Much of economic analysis stems from the joint assumptions of rationality and individual greed. Common sense and experimental and field evidence point to the limits of this

alphabetically, but authorship is shared equally. The research described in this paper has

It is well known that contract incompleteness can arise from the impossibility of planning for all future contingencies in a relationship (e.g. Williamson (1975)). In this paper it is shown that whether or not such incompleteness constrains the efficiency of the contract is very sensitive to assumptions concerning the timing of the resolution of uncertainty. It is shown that when agents must respond to an unforeseen contingency before being able to renegotiate the contract, then contract complexity is a binding constraint, a case that is called ex post hold-up. Secondly, it is suggested that the amount of multi-tasking can provide a measure of contract complexity. When complexity is low, contingent contracting is efficient, while subjective performance evaluation is more efficient when complexity is high. In this case the optimal contract for ex post hold-up is based upon the ability of humans to make subjective judgements that are in some cases more informative than explicit performance measures. Moreover, the efficiency of the contract is not sensitive to human error per se, but is an increasing function of the correlation in judgements between the contracting parties. ∗I very much appreciate the comments of the referees, Tom Lyon, Eric Rasmusen, Sherwin Rosen, Eric Tally, and Oliver

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

Abstract. This paper describes a cross-cultural research project on the relation between how people conceptualize nature (their mental models) and how they act in it. Mental models of nature differ dramatically among and within populations living in the same area and engaged in more or less the same activities. This has novel implications for environmental decision making and management, including dealing with commons problems. Our research also offers a distinct perspective on models of culture, and a unified approach to the study of culture and cognition. We argue that cultural transmission and formation does not consist primarily in shared rules or norms, but in complex distributions of causally-connected representations across minds in interaction with the environment. The cultural stability and diversity of these representations often derives from rich, biologically-prepared mental mechanisms that limit variation to readily transmissible psychological forms. This framework addresses a series of methodological issues, such as the limitations of conceiving culture to be a well-defined system or bounded entity, an independent variable, or an internalized component of minds. 2 I. Introduction.

Several studies indicate that humans are overconfident about their own (relative) abilities. We propose a notion of pragmatic beliefs, and show through an example that this concept can shed light on why overconfidence emerges. Through the example, we also shed light on the idea that that ’bounded rationality ’ may arise endogenously in a game- without assuming complexity costs.

We test the effect of players ’ moods on their behavior in a gift-exchange game. In the first stage of the game, player 1 chooses a transfer to player 2. In the second stage, player 2 chooses an effort level. Higher effort is more costly for player 2, but it increases player 1’s payoff. We say that player 2 reciprocates if effort is increasing in the transfer received. Player 2 is generous if effort is incurred regardless of the transfer received. Subjects play this game in two different moods. To induce a ‘bad mood’, subjects in the role of player 2 watched a sad movie before playing the game; to induce a ‘good mood’, they watched a funny movie. Mood induction was effective: subjects who saw the funny movie reported a significantly better mood than those who saw the sad movie. These two moods lead to significant differences in player 2’s behavior. We find that a bad mood implies more reciprocity while a good mood implies more generosity. Since high transfers are relatively more common, player 1 make more money when second movers are in a bad mood.

(Word Count: 100) Memes are hypothetical cultural units passed on by imitation; although non-biological, they undergo Darwinian selection like genes. Cognitive study of multimodular human minds undermines memetics: unlike genetic replication, high fidelity transmission of cultural information is the exception, not the rule. Constant, rapid “mutation ” of information during communication generates endlessly varied creations that nevertheless adhere to modular input conditions. The sort of cultural information most susceptible to modular processing is that most readily acquired by children, most easily transmitted across individuals, most apt to survive within a culture, most likely to recur in different cultures, and most disposed to cultural variation and elaboration.

The results of Ultimatum Game experiments are often quoted as evidence for the role of fairness in bargaining or in economic behaviour more generally. This paper argues that the observed fairness levels are contingent on the traditional experimental design where players are newly matched each round, and reputations are therefore excluded. Evidence from a new experiment shows that average behaviour is more competitive and conflict rates are higher when subjects play against the same opponent repeatedly. This finding is not expected by the traditional fairness hypothesis. A detailed analysis of the dynamics of pairs of players shows that different types of players coexist in the subject pool. Whereas previous experiments found evidence for the existence of “fair ” players, the present study reports also a significant number of “tough ” players. Hence, there is evidence that allowing for reputations in repeated ultimatum bargaining induces different patterns of behaviour that have not been observed before in this game. JEL Classification: C72, C78, C92

Politics is about conflicting interests and influence backed up by force. Although rooted in individual behavior, it is not a one-man affair. Lack of information and control make social groups important, as they provide the behavioral clues and political clout (van Winden 1999). Action – in particular, collective action – aimed at shared interests is thereby a key issue in