nep-neu New Economics Papers
on Neuroeconomics
Issue of 2012‒05‒22
five papers chosen by
Daniel Houser
George Mason University

  1. Cognitive load in the multi-player prisoner's dilemma game: Are there brains in games? By Duffy, Sean; Smith, John
  2. Becker Meets Ricardo: Multisector Matching with Social and Cognitive Skills By McCann, Robert J.; Shi, Xianwen; Siow, Aloysius; Wolthoff, Ronald P.
  3. Identifying Confirmatory Bias in the Field: Evidence from a Poll of Experts By Rodney J. Andrews; Trevon D. Logan; Michael J. Sinkey
  4. The Interplay Between Creativity issues and Design Theories: a new perspective for Design Management Studies? By Pascal Le Masson; Armand Hatchuel; Benoît Weil
  5. Towards a new brain science: lessons from the economic collapse By Jaime Gomez-Ramirez; Manuel G. Bedia

  1. By: Duffy, Sean; Smith, John
    Abstract: We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). According to two different measures, we find evidence that the low load subjects behave more strategically. First, the behavior of the low load subjects converged to the Subgame Perfect Nash Equilibrium prediction at a faster rate than the high load subjects. Second, we find evidence that low load subjects were better able to condition their behavior on the outcomes of previous periods.
    Keywords: bounded rationality; experimental economics; experimental game theory; public goods game; strategic sophistication; rational inattention
    JEL: C72 C91
    Date: 2012–05–15
  2. By: McCann, Robert J. (University of Toronto); Shi, Xianwen (University of Toronto); Siow, Aloysius (University of Toronto); Wolthoff, Ronald P. (University of Toronto)
    Abstract: This paper presents a tractable framework for studying frictionless matching in school, work, and marriage when individuals have heterogeneous social and cognitive skills. In the model, there are gains to specialization and team production, but specialization requires communication and coordination between team members, and individuals with more social skills communicate and coordinate at lower resource cost. The theory delivers full task specialization in the labor and education markets, but incomplete specialization in marriage. It also captures well-known matching patterns in each of these sectors, including the commonly observed many-to-one matches in firms and schools. Equilibrium is equivalent to the solution of a utilitarian social planner solving a linear programming problem.
    Keywords: social skill, cognitive skill, matching, sorting, education, labor, marriage, social welfare, linear programming
    JEL: E24 J12 J24 J31
    Date: 2012–04
  3. By: Rodney J. Andrews; Trevon D. Logan; Michael J. Sinkey
    Abstract: Laboratory experiments have established the existence of cognitive biases, but their explanatory power in real-world economic settings has been difficult to measure. We estimate the extent of a cognitive bias, confirmatory bias, among experts in a real-world environment. In the Associated Press Top 25 College Football Poll expert pollsters are tasked with assessing team quality, and their beliefs are treated week-to-week with game results that serve as signals about an individual team's quality. We exploit the variation provided by actual game results relative to market expectations to develop a novel regression-discontinuity approach to identify confirmatory bias in this real-world setting. We construct a unique personally-assembled dataset that matches more than twenty years of individual game characteristics to poll results and betting market information, and show that teams that slightly exceed and barely miss market expectations are exchangeable. The likelihood of winning the game, the average number of points scored by teams and their opponents, and even the average week of the season are no different between teams that slightly exceed and barely miss market expectations. Pollsters, however, significantly upgrade their beliefs about a team's quality when a team slightly exceeds market expectations. The effects are sizeable-- nearly half of the voters in the poll rank a team one slot higher when they slightly exceed market expectations; one-fifth of the standard deviation in poll points in a given week can be attributed to confirmatory bias. This type of updating suggests that even when informed agents make repeated decisions they may act in a manner which is consistent with confirmatory bias.
    JEL: D01 D03 N32
    Date: 2012–05
  4. By: Pascal Le Masson (CGS - Centre de Gestion Scientifique - Mines ParisTech); Armand Hatchuel (CGS - Centre de Gestion Scientifique - Mines ParisTech); Benoît Weil (CGS - Centre de Gestion Scientifique - Mines ParisTech)
    Abstract: In this paper, we analyze the relationship between creativity issues and design theory. Although these two notions seemingly correspond to different academic fields (psychology, cognitive science and management for creativity; engineering science and logic for design theory), they appear to be deeply related when it comes to design methods and management. Analyzing three historical moments in design theory-building (the 1850s, with the ratio method for industrial upgrading in Germany; the 20th century with systematic design and the 1920s with the Bauhaus theory), we point to the dialectical interplay that links creativity and design theory, structured around the notion of "fixation effect": creativity identifies fixation effects, which become the targets of new design theories; design theories invent models of thought to overcome them; and, in turn, these design theories can also create new fixation effects that will then be designated by creativity studies. This dialectical interplay leads to regular inventions of new ways of managing design, ie new ways of managing knowledge, processes and organizations for design activities. We use this framework to analyze recent trends in creativity and design theories.
    Date: 2011
  5. By: Jaime Gomez-Ramirez; Manuel G. Bedia
    Abstract: Since the financial crash in 2008, economic science and the economic profession are under siege. Critics point fingers at ivory tower economists, devoted to the construction of unfalsifiable models based on unrealistic assumptions in purely theoretical basis. Economies are complex man-made systems where organisms and markets interact according to motivations and principles not entirely understood yet. Neo-classical economics is agnostic about the neural mechanisms that underlie the valuation of choices and decision making. The increasing dissatisfaction with the postulates of traditional economics i.e. perfectly rational agents, interacting through efficient markets in the search of equilibrium, has created new incentives for different approcahes in economics. Behavioral economics [2],[9] builds on cognitive and emotional models of agents, Neuroeconomics addresses the neurobiological basis of valuation of choices [8],[7] or Evolutionary economics [3], [5], [4],[1],[6] which strives for a new understanding of the economy as a complex evolutionary system, composed of agents that adapt to endogenous patterns out of equilibrium regions. The science of complexity may provide the platform to cross disciplinary boundaries in seemgly disparate fields such as brain science and economics. In this paper we take an integrative stance, fostering new insights into the economic character of neural activity. Key concepts in brain science like Hebbian learning and neural plasticity are revisited and elaborated, inside a new theoretical framework, that is sensitive to the new ideas that econophysics is proposing for financial markets. The objective here is to precisely delineate common topics in both neural and economic science, within a systemic outlook grounded in empirical basis that jolts the unification across the science of complex systems.
    Date: 2012–05

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