Salience, competition, and decoy goods

We consider a brand manufacturer who can offer, next to its high-quality product, also a decoy good and faces competition by a competitive fringe that produces low quality. We show that the brand manufacturer optimally provides a decoy good to boost the demand for its main product if consumers’ purchasing decisions are distorted by salient thinking. The optimal decoy good is designed such that the superior quality of the brand manufacturers’ main product and the unattractive feature of the fringe product are salient

Keep up with the winners: Experimental evidence on risk taking, asset integration, and peer effects

The paper reports the result of an experimental game on asset integration and risk taking. We find some evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a ‘keeping-up-with-the-Joneses’ hypothesis and find that subjects seek to keep up with winners, though not necessarily with average earnings. Overall, the evidence suggests that risk taking tracks a reference point affected by social comparisons

Why and how do political actors pursue risky welfare state reforms?

Why and how do political actors pursue risky welfare state reforms, in spite of the institutional mechanisms and political resistance that counteract change? This is one of the key puzzles of contemporary welfare state research, which is brought about by the absence of a complete account that identifies both the cause and causal mechanisms of risky reforms. In this article we offer a remedy for this lacuna. Prospect theory teaches us that political actors will only undertake risky reforms if they consider themselves to be in a losses domain, that is when their current situation is unacceptable. Next, we discuss the strategies that political actors use to avoid the blame associated with risky reforms. These provide the causal mechanisms linking cause and effect. The sudden outburst of risky reforms in formerly 'immovable' Italy provides an empirical illustration of our account. Copyright © 2007 Sage Publications

Endophilia or Exophobia:Beyond Discrimination

The discrimination literature treats outcomes as relative. But does a differential arise because agents discriminate against others - exophobia - or because they favour their own kind - endophilia? Using a field experiment that assigned graders randomly to students' examinations that did/did not contain names, we find favouritism but no discrimination by nationality nor by gender. We are able to identify these preferences under a wide range of behavioural scenarios regarding the graders. That endophilia dominates exophobia alters how we should measure discriminatory wage differentials and should inform the formulation of anti-discrimination policy

Negative outcomes evoke cyclic irrational decisions in Rock, Paper, Scissors

Rock, Paper, Scissors (RPS) represents a unique gaming space in which the predictions of human rational decision-making can be compared with actual performance. Playing a computerized opponent adopting a mixed-strategy equilibrium, participants revealed a non-significant tendency to over-select Rock. Further violations of rational decision-making were observed using an inter-trial analysis where participants were more likely to switch their item selection at trial n + 1 following a loss or draw at trial n, revealing the strategic vulnerability of individuals following the experience of negative rather than positive outcome. Unique switch strategies related to each of these trial n outcomes were also identified: after losing participants were more likely to ‘downgrade’ their item (e.g., Rock followed by Scissors) but after drawing participants were more likely to ‘upgrade’ their item (e.g., Rock followed by Paper). Further repetition analysis revealed that participants were more likely to continue their specific cyclic item change strategy into trial n + 2. The data reveal the strategic vulnerability of individuals following the experience of negative rather than positive outcome, the tensions between behavioural and cognitive influences on decision making, and underline the dangers of increased behavioural predictability in other recursive, non-cooperative environments such as economics and politics

Combining prototypes: A selective modification model

We propose a model that accounts for how people construct prototypes for composite concepts out of prototypes for simple concepts. The first component of the model is a prototype representation for simple, noun concepts, such as fruit, which specifies: (1) the relevant attributes of the concepts, (2) the possible values of each attribute, (3) the salience of each value, and (4) the diagnosticity of each attribute. The second component of the model specifies procedures for modifying simple prototypes so that they represent new, composite concepts. The procedure for adjectival modification, as when red modifies fruit, consists of selecting the relevant attribute(s) in the noun concept (color), boosting the diagnosticity of that attribute, and increasing the salience of the value named by the adjective (red). The procedure for adverbial modification, as in very red fruit, consists of multiplication-by-o-scalar of the salience of the relevant value (red). The outcome of these procedures is a new prototype representation. The third component of the model is [Tversky, 1977] contrast rule for determining the similarity between a representation for a prototype and one for an instance. The model is shown to be consistent with previous findings about prototypes in general, as well as with specific findings about typicality judgments for adjective-noun conjunctions. Four new experiments provide further detailed support for the model.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/27126/1/0000118.pd