The ERC Model from Bolton and Ockenfels Papers Report
Assignment:
Write a report weighing the ERC model from Bolton and Ockenfels, with the Alpha-Beta model from Fehr and Schmidt. (What are the advantages and disadvantages of the two models? How are the two models motivated? Is there one that you prefer? Etc.)
Details:
1. You should start the paper by announcing the argument you will be making in the rest of the paper.
2. Within the body, you should describe the three readings and cite how they strengthen or soften your argument.
3. You should end the paper by restating your argument
4. The report should be 1000 to 1500 words or so, but more importantly, the report needs to effectively convey your understanding of these papers. Grading: Your grade will mainly be determined by how deeply you can discuss the models presented in the papers. I will be looking to see that you understood the papers, that you connect these models to the real world, and that you make your argument in a balanced fashion. For an A grade, you need to exceed my expectations. This means that if you only follow the above directions, even if your paper is flawless, you should expect a B on the paper.
Notes/Tips:-Read Engelmann and Strobel last.-Consider writing reading responses as you go.-I know what the papers say; I’m not interested in a summary.-Plan out your paper before writing it.
Behavior Economic: Papers Report
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BEHAVIOR ECONOMIC：PAPERS REPORT
Introduction
Inequity aversions and the dislike is unequal outcomes have been published as one of the core of behavioral economics. The attractiveness of these models is found on their aptitude to rationalize a number of well-known anomalies with just two objectives, selfishness and inequality aversion. In economics, there are experiments involving market institutions that are normally consistent with the standards notions of competitive self interest. On the other hand other types of experiment may appear to focus on a different conduct. For example the ERC is used to denote three categories of behavior that is equity, competition and reciprocity. The model explains observations made from games where equity is a factor, such as ultimatum and dictator and games where reciprocity is plays a major a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed. For example the Bertrand markets.
The ERC model from Bolton and Ockenfels
This model tries to evaluate the question that if people care about their intentions even in the cases when these good intentions do not produce good results. In their experiments Bolton tries to evaluate how the rate of punishments and rewards tracts to intentions and the distribution of income. Bolton recommends three building blocks to explain behavior in games. These behaviors include motivation, learning, and strategic reasoning. Alternatively, ERC is not a radical departure from standard modeling techniques but there are two significant innovations from this model. Additionally the ERC model applies to games played in the extensive and the normal form (Bolton, & Ockenfels, 2000). In this case a subject payoff s is verified entirely by their pecuniary and own relative payoff; therefore a relative parsimonious model is made. For instance in the case where a person is trying compare relative-payoff explanation to the intentions explanation it is very important for a person to identify substantial evidence for relative payoffs and also find evidence for intentions.
Additionally, Ockenefels have illustrated similar phenomena in cohesion of the game. According to Ockenefels each of the three players rolls a die independently to determine if they will win the fixed amount of money. According to Ockenefels it is not easy to justify the behavioral pattern and the relations between expectations and decisions in the case where the subjects posses an altruistic preferences over the distribution of the income. It is concluded that the activities of the other players or the reduction of the inequity does not guide the considerations of these subjects. When own pecuniary and own relative payoffs are confined, opportunities of refinement of motivation are evident.
Advantages
ERC is short is the reciprocity, competition and equity and the patterns of behavior that ERC tries to reconcile. In an earlier model of Bolton, the comparative model tries to position the preferences that are consistent with the ultimatum behavior. The inequity version of Bolton and Ocknefeles does provide a rationale as to why people punish. Punishment can be used to reduce the disadvantageous payoff of material inequity.
The Alpha-Beta model from Fehr and Schmidt
The Alpha-Beta model from Fehr and Schmidt is a complete-information model that has consistent range of phenomena in alternating-offer bar- gaining games. However this model does not provide a satisfactory explanation for other types of game. In this case the ERC is an incomplete information model. However this aspect is very important in economics because most experiments in economics are conducted unknowingly. This means that the lab subject trades off pecuniary and relative payoffs is clearly private information. Additionally testing this model also requires reliable, preferably observable, measure of the underlying trade-off. The most important thing to consider in this model is the thresholds where behavior diverges from the "more money is preferred to less" assumption (Engelmann, & Strobel, 2004)....