THE MORAL COSTS OF NASTINESS

We introduce two variants of the one‐shot joy‐of‐destruction minigame (mini‐JOD). Two players are endowed with the same amount of money. They simultaneously decide whether or not to reduce the other player's payoff at an own cost. In one treatment there was a probability that nature would destroy the opponent's money anyway. We test whether this feature reduces the moral costs of nastiness, and find that destruction rates rise significantly, despite the absence of strategic reasons. (JEL C72, C91, D03)     

DO SUNK COSTS MATTER?

That sunk costs are not relevant to rational decision making is often presented as one of the basic principles of economics. When people are influenced by sunk costs in their decision making, they are said to be committing the “sunk cost fallacy.” Contrary to conventional wisdom, we argue that in a broad range of situations, it is rational for people to condition behavior on sunk costs because of informational content, reputational concerns, or financial and time constraints. Once all the elements of the decision‐making environment are taken into account, reacting to sunk costs can often be understood as rational behavior. (JEL D0, D01, D8, D81, D83, D9, D90)     

ADAM SMITH'S CONCEPT OF SELF-COMMAND AS A SOLUTION TO DYNAMIC INCONSISTENCY AND THE COMMITMENT PROBLEM

How is rationality related to morality and the emotions? In response to Hume, Smith argues that sympathy is about the attenuation, rather than the escalation, of original emotions because sympathy involves judgment. Sympathy means that the spectator understands an emotion felt by the principal by placing him or herself in the principal’s shoes. Such understanding would not take place unless the principal’s emotion is proper in that the principal has attenuated the pitch of the emotion via self‐command, that is, via rational choice. Smith’s notion of sympathy solves the commitment problem: agents command their emotions, which include the temptation to cheat their future selves and others, in order to receive approval. (JEL B12, D01, D64)     

Manipulability, unanimity, anonymity and merging functions

A merging (or assessment aggregation) function (see [7]) is a rule that synthesizes several individual assessments, or numerical judgements, by creating a unique “collective” assessment. Individual i can manipulate assessment aggregation if the change in the merged assessment due to a change in i's assessment from x to y depends solely on x and y. Some assumptions on the functional form capturing this dependence are put forward and their effects on aggregation investigated under unanimity and anonymity conditions using a functional equation approach. Attention is restricted to three types of results: the merging function does not exist; it is the arithmetic mean; it is dictatorial. Received: 21 November 1997/Accepted: 31 May 1999     

STRATEGIC OR NONSTRATEGIC: THE ROLE OF FINANCIAL BENEFIT IN BANKRUPTCY

A partial test for strategic behavior in bankruptcy filing may be formulated by testing whether consumers manipulate their debt and filing decision jointly, or not: that is, testing for endogeneity of financial benefit and the bankruptcy filing decision. Using joint maximum likelihood estimation of an extended discrete choice model, test results are consistent with nonstrategic filing: financial benefit is exogenous to the filing decision. This result is confirmed in two different datasets (Panel Study of Income Dynamics and Survey of Consumer Finances). This result is consistent with an ex ante low net gain from a bankruptcy filing; a type of “rational inattention” to rare events such as bankruptcy. (JEL D12, D14)     

TIME PREFERENCE AND THE DISTRIBUTIONS OF WEALTH AND INCOME

This paper examines the connection between time preference heterogeneity and economic inequality in a deterministic environment. Specifically, we extend the standard neoclassical growth model to allow for (1) heterogeneity in consumers' discount rates, (2) direct preferences for wealth, and (3) human capital formation. The second feature prevents the wealth distribution from collapsing into a degenerate distribution. The third feature generates a strong positive correlation between earnings and capital income across consumers. A calibrated version of the model is able to generate patterns of wealth and income inequality that are very similar to those observed in the United States. (JEL D31, E21, O15)     

IS THERE ADVERSE SELECTION IN LIFE INSURANCE MARKETS?

Adverse selection theory predicts people with a high risk of death are more likely to own life insurance. Using a unique data set merging administrative and survey records, we test this theory and find the opposite: people with high death risk are less likely to own life insurance. We postulate advantageous selection and price discrimination swamp adverse selection in individual life insurance markets. To determine which effect is more powerful, we analyze group life insurance markets, where insurance companies cannot price discriminate as well as in individual markets. Our data suggest that price discrimination has a stronger effect than advantageous selection. (JEL D8, G1, I1)     

RATIONAL HEURISTICS? EXPECTATIONS AND BEHAVIORS IN EVOLVING ECONOMIES WITH HETEROGENEOUS INTERACTING AGENTS

We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles, and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second-best option but rather “rational” responses in complex and changing macroeconomic environments. (JEL C63, D8, E32, E6, O4)     

CATASTROPHE AND RATIONAL POLICY: CASE OF NATIONAL SECURITY

Predicting catastrophes involves heavy‐tailed distributions with no mean, eluding proactive policy as expected cost‐benefit analysis fails. We study US government counterterrorism policy, given heightened risk of terrorism. But terrorism also involves human behavior. We synthesize the behavioral and statistical aspects in an adversary‐defender game. Calibration to extensive data shows that where a Weibull distribution is the best predictor, US counterterrorism policy is rational (and optimal). Here, we estimate the adversary's unobserved variables, e.g., difficulty of an attack. We also find cases where the best predictor is a Generalized‐Pareto with no finite mean and rational policy fails. Here, we offer “work‐arounds”. (JEL H56, D81, C46)     

ASSET PRICE BUBBLES AND TECHNOLOGICAL INNOVATION

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy. (JEL E32, E44, O40)     

Stories in Decisions: How At-Risk Individuals Decide to Request Predictive Testing for Huntington Disease

Huntington Disease (HD) is a hereditary neurological disease that typically occurs in mid-life. There is no prevention or cure, but persons at risk may request predictive genetic testing to learn whether or not they will develop the disease later in life. Many studies describe why such persons request this knowledge. Few consider how people actually make this novel decision. Drawing on in-depth interviews with sixteen test candidates, this article differentiates three types of stories about—as well as embedded in—the experience of deciding. Each type of story sheds a different light on the meaning and experience of making this decision. Stories of having to know reveal that decision-making may be experienced as a self-evident act while stories of evolving toward it feature an incremental process of weighing up the implications. Stories of taking the decision feature a pivotal point which involves the narrator in seeing anew the opportunity to make a choice. Emphasizing previously neglected temporal, biographical and phenomenological dimensions of decision-making, this typology underscores the relevance of narrative in complex processes of decision-making. It also illustrates the inadequacy of understanding decision-making purely through the lens of rational choice.     

PROCUREMENT AUCTIONS WITH RENEGOTIATION AND WEALTH CONSTRAINTS

Renegotiation is a common practice in procurement auctions which allows for postauction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer. (JEL C91, D44, D82)     

EX ANTE EFFICIENT MECHANISM WITH PRIVATE ENTRY COSTS

This paper studies ex ante efficient resource allocation mechanism in an environment where agents endowed with their private values must incur private entry costs to participate. Due to the nature of this bidimensional screening problem and the difficulty in fully characterizing all implementable endogenous entries, the domain of the related social planner's problem that is essential for establishing the existence of efficient mechanism needs to be carefully designed. We find that a second-price auction among the entrants with a reserve price equal to the seller's valuation is ex ante efficient, and any ex ante efficient mechanism must be ex post efficient. (JEL D44, D61, D82)     

Substrate reinforcement and dialectal differences in Melanesian Pidgin

Stabilization of a new contact language involves a process of levelling, or the reduction of variants. One of the factors influencing which grammatical variants are retained in the process is substrate reinforcement – the existence in the substrate languages of a congruent structure with a similar function. This article illustrates substrate reinforcement in the development of the three current dialects of Melanesian Pidgin. First, evidence of earlier variability is presented and the sociolinguistic conditions that later led to greater stability are described. Second, five grammatical features that differentiate the dialects are examined. For each feature, it is shown first that at least two variants were previously in use. Then evidence is presented illustrating correspondence between the particular variant retained in the dialect and a feature of the substrate languages of that geographic area. Differing substrates reinforced different variants, and this accounts for these dialectal differences.     

Another chapter in the story of /r/: ‘Labiodental’ variants in British English

In this article we trace the history of [bnu;]-like variants of British English /r/. Although [bnu;] has generally been dismissed as an infantilism, or indicative of affected or disordered speech, it seems to have become established as an accent feature of non-standard south-eastern accents. We present tentative evidence to suggest this may be related to the presence of similar variants in the London East End Jewish community. After summarising previous discussions of [bnu;], we concentrate on a sociophonetic study of /r/ variants used by speakers from Derby and Newcastle. [bnu;] is found in both cities, with a higher incidence in Derby. Acoustic evidence suggests that the spreading variants are qualitatively different from [?]. We conclude that the spread of [bnu;] is part of a general and widespread process of accent levelling.     

DETERRENCE,PREEMPTION, AND PANIC: A COMMON‐ENEMY PROBLEM OF TERRORISM

A game‐theoretic analysis of terrorism examines interactions between a terrorist organization and multiple target countries. It considers both preemption and deterrence as counter‐terrorist policies. Damage from terror includes material costs and resultant fear. Fear effects lead to different equilibria and implications for counter‐terrorism policies. The model identifies conditions under which greater preemption may be the rational response to an increase in terrorism, that is, it analyzes the merit of the dictum “offense is the best defense.” It also examines the characteristics of cooperative behavior among target countries in dealing with the threat of terrorism. (JEL C72, D74, F52, F53, H41)     

MIDWEEK EFFECT ON SOCCER PERFORMANCE: EVIDENCE FROM THE GERMAN BUNDESLIGA

The home advantage phenomenon is a well‐established feature in sports competitions. In this study, we examine data from 2,013 soccer matches played in the German Bundesliga during the seasons from 2007–2008 to 2016–2017. Using a very rich data set, our econometric analysis that is based on matching methods reveals that the usual home advantage disappears when the game is in the middle of the week instead of being on the weekend. Our results indicate that, as the midweek matches are unevenly allocated among teams, the actual schedules of the Bundesliga favor teams with fewer home games in midweek. The study also shows that these soccer‐specific findings may have some implications for the design of contests in general. (JEL D00, L00, D20, Z20)     

Structural explanation in sociology: The egalitarian imperative

The concept of opportunity is widely used in sociology to explain unequal attainments. In this approach the actor is seen as controlled by structures of opportunity, rather than by culture or personality. This model is nearly identical withhomo economicus. However, social order is conceived more sociologically. Opportunity is portrayed as controlled by competing groups. But the problem of collective action makes these concepts incompatible because rational maximizers are not ordinarily able to achieve cooperation. This contradiction is resolved by modelingthe dominated as economically rational whilethe dominant are seen as driven by extra-economic motives. The main motive for adopting these contradictory models is a program of egalitarian social engineering. His main interests are the philosophy of social science and political philosophy.     

POLITICAL ECONOMY AND THE SOCIAL MARGINAL COST OF PUBLIC FUNDS: THE CASE OF THE MELTZER‐RICHARD ECONOMY

In previous studies on the social marginal cost of public funds (SMCF), the existing tax system has been assumed to be either arbitrary or optimal. This note explores another possibility: the existing tax system itself represents a political equilibrium. Our exploration proceeds in Meltzer and Richard’s (1981) political economy of redistributive taxation. An interesting feature of our finding is that the degree of income inequality as measured by the ratio of mean to median income can play an important role in estimating the SMCF and judging whether the level of redistribution is excessive or inadequate. (JEL D61, D72, H21)     

Smallest tournaments not realizable by $${\frac{2}{3}}$$-majority voting

Define the predictability number α(T) of a tournament T to be the largest supermajority threshold for which T could represent the pairwise voting outcomes from some population of voter preference orders. We establish that the predictability number always exists and is rational. Only acyclic tournaments have predictability 1; the Condorcet voting paradox tournament has predictability ; Gilboa has found a tournament on 54 alternatives (i.e. vertices) that has predictability less than , and has asked whether a smaller such tournament exists. We exhibit an 8-vertex tournament that has predictability , and prove that it is the smallest tournament with predictability <  . Our methodology is to formulate the problem as a finite set of two-person zero-sum games, employ the minimax duality and linear programming basic solution theorems, and solve using rational arithmetic. D. Shepardson was supported by a NSF Graduate Research Fellowship during the course of this work.