Probability Weighting as Evolutionary Second-best

The economic concept of the second-best involves the idea that multiple simultaneous deviations from a hypothetical first-best optimum may be optimal once the first-best itself can no longer be achieved, since one distortion may partially compensate for another. Within an evolutionary framework, we translate this concept to behavior under uncertainty. We argue that the two main components of prospect theory, the value function and the probability weighting function, are complements in the second-best sense. Previous work has shown that an adaptive S-shaped value function may be evolutionary optimal if decision-making is subject to cognitive or perceptive constraints. We show that distortions in the way probabilities are perceived can further enhance fitness. The second-best optimum involves overweighting of small and underweighting of large probabilities. Behavior as described by prospect theory might therefore be evolution's second-best solution to the fitness maximization problem. We discuss under which circumstance our model makes empirically testable predictions about the relation between individuals' value and probability weighting functions.Probability Weighting, Prospect Theory, Evolution of Preferences

Toward behavioural innovation economics – Heuristics and biases in choice under novelty

A framework for ‘behavioural innovation economics’ is proposed here as a synthesis of behavioural economics and innovation economics in the specific context of choice under novelty. We seek to apply the heuristics and biases framework of behavioural economics to the study of the innovation process in order to map and analyze systematic choice failures in the innovation process. We elaborate the distinction between choice under uncertainty and choice under novelty, as well as drawing out the ‘efficient innovation hypothesis’ implicit in most behavioural models of innovation. The subject domain of a research program for behavioural innovation economics is then briefly outlined in terms of a catalogue of characteristic ways in which choice under novelty renders innovation processes subject to failure.

Human nature and institutional analysis

This essay reviews some findings in cognition sciences and examines their consequences for the analysis of institutions. It starts by exploring how humans’ specialization in producing knowledge ensures our success in dominating the environment but also changes fast our environment. So fast that it did not give time to natural selection to adapt our biology, causing it to be potentially maladapted in important dimensions. A main function of institutions is therefore to fill the gap between the demands of our relatively new environment and our biology, still adapted to our ancestral environment as hunter-gatherers. Moreover, institutions are built with the available elements, which include our instincts. A deeper understanding of both aspects, their adaptive function and this recruitment of ancestral instincts, will add greatly to our ability to manage institutions.Evolution, biology, behavior, institutions

A genetic algorithm approach to farm investment

Agricultural Finance, Farm Management,

Applied Computational Intelligence for finance and economics

This article introduces some relevant research works on computational intelligence applied to finance and economics. The objective is to offer an appropriate context and a starting point for those who are new to computational intelligence in finance and economics and to give an overview of the most recent works. A classification with five different main areas is presented. Those areas are related with different applications of the most modern computational intelligence techniques showing a new perspective for approaching finance and economics problems. Each research area is described with several works and applications. Finally, a review of the research works selected for this special issue is given.Publicad

Behavioral Economics: Past, Present, Future

Behavioral economics increases the explanatory power of economics by providing it with more realistic psychological foundations. This book consists of representative recent articles in behavioral economics. This chapter is intended to provide an introduction to the approach and methods of behavioral economics, and to some of its major findings, applications, and promising new directions. It also seeks to fill some unavoidable gaps in the chapters’ coverage of topics

Generating and Adapting to Diverse Ad-Hoc Cooperation Agents in Hanabi

Hanabi is a cooperative game that brings the problem of modeling other players to the forefront. In this game, coordinated groups of players can leverage pre-established conventions to great effect, but playing in an ad-hoc setting requires agents to adapt to its partner's strategies with no previous coordination. Evaluating an agent in this setting requires a diverse population of potential partners, but so far, the behavioral diversity of agents has not been considered in a systematic way. This paper proposes Quality Diversity algorithms as a promising class of algorithms to generate diverse populations for this purpose, and generates a population of diverse Hanabi agents using MAP-Elites. We also postulate that agents can benefit from a diverse population during training and implement a simple "meta-strategy" for adapting to an agent's perceived behavioral niche. We show this meta-strategy can work better than generalist strategies even outside the population it was trained with if its partner's behavioral niche can be correctly inferred, but in practice a partner's behavior depends and interferes with the meta-agent's own behavior, suggesting an avenue for future research in characterizing another agent's behavior during gameplay.Comment: arXiv admin note: text overlap with arXiv:1907.0384

The Effects of Owl Decoys and Non-threatening Objects on Bird Feeding Behavior

As traditional agricultural practices change, the scarecrow has also been renovated and modernized to include mock natural predators, such as owls, hawks, and falcons instead of comical human representations. These facsimiles represent an excellent opportunity to examine anti-predatory tactics and vigilance behavior in birds as a response to perceived threats. In this study, we tested songbird reaction to an owl decoy that mimicked the presence of a predator and to a non-threatening object placed in an oak woodland within Oregon’s Willamette Valley. Frequency of bird visitations to bird feeders when either a plastic owl or a cardboard box of similar size was used to examine the effect of the presence of a predator on bird feeding behavior. We hypothesized that introduction of a model owl would reduce the number of birds observed at a nearby feeder, but a cardboard box would not have a significant effect on bird presence. Using paired t-tests, we determined that a false predator was effective in deterring bird species from feeding, while a box was not

The Problem With Bounded Rationality On Behavioral Assumptions in the Theory of the Firm

I discuss and compare alternative approaches to integrating bounded rationality with the theory of economic organization, concentrating on the organizational capabilities approach, which is strongly influenced by the works of Nelson and Winter, organizational economics, particularly transaction cost economics, and, finally, a small subset of the literature on biases to judgment and cognition. I argue that, contrary to the conventional view, both the organizational capabilities approach and transaction cost economics treat bounded rationality rather “thinly,” the former being in actuality more taken up with organizational routines than individual boundedly rational behavior, the latter only invoking bounded rationality to the extent that it helps explaining incompleteness of contracting. The rich literature on cognitive biases, etc. suggests a “thick” approach to bounded rationality that may be helpful with respect to furthering the theory of economic organization. Examples pertaining to the internal organization of firms are provided.capability, organizations, transaction costs