macroeconomic policy in a large unionised economy this paper models an economy with many sectors in each sector a monopoly union sets the nominal wage and then firms choose output the economy is large in that all agents treat the general price level as fixed the paper focusses on policy effects on employment an increase in government expenditure in one sector will increase decrease total employment as sectoral employment is above below average a general increase in government expenditure in fixed proportions will have a positive employment multiplier below unity policy which increases employment will lead to higher welfare

union wage policy the importance of labour mobility and the degree of centralization with endogenous product prices nationwide wage setting gives lower unemployment than decentralized wage setting however intermediate level wage setting may give more unemployment than both completely decentralized and completely centralized wage setting the main part of the paper considers a dynamic model which includes flows of workers between firms and in and out of unemployment with less than full centralization the wages chosen by unions are lower the higher is the degree of labor mobility wages are also lower the higher is the degree of centralization unless labor mobility is very high copyright 1991 by the london school of economics and political science

valuation in the lab experimental methods have proven useful to explore the power and limits to nonmarket valuation through stated preference methods we now understand better how people learn about and react to the incentives institutions and information created by surveys this paper briefly reviews topics in experimental valuation including ex ante bias corrections ex post bias calibration and examining the circumstances that strengthen or weaken the economist s presumption of rational valuation

centralisation employment and wage dispersion this paper is about bargaining institutions and their influence on wage dispersion and employment using novel statistical measures it compares labor market performance in seventeen oecd countries since 1973 it concludes that countries with highly centralized wage bargaining have generally achieved the best performance combining high employment with low wage dispersion thereby avoiding certain major inequalities prevalent elsewhere the paper also presents a formal model of bargaining based on the work of l calmfors and j driffill 1988 simulations are used to illustrate how this model generates the kind of outcomes described in the empirical part of the paper copyright 1992 by royal economic society

a cognitive miser theory of cooperators advantage the aa propose a new model of cooperators advantage depending neither on supplementary incentives nor on cooperators capacity to recognize and play selectively with other cooperators it depends rather on players making the play no play decision by the heuristic of projecting their own cooperate defect choices onto potential partners cooperators offer to play more often and fellow cooperators will more often accept their offer when certain boundary conditions are met this results in a higher expected payoff for cooperators than for defectors empirical support for this heuristic is suggested by expectations data from related social dilemma experiments moreover its use can be justified in bayesean terms our model brings behavioral decision theory s cognitive miser paradigm to bear on interdisciplinary concern with the evolution of cooperative behavior and shows how if other mechanisms provide a suitable initial kick cooperation can evolve in the absence of iteration and in large mobile societies

do consumers need more protection from small dollar lenders historical evidence and a roadmap for future research we summarize the current debate surrounding four small dollar credit products pawn loans vehicle title loans payday loans and cash installment loans from finance companies we review the contributions of scholars that inform this debate we underscore that users of these products fit the description of those whom consumer credit models predict benefit from these products many studies find that on average consumer use of small dollar credit products is at worst innocuous there are however findings of heterogeneity in borrowers experiences the disagreements surrounding these credit products and the difficulty in crafting the proper policy response stems from this heterogeneity jel d18 g23

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

committee decisions under alternative procedural rules an experimental study applying a new non monetary method of preference inducement committees operating with simple majority rule procedures and with closed rule procedures are studied a new method the duplicate method was used to induce preferences the results of the control experiments compare favorably to those for which monetary incentives have been used in all cases the core is a relatively accurate model of committee choice

the role of information processing cost as the foundation of bounded rationality in game theory abstract this paper explores whether the existence of information processing costs in game theory leads to a model of bounded rationality the model of bounded rationality is derived from an enumeration framework which yields the result that a search process for the nash equilibria is information cost efficient in a pure strategy

do high stakes and competition undermine fair behaviour evidence from russia abstract this paper reports the results of a series of competitive labour market experiments in which subjects have the possibility to reciprocate favours in the high stake condition subjects earned between two and three times their monthly income during the experiment in the normal stake condition the stake level was reduced by a factor of ten we observe that both in the high and the normal stake condition fairness concerns are strong enough to outweigh competitive forces and give rise to non competitive wages there is also no evidence that effort behaviour becomes generally more selfish at higher stake levels therefore our results suggest that fairness concerns may play an important role even at relatively high stake levels

is it harmful to allow partial cooperation in economics politics and society examples abound in economics politics and society where agents can enter partial cooperation schemes i e they can collude with a subset of agents several contributions devoted to specific settings have claimed that such partial cooperation actually worsens welfare compared to the no cooperation situation our paper assesses this view by highlighting the forces that lead to such results we find that the nature of strategic spillovers is central to determining whether partial cooperation is bad our propositions are then applied to various examples as industry wage bargaining or local public goods

findings biased but efficient an investigation of coordination facilitated by asymmetric dominance in several marketing contexts strategic complementarity between the actions of individual players demands that players coordinate their decisions to reach efficient outcomes yet coordination failure is a common occurrence we show that the well established psychological phenomenon of asymmetric dominance can facilitate coordination in two experiments thus we demonstrate a counterintuitive result a common bias in individual decision making can help players to coordinate their decisions to obtain efficient outcomes further limited steps of thinking alone cannot account for the observed asymmetric dominance effect the effect appears to be due to increased psychological attractiveness of the dominating strategy with our estimates of the incremental attractiveness ranging from 3 6 a learning analysis further clarifies that asymmetric dominance and adaptive learning can guide players to an efficient outcome

ethical ideologies and older consumer perceptions of unethical sales tactics demographic differences among consumer groups have become increasingly important to the development of marketing strategies marketers depend heavily on the sales force to implement strategies at the consumer level and not surprisingly different groups may view the salesperson s role differently unfortunately unethical sales practices targeted at various consumer groups and especially at seniors have been utilized as well the purpose of this study is to provide initial empirical evidence of the ethical ideological make up of four age segments outlined by strauss and howe 1991 generations the history of america s future 1584 2069 morrow new york and to examine the propensity for these groups seniors in particular to respond differentially to potentially unethical sales tactics data were collected from 179 respondents representing the four generational age groups manova revealed that the seniors in this study were distinct with respect to ethical ideology and less accepting of unethical sales tactics managerial implications are discussed for sales organizations to maximize their effectiveness across consumer groups

experimental tests of the separation theorem and the capital asset pricing model a computer controlled multistage portfolio selection task was devised to test experimentally basic assumptions underlying the separation theorem and the capital asset pricing model although most of the subjects diversified among the three risky assets the introduction of a riskless asset did not have the effect predicted by the separation theorem nor were the subjects affected by systematic changes in the variance covariance matrix of the risky returns however performance improved as the reward was increased tenfold the capital asset pricing model capm proposed by william sharpe 1964 john lintner 1965 and jan mossin 1966 has been the predominant normative as well as positive theory for determining assets returns and prices in financial markets the capm has a wide range of implications for various financial issues including the allocation of risky assets price predictions performance indices and market efficiency tests as well as tools for corporate finance decisions such as capital structure costs of financial sources and prices of new issues during the last decade numerous theoretical studies have examined and extended the capm a most recent development is the

on sustainability and the economics of survival this paper investigates the implications of sustainability and survival strategies for economic analysis it reviews connections between the approaches used by economists and biological scientists in the study of survival the paper emphasizes the role of irreversibility and uncertainty in the investigation of sustainability issues implications of the results for the analysis of economic behavior are discussed

modes of economizing behavior experimental evidence abstract in addition to more or less elaborate explicity rational procedures economic choices in reality are frequently made by trial and error imitation following an authority habit thoughtless impulse and hunch presenting results from a number of experiments that explicity incorporate decision cost this paper explores the extent to which these alternative decision making modes can lead to optimal choices

bargaining structure and economic performance in the open economy abstract it seems nowadays accepted that both centralized wage bargaining and negotiation at the firm level perform better than sectoral wage bargaining this is because sectoral unions have enough market power to raise wages but do not internalize all the effects of their actions however the ranking may be different in an open economy facing a less than infinitely elastic foreign demand because raising wages improves the country s terms of trade as in the optimal tariff argument as a result welfare is higher in the centralized setting while sectoral bargaining is better than full decentralization when imported goods represent a large share of total consumption

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

macroeconomic performance and wage setting level in symmetric non cooperative games abstract this paper shows that the relationship between the wage and the extent of centralisation of the wage setting is necessarily monotonic in symmetric non cooperative games between monopoly trade unions if the game for each wage setting level has only one equilibrium moreover when the conditions of stability of nash equilibria are fulfilled the trade unions welfare rises with the degree of centralisation

acquisition of costly information an experimental study abstract i study decision making in a situation where subjects can buy information in order to uncover the initially unknown deterministic structure the majority of subjects fail to find the most economical way of choosing between two possible prospects many subjects underestimate the value of information and as a result make avoidable forecasting errors other subjects learn correctly which action is most successful under any given condition but fail to implement this knowledge efficiently they either accept errors for the sake of economizing on small amounts of information costs or they invest in redundant information the measured losses are substantial however in certain settings the fact that half of the economist subjects and one fourth of non economist subjects learn to behave optimally may be sufficient for efficient market functioning the present findings thus help to explain the near competitive outcomes observed in many experimental and actual markets

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

a learning to forecast experiment on the foreign exchange market with a classifier system abstract this paper reports on an experiment of learning and forecasting on the foreign exchange market by means of an artificial intelligence methodology a classifier system which simulates learning and adaptation in complex and changing environments the experiment has been run for two different exchange rates the us dollar d mark rate and the us dollar yen rate representative of two possibly different market environments a fictitious artificial agent is first trained on a monthly data base from 1973 to 1990 and then tested out of sample from 1990 to 1992 its forecasting performance is then compared with the performance of decision rules which follow the prescription of various economic theories on exchange rate behaviour and the performance of forecasts given by var estimations of the exchange rate s determinants

ethically questionable behavior in sales representatives an example from the taiwanese pharmaceutical industry recent corporate disgraces and corruption have heightened concerns about ethically questionable behavior in business the construct of ethically questionable behavior is an under portrayed area of management field research and deserves further studying especially in sales positions this study uses four variables from the human resource management field to explain the ethically questionable behavior of sales representatives in the pharmaceutical industry these variables include frame pattern commission structure behavior control type and marketing norm perceptions this work uses a 2 2 2 2 subject experimental design and 328 fully completed questionnaires for logistic regression analysis results suggest that a medical representative in a loss frame compared with a gain frame in a high commission structure compared with a low commission structure in loose behavior control compared with strict behavior control and in a low perception of marketing norm compared with a high perception of marketing norm is more likely affected by heuristic biases and make an ethically questionable choice

the size of trading blocs market power and world welfare effects abstract we construct an n country n commodity trade model to analyze the implications of bloc size for nash equilibrium tariffs and welfare the relationship between the absolute size of symmetric trading blocs and their market power is ambiguous and we illustrate how this relationship varies with model parameters in contrast sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level we establish the existence of an optimal bloc size and study the dependence of optimal size on the parameters of the model

avoiding complexity catastrophe in coevolutionary pockets strategies for rugged landscapes can firms and coevolutionary groups suffer from too much interdependent complexity is complexity theory an alternative explanation to competitive selection for the emergent order apparent in coevolutionary industry groups the biologist stewart kauffman suggests a theory of complexity catastrophe offering universal principles explaining phenomena normally attributed to darwinian natural selection theory kauffman s complexity theory seems to apply equally well to firms in coevolutionary pockets based on complexity theory four kinds of complexity are identified kauffman s nk c model is positioned at the edge of chaos between complexity driven by newtonian simple rules and rule driven deterministic chaos kauffman s insight which is the basis of the findings in this paper is that complexity is both a consequence and a cause multicoevolutionary complexity in firms is defined by moving natural selection processes inside firms and down to a parts level of analysis in this instance porter s value chain level to focus on microstate activities by agents the assumptions of stochastically idiosyncratic microstates and coevolution in firms are analyzed competitive advantage as a dependent variable is defined in terms of nash equilibrium fitness levels this allows a translation of kauffman s theory to firms paying particular attention to 1 how value chain landscapes might be modeled 2 assumptions underlying kauffman s models making them amenable to firms and 3 a delineation of seven of kauffman s computational experiments as part of the translation possible parallels between the application of complexity catastrophe theory to coevolutionary pockets and studies by institutional theorists and social network analysts are discussed the models derive from spin glass microstate models resulting in boolean games kauffman s boolean statistical mechanics is introduced in developing the logic underlying the somewhat simplified nkm c model the model allows the use of computational experiments to better understand how the dependent variable value chain fitness is affected by changes in the number of internal interdependencies k the number of coevolutionary links with opponents c the size of the coevolutionary pocket s and the number of simultaneous adaptive changes among other things various computational experiments are presented that suggest strategic organizing approaches most likely to foster competitive advantage high or low nash equilibrium fitness levels are shown to result from internal and external coevolutionary densities as a function of links among value chain competencies within a firm and between a firm and an opponent complexity phenomena appear to suggest a number of expected and thus validating and surprising strategies with respect to complex organizational interdependencies for example moderate complexity fares best and external coevolutionary complexity sets an upper bound to advantages likely to be gained from internal complexity various complexity lessons are discussed models such as the nk c could offer insights into strategic organizing

who benefits from partial tax coordination in this paper we investigate whether partial tax coordination is beneficial to countries within and outside a tax union in which countries are supposed to compete in taxes and infrastructure our results demonstrate that a subgroup of countries agreeing on a common tax rate can harm both member and nonmember states this is in contrast to the classical findings that partial tax harmonisation is pareto improving when a minimum tax rate is imposed within a tax union we demonstrate that it does not necessarily improve the welfare of the member countries moreover both the high tax and low tax countries can be worse off this conclusion is at odds with the classical result that a high tax country benefits from the imposition of a lower tax bound

decision making under environmental uncertainty abstract the paper s main concern is with different decision making models for environmental issues and with the hypotheses of rationality underlying such models the hypothesis supported here is that most environmental problems are in a context of uncertainty of irreversibility and of complexity we shall explain why stressing the role of these elements implies a reversal of the traditional attitude towards decision making this presupposes a paradigm of economic rationality much broader that that of orthodox economics called procedural rationality our paper is in two parts the first part concerns the limits of the stochastic environmental approaches based on the bayesian decision theory and on a substantive rationality hypothesis the second part concerns the decision making analyses based upon a procedural rationality as well as their ability to take account of the interactions between uncertainty irreversibility and complexity

the approach of institutional economics this paper assesses the old institutional economics it emphasizes the importance of key old institutionalist themes concerning the necessity of habits and rules and the role of institutions a problem in the alternative theoretical program of the new institutionalism is the untenability of its assumption of an original institution free market or state of nature even optimizing behavior requires the prior existence of habits and rules although it still lacks a complete and systematic theory the evolutionary approach of the old institutionalists tackles the problem of the interactive relationship of actor to structure without analytical reduction to one or the other

examining risk preferences under high monetary incentives experimental evidence from the people s republic of china several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes the opportunity to conduct sessions in the people s republic of china afforded the ability to offer very large monetary incentives relative to subjects living costs in the highest payoff condition subjects earned three times their normal monthly revenue in the course of a two hour experiment results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences however even under extreme monetary incentives subjects demanded amounts well in excess of expected value for low probability gain prospects copyright 1992 by american economic association

are n 1 heads better than one the case of mutual fund managers abstract recent studies find that mutual funds exhibit differential and persistent performance which is frequently attributed to superior managerial decision making we extend the literature by examining the impact of the fund s management structure on performance outcomes specifically we examine directly whether superior outcomes in terms of risk adjusted returns may be explained by behavioral decision making theory that asserts that teams make better decisions than individuals empirical results are consistent with the classical decision making theory and the efficient market hypothesis

cooperation in an overlapping generations experiment abstract recent theoretical work shows that folk theorems can be developed for infinite overlapping generations games cooperation in such games can be sustained as a nash equilibrium but of course there are other equilibria this paper investigates experimentally whether cooperation actually occurs in a simple overlapping generations game subjects both play the game and formulate strategies our main finding is that subjects fail to exploit the intertemporal structure of the game even when we provided subjects with a recommendation to play the grim trigger strategy most of the subjects still employed safe history independent strategies journal of economic literature classification numbers c72 c92 d90

a multimethod approach to identifying norms and normative expectations within a corporate hierarchy evidence from the financial services industry we use an incentive compatible economic experiment and surveys in the field at a large financial services firm to identify the norms for on the job behavior among financial advisers and their leaders and the normative expectations each group has of the other we examine whistle blowing on a peer an incentive clash between serving the client and earning commissions and a dilemma about fiduciary responsibility to a client we find patterns of agreement among advisers among leaders and between the two groups that are consistent with company guidelines identified ex ante however we also find measurable differences between what leaders expect and the actual norms of advisers when there is such a mismatch we are able to distinguish miscommunication from ethical disagreement between leaders and advisers finally we show that when advisers personal ethical opinions do not match group norms this mismatch is correlated with job dissatisfaction and lying for money in a second experiment this paper was accepted by brad barber teck ho and terrance odean special issue editors

price setting and attainment of equilibrium posted offers versus an administered price abstract the operation of the posted offer market with advance production environment mestelman and welland 1988 appropriately parameterized differs from that of the market entry game selten and guth 1982 appropriately presented only in terms of price setting we establish the effect of this difference in price setting on attainment of the competitive equilibrium allocation while controlling for effects relating to the presentation of the market entry game and to the stationarity or non stationarity of environment free posting of prices promotes convergence to the competitive equilibrium allocation while the typical market entry game data can be characterized as displaying cycling prices

the three p s of total risk management current risk management practices are based on probabilities of extreme dollar losses e g measures like value at risk but these measures capture only part of the story any complete risk management system must address two other important factors prices and preferences together with probabilities these compose the three p s of total risk management this article describes how the three p s interact to determine sensible risk profiles for corporations and for individuals guidelines for how much risk to bear and how much to hedge by synthesizing existing research in economics psychology and decision sciences and through an ambitious research agenda to extend this synthesis into other disciplines a complete and systematic approach to rational decision making in an uncertain world is within reach

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

rational choice the contrast between economics and psychology rational choice the published record of a conference on economics and psychology frames the issues as a contest between economic theory and the falsifying evidence from psychology according to a third perspective that of experimental economics most standard theory provides a correct first approximation in predicting motivated behavior in laboratory experimental markets but the theory is incomplete particularly in articulating convergence processes in time and in ignoring decision cost this view has roots in the work of herbert simon and sidney siegel but it is not plainly represented in contemporary research in economic pyschology

potentially harmful international cooperation on global public good provision recent international climate negotiations suggest that complete agreements are unlikely to materialize instead partial cooperation between like minded countries appears a more likely outcome in this paper we analyze the effects of such partial cooperation between like minded countries in doing so we link the literature on partial cooperation with so called matching approaches matching schemes are regarded as providing a promising approach to overcome undersupply of public goods like climate protection the functioning of matching mechanisms in a setting with an incomplete agreement i e a contract where only a subset of the players participates has however not been investigated yet this paper fills this research gap by analyzing incomplete matching agreements in the context of international climate protection we analyse their effect on both welfare and the global climate protection level we show that matching coalitions may bring about a decline in global public good provision and a reduction in the welfare of outsiders

payoff dominance vs cognitive transparency in decision making i introduction there is a general question about how well laboratory markets work in eliciting true preferences given the low opportunity costs of making errors as in harrison 1989 vernon smith 1982 set out a series of conditions that must be adhered to if a laboratory market investigation is to provide insight into economic behavior in naturally occurring markets the opportunity cost question posed above is covered under smith s payoff dominance and reward saliency precepts for laboratory market experiments if the experimental setting is to elicit true preferences from the subjects the monetary payoffs in the experiment must be salient and dominate potential extraneous influences on subject behavior this paper reports on three series of experiments which employ the becker degroot marshak bdm mechanism to investigate the interaction between payoff dominance reward saliency and cognitive effort in the decision task the bdm mechanism is well suited to this task because it involves only individual choice is theoretically incentive compatible and offers a high degree of experimenter control over payoffs initial information and feedback on the results of decisions becker degroot and marschak 1964 introduced the following preference elicitation mechanism individuals state the most they would be willing to pay wtp 1 for a good then a random price is drawn from a distribution known to the individuals if the stated value is greater than or equal to the random price the individual buys the good at the randomly determined price otherwise the individual does not buy the good the bdm bidding mechanism can be shown to be incentive compatible the intuition is straightforward it is not in the individual s interest to understate true wtp if the random buying price falls between the stated wtp and the true wtp the individual has foregone a beneficial trade it is also not in an individual s interest to overstate true wtp if the random buying price is greater than the true value but less than the stated value the individual will be required to buy the good at a price greater than true wtp a more formal proof is easy to construct 2 let v the true value of one unit of the auction good b the bid submitted to purchase one unit of the good r the price randomly determined to be paid if the good is purchased p r probability that price r is randomly selected y sup o initial income u y utility a function of money income and the value of the good and e initial monetary balance provided in an experiment in the wtp version of the bdm auction the good is purchased if b greater than or equal to r with the subject paying only r and not purchased if b less than r in experiments using the bdm the subject cannot bid more than the experimental balance e so it must be that v less than e if the experiment is to be demand revealing assuming that subjects maximize expected utility they will submit bid b that maximizes eu integral of p r u y sup o e v r dr between limits b and 0 integral of p r u y sup o e dr between limits e and b the first integral describes the expected payoff for random prices r below the bid b and the second integral describes the expected payoff for random prices between the bid b and the maximum possible bid as limited by the balance e the maximum over b occurs when the derivative of eu with respect to b is zero in other words when deu db p b u y e v b u y e 0 so long as p b greater than 0 i e there is some probability the offered bid will be the price the above implies that the maximum occurs when b v in other words it is individually optimal to submit a bid b equal to one s true value v for the commodity although the bdm is incentive compatible in theory it is an empirical question whether it has this property in practice