Armstrong, Mark and Huck, Steffen (2010): Behavioral economics as applied to firms: a primer.
Download (281kB) | Preview
We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and satisficing behavior by firms, outcomes when managers care about their position relative to peers, the benefits of employing managers whose objective diverges from profit-maximization (including managers who are overconfident or base pricing decisions on sunk costs), the impact of social preferences on the ability to collude, and the incentive for profit-maximizing firms to mimic irrational behavior.
|Item Type:||MPRA Paper|
|Original Title:||Behavioral economics as applied to firms: a primer|
|Keywords:||Behavioral economics, bounded rationality, experimental economics, oligopoly, antitrust|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Mark Armstrong|
|Date Deposited:||02. Feb 2010 03:16|
|Last Modified:||13. Feb 2013 15:33|
Albaek, Svend, Peter Mollgaard and Per Overgaard (1997), Government-assisted oligopoly coordination? A concrete case, Journal of Industrial Economics 45, 429-443.
Alchian, Armen (1950) Uncertainty, evolution, and economic theory, Journal of Political Economy 57, 211-221.
Al-Najjar, Nabil, Sandeep Baliga and David Besanko (2008) Market forces meet behavioral biases: Cost misallocation and irrational pricing, RAND Journal of Economics 39, 214-237.
Andersson, Ola and Erik Wengstrom (2007) Do antitrust laws facilitate collusion? Experimental evidence of costly communication in duopolies, Scandinavian Journal of Economics 109, 321-339.
Apesteguia, Jose, Martin Dufwenberg and Reinhard Selten (2007) Blowing the whistle, Economic Theory 31, 143-166.
Apesteguia, Jose, Steffen Huck and Jorg Oechssler (2007) Imitation: Theory and experimental evidence, Journal of Economic Theory 136, 217-235.
Armstrong, Mark (2008) Interactions between competition and consumer policy, Competition Policy International 4, 97-148.
Armstrong, Mark and John Vickers (2010) A model of delegated project choice, Econometrica 78, 213-244.
Axelrod, Robert (1984) The Evolution of Cooperation, New York: Basic Books.
Banerjee, Abhijit (1992) A simple model of herd behavior, Quarterly Journal of Economics 107, 797-817.
Baye, Michael and John Morgan (2004) Price dispersion in the lab and on the internet: Theory and evidence, Rand Journal of Economics 35, 449-466.
Bertrand, Marianne and Antoinette Schoar (2003), Managing with style: The effect of managers on firm policies, Quarterly Journal of Economics 118, 1169-1208.
Bigoni, Maria (2008) Information and learning in oligopoly: An experiment, mimeo.
Bikhchandani, Sushil, David Hirshleifer and Ivo Welch (1992) A theory of fads, fashion, customer, and cultural change as information cascades, Journal of Political Economy 100, 992-1026.
Bonanno, Giacomo and John Vickers (1988) Vertical separation, Journal of Industrial Economics 36, 257-265.
Bork, Robert (1978) The Antitrust Paradox: A Policy at War with Itself, New York: Basic Books.
Burdett, Kenneth and Kenneth Judd (1983) Equilibrium price dispersion, Econometrica 51, 955-969.
Camerer, Colin and Dan Lovallo (1999) Overconfidence and excess entry: An experimental approach, American Economic Review 89, 306-318.
Clark, Andrew, Paul Frijters and Michael Shields (2008) Relative income, happiness, and utility: An explanation for the Easterlin Paradox and other puzzles, Journal of Economic Literature 46: 95-144.
Conlisk, John (1980) Costly optimizers versus cheap imitators, Journal of Economic Behavior and Organization 1, 275-293.
Cyert, Richard and James March (1956) Organizational factors in the theory of oligopoly, Quarterly Journal of Economics 70, 44-64.
DeJong, Douglas, Robert Forsythe and Wilfred Uecker (1988) A note on the use of businessmen as subjects in sealed offer markets, Journal of Economic Behavior and Organization 9, 87-100.
De Long, Bradford, Andrei Shleifer, Laurence Summers, Robert Waldmann (1991) The survival of noise traders in financial markets, Journal of Political Economy 64, 703-738.
De Meza, David and Clive Southey (1996) The borrower's curse: Optimism, finance and entrepreneurship, Economic Journal 106, 375-386.
Deneckere, Raymond and Carl Davidson (1985) Incentives to form coalitions with Bertrand competition, Rand Journal of Economics 16, 474-486.
Dixon, Huw (2000) Keeping up with the Jones's: Competition and the evolution of collusion, Journal of Economic Behavior and Organization 43, 223-238.
Duersch, Peter, Jorg Oechssler, and Burkhard Schipper (2009) Unbeatable imitation, mimeo.
Dufwenberg, Martin, and Uri Gneezy (2000) Price competition and market concentration: An experimental study, International Journal of Industrial Organization 18, 7-22.
Eaton, Jonathan and Gene Grossman (1986) Optimal trade and industrial policy under oligopoly, Quarterly Journal of Economics 101, 383-406.
Ellison, Glenn (2006) Bounded rationality in industrial organization, in: Advances in Economics and Econometrics: Theory and Applications (eds. R. Blundell, W. Newey and T. Persson), Cambridge: Cambridge University Press.
Ellison, Glenn and Drew Fudenberg (1993) Rules of thumb for social learning, Journal of Political Economy 101, 612-643.
Englmaier, Florian (2007) A strategic rationale of having overoptimistic managers, mimeo.
Fehr, Ernst and Klaus Schmidt (1999) A theory of fairness, competition, and cooperation, Quarterly Journal of Economics 114, 817-868.
Feinberg, Robert (1995) In defense of corporate myopia, Managerial and Decision Economics 16, 205-210.
Feinberg, Robert and Thomas Husted (1993) An experimental test of discount-rate effects on collusive behavior in duopoly markets, Journal of Industrial Economics 41, 153-160.
Fershtman, Chaim and Kenneth Judd (1987) Equilibrium incentives in oligopoly, American Economic Review 77, 927-940.
Forsythe, Robert, Joel Horowitz, NE Slavin and Martin Sefton (1994) Fairness in simple bargaining experiments, Games and Economic Behavior 6, 347-369.
Friedman, Milton (1953) Essays in Positive Economics, University of Chicago Press.
Gale, Douglas and Hamid Sabourian (2005) Complexity and competition, Econometrica 73, 739-769.
Gibbons, Robert and Kevin Murphy (1990) Relative performance evaluation for chief executive officers, Industrial and Labor Relations Review 43, 30-51.
Goel, Anand and Anjan Thakor (2000) Rationality, overconfidence and leadership, mimeo.
Goel, Anand and Anjan Thakor (forthcoming) Do envious CEOs cause merger waves?, Review of Financial Studies.
Gordon, R.A. (1948) Short-period price determination in theory and practice, American Economic Review 3, 265-280.
Grossman, Sanford and Joseph Stiglitz (1976) Information and competitive price systems, American Economic Review 66, 246-253.
Guth, Werner, Rolf Schmittberger and Bernd Schwarze (1982) An experimental analysis of ultimatum bargaining, Journal of Economic Behavior and Organization 3, 367-388.
Hall, R and Hitch, C (1939) Price theory and business behavior, Oxford Economic Papers 2, 12-45.
Hayek, Frederick (1945) The use of knowledge in society, American Economic Review 35, 519-530.
Heifetz, Aviad, Chris Shannon and Yossi Spiegel (2007) The dynamic evolution of preferences, Economic Theory 32, 251-286.
Hirshleifer, David and Guo Ying Luo (2001) On the survival of overconfident traders in a competitive securities market, Journal of Financial Markets 4, 73-84.
Hinloopen, Jeroen and Hans-Theo Normann (eds) (2009) Experiments and Competition Policy, Cambridge University Press.
Hinloopen, Jeroen and Adriaan Soetevent (2008) Laboratory evidence on the effectiveness of corporate leniency programs, Rand Journal of Economics 39, 607-616.
Holt, Charles (1995) Industrial organization: A survey of laboratory research, in: The Handbook of Experimental Economics (eds. John Kagel and Alvin Roth), Princeton University Press.
Huck, Steffen, Kai Konrad, Wieland Muller and Hans-Theo Normann (2007) The merger paradox and why aspiration levels let it fail in the laboratory, Economic Journal 117, 1073-1095.
Huck, Steffen, Wieland Muller, and Hans-Theo Normann (2001) Stackelberg beats Cournot: On collusion and efficiency in experimental markets, Economic Journal 111, 749-765.
Huck, Steffen, Wieland Muller, and Hans-Theo Normann (2004) Strategic delegation in experimental markets, International Journal of Industrial Organization 22, 561-574.
Huck, Steffen, Hans-Theo Normann and Jorg Oechssler (1999) Learning in Cournot oligopoly: An experiment, Economic Journal 109, C80-C95.
Huck, Steffen, Hans-Theo Normann and Jorg Oechssler (2000) Does information about competitors’ actions increase or decrease competition in experimental oligopoly markets?, International Journal of Industrial Organization 18, 39-57.
Huck, Steffen, Hans-Theo Normann and Jorg Oechssler (2004a) Two are few and four are many: Number effects in experimental oligopolies, Journal of Economic Behavior and Organization 53, 435-446.
Huck, Steffen, Hans-Theo Normann and Jorg Oechssler (2004b) Through trial & error to collusion, International Economic Review 45, 205-224.
Iris, Doruk and Luis Santos-Pinto (2009) Tacit collusion under fairness and reciprocity, mimeo.
Ivaldi, Marc, Bruno Jullien, Patrick Rey, Paul Seabright and Jean Tirole (2003) The economics of tacit collusion, Report for DG Competition, European Commission.
Jung, Yun Joo, John Kagel and Dan Levin (1994) On the existence of predatory pricing: An experimental study of reputation and entry deterrence in the chain-store game, Rand Journal of Economics 25, 72-93.
Kreps, David, Paul Milgrom, John Roberts and Robert Wilson (1982) Rational cooperation in the finitely repeated Prisoners' Dilemma, Journal of Economic Theory 27, 245-252.
Kreps, David and Robert Wilson (1982) Reputation and imperfect information, Journal of Economic Theory 27, 253-279.
Kyle, Albert and Albert Wang (1997) Speculation duopoly with agreement to disagree: Can overconfidence survive the market test?, Journal of Finance 52, 2073-2090.
Lazear, Edward and Sherwin Rosen (1981) Rank-order tournaments as optimal labor contracts, Journal of Political Economy 89, 841-864.
Leslie, Christopher (2004) Trust, distrust and antitrust, Texas Law Review 82, 515-680.
Levenstein, Margaret and Valerie Suslow (2006) Cartel bargaining and monitoring: The role of information sharing, in: The Pros and Cons of Information Sharing (ed. Mats Bergman), Stockholm: Swedish Competition Authority.
Levin, Daniel (1990) Horizontal mergers: The 50-percent benchmark, American Economic Review 80, 1238-1245.
Levitt, Steven (2008) Bagels and donuts for sale: A case study in profit maximization, mimeo.
List, John (2003) Does market experience eliminate market anomalies? Quarterly Journal of Economics 118, 41-71.
List, John (2004) Neoclassical theory versus prospect theory: Evidence from the marketplace, Econometrica 72, 615-625.
Lundgren, Carl (1996) Using relative profit incentives to prevent collusion, Review of Industrial Organization 11, 533-550.
McKelvey, Richard and Thomas Palfrey (1995) Quantal response equilibria for Normal Form games, Games and Economic Behavior 10, 6-38.
Malmendier, Ulrike and Geoffrey Tate (2005) CEO overconfidence and corporate investment, Journal of Finance 60, 2661-2700.
Malmendier, Ulrike and Geoffrey Tate (2008) Who makes acquisitions? CEO overconfidence and the market's reaction, Journal of Financial Economics 89, 20-43.
Miller, Nolan and Amit Pazgal (2002) Relative performance as a strategic commitment mechanism, Managerial and Decision Economics 23, 51-68.
Motta, Massimo and Michele Polo (2003) Leniency programs and cartel prosecution, International Journal of Industrial Organization 21, 347-379.
Oechssler, Jorg (2002) Cooperation as a result of learning with aspiration levels, Journal of Economic Behavior and Organization 49, 405-409.
Offerman, Theo and Potters, Jan (2006) Does auctioning of entry licences induce collusion? An Experimental study, Review of Economic Studies 73, 769-792.
Offerman, Theo, Jan Potters and Joep Sonnemans (2002) Imitation and belief learning in an oligopoly experiment, Review of Economic Studies 69, 973-997.
Page, William (2009) The Gary Dinners and the meaning of concerted action, S.M.U. Law Review 62, 597-619.
Plott, Charles (1989) An updated review of industrial organization applications of experimental methods, in: The Handbook of Industrial Organization Vol.II (eds. Richard Schmalensee and Robert Willig), Amsterdam: North-Holland.
Potters, Jan (2009) Transparency about past, present and future conduct, in: Experiments and Competition Policy (eds. Jeroen Hinloopen and Hans-Theo Normann), Cambridge University Press.
Posner, Richard (1998) Rational choice, behavioral economics, and the law, Stanford Law Review 50, 1551-1576.
Radnor, Roy (1980) Collusive behavior in non-cooperative epsilon-equilibria of oligopolies with long but finite lives, Journal of Economic Theory 22, 136-154.
Rhode, Paul and Mark Stegeman (2001) Non-Nash equilibria of Darwinian dynamics with application to duopoly, International Journal of Industrial Organization 19, 415-453.
Ridley, David (2008) Herding versus Hotelling: Market entry with costly information, Journal of Economics and Management Strategy 17, 607-631.
Roll, Richard (1986) The Hubris Hypothesis of corporate takeovers, Journal of Business 59, 197-216.
Rothschild, KW (1947) Price theory and oligopoly, Economic Journal 57, 299-320.
Salant, Stephen, Sheldon Switzer and Robert Reynolds (1983) Losses from horizontal merger: The effects of an exogenous change in market structure on Cournot-Nash equilibrium, Quarterly Journal of Economics 98, 185-199.
Schaffer, Mark (1989) Are profit-maximizers the best survivors?, Journal of Economic Behavior and Organization 12, 29-45.
Scharfstein, David and Jeremy Stein (1990) Herd behavior and investment, American Economic Review 80, 465-479.
Schipper, Burkhard (2009) Imitators and optimizers in Cournot oligopoly, Journal of Economic Dynamics and Control 33, 1981-1990.
Schlag, Karl (1998) Why imitate, and if so, how? A boundedly rational approach to multi-armed bandits, Journal of Economic Theory 78, 130-156.
Schlag, Karl (1999) Which one should I imitate?, Journal of Mathematical Economics 31, 493-522.
Simon, Herbert (1955) A behavioral model of rational choice, Quarterly Journal of Economics 69, 99-118.
Simon, Herbert (1979) Rational decision making in business organizations, American Economic Review 69, 493-513.
Sklivas, Steven (1987) The strategic choice of managerial incentives, Rand Journal of Economics 18, 452-458.
Spagnolo, Giancarlo (2000) Optimal leniency programs, FEEM Working Paper No. 42.
Stigler, George (1964) A theory of oligopoly, Journal of Political Economy 72, 44-61.
Svenson, Ola (1981) Are we all less risky and more skilful than our fellow drivers?, Acta Psychologica 47, 143-148.
Tanaka, Yasuhito (2000) Stochastically stable states in an oligopoly with differentiated products: Equivalence of price and quantity strategies, Journal of Mathematical Economics 34, 235-253.
Tor, Avishalom (2002) The fable of entry: Bounded rationality, market discipline, and legal policy, Michigan Law Review 101, 482-568.
Tse, Senyo and Jennifer Tucker (2009) Within-industry timing of earnings warnings: Do managers herd? Review of Accounting Studies, forthcoming.
Vega-Redondo, Fernando (1997) The evolution of Walrasian behavior, Econometrica 65, 375-384.
Vickers, John (1985) Delegation and the theory of the firm, Economic Journal 95, 138-147.
Weizsacker, Georg (2008) Do we follows others when we should? A simple test of rational expectations, American Economic Review, forthcoming.