nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2012‒04‒03
ten papers chosen by
Matthew Baker
City University of New York

  1. Behavioral Biases and the Representative Agent. By Napp, Clotilde; Jouini, Elyès
  2. Evolutionary beliefs and financial markets. By Jouini, Elyès; Viossat, Yannick; Napp, Clotilde
  3. What can the Big Five Personality Factors contribute to explain Small-Scale Economic Behavior? By Julia Muller; Christiane Schwieren
  4. Cooperation under Fear, Greed and Prison: the Role of Redistributive Inequality in the Evolution of Cooperation By César Andrés Mantilla
  5. The Joint Benefits of Observed and Unobserved Punishment: Comment to Unobserved Punishment Supports Cooperation By Andreas Glöckner; Sebastian Kube; Andreas Nicklisch
  6. The Coevolution of Behavior and Normative Expectations. Customary Law in the Lab By Christoph Engel; Michael Kurschilgen
  7. Towards a Purely Behavioral Definition of Loss Aversion By Ghossoub, Mario
  8. A Dynamic Ellsberg Urn Experiment. By Lefort, Jean-Philippe; Dominiak, Adam; Dürsch, Peter
  9. Image and Misreporting By Ewers, Mara; Zimmermann, Florian
  10. Warm-Glow Giving and Freedom to be Selfish By Özgür Evren; Stefania Minardi

  1. By: Napp, Clotilde; Jouini, Elyès
    Abstract: In this paper, we show that behavioral features can be obtained at a group level when the individuals of the group are heterogeneous enough. Starting from a standard model of Pareto optimal allocations, with expected utility maximizers but allowing for heterogeneity among individual beliefs, we show that the representative agent has an inverse S-shaped probability distortion function. As an application of this result, we show that an agent with a probability weighting function as in Cumulative Prospect Theory may be represented as a collection of agents with noisy beliefs.
    Keywords: probability weighting function; ambiguity aversion; behavioral agent; representative agent;
    JEL: D81 G11 D84 D87 D03
    Date: 2011
  2. By: Jouini, Elyès; Viossat, Yannick; Napp, Clotilde
    Keywords: Beliefs formation; heterogeneous beliefs; pessimism; risk premium; evolutionary game theory;
    JEL: G12 D03 D53 D81
    Date: 2012
  3. By: Julia Muller (Erasmus University Rotterdam); Christiane Schwieren (University of Heidelberg)
    Abstract: Growing interest in using personality variables in economic research leads to the question whether personality as measured by psychology is useful to predict economic behavior. Is it reasonable to expect values on personality scales to be predictive of behavior in economic games? It is undoubted that personality can influence large-scale economic outcomes. Whether personality variables can also be used to understand micro-behavior in economic games is however less clear. We discuss reasons in favor and against this assumption and test in our own experiment, whether and which personality factors are useful in predicting behavior in the trust or investment game. We can also use the trust game to understand how personality measures fare relatively in predicting behavior when situational constraints vary in strength. This approach can help economists to better understand what to expect from the inclusion of personality variables in their models and experiments, and where further research might be useful and needed.
    Keywords: Personality; Big Five; Five Factor Model; Incentives; Experiment; Trust Game
    JEL: C72 C91 D03
    Date: 2012–03–26
  4. By: César Andrés Mantilla
    Abstract: This work offers an analysis of cooperation dilemmas making emphasis in the role of the unequal outcomes. Increases in the benefit from leaving mutual cooperation are associated to the greed dimension, while increases in the cost from leaving mutual defection are associated to fear dimension. The manipulation of these dimensions allows defining two cooperation dilemmas derived from the standard Prisoner’s Dilemma. Using two different frameworks, classical game theory and evolutionary game theory, is shown that the magnitude and the direction of these inequalities have an effect over the decision of cooperation.
    Date: 2012–02–29
  5. By: Andreas Glöckner (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kube (Max Planck Institute for Research on Collective Goods, Bonn); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Laboratory experiments by Fudenberg and Pathak (2010), and Vyrastekova, Funaki and Takeuch (2008) show that punishment is able to sustain cooperation in groups even when it is observed only in the end of the interaction sequence. Our results demonstrate that the real power of unobserved punishment is unleashed when combined with observable punishment. Providing both unobserved and observed punishment strongly enhances cooperation within groups – strikingly, even with less intense sanctioning. This surprising result underlines the importance of the coexistence of observed and unobserved sanctioning mechanisms in social dilemmas.
    Keywords: Public Goods, Unobserved Punishment, Sanctioning Effectiveness
    JEL: H41 C92 H40
    Date: 2011–11
  6. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Customary law has been criticized from very different angles. Rational choice theorists claim that what looks like custom is nothing but self-interest. Positivists doubt that anything beyond consent assumes the force of law. In this paper, we adopt an experimental approach to test these claims. We show that the willingness to overcome a dilemma transcends self-interest. Cooperation is significantly higher in the presence of a meta-rule for the formation of customary law. Yet only if it is backed up by sanctions, law is significantly more effective than mere comity. Customary law guides behaviour into the normatively desired direction as normative expectations and behavioural patterns coevolve.
    Keywords: experiment, Public Good, Customary Law, Normativity, Crowding Outs
    JEL: H41 D63 C91 D62 K10 D03 C14
    Date: 2011–12
  7. By: Ghossoub, Mario
    Abstract: This paper suggests a behavioral, preference-based definition of loss aversion for decision under risk. This definition is based on the initial intuition of Markowitz [30] and Kahneman and Tversky [19] that most individuals dislike symmetric bets, and that the aversion to such bets increases with the size of the stake. A natural interpretation of this intuition leads to defining loss aversion as a particular kind of risk aversion. The notions of weak loss aversion and strong loss aversion are introduced, by analogy to the notions of weak and strong risk aversion. I then show how the proposed definitions naturally extend those of Kahneman and Tversky [19], Schmidt and Zank [48], and Zank [54]. The implications of these definitions under Cumulative Prospect Theory (PT) and Expected-Utility Theory (EUT) are examined. In particular, I show that in EUT loss aversion is not equivalent to the utility function having an S shape: loss aversion in EUT holds for a class of utility functions that includes S-shaped functions, but is strictly larger than the collection of these functions. This class also includes utility functions that are of the Friedman-Savage [14] type over both gains and losses, and utility functions such as the one postulated by Markowitz [30]. Finally, I discuss possible ways in which one can define an index of loss aversion for preferences that satisfy certain conditions. These conditions are satisfied by preferences having a PT-representation or an EUT-representation. Under PT, the proposed index is shown to coincide with Kobberling and Wakker’s [22] index of loss aversion only when the probability weights for gains and losses are equal. In Appendix B, I consider some extensions of the study done in this paper, one of which is an extension to situations of decision under uncertainty with probabilistically sophisticated preferences, in the sense of Machina and Schmeidler [27].
    Keywords: Loss Aversion; Risk Aversion; Mean-Preserving Increase in Risk; Prospect Theory; Probability Weights; S-Shaped Utility
    JEL: D03 D81
    Date: 2011–08–11
  8. By: Lefort, Jean-Philippe; Dominiak, Adam; Dürsch, Peter
    Abstract: Two rationality arguments are used to justify the link between conditional and unconditional preferences in decision theory : dynamic consistency and consequentialism. Dynamic consistency requires that ex ante contingent choices are respected by up dated preferences. Consequentialism states that only those outcomes which are still possible can matter for up dated preferences. We test the descriptive validity of these rationality arguments with a dynamic version of Ellsberg's three color experiment and that subjects act more often in line with consequentialism than with dynamic consistency.
    Keywords: experiment; consequentialism; dynamic consistency; updating; ambiguity; Non expected utility preferences;
    JEL: D81 C91
    Date: 2012–01
  9. By: Ewers, Mara (University of Bonn); Zimmermann, Florian (University of Bonn)
    Abstract: In this paper we ask if reports of private information about skills, abilities or achievements are affected by image concerns. We develop a simple model that illustrates how image utility can lead to misreporting of private information in contexts where truthful reports maximize monetary outcomes. In addition, we test the model's predictions in a controlled lab experiment. In the experiment, all subjects go through a series of quiz questions and subsequently report a performance measure. We vary if reports are made to an audience or not and find evidence for image effects. In the audience treatment, stated reports are significantly higher than in the private treatment. This suggests that overconfident appearance might be a consequence of social approval seeking. We also find that men state higher self-assessments than women. This gender difference seems to be driven by men responding more strongly to the presence of an audience.
    Keywords: image concerns, self-assessment, overconfidence, experiment
    JEL: C91 D03 D82
    Date: 2012–03
  10. By: Özgür Evren (New Economic School); Stefania Minardi (Department of Economics, New York University)
    Abstract: Warm-glow refers to other-serving behavior that is valuable for the actor per se, apart from its social implications. We provide axiomatic foundations for warm-glow by viewing it as a form of preference for larger choice sets, in the sense of the literature on freedom of choice. Specically, an individual who experiences warm-glow prefers the freedom to be sel…sh: she values the availability of sel…sh options even if she plans to act unsel…shly. Our theory also provides foundations for empirically distinguishing between warm-glow and other motivations for prosocial behavior. The implied choice behavior subsumes Riker and Ordeshook (1968) and Andreoni (1990).
    Keywords: Altruism, Warm-Glow, Freedom of Choice, Philanthropy, Charitable Giving, Public Goods
    JEL: D11 D64 D81
    Date: 2011–12

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