nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2013‒11‒16
eleven papers chosen by
Matthew Baker
City University of New York

  1. Cooperation Hidden Frontiers: The Behavioral Foundations of the Italian North-South Divide By Maria Bigoni; Stefania Bortolotti; Marco Casari; Diego Gambetta; Francesca Pancotto
  2. Trust, Trustworthiness and the Consensus Effect: An Evolutionary Approach By Fabrizio Adriani; Silvia Sonderegger
  3. Risk Preferences under Acute Stress By Lubomir Cingl; Jana Cahlikova
  4. Confucianism and Preferences: Evidence from Lab Experiments in Taiwan and China By Elaine M. Liu; Juanjuan Meng; Joseph Tao-yi Wang
  5. Evolutionary beliefs and financial markets By Napp, Clotilde; Viossat, Yannick; Jouini, Elyès
  6. Sharing or gambling? On risk attitudes in social contexts By Kocher, Martin; Krawczyk, Michal; Le Lec, Fabrice
  7. Expectation Formation in an Evolving Game of Uncertainty: Theory and New Experimental Evidence By Gigi Foster; Paul Frijters; Markus Schaffner; Benno Torgler
  8. Strategy choice in the infinitely repeated prisoners' dilemma By Dal Bó, Pedro; Fréchette, Guillaume R.
  9. Population and Economic Growth: Ancient and Moderns By Elise S. Brezis; Warren Young
  10. Ethnic diversity, public goods provision and social cohesion: Lessons from an inconclusive literature By Schaeffer, Merlin
  11. Fairness through the Lens of Cooperative Game Theory: An Experimental Approach By Geoffroy de Clippel; Kareen Rozen

  1. By: Maria Bigoni; Stefania Bortolotti; Marco Casari; Diego Gambetta; Francesca Pancotto
    Abstract: Socio-economic performance differs not only across countries but within countries too and can persist even after religion, language, and formal institutions are long shared. One interpretation of these disparities is that successful regions are characterized by higher levels of trust, and, more generally, of cooperation. Here we study a classic case of within-country disparities, the Italian North-South divide, to find out whether people exhibit geographically distinct abilities to cooperate independently of many other factors and whence these differences emerge. Through an experiment in four Italian cities, we study the behavior of a sample of the general population toward trust and contributions to the common good. We find that trust and contributions vary in unison, and diminish moving from North to South. This regional gap cannot be attributed to payoffs from cooperation or to institutions, formal or informal, that may vary across Italy, as the experimental methodology silences their impact. The gap is also independent of risk and other-regarding preferences which we measure experimentally, suggesting that the lower ability to cooperate we find in the South is not due to individual "moral" flaws. The gap could originate from emergent collective properties, such as different social norms and the expectations they engender. The absence of convergence in behavior during the last 150 years, since Italy was unified, further suggests that these norms can persist overtime. Using a millenniumlong dataset, we explore whether the quality of past political institutions and the frequency of wars could explain the emergence of these differences in norms.
    Keywords: Trust, social norms, experiments, long-term persistence, conflicts, institutions.
    JEL: C90 D03
    Date: 2013
  2. By: Fabrizio Adriani (University of Leicester); Silvia Sonderegger (School of Economics, University of Nottingham)
    Abstract: People often form expectations about others using the lens of their own attitudes (the so-called consensus effect). We study the implications of this for trust and trustworthiness. Trustworthy individuals are more \optimistic" than opportunists and are accordingly less afraid to engage in market-based exchanges, where they may be vulnerable to opportunistic behavior. In some cases, the material benefits from greater market participation may compensate for the costs of being trustworthy. We use an indirect evolutionary approach to endogenize preferences for trustworthiness, showing that a polymorphic equilibrium (where both trustworthiness and opportunism coexist in the population) may be evolutionarily stable. Better institutions limiting the scope for opportunism may favor the spreading of trustworthiness (crowding in), but the opposite (crowding out) may also occur. Our analysis is consistent with experimental evidence.
    Keywords: Endogenous Preferences, Trust, Consensus Effect, Institutions, Crowding Out
    Date: 2013–09
  3. By: Lubomir Cingl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jana Cahlikova (CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic)
    Abstract: Many important decisions are made under stress and they often involve risky alternatives. There has been ample evidence that stress influences decision making in cognitive as well as in affective domains, but still very little is known about whether individual attitudes to risk change with exposure to acute stress. To directly evaluate the causal effect of stress on risk attitudes, we adopt an experimental approach in which we randomly expose participants to a psychosocial stressor in the form of a standard laboratory stress-induction procedure: the Trier Social Stress Test for Groups. Risk preferences are elicited using an incentive compatible task, which has been previously shown to predict risk-oriented behavior out of the laboratory. Using three different measures (salivary cortisol levels, heart rate and multidimensional mood questionnaire scores), we show that stress was successfully induced on the treatment group. Our main result is that acute psychosocial stress significantly increases risk aversion. The effect is mainly driven by males; men in our control group are less risk-averse than women, which is a standard result in the literature, but this difference almost disappears when under psychosocial stress.
    Keywords: risk preferences, stress, Trier Social Stress Test, cortisol
    JEL: C90 C91 D03 D81 D87
    Date: 2013–11
  4. By: Elaine M. Liu; Juanjuan Meng; Joseph Tao-yi Wang
    Abstract: This paper investigates how Confucianism affects individual decision making in Taiwan and in China. We found that Chinese subjects in our experiments became less accepting of Confucian values, such that they became significantly more risk loving, less loss averse, and more impatient after being primed with Confucianism, whereas Taiwanese subjects became significantly less present-based and were inclined to be more trustworthy after being primed by Confucianism. Combining the evidence from the incentivized laboratory experiments and subjective survey measures, we found evidence that Chinese subjects and Taiwanese subjects reacted differently to Confucianism.
    JEL: C91 Z10
    Date: 2013–11
  5. By: Napp, Clotilde; Viossat, Yannick; Jouini, Elyès
    Abstract: Why do investors keep different opinions even though they learn from their own failures and successes? Why do investors keep different opinions even though they observe each other and learn from their relative failures and successes? We analyze beliefs dynamics when beliefs result from a very general learning process that favors beliefs leading to higher absolute or relative utility levels. We show that such a process converges to the Nash equilibrium in a game of strategic belief choices. The asymptotic beliefs are subjective and heterogeneous across the agents. Optimism (respectively overconfidence) as well as pessimism (respectively doubt) emerge from the learning process. Furthermore, we obtain a positive correlation between pessimism (respectively doubt) and risk tolerance. Under reasonable assumptions, beliefs exhibit a pessimistic bias and, as a consequence, the risk premium is higher than in a standard setting.
    Keywords: heterogeneous beliefs; Beliefs formation; evolutionary game theory; risk premium; pessimism;
    JEL: D81 D53 D03 G12
    Date: 2013
  6. By: Kocher, Martin; Krawczyk, Michal; Le Lec, Fabrice
    Abstract: This paper investigates experimentally whether risk attitudes are stable across social contexts. In particular, it focuses on situations where some resource (for instance, a position, decision power, a bonus) has to be allocated between two parties: the decision maker can either opt for sharing the resource or for using a random device that allocates the entire prize to one of the two parties. By varying the relative situation of the decision maker with respect to the other party, we show that risk attitude is strongly affected by social contexts: participants in the experiment seem to be relatively risk seeking when they possess a relatively weaker position than the other party and risk averse when the opposite is true. Our main average results seem to be driven by the behavior of around a quarter of subjects whose choices appear to be fully determined by social comparisons. Various interpretations of the behavior are provided linking our results to preferences under risk with a social reference point and on status-seeking preferences.
    Keywords: risk attitudes; risk preferences in social context; social reference point; status-seeking preferences; social preferences under risk
    JEL: A13 C65 C72 D63 D03
    Date: 2013–10–24
  7. By: Gigi Foster; Paul Frijters; Markus Schaffner; Benno Torgler
    Abstract: We examine the nature of stated subjective probabilities in a complex, evolving context in which true event probabilities are not within subjects' explicit information set. Specically, we collect information on subjective expectations in a car race wherein participants must bet on a particular car but cannot influence the odds of winning once the race begins. In our setup, the actual probability of the good outcome (a win) can be determined based on computer simulations from any point in the process. We compare this actual probability to the subjective probability participants provide at three dierent points in each of 6 races. We find that the S-shaped curve relating subjective to actual probabilities found in prior research when participants have direct access to actual probabilities also emerges in our much more complex situation, and that there is only a limited degree of learning through repeated play. We show that the model in the S-shaped function family that provides the best fit to our data is Prelec's (1998) conditional invariant model.
    Keywords: behavioural economics, expected utility theory, experiments, expectations, probabilities
    JEL: D40 L10
    Date: 2013–11–01
  8. By: Dal Bó, Pedro; Fréchette, Guillaume R.
    Abstract: We use a novel experimental design to identify the subjects' strategies in an infinitely repeated prisoners' dilemma experiment. We ask subjects to design strategies that will play in their place. We find that eliciting strategies has negligible effects on their behavior, supporting the validity of this method. We find the chosen strategies include some common ones such as Tit-For-Tat and Grim trigger. However, other strategies that are considered to have desirable properties, such as Win-Stay-Lose-Shift, are not prevalent. We also find that the strategies used to support cooperation change with the parameters of the game. Finally, our results confirm that long-run miscoordination can arise. -- In einem neuen experimentellen Design versuchen wir die Strategien von Teilnehmern an einem unendlich wiederholten 'Gefangenendilemma' zu identifizieren. Die Teilnehmer werden gebeten, Strategien zu entwerfen, die an ihrer Stelle spielen sollen. Dabei stellt sich heraus, dass die Erhebung von Strategien nur marginale Auswirkungen auf das Verhalten der Teilnehmer hat, was für die Validität dieser Methode spricht. Unter den gewählten Strategien sind allgemein verbreitete, wie Tit-for-Tat und Grim-Trigger. Andere Strategien dagegen mit erwünschten Eigenschaften wie das 'Win-Stay, Lose-Shift' sind hingegen nicht so gebräuchlich. Zudem stellt sich heraus, dass die Strategien, die Kooperation unterstützen sollen, sich mit den Parametern des Spiels verändern. Schließlich belegen unsere Resultate, dass es zu einer langfristigen Fehlkoordination kommen kann.
    Keywords: infinitely repeated games,prisoner's dilemma,cooperation,strategies,experimental economics
    Date: 2013
  9. By: Elise S. Brezis (Bar-Ilan University); Warren Young (Bar-Ilan University)
    Abstract: This paper focuses on the evolution of the relationship between population and economic growth from Hume to New Growth Theory. In the paper, we show that there were two main views on the subject. There were those who assumed that the relationship between fertility rates and income was positive. On the other hand, there were those who raised the possibility that this linkage did not occur, and they emphasized that an increase in income did not necessarily lead to having more children. The paper will show that their position on the issue was related to a socio-economic fact: the sibship size effect. We show that those who took the view that an increase in income leads to the desire to have more children, did not take into consideration a sibship size effect, while those maintaining that there existed a negative relationship, introduced into their utility function a sibship size effect.
    Keywords: Population, Economic Growth, Sibship size effect, children, fertility rates.
    JEL: B10 D10 J13
    Date: 2013–11
  10. By: Schaeffer, Merlin
    Abstract: Over the last two decades there has been a growing debate on the supposedly negative relation between ethnic diversity, public goods production and social cohesion. Despite the amount of evidence, existing in-depth qualitative reviews conclude that the literature is inconclusive. Advancing upon their work, I conduct a quantitative review of over 480 empirical findings from 172 studies. Rather than seeing the huge literature as consisting of an incomparable mass of studies, I argue that the diversity of the literature allows us to analyse the robustness of the general association (does it hold for the comparison of Nepalese villages and European countries alike?) and the conditions under which it is more likely to appear. Accordingly, the review fine-tunes the conclusions we can draw from the existing evidence by noting that the debate has generally produced slightly more confirmatory than confuting evidence. But more importantly, this tendency for validating findings increases considerably under certain conditions: (1) inquiries from regions of the world with rather salient ethnic boundaries, (2) analysis of small-scale neighbourhood contexts and (3) a focus on trust related sentiments or public goods production as outcomes. A rather problematic result of the review is that discipline matters: In comparison to findings published in political science or sociology journals, a considerably larger percentage of findings that are published in economics journals are confirmatory. I conclude by suggesting that interdisciplinary work is necessary and should focus on the conditions under which ethnic diversity is a significant predictor of public goods production and social cohesion. --
    Keywords: ethnic diversity,social cohesion,social capital,intergroup relations
    Date: 2013
  11. By: Geoffroy de Clippel (Dept. of Economics, Brown University); Kareen Rozen (Cowles Foundation, Yale University)
    Abstract: This paper experimentally investigates cooperative game theory from a normative perspective. Subjects designated as Decision Makers express their view on what is fair for others, by recommending a payoff allocation for three subjects (Recipients) whose substitutabilities and complementarities are captured by a characteristic function. We show that axioms and solution concepts from cooperative game theory provide valuable insights into the data. Axiomatic and regression analysis suggest that Decision Makers' choices can be (noisily) described as a convex combination of the Shapley value and equal split solution. A mixture model analysis, examining the distribution of Just Deserts indices describing how far one goes in the direction of the Shapley value, reveals heterogeneity across characteristic functions. Aggregating opinions by averaging, however, shows that the societal view of what is fair remains remarkably consistent across problems.
    Keywords: Cooperative game theory, Fairness, Experiment
    JEL: D63 D03 C71 C91
    Date: 2013–11

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