nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2011‒02‒05
ten papers chosen by
Matthew Baker
City University of New York

  1. Role Models that Make You Unhappy: Light Paternalism, Social Learning and Welfare By Christian Cordes; Christian Schubert
  2. The economics of debt clearing mechanisms By Börner, Lars; Hatfield, John William
  3. Induction and Evolution in the Origin of Inventions: Evidence from Smoking Cessation Products By Adam Jaffe; Seth Werfel
  4. Integrating Routine, Variety Seeking and Compensatory Choice in a Utility Maximizing Framework By Adamowicz, W.L. (Vic); Swait, Joffre
  5. Strategies and interactive beliefs in dynamic games By Pierpaolo Battigalli; Alfredo Di Tillio; Dov Samet
  6. Notes on Agents' Behavioral Rules Under Adaptive Learning and Studies of Monetary Policy By Seppo Honkapohja; Kaushik Mitra; George W. Evans
  7. Voluntary Contribution in the Field: An Experiment in the Indian Himalayas By Sujoy Chakravarty; Carine Sebi; E. Somanathan; E. Theophilus
  8. To Give or Not To Give? Equity, Efficiency and Altruistic Behavior in a Survey-Based Experiment By Vittorio Pelligra; Luca Stanca
  9. Awareness-Dependent Subjective Expected Utility By Burkhard, Schipper
  10. Affective decision making: a theory of optimism bias By Anat Bracha; Donald J. Brown

  1. By: Christian Cordes; Christian Schubert
    Abstract: Behavioral (e.g. consumption) patterns of boundedly rational agents can lead these agents into learning dynamics that appear to be “wasteful†in terms of well-being or welfare. Within settings displaying preference endogeneity, it is however still unclear how to conceptualize well-being. This paper contributes to the discussion by suggesting a formal model of preference learning that can inform the construction of alternative notions of dynamic well-being. Based on the assumption that interacting agents are subject to two biases that make them systematically prefer some cultural variants over others, a procedural notion of well-being can be developed, based on the idea that policy should identify and confine conditions that generate dynamic instability in preference trajectories.
    Keywords: Social Learning, Preference Change, Welfare, Human Cognition, Consumer Behavior Length 33 pages
    JEL: C61 D11 D63 D83 O12
    Date: 2011–01
  2. By: Börner, Lars; Hatfield, John William
    Abstract: We examine the evolution of decentralized clearinghouse mechanisms from the 13th to the 18th century; in particular, we explore the clearing of non- or limitedtradable debts like bills of exchange. We construct a theoretical model of these clearinghouse mechanisms, similar to the models in the theoretical matching literature, and show that specific decentralized multilateral clearing algorithms known as rescontre, skontrieren or virement des parties used by merchants were efficient in specific historical contexts. We can explain both the evolutionary self-organizing emergence of late medieval and early modern fairs, and its robustness during the 17th and 18th century. --
    Keywords: market design,matching,history of decentralized clearinghouses
    JEL: C78 D02 N23
    Date: 2010
  3. By: Adam Jaffe (Department of Economics, Brandeis University); Seth Werfel (Federal Reserve Bank of New York)
    Abstract: Neoclassical economic theory predicts that policies that discourage the consumption of a particular good will induce innovation in a socially desirable substitute. Evolutionary theory emphasizes the possibility of innovation waves associated with the identification of new dominant designs. We incorporate both of these possibilities in a model of the invention of new smoking cessation products, based on a new dataset of patents on such products from 1951-2004. We find that an increase in cigarette tax levels and smoking bans had no discernable impact on the industry-wide rate of invention in smoking cessation products. It does appear, however, that dominant designs did have substantial positive innovation effects. More specifically, the introduction of the nicotine gum and patch are estimated to have increased the rate of patenting activity in smoking cessation products by 60 and 79 percent, respectively, subject to a 10 percent rate of decay. Finally, these products had larger innovation effects at the firm level than among individual inventors.
    Keywords: Patents, Technological Change, Smoking Cessation Products, Cigarette Taxes
    JEL: O31 O38 H23 I18
    Date: 2010–11
  4. By: Adamowicz, W.L. (Vic); Swait, Joffre
    Abstract: Given the large number of choices that consumers make each day it seems likely that they will generally adopt decision strategies that minimize cognitive effort, particularly with low price products such as most items found in a supermarket. One such strategy may be to simply choose what has been chosen in the past, i.e. to fall into a pattern of routine choices or decisions. In contrast, there may be preferences for variety in markets for low price, highly differentiated goods. We develop a conceptual and empirical model of routine choice, and the factors that result in transitions to two strategies other than routine selection, to wit, utility maximizing choice among available alternatives and a variety seeking strategy. The empirical approach we employ provides a mechanism for the examination of panel data that avoids the state dependence issues present in most applications to these types of data. We apply this framework to the choice of two food products that illustrate the heterogeneity across types of products in decision strategies and routine choice patterns.
    Keywords: Choice modeling, routine behavior, varietyâseeking, panel data, Consumer/Household Economics, Demand and Price Analysis, Institutional and Behavioral Economics, D12, D03, C25,
    Date: 2010
  5. By: Pierpaolo Battigalli; Alfredo Di Tillio; Dov Samet
    Abstract: Interactive epistemology in dynamic games studies forms of strategic reasoning like backward and forward induction by means of a formal representation of players’ beliefs about each other, conditional on each history. Work on this topic typically relies on epistemic models where states of the world specify both strategies and beliefs. Strategies are conjunctions of behavioral conditionals of the form “if history h occurred, then player i would choose action ai.” In this literature, strategies are literally interpreted as (objective) behavioral conditionals. But the intutitive interpretation of "strategy" is that of (subjective) "contingent plan of action." As players do not delegate their moves to devices that mechanically execute a strategy, plans cannot be anything but beliefs of players about their own behavior. In this paper we analyze strategic reasoning in dynamic games with perfect information by means of epistemic models where states of the world describe the actual play path (not behavioral conditionals) and the players' conditional probability systems about the path and about each other conditional beliefs. Therefore, the players' beliefs include their contingent plans. We define rational planing as a property of beliefs, whereas material consistency connects plans with choices on the actual play path. Material rationality is the conjunction of rational planning and material consistency. In perfect information games of depth two (the simplest dynamic games), correct belief in material rationality only implies a Nash outcome, not the backward induction one. We have to consider stronger assumptions of persistence of belief in material rationality in order to obtain backward and forward induction reasoning.
    Date: 2011
  6. By: Seppo Honkapohja; Kaushik Mitra; George W. Evans
    Abstract: These notes try to clarify some discussions on the formulation of individual intertemporal behavior under adaptive learning in representative agent models. First, we discuss two suggested approaches and related issues in the context of a simple consumption-saving model. Second, we show that the analysis of learning in the NewKeynesian monetary policy model based on "Euler equations" provides a consistent and valid approach.
    Keywords: Euler equation, NewKeynesian, Adaptive learning
    JEL: E4 E5 E6 E52 E58
    Date: 2011–01
  7. By: Sujoy Chakravarty; Carine Sebi; E. Somanathan; E. Theophilus
    Abstract: The public goods problem (Hardin, The Tragedy of the Commons,1968), either viewed as a problem of extraction and optimal use of a resource, or that of shared contributions to the cost of a resource, has had a long history in the social sciences. Our experimental design, using methods in experimental economics, uses a standard Voluntary Contributions Mechanism (VCM) game with a moderately large group of ten and face-to-face communication between the participants. The subjects, who are villagers in the Gori-Ganga Basin of the Central Himalayas, are not re-matched every period. Our results are somewhat different from laboratory experiments using a similar design such as Isaac and Walker (1988a, 1988b). [Occasional paper 29].
    Keywords: communication, participants, VCM, economics, public goods problems, INDIAN HIMALAYAS, villagers, resource, gori-ganga, social sciences
    Date: 2011
  8. By: Vittorio Pelligra; Luca Stanca
    Abstract: This paper presents the results of a survey-based experiment on the role of equity and efficiency for altruistic behavior. Using simple binary decisions for a representative pool of subjects, we find that both equity and efficiency are relevant for the decision to give. However, contrary to the findings in several laboratory experiments, our results indicate that equity plays a major role for altruistic behavior. Differ- ences in relative payoffs have a significant effect on the decision to give. When giving is not costly, more than half of the subjects prefer equal payoffs to a socially efficient but unequal allocation. When giving is Pareto-improving, half the subjects choose to sacrifice a higher payoff in order to avoid payoff inequality. We also find that preferences, as revealed by experimental choices, are largely consistent with re- ported pro-social activities, while only weakly related to self-reported well-being.
    Keywords: Altruism, Inequality-Aversion, SocialWelfare, Envy, Large-Scale Experiment
    JEL: D63 C78 C91
    Date: 2010–12
  9. By: Burkhard, Schipper (University of California Davis)
    Abstract: We develop awareness-dependent subjective expected utility by taking unawareness structures introduced in Heifetz, Meier, and Schipper (2006, 2008, 2009) as primitives in the Anscombe-Aumann approach to subjective expected utility. We observe that a decision maker is unaware of an event if and only if her choices reveal that the event is "null" and the negation of the event is "null". Moreover, we characterize "impersonal" expected utility that is behaviorally indistinguishable from awareness-dependent subject expected utility and assigns probability zero to some subsets of states that are not necessarily events. We discuss in what sense probability zero can model unawareness.
    JEL: C70 C72 D80 D81
    Date: 2010–12
  10. By: Anat Bracha; Donald J. Brown
    Abstract: Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision making, where decision weights—which we label affective or perceived risk—are endogenized. Affective decision making (ADM) is a strategic model of choice under risk where we posit two cognitive processes—the "rational" and the "emotional" process. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the result of a pure Nash equilibrium strategy in this game. We show that regular ADM potential games have an odd number of locally unique pure strategy Nash equilibria, and demonstrate this finding for ADM in insurance markets. We prove that ADM potential games are refutable by axiomatizing the ADM potential maximizers.
    Keywords: Insurance
    Date: 2010

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