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on Evolutionary Economics |
| By: | Kontek, Krzysztof |
| Abstract: | This short paper shows that the Allais Paradox and the Common Ratio Effect regarded as classic examples of the violation of the Expected Utility Theory Axioms – may be easily explained by assuming that changes in wealth (i.e. gains and losses) are perceived in relative terms. The preference reversal observed in experiments is therefore predictable and the choices shall consequently be assumed to be rational. By contrast, the assumption that wealth changes are perceived in absolute terms leads to the conclusion that the choices violate the axioms underlying Expected Utility Theory, and are therefore irrational. This state of affairs is called the illusion of irrationality. |
| Keywords: | Expected Utility Theory; Relative Utility Function; Allais Paradox; Common Ratio Effect; Prospect Theory |
| JEL: | D81 C91 D87 |
| Date: | 2009–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19044&r=evo |
| By: | Alberto F. Alesina; Guido Cozzi; Noemi Mantovan |
| Abstract: | Ideas about what is "fair" above and beyond the individual's position in the income ladder influence preferences for redistribution. We study the dynamic evolution of different economies in which redistributive policies, perceptions of fairness, inequality and growth are jointly determined. We show how including fairness explains various observed correlations between inequality, redistribution and growth. We also show how different beliefs about fairness can keep two otherwise identical countries in different development paths for a very long time. |
| JEL: | H0 H1 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15587&r=evo |
| By: | Dietrich Franz; List Christian (METEOR) |
| Abstract: | The standard rational choice paradigm explains an individual’s preferences by his beliefs and his fundamental desires. For instance, someone’s preference for joining the army might be explained by certain beliefs about what life in the army is like and a desire for such a life. While beliefs may change (by new information), fundamental desires are totally fixed. One shortcoming of this paradigm is that reasons and motivations play no explicit role. Some of the more fundamental preference changes that one can undergo seem to reach beyond information-learning and to involve a change in the reasons or goals by which one is fundamentally motivated. Such changes of motivating reasons may come in connection with a changing ability to abstractly represent certain aspects of the world (like the thirteenth move in a game) or to imagine certain qualitative aspects of the world (like feelings of complete loneliness). Standard rational choice models implicitly assume away such changes. This paper proposes a formal reason-based model of preferences. The model explains an individual’s preferences by the set of reasons that motivate him. The preference of our example individual for joining the army would be explained by the set of reasons that motivate him, such as service to his country, an athletic body, and comradeship. Preference change in our model thus stems not exclusively from new information but often also from a change of the set of motivating reasons. If our example individual suddenly loses his preference for joining the army and joins a charity, new reasons (such as worldwide justice) might have become motivating while others (such as an athletic body) might have lost their motivational power. Our notion of a ‘(motivating) reason’ is open to different interpretations and applications, like ones related to conceptualisation or imagination abilities. We formulate two natural axioms on reason-based preferences, the first ensuring that preferences are determined by the motivating reasons and the second ensuring that preferences change in a coherent way as additional reasons become motivating. These two axioms are shown to imply a parsimonious representation of preferences: a single binary relation (which ranks the consistent reason sets) is sufficient to generate all individual preferences across possible individual states (i.e., possible sets of motivating reasons). |
| Keywords: | mathematical economics; |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2009057&r=evo |
| By: | Amy Peng (Department of Economics, Ryerson University, Toronto, Canada); Francis McKenna (Ontario Ministry of Finance, Toronto, Canada) |
| Abstract: | The purpose of this paper is to provide an intuitive explanation of the emergence and evolution of the week based on a historical precedent draw from ancient Egypt. In this paper, we view the week as a coordinating social institution that was created to resolve a fundamental problem of society - coordinating market exchange. Artificial adaptive agents are used to simulate the interactions among farmers going to market. The results show that the length of the week that emerges depends on the chosen cost and benefit specifications and random interactions. |
| Keywords: | social institution, coordination games, agent based models |
| JEL: | D02 B52 C63 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:rye:wpaper:wp012&r=evo |
| By: | Funk, Matt |
| Abstract: | This discourse offers a solution to The Problem of Sustainable Economic Development on islands. This hypothesis offers a foundational, sub-game solution to The Island Survival Game, a counterintuitive, dominant economic development strategy for ‘islands’ (and relatively insular states). This discourse also tables conceptual building blocks, prerequisite analytical tools, and a guiding principle for The Earth Island Survival Game, a bounded delay supergame which models The Problem of Sustainable Economic Development at the global level. We begin our exploration with an introduction to The Principle of Relative Insularity, a postulate which informs ESS for ‘island’ and ‘continental’ players alike. Next, we model ‘island’ economic development with two bio-geo-politico-economic models and respective strategies: The Mustique Co. Development Plan, and The Prince Edward Island Federal-Provincial Program for Social and Economic Advancement. These diametrically opposed strategies offer an extraordinary comparative study. One island serves as a highly descriptive model for The Problem of Sustainable Economic Development; the other model informs ESS. The Island Survival Game serves as a remarkable learning tool, offering lessons which promote Darwinian fitness, resource holding power, self-sufficiency, and cooperative behaviour, by illuminating the illusive path toward sustainable economic development. |
| Keywords: | Non-cooperative games; evolutionary game theory; relative insularity; islands; tragedy of the commons; sustainable economic development; resource holding power; evolutionarily stable strategy; long distance dispersal |
| JEL: | O1 O13 C72 |
| Date: | 2009–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19049&r=evo |
| By: | Funk, Matt |
| Abstract: | One of the greatest logicians of the twentieth century, Bertrand Russell, proposed that Economic power, unlike military power, is not primary, but derivative. Curiously, this conjecture has received scarce attention. This paper explores this theory. Our illustrative discourse tests this overlooked theory in the light of evolution: We model Homo evolution by sampling the past ≈1000 years of cultural evolution in the Hawaiian archipelago. Our analysis concludes Russell's theory is true. |
| Keywords: | economic power; military power; evolutionary game theory; cultural evolution; resource holding power; long-distance dispersal; Second Amendment; Kamehameha; Hawaii; sovereignty; annexation |
| JEL: | Z10 C93 N40 |
| Date: | 2009–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19371&r=evo |