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Evolutionary

  • CHEN, M.K., V. LAKSHMINARAYANAN and L. SANTOS, DR]. How basic are behavioral biases? Evidence from capuchin-monkey trading behavior, Journal of Political Economy.[rSEG. [Cited by 25] (92.59/year)
    Abstract: "Behavioral economics has demonstrated systematic decision-making biases in both lab and field data. Do these biases extend across contexts, cultures, or even species? We investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys, and recovering their preferences over a range of goods and gambles. We show that capuchins react rationally to both price and wealth shocks, but display several hallmark biases when faced with gambles, including reference-dependence and loss-aversion. Given our capuchins’ inexperience with trade and gambles, these results suggest that loss-aversion extends beyond humans, and may be innate rather than learned."

  • JOHNSON-LAIRD, P.N., 1983. Mental models. cs.umu.se. [Cited by 2081] (90.70/year)

  • HIRSHLEIFER, D., 2001. Investor Psychology and Asset Pricing. The Journal of Finance, Vol. 56, No. 4, Papers and Proceedings of the Sixty-First Annual Meeting of the American Finance Association, New Orleans, Louisiana, January 5-7, 2001. (Aug., 2001), pp. 1533-1597. [Cited by 324] (65.55/year)
    Abstract: "The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understanding decision biases, evaluates the a priori arguments and the capital market evidence bearing on the importance of investor psychology for security prices, and reviews recent models."

  • HENRICH, Joseph, et al., 2001. In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies. The American Economic Review, Papers and Proceedings Vol. 91, No. 2, (May, 2001), pp. 73-78. [Cited by 297] (59.96/year)
    Conclusion: "While our results do not imply that economists should abandon the rational-actor framework, they do suggest two major revisions. First, the canonical model of the self-interested material payoff-maximizing actor is systematically violated. In all societies studied, UG offers are strictly positive and often substantially in excess of the expected income-maximizing offer, as are contributions in the public-goods game, while rejections of positive offers in some societies occur at a considerable rate. Second, preferences over economic choices are not exogenous as the canonical model would have it, but rather are shaped by the economic and social interactions of everyday life. This result implies that judgments in welfare economics that assume exogenous preferences are questionable, as are predictions of the effects of changing economic policies and institutions that fail to take account of behavioral change. Finally, the connection between experimental behavior and the structure of everyday economic life should provide an important clue in revising the canonical model of individual choice behavior."

  • NELSON, R.R., 1995. Recent Evolutionary Theorizing About Economic Change. Journal of Economic Literature. [Cited by 554] (50.63/year)
    Abstract: "Economists long have employed evolutionary language and metaphors to characterize economic change, but until recently have largely eschewed the expression of explicit evolutionary theories. Over the last decade, however, a number of explicit evolutionary theories have been developed by economists, and other social scientists. This essay discusses the general analytic art form, and summarizes and discusses a number of the particular models. In the light of those examples, it evaluates the strengths and weaknesses of explicit evolutionary theorizing as an approach to understanding economic change."

  • PINKER, S. and P. BLOOM, 1990. Natural Language and Natural Selection. bbsonline.org. [Cited by 684] (42.90/year)
    Abstract: "Many people have argued that the evolution of the human language faculty cannot be explained by Darwinian natural selection. Chomsky and Gould have suggested that language may have evolved as the by-product of selection for other abilities or as a consequence of as-yet unknown laws of growth and form. Others have argued that a biological specialization for grammar is incompatible with every tenet of Darwinian theory -- that it shows no genetic variation, could not exist in any intermediate forms, confers no selective advantage, and would require more evolutionary time and genomic space than is available. We examine these arguments and show that they depend on inaccurate assumptions about biology or language or both. Evolutionary theory offers clear criteria for when a trait should be attributed to natural selection: complex design for some function, and the absence of alternative processes capable of explaining such complexity. Human language meets this criterion: grammar is a complex mechanism tailored to the transmission of propositional structures through a serial interface. Autonomous and arbitrary grammatical phenomena have been offered as counterexamples to the position that language is an adaptation, but this reasoning is unsound: communication protocols depend on arbitrary conventions that are adaptive as long as they are shared. Consequently, language acquisition in the child should systematically differ from language evolution in the species and attempts to analogize them are misleading. Reviewing other arguments and data, we conclude that there is every reason to believe that a specialization for grammar evolved by a conventional neo-Darwinian process."

  • STARMER, C., 2000. Developments in Non-Expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk, Journal of Economic Literature, Vol. 38, No. 2. (Jun., 2000), pp. 332-382. [Cited by 269] (45.22/year)
    Abstract: "This article reviews recent developments in the economic theory of individual decision making under risk. Since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways. Considerable research effort has now been devoted to the project of developing a superior descriptive model. Following an overview of non-expected utility theories which distinguishes between "conventional" and "non-conventional" approaches, the paper seeks to assess these alternative models in terms of empirical success (using laboratory and field data) and theoretical usefulness. The closing sections reflect on some new directions emerging in this literature."

  • GILOVICH, T., D. GRIFFIN and D. KAHNEMAN, 2002. Heuristics and Biases: The Psychology of Intuitive Judgment. books.google.com. [Cited by 166] (42.10/year)

  • HUXLEY, T.H., 2004. Evolution And Ethics And Other Essays. books.google.com. [Cited by 71] (36.55/year)

  • CAMERER, Colin and Dan LOVALLO, 1999. Overconfidence and Excess Entry: An Experimental Approach. The American Economic Review, Vol. 89, No. 1. (Mar., 1999), pp. 306-318. [Cited by 200] (28.81/year)
    First paragraph: "Psychological studies show that most people are overconfident about their own relative abilities, and unreasonably optimistic about their futures (e.g. Neil D. Weinstein, 1980; Shelly E. Taylor and J. D. Brown, 1988). When assessing their position in a distribution of peers on almost any positive trait—like driving ability (Ola Svenson, 1981), income prospects, or longevity—a vast majority of people say they are above the average, although of course, only half can be (if the trait is symmetrically distributed).1"
    Footnote: "1There are interesting exceptions—most people demurely say they are not in the top decile or quintile, but merely above average; for many traits, women are less optimistic than men (and even overly pessimistic; e.g., Eleanor E. Maccoby and Carol N. Jacklin, 1974); and clinically depressed patients are not optimistic (e.g., Lauren B. Alloy and Anthony H. Ahrens, 1987). The latter finding calls into question the common psychiatric presumption that “realistic” people are well adjusted and happy, and also raises the question of whether unrealistic optimism might be evolutionary adaptive (e.g., Lionel Tiger, 1979) or socially beneficial (Giovanni Dosi and Lovallo, 1997). Michael Waldman (1994) shows how such optimism could be evolutionaryily stable, and mentions conditions under which gender differences like those observed empirically could arise."

  • B?NABOU, R. and J. TIROLE, 2002. Self-Confidence And Personal Motivation. Technology. [Cited by 112] (28.41/year)
    Abstract: "We analyze the value placed by rational agents on self-confidence, and the strategies employed in its pursuit. Confidence in one's abilities generally enhances motivation, making it a valuable asset for individuals with imperfect willpower. This demand for self-serving beliefs (which can also arise from hedonic or signaling motives) must be weighed against the risks of overconfidence. On the supply side, we develop a model of self-deception through endogenous memory that reconciles the motivated and rational features of human cognition. The resulting intrapersonal game of strategic communication typically leads to multiple equilibria. While "positive thinking" can improve welfare, it can also be self-defeating (and nonetheless pursued). Believe what is in the line of your needs, for only by such belief is the need fulfilled . . . Have faith that you can successfully make it, and your feet are nerved to its accomplishment [William James, Principles of Psychology]. I have done this, says my memory. I cannot have done that, says my pride, remaining inexorable. Finally - memory yields [Friedrich Nietzsche, Beyond Good and Evil[. I had during many years followed the Golden Rule, namely, that whenever a published fact, a new observation or thought came across me, which was opposed to my general results, to make a memorandum of it without fail and at once; for I had found by experience that such (contrary and thus unwelcome) facts and thoughts were far more apt to escape from memory than favorable ones [Charles Darwin in The Life of Charles Darwin, by Francis Darwin]."

  • HASELTON, M.G. and D. NETTLE, 2006. The Paranoid Optimist: An Integrative Evolutionary Model of Cognitive Biases, Personality and Social Psychology Review, Vol. 10, No. 1, Pages 47-66. [Cited by 6] (27.11/year)
    Abstract: "Human cognition is often biased, from judgments of the time of impact of approaching objects all the way through to estimations of social outcomes in the future. We propose these effects and a host of others may all be understood from an evolutionary psychological perspective. In this article, we elaborate error management theory (EMT; Haselton & Buss, 2000). EMT predicts that if judgments are made under uncertainty, and the costs of false positive and false negative errors have been asymmetric over evolutionary history, selection should have favored a bias toward making the least costly error. This perspective integrates a diverse array of effects under a single explanatory umbrella, and it yields new content-specific predictions."

    Whenever there exists a recurrent cost asymmetry between two types of errors over evolutionary time, selection will fashion mechanisms biased toward committing errors that are less costly in reproductive currency.
  • COSMIDES, Leda and John TOOBY, 1996. Are humans good intuitive statisticians after all? Rethinking some conclusions from the literature …. Cognition 58, 1–73. [Cited by 266] (26.73/year)

  • HEDSTR?M, P. and R. SWEDBERG, 1998. Social Mechanisms: An Analytical Approach to Social Theory. books.google.com. [Cited by 198] (24.91/year)

  • ROTH, A.E., et al., 1991. Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study. The American Economic Review. [Cited by 365] (24.43/year)
    Abstract: "In an experiment comparing two-person bargaining and multiperson markets in Israel, Japan, the United States, and Yugoslavia, market outcomes converged to equilibrium everywhere, with no payoff-relevant differences between countries. Bargaining outcomes were everywhere different from equilibrium predictions (both in agreements and in the substantial frequency of disagreements) and differences were observed between countries. Because of the experimental design, the fact that the market behavior is the same in all countries supports the hypothesis that the observed differences are not due to differences in languages, currencies, or experimenters, but may tentatively be attributed to cultural differences."

  • SAMUELSON, W.A. and R.A. ZECKHAUSER, 1988. Status quo bias in decision making. Journal of Risk and Uncertainty. [Cited by 420] (23.40/year)
    Abstract: "Most real decisions, unlike those of economics texts, have a status quo alternative—that is, doing nothing or maintaining one's current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of health plans and retirement programs by faculty members reveal that the status quo bias is substantial in important real decisions. Economics, psychology, and decision theory provide possible explanations for this bias. Applications are discussed ranging from marketing techniques, to industrial organization, to the advance of science."

  • KAHNEMAN, D., P.P. WAKKER and R. SARIN, 1997. Back to Bentham? Explorations of Experienced Utility. The Quarterly Journal of Economics. [Cited by 208] (23.26/year)
    Abstract: "Two core meanings of "utility" are distinguished. "Decision utility" is the weight of an outcome in a decision. "Experienced utility" is hedonic quality, as in Bentham's usage. Experienced utility can be reported in real time (instant utility), or in retrospective evaluations of past episodes (remembered utility). Psychological research has documented systematic errors in retrospective evaluations, which can induce a preference for dominated options. We propose a formal normative theory of the total experienced utility of temporally extended outcomes. Measuring the experienced utility of outcomes permits tests of utility maximization and opens other lines of empirical research."

  • CAMERER, C.F. and G. LOEWENSTEIN, 2004. Behavioral Economics: Past, Present, Future. Advances in Behavioral Economics. [Cited by 45] (23.16/year)
    Abstract: "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.1 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."

  • BABCOCK, L. and G. LOEWENSTEIN, 1997. Explaining Bargaining Impasse: The Role of Self-Serving Biases. The Journal of Economic Perspectives. [Cited by 202] (22.59/year)
    Abstract: "The authors review studies conducted by themselves and coauthors that document a 'self-serving' bias in judgments of fairness and demonstrate that the bias is an important cause of impasse in negotiations. They discuss experimental evidence showing that (1) the bias causes impasse; (2) it is possible to reduce impasses by debiasing bargainers; and (3) the bias results from selective evaluation of information. The authors also review results from a field study of negotiations between teachers' unions and school boards in Pennsylvania that both document the fairness bias in a naturalistic setting and demonstrates its impact on strikes."

  • SAMUELSON, Larry and Jeroen M. SWINKELS, 2006. Information, evolution and utility, Theoretical Economics. [Cited by 5] (22.06/year)
    Abstract: "Human utility embodies a number of seemingly irrational aspects. The leading example in this paper is that utilities often depend on the presence of salient unchosen alternatives. Our focus is to understand why an evolutionary process might optimally lead to such seemingly dysfunctional features in our motivations and to derive implications for the nature of our utility functions."

    Theoretical Economics Volume (Year): 1 (2006) Issue (Month): 1 (March) Pages: 119-142 Theoretical Economics 1 (2006), 119-142 Conclusion: There is evolutionary value in having things in the utility function not because they have direct evolutionary consequences, but rather because conditioning our utility on these features makes our choices differentially responsive to the quality of our information. The important aspects of the model from which these conclusions have emerged are the following. • The agent has useful information about fitness. Both cultural and environmental factors can be critical to fitness and can fluctuate more rapidly than the pace of evolutionary adaptation. • It is impossible, for reasons of complexity and (more importantly) of the difficulty of building an accurate prior into the agent, to make the agent a perfect information processor. Our results show that the very fact that we have utility for intermediate actions suggests that we are not perfect information processors. • Given that we process information imperfectly, there is every reason to think that our beliefs are sometimes more and sometimes less reliable as estimates of true expected fitness. • Evolution has compensated for this by incorporating seemingly irrelevant factors into our utility because they are correlated with the quality of our information. • This gives rise to seemingly irrational (fromthe classical point of view) utility functions with their attendant self-control problems. While self-control problems are irrational in a classical utility framework, it should be no surprise that real utility functions incorporate them.
  • LOEWENSTEIN, G. and D. PRELEC, 1992. Anomalies in Intertemporal Choice: Evidence and an Interpretation. The Quarterly Journal of Economics. [Cited by 307] (22.01/year)
    Abstract: "Research on decision-making under uncertainty has been strongly influenced.by the documentation of numerous expected utility anomalies--behaviors that violate the expected utility axioms. The relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility anomalies. The authors enumerate a set of discounted utility anomalies analogous to the expected utility anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with discounted utility. They discuss implications for savings behavior, estimation of discount rates, and choice framing effects."

  • CACIOPPO, J.T. and W.L. GARDNER, 1999. Emotion.. Annual Review of Psychology. [Cited by 145] (20.89/year)
    Abstract: "We review recent trends and methodological issues in assessing and testing theories of emotion, and we review evidence that form follows function in the affect system. Physical limitations constrain behavioral expressions and incline behavioral predispositions toward a bipolar organization, but these limiting conditions appear to lose their power at the level of underlying mechanisms, where a bivalent approach may provide a more comprehensive account of the affect system."

  • PAYNE, J.W., J.R. BETTMAN and E.J. JOHNSON, 1992. Behavioral Decision Research: A Constructive Processing Perspective. Annual Review of Psychology 43, 87-131. [Cited by 278] (19.93/year)

  • CACIOPPO, J.T., W.L. GARDNER and G.G. BERNTSON, 1999. The affect system has parallel and integrative processing components: Form follows function. Journal of Personality and Social Psychology. [Cited by 138] (19.88/year)
    Abstract: "The affect system has been shaped by the hammer and chisel of adaptation and natural selection such that form follows function. The characteristics of the system thus differ across the nervous system as a function of the unique constraints existent at each level. For instance, although physical limitations constrain behavioral expressions and incline behavioral predispositions toward a bipolar (good—bad, approach—withdraw) organization, these limiting conditions lose their power at the level of underlying mechanisms. According to the authors' model of evaluative space ( J. T. Cacioppo & G. G. Berntson, 1994 ; J. T. Cacioppo, W. L. Gardner, & G. G. Berntson, 1997 ), the common metric governing approach—withdrawal is generally a single dimension at response stages that itself is the consequence of multiple operations, such as the activation function for positivity (appetition) and the activation function for negativity (aversion), at earlier affective processing stages."

  • NELSON, Richard R. and Sidney G. WINTER, 2002. Evolutionary Theorizing in Economics, The Journal of Economic Perspectives, Vol. 16, No. 2. (Spring, 2002), pp. 23-46. [Cited by 77] (19.53/year)
    Abstract: "This paper reviews the case for an evolutionary approach to problems of economic analysis, ranging from the details of individual firm behavior in the short run through industrial dynamics to the historical evolution of institutions and technologies. We draw upon a substantial body of recent research contributions. We characterize micro behavior as governed by skills and routines that are shaped by learning and selection. We then consider major areas of application of evolutionary thinking, including the analysis of competitive processes in technologically dynamic industries and the evolution of institutions and technologies."

  • MAYNARD SMITH, J. and G.R. PRICE, 1973. The logic of animal conflict, Nature 246 , 15 - 18 (02 November 1973). [Cited by 612] (18.57/year)
    Abstract: "Conflicts between animals of the same species usually are of "limited war" type, not causing serious injury. This is often explained as due to group or species selection for behaviour benefiting the species rather than individuals. Game theory and computer simulation analyses show, however, that a "limited war" strategy benefits individual animals as well as the species."
  • SAMUELSON, L., 2004. Information-Based Relative Consumption Effects. Econometrica. [Cited by 36] (18.53/year)
    Abstract: "Preferences exhibit relative consumption effects if a person's satisfaction with their own consumption appears to depend upon how much others are consuming. This paper examines a model of an evolutionary environment in which Nature optimally builds relative consumption effects into preferences in order to compensate for incomplete environmental information."

  • BRAV, A., 2002. Competing Theories of Financial Anomalies. Review of Financial Studies. [Cited by 70] (17.75/year) Abstract: "We compare two competing theories of financial anomalies: "behavioral" theories built on investor irrationality, and "rational structural uncertainty" theories built on incomplete information about the structure of the economic environment. We find that although the theories relax opposite assumptions of the rational expectations ideal, their mathematical and predictive similarities make them difficult to distinguish. Even if irrationality generates financial anomalies, their disappearance still may hinge on rational learning--that is, on the ability of rational arbitrageurs and their investors to reject competing rational explanations for observed price patterns."

  • GIMENO, J., et al., 1997. Survival of the Fittest? Entrepreneurial Human Capital and the Persistence of Underperforming Firms, Administrative Science Quarterly, Vol. 42, No. 4. (Dec., 1997), pp. 750-783. [Cited by 158] (17.67/year)
    Abstract: "The model developed here explains why some firms survive while other firms with equal economic performance do not. We argue that organizational survival is not strictly a function of economic performance but also depends on a firm's own threshold of performance. We apply this threshold model to the study of new venture survival, in which the threshold is determined by the entrepreneur's human capital characteristics, such as alternative employment opportunities, psychic income from entrepreneurship, and cost of switching to other occupations. Using a sample of 1,547 entrepreneurs of new businesses in the U.S., we find strong support for the model. The findings suggest that firms with low thresholds may choose to continue or survive despite comparatively low performance."

  • LIBBY, R., R. BLOOMFIELD and M. NELSON, 2002. Experimental research in financial accounting. Accounting, Organizations and Society. [Cited by 68] (17.25/year)
    Abstract: "This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist?s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information, (2) how users of financial information interpret those reports, (3) how individual decisions affect market behavior, and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the "behavioral" and "experimental economics" literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient."

  • CHILES, T.H. and J.F. MCMACKIN, 1996. Integrating Variable Risk Preferences, Trust, and Transaction Cost Economics. The Academy of Management Review, Vol. 21, No. 1. (Jan., 1996), pp. 73-99. [Cited by 171] (17.20/year)
    Abstract: "Transaction cost economics (TCE) relies on three behavioral assumptions in predicting how firms choose governance structures- bounded rationality, opportunism, and risk neutrality. We explore the implications of the neglected behavioral assumption of risk neutrality, offer an integrative appraisal of the three behavioral assumptions using trust as a unifying perspective, and explicate subjective costs and risks. We illustrate the relative ease with which previous empirical shortcomings can be addressed by incorporating risk and trust in TCE models."

  • HASELTON, M.G. and D.M. BUSS, 2000. Error management theory: A new perspective on biases in cross-sex mind reading, Journal of Personality and Social Psychology, Vol. 78, No. 1, 81-91 [Cited by 95] (15.99/year)
    Abstract: "A new theory of cognitive biases, called error management theory (EMT), proposes that psychological mechanisms are designed to be predictably biased when the costs of false-positive and false-negative errors were asymmetrical over evolutionary history. This theory explains known phenomena such as men's overperception of women's sexual intent, and it predicts new biases in social inference such as women's underestimation of men's commitment. In Study 1 (N = 217), the authors documented the commitment underperception effect predicted by EMT. In Study 2 (N = 289), the authors replicated the commitment bias and documented a condition in which men's sexual overperception bias is corrected. Discussion contrasts EMT with the heuristics and biases approach and suggests additional testable hypotheses based on EMT."

  • ROBSON, Arthur J., 2001. The Biological Basis of Economic Behavior, Journal of Economic Literature, Vol. 39, No. 1. (Mar., 2001), pp. 11-33. [Cited by 79] (15.98/year)
    Abstract: "This paper first considers the implications of biological evolution for economic preferences. It analyzes why utility functions evolved, considers evidence that utility is both hedonic and adaptive, and suggests why such adaptation might have evolved. Time preference and attitudes to risk are treated--in particular, whether the former is exponential and the latter are selfish. Arguments for another form of interdependence--a concern with status--are treated. The paper then considers the evolution of rationality. One hypothesis examined is that human intelligence and longevity were forged by hunter-gatherer economies; another is that intelligence was spurred by competitive social interactions."

  • BERNARDO, A.E. and I. WELCH, 2001. On the Evolution of Overconfidence and Entrepreneurs. Journal of Economics & Management Strategy. [Cited by 73] (14.77/year)
    Abstract: "This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals ("entrepreneurs") convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals' private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals."

  • THALER, R.H., 2000. From Homo Economicus to Homo Sapiens, The Journal of Economic Perspectives. [Cited by 86] (14.45/year)

  • GIGERENZER, G. and K. FIEDLER, 2003. Minds in environments: The potential of an ecological approach to cognition. Manuscript submitted for publication.[GG]. [Cited by 41] (13.93/year)
    Abstract: "Judgment and choice are often accounted for by purely cognitive or motivational factors, explanatory strategies whose common denominator is that the explanation is located inside the individual. However, minds evolve and live in environments, and psychologists from Brunswik to Shepard to Simon have argued that an understanding of behavior calls for the study of the structure of both the environment and the person. We provide a framework for an ecological analysis of judgment and choice in terms of the three moments of statistical distributions of information in environments. We argue that an analysis of environmental structure solely in terms of the first moment (mean), which is a widespread practice, should be extended to include the second (variability) and third moment (skewness) of distributions. For phenomena in various sub-disciplines of psychology, we show that this extended ecological analysis can provide precise predictions of behavior, and can partially or fully account for the phenomena discussed. In these situations, an a priori ecological analysis can replace post-hoc cognitive or motivational explanations, improving our understanding of how minds and environments work in tandem."

  • HIRSHLEIFER, J., 2001. The Dark Side of the Force: Economic Foundations of Conflict Theory. books.google.com. [Cited by 67] (13.56/year)

  • BISIN, A. and T. VERDIER, 2001. The Economics of Cultural Transmission and the Dynamics of Preferences. Journal of Economic Theory. [Cited by 61] (12.33/year)
    Abstract: "This paper studies the population dynamics of preference traits in a model of inter-generational cultural transmission. Parents socialize and transmit their preferences to their offspring, motivated by a form of paternalistic altruism (``imperfect empathy''). In such a setting we study the long run stationary state pattern of preferences in the population, according to various socialization mechanisms and institutions, and identify sufficient conditions for the global stability of an heterogenous stationary distribution of the preference traits.
    We show that cultural transmission mechanisms have very different implications than evolutionary selection mechanisms with respect to the dynamics of the distribution of the traits in the population, and we study mechanisms which interact evolutionary selection and cultural transmission."

  • BISIN, A. and T. VERDIER, 2001. The Economics of Cultural Transmission and the Dynamics of Preferences. Journal of Economic Theory. [Cited by 61] (12.31/year)
  • OTROK, C., 2001. On Measuring the Welfare Cost of Business Cycles. Journal of Monetary Economics. [Cited by 58] (11.73/year)
    "Lucas (1987) argues that the gain from eliminating aggregate fluctuations is trivial. Following Lucas, a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large. However, in these exercises little discipline is placed on preference parameters. This paper estimates the welfare cost of business cycles, allowing for potential time-non-separabilities in preferences, where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles. That is, a theoretical real business cycle world is constructed and the representative agent is then placed in this world. The agent responds optimally to exogenous shocks, given the frictions in the economy. The agent's preference parameters, along with other structural parameters, are estimated using a Bayesian procedure involving Markov Chain Monte Carlo methods. Two main results emerge from the paper. First, the form for the time-non-separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature. Second, the welfare cost of business cycles is close to Lucas's estimate."

  • EVANS, J.S.B.T. and D. OVER, 1999. Rationality and Reasoning. books.google.com. [Cited by 80] (11.52/year)

  • DANIEL, K.D. and S. TITMAN, 1999. Market Efficiency in an Irrational World, Financial Analyst Journal, November/December 1999. [Cited by 64] (10.77/year)
    Abstract: "We discuss why investors are likely to be overconfident and how this behavioral bias affects investment decisions. Our analysis suggests that investor over confidence can generate momentum in stock returns and that this momentum effect is likely to be strongest in those stocks whose valuations require the interpretation of ambiguous information. Consistent with this analysis, we found that momentum effects are stronger for growth stocks than for stable stocks. A portfolio strategy based on this hypothesis generated strong abnormal returns from U.S. equity portfolios that did not appear to be attributable to risk. Although these results violate the traditional efficient market hypothesis, they do not necessarily imply that rational but uninformed investors could have actually achieved the returns zuithout the benefit of hindsight. To examine whether unexploited profit oppwrtunities exist, we tested for a somewhat weak form of market efficiency, adaptive efficiency, that allows for the appearance of profit opportunities in historical data but requires these profit opportunities to dissipate when they become apparent. Our tests rejected the notion that the U.S. equity market is adaptive efficient."

  • KUHBERGER, A., 2002. The Rationality of Risky Decisions: A Changing Message. Theory & Psychology. [Cited by 42] (10.65/year)
    Abstract: "Over the years research in risky decision making has diagnosed variable degrees of irrationality in people's judgements and choices. In the 1960s an optimistic view dominated of a widely rational decision maker. The work of Tversky and Kahneman at the beginning of the 1970s led to a pessimistic view of basically flawed decision processes that frequently end up in 'cognitive illusions'. In the 1980s a movement gained strength that pointed to the adaptiveness of seemingly irrational decisions. Recent work demonstrates that seemingly irrational choices may be due to different task construal between experimenters and participants. The respective evaluative change in what the rationality issue is generally taken to show is overdue, however. The negative message of fundamentally flawed human decision making has to be replaced by a more positive picture that acknowledges that some reactions to task and context are advantages rather than disadvantages of human decision making. Recent work on systems of thinking shows that different task construals can be meaningfully related to different systems of thinking, thus enabling a more unbiased treatment of the rationality issue."

  • MACHINA, M.J., 1989. Dynamic Consistency and Non-Expected Utility Models of Choice Under Uncertainty. Journal of Economic Literature, Volume (Year): 27 (1989), Issue (Month): 4 (December), Pages: 1622-68. [Cited by 176] (10.38/year)

  • FRANK, R.H., 1987. If Homo Economicus Could Choose His Own Utility Function, Would He Want One with a Conscience?. The American Economic Review. [Cited by 194] (10.24/year)
    Abstract: "A blush may reveal a lie and cause great embarrassment at the moment. But in situations that require trust, there can be great advantage in being known to be a blusher. This paper develops a model in which tastes are determined endogenously for their capacity to help solve an important class of market failures. The common feature of these market failures is that they require people to bind themselves to courses of action that will later seem unattractive. The tastes that emerge are very different from the ones assumed in conventional rational-choice models."

  • MANOVE, M. and A.J. PADILLA, 1999. Banking (Conservatively) with Optimists. The RAND Journal of Economics. [Cited by 71] (10.23/year)
    Abstract: "In the course of ordinary business, commercial banks frequently encounter entrepreneurs seeking loans for the purpose of financing new or continuing projects. These entrepreneurs are frequently unrealistic, their perception having been biased by wishful thinking. Bankers are left with a difficult screening problem: separating realists from optimists who may be clever and knowledgeable and completely sincere in their optimistic beliefs. In this paper we model and explore the relationship between banks and possible optimistic entrepreneurs. We examine this capital market from the stand-point of economic efficiency. We show that entrepreneurs may practice self-restraint in their current borrowing in order to signal realism and thus obtain good rates on future loans. But contrary to the conventional wisdom, competition may lead banks to be insufficiently conservative in their dealings with entrepreneurs, despite entrepreneurial self-restraint. Furthermore, we argue that the use of collateral requirements by banks may lead to a further decrease in the level of economic efficiency attained. We discuss bank regulation and bankruptcy rules in connection with the problems that unrealistic entrepreneurs may present."

  • ROGERS, Alan R., 1994. Evolution of Time Preference by Natural Selection. The American Economic Review 84, 460-481. [Cited by 122] (10.21/year)
    Abstract: "This paper entertains the hypothesis that human time preferences are in evolutionary equilibrium (i.e., that no mutation changing time preferences could be favored by natural selection). This hypothesis implies that the marginal rate of substitution (MRS) holding Darwinian fitness constant must equal the MRS holding utility constant. Furthermore, in a market economy, the latter must equal the MRS in exchange. Exploiting these principles, the author finds that the long-term real interest rate should equal ln(2) per generation (about 2 percent per year) and that young adults should discount the future more rapidly than their elders."


  • BERGSTROM, Theodore C., 2002. Evolution of Social Behavior: Individual and Group Selection. The Journal of Economic Perspectives, Vol. 16, No. 2. (Spring, 2002), pp. 67-88. [Cited by 40] (10.14/year)
    Abstract: "How selfish does our evolutionary history suggest that humans will be? We explore models in which groups are formed and dissolved and where reproduction of individuals is determined by their payoffs in a game played within groups. If groups are formed ``randomly'' and reproductive success of group founders is determined by a multi-person prisoners' dilemma game, then selfish behavior will prevail over maximization of group payoffs. However, interesting models exist in which ``group selection'' sustains cooperative behavior. Forces that support cooperative behavior include assortative matching in groups, group longevity, and punishment-based group norms."

  • MAYNARD SMITH, J. and G.A. PARKER, 1976. The logic of asymmetric contests, Animal Behaviour Volume 24, Issue 1 , February 1976, Pages 159-175. [Cited by 297] (9.91/year)
    Abstract: "A theoretical analysis is made of the evolution of behavioural strategies in contest situations. It is assumed that behaviour will evolve so as to maximize individual fitness. If so, a population will evolve an ‘evolutionarily stable strategy’, or ESS, which can be defined as a strategy such that, if all members of a population adopt it, no ‘mutant’ strategy can do better. A number of simple models of contest situations are analysed from this point of view. It is concluded that in ‘symmetric’ contests the ESS is likely to be a ‘mixed’ strategy; that is, either the population will be genetically polymorphic or individuals will be behaviourally variable. Most real contests are probably asymmetric, either in pay-off to the contestants, or in size or weapons, or in some ‘uncorrelated’ fashion; i.e. in a fashion which does not substantially bias either the pay-offs or the likely outcome of an escalated contest. An example of an uncorrelated asymmetry is that between the ‘discoverer’ of a resource and a ‘late-comer’. It is shown that the ESS in asymmetric contests will usually be to permit the asymmetric cue to settle the contest without escalation. Escalated contests will, however, occur if information to the contestants about the asymmetry is imperfect."

  • SHAFIR, E. and R.A. LEBOEUF, 2002. RATIONALITY. Annual Review of Psychology. [Cited by 39] (9.89/year)
    Abstract: "This chapter reviews selected findings in research on reasoning, judgment, and choice and considers the systematic ways in which people violate basic requirements of the corresponding normative analyses. Recent objections to the empirical findings are then considered; these objections question the findings' relevance to assumptions about rationality. These objections address the adequacy of the tasks used in the aforementioned research and the appropriateness of the critical interpretation of participants' responses, as well as the justifiability of some of the theoretical assumptions made by experimenters. The objections are each found not to seriously impinge on the general conclusion that people often violate tenets of rationality in inadvisable ways. In the process, relevant psychological constructs, ranging from cognitive ability and need for cognition, to dual process theories and the role of incentives, are discussed. It is proposed that the rationality critique is compelling and rightfully gaining influence in the social sciences in general."

  • BELL, D.E., H. RAIFFA and A. TVERSKY, 1988. Decision Making: Descriptive, Normative, and Prescriptive Interactions. books.google.com. [Cited by 174] (9.70/year)

  • NESSE, R.M., 2005. Natural selection and the regulation of defenses: a signal detection analysis of the smoke detector …. Evolution and Human Behavior. [Cited by 9] (9.55/year)
    "Many of the body’s adaptive responses, such as pain, fever, and fear, are defenses that remain latent until they are aroused by cues that indicate the presence of a threat. Natural selection should shape regulation mechanisms that express defenses only in situations where their benefits exceed their costs, but defenses are often expressed in situations where they seem unnecessary, with much resulting useless suffering. An explanation emerges from a signal detection analysis of the costs and benefits that shaped defense regulation mechanisms. Quantitative modeling of optimal regulation for all-ornone defenses and for continuously variable defenses leads to several conclusions. First, an optimal system for regulating inexpensive all-or-none defenses against the uncertain presence of large threats will express many false alarms. Second, the optimum level of expression for graded defenses is not at the point where the costs of the defense and the danger are equal, but is instead where the marginal cost of additional defense exceeds the marginal benefit. Third, in the face of uncertainty and skewed payoff functions, the optimal response threshold may not be the point with the lowest cost. Finally, repeated exposures to certain kinds of danger may adaptively lower response thresholds, making systems vulnerable to runaway positive feedback. While we await quantitative data that can refine such models, a general theoretical perspective on the evolution of defense regulation can help to guide research and assist clinical decision making."

  • EINHORN, H.J. and R.M. HOGARTH, 1981. Behavioral Decision Theory: Processes of Judgment and Choice, Annual Review of Psychology, 32, 53-88. [Cited by 230] (9.22/year)
    Conclusion: "Decision making is a province claimed by many disciplines, e.g. economics, statistics, management science, philosophy, and so on. What then should be the role of psychology? We believe this can be best illustrated by the economic concept of “comparative advantage.” For example, how much typing should the only lawyer in a small town perform (Samuelson 1948)? Even if the lawyer is an excellent typist, it is to both his/her and the town’s advantage to concentrate on law, provided that typing is not a rare skill. Similarly, we believe that psychologists can best contribute to decision research by elucidating the basic psychological processes underlying judgment and choice. Indeed, this review has tried to place behavioral decision theory within a broad psychological context, and in doing so we have emphasized the importance of attention, memory, cognitive representation, conflict, learning, and feedback. Moreover, the interdependence and coordination of these processes suggest important challenges for understanding complex decision making. In order to meet these, future research must adopt a broader perspective (cf Carroll 1980) by not only investigating the topics discussed here, but also those not usually treated in the decision literature (e.g. creativity, problem solving, concept formation, etc). Indeed, given the ubiquity and importance of judgment and choice, no less a perspective will do."

  • BUSS, D.M., 1991. Evolutionary Personality Psychology, Annual Review of Psychology, Vol. 42: 459-491. [Cited by 134] (8.96/year)

  • HASTIE, R., 2001. Problems For Judgment and Decision Making. Annual Review of Psychology. [Cited by 44] (8.89/year)
    Abstract: "This review examines recent developments during the past 5 years in the field of judgment and decision making, written in the form of a list of 16 research problems. Many of the problems involve natural extensions of traditional, originally rational, theories of decision making. Others are derived from descriptive algebraic modeling approaches or from recent developments in cognitive psychology and cognitive neuroscience."

  • HASTIE, R., 2001. P ROBLEMS FOR J UDGMENT AND D ECISION M AKING. Annual Review of Psychology. [Cited by 44] (8.88/year)
  • SCHOEMAKER, P.J.H., 1982. The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations, Journal of Economic Literature, Vol. 20, No. 2. (Jun., 1982), pp. 529-563. [Cited by 203] (8.48/year) Conclusions first paragraph: "The research reviewed in this article suggests that at the individual level EU maximization is more the exception than the rule, at least for the type of decision tasks examined. To assess the role of EU theory more generally, e.g., for future decision models, we next examine the evidence from each of the four perspectives identified at the beginning of the paper."

  • NOOTEBOOM, B., 2004. Governance and competence: how can they be combined?. Cambridge Journal of Economics. [Cited by 16] (8.24/year)

  • VAN, J., 2003. The microfoundations of macroeconomics: an evolutionary perspective. Cambridge Journal of Economics. [Cited by 24] (8.16/year)
    Abstract: "We consider the microfoundations controversy from the perspective of economic evolution and show that the debate can benefit from lessons learned in evolutionary biology. Although the analogy between biology and economics has been noted before, it has rarely focused on clarifying the micro- macro distinction in economic theory and modelling. The macroevolution controversy in biology has generated testable theories such as the existence of punctuated equilibria in evolutionary history, the distinction between selection and sorting, and group selection. The micro-macro debate is further developed in biology than in economics due to a greater degree of specialisation and interaction of various sub-disciplines. The task for economists is to distinguish between insights directly relevant for economic theory and ones that hinge on unique features of biological systems. We argue that both micro and macro processes drive economic change and that macroeconomic change cannot be explained by micro level optimising alone. We show that debates in biology about group selection and punctuated equilibria are directly relevant to understanding economic evolution. The distinction between reductionism and holism is of little use and in its place a hierarchical approach is proposed. This allows for both upward and downward causation and interaction between levels. Specific topics incorporating ideas from evolutionary theory into economics are: economic exaptations, macroeconomic consequences of institutions, and group selection. Two insights are: selection (sorting) can occur at levels above the individual firm; and, macroeconomic theories can be formulated without reference to firm level descriptions. Micro and macro approaches to economic change are complementary."

  • SOARES, R.R., 2003. Mortality Reductions, Educational Attainment, and Fertility Choice. Unpublished Manuscript, University of Maryland. [Cited by 23] (7.82/year)

  • ROBSON, Arthur J., 2002. Evolution and Human Nature. The Journal of Economic Perspectives, Vol. 16, No. 2. (Spring, 2002), pp. 89-106. [Cited by 30] (7.61/year)

    Conclusions: "There are a vast number of promising avenues for further investigation of how biological evolution may have affected preferences, beliefs and rationality. The brief treatment of beliefs and rationality here reflects the lack of much previous work on these topics. The evolution of rationality is, in particular, a promising but challenging topic for more research. The conventional economic assumption here is so strong that appropriate relaxation of it is bound to pay considerable dividends.
    In the better trodden field of the evolution of preferences, there remain interesting issues, which may also be more tractable. Just to pick one, if utility is adaptive to the environment in the short run, it needs to be understood in greater detail how this process of adaptation is generated. Perhaps at the same time that a relative utility scale is used to evaluate outcomes, these outcomes also modify the utility scale. The actual process of adaptation could be still more complex than this, however, if the mere anticopation of favorable events in the future changes the present utility scale, for example.
    An evolutionary approach to preferences, beliefs and rationality holds great promise. It may allow or suggest extensions of economic theory to account for more phenomena; consider, for example, the evaluation of risk with interdependent preferences. At the same time, it suggests that certain generalizations of preferences are less likely because they do not fit well with evolutionary explanations—although it will always be necessary to be careful about what constitutes a reasonable evolutionary explanation. An insistences on theoretical generality and attention to anthropological on hunter-gatherer societies will help to discriminate among such explanations." \citeasnoun{Robson02} discusses how evolution may have affected preferences, beliefs and rationality.
  • ROZENBLIT, L. and F. KEIL, 2002. The misunderstood limits of folk science: An illusion of explanatory depth. Cognitive Science. [Cited by 30] (7.61/year)

  • FARMER, J.D. and A.W. LO, Proceedings of the National Academy of Sciences. Frontiers of finance: Evolution and efficient markets. [Cited by 52] (7.43/year)

  • HALEK, M. and J.G. EISENHAUER, 2001. Demography of Risk Aversion. The Journal of Risk and Insurance, March 1, 2001. [Cited by 36] (7.28/year)
    Abstract: "This article uses life insurance data to estimate the Pratt-Arrow coefficient of relative risk aversion for each of nearly 2,400 households. Attitudinal differences toward pure risk are then examined across demographic subgroups. Additionally, differences in speculative risk-taking are examined across demographic groups based on survey responses and compared with the results on pure risk aversion."

  • MELE, A.R., 2000. Understanding and explaining real self-deception, Behavioral and Brain Sciences 20: 127-134. [Cited by 43] (7.24/year)
    Abstract: "This response addresses seven main issues: (1) alleged evidence that in some instances of self-deception an individual simultaneously possesses “contradictory beliefs”; (2) whether garden-variety self-deception is intentional; (3) whether conditions that I claimed to be conceptually sufficient for self-deception are so; (4) significant similarities and differences between self-deception and interpersonal deception; (5) how instances of self-deception are to be explained, and the roles of motivation in explaining them; (6) differences among various kinds of self- deception; (7) whether a proper conception of self-deception implies that definitive ascriptions of self-deception to individuals are impossible."

  • LO, Andrew W., 2004. The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective, Journal of Portfolio Management 30(2004), 15-29. [Cited by 14] (7.21/year)
    Abstract: "One of the most influential ideas in the past 30 years is the Efficient Markets Hypothesis, the idea that market prices incorporate all information rationally and instantaneously. However, the emerging discipline of behavioral economics and finance has challenged this hypothesis, arguing that markets are not rational, but are driven by fear and greed instead. Recent research in the cognitive neurosciences suggests that these two perspectives are opposite sides of the same coin. In this article I propose a new framework that reconciles market efficiency with behavioral alternatives by applying the principles of evolution - competition, adaptation, and natural selection - to financial interactions. By extending Herbert Simon's notion of "satisficing" with evolutionary dynamics, I argue that much of what behavioralists cite as counterexamples to economic rationality - loss aversion, overconfidence, overreaction, mental accounting, and other behavioral biases - are, in fact, consistent with an evolutionary model of individuals adapting to a changing environment via simple heuristics. Despite the qualitative nature of this new paradigm, the Adaptive Markets Hypothesis offers a number of surprisingly concrete implications for the practice of portfolio management."

  • BARSKY, R.B., et al., 1997. Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and …. [Cited by 62] (6.93/year)
    Abstract: "Individuals' preferences underlying most economic behavior are likely to display substantial heterogeneity. This paper reports on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These experimental measures are based on survey respondents' choices in hypothetical situations. The questions are constructed with as little departure from the theorist's concept of the underlying parameter as possible. The individual measures of preference parameters display substantial heterogeneity. The majority of respondents fall into the least risk-tolerant group, but a substantial minority display higher risk tolerance. The individual measures of intertemporal substitution and time preference also display substantial heterogeneity. The mean risk tolerance is 0.25; the mean elasticity of intertemporal substitution is 0.2. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Because the risk tolerance measure is obtained as part of the main questionnaire of a large survey, it can be related to a number of economic behaviors. Measured risk tolerance is positively related to a number of risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. Although measured risk tolerance explains only a small fraction of the variation of the studied behaviors, these estimates provide evidence about the validity and usefulness of the measures of preference parameters."
  • POSTLEWAITE, A., 1998. The Social Basis of Interdependent Preferences. European Economic Review. [Cited by 55] (6.91/year)
  • SINGH, J.V., 1986. Performance, Slack, and Risk Taking in Organizational Decision Making. The Academy of Management Journal. [Cited by 134] (6.72/year)
    Abstract: "This research paper investigates the relationship between organizational performance and risk taking in organizational decision making. A complex model is proposed in which the direct relationship, which is triggered by performance below acceptable levels, is negative, but the indirect relationships, which are mediated by organizational slack and decentralization, are positive. A test of the model for a cross-sectional sample of firms shows general support for the model. The findings have implications for theories that view change as arising from stable organizational processes."
  • HIRSHLEIFER, J., 1985. The Expanding Domain of Economics, The American Economic Review. [Cited by 137] (6.54/year)
  • ZAJAC, E.J. and M.H. BAZERMAN, 1991. Blind Spots in Industry and Competitor Analysis: Implications of Interfirm (Mis) Perceptions for …. The Academy of Management Review. [Cited by 94] (6.29/year)
  • MARKS, I.M. and R.M. NESSE, 1994. Fear and Fitness: An Evolutionary Analysis of Anxiety. Ethology and Sociobiology 15, 247-261. [Cited by 75] (6.28/year)
  • ROBSON, A.J., 1996. A Biological Basis for Expected and Non-expected Utility, Journal of Economic Theory, 68, 397-424. [Cited by 62] (6.23/year)
  • VANBERG, V.J.M., 2004. The rationality postulate in economics: its ambiguity, its deficiency and its evolutionary alternative. Journal of Economic Methodology vol. 11, issue 1, pages 1-29. [Cited by 12] (6.18/year)
    Abstract: "Though the rationality postulate is generally considered the paradigmatic core of economics, there is little agreement about its specific content and methodological status. This paper seeks to clarify some of the ambiguity surrounding the postulate by drawing a distinction between the non-refutable, purely heuristic rationality principle and refutable rationality hypotheses . An alternative, evolutionary outlook at purposeful human behavior is outlined that captures much of what makes the rationality postulate attractive to economists but avoids the ambiguities that have made it the subject of enduring controversy."
  • WU, G., J. ZHANG and R. GONZALEZ, 2004. Decision under risk, in: Blackwell Handbook of Judgment & Decision Making. [Cited by 12] (6.16/year) Wu, Zhang and Gonzalez (2004) point out that diminishing marginal utility is reason for risk aversion
  • HVIDE, H.K., 2002. Pragmatic Beliefs and Overconfidence. Journal of Economic Behavior and Organization, Volume 48, Issue 1 , May 2002, Pages 15-28. [Cited by 24] (6.07/year)
    Abstract: "Several studies indicate that humans are overconfident about their own (relative) abilities. We propose a notion of pragmatic beliefs, and show through an example that this concept can shed light on why overconfidence emerges. Through the example, we also shed light on the idea that ‘bounded rationality’ may arise endogenously in a game—without assuming complexity costs."

  • HOFFMAN, E. and M.L. SPITZER, 1985. Entitlements, Rights, and Fairness: An Experimental Examination of Subjects' Concepts of Distributive Justice. The Journal of Legal Studies. [Cited by 126] (6.02/year)
  • WANG, X.T., 1996. Domain-specific rationality in human choices: Violations of utility axioms and social contexts. Cognition. [Cited by 57] (5.73/year)
    Abstract: "This study presents a domain-specific view of human decision rationality. It explores social and ecological domain-specific psychological mechanisms underlying choice biases and violations of utility axioms. Results from both U.S. and China revealed a social group domain-specific choice pattern. The irrational preference reversal in a hypothetical life-death decision problem (a classical example of framing effects) was eliminated by providing a small group or family context in which most subjects favored a risky choice option regardless of the positive/negative framing of choice outcomes. The risk preference data also indicate that the subjective scope of small group domain is larger for Chinese subjects, suggesting that human choice mechanisms are sensitive to culturally specific features of group living. A further experiment provided evidence that perceived fairness might be one major factor regulating the choice preferences found in small group (kith-and-kin) contexts. Finally, the violation of the stochastic dominance axiom of the rational theory of choice was predicted and tested. The violations were found only when the "life-death" problem was presented in small group contexts; the strongest violation was found in a family context. These results suggest that human decisions and choices are regulated by domain-specific choice mechanisms designed to solve evolutionarily recurrent and adaptively important problems."

  • COMPTE, O. and A. POSTLEWAITE, 2003. Confidence Enhanced Performance. University of Pennsylvania, PIER wp. [Cited by 16] (5.44/year)
  • SAMUELSON, Larry, 2002. Evolution and Game Theory. The Journal of Economic Perspectives, Vol. 16, No. 2. (Spring, 2002), pp. 47-66. [Cited by 21] (5.33/year)
  • KANAZAWA, S., 2005. Is ‘‘discrimination''necessary to explain the sex gap in earnings?, Journal of Economic Psychology. [Cited by 5] (5.30/year)
  • HARRISON, G.W., M.I. LAU and E.E. RUTSTR?M, 2004. Estimating Risk Attitudes in Denmark: A Field Experiment. Center for Economic and Business Research and University of …. [Cited by 10] (5.13/year)
    Abstract: "We estimate individual risk attitudes using controlled experiments in the field in Denmark. These risk preferences are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 253 people between 19 and 75 years of age. Risk attitudes are estimated for various individuals differentiated by socio-demographic characteristics such as income and age. Our results indicate that the average Dane is risk averse, and that risk neutrality is an inappropriate assumption to apply. We also find that risk attitudes vary significantly with respect to several important sociodemographic variables. We also report support for constancy of relative risk aversion for the Danish population as a whole, and for all the identifiable subgroups of the population considered here. These findings have important implications for the characterization of risk attitudes in policy applications, theoretical modeling, and experimental economics."

  • KAGEL, J.H., R.C. BATTALIO and L. GREEN, 1995. Economic Choice Theory: An Experimental Analysis of Animal Behavior. books.google.com. [Cited by 56] (5.12/year)
  • NG, Y.K.M., 2003. From preference to happiness: Towards a more complete welfare economics. Social Choice and Welfare, Volume (Year): 20 (2003), Issue (Month): 2 (March), Pages: 307-350. [Cited by 15] (5.10/year)
    Abstract: "Welfare economics is incomplete as it analyzes preference without going on to analyze welfare (or happiness) which is the ultimate objective. Preference and welfare may differ due to imperfect knowledge, imperfect rationality, and/or a concern for the welfare of others (non-affective altruism). Imperfection in knowledge and rationality has a biological basis and the resulting accumulation instinct amplifies with advertising-fostered consumerism to result in a systematic materialistic bias, as supported by recent evidence on happiness and quality of life. Such a bias, in combination with relative-income effects, environmental disruption effects, and over-estimation of the excess burden of taxation, results in the over-spending on private consumption and under-provision of public goods, and may make economic growth welfare-reducing. A cost-benefit analysis aiming even just at preference maximization should offset the excess burden of financing for public projects by the indirect effect through the relative-income effect and by the environmental disruption effect. A cost-benefit analysis aiming at welfare maximization should, in addition, adjust the marginal consumption benefits of public projects upward by a proportion determined by the proportionate excess of marginal utility over marginal welfare of consumption. The environmental disruption effects have also to be similarly adjusted upward. However, the productive contributions of public projects should not be so adjusted. Welfare economics has achieved much, though still with long-standing weaknesses (e.g., the inability to make non-Pareto comparisons due to the unwillingness or difficulties in making interpersonal comparisons of cardinal utilities). It is not the intention of this paper either to survey the achievements or to remedy the weaknesses. Rather, it is argued that welfare economics is too narrow in focus and should be expanded in a number of aspects to make the analysis more complete and hence more useful. Some of the aspects discussed below have long been known but largely ignored in welfare economic analysis. Some are less well known and controversial points which are nevertheless important for welfare."

  • KOCKESEN, L., E.A. OK and R. SETHI, 1998. Evolution of Interdependent Preferences in Aggregative Games. network.ku.edu.tr. [Cited by 40] (5.04/year)
    Abstract: "We study the evolution of preference interdependence in aggregative games which are symmetric with respect to material payoffs but asymmetric with respect to player objective functions. We identify a class of aggregative games whose equilibria have the property that the players with interdependent preferences (who care not only about their own material payoffs but also about their payoffs relative to others) earn strictly higher material payoffs than do the material payoff maximizers. Included in the class are common pool resource and public good games. If each member of the population interacts with each other member (the playing-the-field model), we show that any evolutionary selection dynamic satisfying a weak payoff monotonicity condition implies that only interdependent preferences can survive in the long run."

  • BYDE, A., 2003. Applying evolutionary game theory to auction mechanism design. E-Commerce, 2003. CEC 2003. IEEE International Conference on. [Cited by 14] (4.76/year)
    Abstract: In this paper we describe an evolution-based method for evaluating auction mechanisms, and apply it to a space of mechanisms including the standard first- and second-price sealed bid auctions. We replicate results known already in the Auction Theory literature regarding the suitability of different mechanisms for different bidder environments, and extend the literature by establishing the superiority of novel mechanisms over standard mechanisms, for commonly occurring scenarios. Thus this paper simultaneously extends Auction Theory, and provides a systematic method for further such extensions.

  • WANG, F.A., 2001. Overconfidence, investor sentiment, and evolution. Journal of Financial Intermediation. [Cited by 23] (4.65/year)

  • CAMERER, C.F., T.H. HO and J.K. CHONG, 2002. Sophisticated Experience-Weighted Attraction Learning and Strategic Teaching in Repeated Games. Journal of Economic Theory. [Cited by 18] (4.57/year)
    Abstract: "Most learning models assume players are adaptive (i.e., they respond only to their own previous experience and ignore others’ payoff information) and behavior is not sensitive to the way in which players are matched. Empirical evidence suggests otherwise. In this paper, we extend our adaptive experience-weighted attraction (EWA) learning model to capture sophisticated learning and strategic teaching in repeated games. The generalized model assumes there is a mixture of adaptive learners and sophisticated players. An adaptive learner adjusts his behavior the EWA way. A sophisticated player rationally best-responds to her forecasts of all other behaviors. A sophisticated player can be either myopic or farsighted. A farsighted player develops multiple-period rather than single-period forecasts of others’ behaviors and chooses to “teach” the other players by choosing a strategy scenario that gives her the highest discounted net present value. We estimate the model using data from p-beauty contests and repeated trust games with incomplete information. The generalized model is better than the adaptive EWA model in describing and predicting behavior. Including teaching also allows an empirical learning-based approach to reputation formation which predicts better than a quantal-response extension of the standard type-based approach."

  • BOHNET, I., 2006. Social Preference and Trust: Gender Matters. [Cited by 1] (4.52/year)
    Abstract: "This paper examines what motivates people to trust others. By trusting, principals make their agent better off but also expose themselves to the risk of being betrayed by their agent. In three experimental studies, we find that such concerns about the “other” do not matter for women: they perceive the decision of whether or not to trust basically as a risky choice and decide based on their expectations of trustworthiness. In contrast, men’s trust is also related to their social preferences: those who care about others’ well-being are more and those who fear betrayal are less likely to trust. In general, women behave more “rationally” than men in our trust games: they only care about own payoffs, base their decisions on relatively accurate expectations of trustworthiness and are hardly betrayal averse. Is “homo oeconomicus” female, after all?"

  • MARKS, R., 2006. Market Design Using Agent-Based Models. Judd & Tesfatsion, forthcoming. [Cited by 1] (4.52/year)

  • RHODE, P. and M. STEGEMAN, 2001. Non-Nash equilibria of Darwinian dynamics with applications to duopoly. International Journal of Industrial Organization. [Cited by 22] (4.45/year)

  • KUKLINSKI, J.H. and P.J. QUIRK, 1999. Reconsidering the Rational Public: Cognition, Heuristics, and Mass Opinion. igpa.uiuc.edu. [Cited by 30] (4.32/year)

  • ASHRAF, N., C.F. CAMERER and G. LOEWENSTEIN, 2005. Adam Smith, Behavioral Economist. Journal of Economic Perspectives. [Cited by 4] (4.24/year)

  • GARFIELD, J. and A. AHLGREN, 1988. Difficulties in Learning Basic Concepts in Probability and Statistics: Implications for Research. Journal for Research in Mathematics Education. [Cited by 75] (4.18/year)

  • LO, A., 1999. The Three P's of Total Risk Management. Financial Analysts Journal. [Cited by 29] (4.18/year)

  • SAMUELSON, L. and J.M. SWINKELS, 2002. Information and the Evolution of the Utility Function. Unpublished manuscript. [Cited by 16] (4.06/year)

  • DEKEL, E., J.C. ELY and O. YILANKAYA, 1998. Evolution of Preferences, Tel Aviv University, Northwestern University. [Cited by 31] (3.90/year)
    Abstract: "We study which preferences are stable using the “indirect evolutionary approach.” Individuals are randomly matched to play a two-person game. Individual (subjective) preferences determine their behavior, and may differ from the actual (objective) payoffs that determine fitness. Matched individuals may observe the opponents’ preferences perfectly, not at all, or with some in-between probability. When preferences are observable, a stable outcome must be efficient. When they are not observable, a stable outcome must be a Nash equilibrium and all strict equilibria are stable. We show that, for pure strategy outcomes, these conclusions are robust to allowing almost perfect, and almost no, observability, with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability (despite being stable with no observability).

  • TRIVERS, R., 2000. The elements of a scientific theory of self-deception. Annals of the New York Academy of Sciences. [Cited by 23] (3.87/year) Abstract: "An evolutionary theory of self-deception-the active misrepresentation of reality to the conscious mind-suggests that there may be multiple sources of self-deception in our own species, with important interactions between them. Self-deception (along with internal conflict and fragmentation) may serve to improve deception of others; this may include denial of ongoing deception, self-inflation, ego-biased social theory, false narratives of intention, and a conscious mind that operates via denial and projection to create a self-serving world. Self-deception may also result from internal representations of the voices of significant others, including parents, and may come from internal genetic conflict, the most important for our species arising from differentially imprinted maternal and paternal genes. Selection also favors suppressing negative phenotypic traits. Finally, a positive form of self-deception may serve to orient the organism favorably toward the future. Self-deception can be analyzed in groups and is done so here with special attention to its costs."

  • ALLEN, D.W. and D. LUECK, 1993. Transaction Costs and the Design of Cropshare Contracts. The RAND Journal of Economics. [Cited by 49] (3.79/year)

  • SAMUELS, R., S. STICH and P.D. TREMOULET, 1999. Rethinking rationality: From bleak implications to Darwinian modules. What Is Cognitive Science. [Cited by 25] (3.60/year)

  • WITT, U.A., 2004. On the proper interpretation of'evolution'in economics and its implications for production theory. Journal of Economic Methodology. [Cited by 7] (3.60/year)
    Abstract: "How relevant is the notion of evolution for economics? In view of the paradigmatic influence of Darwinian thought, several recently advocated interpretations are discussed first which rely on Darwinian concepts. As an alternative, a notion of evolution is suggested that is based on a few, abstract, common principles which all domain-specific evolutionary processes share, including those in the economy. A different, ontological question is whether and, if so, how the various domain-specific evolutionary processes are connected. As an answer, an evolutionary continuity hypothesis is postulated and its concrete economic implications are discussed exemplarily for the theory of production."

  • WALDMAN, Michael, 1994. Systematic Errors and the Theory of Natural Selection. The American Economic Review, Vol. 84, No. 3. (Jun., 1994), pp. 482-497. [Cited by 42] (3.52/year)
    Abstract: "This paper derives two main results. First, in a world where inheritance is sexual as opposed to asexual "second-best" adaptations can be evolutionarily stable. That is, the adaptation selected need not be the optimal solution to the evolutionary problem at hand. Second, I apply this result to show that natural selection provides a potential explanation for why in many settings humans commit errors that are systematic in nature."

  • ROBSON, A.J., 2001. Why Would Nature Give Individuals Utility Functions?. Journal of Political Economy. [Cited by 17] (3.43/year)
  • EGELMAN, D.M., C. PERSON and P.R. MONTAGUE, 1998. A computational role for dopamine delivery in human decision-making. Journal of Cognitive Neuroscience. [Cited by 26] (3.27/year)

  • AHLBRECHT, M. and M. WEBER, 1997. An Empirical Study on Intertemporal Decision Making under Risk. Management Science 43, 813-826. [Cited by 29] (3.24/year)

  • BAR-GILL, O., 2005. The Evolution and Persistence of Optimism in Litigation. Journal of Law, Economics, and Organization. [Cited by 3] (3.18/year)
    Abstract: "Empirical evidence suggests that lawyers and litigants are systematically optimistic with respect to the outcome at trial. Using evolutionary game theory, this article seeks to provide a theoretical explanation for the persistence of the optimism bias. The adaptive force of optimism derives from its function as a commitment device in the pretrial bargaining stage. Optimistic lawyers, by credibly threatening to resort to costly litigation, succeed in extracting more favorable settlements. Therefore, market-selection forces and cultural transmission dynamics dictateanequilibrium with apositive level of optimism. Understanding thedynamics leading to optimism provides new insight regarding the different factors that influence the level of this cognitive bias. In particular, it is shown that the design of legal rules affects the equilibrium level of optimism, which in turn affects the relative efficiency of the different legal designs. Methodologically, by enabling a more systematic exploration of the perception-shaping role of the law, this article seeks to expand the conventional boundaries of behavioral law and economics."

  • HAMMERSTEIN, P. and E.H. HAGEN, 2005. The second wave of evolutionary economics in biology. Trends Ecol Evol. [Cited by 3] (3.18/year)
    Abstract: "Several core issues in economics and biology overlap substantially. At the theoretical level, these include analogies and differences among rational choice, learning, genetic evolution and cultural evolution. At the empirical level, they include the structure of decision making, its neural basis and, more generally, human nature. We illustrate here the increasingly important collaboration between economics and biology with several characteristic examples, including signaling, markets, statistical reasoning, cooperation, punishment, reputation and social norms. In contrast to the mutual borrowing of ideas during the 1970s and 1980s, we now see the joint exploration of empirical and theoretical issues by biologists and economists that constitutes a second wave of interactions between the two disciplines."

  • HORAN, R., E. BULTE and J. SHOGREN, 2005. How Trade Saved Humanity from Biological Exclusion: An Economic Theory of Neanderthal Extinction. Journal of Economic Behavior and Organization. [Cited by 3] (3.18/year)
    Abstract: "One of the great puzzles in science concerns the rise of early modern humans and the fall of Neanderthals. A number of theories exist, and many support the biological principle of competitive exclusion. But the evidence for such mechanistic theories in which biology is destiny is limited. In response, this paper develops a behavioral model of Neanderthal extinction. We show how the endogenous division of labor and subsequent trading among early modern humans could have helped them to overcome potential biological deficiencies. We discuss the relation between economics and natural selection, and show how trade may partially offset natural selection."

  • VAN, R., D.W. BROMLEY and J.P. CHAVAS, 1995. The economics of Cain and Abel: Agro-pastoral property rights in the Sahel. Journal of Development Studies. [Cited by 34] (3.11/year)
    Abstract: "The complementarity of the economic systems of nomads and farmers is often overshadowed by the conflicts inherent in the competition over the control of land. The conflict is one of property rights. A dynamic programming model of the West African Sahel is presented that simulates the emergence of a dual economy based on the comparative advantage of the farmer and the pastoralist. The model illustrates that exclusive private property rights have no claim to optimality. The analysis of risk in an intertemporal framework suggests the optimality of another type of property right--the right to flexible adjustment typically claimed by the pastoralist. Multiple property regimes provide optimal settings for farmers and pastoralists."

  • COELHO, M.A., D.A. DE and D.A. REYNIERS, 2004. Irrational Exuberance, Entrepreneurial Finance and Public Policy. International Tax and Public Finance. [Cited by 6] (3.09/year)
    Abstract: "Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring intervention to expand lending. Optimism leads to the opposite conclusion, at least if it is legitimate to use fiscal policy to counteract systematic error. The paper reports on an experiment in which, due to optimism, the lower the prizes to entrepreneurial activity the higher the subject's expected income."

  • KRAUSE, K.A., J.M.A. CHERMAK and D.S.A. BROOKSHIRE, 2003. The Demand for Water: Consumer Response to Scarcity. Journal of Regulatory Economics. [Cited by 9] (3.06/year)
    Abstract: "Provision of water raises several issues for municipal utility companies and other suppliers, including reliability of supply in arid regions or during droughts, equity issues that arise because water is literally a necessity, and heterogeneity in consumer response to regulatory policy. We combine experimental and survey responses to investigate demand for water. The experiments simulate water consumption from a potentially exhaustible source, revealing heterogeneous demand for water. We estimate econometrically water demand for different consumer groups. A regulator could use estimates of disaggregated demand to attain conservation goals by designing an incentive compatible pricing system. The example given achieves a conservation goal while minimizing enforcement costs and welfare loss."

  • KAHNEMAN, D., 2001. A psychological point of view: Violations of rational rules as a diagnostic of mental processes. Behavioral and Brain Sciences. [Cited by 15] (3.03/year)
    Abstract: "The target article focuses exclusively on System 2 and on reasoning rationality: the ability to reach valid conclusions from available information, as in the Wason task. The decision-theoretic concept of coherence rationality requires beliefs to be consistent, even when they are assessed one at a time. Judgment heuristics belong to System 1, and help explain the incoherence of intuitive beliefs."

  • WAITE, T.A., 2001. Intransitive preferences in hoarding gray jays( Perisoreus canadensis). Behavioral Ecology and Sociobiology. [Cited by 15] (3.03/year)
    Abstract: "Decision makers are often assumed to assign stable fitness-based values to foraging options. Under this assumption, the tendency to prefer the more valuable of two simultaneously available options should be transitive. For example, if option a is preferred when paired with b, and b is preferred when paired with c, then a should be preferred when paired with c. According to the principle of strong stochastic transitivity, the preference for a over c should be at least as strong as the stronger of the other two preferences (i.e., p