IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Behavioral Economics as Applied to Firms: A Primer

  • Mark Armstrong
  • Steffen Huck

We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behaviour 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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-02/cesifo1_wp2937.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2937.

as
in new window

Length:
Date of creation: 2010
Date of revision:
Handle: RePEc:ces:ceswps:_2937
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  2. Maria Bigoni, 2008. "Information and Learning in Oligopoly: an Experiment," "Marco Fanno" Working Papers 0072, Dipartimento di Scienze Economiche "Marco Fanno".
  3. Doruk İriş & Luís Santos-Pinto, 2013. "Tacit Collusion under Fairness and Reciprocity," Games, MDPI, Open Access Journal, vol. 4(1), pages 50-65, February.
  4. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Through Trial & Error to Collusion," Game Theory and Information 9811004, EconWPA, revised 24 Nov 1998.
  5. Jose Alpesteguia & Steffen Huck & Jörg Oechssler, 2003. "Imitation - Theory and Experimental Evidence," CESifo Working Paper Series 1049, CESifo Group Munich.
  6. Schipper, Burkhard C., 2009. "Imitators and optimizers in Cournot oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 33(12), pages 1981-1990, December.
  7. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  8. Marianne Bertrand & Antoinette Schoar, 2003. "Managing With Style: The Effect Of Managers On Firm Policies," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1169-1208, November.
  9. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-53, May.
  10. Schlag, Karl H., 1999. "Which one should I imitate?," Journal of Mathematical Economics, Elsevier, vol. 31(4), pages 493-522, May.
  11. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  12. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  13. K. Schlag, 2010. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Levine's Working Paper Archive 454, David K. Levine.
  14. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
  15. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  16. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 2000. "Strategic delegation in experimental markets," SFB 373 Discussion Papers 2000,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  17. Ulrike Malmendier & Geoffrey Tate, 2004. "Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction," NBER Working Papers 10813, National Bureau of Economic Research, Inc.
  18. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
  19. Jörg Oechssler, 2001. "Cooperation as a Result of Learning with Aspiration Levels," Bonn Econ Discussion Papers bgse8_2001, University of Bonn, Germany.
  20. G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
  21. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  22. Robert Gibbons & Kevin J. Murphy, 1990. "Relative performance evaluation for chief executive officers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 30-51, February.
  23. Aviad Heifetz & Chris Shannon & Yossi Spiegel, 2007. "The Dynamic Evolution of Preferences," Economic Theory, Springer, vol. 32(2), pages 251-286, August.
  24. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  25. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  26. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  27. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1991. "The Survival of Noise Traders in Financial Markets," Scholarly Articles 3725470, Harvard University Department of Economics.
  28. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
  29. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
  30. Huck, Steffen & Muller, Wieland & Normann, Hans-Theo, 2001. "Stackelberg Beats Cournot: On Collusion and Efficiency in Experimental Markets," Economic Journal, Royal Economic Society, vol. 111(474), pages 749-65, October.
  31. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  32. Feinberg, Robert M & Husted, Thomas A, 1993. "An Experimental Test of Discount-Rate Effects on Collusive Behaviour in Duopoly Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 153-60, June.
  33. Douglas DeJong & Robert Forsythe & Wilfred Uecker, 1988. "A note on the use of businessmen as subjects in sealed offer markets," Artefactual Field Experiments 00039, The Field Experiments Website.
  34. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616.
  35. Yun Joo Jung & John H. Kagel & 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, The RAND Corporation, vol. 25(1), pages 72-93, Spring.
  36. Karl H. Schlag, . "Why Imitate, and if so, How? A Bounded Rational Approach to Multi- Armed Bandits," ELSE working papers 028, ESRC Centre on Economics Learning and Social Evolution.
  37. Levin, D., 1988. "Horizontal Mergers: The 50 Percent Bench-Mark," Papers 19, Houston - Department of Economics.
  38. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  39. Schaffer, Mark E., 1989. "Are profit-maximisers the best survivors? : A Darwinian model of economic natural selection," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 29-45, August.
  40. Andersson, Ola & Wengström, Erik, 2004. "Do Antitrust Laws Facilitate Collusion? Experimental Evidence on Costly Communication in Duopolies," Working Papers 2004:14, Lund University, Department of Economics, revised 13 Sep 2004.
  41. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  42. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  43. Jose Apesteguia & Martin Dufwenberg & Reinhard Selten, 2007. "Blowing the Whistle," Economic Theory, Springer, vol. 31(1), pages 143-166, April.
  44. Albaek, Svend & Mollgaard, Peter & Overgaard, Per B, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 429-43, December.
  45. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
  46. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  47. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  48. Cecilia Chaing & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
  49. Armstrong, Mark, 2008. "Interactions between competition and consumer policy," MPRA Paper 7258, University Library of Munich, Germany.
  50. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  51. Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 973-997.
  52. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
  53. Steffen Huck & Kai A. Konrad & Wieland Müller & Hans-Theo Normann, 2007. "The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory," Economic Journal, Royal Economic Society, vol. 117(522), pages 1073-1095, 07.
  54. Mark Armstrong & John Vickers, 2010. "A Model of Delegated Project Choice," Econometrica, Econometric Society, vol. 78(1), pages 213-244, 01.
  55. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  56. Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05.
  57. Hirshleifer, David & Luo, Guo Ying, 2000. "On the Survival of Overconfident Traders in a Competitive Securities Market," MPRA Paper 15347, University Library of Munich, Germany.
  58. Tanaka, Yasuhito, 2000. "Stochastically stable states in an oligopoly with differentiated goods: equivalence of price and quantity strategies," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 235-253, October.
  59. David B. Ridley, 2008. "Herding versus Hotelling: Market Entry with Costly Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 607-631, 09.
  60. Theo Offerman & Jan Potters, 2006. "Does Auctioning of Entry Licences Induce Collusion? An Experimental Study," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 769-791.
  61. repec:cup:cbooks:9780521493420 is not listed on IDEAS
  62. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-86, March.
  63. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
  64. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-60, December.
  65. Plott, Charles R., 1989. "An updated review of industrial organization: Applications of experimental methods," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 19, pages 1109-1176 Elsevier.
  66. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  67. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
  68. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  69. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  70. Motta, Massimo & Polo, Michele, 2000. "Leniency Programs and Cartel Prosecution," CEPR Discussion Papers 2349, C.E.P.R. Discussion Papers.
  71. Dixon, Huw David, 2000. "Keeping up with the Joneses: competition and the evolution of collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 43(2), pages 223-238, October.
  72. Ulrike Malmendier & Geoffrey Tate, 2004. "CEO Overconfidence and Corporate Investment," NBER Working Papers 10807, National Bureau of Economic Research, Inc.
  73. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.
  74. Rhode, Paul & Stegeman, Mark, 2001. "Non-Nash equilibria of Darwinian dynamics with applications to duopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 415-453, March.
  75. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  76. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
  77. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  78. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January.
  79. Kyle, Albert S & Wang, F Albert, 1997. " Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-90, December.
  80. Nabil Al-Najjar & Sandeep Baliga & David Besanko, 2008. "Market forces meet behavioral biases: cost misallocation and irrational pricing," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 214-237.
  81. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 2004. "Through Trial and Error to Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 205-224, 02.
  82. Anand M. Goel & Anjan V. Thakor, 2010. "Do Envious CEOs Cause Merger Waves?," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 487-517, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2937. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.