Archive for the ‘Behavioral Econ.’ Category

Economic emergence: an evolutionary economic perspective

September 30, 2011 Leave a comment

Economic emergence: an evolutionary economic perspective

Journal of Economic Behavior & Organization
Received 11 February 2011; revised 29 August 2011; Accepted 19 September 2011. Available online 24 September 2011.

John Fostera, J. Stan Metcalfe

The standard neoclassical approach to economic theorizing excludes, by definition, economic emergence and the related phenomenon of entrepreneurship. We explore how the most economic of human behaviours, entrepreneurship, came to be largely excluded from mainstream economic theory. In contrast, we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard. We go on to argue that evolutionary economics can make further progress by taking a more ‘naturalistic’ approach to economic evolution. This requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with. We argue that ‘knowledge,’ because of the existence of uncertainty is, to a large degree ‘conjectural’ and, thus, is closely linked to our emotional states. Our economic behaviour is also influenced by the reality that we, and the systems that we create, are dissipative structures. Thus, we introduce the notions of ‘energy gradients’ and ‘knowledge gradients’ as essential concepts in understanding economic emergence and resultant economic growth.

Keywords: Biological analogy; bounded rationality; complex system; constrained optimization; dissipative structure; economic emergence; economic growth; emotions; energy economics; evolutionary economics; entrepreneurship; innovation; institutional change; knowledge; micro-meso-macro; organizational change; rationality; self organization; technological change; uncertainty


Categories: Behavioral Econ.

Prospect Theory and Risk-Seeking Behavior by Troubled Firms

September 23, 2011 Leave a comment

Prospect Theory and Risk-Seeking Behavior by Troubled Firms

Journal of Behavioral Finance
Volume 12, Issue 1, 2011, pages 29-40

Doron Kligera & Iris Tsurb


We employ Prospect Theory (PT, Kahneman and Tversky [1979]) to explain the relationship between risk and return at the organization level. Our modeling approach addresses shortcomings in previous research approaches. We suggest an alternative approach for inferring the reference point, a key element of PT, and measuring risk, as well as a different representation of the risk-return association taking into consideration a timeline of the firm’s state, its state dependent action, and consequences. Consistent with PT, results using COMPUSTAT data show that firms with returns above their reference levels take less risk than firms with returns below their reference levels.

Keywords : Prospect theory, Organization level, Reference point, Risk preferences, Strategic decision making

Are Investors Rational and Does it Matter? Determining the Expected Utility Function for a Group of Investors

August 1, 2011 Leave a comment

Are Investors Rational and Does it Matter? Determining the Expected Utility Function for a Group of Investors

Journal of Behavioral Finance
Volume 12, Issue 2, 2011

John Livanasa

This paper reports on an experiment with a group of 236 Australian superannuation investors to derive an expected utility function for risk and return, and the resulting indifference curves. The paper concludes that the expected utility function is consistent with that anticipated in Markowitz [1952] and Sharpe [1964] except that the investors did not consider time horizon. The paper argues that the analysis of investor behavior is best served by considering the behavior of a group as a whole rather than investors as individuals, and by assessing their choices when faced with successive similar tasks.

Categories: Behavioral Econ.

In the worst rather than the best of times: Effects of salient intergroup ideology in threatening intergroup interactions.

July 27, 2011 Leave a comment

In the worst rather than the best of times: Effects of salient intergroup ideology in threatening intergroup interactions.

Journal of Personality and Social Psychology
Vol 101(2), Aug 2011, 307-320. doi: 10.1037/a0023152

Vorauer, Jacquie D.; Sasaki, Stacey J

Three studies demonstrated that a salient multicultural ideology increases hostile treatment of threatening outgroup interaction partners. The effect of multiculturalism on hostile behavior was evident regardless of whether threat was operationalized in terms of disagreement with an outgroup partner on important social issues (Studies 1 and 3) or rejection by the partner (Study 2). Moreover, the results clearly point to the learning orientation fostered by multiculturalism—as opposed to other factors such as enhanced other-focus, group-level attributions, or focus on differences—as the critical mediator of its effect on hostile behavior under threat. Thus, it appears that multiculturalism enhances the expression of hostility because it prompts individuals to really engage with and attach meaning and importance to threatening behaviors exhibited by outgroup members. The effects of multiculturalism were distinct from those of anti-racism and color-blindness, which set in motion processes that in many respects are directly opposite to those instantiated by multiculturalism. The findings highlight that the behavioral implications of multiculturalism may be quite different in conflictual interactions than they have previously been demonstrated to be in less threatening exchanges. (PsycINFO Database Record (c) 2011 APA, all rights reserved)

Categories: Behavioral Econ.

The Role of Expectations in Value and Glamour Stock Returns

July 12, 2011 Leave a comment

The Role of Expectations in Value and Glamour Stock Returns

Journal of Behavioral Finance
Volume 12, Issue 2, 2011

Nicholas Magnusona

What happens when value and glamour stocks miss earnings expectation targets? Although, as expected, prices for glamour stocks have historically fallen, prices for value stocks have gone up—even when business fundamentals deteriorated based on results found in this study of global equities. These results suggest the superior returns delivered by value stocks may not be a result of positive developments relative to expectations but instead are more likely due to a gradual and corrective reversal of earlier overreaction and mispricing. This augments research by select scholars and provides fresh evidence explaining why value investing historically has been a successful long-term strategy.

Categories: Behavioral Econ.



Journal of Economic Behavior & Organization

We study gender differences in exiting competitive environments by exploiting the “naturalistic experiment” of a TV game show where participants were self-selected and there were no gender-specific constraints or discrimination. In multiple rounds, contestants answer general knowledge questions privately. One participant is eliminated or leaves voluntarily at the end of each round. Women earn 40% less than men and exit the game prematurely at a faster rate, but especially when in a minority. This latter result highlights the importance of structural arrangements in organizations that interact with behavior to maintain “glass ceilings” and explains the differential gender-related risk attitudes observed.


Keywords: competition; gender differences; glass ceilings; minority behaviors; discrimination.

JEL classification codes: C93, D03, J16, J71.

Categories: Behavioral Econ.

Maximizing and customer loyalty: Are maximizers less loyal? — Linda Lai

Maximizing and customer loyalty: Are maximizers less loyal? — Linda Lai

Judgment and Decision Making, Vol. 6, No. 4, June 2011, pp. 307–313

Despite their efforts to choose the best of all available solutions, maximizers seem to be more inclined than satisficers to regret their choices and to experience post-decisional dissonance. Maximizers may therefore be expected to change their decisions more frequently and hence exhibit lower customer loyalty to providers of products and services compared to satisficers. Findings from the study reported here (N = 1978) support this prediction. Maximizers reported significantly higher intentions to switch to another service provider (television provider) than satisficers. Maximizers’ intentions to switch appear to be intensified and mediated by higher proneness to regret, increased desire to discuss relevant choices with others, higher levels of perceived knowledge of alternatives, and higher ego involvement in the end product, compared to satisficers. Opportunities for future research are suggested.

Categories: Behavioral Econ.