Rationality in Economics

✍ Scribed by Vernon L. Smith

• Publisher: Cambridge University Press
• Year: 2007
• Tongue: English
• Leaves: 386
• Edition: 1
• Category: Library

✦ Synopsis

The principal findings of experimental economics are that impersonal exchange in markets converges in repeated interaction to the equilibrium states implied by economic theory, under information conditions far weaker than specified in the theory. In personal, social, and economic exchange, as studied in two-person games, cooperation exceeds the prediction of traditional game theory. This book relates these two findings to field studies and applications and integrates them with the main themes of the Scottish Enlightenment and with the thoughts of F. A. Hayek.

✦ Table of Contents

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Preface......Page 15
Acknowledgments......Page 21
Introduction......Page 23
PART 1: RATIONALITY, MARKETS, AND INSTITUTIONS......Page 35
Exchange in Social and Economic Order......Page 37
Lessons from Scotland......Page 40
Introduction......Page 46
Constructivist Rationality......Page 48
Limitations and Distractions of Constructivist Rationality......Page 54
Ecological Rationality......Page 58
Implications......Page 63
PART 2: IMPERSONAL EXCHANGE: THE EXTENDED ORDER OF THE MARKET......Page 65
Introduction......Page 67
Airline Route Deregulation......Page 69
The California Energy Crisis......Page 72
Economic Systems Design......Page 75
Constructivism as Rational Reconstruction of Emergent Order......Page 79
Knowledge, Institutions, and Markets......Page 83
The Iowa Electronic Market......Page 90
Strategy Proof-ness: Theory and Behavior......Page 92
Did Gresham Have a Law?......Page 96
Equilibrium with a Dominant Firm?......Page 97
The Ethyl Case and Antitrust Policy......Page 99
GasolineMarket Behavior and Competition Policy......Page 103
Predatory Pricing......Page 105
Entry Cost and Competition: Contestable Markets Theory......Page 108
Rationality in Asymmetric Information Markets......Page 116
The Neoclassical Synthesis......Page 123
Hayek and the Hurwicz Program......Page 126
Experimental Markets with Asymmetric Information......Page 130
Markets for Quality......Page 131
LaborMarkets and EfficiencyWages......Page 133
Introduction......Page 137
Auctions: Modeling Institutions......Page 138
Economics of English Auctions......Page 139
Independent Private Values......Page 140
Common Values......Page 143
Review of Relevant Experimental Results......Page 147
Common Value Auctions......Page 148
Jump Bidding and the Class of Badly PerformingMultiple-Unit English Auctions......Page 149
The English Clock Corrects Bad Performance......Page 152
Combinatorial Auctions......Page 153
Tests of SMR and a Proposed Alternative......Page 155
The FCC Auction Design Process......Page 159
Auction Design for Complex Environments......Page 162
The Combo Clock: Simple Solutions for Complex Auctions......Page 163
Implications for the Design of Spectrum Auctions......Page 166
Psychology's Challenge to Constructivist Rationality......Page 171
Psychology, Economics, and the Two Forms of Rationality......Page 178
What Is Fairness?......Page 183
Examples of Fairness......Page 185
Fairness: An Experimental Market Test......Page 188
8 What Is Rationality?......Page 190
Maximizing the Probability of Survival......Page 191
Maximizing Expected "Profit," or Discounted Withdrawals......Page 194
Is It Rational to Be "Rational"?......Page 195
Literature Background......Page 198
Modeling Net Subjective Value......Page 199
Examples from Experiments......Page 201
Monetary Incentives: Further Discussion......Page 202
Rationality in Collectives and the Sense of Number......Page 204
Market Rationality: Capital versus Commodity and Service Flow Markets......Page 208
PART 3: PERSONAL EXCHANGE: THE EXTERNAL ORDER OF SOCIAL EXCHANGE......Page 211
Rules and Order......Page 214
Ellickson Out-Coases Coase......Page 218
Introduction and Elementary Theoretical Background......Page 221
Perspectives on Interpreting Results......Page 222
How Does Context Matter?......Page 224
Anonymity as a Treatment Procedure......Page 226
Perception, Context, and the Internal Order of theMind......Page 228
The Significance of Experimental Procedures......Page 231
Overview of Experimental Procedures......Page 233
The Ultimatum Game Example......Page 234
Dictator Games......Page 242
APPENDIX: BEHAVIORAL DEVIATION FROM PREDICTIONS: ERROR, CONFUSION, OR EVIDENCE OF BRAIN FUNCTION?......Page 249
A Celebrated Two-Stage Dictator Game......Page 256
Reciprocity or Other-Regarding Preferences?......Page 259
Introduction......Page 267
Trust Games without a Punishment Option......Page 272
Is It the Subjects? Undergraduates versus Graduates......Page 275
Machiavelli, Trust, and Cooperation: Mandeville’s Knaves?......Page 276
Is It Utility for Other Payoff?......Page 279
Reciprocity versus Preferences: Does Own Opportunity Cost Influence Other Choice?......Page 282
Extensive versus Normal (Strategic) Form Games......Page 286
Trust Games with Punishment Options......Page 289
Self-Regarding Cooperation in Repeat Play? Protocols with and without Direct Punishment......Page 294
Comparison of Behavior in the Repeated Play of Extensive and Normal Form Games......Page 296
A Matching Protocol Based on Sorting for Cooperative Behavior......Page 297
PART 4: ORDER AND RATIONALITY IN METHOD AND MIND......Page 303
Introduction......Page 305
Can We Derive Theory Directly from Observation?......Page 307
Economics: Is It an Experimental Science?......Page 312
What Is the Scientists' qua Experimentalists' Image of What They Do?......Page 318
Auxiliaries and the Ambiguity of Rejecting the "Test" Hypothesis......Page 319
A Proposition and Some Economics Examples......Page 322
In View of Proposition 2, What Are Experimentalists and Theorists to Do?......Page 326
Experimental Knowledge Drives Experimental Method......Page 327
Technology and Science......Page 330
Technology and Experimental Economics......Page 331
In Conclusion......Page 333
Introduction......Page 334
Individual Decision Making......Page 336
Strategic Interaction: Moves, Intentions, and Mind Reading......Page 338
What Are the Neuroeconomics Questions?......Page 339
15 A Summary......Page 344
References......Page 351
Index......Page 375