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on Evolutionary Economics |
| By: | George J. Mailath (Dept. Economics, University of Pennsylvania); Stephen Morris (Cowles Foundation, Yale University) |
| Abstract: | Some private-monitoring games, that is, games with no public histories, can have histories that are almost public. These games are the natural result of perturbing public-monitoring games towards private monitoring. We explore the extent to which it is possible to coordinate continuation play in such games. It is always possible to coordinate continuation play by requiring behavior to have bounded recall (i.e., there is a bound L such that in any period, the last L signals are sufficient to determine behavior). We show that, in games with general almost-public private monitoring, this is essentially the only behavior that can coordinate continuation play. |
| Keywords: | Repeated games, Private monitoring, Almost-public monitoring, Coordination, Bounded recall |
| JEL: | C72 C73 D82 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1479r&r=evo |
| By: | Holm, Håkan (Department of Economics, Lund University); Nystedt, Paul (Department of Economics, Lund University) |
| Abstract: | This paper explores methods to study trust. Answers to survey questions and choices in a trust game are obtained from subjects approached by mail executing their tasks at home as well as from classroom subjects. No discernable differences between the results obtained by these methods were observed. Furthermore, one group of subjects played the trust game with hypothetical payments. This changed trust behavior dramatically, whereas trustworthiness was unaffected. Subjects without financial incentives exhibited less trust. Trust choices with hypothetical payments were significantly correlated with survey trust answers whereas there was no such correlation for the corresponding choices with real payments. |
| Keywords: | Trust; Financial incentives; Location; Survey answers |
| JEL: | C72 C81 C90 C93 |
| Date: | 2005–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_026&r=evo |
| By: | Mie Augier; Volker Mahnke |
| Abstract: | Although the Behavioral Theory of the Firm has served as continuing stimulus in diverse field of inquiry such as organizational learning, the theory of the firm, and decision making research more generally and there is good reason to expect that this influence continues to remain significant, the reach of the theory as it stands in situation of genuine uncertainty remains limited. This paper seeks to address this gap by taking steps towards extending the theory of search. A key departure from earlier approaches to the theory of search is the inclusion of the question How do aspiration levels come about? in addition to the received question How do aspiration levels change. This approach highlights the significance of an extended model of search in situations of Knightian uncertainty and Shacklian surprise. For instance, the concept of dynamic search sheds light on the role of 1) experimentation and play in the creation of aspirations, 2) creating disbelief in situations of lacking prior experience, and 3) disengaging limits of imagination. This paper develops aspects of the theoretical foundations of the concept of dynamic search and clarifies processes leading to new aspirations that guide subsequently firm adaptation. While many implications of dynamic search are still unexplored, building on insights from specifically the economists Shackle, Knight and the recent work of March and more generally from the ‘bounded rationality’ - tradition appears to be a promising avenue for new advances in organization science. |
| URL: | http://d.repec.org/n?u=RePEc:ivs:iivswp:98-8&r=evo |
| By: | Daniel Houser (ICES, Department of Economics, George Mason University); Erte Xiao (ICES, Department of Economics, George Mason University); Kevin McCabe (ICES, Department of Economics, George Mason University); Vernon Smith (ICES, Department of Economics, George Mason University) |
| Abstract: | People can become less cooperative when threatened with sanctions, and researchers have pointed to both 'intentions' and incentives as sources of this effect. This paper reports data from a novel experimental design aimed at determining the relative importance of intentions and incentives in producing non-cooperative behavior in a personal exchange environment. Subjects play one-shot investment games in pairs. Investors send an amount to trustees and request a return on this investment and, in some treatments, are given the option to threaten sanctions to enforce this return request. The decisions of trustees who face credible threats intentionally imposed (or not) by their investors are compared to the decisions of trustees who face threats randomly imposed (or not) by nature. When not threatened, trustees typically decide to return a positive amount that is less than the investor requested. When threatened with sanctions this decision becomes least common. In particular, under severe sanction threats most trustees return the desired amount, while under weak threats the most common decision is to return nothing. Critically, these results do not depend on whether the trustee is threatened intentionally by their investor or randomly by nature: trustees who are threatened with weak sanctions are significantly more likely to provide a zero return to their investors, even when they know that their investors had no role in imposing the threat. Our findings lend support to the view that credible threats of sanctions generate a “cognitive shift” that crowds-out norm-based motivations and increases the likelihood of income-maximizing behavior. |
| Keywords: | punishment, intentions, cooperation, trust, reciprocity, experimental and behavioral economics |
| JEL: | C9 |
| Date: | 2005–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0502001&r=evo |
| By: | Marco Cipriani (George Washington University); Antonio Guarino (UCL) |
| Abstract: | We study herd behavior in a laboratory Þnancial market where a sequence of subjects trades an asset whose value is unknown. In two treatments the price is updated according to a deterministic rule based on the order ßow, and in another it is updated by experimental participants. Theory predicts that agents should never herd. Our experimental results are in line with this prediction. Nevertheless, we observe a phenomenon that cannot be accounted for by the theory. In some cases, subjects decide not to use their private information and choose not to trade. In other cases, they ignore their private information to trade against the market (contrarian behavior). (JEL C92, D8, G14) |
| JEL: | C92 D8 G14 |
| Date: | 2005–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0502002&r=evo |
| By: | Daniel Houser (George Mason University); Erte Xiao (George Mason University); Kevin McCabe (George Mason University); Vernon Smith (George Mason University) |
| Abstract: | People can become less cooperative when threatened with sanctions, and researchers have pointed to both 'intentions' and incentives as sources of this effect. This paper reports data from a novel experimental design aimed at determining the relative importance of intentions and incentives in producing non-cooperative behavior in a personal exchange environment. Subjects play one-shot investment games in pairs. Investors send an amount to trustees and request a return on this investment and, in some treatments, are given the option to threaten sanctions to enforce this return request. The decisions of trustees who face credible threats intentionally imposed (or not) by their investors are compared to the decisions of trustees who face threats randomly imposed (or not) by nature. When not threatened, trustees typically decide to return a positive amount that is less than the investor requested. When threatened with sanctions this decision becomes least common. In particular, under severe sanction threats most trustees return the desired amount, while under weak threats the most common decision is to return nothing. Critically, these results do not depend on whether the trustee is threatened intentionally by their investor or randomly by nature: trustees who are threatened with weak sanctions are significantly more likely to provide a zero return to their investors, even when they know that their investors had no role in imposing the threat. Our findings lend support to the view that credible threats of sanctions generate a “cognitive shift” that crowds-out norm-based motivations and increases the likelihood of income-maximizing behavior. |
| Keywords: | experiment, intentions, sanctions, trust, cooperation |
| JEL: | C91 D64 |
| Date: | 2005–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0503001&r=evo |
| By: | Tibor Neugebauer (University Hannover); Javier Perote (Juan Carlos University Madrid); Ulrich Schmidt (University Hannover); Malte Loos (University Kiel) |
| Abstract: | The recent literature suggests that people have social preferences with a self-serving bias. Our data analysis reveals that the stylized fact of declining cooperation in repeated public goods experiments results from this bias and adaptation. |
| Keywords: | experimental economics, information feedback, public goods, voluntary contributions, conditional cooperation |
| JEL: | C72 C92 H41 |
| Date: | 2005–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0503009&r=evo |
| By: | James Fowler (UC Davis) |
| Abstract: | I rework the traditional calculus of participation model by adding a term for benefits to others. Altruism is shown to affect participation in two ways. First, although the probability that a single act of participation affects the outcome of a political activity in large populations is quite small, the number of people who enjoy the benefit is large. As a result, altruists have a significant incentive to participate. Second, if politics involves transfers from one group to another, then unconditional altruists gain nothing from participating. However, discriminating altruists who care more about some groups than others will have a significant incentive to participate in activities that make members of their preferred groups better off. I use dictator games to measure altruism towards an unidentified anonymous recipient and two recipients identified only as a registered Democrat or a registered Republican. These allocations also permit a distinction between discriminating altruists and unconditional altruists. The results show that partisanship has several important effects on dictator game allocations, and both altruism and discriminating altruism significantly increase political participation. |
| JEL: | C9 |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0504001&r=evo |
| By: | Erte Xiao (George Mason University); Daniel Houser (George Mason University) |
| Abstract: | Evolutionary theory reveals that punishment is effective in promoting cooperation and maintaining social norms. Although it is accepted that emotions are connected to punishment decisions, there remains substantial debate over why humans use costly punishment. Here we show experimentally that constraints on emotion expression can increase the use of costly punishment. We report data from Ultimatum Games11, where a proposer offers a division of a sum of money and a responder decides whether to accept the split, or reject and leave both players with nothing. Compared to the treatment where expressing emotions directly to proposers is prohibited, rejection of unfair offers is significantly less frequent when responders can convey their feelings to the proposer concurrently with their decisions. These data support the view that costly punishment might itself be used to express negative emotions, and suggest that future studies will benefit by recognizing that human demand for emotion expression can have significant behavioral consequences in social environments including families, courts, companies and markets. |
| Keywords: | ultimatum game, emotion expression, sanctions, cooperation |
| JEL: | C9 |
| Date: | 2005–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpex:0504003&r=evo |
| By: | Svetlana Boyarchenko (The University of Texas at Austin) |
| Abstract: | We demonstrate that both severe procrastination and delay in performance of more important actions need not be attributed to self control problems and present-biased preferences, but, instead, may result from optimizing behavior of a risk-neutral individual facing a menu of options in an uncertain environment. The real options approach allows one to explain such procrastination by rationality, not naivete of agents, as it is done in the self-control literature. As a technical contribution, the paper suggests a robust method of solution of a two- point optimal stopping problem. |
| Keywords: | Real options, procrastination, choice between two projects |
| JEL: | D81 D91 C61 G31 |
| Date: | 2005–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0501006&r=evo |
| By: | Ulrich Berger (Vienna Univrsity of Economics) |
| Abstract: | What modern game theorists describe as 'fictitious play' is not the learning process George W. Brown defined in his 1951 paper. His original version differs in a subtle detail, namely the order of belief updating. In this note we revive Brown's original fictitious play process and demonstrate that this seemingly innocent detail allows for an extremely simple and intuitive proof of convergence in an interesting and large class of games: nondegenerate ordinal potential games. |
| Keywords: | Fictitious Play, Learning Process, Ordinal Potential Games |
| JEL: | C72 |
| Date: | 2005–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0503008&r=evo |
| By: | Teck-Hua Ho (University of California, Berkeley); Keith Weigelt (University of Pennsylvania) |
| Abstract: | The trust building process is basic to social science. We investigate it in a laboratory setting using a novel multi-stage trust game where social gains are achieved if players trust each other in each stage. And in each stage, players have an opportunity to appropriate these gains or be trustworthy by sharing them. Players are strangers because they do not know the identity of others and they will not play them again in the future. Thus there is no prospect of future interaction to induce trusting behavior. So, we study the trust building process where there is little scope for social relations and networks. Standard game theory, which assumes all players are opportunistic, untrustworthy, and should have zero trust for others is used to construct a null hypothesis. We test whether people are trusting or trustworthy and examine how inferring the intentions of those who trust affects trustworthiness. We also investigate the effect of stake on trust, and study the evolution of trust. Results show subjects exhibit some degree of trusting behavior though a majority of them are not trustworthy and claim the entire social gain. Players are more reluctant to trust in later stages than in earlier ones and are more trustworthy if they are certain of the trustee’s intention. Surprisingly, subjects are more trusting and trustworthy when the stake size increases. Finally, we find the sub- population who invests in initiating the trust building process modifies its trusting behavior based on the relative fitness of trust. |
| Keywords: | Experimental Economics, Behavioral Economics |
| JEL: | C79 C91 D64 |
| Date: | 2005–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0504006&r=evo |
| By: | Raymond Fisman (Graduate School of Business, Columbia University); Shachar Kariv (Department of Economics, University of California, Berkeley); Daniel Markovits (Yale Law School, Yale University) |
| Abstract: | This paper reports an experimental test of individual preferences for giving. We use graphical representations of modified Dictator Games that vary the price of giving. This generates a very rich data set well- suited to studying behavior at the level of the individual subject. We test the data for consistency with preference maximization, and we recover underlying preferences and forecast behavior using both nonparametric and parametric methods. Our results emphasize that classical demand theory can account surprisingly well for behaviors observed in the laboratory and that individual preferences for giving are highly heterogeneous, ranging from utilitarian to Rawlsian to perfectly selfish. |
| Keywords: | Experiment, Fairness, Dictator Game, and Revealed Preference |
| JEL: | C79 C91 D64 |
| Date: | 2005–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpga:0504007&r=evo |
| By: | Paul A. David (All Souls College, Oxford & Stanford University) |
| Abstract: | The technology of “the Internet” is not static. Although its “end-to- end” architecture has made this “connection-less” communications system readily “extensible,” and highly encouraging to innovation both in hardware and software applications, there are strong pressures for engineering changes. Some of these are wanted to support novel transport services (e.g. voice telephony, real-time video); others would address drawbacks that appeared with opening of the Internet to public and commercial traffic - e.g., the difficulties of blocking delivery of offensive content, suppressing malicious actions (e.g. “denial of service” attacks), pricing bandwidth usage to reduce congestion. The expected gains from making “improvements” in the core of the network should be weighed against the loss of the social and economic benefits that derive from the “end-to-end” architectural design. Even where technological “fixes” can be placed at the networks’ edges, the option remains to search for alternative, institutional mechanisms of governing conduct in cyberspace. |
| JEL: | L |
| Date: | 2005–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502012&r=evo |
| By: | Leonard J. Mirman (University of Virginia, Department of Economics); Marc Santugini (University of Virginia, Department of Economics) |
| Abstract: | The object of this paper is to study learning and experimentation in dynamic models in which the link between periods is not only beliefs but also capital. We study the influence of learning and experimentation on investment under both signal-dependence and signal-independence. A problem is signal-dependent when the signal the economic agent uses to update his beliefs about the unknown parameter has either a direct impact on the next period maximand or an indirect impact through a law of motion constraining his decision in the next period. A problem that does not satisfy this definition is signal-independent. We first study a class of dynamic and signal-independent models, using an example that yields a closed-form solution for the infinite-horizon program. The closed-form solution enables us to study the effect of learning on investment, the dynamics, as well as the steady state. We then study how signal-dependence influences the effect of experimentation on investment. We are able to break the effect of experimentation into two effects: the dynamic effect and the belief effect. These two effects are different under signal-dependence and signal-independence. Several examples are presented to study the direction of learning and experimentation on investment in finite-horizon programs under both signal-dependent and signal-independent framework. |
| Keywords: | Signal-Dependence, Information, Investment, Growth. |
| JEL: | D42 D83 D92 E22 L12 O12 Q20 |
| Date: | 2005–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502013&r=evo |
| By: | Ofer H. Azar (Ben-Gurion University of the Negev) |
| Abstract: | Some economists believe that social norms are created to improve welfare where the market fails. I show that tipping is such a norm, using a model in which a waiter chooses service quality and then a customer chooses the tip. The customer’s utility depends on the social norm about tipping and feelings such as embarrassment and fairness. The equilibrium depends on the exact social norm: higher sensitivity of tips to service quality (according to the norm) yields higher service quality and social welfare. Surprisingly, high tips for low quality may also increase service quality and social welfare. |
| Keywords: | Tipping, Social norms, Social welfare, Behavioral economics, Psychology and economics, psychological economics |
| JEL: | J30 D11 |
| Date: | 2005–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpot:0503013&r=evo |