nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒09‒05
nine papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Integrating Personality Psychology into Economics By James J. Heckman
  2. Tastes, Castes, and Culture: The Influence of Society on Preferences By Fehr, Ernst; Hoff, Karla
  3. The Nature of Risk Preferences: Evidence from Insurance Choices By Barseghyan, Levon; Molinari, Francesca; O'Donoghue, Ted; Teitelbaum, Joshua C.
  4. Information Manipulation, Coordination, and Regime Change By Chris Edmond
  5. Rankings Games By Bruno S. Frey; Margit Osterloh
  6. Does Ambiguity Aversion Raise the Optimal Level of Effort? A Two-Period Model By Loïc Berger
  7. Smooth Ambiguity Aversion in the Small and in the Large By Loïc Berger
  8. Rational Expectations: Retrospect and Prospect By Kevin D. Hoover; Warren Young
  9. Quasimarket failure By Boettke, Peter; Coyne, Christopher; Leeson, Peter

  1. By: James J. Heckman
    Abstract: This paper reviews the problems and potential benefits of integrating personality psychology into economics. Economists have much to learn from and contribute to personality psychology.
    JEL: I2 J24
    Date: 2011–08
  2. By: Fehr, Ernst (University of Zurich); Hoff, Karla (World Bank)
    Abstract: Economists have traditionally treated preferences as exogenously given. Preferences are assumed to be influenced by neither beliefs nor the constraints people face. As a consequence, changes in behaviour are explained exclusively in terms of changes in the set of feasible alternatives. Here we argue that the opposition to explaining behavioural changes in terms of preference changes is ill-founded, that the psychological properties of preferences render them susceptible to direct social influences, and that the impact of "society" on preferences is likely to have important economic and social consequences.
    Keywords: endogenous preferences, culture, caste, frames, anchors, elicitation devices
    JEL: A12 A13 D01 K0
    Date: 2011–08
  3. By: Barseghyan, Levon (Cornell University); Molinari, Francesca (Cornell University); O'Donoghue, Ted (Cornell University); Teitelbaum, Joshua C. (Georgetown University)
    Abstract: We use data on households' deductible choices in auto and home insurance to estimate a structural model of risky choice that incorporates "standard" risk aversion (concave utility over final wealth), loss aversion, and nonlinear probability weighting. Our estimates indicate that nonlinear probability weighting plays the most important role in explaining the data. More specifically, we find that standard risk aversion is small, loss aversion is nonexistent, and nonlinear probability weighting is large. When we estimate restricted models, we find that nonlinear probability weighting alone can better explain the data than standard risk aversion alone, loss aversion alone, and standard risk aversion and loss aversion combined. Our main findings are robust to a variety of modeling assumptions.
    JEL: D01 D12 D81 G22
    Date: 2011–07
  4. By: Chris Edmond
    Abstract: This paper presents a model of information and political regime change. If enough citizens act against a regime, it is overthrown. Citizens are imperfectly informed about how hard this will be and the regime can, at a cost, engage in propaganda so that at face-value it seems hard. This coordination game with endogenous information manipulation has a unique equilibrium and the paper gives a complete analytic characterization of its comparative statics. If the quantity of information available to citizens is suciently high, then the regime has a better chance of surviving. However, an increase in the reliability of information can reduce the regime's chances. These two effects are always in tension: a regime benefits from an increase in information quantity if and only if an increase in information reliability reduces its chances. The model allows for two kinds of information revolutions. In the first, associated with radio and mass newspapers under the totalitarian regimes of the early twentieth century, an increase in information quantity coincides with a shift towards media institutions more accommodative of the regime and, in this sense, a decrease in information reliability. In this case, both effects help the regime. In the second kind, associated with diffuse technologies like modern social media, an increase in information quantity coincides with a shift towards sources of information less accommodative of the regime and an increase in information reliability. This makes the quantity and reliability effects work against each other. The model predicts that a given percentage increase in information reliability has exactly twice as large an effect on the regime's chances as the same percentage increase in information quantity, so, overall, an information revolution that leads to roughly equal-sized percentage increases in both these characteristics will reduce a regime's chances of surviving.
    Keywords: global games; hidden actions; signal-jamming; propaganda; bias; media
    JEL: C7 D7 D8
    Date: 2011
  5. By: Bruno S. Frey; Margit Osterloh
    Abstract: Research rankings based on publications and citations today dominate governance of academia. Yet they have unintended side effects on individual scholars and academic institutions and can be counterproductive. They induce a substitution of the "taste for science" by a "taste for publication". We suggest as alternatives careful selection and socialization of scholars, supplemented by periodic self-evaluations and awards. Neither should rankings be a basis for the distributions of funds within universities. Rather, qualified individual scholars should be supported by basic funds to be able to engage in new and unconventional research topics and methods.
    Keywords: Academic governance; rankings; motivation; selection; socialization
    JEL: A10 D02 H83 L23 M50
    Date: 2011–08
  6. By: Loïc Berger
    Abstract: I consider two-period self-insurance and self-protection models in the presence of ambiguity that either affects the loss or the probabilities, and analyze the effect of ambiguity aversion. I show that in most common situations, ambiguity prudence is a sufficient condition to observe an increase in the level of effort. I proposes an interpretation of the model in the context of climate change, such that self-insurance and self-protection are respectively seen as adaptation and mitigation efforts a policymaker should provide to deal with an uncertain catastrophic event, and interpret the results obtained as an expression of the Precautionary Principle.
    Keywords: non-expected utility; self-protection; self-insurance; ambiguity prudence; precautionary principle
    JEL: D61 D81 D91 Q58
    Date: 2011–08
  7. By: Loïc Berger
    Abstract: In this paper I use the smooth ambiguity model developed by Klibanoff, Marinacci, and Mukerji (2005) to define the concepts of ambiguity and uncertainty premia in a way analogous to what Pratt (1964) did in the risk theory literature. I show that those concepts may be useful to quantify the effect ambiguity has on the welfare of economic agents. I also provide local approximations of these premia and show the link that exists between them when comparing different degrees of ambiguity aversion not only in the small, but also in the large.
    Keywords: ambiguity aversion; non-expected utility; uncertainty
    JEL: D81 D91
    Date: 2011–08
  8. By: Kevin D. Hoover; Warren Young
    Date: 2011–08–25
  9. By: Boettke, Peter; Coyne, Christopher; Leeson, Peter
    Abstract: The efficiency of “quasimarkets”—decentralized public goods provision subjected to Tiebout competition—is a staple of public choice conventional wisdom. Yet in the 1990s a countermovement in political economy called “neoconsolidationism” began to challenge this wisdom. The neoconsolidationists use the logic of government failure central to public choice economics to argue that quasimarkets fail and that jurisdictional consolidation is a superior way to supply public goods and services in metropolitan areas. Public choice scholars have largely ignored the neoconsolidationists’ challenge. This paper brings that challenge to public choice scholars’ attention with the hope of encouraging responses. It also offers some preliminary thoughts about the directions such responses might take.
    Keywords: Public Goods; Quasimarkets
    JEL: D73 H41 H44
    Date: 2011

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