nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒10‒09
twelve papers chosen by
Jing-Yuan Chiou
IMT Lucca Institute for Advanced Studies

  1. Robust Predictions in Games with Incomplete Information By Dirk Bergemann; Stephen Morris
  2. Fear and the Response to Terrorism: An Economic Analysis By Gary S. Becker; Yona Rubinstein
  3. Truth-telling and Trust in Sender-receiver Games with Intervention By Ismail Saglam; Mehmet Y. Gurdal; Ayca Ozdogan
  4. A Welfare-Tradeoff-Ratio-Model of Social Preferences By Bjoern Hartig
  5. Overconfidence and team-performance: An analysis of NBA-players' self-perception By Geyer, Hannah; Wickhorst, Hanke
  6. Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs? By Congleton, Roger D.
  7. The Hidden Benefits of Control: Evidence from a Natural Field Experiment By Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
  8. (Bad) Luck or (Lack of) Effort?: Comparing Social Sharing Norms between US and Europe. By Pedro Rey-Biel; Roman M. Sheremeta; Neslihan Uler
  9. Climate Change and Individual Decision Making: An Examination of Knowledge, Risk Perception, Self-interest and Their Interplay By Francesca Pongiglione
  10. Punish and Perish? By Angelo Antoci; Luca Zarri
  11. On Admissible Strategies in Robust Utility Maximization By Keita Owari
  12. Essays in Behavioral Microeconomic Theory. By Carvalho, M.

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We analyze games of incomplete information and offer equilibrium predictions which are valid for all possible private information structures that the agents may have. Our characterization of these robust predictions relies on an epistemic result which establishes a relationship between the set of Bayes Nash equilibria and the set of Bayes correlated equilibria. We completely characterize the set of Bayes correlated equilibria in a class of games with quadratic payoffs and normally distributed uncertainty in terms of restrictions on the first and second moments of the equilibrium action-state distribution. We derive exact bounds on how prior information of the analyst refines the set of equilibrium distribution. As an application, we obtain new results regarding the optimal information sharing policy of firms under demand uncertainty. Finally, we reverse the perspective and investigate the identification problem under concerns for robustness to private information. We show how the presence of private information leads to partial rather than complete identification of the structural parameters of the game. As a prominent example we analyze the canonical problem of demand and supply identification.
    Keywords: Incomplete information, Correlated equilibrium, Robustness to private information, Moments restrictions, Identification, Information bounds
    JEL: C72 C73 D43 D83
    Date: 2011–09
  2. By: Gary S. Becker; Yona Rubinstein
    Abstract: This paper offers a rational approach to the economics and psychology of fear and provides empirical evidence that supports our theory. We explicitly consider both the impact of danger on emotions and the distortive effect of fear on subjective beliefs and individual choices. Yet, we also acknowledge individuals' capacity to manage their emotions. Though costly, people can learn to control their fear and economic incentives affect the degree to which they do so. Since it does not pay back the same returns to everyone, people will differ in their reaction to impending danger. We then empirically examine the response of Israelis to terror incidents during the "Al-Aqsa" Intifada. Consistent with our theory, the overall impact of attacks on the usage of goods and services subject to terror attacks (e.g. bus services, coffee shops) reflects solely the reactions of occasional users. We find no impact of terrorist attacks on the demand for these goods and services by frequent users. Education and the exposure to media coverage also matters. We find a large impact of suicide attacks during regular media coverage days, and almost no impact of suicide attacks when they are followed by either a holiday or a weekend, especially among the less educated families and among occasional users.
    Keywords: Economics, psychology, education
    JEL: F52 Z10
    Date: 2011–09
  3. By: Ismail Saglam (TOBB University of Economics and Technology, Department of Economics); Mehmet Y. Gurdal (TOBB University of Economics and Technology, Department of Economics); Ayca Ozdogan (TOBB University of Economics and Technology, Department of Economics)
    Abstract: Recent experimental studies find excessive truth-telling in strategic information transmission games with conflictive preferences. In this paper, we show that this phenomenon is more pronounced in sender-receiver games where a truthful regulator randomly intervenes. We also establish that intervention significantly increases the excessive trust of receivers.
    Keywords: Strategic information transmission, truth-telling, trust, sender-receiver game.
    JEL: C72 C90 D83
    Date: 2011–09
  4. By: Bjoern Hartig (CGS, University of Cologne)
    Abstract: This paper introduces a model of social preferences featuring a single parameter representing an individual's disposition to share resources with others. The parameter reacts to observed behavior of others in a clearly defined manner. Therefore, the model allows the numerical analysis of reciprocal interaction. Based on evolutionary concepts, the model is characterized by a very basic utility maximization condition and it is consistent with and often predictive of the results of a multitude of different behavioral games and phenomenon.
    Keywords: other-regarding preferences, altruism, cooperation, evolution, reciprocity, welfare-tradeoff-ratio
    JEL: C71 C73 C90 C91 D63 D64
    Date: 2011–09–28
  5. By: Geyer, Hannah; Wickhorst, Hanke
    Abstract: We analyse the effect of overconfidence in a model of team-production with effort complementarities. We show that overconfidence may not only enhance an overconfident agent's effort but also that of a rational one. Focusing the agents' payoffs we see that this increase in effort can be to the agents' benefit, regardless whether they are rational or overconfident. We take this notion to NBA-data which we have gained from the season 2009/10 and see that players who have been identified as overconfident have a significantly positive effect on their team's success. -- Wir betrachten den Effekt von Overconfidence mit Hilfe eines intuitiven Modells einer Team-Produktion mit komplementären Arbeitseinsätzen. Es zeigt sich, dass Overconfidence nicht nur den Arbeitseinsatz des betroffenen Agenten erhöht, sondern gleichzeitig den eines rationalen Teammitglieds. Hieraus resultiert ein Nutzenvorteil für die Agenten, unabhängig davon, ob sie selbst rational oder overconfident sind. Daten der NBA-Saison von 2009/10 zeigen, dass Spieler, welche als overconfident identifiziert wurden, einen signifikant positiven Effekt auf den Erfolg ihres Teams haben.
    JEL: D21 D62 L23
    Date: 2011
  6. By: Congleton, Roger D.
    Abstract: This paper provides a rational choice-based analysis of the causes and consequences of surprise events. The paper argues that ignorance may be rational, but nonetheless produce systematic mistakes, inconsistent behavior, and both pleasant and unpleasant surprises. If ignorance and unpleasant surprises are commonplace and relevant for individual and group decisionmaking, we should observe standing institutions for dealing with them - and we do. Insofar as surprises are consistent with rational choice models, but left outside most models, it can be argued that these methodological choices mistakenly limit the scope of rational choicebased research. --
    Keywords: Ignorance,Rational Ignorance,Natural Ignorance,Bounded Rationality,Rational Choice,Biased Expectations,Crisis Management,Social Insurance,Bailouts,Economics of Information
    JEL: D8 D6
    Date: 2011
  7. By: Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
    Abstract: An important dialogue between theorists and experimentalists over the past few decades has raised the study of the interaction of psychological and economic incentives from academic curiosity to a bona fide academic field. One recent area of study within this genre that has sparked interest and debate revolves around the “hidden costs” of conditional incentives. This study overlays randomization on a naturally-occurring environment in a series of temporally-linked field experiments to advance our understanding of the economics of charity and test if such “costs” exist in the field. This approach permits us to examine why people initially give to charities, and what factors keep them committed to the cause. Several key findings emerge. First, there are hidden benefits of conditional incentives that would have gone undetected had we maintained a static theory and an experimental design that focused on short run substitution effects rather than dynamic interactions. Second, we can reject the pure altruism model of giving. Third, we find that public good provision is maximized in both the short and long run by using conditional, rather than unconditional, incentives.
    JEL: C93 H41 Q5
    Date: 2011–09
  8. By: Pedro Rey-Biel (Universitat Autònoma de Barcelona, Departmento de Economía e Historia Económica); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University, USA); Neslihan Uler (Research Center for Group Dynamics, Institute for Social Research, University of Michigan)
    Abstract: We compare the determinants of individual giving between two countries, Spain and the US, which differ in their redistribution policies and their beliefs over the causes of poverty. By varying the information about the determinants of income, we find that, although overall giving is similar in both countries when subjects know the actual role of luck and effort, Spanish subjects give more when they are uninformed compared to American subjects. Using elicited beliefs, we find that this is due to Spanish subjects associating poverty with bad luck and Americans believing that low performers did not work hard enough.
    Keywords: individual giving, cross-cultural, beliefs, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2011
  9. By: Francesca Pongiglione (, Post-doctoral fellow, Università di Bologna, Visiting fellow, FEEM)
    Abstract: In this essay, three separate yet interconnected components of pro-environmental decision making are considered: (a) knowledge, in the form of basic scientific understanding and procedural knowledge, (b) risk perception, as it relates to an individual’s direct experience of climate change and (c) self-interest, either monetary or status-driven. Drawing on a variety of sources in public policy, psychology, and economics, I examine the role of these concepts in inducing or discouraging pro-environmental behavior. Past researches have often overemphasized the weight of just one of those variables in the decision making. I argue, instead, that none of them alone is capable of bringing about the behavioral change required by the environmental crisis. Evidence shows that increasing the public’s scientific knowledge of climate change cannot unilaterally bring about a strong behavioral change. The same can be noticed even when knowledge is joined by risk-perception: deep psychological mechanisms may steer people towards inaction and apathy, despite their direct experience of the detrimental effects of climate change on their lives. Focusing on self-interest alone is similarly unable to induce pro-environmental behavior, due to a host of psychological factors. Instead, in all of the above cases an important missing ingredient may be found in providing the public with locally contextualized procedural knowledge in order to translate its knowledge and concern into action. The importance of this kind of practical knowledge has solid empirical and theoretical underpinnings, and is often overlooked in the climate-change debate that tends to focus on more high-level issues. Yet, for all its essential simplicity, it may carry important public-policy implications.
    Keywords: Individual Behavior, Climate-Change, Psychology, Uncertainty
    JEL: D80 Q00
    Date: 2011–09
  10. By: Angelo Antoci (DEIR, University of Sassari); Luca Zarri (Economics Department, University of Verona)
    Abstract: The evolution of large-scale cooperation among genetic strangers is a fundamental unanswered question in the social sciences. Behavioral economics has persuasively shown that so called ‘strong reciprocity’ plays a key role in accounting for the endogenous enforcement of cooperation. Insofar as strongly reciprocal players are willing to costly sanction defectors, cooperation flourishes. However, experimental evidence unambiguously indicates that not only defection and strong reciprocity, but also unconditional cooperation is a quantitatively important behavioral attitude. By referring to a prisoner’s dilemma framework where punishment (‘stick’) and rewarding (‘carrot’) options are available, here we show analytically that the presence of cooperators who don’t punish in the population makes altruistic punishment evolutionarily weak. We show that cooperation breaks down and strong reciprocity is maladaptive if costly punishment means ‘punishing defectors’ and, even more so, if it is coupled with costly rewarding of cooperators. In contrast, punishers don’t perish if cooperators, far from being rewarded, are sanctioned. These results, based on an extended notion of strong reciprocity, challenge evolutionary explanations of cooperation that overlook the ‘dark side’ of altruistic behavior.
    Keywords: Cooperation, Strong Reciprocity, Altruistic Punishment, Altruistic Rewarding, Heterogeneous Types
    JEL: C7 D7 Z1
    Date: 2011–08
  11. By: Keita Owari
    Abstract: The existence of optimal strategy in robust utility maximization is addressed when the utility function is finite on the entire real line. A delicate problem in this case is to find a "good definition" of admissible strategies, so that an optimizer is obtained. Under suitable assumptions, especially a time-consistency property of the set of probabilities which describes the model uncertainty, we show that an optimal strategy is obtained in the class of strategies whose wealths are supermartingales under all local martingale measures having a finite generalized entropy with at least one of candidate models (probabilities).
    Date: 2011–09
  12. By: Carvalho, M. (Universiteit van Tilburg)
    Date: 2011

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