nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2012‒04‒17
eight papers chosen by
Matthew Baker
City University of New York

  1. Evolutionary Selection of Individual Expectations and Aggregate Outcomes in Asset Pricing Experiments (revised version of WP 09-09) By Anufriev, M.; Hommes, C.H.
  2. Evolutionary Model of the Personal Income Distribution By Kaldasch, Joachim
  3. Strategic Learning With Finite Automata Via The EWA-Lite Model By Christos A. Ioannou; Julian Romero
  4. Bayesian equilibrium by iterative conjectures: a theory of games with players forming conjectures iteratively starting with first order uninformative conjectures By Teng , Jimmy
  5. Group Membership and Communication in Modified Dictator Games By Klemens Keldenich
  6. The Role of Social Networks and Peer Effects in Education Transmission By Bervoets, Sebastian; Calvó-Armengol, Antoni; Zenou, Yves
  7. Outcome Uncertainty, Reference-Dependent Preferences and Live Game Attendance By Coates, Dennis; Humphreys, Brad; Zhou, Li
  8. Consumer Behavioural Biases in Competition: A Survey By Steffen Huck; Jidong Zhou

  1. By: Anufriev, M. (University of Amsterdam); Hommes, C.H. (University of Amsterdam)
    Abstract: In recent `learning to forecast' experiments with human subjects (Hommes, et al. 2005), three different patterns in aggregate price behavior have been observed: slow monotonic convergence, permanent oscillations and dampened fluctuations. We show that a simple model of individual learning can explain these different aggregate outcomes within the same experimental setting. The key idea of the model is the evolutionary selection among heterogeneous expectation rules, driven by the relative performance of the rules. Out-of-sample predictive power of our switching model is higher compared to the rational or other homogeneous expectations benchmarks. Our results show that heterogeneity in expectations is crucial to describe individual forecasting behavior as well as aggregate price behavior.
  2. By: Kaldasch, Joachim
    Abstract: The aim of this work is to establish the personal income distribution from the elementary constituents of a free market; products of a representative good and agents forming the economic network. The economy is treated as a self-organized system. Based on the idea that the dynamics of an economy is governed by slow modes, the model suggests that for short time intervals a fixed ratio of total labour income (capital income) to net income exists (Cobb-Douglas relation). Explicitly derived is Gibrat’s law from an evolutionary market dynamics of short term fluctuations. The total private income distribution is shown to consist of four main parts. From capital income of private firms the income distribution contains a lognormal distribution for small and a Pareto tail for large incomes. Labour income contributes an exponential distribution. Also included is the income from a social insurance system, approximated by a Gaussian peak. The evolutionary model is able to reproduce the stylized facts of the income distribution, shown by a comparison with empirical data of a high resolution income distribution. The theory suggests that in a free market competition between products is ultimately the origin of the uneven income distribution.
    Keywords: income distribution; labour income; capital income; Gibrat's law; power law distribution; exponential distribution; Laplace distribution; evolutionary economics; self-organization; competition; price dispersion
    JEL: D11 D31 D33 D01 E11
    Date: 2012–03–30
  3. By: Christos A. Ioannou; Julian Romero
    Abstract: We modify the self-tuning Experience Weighted Attraction (EWA-lite) model of Camerer, Ho, and Chong (2007) and use it as a computer testbed to study the likely performance of a set of twostate automata in four symmetric 2 x 2 games. The model suggested allows for a richer specification of strategies and solves the inference problem of going from histories to beliefs about opponents' strategies, in a manner consistent with \belief-learning". The predictions are then validated with data from experiments with human subjects. Relative to the action reinforcement benchmark model, our modified EWA-lite model can better account for subject-behavior.
    Date: 2012–04
  4. By: Teng , Jimmy
    Abstract: This paper introduces a new game theoretic equilibrium, Bayesian equilibrium by iterative conjectures (BEIC). It requires agents to make predictions, starting from first order uninformative predictive distribution functions (or conjectures) and keep updating with statistical decision theoretic and game theoretic reasoning until a convergence of conjectures is achieved. In a BEIC, rationality is achieved for strategies and conjectures. The BEIC approach is capable of analyzing a larger set of games than current Nash Equilibrium based games theory, including games with inaccurate observations, games with unstable equilibrium and games with double or multiple sided incomplete information games. On the other hand, for the set of games analyzed by the current games theory, it generates far lesser equilibriums and normally generates only a unique equilibrium. It also resolves inconsistencies in equilibrium results by different solution concepts in current games theory.
    Keywords: new equilibrium concept; iterative conjectures; convergence; Bayesian decision theory; Schelling point
    JEL: D84 D81 C72
    Date: 2011–12–15
  5. By: Klemens Keldenich
    Abstract: This paper presents a laboratory experiment to measure the effect of group membership on individual behavior in modified dictator games. The results suggest that this effect is influenced by the degree of group membership saliency. A within-subject design is employed: in stage 1, each subject decides individually; in stage 2, the subjects are divided into groups of three and one person is selected at random from each group to make the decision (the “hierarchical decision rule”). In stage 3, additional pre-play communication in the group is allowed before the decision and, in stage 4, the decisions are again made on an individual basis. Interestingly, the dictators behave more selfishly when group members are not allowed to communicate. However, if groups are allowed to communicate, decisions do not differ from individual choices. Chat content shows that groups are concerned with reaching a consensus, even though talk is “cheap” and only one group member will make the binding decision.
    Keywords: Group decision making; social comparison; leadership; communication
    JEL: C91 C92 D71
    Date: 2012–03
  6. By: Bervoets, Sebastian; Calvó-Armengol, Antoni; Zenou, Yves
    Abstract: We propose a dynastic model in which individuals are born in an educated or uneducated environment that they inherit from their parents. We study the role of social networks on the correlation in the parent-child educational status independent of any parent-child interaction. We show that the network reduces the intergenerational correlation, promotes social mobility and increases the average education level in the population. We also show that a planner that encourages social mobility also reduces social welfare, hence facing a trade off between these two objectives. When individuals choose the optimal level of social mobility, those born in an uneducated environment always want to leave their environment while the reverse occurs for individuals born in an educated environment.
    Keywords: education; intergenerational correlation; Social mobility; strong and weak ties
    JEL: I24 J13 Z13
    Date: 2012–04
  7. By: Coates, Dennis (Dept of Economics, UMBC); Humphreys, Brad (University of Alberta, Department of Economics); Zhou, Li (University of Alberta, Department of Economics)
    Abstract: We develop a consumer choice model of live attendance at a sporting event with reference-dependent preferences. The predictions of the model motivate the “uncertainty of outcome hypothesis” (UOH) as well as fan’s desire to see upsets and to simply see the home team win games, depending on the importance of the reference-dependent preferences and loss aversion. A critical review of previous empirical tests of the UOH reveals significant support for models with reference-dependent preferences, but less support for the UOH. New empirical evidence from Major League Baseball supports the loss aversion version of the model.
    Keywords: uncertainty of outcome hypothesis; attendance demand; prospect theory
    JEL: D12 L83
    Date: 2012–04–03
  8. By: Steffen Huck; Jidong Zhou
    Date: 2011

This nep-evo issue is ©2012 by Matthew Baker. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.