A Dynamic Model of Dissonance Reduction in a Modular Mind

Cataloged from PDF version of article.This article establishes an economic framework to identify the conditions under which an optimizing agent may seek (or not seek) to engage in costly dissonance reduction. We set up a dynamic model of decision-making in which the individual's mind is composed of a coordinating principal and 2 conflicting agents. We take into account the cognitive dissonance experienced as a result of the conflict between the agents. Each agent (or self) is specialized in perceiving a particular type of signal and performing a task. Dissonance levels in our model are not constant. Instead, the individual's split-selves are open to habituation, which can lead to a reduction in cognitive dissonance. Therefore, motivated habituation appears as a way to avoid dissonance. We prove the existence of an optimal strategy with a threshold structure. Our results show that the existence of intrapersonal conflict may be a long run phenomenon even in an optimizing mind

Implementing Equal Division with an Ultimatum Threat

Cataloged from PDF version of article.We modify the payment rule of the standard divide the dollar (DD) game by introducing a second stage and thereby resolve the multiplicity problem and implement equal division of the dollar in equilibrium. In the standard DD game, if the sum of players' demands is less than or equal to a dollar, each player receives what he demanded; if the sum of demands is greater than a dollar, all players receive zero. We modify this second part, which involves a harsh punishment. In the modified game , if the demands are incompatible, then players have one more chance. In particular, they play an ultimatum game to avoid the excess. In the two-player version of this game, there is a unique subgame perfect Nash equilibrium in which players demand (and receive) an equal share of the dollar. We also provide an -player extension of our mechanism. Finally, the mechanism we propose eliminates not only all pure strategy equilibria involving unequal divisions of the dollar, but also all equilibria where players mix over different demands in the first stage

A minimally altruistic refinement of Nash equilibrium

Cataloged from PDF version of article.We introduce a minimal notion of altruism and use it to refine Nash equilibria in normal form games. We provide three independent existence proofs, relate minimally altruistic Nash equilibrium to other equilibrium concepts, conduct an in-depth sensitivity analysis, and provide examples where minimally altruistic Nash equilibrium leads to improved predictions. (C) 2013 Elsevier B.V. All rights reserved

Distributive concerns in the bankruptcy problem with an endogenous estate

We compare certain bankruptcy rules in a bankruptcy model with an endogenous estate on the basis of normative criteria. In particular, five properties related to distributive concerns are analyzed: minimal rights fi\u85rst, securement of initial investments, initial investments fi\u85rst, reasonable lower bounds on awards, and reasonable lower bounds on losses. The proportional rule receives the strongest support from this normative analysis among the rules considered. We also observe that the performance of the proportional rule improves in the family of bankruptcy problems with endogenous estates compared to the general set of bankruptcy problems. Our results complement those in Karagozoglu (2008) and provide a broader perspective to bankruptcy problems with endogenous estates