Welfare, freedom of choice and composite utility in the logit model

Discrete choice models characterize the alternatives in the choice set by utilities/attributes. The decision making is described by a probability distribution over the choice set. In this paper we introduce a welfare measure based on expected payoff and expected freedom of choice for the simple one parameter logit model. In this case the welfare measure turns out to be the so called composite utility. This means that the composite utility can be interpreted as the combined benefit of expected payoff and expected freedom of choice. The proposed welfare measure can be extended to the linear-in-parameters logit model and nested logit models and others. The proposed welfare measure is formulated in terms of the choice probability distribution. It depends on the form of the probabilities, but not on any particular derivation of the distribution.     

Conditionality of adaptiveness: Investigating the relationship between numeracy and adaptive behavior

Recent studies have illustrated that individuals with higher numeracy are more likely to make adaptive choices than individuals with lower numeracy. Highly numerate individuals can consistently make normatively superior choices by maximizing expected value (EV) in meaningful choice problems (high-payoff condition). However, in trivial problems (low-payoff condition), they can also adaptively change their strategy to make good enough choices and not follow a normatively superior strategy. Upon inspection of choice problems used in earlier studies, it was revealed that payoff was not the only varying factor between the two payoff conditions. Therefore, it is unclear whether payoff conditions alone can provide sufficient context for adaptive modulation in decision strategy. In two pre-registered studies (N = 343), we tested numerate individuals’ adaptiveness under high- and low-payoff conditions addressing the limitations of earlier studies. Results revealed that the presence of two payoff conditions together did not initiate adaptive strategy selection, regardless of participants’ numeracy. Instead, numerate individuals, compared to less numerate individuals, consistently made more EV-consistent choices in both payoff conditions. We identified that the change in EV consistency across payoff conditions was influenced more by the absolute difference than the relative difference in the expected reward.     

Risky choice in interpersonal context: Do people dare because they care?

This paper presents an experimental study investigating the interplay of individuals’ other-regarding preferences and individuals’ risk attitude. Participants (N = 120) had to make choices between a certain and risky payoff only for themselves (individual context) and choices in which the participants were paired with another randomly assigned participant who functioned as a passive recipient (interpersonal context). In the interpersonal context the risky option was beneficial for the other person while the certain option was not. Thus, the interpersonal choice context was an abstract representation of the incentive structure in helping situations, which yield risk only for the helper. Risky options in the interpersonal context yielded different payoff distributions, which allowed us to identify how considerations of fairness affect interpersonal risky choices. To assess other-regarding preferences, a dictator game was played. First we found that participants were generally less risk averse in the interpersonal choices; however, the degree of risk aversion was affected by the distribution of payoffs between decider and recipient. Furthermore, we found that changes of risk aversion in an interpersonal context could be predicted with the proposed splits in the dictator game.     

AN ECONOMIC ANALYSIS OF IDENTITY AND CAREER CHOICE*

Standard economic models tend to be more specific about pecuniary payoffs than nonpecuniary payoffs to education. Based on the ideas of Akerlof and Kranton, we consider a model of career choice and identity where individuals derive nonpecuniary identity payoffs. Using factor analysis on a range of attitude questions, we find two factors related to identity (career orientation and social orientation), which are important for planned educational choices and for observed gender differences. The implication is that policy makers and institutions of higher education need to focus on identity‐related issues rather than just improved financial incentives if they aim at attracting high‐ability youths to certain careers. (JEL I21, J24)     

Payoff Effects in Information Cascade Experiments

Error rates are estimated using data from "information cascade" experiments. The econometric estimation assumes a logistic error structure and error rates are compared across three experimental treatments that differ only with respect to payoff structure. In a "no payoff" treatment subjects receive a fixed payment for participating in the experiment and earnings do not vary with decisions. In "payoff" and "double payoff" treatments earnings depend on each subject's decisions. The results indicate that rewarding correct decisions reduces the amount of decision error. However, increasing the payment for a correct decision does not reduce errors over the range of payoffs considered.     

Rent-seeking for a public good with additive contributions

We analyze rent-seeking for a public good with two groups, where the provision of a public good is decided in the all-pay contest where “the winner takes all”. We assume that the valuation of the public good varies across groups, but is the same for all members within a group. Free-riding in such situation was predicted by Baik et al. (J Public Econ 82(3):415–429, 2001). We describe a continuum of equilibria where all players make contributions. There is room for substantial payoff asymmetry, which ranges from equal payoffs to all group members to a zero payoff for the player who makes a contribution and positive payoffs for free-riders. The results generalize for the case where the prize has both a private and a public component.     

The Application of Game Theory in Collective Behavior: A Critique of Berk's “Gaming Approach”

Abstract

The game theory approach to collective behavior is examined in this paper by critiquing Richard A. Berk's application of it (1974). Given relative payoffs for different action choices, game theory may offer certain solutions for actors; however, Berk's use of game theory falls short of these solutions. Using matrices to present actors' payoffs is the only appropriate application of game theory used by Berk. A more proper application of game theory solutions to the same payoff values from Berk's work shows how an emergent norm approach might better fit the empirical problem than Berk's contagion approach.     

Axiomatizations of the normalized Banzhaf value and the Shapley value

A cooperative game with transferable utilities– or simply a TU-game – describes a situation in which players can obtain certain payoffs by cooperation. A solution concept for these games is a function which assigns to every such a game a distribution of payoffs over the players in the game. Famous solution concepts for TU-games are the Shapley value and the Banzhaf value. Both solution concepts have been axiomatized in various ways. An important difference between these two solution concepts is the fact that the Shapley value always distributes the payoff that can be obtained by the `grand coalition' consisting of all players cooperating together while the Banzhaf value does not satisfy this property, i.e., the Banzhaf value is not efficient. In this paper we consider the normalized Banzhaf value which distributes the payoff that can be obtained by the `grand coalition' proportional to the Banzhaf values of the players. This value does not satisfy certain axioms underlying the Banzhaf value. In this paper we introduce some new axioms that characterize the normalized Banzhaf value. We also provide an axiomatization of the Shapley value using similar axioms. Received: 10 April 1996 / Accepted: 2 June 1997     

Comparing a risky choice in the field and across lab procedures

Controlled laboratory experiments have become a generally accepted method for studying economic behavior, but there are two issues regarding the reliability of such work. The first pertains to the ability to generalize experimental results outside the laboratory. The second pertains to the impact the payment procedure has on observed behavior. This paper adds empirical insight into both issues. Using data from the promotional campaign of a bank and a laboratory experiment that closely mimics the same decision, we find similar levels of risk taking controlling for gender and age. We also compare behavior on this same risky choice across three distinct experimental payoff procedures: a single salient choice as in the field, multiple responses for similar choices with one selected at random for payment, and a single salient choice that has only a small probability of being implemented. We find nearly identical behavior across these three payment procedures.     

REWARDS, EXPERIENCE AND DECISION COSTS IN FIRST PRICE AUCTIONS

Consistent with a model of asymmetric risk aversion, subjects in first price auctions consistently bid above the risk neutral Nash prediction. It has been argued that this is due to low opportunity cost of deviating from the risk neutral bid. We increase opportunity cost (and payoff levels) by factors of 0, 1, 5, 10, and 20, from the normal levels generating payoffs up to $250 for risk neutral subjects and observe an insignificant increase in the slope of individual bid functions. The RMSE of bids declines significantly. This is consistent with a reward/decision cost model of bidding behavior.     

Rejecter-proposer legislative bargaining with heterogeneous time and risk preferences

This article considers a legislative bargaining model in which the rejecter in the previous round becomes the proposer in the current round. We allow the time and risk preferences to differ across players and the voting quota to be a supermajority or submajority. We show that there exists a stationary subgame perfect equilibrium and that each player’s equilibrium payoff conditional on being a proposer is unique, and we explicitly derive the equilibria and equilibrium payoff. We compare a proposer’s equilibrium payoff when the time interval between two consecutive rounds tends to zero with respect to the protocols of the selection of proposers and the voting quota: we show that a proposer’s equilibrium payoff can be greater in this article’s rejecter-proposer model than in the Baron–Ferejohn random-proposer model; even though the voting quota increases, a proposer’s equilibrium payoff can increase.     

PAYOFF LEVELS,LOSS AVOIDANCE,AND EQUILIBRIUM SELECTION IN GAMES WITH MULTIPLE EQUILIBRIA: AN EXPERIMENTAL STUDY

Game theorists typically assume that changing a game's payoff levels—by adding the same constant to, or subtracting it from, all payoffs—should not affect behavior. Although this invariance is an implication of the theory when payoffs mirror expected utilities, it is an empirical question when “payoffs” are actually money amounts. Loss avoidance is a phenomenon where payoff‐level changes matter when they change the signs of payoffs: gains become losses or vice versa. We report the results of a human‐subjects experiment designed to test for two types of loss avoidance: certain‐loss avoidance (avoiding a strategy leading to a sure loss, in favor of an alternative that might lead to a gain) and possible‐loss avoidance (avoiding a strategy leading to a possible loss, in favor of an alternative that leads to a sure gain). Subjects in the experiment play three versions of Stag Hunt, which are identical up to the level of payoffs, under a variety of treatments. We find strong evidence of behavior consistent with certain‐loss avoidance in the experiment. We also find evidence of possible‐loss avoidance, although weaker than that for certain‐loss avoidance. Our results carry implications for theorists modeling real‐life situations with game theory and for experimenters attempting to test theory and interpret observed behavior in terms of theory. (JEL D81, C72, C73)     

The partnered core of a game with side payments

An outcome of a game is partnered if there are no asymmetric dependencies between any two players. For a cooperative game, a payoff is in the partnered core of the game if it is partnered, feasible and cannot be improved upon by any coalition of players. We show that the relative interior of the core of a game with side payments is contained in the partnered core. For quasi-strictly convex games the partnered core coincides with the relative interior of the core. When there are no more than three partnerships, the sums of the payoffs to partnerships are constant across all core payoffs. When there are no more than three players, the partnered core satisfies additional properties. We also illustrate our main result for coalition structure games.     

A cognitive model of individual well-being

This paper offers a model of individual well-being that takes into account cognitive factors. It postulates that individuals compare payoffs to aspiration levels. The latter are determined by past experiences (adaptation), by other people's performance (interpersonal comparison), as well as by reasoning (justifications and excuses). We axiomatize a measure of well-being defined on real-valued vectors of various lengths. It is a linear combination of differences between payoffs and aspiration levels, where the aspiration level at each instance is a linear function of past payoffs. Received: 3 April 1998/Accepted: 23 March 1999     

EDUCATION AND OCCUPATIONAL SEX SEGREGATION:

Occupational sex segregation is estimated to account for a substantial portion of the sex gap in pay for full-time, year-round workers (England 1992). Although women's representation in many formerly male-dominated occupations has increased since 1972, women are still underrepresented in engineering. In 1993 women were awarded 14 percent of all engineering bachelors degrees and accounted for 8 percent of the U.S. engineering labor force. This study uses data from the 1980 senior sample of the High School and Beyond national longitudinal survey to model sex differences in the choice of engineering in college. Multinomial logit models of major choice are constructed as a function of individual-level attributes associated with high school preparation and gender role attitudes. Decomposition analysis indicates that average sex differences in these two areas explain between 8.8 and 33.4 percent of the sex gap. Policy implications are discussed.     

THEORY AND EXPERIMENTS ON SPATIAL COMPETITION

We present theoretical and experimental results on spatial competition between two firms. Firms choose locations simultaneously along a line representing a linear market. Identical consumers with non-increasing demand functions are uniformly distributed along this line. We solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor. The set of equilibriums found includes both competitive and collusive payoffs. In laboratory experiments in which the final period was unknown to the players in advance, we observed both competitive and collusive outcomes. Non-binding communication led to collusion.     

The Rise and Fall of the Reds: The Reiterated Dilemma-Solving Process and the Life Course of Social Movements

This article explores the diachronic relationship between strategy choice and the life course of social movements. By proposing a model of reiterated strategy-making, the article articulates a path-dependent logic of dilemma-solving in social movements: Earlier strategic choices shape future strategic choices. Moreover, I distinguish contingent dilemmas from recurring dilemmas. Contingent dilemmas are those that only exist at particular points in time and recurring dilemmas are those that entangle the movement across time. In this model, I argue that a strategic choice not only produces future contingent dilemmas but also brings the recurring dilemma back to revisit the social movement. Using the Reds movement – an anticorruption movement in Taiwan – as the case, I illustrate the intertwined relationship between contingent and recurring dilemmas and how this relationship accounts for the life course of social movements.     

URBAN TRANSPORTATION MODE CHOICE AND TRIP COMPLEXITY: BICYCLISTS STICK TO THEIR GEARS

Commuters' lives have become more complicated with rising income. In my model, transportation mode choices are made simultaneously with the choice of whether to make multiple stops. Using travel behavior data, I estimate the model using an error components logit (ECL) specification to account for commuters' unobserved preferences for particular modes and find that omitting unobserved preferences underestimates value of travel time relative to the crossing‐components ECL. The estimated model predicts that increased trip complexity causes substitution away from public transit to automobiles, with the exception that bicyclists transition only to more complex trips and do not change transportation modes. (JEL R41, C25)     

Role-reversibility, stochastic ignorance, and social cooperation

This paper studies the effect of role-reversibility and stochastic ignorance, conditions that minimize the strategic bias of individual choice, on social cooperation. Under role-reversibility, each agent maximizes her expected payoff, knowing the status quo at the time of the action as well as the ex ante probabilities about her future roles. In contrast, under stochastic ignorance, players make their choices under a Harsanyi-type veil of uncertainty. Without the role-specific context influencing the judgment of the individual, cooperative norms emerging under stochastic ignorance are more likely to be close to first-best than are norms chosen under conditions of role-reversibility.