TI-games I: An exploration of Type Indeterminacy in strategic decision-making

The Type Indeterminacy model is a theoretical framework that formalizes the constructive preference perspective suggested by Kahneman and Tversky. In this paper we explore an extention of the TI-model from simple to strategic decision-making. A 2X2 game is investigated. We first show that in a one-shot simultaneaous move setting the TI-model is equivalent to a standard incomplete information model. We then let the game be preceded by a cheap-talk promise exchange game. We show in an example that in the TI-model the promise stage can have impact on next following behavior when the standard classical model predicts no impact whatsoever. The TI approach differs from other behavioral approaches in identifying the source of the effect of cheap-talk promises in the intrinsic indeterminacy of the players' type.quantum indeterminacy ; type ; strategic decision-making ; game

Eliminating opportunism using an epistemic mechanism

Opportunism is a behavior that takes advantage of knowledge asymmetry and results in promoting agents' own value and demoting other agents' value. It is important to eliminate such a selfish behavior in multi-agent systems, as it has undesirable results for the participating agents. However, as the context we study here is multi-agent systems, system designers actually might not be aware of the value system for each agent thus they have no idea whether an agent will perform opportunistic behavior. Given this fact, this paper designs an epistemic mechanism to eliminate opportunism given a set of possible value systems for the participating agents: An agent's knowledge gets updated so that the other agent is not able to perform opportunistic behavior, and there exists a balance between eliminating opportunism and respecting agents' privacy

Trust and transactions: Transaction cost analysis with a differential behavioral assumption

Transaction Costs;costs and cost price

TI-games I: An Exploration of Type Indeterminacy In Strategic Decision-Making

The Type Indeterminacy model is a theoretical framework that formalizes the constructive preference perspective suggested by Kahneman and Tversky. In this paper we explore an extention of the TI-model from simple to strategic decision-making. A 2X2 game is investigated. We first show that in a one-shot simultaneaous move setting the TI-model is equivalent to a standard incomplete information model. We then let the game be preceded by a cheap-talk promise exchange game. We show in an example that in the TI-model the promise stage can have impact on next following behavior when the standard classical model predicts no impact whatsoever. The TI approach differs from other behavioral approaches in identifying the source of the effect of cheap-talk promises in the intrinsic indeterminacy of the players' type.Comment: 18

Temporal, cognitive and behavioral dimensions of transaction costs: To an understanding of hybrid vertical inter-firm relations

transaction costs;costs and cost price

A theoretical analysis of the relationship between social capital and corporate social responsibility: concepts and definitions

The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle, between the level of SC and the implementation of CSR practices, that fosters socio-economic development by generating social inclusion and social networks based on trust and trustworthiness. Following the literature on SC that stresses its multidimensional character, both a cognitive and a structural idea of SC are considered. The first one essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents. With regard to the concept of CSR, a contractarian approach is adopted and CSR is considered as an extended model of corporate governance, based on the fiduciary duties owed to all the firm’s stakeholders. Among stakeholders, a original distinction between “strong” and “weak” stakeholders is introduced. The key element that allows to distinguish between strong and weak stakeholders concerns the consequences that the break in the relationship with the firm produces both on the stakeholder and on the firm. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them. Considering the notions of cognitive and structural SC, a contractarian approach to CSR and the distinction between weak and strong stakeholders, the paper shows that: a) the level of cognitive SC plays a key role in inducing the firm to adopt and observe CSR practices that respect all the stakeholders; b) the decision of adopting formal instruments of CSR contributes to create cognitive SC that is endogenously determined in the model; c) the level of cognitive SC and the decision of adopting CSR practices creates structural SC in terms of a long term relationship between the firm and the weak and strong stakeholders.Social capital, Corporate Social Responsibility, Social network, Ideal utility, Cooperation, Trust.

Stopping Information Asymmetries in Government from Promoting Risk Shifting by Banks

Bank managers are said to shift risks when the downside of the profit opportunities that the bank pursues is absorbed in nontransparent fashion by the bank's creditors and guarantors. Risk shifting is facilitated by information asymmetries that tempt government officials to show creditors and taxpayers about how effectively government bureaus are controlling bank risk. The growing sophistication of financial products and financial institutions' net risk-taking positions demands a regulatory regime that—like Pinocchio's nose—can create and enforce incentives for transparency and truth-telling about the nature and value of taxpayers' implicit stake in regulated financial institutions. This paper was presented at the Financial Institutions Center's October 1996 conference on "

A Theoretical Analysis of the Relationship between Social Capital and Corporate Social Responsibility: Concepts and Definitions

Trust, trustworthiness and ethical norms of reciprocity and cooperation have been receiving more and more attention in economic analysis. In particular, two concepts have been widely used in order to study the socio-economic effects of these factors: the concept of social capital (hereafter also SC) and of corporate social responsibility (hereafter also CSR). Even though SC and CSR seem to be linked by many common elements related to the quality and quantity of social relations between agents, their relationship has not been deeply investigated yet. This paper is aimed at shedding light on some aspects of this relationship, in particular, by investigating the idea of a virtuous circle, between the level of SC and the implementation of CSR practices, that fosters socio-economic development by generating social inclusion and social networks based on trust and trustworthiness. Following the literature on SC that stresses its multidimensional character (e.g. Paldam 2000), we consider two dimensions of this notion. Starting from the distinction introduced by Uphoff (1999), we take into account a cognitive and a structural idea of SC. The first one essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents. With regard to the concept of CSR, we adopt a contractarian approach and consider CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm's stakeholders. Among stakeholders, we distinguish between strong and weak stakeholders. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. They are, for example, skilled workers or institutional investors. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them. They are, for example, unskilled workers. Considering the notions of cognitive and structural SC and a contractarian approach to CSR, we show that: a) the level of cognitive SC plays a key role in inducing the firm to adopt and observe CSR practices that respect all the stakeholders; b) the decision of adopting formal instruments of CSR contributes to create cognitive SC that is endogenously determined in the model; c) the level of cognitive SC and the decision of adopting CSR practices creates structural SC in terms of a long term relationship between the firm and the weak and strong stakeholders.social capital, social norms, reputation, CSR, reciprocity, network, trust

Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing

This study reports experimental market power and efficiency outcomes for a computational wholesale electricity market operating in the short run under systematically varied concentration and capacity conditions. The pricing of electricity is determined by means of a clearinghouse double auction with discriminatory mid-point pricing. Buyers and sellers use Roth-Erev individual reinforcement learning to determine their price and quantity offers in each auction round. It is shown that market microstructure is strongly predictive for the relative market power of buyers and sellers, and that high market efficiency is generally attained. These findings are robust for tested changes in individual learning parameters. It is also shown that similar relative market power findings are obtained if the electricity buyer and seller populations instead each engage in social mimicry learning via a genetic algorithm. However, market efficiency is substantially reduced.Wholesale electricity market, Electricity restructuring, Double auction, Market power, Efficiency, Concentration, Capacity, Agent-based computational economics, Roth-Erev reinforcement learning, Genetic algorithm social learning.