the brazilian economy in 1994 1999 from the real plan to inflation targets this paper investigates the three main events that shook the brazilian economy in 1994 1999 a period that represented a turning point in the country s economic history these events were the implementation of the real plan in 1994 the devaluation crisis in 1999 and the subsequent adoption of inflation targets the principal contributions of this period were the drastic reduction of high inflation rates the biggest problem in brazil since the 1970s and the reorientation towards economic growth which were also supported by a privatisation programme the openness of the economy to foreign capital a trade liberalisation process and the ongoing fiscal adjustments nevertheless the period also left its scars such as high budget and current account deficits accompanied by a policy of elevated interest rates and until 1999 a highly appreciated exchange rate the paper concludes with a cautiously optimistic evaluation of the country s economic future based on the accomplishments of the 1990s and the possibility of a long term commitment to low inflation targets

out of step out of office electoral accountability and house members voting does a typical house member need to worry about the electoral ramifications of his roll call decisions we investigate the relationship between incumbents electoral performance and roll call support for their party controlling for district ideology challenger quality and campaign spending among other factors through a series of tests of the 1956 1996 elections the tests produce three key findings indicating that members are indeed accountable for their legislative voting first in each election an incumbent receives a lower vote share the more he supports his party second this effect is comparable in size to that of other widely recognized electoral determinants third a member s probability of retaining office decreases as he offers increased support for his party and this relationship holds for not only marginal but also safe members

on the mis measurement of legislator ideology and shirking in this paper we show that current statistical measures of legislator s shirking are implicitly based on the electoral concept of a unique majority rule equilibrium point in the policy space where elections are contested we note that such equilibria do not exist generically and present statistical results showing that cross sectional regressions where legislators voting indices are predicted by district average demograhic and economic data are mis specified we also discuss a weaker equilibrium construct the uncovered set and present statistical evidence showing that differences in voting behavior between senators from the same state are positively related to the heterogeneity of the electorate we argue that current evidence alleged to show shirking by senators is equally consistent with senators who perfectly represent an idiosyncratic constituency that cannot be represented by district average data

the evolution of time preference with aggregate uncertainty we examine the evolutionary foundations of intertemporal preferences when all the risk affecting survival and reproduction is idiosyncratic evolution selects for agents who maximize the discounted sum of expected utility discounting at the sum of the population growth rate and the mortality rate aggregate uncertainty concerning survival rates leads to discount rates that exceed the sum of population growth rate and death rate and can push agents away from exponential discounting

shirking and sorting in a political market with finite lived politicians this paper analyzes principal agent slack in the context of a political market composed of voters challengers and incumbents the introduction of a last period via finite livedness in combination with voters imperfect information about politicians preferences causes time varying shirking behavior on the part of politicians political markets eventually sort out those politicians with significantly deviant policy preferences potentially providing a solution to the last period problem and enabling politicians to make credible commitments in the extreme sorting can insure that it is not worthwhile for potential shirkers to run for office a systematic relationship between political shirking and number of terms in office may exist and depends on how quickly sorting takes place we show that evidence of little if any shirking is quite consistent with politicians having diverse and strongly held policy preferences in addition if sorting is a significant feature of political markets cross sectional studies will tend to oversample little and non shirking politicians compared to longitudinal studies reinterpretations of existing empirical work are also discussed

shirking and political support in the u s senate 1964 1984 several empirical studies have suggested that legislators engage in a surprisingly large degree of on the job consumption or ideological behavior these findings cast doubt on the hypothesis that legislators can be modelled as though they seek to maximize political support this paper attempts to determine whether commonly used proxies for ideology in fact represent behavior to which voters are averse the results show that legislators who engage in more of this behavior lose general election support without generally receiving compensating increases in partyprimary support a corollary to this result is that voters punish shirking legislators significantly

brand names and barriers to entry in political markets the most obvious implication of this discussion is that barriers to entry in politics will raise the costs of governments transferring wealth more generally it will raise the cost of public provision of goods and services in the case of transfers the inefficiency created by barriers depends on whether one values government transfers the total transfer the transfer to the beneficiaries plus the politician s commission is maximized by the politician who can create support the most efficiently for other governmental services which are viewed as efficiency creating e g national defense these barriers reduce the amount of a valuable output we desire to purchase this result also supplies a possible efficiency explanation for the limitation on the number of terms imposed on the presidency and many governorships brand names are not really the barriers information costs are what cause brand name to be used and are the more fundamental barrier to entry what we are arguing is that private and not public organizations can in certain respects better overcome these information costs

the endowment effect as blessing we study the idea that seemingly unrelated behavioral biases can coevolve if they jointly compensate for the errors that any one of them would give rise to in isolation we pay specific attention to barter trade of the kind that was common in prehistoric societies and suggest that the endowment effect and the winner s curse could have jointly survived natural selection together we develop a new family of hybrid replicator selection dynamics and show that under such dynamics even if biases only partially compensate for each other individuals with both biases can survive in the population in the long run

perceiving prospects properly when an agent chooses between prospects noise in information processing generates an effect akin to the winner s curse statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the preferred action appear to be optimal the optimal perception patterns share key features with prospect theory namely overweighting of small probability events and corresponding underweighting of high probability events status quo bias and reference dependent s shaped valuations these biases arise to correct for the winner s curse effect

capture and ideology in the economic theory of politics the economic theory of regulation long ago put public interest theories of politics to rest these theories have correctly been viewed as normative wishings rather than explanations of real world phenomena they have been replaced by models of political behavior that are consistent with the rest of microeconomics anthony downs 1957 james buchanan and gordon tullock 1965 george stigler 1971 sam peltzman 1976 recently however debate has arisen over whether some version of a public interest theory of regulation will have to be readmitted to our thinking about actions and results in the political arena what is at issue is the empirical importance of the altruistic publicly interested goals of rational actors in determining legislative and regulatory outcomes james kau and paul rubin 1979 kalt 1981 peltzman 1982 this study assesses the nature and significance of publicly interested objectives in a particular instance of economic policymaking u s senate voting on coal strip mining regulations the existence of such objectives is of course no contradiction of the economic view of human behavior kenneth arrow 1972 gary becker 1974 and may well be rooted in genetic biological history becker 1976 jack hirshleifer 1978 generally however individuals altruistic publicly interested goals have been given little attention this reflects the judgment that such goals are so empirically unimportant as to allow the use of occam s razor in positive models or well founded apprehensions that these goals are unusually difficult to identify measure and analyze notwithstanding the latter problem we find that approaches which confine themselves to a view of political actors as narrowly egocentric maximizers explain and predict legislative outcomes poorly the tracking and dissecting of the determinants of voting on coal strip mining policy suggest that the economic theory of politics has been prematurely closed to a broader conception of political behavior

an explanation for why senators from the same state vote differently so frequently abstract this paper explains why rational well informed voters elect politicians with divergent platforms given well defined constituencies and the costliness of any individual politician creating transfers across all interest groups we show that different politicians from the same district can successfully represent vastly different constituencies and still have each politician producing the support maximizing level of transfers our explanation focuses on how obtaining wealth transfers reduces successful constituencies returns to obtaining additional transfers the evidence strongly rejects alternative explanations based upon the median voter and polarized policy preference approaches

carrot or stick the evolution of reciprocal preferences in a haystack model this paper studies the evolution and the co evolution of both characteristics of reciprocity the willingness to reward friendly behavior and the willingness to punish hostile behavior firstly both preferences for rewarding and preferences for punishing can survive in evolution provided individuals interact within separate groups this holds even with randomly formed groups and even when individual preferences are unobservable secondly preferences for rewarding survive only in coexistence with self interested preferences but preferences for punishing tend either to vanish or to dominate the population entirely finally the evolution of preferences for rewarding and the evolution of preferences for punishing influence each other decisively the existence of rewarders enhances the evolutionary success of punishers but punishers crowd out rewarders jel classification c72 d63 d64 d83

attendance rates political shirking and the effect of post elective office employment attendance rates political shirking and the effect of post elective office employment i introduction political shirking the degree to which a politican s actions deviate from the wishes of his constituents can take many different dimensions economists e g amacher and boyes 1978 davis and porter 1989 dougan and munger 1989 kalt and zupan 1984 lott 1987d nelson and siberberg 1987 and peltzman 1984 have debated whether shirking exists in how a politician votes when he does vote this divergence is measured through some particular special interest voting ratings e g american conservative union americans for democratic action etc however shirking can obviously take as many forms as there are outputs that a politician produces besides how he votes he also produces services for his constituents involving everything from being personally available to listen to the constituents grievances to ensuring effective handling of case work by his staff see for example fiorina 1977 fenno 1978 and cain et al 1987 1 one dimension that has not been sufficiently examined is the extent to which politicians shirk by failing to vote on pending legislation 2 no attention has been given to which mechanisms will make this particular type of shirking relatively more costly most economists agree that opportunitic behavior by politicians is limited by the threat of reelection e g amacher and boyes 1978 barro 1973 kalt and zupan 1984 nelson 1976 and telser 1976 3 by implication the level of shirking should be the greatest when a politician decides to leave office however this opportunistic behavior might be reduced to the extent that political parties or constituencies impose costs for shirking through affecting politicisns post elective office career or the careers of their children thus a politicians last term in elective office may not represent his last period in any meaningful sense the next section outlines the differing views on how politicians act when they no longer face the threat of reelection section iii describes some empirical evidence on what mechanisms may prevent this last period problem the final section discusses the impliactions of these results ii the last period whether economists view politicians as ideologues e g kau and rubin 1979 and kalt and zupan 1984 or as simply attempting to maximize political support e g barro 1973 ferejohn 1986 nelson 1976 and peltzman 1984 the threat of reelection is seen as preventing shirking as kalt and zupan 1984 298 phrase it it appears that the proximity of the next election inhibits ideological shirking even those who do not view the last period as affecting how a politician votes argue that it will affect how often he votes lott 1987a 1987b has argued that if voters can determine and elect politicians that have ideological preferences corresponding exactly to the wishes of constituents politicians voting patterns should continue to reflect those values even when the cost of shirking in terms of forgone future votes is low the penalty to ideologues of not votingfor their constituency in the last period when they no longer face reelection is the forgone utility from not doing what they personally value assuming that politicians also desire leisure politicians should continue to vote for what they believe in but they should vote less frequently since they no longer receive the additional return of larger future support mechanisms to overcome this last period problem have been suggested by becker and stigler 1974 9 10 they argue that opportunistic behavior can be controlled if officeholders face the loss of a pension or equivalently a posted bond in the event of opportunistic behavior in their last term however the actual pension system does not effectively eliminate the last period for politicians since retirement payments are not based on cheating in the last period

evolutionary origins of the endowment effect evidence from hunter gatherers the endowment effect the tendency to value possessions more than non possessions is a well known departure from rational choice and has been replicated in numerous settings we investigate the universality of the endowment effect its evolutionary signi cance and its dependence on environmental factors we experimentally test for the endowment effect in an isolated and evolutionarily relevant population of hunter gatherers the hadza bushmen of northern tanzania we nd that hadza living in isolated regions do not display the endowment effect while hadza living in a geographic region with increased exposure to modern society and markets do display the endowment effect jel c93 d12 o15 this paper uses a natural experiment in a hunter gatherer population to provide evidence on three questions the universality of a behavioral bias the endowment effect its dependence on cultural factors and its evolutionary signi cance systematic deviations from rational behavior have been extensively documented along with their importance for market outcomes yet evidence on the three questions above is sparse especially for biases in economic decisions first most experiments are conducted in industrialized societies and in particular on college campuses so biases could be the result of shared experiences as opposed to innate features of human behavior second cross cultural experiments typically compare very different groups making it hard to attribute differences in behavior to a speci c cultural factor due to omitted variable bias roth et al 1991 henrich et al 2001 2006 third while many contributions in economics have proposed evolutionary

the influence of ideology on congressional voting i introduction the question of what determines congressional voting on legislation has inspired a number of recent empirical analyses all are in agreement that congressional voting on specific bills is correlated with the economic self interest of the representative s constituents and a measure of the representative s ideology as indicated by his broader voting record however the interpretation of the empirical results regarding the influence of ideology has generated more debate than consensus in the current literature kau and rubin 1979 find evidence that a congressman s ideology influences his voting but also find evidence for an alternative but not mutually exclusive hypothesis that a congressman s rating by ideological groups reflects membership in a logrolling coalition kalt and zupan 1984 argue that although a representative s votes are likely to reflect the economic interests and the ideology of his constituents the weak incentive for the constituent principal to monitor the voting behavior of his representative agent gives the representative the opportunity to shirk or vote according to his personal ideology rather than his constituents both nelson and silberberg 1987 and mcarthur and marks 1988 find that the degree of shirking increases as the opportunity cost of shirking decreases in contrast to the above findings peltzman 1984 argues that ideological voting by congressmen need not necessarily reflect shirking but instead may be a way for the representative to cheaply provide his constituents with information about his general position on issues what appears to be shirking allowed by an imperfect principal agent relationship may instead be signaling designed to at least partially overcome the imperfect nature of the relationship lott 1987 extends peltzman s signaling argument by hypothesizing that if politicians are viewed by constituents as search goods rather than experience goods then they will have an incentive to establish a political brand name by establishing a consistent ideological voting record dougan and munger s 1989 approach is similar to lott s they argue that politicians with strongly held views that match those of their constituents make ideal representatives because they are less likely to vote against their constituents interests when pressured by special interest groups an incumbent therefore has an incentive to invest in reputational capital by maintaining the consistency over time of his broader voting record because this reputational capital generates quasi rents in electoral competition with candidates who possess less of it neither lott nor dougan and munger find evidence of shirking in their analyses of congressmen s broader voting records as measured by ideological groups ratings dougan and munger also develop a variable intensity of commitment version of the reputational capital hypothesis this version contends that voters with unambiguously liberal or conservative ideologies may prefer a candidate whose voting record indicates that his views are more extreme than their own such a zealous candidate voters believe is even less likely to be influenced by special interest groups a congressman serving an unambiguously liberal or conservative constituency therefore has an incentive to establish and maintain an extremely ideological overall voting record in contrast a congressman serving a constituency with centrist ideological preferences has an incentive to establish an overall voting record that matches his constituency s ideological leanings the systematic deviation of a congressman s voting record from his constituents preferences when near either extreme of the ideological spectrum is not inconsistent with a faithful principal agent relationship one cannot help but be struck by the observation that those researchers finding evidence consistent with shirking studied voting on specific legislation whereas those researchers finding no evidence of shirking studied representatives broader voting records as measured by ideological ratings

evolution of preferences we endogenize preferences using the indirect evolutionary approach individuals are randomly matched to play a two person game individual subjective preferences determine their behaviour and may differ from the actual objective pay offs that determine fitness matched individuals may observe the opponents preferences perfectly not at all or with some in between probability when preferences are observable a stable outcome must be efficient when they are not observable a stable outcome must be a nash equilibrium and all strict equilibria are stable we show that for pure strategy outcomes these conclusions are robust to allowing almost perfect and almost no observability with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability despite being stable with no observability

neoclassical theory versus prospect theory evidence from the marketplace several experimental studies have provided evidence that suggest indifference curves have a kink around the current endowment level these results which clearly contradict closely held economic doctrines have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory e g prospect theory which invokes psychological effects this paper pits neoclassical theory against prospect theory by investigating data drawn from more than 375 subjects actively participating in a well functioning marketplace the pattern of results suggests that prospect theory adequately organizes behavior among inexperienced consumers but consumers with intense market experience behave largely in accordance with neoclassical predictions moreover the data are consistent with the notion that consumers learn to overcome the endowment effect in situations beyond specific problems they have previously encountered this transference of behavior across domains has important implications in both a positive and normative sense

revisiting games of incomplete information with analogy based expectations this paper studies the effects of analogy based expectations in static two player games of incomplete information players are assumed to be boundedly rational in the way they forecast their opponent s state contingent strategy they bundle states into analogy classes and play best responses to their opponent s average strategy in those analogy classes we provide general properties of analogy based expectation equilibria and apply the model to a variety of well known games we characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information rubinstein a 1989 the electronic mail game strategic behavior under almost common knowledge amer econ rev 79 385 391 we show how analogy grouping of the receiver may facilitate information transmission in crawford and sobel s cheap talk games crawford v p sobel j 1982 strategic information transmission econometrica 50 1431 1451 and we show how analogy grouping may give rise to betting in zero sum betting games such as those studied to illustrate the no trade theorem

legislator voting and shirking a critical review of the literature we set out to critically review the progress in answering two related questions what determines how legislators vote and how can shirking by legislators be measured in the first category the hypothesis that legislators shirk in order to indulge their personal ideological preferences has led researchers astray the theoretical underpinning is shaky on two counts first legislators who indulge their preferences at the expense of their constituents preferences put themselves at a competitive electoral disadvantage second the original two stage procedure used to measure ideological shirking is severely flawed among many other problems the residual measure of shirking implicitly assumes that the median voter is the relevant constituent principal for the legislator agent

the behavioral genetics of behavioral anomalies a number of recent papers have examined the environmental and genetic sources of individual differences in economic and financial decision making here we contribute to this burgeoning literature by extending it to a number of key behavioral anomalies that are thought to be of importance for consumption savings and portfolio selection decisions using survey based evidence from more than 11 000 swedish twins we demonstrate that a number of anomalies such as for instance the conjunction fallacy default bias and loss aversion are moderately heritable in contrast our estimates imply that variation in common environment explains only a small share of individual differences we also report suggestive evidence in favor of a shared genetic architecture between cognitive reflection and a subset of the studied anomalies these results offer some support for the proposition that the heritable variation in behavioral anomalies is partly mediated by genetic variance in cognitive ability taken together with previous findings our results underline the importance of genetic differences as a source of heterogeneity in economic and financial decision making this paper was accepted by brad barber teck ho and terrance odean special issue editors

the evolutionary role of toughness in bargaining the experimental evidence on the endowment effect kahneman et al j polit economy 98 1990 1325 1348 and the self serving bias in negotiations babcok and loewenstein j econ perspect 11 1997 1337 1343 suggests that individuals enter a tough state of mind when they have to make a stand vis a vis somebody else in this work we show how a toughness bias in bargaining may indeed be evolutionary viable when the inherent toughness of the bargainer is observed by the opponent this opponent will adjust his behavior accordingly in a way which may enhance the actual payoff of the biased bargainer suppose then that a population consists initially of individuals with different inherent degrees of toughness or softness they are often matched at random to bargain and biases which are objectively more successful tend to appear more frequently in the society we characterize a salient class of bargaining mechanisms under which the population will consist asymptotically of individuals with some moderate degree of toughness

learning to like what you have explaining the endowment effect the endowment effect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it the existence of this effect has been documented in numerous experiments we attempt to explain this effect by showing that evolution favors individuals whose preferences embody an endowment effect the reason is that an endowment effect improves one s bargaining position in bilateral trades we show that for a general class of evolutionary processes strictly positive endowment effects will survive in the long run

political shirking opponent quality and electoral support several recent papers in the public choice literaturesuggest that legislators shirk or vote in a mannercontrary to constituent interest this paper exploresthe relationship between senatorial shirking andelectoral consequences i model political shirking opponent quality and election outcomes assimultaneous and find significant evidence of arelationship between shirking over the senatorial termand electoral outcomes however i find that voterspunish recent shirking much more than they punishearly term shirking and that senators apparently actconsistently with this relationship

homo moralis preference evolution under incomplete information and assortative matching what preferences will prevail in a society of rational individuals when preference evolution is driven by the resulting payoffs we show that when individuals preferences are their private information a convex combination of selfishness and morality stands out as evolutionarily stable we call individuals with such preferences homo moralis a t one end of the spectrum is homo oeconomicus who acts so as to maximize his or her own payoff at the opposite end is homo kantiensis who does what would be the right thing to do in terms of payoffs if all others would do likewise we show that the stable degree of morality the weight placed on the moral goal is determined by the degree of assortativity in the process whereby individuals are matched to interact

confidence enhanced performance there is ample evidence that emotions affect performance positive emotions can improve performance while negative ones may diminish it for example the fears induced by the possibility of failure or of negative evaluations have physiological consequences shaking loss of concentration that may impair performance in sports on stage or at school there is also ample evidence that individuals have distorted recollection of past events and distorted attributions of the causes of successes of failures recollection of good events or successes is typically easier than recollection of bad ones or failures successes tend to be attributed to intrinsic aptitudes or own effort while failures are attributed to bad luck in addition these attributions are often reversed when judging the performance of others the objective of this paper is to incorporate the first phenomenon above into an otherwise standard decision theoretic model and show that in a world where performance depends on emotions biases in information processing enhance welfare

evidence on electoral accountability in the u s senate are unfaithful agents really punished many have questioned whether voters are able to hold incumbent officials electorally accountable through a retrospective voting strategy we examine u s senate elections from 1962 to 1990 in forty one states explaining which incumbents ran for reelection and their success in seeking reelection we find that an incumbent s deviation from her state party platform decreases the probability that she will run for reelection and win if she runs furthermore the electoral mechanism is found to be more efficient when voters are better informed finally we find that our divergent party platform model provides a better fit than the median voter model

the loser s curse decision making and market efficiency in the national football league draft a question of increasing interest to researchers in a variety of fields is whether the biases found in judgment and decision making research remain present in contexts in which experienced participants face strong economic incentives to investigate this question we analyze the decision making of national football league teams during their annual player draft this is a domain in which monetary stakes are exceedingly high and the opportunities for learning are rich it is also a domain in which multiple psychological factors suggest that teams may overvalue the chance to pick early in the draft using archival data on draft day trades player performance and compensation we compare the market value of draft picks with the surplus value to teams provided by the drafted players we find that top draft picks are significantly overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research this paper was accepted by uri gneezy behav

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists

time series evidence on shirking in the u s house of representatives this paper presents time series evidence on the voting behavior of members of the u s house of representatives from 1975 to 1990 the empirical results indicate that voting behavior of individual congressmen is remarkably stable over time we find no evidence of economically significant last term effects on voting behavior nor are there important effects of legislative tenure on voting patterns the most significant deviations in voting behavior occur for congressmen who failed to win their reelection bid suggesting that sizable deviations from previous policy positions may result in swift retribution by constituents in the district

canaries and vultures a quantitative history of monetary mismanagement in brazil during the last two decades of the twentieth century brazil went through a sequence of failed stabilization plans that tried to cope with an enduring hyperinflation this paper uses a money demand model to evaluate monetary policies during those episodes consistency between money supply and expected conditional money demand growth rates is considered for each plan it is shown that unsuccessful programs were marked by excessive liquidity the results not only suggest that monetary mismanagement led to the failure of the plans but also that the excessive liquidity could have been predicted