Trust and Arena Size. Expectations, Trust, and Institutions Co-Evolving, and Their Critical Population and Group Sizes.

We develop a formal approach to the emergence of institutionalized trust in the context of the evolution of cooperation, with a particular focus on the relevance of the size dimension of this process. While trust in general has been widely investigated, as has the size dimension of structural emergence, both have rarely been analyzed together in an integrated approach to the co-evolution of institutions, trust, and the size of their populations and carrier groups. This then also helps explaining general(ized) trust. In a game-theoretic set-up, we determine critical levels of expectations as a factor facilitating the emergence of institutionalized cooperation in an arena, or population. Critical levels of expectations (to meet a cooperative agent) and arena size turn out to be interdependent. A carrier group, or platform, emerges under further conditions. It encompasses only a part of the larger population, indicating a maximum critical mass of cooperators (a meso-size) that can be sustained in a population, under an additional set of agency capabilities, particularly partner selection. Once cooperation has been established as the prevalent behavioral pattern in a number of platforms, its habituation as an institution may lead to a contingent perception of trustworthiness of agents. Habituated cooperation, its generalization, spillover or transfer across platforms, in combination with the perceived trustworthiness of others may lead to an increasing general trust level in the larger population. The approach chosen thus allows identifying critical factors of general trust among strangers in a larger population even in one-shot interactions. The significant differences observed in actual general-trust levels among countries, highly correlated with their macro performances, can be explained from the countries’ different (and mainly ‘inner’) size conditions in the deep structures of their interaction arenas and resulting platforms (rather than just total population size), contributing to the persistent varieties of capitalism

Trust and Arena Size. Expectations, Trust, and Institutions Co-Evolving, and Their Critical Population and Group Sizes.

We develop a formal approach to the emergence of institutionalized trust in the context of the evolution of cooperation, with a particular focus on the relevance of the size dimension of this process. While trust in general has been widely investigated, as has the size dimension of structural emergence, both have rarely been analyzed together in an integrated approach to the co-evolution of institutions, trust, and the size of their populations and carrier groups. This then also helps explaining general(ized) trust. In a game-theoretic set-up, we determine critical levels of expectations as a factor facilitating the emergence of institutionalized cooperation in an arena, or population. Critical levels of expectations (to meet a cooperative agent) and arena size turn out to be interdependent. A carrier group, or platform, emerges under further conditions. It encompasses only a part of the larger population, indicating a maximum critical mass of cooperators (a meso-size) that can be sustained in a population, under an additional set of agency capabilities, particularly partner selection. Once cooperation has been established as the prevalent behavioral pattern in a number of platforms, its habituation as an institution may lead to a contingent perception of trustworthiness of agents. Habituated cooperation, its generalization, spillover or transfer across platforms, in combination with the perceived trustworthiness of others may lead to an increasing general trust level in the larger population. The approach chosen thus allows identifying critical factors of general trust among strangers in a larger population even in one-shot interactions. The significant differences observed in actual general-trust levels among countries, highly correlated with their macro performances, can be explained from the countries’ different (and mainly ‘inner’) size conditions in the deep structures of their interaction arenas and resulting platforms (rather than just total population size), contributing to the persistent varieties of capitalism

On Measuring and Explaining Neighbourhood Success:

This study combines qualitative and quantitative research methods to explain which factors contribute to a problem-free or problematic functioning of neighbourhoods in general and especially of Dutch neighbourhoods that were built in the first years after World War II. An important part of the book is about the development of measuring instruments. Special attention is given to the development of a risk scale that offers researchers and policymakers the opportunity to distinguish on a metric level between problematic and successful neighbourhoods.  This book brings together key insights from Urban Studies and central elements of Behavioural Game Theory. The author applies the notions of strong reciprocity and altruistic punishment in Prisoner’s Dilemmas and Assurance Games to describe and explain the interdependent choices that residents make when they act as producers and maintainers of the social climate in the daily living environment of a problem-free early post-Second World War neighbourhood. &nbsp

The Theory of Institutional Change Revisited: The Institutional Dichotomy, Its Dynamic, and Policy Implications in a More Formal Analysis

The original institutionalist theory of institutional change as elaborated by Paul D. Bush (1987) in the traditions of Veblen, Ayres and J.F. Foster (called here the VAFB-paradigm), provides a most important theoretical and empirical device for critical institutional analysis, with its clarification of the value base and of different forms and dynamics of value-behavior patterns. Bush’s paper was certainly one of the most important ones in Institutionalism. The Theory of Institutional Change pushed Institutionalism to a certain limit by elaborating its logical relations and systems that have been underexplored for so long. Coming from different ‘galaxies’, established formal approaches and methods, such as system dynamics, econometrics, network analysis, graph theory, or game theory—in fact, often applied only bluntly in the mainstream—have been interpreted, developed and applied by institutional and evolutionary economists in an evolutionary-institutionalist perspective in recent decades. However, a theoretical and methodological gap somehow still existed until recently that those practicing institutionalists had to deal with. This gap seems to become closed in different areas (such as the Theory of Institutional Change or the Social Fabric Matrix Approach) currently. This paper tries to demonstrate that careful proper interpretations allow, in a ‘dialectical’ process, to bridge the remaining gap and reveal surprising equivalences and complementarities with resulting synergies for the future. The example here is the mutual approximation of the VAFB-paradigm and evolutionary-institutionally interpreted game theory, called the EIGT-paradigm here. Should such bridge-building be corroborated in the near future, Institutionalism would be enabled to cut across traditional and long lasting boundaries with respect to deeper both empirical and logical analysis. This might turn out to be a historical project of the extension of Institutionalism’s reach. The particular asymmetry of the logics of instrumental vs. ceremonial warrants explains a general dominance of the ceremonial. The forms of change of institutional value-behavior structures derived are (1) (reinforced) ‘ceremonial encapsulation’, (2) regressive institutional change and (3) progressive institutional change. In the cases (2) and (3), the degree of ceremonial dominance will have to increase (decrease) and the system’s ‘permissiveness’ to decrease (increase). The conceptualization of institutions, the asymmetric schematization of value-behavior-structures, the reason for ceremonial dominance, and the possibility of progressive institutional change will be reconsidered and compared in this paper using a game-theoretic perspective, with its basically instrumental comprehension of institutions and with the ceremonial warrant comprehensible only as a degeneration of the instrumental. We refer to a most simple social dilemma interaction structure and a supergame solution. Surprising equivalences and complementarities emerge, with potentials of cross-fertilization. An initially instrumental institution is considered to develop (in fact degenerate), together with (1) the emergence, or reproduction, of status and power differentials in hierarchical systems, and (2) the striving for easy, smooth, and cheap decision-making, or ‘economies of scale’ of decision-making, first into a still instrumental norm and eventually into a ceremonial or abstract norm. The latter takes place, when original conditions have changed but the institutional structure will not properly adapt because of the two motives of status gain and economies of scale of institutionalized decision-making. In a game-theoretical perspective, ceremonial dominance and ceremonial encapsulation preventing a new progressive institutional change would translate into an insufficient new collective action capacity, due to (1) habituation, (2) an insufficient incentive structure and (3) a neglect of the common future. The conclusion of the critical role of policy to initiate, accelerate, and stabilize progressive institutional change is shared in the original institutionalist and the game-theoretic perspectives as well. A well-defined institutional policy approach, inferable in some detail from the game-theoretic logic, may initiate a lock-out of ceremonial encapsulation, through a change of the incentive structure and an increase of the importance and awareness of interdependence and a common future. The public agent must be capable of ‘meritorizing’ the private-interaction outcomes through a negotiated, participatory social process. Thus, the public agent would interact with the interaction system of the private agents in a well-defined way, i.e., ‘institutional policy’ as a double interactive policy. In all, large potentials for cross-fertilization of institutionalism and game theory

The theory of institutional change revisited: the institutional dichotomy, its dynamic, and policy implications in a more formal analysis

The original institutionalist theory of institutional change as elaborated by Paul D. Bush (1987) in the traditions of Veblen, Ayres and J.F. Foster (called here the VAFB-paradigm), provides a most important theoretical and empirical device for critical institutional analysis, with its clarification of the value base and of different forms and dynamics of value-behavior patterns. Bush’s paper was certainly one of the most important ones in Institutionalism. The Theory of Institutional Change pushed Institutionalism to a certain limit by elaborating its logical relations and systems that have been underexplored for so long. Coming from different ‘galaxies’, established formal approaches and methods, such as system dynamics, econometrics, network analysis, graph theory, or game theory—in fact, often applied only bluntly in the mainstream—have been interpreted, developed and applied by institutional and evolutionary economists in an evolutionary-institutionalist perspective in recent decades. However, a theoretical and methodological gap somehow still existed until recently that those practicing institutionalists had to deal with. This gap seems to become closed in different areas (such as the Theory of Institutional Change or the Social Fabric Matrix Approach) currently. This paper tries to demonstrate that careful proper interpretations allow, in a ‘dialectical’ process, to bridge the remaining gap and reveal surprising equivalences and complementarities with resulting synergies for the future. The example here is the mutual approximation of the VAFB-paradigm and evolutionary-institutionally interpreted game theory, called the EIGT-paradigm here. Should such bridge-building be corroborated in the near future, Institutionalism would be enabled to cut across traditional and long lasting boundaries with respect to deeper both empirical and logical analysis. This might turn out to be a historical project of the extension of Institutionalism’s reach. The particular asymmetry of the logics of instrumental vs. ceremonial warrants explains a general dominance of the ceremonial. The forms of change of institutional value-behavior structures derived are (1) (reinforced) ‘ceremonial encapsulation’, (2) regressive institutional change and (3) progressive institutional change. In the cases (2) and (3), the degree of ceremonial dominance will have to increase (decrease) and the system’s ‘permissiveness’ to decrease (increase). The conceptualization of institutions, the asymmetric schematization of value-behavior-structures, the reason for ceremonial dominance, and the possibility of progressive institutional change will be reconsidered and compared in this paper using a game-theoretic perspective, with its basically instrumental comprehension of institutions and with the ceremonial warrant comprehensible only as a degeneration of the instrumental. We refer to a most simple social dilemma interaction structure and a supergame solution. Surprising equivalences and complementarities emerge, with potentials of cross-fertilization. An initially instrumental institution is considered to develop (in fact degenerate), together with (1) the emergence, or reproduction, of status and power differentials in hierarchical systems, and (2) the striving for easy, smooth, and cheap decision-making, or ‘economies of scale’ of decision-making, first into a still instrumental norm and eventually into a ceremonial or abstract norm. The latter takes place, when original conditions have changed but the institutional structure will not properly adapt because of the two motives of status gain and economies of scale of institutionalized decision-making. In a game-theoretical perspective, ceremonial dominance and ceremonial encapsulation preventing a new progressive institutional change would translate into an insufficient new collective action capacity, due to (1) habituation, (2) an insufficient incentive structure and (3) a neglect of the common future. The conclusion of the critical role of policy to initiate, accelerate, and stabilize progressive institutional change is shared in the original institutionalist and the game-theoretic perspectives as well. A well-defined institutional policy approach, inferable in some detail from the game-theoretic logic, may initiate a lock-out of ceremonial encapsulation, through a change of the incentive structure and an increase of the importance and awareness of interdependence and a common future. The public agent must be capable of ‘meritorizing’ the private-interaction outcomes through a negotiated, participatory social process. Thus, the public agent would interact with the interaction system of the private agents in a well-defined way, i.e., ‘institutional policy’ as a double interactive policy. In all, large potentials for cross-fertilization of institutionalism and game theory

Shorting ethos?: Aristotelian ethos in the context of corporate reputation, persuasion and shared values

Corporate ethics is a complex field of study that focuses on the sources and role of moral expectations among modern corporate stakeholders. While there has been significant theoretical development and adoption by practitioners on the topic over the past thirty years in the field, ethical scandals persist, almost at unprecedented levels. The pressure to meet short term shareholder financial targets, the lack of consistency and clarity of moral expectations among stakeholders, the corporation as an imperfect social environment, all contribute to the status quo where corporate ethics can be a familiar but elusive goal. At the same time, there have been fundamental changes in the flow of information recently. Information now flows as speeds and volumes unimaginable thirty years ago. More importantly, it now flows through very decentralized patterns such as social media which have changed the ability of corporations to manage their reputation and brand. This paper focuses on one concept within the broader field of ethics, virtue, in an attempt to better understand the role that it currently plays, but also could play, in business ethics by studying its application in persuasion. Chapter I provides an overview of the concept of ethos which can be roughly translated as moral character, and positions it in the context of the modern corporation. Corporate moral character is evidenced through the decisions a company makes via its decision-makers and actors, which often have an impact on the various stakeholders including customers, clients, the government etc. Chapter II traces the relationship between virtuous conduct and corporation reputation management. It proposes that virtue, through its role in ethos can be intrinsically beneficial to a corporation and a competitive advantage in the marketplace in terms of corporate reputation, which is increasingly viewed as a valuable asset. According to Aristotle, Ethos has three components; virtue, practical wisdom and goodwill towards others (Arist. Rhet I.2,1356a). Ethos is a critical element to persuasion along with pathos (use of emotion) and logos (use of logic); speakers that embrace all three in a message will be more persuasive. Corporations routinely rely on persuasion to be effective and successful, from advertising to sales, to employee relationships. Chapter III then proposes corporate virtue as a form of Shared Value (SV), a theory proposed by Porter and Kramer (2011). While Shared Value has received critical acclaim over the years as an economic theory effectively and efficiently promoting the interests of the broader society at the same time as the interests of the modern corporation, the theory has been challenged more recently for its lack of clear definition and ability to be implemented properly. This chapter argues that corporate virtue meets the qualifications of Shared Value, and should be promoted within corporations in view of its influence on persuasion, positively benefitting the company, and the positive effects that virtue has on corporate stakeholders like society, employees, government etc. Chapter IV explores the concept of persuasion at a higher level, particularly as it can be related to organizational communications and organizational rhetoric. Persuasion is a concept that has likely existed as long as there has been communication.. The study of persuasion can be traced back to ancient Greece where Aristotle put structure to the process as a means of creating an educated citizen, an element critical to emerging democracies. The chapter is framed around the notion that persuasion as a means of attitude change can be developed in a more instrumental manner characterized by one way communication such as traditional marketing and public relations efforts. The chapter proposes that persuasion can also be developed in a more deliberative manner, which is supported in the etymological root persuadere, emphasizing a more ethical discourse including two way communication and more equal bargaining position. It then looks at how persuasion is developed in the organizational context today, including advances in the social sciences to better understand the mechanisms of persuasion including the Elaboration Likelihood Model, inoculation theory model and expectancy value theory, suggesting that persuasion in a deliberative manner is underdeveloped in organizational rhetoric. Lastly, Chapter V describes the advent and implications of corporate reputation risk through the case study of Goldman Sachs in 2008. Reputation risk develops when actual corporate behaviour deviates from the reputation that the corporation has among its stakeholders in regards to any particular trait. To the degree there is a difference between a corporation’s reputation or how it is perceived in regards to a particular topic such as product quality, timeliness, altruism, truthfulness, and its actual behaviour, then reputational risk may develop to the degree that its reputation, an increasingly valuable asset to companies today, may be devalued. To the degree that ethical or virtuous conduct is a component of a corporate brand, which is critical particularly in service industries such as banking, any lack of consistency with actual conduct could have significant financial implications. Collectively these chapters demonstrate how virtue and its role in persuasion serves as a common denominator in business ethics, and a valuable vehicle to promote ethical conduct in a complicated social environment called capitalism

Weed Control as a Collective Action Problem: Quantifying group effects on individual behavior, and clarifying the theoretical frame

Weeds reduce the biodiversity and productivity of agricultural systems, and are a problem both around the world, and in Montana. Weeds are challenging to control because their effective dispersal mechanisms enable cross-boundary colonization, and so managers must engage diverse groups of private landowners. Researchers have recognized weed control is a collective action problem, but there is little research quantifying the role of collective factors on an individual’s decision to control. To fully understand the motivations behind independent weed control, I initiated a study to quantitatively assess different types of landowners and their weed control behaviors, the relationship between collective interest variables and individual landowners’ willingness to engage in weed control behaviors. I identified a k-means cluster analysis as a way to segment the Montana landowner population, and the Collective Interest Model as a way to understand the influence of collective factors on an individual’s decision to control for weeds, while holding individual factors constant. I surveyed 4,500 Montana landowners, and analyzed results using descriptives and ordinarily least squares regression. I found five different groups of landowners, and that collective factors, such as an injunctive norm and the belief weeds are a cross boundary problem, were significantly correlated with willingness to engage in three different weed control behaviors. This suggests if weed control outreach explicitly promotes collective messages, it may be able to more effectively engage landowners. In addition, I believe that weed control has been mis-classified in the literature as a common pool resource problem, instead it should be considered a public good problem. I present reasoning that weeds are a public good problem and draw on solutions to public good problems generally and adapt them to weed control

Crisis-driven innovation of products new to firms: the sensitization response to COVID-19

How firms address pressing societal needs during crises is not well understood. The COVID-19 pandemic disrupted societies worldwide, and many firms quickly developed new product innovations in personal protective equipment – an area outside of their core businesses and with uncertain profitability but demanded by stakeholders. We conducted inductive case studies of eight firms to understand why firms pivot from shareholder- to stakeholder-oriented innovation of product categories new to the firm and how they satisfy new stakeholder needs during crises. The findings suggest a three-stage process model that explains how firms (1) internalize information signalling a lack of product supply that leads to urgent innovation needs, which in turn triggers a shift, (2) how the firm’s extant resources are understood and (3) thus how the capability assembly of new product innovation is initiated. We theorize that the increase in responsiveness to societal crises is a sensitization process. This process explains how for-profit product innovation prior to the pandemic led to the crisis-driven innovation of products new to the firm by temporarily suspending a profit orientation to respond quickly to calls for help. Implications for theory and practice are discussed