nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2008‒10‒07
three papers chosen by
Matthew Baker
City University of New York

  1. How can a psychologist inform economics? The strange case of Sidney Siegel By Alessandro Innocenti
  2. Inequality Aversion and Performance in and on the Field By Benno Torgler; Markus Schaffner; Bruno S. Frey; Sascha L. Schmidt; Uwe Dulleck
  3. Interactive Learning and Behavioral Sunspots By Gaetano Gaballo

  1. By: Alessandro Innocenti
    Abstract: Before Kahneman and Tversky showed how behavioural economics could bring psychology and economics into a unified framework, in the 1950s a social psychologist, Sidney Siegel, entered the realm of economics and laid the foundation of experimental economics. This paper gives an assessment of Siegel’s overall contribution and claims that Siegel was not only a pioneer of experimental economics but also of behavioural economics. Had his view on the integration of psychology and economics been more promptly received, it might have triggered a different and more successfully path to the injection of greater realism in economics. When Siegel died, his approach to integrate psychology and economics lost its main advocate. Although his legacy was paramount in the work of the Nobel Prize Vernon Smith, Siegel endorsed a quite different approach to how make interdisciplinary research effective.
    Keywords: economics, psychology, behavioural economics, bargaining theory, utility theory.
    JEL: B20 B30 C70
    Date: 2008–07
  2. By: Benno Torgler; Markus Schaffner; Bruno S. Frey; Sascha L. Schmidt; Uwe Dulleck
    Abstract: The experimental literature and studies using survey data have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. Individuals are concerned about social comparisons. However, behavioral evidence in the field is rare. This paper provides an empirical analysis, testing the model of inequality aversion using two unique panel data sets for basketball and soccer players. We find support that the concept of inequality aversion helps to understand how the relative income situation affects performance in a real competitive environment with real tasks and real incentives.
    Keywords: Inequality aversion; relative income; positional concerns; envy; social comparison; performance; interdependent preferences
    JEL: D00 D60 L83
    Date: 2008–09
  3. By: Gaetano Gaballo
    Abstract: This paper shows how to extend the adaptive learning approach to a truly behavioral uncertainty problem. It investigates the simplest case of a first order self-referential model where two agents have a non-negligible impact on aggregate expectations. Unlike the standard setting, agents are not boundedly rational in that they acknowledge their own influence on output and they are perfectly informed about the exogenous determinants of the economy. Nevertheless no common knowledge is assumed; agents are epistemically isolated and they can only have noisy perceptions of the other agent's simultaneous expectation. In order to have consistent forecasts, each agent has to learn how the other agent's expectations will affect the economy. I prove there exist two types of learnable equilibria: (a) a unique rational expectation equilibrium (REE) and (b) at least one behavioral sunspot equilibrium (BSE). The latter may arise because the learning dynamics can generate the self-fulfilling reciprocal belief that the other agent is irrationally exuberant. Finally, numerical simulations illustrate how an unpredictable switch from the REE to a BSE may occur endogenously when both coexist and are learnable.
    Keywords: excess volatility, behavioral uncertainty, intrinsic heterogeneity, statistical learning, structural change.
    JEL: E52 E61
    Date: 2008–09

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