2012-09-03 papers

on Neuroeconomics

Issue of 2012–09–03
two papers chosen by
Daniel Houser, George Mason University

By:	Heller, Yuval
Abstract:	Experimental evidence suggest that people only use 1-3 iterations of strategic reasoning, and that some people systematically use less iterations than others. In this paper, we present a novel evolutionary foundation for these stylized facts. In our model, agents interact in finitely repeated Prisoner's Dilemma, and each agent is characterized by the number of steps he thinks ahead. When two agents interact, each of them has an independent probability to observe the opponent's type. We show that if this probability is not too close to 0 or 1, then the evolutionary process admits a unique stable outcome, in which the population includes a mixture of “naive” agents who think 1 step ahead, and “sophisticated” agents who think 2-3 steps ahead.
Keywords:	Indirect evolution, cognitive hierarchy, bounded forward-looking, Prisoner's Dilemma, Cooperation
JEL:	D03 C73
Date:	2012–06–13
URL:	https://d.repec.org/n?u=RePEc:pra:mprapa:40714

Behavioral Implementation

By:	Geoffroy de Clippel
Abstract:	Implementation theory assumes that participants’ choices are rational,in the sense of being derived from the maximization of a contextindependent preference. The paper investigates implementation under complete information when the mechanism designer is aware that individuals suffer from cognitive biases that lead to violations of IIA, or cannot exclude the possibility of such “irrational” behavior.
Keywords:	#
Date:	2012
URL:	https://d.repec.org/n?u=RePEc:bro:econwp:2012-6

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