | Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Clotilde Napp (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]) |
| Abstract: | We provide a discipline for beliefs formation through a model of subjective beliefs, in which agents hold incorrect but strategic beliefs. More precisely, we consider beliefs as a strategic variable that agents can manipulate to maximize their utility from trade. Our framework is therefore an imperfect competition framework, and the underlying concept is the concept of Nash equilibrium. We find that a strategic behavior leads to beliefs subjectivity and heterogeneity. Optimism (resp. overconfidence) as well as pessimism (resp. doubt) both emerge as optimal beliefs. Furthermore, we obtain a positive correlation between pessimism (resp. doubt) and risk-tolerance. The consensus belief is pessimistic and, as a consequence, the risk premium is higher than in a standard setting. Our model is embedded in a standard financial markets equilibrium problem and may be applied to several other situations in which agents have to choose the optimal exposure to a risk (choice of an optimal retention rate for an insurance company, choice of the optimal proportion of equity to retain for an entrepreneur and for a given project) |
| Keywords: | Beliefs, Strategic, Pessimism, Consensus, Risk-premium, Heterogeneous, Doubt, Overconfidence |
| Date: | 2007–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00176622_v1&r=evo |