Cortisol meets GARP: the effect of stress on economic rationality

Rationality is a fundamental pillar of Economics. It is however unclear if this assumption holds when decisions are made under stress. To answer this question, we design two laboratory experiments where we exogenously induce physiological stress in participants and test the consistency of their choices with economic rationality. In both experiments we induce stress with the Cold Pressor test and measure economic rationality by the consistency of participants’ choices with the Generalized Axiom of Revealed Preference (GARP). In the first experiment, participants delay the decision-making task for 20 min until the cortisol level peaks. We find significant differences in cortisol levels between the stressed group and the placebo group which, however, do not affect the consistency of choices with GARP. In a second experiment, we study the immediate effect of the stressor on rationality. Overall, results from the second experiment confirm that rationality is not impaired by the stressor. If anything, we observe that compared to the placebo group, participants are more consistent with rationality immediately after the stressor. Our findings provide strong empirical support for the robustness of the economic rationality assumption under physiological stress.

Making Law Effective: Behavioural Insights into Compliance

This paper investigates traditional and new tools for increasing the effectiveness of rules and enforcement strategies. As a preliminary concern, it underlines that there are two sides to effectiveness that cannot be approached separately: effectiveness as perfect compliance with the terms of rules, and effectiveness as a result of rules which incentivise behaviours to meet the “spirit of the law”. In order to achieve this comprehensive approach to effectiveness, rules must be evidence-based, plain, understandable and accepted. Moreover, a clear understanding of compliance drivers is needed. Deterrence and all other possible motivations that go beyond the rational calculus should be assessed by decision-makers, such as internal motivation, procedural fairness, cooperation, social norms, heuristics and bias. Enriching the rationality assumption with other drivers of compliance does not mean dismissing traditional rules or enforcement tools, which conversely remain crucial for the purpose of supporting voluntary compliance and for preventing non-compliance. However, deterrence should be calibrated by a risk-based, responsive and proportional approach to (simplified) rules and enforcement strategies. Trust in public authorities, supportive and cooperative public administrations are also fundamental in order to increase voluntary compliance, and a cognitive-based approach should complement these views.

Behavioral Challenges for Retirement Planning

Standard economic theory based on the rationality assumption predicts optimal provisions for retirement by individuals. However, empirical data shows substantial under-saving for retired life by citizens of both developed and developing countries. This article attempts to test the role of selected heuristics as well as the influence of framing of choices in financial decision-making for retirement through a structured questionnaire. Responses were obtained from a sample of 87 employees from the Information Technology industry in Pune, Maharashtra, showed that a relatively high proportion of the sample reported failure to meet their own savings targets. The authors also observed a relatively small percent of the sample was seeking advice from financial experts Results of chi-square tests further confirmed the existence of the selected heuristics and framing effects in the context of the sample. The suggested ubiquitousness of selected behavioral tendencies widens the scope of policy formulation and intervention by regulatory authorities for optimal retirement planning.

What is the true meaning behind the stochastic hypothesis which assert that E(ε)=0 ?

The aim of this Paper is to examine the meaning about the classical hypothesis which claim that the error of expectation equal zero, by mentioning all theories of expectations before and after the REH. The rational expectations paradigm has dominated the field of economics ever since it was introduced some fifty years ago. Recently research in heterogeneous expectations, bounded rationality, and models of learning have gained leverage, and focus has shifted away from the rational expectations hypothesis. Despite these developments over the past few decades, the rational expectations paradigm is still very much the standard way of handling uncertainty in economic theory, and often the rationality assumption is not seriously questioned.

A Deductive Analysis of Public Private Partnerships for Health Technology

In several countries, consulting firms, think thanks and even government agencies spend a considerable amount of energy trying to expand the scope of public private partnerships (PPPs). Initially confined to the construction and maintenance of public infrastructures, PPPs are currently discussed and experimented with in sectors as diverse as health care provision, crime reduction, immigrants’ integration and even the organization of elections. This paper discusses the way PPPs are likely to transform the adoption of novel medical technology in countries where health care is publicly funded. I believe, however, that several ideas presented here can be useful to consider in applying PPPs to all sectors of state intervention relying on expensive technologies. In the first section, I begin by presenting the economic understanding upon which PPPs rest. I then present the simple and uncontroversial assumption that, in democratic countries, PPPs are negotiated by politicians. Withholding the rationality assumption upon which economic theory rests, I argue that rational politicians are unlikely to prefer a PPP contract appealing to a private partner, unless politicians accept occasional renegotiation of given clauses of PPP contracts. Where this occurs, however, the alleged economic efficiency of PPPs is seriously undermined. In the second section, I present a series of reasons to contest economic theory’s treatment of health technology choices as economic choices. These reasons, I suggest, made significant contributions to health technology assessment and purchase reforms. The economic reasoning behind PPPs, I conclude, poses a serious threat to these reforms.

Original Position Models, Trade-offs and Continuity

John Harsanyi has offered an argument grounded in Bayesian decision theory that purports to show that John Rawls's original position analysis leads directly to utilitarian conclusions. After explaining why a prominent Rawlsian line of response to Harsanyi's argument fails, I argue that a seemingly innocuous Bayesian rationality assumption, the continuity axiom, is at the heart of a fundamental disagreement between Harsanyi and Rawls. The most natural way for a Rawlsian to respond to Harsanyi's line of analysis, I argue, is to reject continuity. I then argue that this Rawlsian response fails as a defence of the difference principle, and I raise some concerns about whether it makes sense to posit the discontinuities needed to support the other elements of Rawls's view, although I suggest that Rawls may be able to invoke discontinuity to vindicate part of his first principle of justice.

Conclusion, 11 Concluding Remarks on the Theoretical, Legal, and Practical Challenges of European Antitrust Criminalization

This concluding chapter provides final remarks on the theoretical, legal, and practical challenges of European antitrust criminalization. It also determines five different research questions that should be addressed by future researchers. First, more detailed, reliable empirical evidence on the motivations of cartelists and whether or not they act in accordance with the rationality assumption of deterrence theory is required. Second, detailed qualitative and quantitative research concerning the usefulness of information exchange within the European Competition Network (ECN) would also be useful. Third, empirical evidence should be generated concerning whether consumers actually assume that their suppliers are not engaged in cartel activity with their competitors. Fourth, empirical studies on the extent to which risk aversion is a characteristic of corporate entities need to be pursued. Finally, empirical evidence on the cultural sensitivity of perceptions of cartel activity among the citizens of the different EU Member States would be welcome.