nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2008‒05‒31
four papers chosen by
Matthew Baker
City University of New York

  1. On an Evolutionary Foundation of Neuroeconomics By Schipper, Burkhard C
  2. Social Change By Greenwood, Jeremy; Guner, Nezih
  3. Cognitive Abilities and Behavioral Biases By Oechssler, Jörg; Roider, Andreas; Schmitz, Patrick W.
  4. Other-Regarding Preferences in General Equilibrium By Dufwenberg, Martin; Heidhues, Paul; Kirchsteiger, Georg; Riedel, Frank; Sobel, Joel

  1. By: Schipper, Burkhard C
    Abstract: Neuroeconomics focuses on brain imaging studies mapping neural responses to choice behavior. Economic theory is concerned with choice behavior but it is silent on neural activities. We present a game theoretic model in which players are endowed with an additional structure - a simple "nervous system" - and interact repeatedly in changing games. The nervous system constrains information processing functions and behavioral functions. By reinterpreting results from evolutionary game theory (Germano, 2007), we suggest that nervous systems can develop to "function well" in exogenously changing strategic environments. We present an example indicating that an analogous conclusion fails if players can influence endogenously their environment.
    Keywords: Neuroeconomic theory; Evolutionary game theory; Learning in games
    JEL: B40 B21 A12 C73 B25 C72 D87
    Date: 2008–04–16
  2. By: Greenwood, Jeremy (University of Pennsylvania); Guner, Nezih (Universidad Carlos III, Madrid)
    Abstract: A society is characterized by the common attitudes and behavior of its members. Such behavior reflects 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 females 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, sexual revolution, technological progress in contraceptives, bilateral search
    JEL: E1 J1 O3
    Date: 2008–05
  3. By: Oechssler, Jörg (University of Heidelberg); Roider, Andreas (University of Heidelberg); Schmitz, Patrick W. (University of Cologne)
    Abstract: We use a simple, three-item test for cognitive abilities to investigate whether established behavioral biases that play a prominent role in behavioral economics and finance are related to cognitive abilities. We find that higher test scores on the Cognitive Reflection Test of Frederick (2005) indeed are correlated with lower incidences of the conjunction fallacy, conservatism in updating probabilities, and overconfidence. Test scores are also significantly related to subjects’ time and risk preferences. We find no influence on anchoring. However, even if biases are lower for people with higher cognitive abilities, they still remain substantial.
    Keywords: behavioral finance, biases, cognitive abilities, cognitive reflection test
    JEL: C91 D80 D90 J24
    Date: 2008–05
  4. By: Dufwenberg, Martin; Heidhues, Paul; Kirchsteiger, Georg; Riedel, Frank; Sobel, Joel
    Abstract: We study competitive market outcomes in economies where agents have other-regarding preferences. We identify a separability condition on monotone preferences that is necessary and sufficient for one's own demand to be independent of the allocations and characteristics of other agents in the economy. Given separability, it is impossible to identify other-regarding preferences from market behaviour: agents behave as if they had classical preferences that depend only on own consumption in competitive equilibrium. If preferences, in addition, depend only on the final allocation of consumption in society, the Second Welfare Theorem holds as long as an increase in resources can be distributed such that all agents are better off. Nevertheless, the First Welfare Theorem generally does not hold. Allowing agents to care about their own consumption and the distribution of consumption possibilities in the economy, we provide a condition under which agents have no incentive to make direct transfers, and show that this condition implies that competitive equilibria are efficient given prices.
    Keywords: markets; other-regarding preferences; self-interest; welfare
    JEL: D5 D63 D64
    Date: 2008–05

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