predicting how people play games a simple dynamic model of choice we use the simple dynamic model developed in sarin and vahid 1999 games and economic behavior 28 294 309 to explain the experiments reported in erev and roth 1998 american economic review 88 848 881 in an earlier paper sarin and vahid 1998 mimeo texas a m university and monash university we showed that the model predicted behavior in repeated coordination games remarkably well and better than equilibrium theory or reinforcement learning models in this paper we show that the same one parameter model can also explain behavior in games with a unique mixed strategy nash equilibrium better than alternative models hence we obtain further support for the simple dynamic model journal of economic literature classification numbers c7 d8

games with unique mixed strategy equilibria an experimental study abstract the results of an experiment studying the choices of subjects playing mixed extensions of three variants of simple 2 2 non constant sum strictly competitive games of the same form matching pennies are presented subjects exhibited a variety of behavioral adaptive learning strategies this heterogeneity of individual behavior produced aggregate dynamics whose estimated steady states are quite different from those predicted by the nash equilibria of those stage games with asymmetrical payoff functions the observed aggregative dynamics are well accounted for both by a quantal equilibrium model of mckelvey and palfrey and by a learning model of roth and erev journal of economic literature classification number c72

does information matter in the commons experimental evidence abstract common pool resources cprs typically involve interaction where precise information about payoffs is absent however all experimental studies of cprs we are aware of study environments where the payoff structure is known in this paper we address the behavioral consequences of two degrees of information on the mapping between decisions and payoffs we run two treatments one with complete information on the payoff structure and one with none remarkably aggregate behavior is not significantly different between the two treatments in both cases the aggregate tendencies converge to the nash equilibrium furthermore the best reply dynamics organize individual behavior in both treatments remarkably well

payoff assessments without probabilities a simple dynamic model of choice abstract we develop a model which reflects the tendency of people to simplify the decision problems they face the decision maker chooses among alternate strategies only on the basis of the payoff she assesses she would obtain from them and these assessments do not explicitly take into account her subjective judgements regarding the likelihood of alternate states of the world at each stage the decision maker chooses the strategy that she assesses to give the highest payoff she updates her assessments adaptively we show that such behavior leads to maxmin choices we also consider the decision maker who experiences shocks journal of economic literature classification numbers c7 d8

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

strategy similarity and coordination in the payoff assessment model of choice sarin and vahid 1999 only the assessment of the chosen strategy is updated we extend that model to allow the agent to also update the assessments of strategies that the agent thinks are similar to the chosen strategy we use this model to explain observed behaviour in a recent experiment statistical tests cannot distinguish between the payoff distributions generated by the model and the observed payoff distributions in almost every period

equilibrium play and adaptive learning in a three person centipede game the two person centipede game is one of the most celebrated paradoxes of backward induction in complete information extensive form games an experimental investigation of a three person centipede game shows that the paradoxical results are strongly affected by the size of the stakes when the number of players in the game is increased from two to three and the game is played for unusually high stakes with group composition being randomly changed from trial to trial the paradox is considerably weakened as players approach equilibrium play with multiple iterations of the stage game when the game is played with low stakes there is no evidence for equilibrium play or learning across iterations of the stage game an adaptive learning model that assumes updating of the individual probabilities of choice outperforms alternative static and dynamic models in accounting for the major results observed in the high stake experiment

naive reinforcement learning with endogenous aspirations this article considers a simple model of reinforcement learning all behavior change derives from the reinforcing or deterring effect of instantaneous payoff experiences payoff experiences are reinforcing or deterring depending on whether the payoff exceeds an aspiration level or falls short of it over time the aspiration level is adjusted toward the actually experienced payoffs this article shows that aspiration level adjustments may improve the decision maker s long run performance by preventing him or her from feeling dissatisfied with even the best available strategies however such movements also lead to persistent deviations from expected payoff maximization by creating probability matching effects

simple play in the prisoner s dilemma abstract players do not have knowledge of the objective game they know the available strategies and have scalar valued non probabilistic payoff assessments they act myopically always choosing the strategy they consider best they update these assessments in the direction of the received payoff it is shown that such players converge to choose their maxmin strategies when facing a game against nature in the prisoner s dilemma however the players need not converge to their maxmin strategy and often end up cooperating

liberal egalitarianism and the harm principle this paper analyses the implications of classical liberal and libertarian approaches for distributive justice in the context of social welfare orderings an axiom capturing a liberal non interfering view of society named the weak harm principle is studied whose roots can be traced back to john stuart mill s essay on liberty it is shown that liberal views of individual autonomy and freedom can provide consistent foundations for social welfare judgements in both the finite and the infinite context in particular a liberal non interfering approach can help to adjudicate some fundamental distributive issues relative to intergenerational justice however a surprisingly strong and general relation is established between liberal views of individual autonomy and non interference and egalitarian principles in the rawlsian tradition

case based decision theory this paper suggests that decision making under uncertainty is at least partly case based we propose a model in which cases are primitive and provide a simple axiomatization of a decision rule that chooses a best act based on its past performance in similar cases each act is evaluated by the sum of the utility levels that resulted from using this act in past cases each weighted by the similarity of that past case to the problem at hand the formal model of case based decision theory naturally gives rise to the notions of satisficing decisions and aspiration levels

the pre industrial energy crisis and resource scarcity as a source of transition the historical british timber famine of the 18th century is re examined in the light of contemporary concerns about transitions in energy use the alternatives of scarcity induced and opportunity led transition are considered in relation to the economics of sustainable fuel timber production for industrial uses the paper finds that the production of timber was an economically sustainable use of land and that observations of timber shortages may have therefore either been claims made by interests favouring the use of coal or the consequence of abandonment of fuel timber cultivation in favour of coal use the longer term sustainability of domestic uk sources for industrial timber fuel timber is shown to be problematic the consequences of the alternative views of the timber famine for contemporary policies attempting to promote transition to low carbon or sustainable energy use are examined in particular if the present is an echo of the past opportunity rather than crisis may be the more powerful lever of change

do security analysts improve their performance with experience we investigate if sell side security analysts generate more accurate quarterly earnings forecasts and more profitable stock recommendations as their experience following a specific firm increases we measure firmspecific experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm if analysts improve their forecasting performance with repetition as suggested by the learning by doing lbd model an analyst s earnings forecasts will become more accurate with experience prior empirical work provides mixed evidence on whether analysts exhibit individual forecasting performance differences e g butler and

was the global settlement effective in mitigating systematic bias in affiliated analyst recommendations regulators have recently relaxed some provisions of the global research analyst settlement of 2003 the global settlement and associated reforms which arose from charges that conflicts of interest within investment banks had induced the issuance of fraudulent or otherwise misleading analyst research reports we examine the effectiveness of the global settlement in reducing the systematic optimism observed in stock recommendations of analysts whose employer is a merger and acquisition m a advisor for the covered firm affiliated analysts by comparing the optimism exhibited in stock recommendations issued by these analysts and by unaffiliated analysts before and after the global settlement to control for the impact on analyst optimism of other time varying factors our sample includes cases from the us and from other countries in which the global settlement had no direct impact we argue that if the global settlement was effective there should be a reduction in the relative optimism of affiliated analysts following this reform and that reduction in the relative optimism should be greater for affiliated us analysts than for affiliated analysts from non us countries when optimism is measured over a 180 day period surrounding the m a announcement we find a significantly greater reduction in us affiliated analysts optimism than occurs outside the us however evidence regarding analysts optimism in the 90 day period prior to the announcement of an m a deal is mixed

conflicts of interest in financial intermediation the last years have seen a surge of scandals in financial intermediation this article argues that the agency structure inherent to most forms of financial intermediation gives rise to conflicts of interest though this does not excuse scandalous behavior it points out market imperfections there are four types of conflicts of interest personal individual personal organizational impersonal individual and finally impersonal organizational conflicts analyzing recent scandals we find that all four types of conflicts of interest prevail in financial intermediation

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

measuring beliefs and rewards a neuroeconomic approach the neurotransmitter dopamine is central to the emerging discipline of neuroeconomics it is hypothesized to encode the difference between expected and realized rewards and thereby to mediate belief formation and choice we develop the first formal test of this theory of dopaminergic function based on a recent axiomatization by caplin and dean 2008a these tests are satisfied by neural activity in the nucleus accumbens an area rich in dopamine receptors we find evidence for separate positive and negative reward prediction error signals suggesting that behavioral asymmetries in response to losses and gains may parallel asymmetries in nucleus accumbens activity

long term diversification paths and energy transitions in europe the concentration of the energy mixes of eight european countries is measured latecomers historically enjoyed lower levels of concentration in their energy mixes early comers followed an inverted u path of concentration latecomers a u path a time effect and size effect explains the different patterns small energy consuming countries will be able to do faster transitions

modelling cognitively bounded rationality an evaluative taxonomy abstract since its origins in the 1950s the notion of bounded rationality has been incorporated into economic theory using an array of methodological approaches this paper presents a taxonomy by which these approaches can be categorized and understood evaluating each approach against a range of important criteria at a time when the foundations of economic theory are being re examined this paper should be viewed as a first step towards an assessment of the appropriate role that this more realistic view of cognition should take in different areas of economic theory and also of the desirable characteristics of models that incorporate it