Against simplicity and cognitive individualism: Nathaniel T. Wilcox

Neuroeconomics illustrates our deepening descent into the details of individual cognition. This descent is guided by the implicit assumption that “individual human” is the important “agent” of neoclassical economics. I argue here that this assumption is neither obviously correct, nor of primary importance to human economies. In particular I suggest that the main genius of the human species lies with its ability to distribute cognition across individuals, and to incrementally accumulate physical and social cognitive artifacts that largely obviate the innate biological limitations of individuals. If this is largely why our economies grow, then we should be much more interested in distributed cognition in human groups, and correspondingly less interested in individual cognition. We should also be much more interested in the cultural accumulation of cognitive artefacts: computational devices and media, social structures and economic institutions

Stated versus inferred beliefs: A methodological inquiry and experimental test

If asking subjects their beliefs during repeated game play changes the way those subjects play, using those stated beliefs to evaluate and compare theories of strategic behavior is problematic. We experimentally verify that belief elicitation can alter paths of play in a repeated asymmetric matching pennies game. In this setting, belief elicitation improves the goodness of fit of structural models of belief learning, and the prior beliefs implied by such structural models are both stronger and more realistic when beliefs are elicited than when they are not. These effects are, however, confined to the player type who sees a strong asymmetry between payoff possibilities for her two strategies in the game. We also find that “inferred beliefs” (beliefs estimated from past observed actions of opponents) can be better predictors of observed actions than the “stated beliefs” resulting from belief elicitation.beliefs; stated beliefs; belief elicitation; inferred beliefs; estimated beliefs; belief updating; repeated games; experimental methods

What Students Expect and What They See: Ideology, Identity and the Double Auction Classroom Experiment

Many economists find that classroom experiments using the Double Auction (DA) trading institution are an effective pedagogical tool in introductory economics classes. Results of such experiments reliably illustrate the concepts and descriptive relevance of the theory of competitive equilibrium (or CE). However, we have noticed that the degree to which students are "surprised" by the CE theory's ability to predict DA outcomes seems to vary from class to class, and especially across classes at markedly different universities. We speculate that this is due to differences in students' ideological leanings and that these, in turn, are related to various socioeconomic or "identity" variables, such as class and race, that may vary systematically across universities. This paper reports some initial experimental results that explore this hypothesis. We find that only a few socioeconomic variables significantly predict students' ideology, and that at least one measure of ideology is a robust predictor of students' prior expectations and posterior evaluations of the predictive performance of CE theory. Several other variables, including sex, union status and work experience, also help predict students' expectations or evaluations; but none of these is as strong or robust as ideology itself.

Conditional Independence in a Binary Choice Experiment

Experimental and behavioral economists, as well as psychologists, commonly assume conditional independence of choices when constructing likelihood functions for structural estimation. I test this assumption using data from a new experiment designed for this purpose. Within the limits of the experiment’s identifying restriction and designed power to detect deviations from conditional independence, conditional independence is not rejected. In naturally occurring data, concerns about violations of conditional independence are certainly proper and well-taken (for well-known reasons). However, when an experimenter employs contemporary state-of-the-art experimental mechanisms and designs, the current evidence suggests that conditional independence is an acceptable assumption for analyzing data so generated

Believing in Economic Theory: Sex, Lies, Evidence, Trust and Ideology

In many empirical studies, ideology significantly predicts political outcomes, even after controlling for interests. This may reflect ideology’s influence on descriptive beliefs about the workings of the economic world. We investigate these beliefs about supply and demand theory, using survey methods and an experimental demonstration. As expected, relatively liberal respondents have more skeptical ex-ante beliefs (before viewing the experiment) about the theory. Surprisingly, however, relatively conservative respondents update beliefs (after viewing the experiment) so much less strongly that they have more skeptical ex-post beliefs. We explore and discount alternative explanations for these relationships between ideology and beliefs.

Commentary: Reflections on Decision Research and Its Empiricism: Four Comments Inspired by Harrison

Generally I find Harrison\u27s chapter cogent, interesting, and well-informed in details and particulars, and so do not speak of them. Instead, I reflect on four larger matters Harrison brings to my mind. These four matters are presented below as four separate sections, to be read as four separate and short comments (though the four sections do share a few threads)

Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk

Microeconometric treatments of discrete choice under risk are typically homoscedastic latent variable models. Specifically, choice probabilities are given by preference functional differences (given by expected utility, rank-dependent utility, etc.) embedded in cumulative distribution functions. This approach has a problem: Estimated utility function parameters meant to represent agents’ degree of risk aversion in the sense of Pratt (1964) do not imply a suggested “stochastically more risk averse” relation within such models. A new heteroscedastic model called “contextual utility” remedies this, and estimates in one data set suggest it explains (and especially predicts) as well or better than other stochastic models.risk; more risk averse; discrete choice; stochastic choice; heteroscedasticity

Distribution and Dynamics in a Simple Tax Regime Transition

We examine transitions between excise tax and license fee regimes in the laboratory. The regimes have matched equilibrium Marshallian surplus, but license fees generate more tax revenue. The license fees are large “avoidable costs,” known to hamper competitive equilibrium convergence. With moderately experienced subjects, the prolonged transition to the license fee equilibrium has these features: (1) Prices below equilibrium levels, resulting in firm losses; (2) Marshallian surplus above equilibrium levels; and (3) transitional windfalls for the tax authority. With highly experienced subjects, license fees lead to the instability and lower seller profits and efficiency observed in past avoidable cost markets.Tax Regime Transitions, Avoidable Costs, Double Auctions, Experimental Methods.

Social Norms, Discrete Choices, and False Dichotomies

Eric Schniter and Nathaniel Wilcox comment on Bram Tucker\u27s article, Do Risk and Time Experimental Choices Represent Individual Strategies for Coping with Poverty or Conformity to Social Norms? Evidence from Rural Southwestern Madagascar , which revisits a debate played out in Current Anthropology as to whether subsistence decisions are the result of individual strategy to cope with poverty and increase wealth... or conformity to social norms