nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2012‒09‒22
thirteen papers chosen by
Matthew Baker
City University of New York

  1. Guilt causes equal or unequal division in alternating-offer bargaining By Kohler, Stefan
  2. Trust and Trustworthiness under the Prospect Theory: A field experiment in Vietnam By Quang Nguyen; Marie-Claire Villeval; Hui Xu
  3. Availability of Information and Representation Effects in the Centipede Game By Paolo Crosetto; Marco Mantovani
  4. Building and Rebuilding Trust with Promises and Apologies. By Eric Schniter; Roman M. Sheremeta; Daniel Sznycer
  5. Envy can promote more equal division in alternating-offer bargaining By Kohler, Stefan
  6. In and out of Equilibrium II: Evolution in Repeated Games with Discounting and Complexity Costs By Matthijs van Veelen; Julian Garcia
  7. Underestimation of probability modifications: characterization and economic implications By Johanna Etner; Meglena Jeleva
  8. Sequential decision making without independence: a new conceptual approach By Antoine Nebout
  9. Dynamically Stable Preferences By Anna Gumena; Andrei Savochkin
  10. Can a sense of entitlement increase stealing? By Christina Gravert
  11. How Persistent is Social Capital? By Jan Fidrmuc
  12. Sexual Selection, Conspicuous Consumption and Economic Growth By Jason Collins; Boris Baer; Ernst Juerg Weber
  13. Behavioural economics perspectives: Implications for policy and financial literacy By Altman, Morris

  1. By: Kohler, Stefan
    Abstract: Parties in a bargaining situation may perceive guilt, a utility loss caused by receiving the larger share that is modeled in some social preferences. I extend Rubinstein (1982)'s solution of the open-ended alternating-offer bargaining problem for self-interested bargainers to a game with equally patient bargainers that exhibit a similar degree of guilt. The bargaining parties still reach agreement in the first period. If guilt is strong, they split the bargaining surplus equally. In contrast, if guilt is weak, the bargaining outcome is tilted away from the Rubinstein division towards a more unequal split. As both bargainers sensation of guilt diminishes, the bargaining outcome converges to the Rubinstein division.
    Keywords: alternating offers; bargaining; bargaining power; behavioral economics; equity; fairness; guilt; inequality aversion; negotiation; social preferences
    JEL: D03 C78 D63
    Date: 2012–09–10
  2. By: Quang Nguyen (Division of Economics - Nanyang Technological University); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Hui Xu (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk aversion do not affect trust, loss aversion influences trust indirectly by lowering the expectations of return. Also, more risk averse and less present biased participants are found to be trustworthier. The experience of receiving remittances influences behavior and a longer exposure to a collectivist economy tend to reduce trust and trustworthiness.
    Keywords: Trust, trustworthiness ; risk preferences ; time preferences ; Cumulative Prospect Theory ; Vietnam ; field experiment
    Date: 2012–09–10
  3. By: Paolo Crosetto (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Marco Mantovani (Université Libre de Bruxelles, and DEMM, Università degli studi di Milano, and CEREC, Facultés Universitaires Saint-Louis)
    Abstract: The paper presents the results of a novel experiment testing the effects of environment complexity on strategic behavior, using a centipede game. Behavior in the centipede game has been explained either by appealing to failures of backward induction or by calling for preferences that induce equilibria consistent with observed behavior. By manipulating the way in which information is provided to subjects we show that reduced availability of information is sufficient to shift the distribution of take-nodes further from the equilibrium prediction. On the other hand, similar results are obtained in a treatment where reduced availability of information is combined with an attempt to elicit preferences for reciprocity, through the presentation of the centipede as a repeated trust game. Our results could be interpreted as cognitive limitations being more effective than preferences in determining (shifts in) behavior in our experimental centipede. Furthermore our results are at odds with the recent ones in Cox and James (2012), suggesting caution in generalizing their results. Reducing the availability of information may hamper backward induction or induce myopic behavior, depending on the strategic environment.
    Keywords: Centipede, Backward Induction, Representation effects
    JEL: C72 C73 C91
    Date: 2012–09–11
  4. 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: Using trust games, we study how promises and messages are used to build new trust where it did not previously exist and to rebuild damaged trust. 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 design allowed us to observe the endogenous emergence and natural distribution 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 long messages and promises closer to equal splits to encourage trust in the second game. To restore damaged trust, promise-breakers used apologies and upgraded promises. On average, investments in each game paid off for investors and trustees, suggesting that effective use of cheap signals fosters profitable trust-based exchange in these economies.
    Keywords: promise, atonement, apology, cheap talk, cheap signals, trust game, trust building, remedial strategies, reciprocity, experiments
    Date: 2012
  5. By: Kohler, Stefan
    Abstract: Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.
    Keywords: alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences
    JEL: D03 C78 D63
    Date: 2012–09–10
  6. By: Matthijs van Veelen (University of Amsterdam); Julian Garcia (Max-Planck-Institute for Evolutionary Biology)
    Abstract: We explore evolutionary dynamics for repeated games with small, but positive complexity costs. To understand the dynamics, we extend a folk theorem result by Cooper (1996) to continuation probabilities, or discount rates, smaller than 1. While this result delineates which payoffs can be supported by neutrally stable strategies, the only strategy that is evolutionarily stable, and has a uniform invasion barrier, is All D. However, with sufficiently small complexity costs, indirect invasions - but now through 'almost neutral' mutants - become an important ingredient of the dynamics. These indirect invasions include stepping stone paths out of full defection.
    Keywords: repeated games; evolutionary game theory; complexity costs; indirect invasions; robustness against indirect invasions; neutrally stable strategy; evolutionarily stable strategy; iterated prisoners dilemma
    JEL: C73
    Date: 2012–09–06
  7. By: Johanna Etner; Meglena Jeleva
    Abstract: The aim of this paper is to propose a behavioral characterization of individuals who underestimate probability modifications and to characterize this behavior in the standard preferences representation models under risk (Expected utility, Dual theory, Rank Dependant Utility Theory and MaxMin Expected Utility). Our main results are the following. Underreaction to probability modifications is in general independent from standard risk aversion and prudence. In models involving probability transformation functions, it is characterized by the slope of the probability transformation function. In the MaxMin Expected utility model under risk, it is related to the weights of the maximal and minimal consequences in the preferences representation function. Considering a simple prevention decision, consisting in the reduction of the probability of a monetary loss, we show that individuals who underreact to probability modifications invest less in prevention than individuals who objectively evaluate these modifications. Underreaction to probability modification is thus a possible explanation for low investment in prevention.
    Keywords: probability perception, non expected utility, prevention
    JEL: D81
    Date: 2012
  8. By: Antoine Nebout
    Abstract: This paper is a critical reflection on the notion of dynamic consistency that is commonly used in the literature in Economics and Decision Theory and on the difficulty to test it in an experimental set up. Building on the possible characteristics of individual dynamic preferences, we propose a conceptual categorisation of possible sequential decision making behaviors. In particular, we show that not conforming to Expected Utility Theory does not necessarily implies a violation of dynamic consistency and propose a simple set of decision tasks that allows to reveal different strategic types of resolution of a sequential decision problem by a non-expected utility maximizers.
    Date: 2012–09
  9. By: Anna Gumena; Andrei Savochkin
    Abstract: In the framework of dynamic choice under uncertainty, we define dynamic stability as a combination of two assumptions prevalent in the literature: dynamic consistency and the requirement that updated preferences belong to the same class as ex ante ones. Maxmin preferences are shown to be not dynamically stable, and any dynamically stable subset in that class can contain only expected utility preferences. Dynamic stability also turns out to be a defining characteristic of the multiplier preferences of Hansen and Sargent (2001) within the scope of variational preferences. Restrictions imposed by dynamic stability are shown to be related to invariance of preferences.
    Keywords: dynamic consistency, dynamic stability, ambiguity, invariance, consequentialism, Sure Thing Principle, multiplier preferences
    JEL: D81
    Date: 2012
  10. By: Christina Gravert (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Are people more likely to steal when the payoff they deserve is determined randomly or when it depends on their performance in a difficult task? In this paper I investigate how the probability of stealing is affected by the way in which payoff is earned. After answering a short survey one group was asked to roll a die to determine their payoff, while the other group had three minutes to find matching numbers in a matrix task. Participants then paid themselves unobserved by the experimenter. I find that the participants who earned their payoff according to performance were three times more likely to take the (undeserved) maximum payoff than the participants in the random payment scheme. In contrast to previous findings in the cheating literature, stealing is an all-or-nothing decision rather than a trade-off between a slightly higher payoff and the desire to keep ones moral values intact. The results support the theory that unethical behavior is increased by a sense of entitlement, which is more pronounced when wealth depends on performance than on the roll of a die.
    Keywords: Experiments, Deception, Entitlement, Justification
    JEL: C91 M52 D63 K42
    Date: 2012–09–14
  11. By: Jan Fidrmuc
    Abstract: Formal and informal institutions are often thought of as being highly persistent, with historical events such as conflicts, authoritarian regimes or colonization having a long-lasting effect on their quality. To analyze the persistence of social capital, I look at regions which have experienced large-scale population displacements some 50-60 years ago. As social capital is embedded in relationships, regions that were repopulated by migrants are likely to start off with little inherited social capital. My analysis suggests that, with a lag of approximately two generations, the inhabitants of these regions display similar stocks of social capital as their counterparts in regions unaffected by population transfers. Hence, contrary to the Putnamesque view, much of the present-day social capital appears to have been formed in recent past rather than attributable to long-term historical legacies.
    Date: 2012–08
  12. By: Jason Collins (Business School, University of Western Australia); Boris Baer (Centre for Integrative Bee Research (CIBER) ARC CoE in Plant Energy Biology, University of Western Australia); Ernst Juerg Weber (Business School, University of Western Australia)
    Abstract: The evolution by sexual selection of the male propensity to engage in conspicuous consumption contributed to the emergence of modern rates of economic growth. We develop a model in which males engage in conspicuous consumption to send an honest signal of their quality to females. Males who engage in conspicuous consumption have higher reproductive success than those who do not, as females respond to the costly and honest signal, increasing the prevalence of signalling males in the population over time. As males fund conspicuous consumption through participation in the labour force, the increase in the prevalence of signalling males who engage in conspicuous consumption gives rise to an increase in economic activity that leads to economic growth.
    Date: 2012
  13. By: Altman, Morris
    Abstract: This paper summarizes and highlights different approaches to behavioural economics. It includes a discussion of the differences between the “old” behavioural economics school, led by scholars like Herbert Simon, and the “new” behavioural economics, which builds on the work of Daniel Kahneman and Amos Tversky and is best exemplified by Richard Thaler and Cass Sunstein’s recent book, Nudge. These important currents in behavioural economics are also contrasted with the conventional economic wisdom. The focus of this comparative analysis is to examine the implications of these different approaches in behavioural economics for financial literacy.
    Keywords: Financial literacy, behavioral economics, imperfect information, heuristics, trust, nudging, decision-­‐making environment,
    Date: 2012–05–04

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