nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2012‒01‒18
eight papers chosen by
Matthew Baker
City University of New York

  1. An experimental analysis of bounded rationality: Applying insights from behavioral economics to information systems By Franziska Brecht; Oliver Günther; Werner Güth; Ksenia Koroleva
  2. The Independence Axiom and the Bipolar Behaviorist By Glenn W. Harrison; J. Todd Swarthout
  3. Restoring Damaged Trust with Promises, Atonement and Apology. By Eric Schniter; Roman M. Sheremeta; Daniel Sznycer
  4. From vice to virtue? Civil war and social capital in Uganda By Giacomo De Luca; Marijke Verpoorten;
  5. Status Quo Effects in Fairness Games: Acts of Commission vs. Acts of Omission By James C. Cox; Maroš Servátka; Radovan Vadovič
  6. Moral Cleansing and Moral Licenses: experimental evidence By Pablo Brañas-Garza; Marisa Bucheli; María Paz Espinosa; Teresa García-Muñoz
  7. Efficient Coordination in Weakest-Link Games By Riedl Arno; Rohde Ingrid M.T.; Strobel Martin
  8. A cross-country experimental comparison of preferences for redistribution By Francesco Farina; Gianluca Grimalda

  1. By: Franziska Brecht; Oliver Günther; Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Ksenia Koroleva
    Abstract: The paradigm of bounded rationality considers the limited ability of individuals to make consistent and rational choices. Due to the scarcity of research on this phenomenon in information systems, we conducted an experimental study investigating decision-making regarding risk preferences and social preferences. Moreover, we explored the stability of these preferences under different conditions and uncovered the role of information retrieval in individual decision-making. We find that although individuals are generally risk-averse and egoistic, none of these preferences is stable under the conditions tested which provides indices of boundedly rational decision-making. Although the information retrieved by participants generally allows to infer their preferences, the increasing amount and complexity of this information again often results in boundedly rational behavior.
    Keywords: bounded rationality, experimental design, information retrieval, stability of attitudes and behavior, cognitive tracing, behavioral economics, behavioral information systems
    JEL: C18 C91 D03 D81
    Date: 2012–01–06
  2. By: Glenn W. Harrison; J. Todd Swarthout
    Abstract: Developments in the theory of risk require yet another evaluation of the behavioral validity of the independence axiom. This axiom plays a central role in most formal statements of expected utility theory, as well as popular alternative models of decision-making under risk, such as rank-dependent utility theory. It also plays a central role in experiments used to characterize the way in which risk preferences deviate from expected utility theory. If someone claims that individuals behave as if they "probability weight" outcomes, and hence violate the independence axiom, it is invariably on the basis of experiments that must assume the independence axiom. We refer to this as the Bipolar Behavioral Hypothesis: behavioral economists are pessimistic about the axiom when it comes to characterizing how individuals directly evaluate two lotteries in a binary choice task, but are optimistic about the axiom when it comes to characterizing how individuals evaluate multiple lotteries that make up the incentive structure for a multiple-task experiment. Building on designs that have a long tradition in experimental economics, we offer direct tests of the axiom and the evidence for probability weighting. We reject the Bipolar Behavioral Hypothesis: we find that nonparametric preferences estimated for the rank-dependent utility model are significantly affected when one elicits choices with procedures that require the independence assumption, as compared to choices with procedures that do not require that assumption. We also demonstrate this result with familiar parametric preference specifications, and draw general implications for the empirical evaluation of theories about risk.
    Date: 2012–01
  3. By: Eric Schniter (Economic Science Institute, Chapman University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Daniel Sznycer (Center for Evolutionary Psychology, University of California, Santa Barbara)
    Abstract: In an experiment using two consecutive trust games, we study how “cheap” signals such as promises and messages are used to restore damaged trust and encourage new trust where it did not previously exist. In these games, trustees made non-binding promises of investment-contingent returns, then investors decided whether to invest, and finally trustees decided how much to return. After an unexpected second game was announced, but before it commenced, trustees could send a one-way message. This naturalistic quasi-experimental design allowed us to observe the endogenous emergence of trust-relevant behaviors and focus on naturally occurring remedial strategies used by promise-breakers and distrusted trustees, their effects on investors, and subsequent outcomes. In the first game 16.6% of trustees were distrusted and 18.8% of trusted trustees broke promises. Trustees distrusted in the first game used promises closer to equal splits and messaging to encourage trust in the second game. To restore damaged trust, promise-breakers used larger new promises (signals of intended atonement) and messaging (usually with apology). On average, investments in each game paid off for investors and trustees, suggesting that cheap signals foster profitable trust-based exchanges in these economic games.
    Keywords: promise, atonement, apology, cheap talk, cheap signals, remedial strategies, trust game, reciprocity, experiments
    Date: 2011
  4. By: Giacomo De Luca; Marijke Verpoorten;
    Abstract: We show that armed conflict affects social capital as measured by trust and associational membership. Using the case of Uganda and two rounds of nationally representative individual-level data bracketing a large number of battle events, we find that self-reported generalized trust and associational membership decreased during the conflict in districts in which battle events took place. Exploiting the different timing of two distinct waves of violence, we provide suggestive evidence for a rapid recovery of social capital. Evidence from a variety of identification strategies, including difference-in-difference and instrumental variavle estimates, suggest that these relationships are causal.
    Date: 2011
  5. By: James C. Cox; Maroš Servátka (University of Canterbury); Radovan Vadovič
    Abstract: Intent to help or harm is revealed more clearly by acts of commission that overturn the status quo than by acts of omission that uphold it. Both the law and culture make a central distinction between the two types of acts. Acts of commission elicit stronger reciprocal responses than do acts of omission. In this paper we compare reciprocal responses to both types of acts and ask whether behavior of subjects in two experiments is consistent with existing theory. The design of the experiments focuses on the axioms of revealed altruism theory (Cox, Friedman, and Sadiraj, 2008) that make it observationally distinct from other theories, Axiom R (for reciprocity) and Axiom S (for status quo). We find support for this theory in both experiments.
    Date: 2012–01–01
  6. By: Pablo Brañas-Garza (Universidad de Granada, Spain); Marisa Bucheli (Universidad de la República, Uruguay); María Paz Espinosa (Universidad del País Vasco, BRIDGE, Spain); Teresa García-Muñoz (Universidad de Granada, Spain)
    Abstract: Research on moral cleansing and moral self-licensing has introduced dynamic considerations in the theory of moral behavior. Past bad actions trigger negative feelings that make people more likely to engage in future moral behavior to offset them. Symmetrically, past good deeds favor a positive self-perception that creates licensing effects, leading people to engage in behavior that is less likely to be moral. In short, a deviation from a “normal state of being” is balanced with a subsequent action that compensates the prior behavior. We model the decision of an individual trying to reach the optimal level of moral self-worth over time and show that under certain conditions the optimal sequence of actions follows a regular pattern which combines good and bad actions. We conduct an economic experiment where subjects play a sequence of giving decisions (dictator games) to explore this phenomenon. We find that donation in the previous period affects present decisions and the sign is negative: participants’ behavior in every round is negatively correlated to what they did in the past. Hence donations over time seem to be the result of a regular pattern of self-regulation: moral licensing (being selfish after altruist) and cleansing (altruistic after selfish).
    Date: 2011
  7. By: Riedl Arno; Rohde Ingrid M.T.; Strobel Martin (METEOR)
    Abstract: Existing experimental research on behavior in weakest-link games shows overwhelmingly theinability of people to coordinate on the efficient equilibrium, especially in larger groups. Wehypothesize that people will be able to coordinate on efficient outcomes, provided they havesufficient freedom to choose their interaction neighborhood. We conduct experiments with mediumsized and large groups and show that neighborhood choice indeed leads to coordination on the fullyefficient equilibrium, irrespective of group size. This leads to substantial welfare effects.Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice thanwithout neighborhood choice. We identify exclusion as the simple but very effective mechanismunderlying this result. In early rounds, high performers exclude low performers who in consequence‘learn’ to become high performers.
    Keywords: microeconomics ;
    Date: 2011
  8. By: Francesco Farina; Gianluca Grimalda
    Abstract: We examine experimentally individual preferences for redistributions in the US, Italy, and Norway. We decompose demand for redistribution due to luck vis-à-vis individual merit, and study how they are affected by individual and social characteristics. Experimental subjects made four different decisions on how much earning redistribution they wanted to implement in their group starting from a given initial distribution of earnings. The first decision measured preferences for inequality under a condition of impersonality. The second and third decisions were made behind a “veil of ignorance”, whereas the fourth decision was taken knowing one’s position in the earnings scale. Ambiguity and risk aversions were measured in an independent set of decisions. Between-country differences are sizable. Norwegian subjects were generally the most redistributive of the three, and the US subjects the least redistributive. Italian subjects seemed more willing to accept inequality differences due to individual merit than others. Conversely, Norwegian subjects demanded high levels of redistribution regardless of how inequality had been generated. Experimental redistribution is significantly higher in Norway than Italy, in spite of the two samples holding comparable views over social mobility. This calls for a re-examination of existing theories that see beliefs on mobility as the main explanation of demand for redistribution.
    Keywords: Inequality, redistribution, individual merit, cross-country experiments.
    JEL: C91 D31 D63 P52
    Date: 2011–02

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