6,797 research outputs found
Theories of Fairness and Reciprocity
Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research
An experimental study of costly coordination
This paper reports data for coordination game experiments with random matching. The experimental design is based on changes in an effort-cost parameter, which do not alter the set of Nash equilibria nor do they alter the predictions of adjustment theories based on imitation or best response dynamics. As expected, however, increasing the effort cost lowers effort levels. Maximization of a stochastic potential function, a concept that generalizes risk dominance to continuous games, predicts this reduction in efforts. An error parameter estimated from initial two-person, minimum-effort games is used to predict behavior in other three-person coordination games
Patients with basal ganglia damage show preserved learning in an economic game.
Both basal ganglia (BG) and orbitofrontal cortex (OFC) have been widely implicated in social and non-social decision-making. However, unlike OFC damage, BG pathology is not typically associated with disturbances in social functioning. Here we studied the behavior of patients with focal lesions to either BG or OFC in a multi-strategy competitive game known to engage these regions. We find that whereas OFC patients are significantly impaired, BG patients show intact learning in the economic game. By contrast, when information about the strategic context is absent, both cohorts are significantly impaired. Computational modeling further shows a preserved ability in BG patients to learn by anticipating and responding to the behavior of others using the strategic context. These results suggest that apparently divergent findings on BG contribution to social decision-making may instead reflect a model where higher-order learning processes are dissociable from trial-and-error learning, and can be preserved despite BG damage
Preferences For Redistribution and Perception of Fairness: An Experimental Study
Why is there significant political support for progressive taxation and equalizing government transfers in western democracies? Possibilities include individual socail preferences for a less unequal distribution than what market forces alone would dictate, demand for social insurance, or successful political coalitions to redistribute away from the rich. We study the relative importance of fairness preferences, risk aversion, and self-interest in determining support for redistribution through a set of experiments in which a large number of subjects are asked to choose what level of taxation to implement under different decision conditions and with four alternative determinants of pre-tax income (two task-based, one random, and one based on socio-economic background). Treatments using varying costs of redistribution to the decision-maker and efficiency losses to recipients are used to study willingness to pay for redistribution and concern for aggregate inefficiency. Most of our subjects prefer that there be less inequality among others and demand for redistribution responds in predictable ways to the cost of taxation and to the dead-weigh loss associated with it. The external validity of the experiment is supported by the high correlation between tax decisions and political preferences. We also find evidence that preferred levels of redistribution are highly responsive to whether pre-tax incomes are determined according to task performance, a trend that is much more evident among men than among woman. Comparisons between redistributive choices under different experimental conditinos provide interesting insights with regard to the relative importance of inequality aversion and self-interest when choosing under uncertainty and when uncertainty is resolved. In the first case, individuals expectation about their future position in the income distribution has a considerable impact on their tax choices. When sure of the effect on their own earnings, subjects tax choices are primarily goverened by self-interest, but fairness preferences continue to play a role.
Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics
Marketing is an applied science that tries to explain and influence how firms and
consumers actually behave in markets. Marketing models are usually applications of
economic theories. These theories are general and produce precise predictions, but they
rely on strong assumptions of rationality of consumers and firms. Theories based on
rationality limits could prove similarly general and precise, while grounding theories in
psychological plausibility and explaining facts which are puzzles for the standard
approach.
Behavioral economics explores the implications of limits of rationality. The goal is to
make economic theories more plausible while maintaining formal power and accurate
prediction of field data. This review focuses selectively on six types of models used in
behavioral economics that can be applied to marketing.
Three of the models generalize consumer preference to allow (1) sensitivity to reference
points (and loss-aversion); (2) social preferences toward outcomes of others; and (3)
preference for instant gratification (quasi-hyperbolic discounting). The three models are
applied to industrial channel bargaining, salesforce compensation, and pricing of virtuous
goods such as gym memberships. The other three models generalize the concept of gametheoretic
equilibrium, allowing decision makers to make mistakes (quantal response
equilibrium), encounter limits on the depth of strategic thinking (cognitive hierarchy),
and equilibrate by learning from feedback (self-tuning EWA). These are applied to
marketing strategy problems involving differentiated products, competitive entry into
large and small markets, and low-price guarantees.
The main goal of this selected review is to encourage marketing researchers of all kinds
to apply these tools to marketing. Understanding the models and applying them is a
technical challenge for marketing modelers, which also requires thoughtful input from
psychologists studying details of consumer behavior. As a result, models like these could
create a common language for modelers who prize formality and psychologists who prize
realism
A Contextual-Bandit Approach to Personalized News Article Recommendation
Personalized web services strive to adapt their services (advertisements,
news articles, etc) to individual users by making use of both content and user
information. Despite a few recent advances, this problem remains challenging
for at least two reasons. First, web service is featured with dynamically
changing pools of content, rendering traditional collaborative filtering
methods inapplicable. Second, the scale of most web services of practical
interest calls for solutions that are both fast in learning and computation.
In this work, we model personalized recommendation of news articles as a
contextual bandit problem, a principled approach in which a learning algorithm
sequentially selects articles to serve users based on contextual information
about the users and articles, while simultaneously adapting its
article-selection strategy based on user-click feedback to maximize total user
clicks.
The contributions of this work are three-fold. First, we propose a new,
general contextual bandit algorithm that is computationally efficient and well
motivated from learning theory. Second, we argue that any bandit algorithm can
be reliably evaluated offline using previously recorded random traffic.
Finally, using this offline evaluation method, we successfully applied our new
algorithm to a Yahoo! Front Page Today Module dataset containing over 33
million events. Results showed a 12.5% click lift compared to a standard
context-free bandit algorithm, and the advantage becomes even greater when data
gets more scarce.Comment: 10 pages, 5 figure
The Economics of Fairness, Reciprocity and Altruism â Experimental Evidence and New Theories
This paper surveys recent experimental and field evidence on the impact of concerns for fairness, reciprocity and altruism on economic decision making. It also reviews some new theoretical attempts to model the observed behavior.Behavioural Economics; Other-regarding Preferences; Fairness; Reciprocity; Altruism; Experiments; Incentives; Contracts; Competition
Duration problem: basic concept and some extensions
We consider a sequence of independent random variables with the known
distribution observed sequentially. The observation is assumed to be a
value of one order statistics such as s:n-th, where 1 is less than s is less
than n. It the instances following the th observation it may remain of the
s:m or it will be the value of the order statistics r:m (of m> n observations).
Changing the rank of the observation, along with expanding a set of
observations there is a random phenomenon that is difficult to predict. From
practical reasons it is of great interest. Among others, we pose the question
of the moment in which the observation appears and whose rank will not change
significantly until the end of sampling of a certain size. We also attempt to
answer which observation should be kept to have the "good quality observation"
as long as possible. This last question was analysed by Ferguson, Hardwick and
Tamaki (1991) in the abstract form which they called the problem of duration.
This article gives a systematical presentation of the known duration models
and a new modifications. We collect results from different papers on the
duration of the extremal observation in the no-information (denoted as rank
based) case and the full-information case. In the case of non-extremal
observation duration models the most appealing are various settings related to
the two extremal order statistics. In the no-information case it will be the
maximizing duration of owning the relatively best or the second best object.
The idea was formulated and the problem was solved by Szajowski and Tamaki
(2006). The full-information duration problem with special requirement was
presented by Kurushima and Ano (2010)
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