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This book synthesizes recent developments in the theory of Industrial Organization, incorporating aspects of consumer psychology that are absent from the standard model of rational choice. The book analyzes three classes of market models in which profit-maximizing firms interact with boundedly rational consumers, each capturing a different aspect of bounded consumer rationality: dynamically inconsistent preferences and biased beliefs regarding future preferences, limited ability to understand price complexity, and reference-dependent choice. These models address questions such as: Can we explain observed pricing, marketing and product differentiation strategies as equilibrium responses consumers' bounded rationality? Do market forces protect boundedly rational consumers from being exploited by firms? What is the role of market regulation and consumer protection policies in this regard? How do firms discriminate between consumers according to differences in their rationality? The book is meant to serve as a textbook for graduate courses in microeconomic theory, industrial organization or behavioral economics.

Theories of economic growth focused on physical capital and its diffusion till the 1950s. Since then, increasing attention has been paid to the role and utility of knowledge, human capital, governance, institutions, and social capital as critical dimensions in determining economic growth and evolution. Focusing on the three forms of intangible capital—human, social, and institutional capital—this book looks at their dynamic linkages as crucial determinants of economic growth and their significance in the process of economic evolution. The book brings out this linkage at the macro level through case studies such as the growth experiences of Britain and America during the Industrial Revolution, Japan’s high growth post-WWII and its recent lackadaisical growth experiences, and the contemporary growth experiences of China and India. The book presents an analysis of the interaction between the three intangible capitals at the firm level to explain the micro phenomenon.

Normative analysis in economics has usually aimed at satisfying individuals’ preferences. Its conclusions have supported a long-standing liberal tradition of economics that values economic freedom and views markets favourably. However, behavioural research shows that individuals’ preferences, as revealed in choices, are often unstable, and vary according to contextual factors that seem irrelevant for welfare. The Community of Advantage proposes a reformulation of normative economics that is compatible with what is now known about the psychology of choice. Other such reformulations have assumed that people have well-defined ‘latent’ preferences which, because of psychologically-induced errors, are not always revealed in actual choices. According to these reformulations, the economist’s job is to reconstruct latent preferences and to design policies to satisfy them. The argument of this book is that latent preference and error are psychologically ungrounded concepts, and that economics needs to be more radical in giving up rationality assumptions. The book advocates a kind of normative economics that does not use the concept of preference. Its recommendations are addressed, not to an imagined ‘social planner’, but to citizens, viewed as potential parties to mutually beneficial agreements. Its normative criterion is the provision of opportunities for individuals to participate in voluntary transactions. Using this approach, many of the normative conclusions of the liberal tradition are reconstructed. It is argued that a well-functioning market economy is an institution that individuals have reason to value, whether or not their preferences satisfy conventional axioms of rationality, and that individuals’ motivations in such an economy can be cooperative rather than self-interested.

This is the first comprehensive book on the return of happiness in economics. It still sounds comparatively unusual to put happiness and economics together. At the same time, the association appears increasingly exciting and fruitful, and quite a number of studies have been produced following Richard Easterlin’s and Tibor Scitovsky’s pioneering works through the 1970s. The essays collected in this book provide an authoritative and comprehensive assessment - theoretical, applied, and partly experimental - of the entire field moving from the so-called paradoxes of happiness in economics. The book breaks new ground on the recent directions of research on happiness, well-being, interpersonal relations, and reciprocity. The meaning of happiness is thoroughly explored, and the tension between a hedonic-subjective idea of happiness and a eudaimonic-objective one is discussed.

This book’s goal is to introduce evolutionary game theory to applied researchers in a manner accessible to graduate students and advanced undergraduates in biology, economics, engineering, and allied disciplines. Chapters 1 through 6 present the basic ideas and techniques of this field, including fitness, replicator dynamics, memes and genes, single- and multiple-population games, Nash equilibrium and evolutionarily stable states, noisy best response and other adaptive processes, the Price equation, cellular automata, and estimating payoff and choice parameters from the data. Chapters 7 through 14 collect exemplary applications from many fields, providing templates for applied work everywhere. These include a new co-evolutionary predator-prey learning model extending the rock-paper-scissors game; using human subject laboratory data to estimate models of learning in games; new approaches to plastic strategies and life cycle strategies, including estimates for male elephant seals; a comparison of machine-learning techniques for preserving diversity to those seen in the natural world; analyses of congestion in traffic networks (either Internet or highways)

This book provides insights into behavioral phenomena common to production and service settings. The text provides ready-to-play games and other activities that allow instructors to demonstrate the phenomena in class and corporate training settings, and applicable prescriptions for practice. The text relates biases and heuristics leveraged by workers and managers to their motivations and the complex real-world dynamics of a variety of operations management and supply chain contexts. In doing so it works to elevate systems thinking perspectives and their effectiveness in these settings. In particular, game play and activities described in the contributed chapters are specifically targeted at strengthening the ability of managers to make sense of cause and effect in complex modern organizations.

This book confronts and debates the issues faced by the growing field of experimental economics. For example, as experimental work attempts to test theory, it raises questions about the proper relationship between theory and experiments. As experimental results are used to inform policy, the utility of these results outside the lab is questioned, and finally, as experimental economics tries to integrate ideas from other disciplines like psychology and neuroscience, the question of their proper place in the discipline of economics becomes less clear. The book is divided into four sections, each of which features a set of chapters and a set of comments on those chapters. The book offers a place where ideas about methodology could be discussed and even argued. Some of the chapters are contentious—a healthy sign of a dynamic discipline—while others lay out a vision for thought on how experimental economics should be pursued.

This book analyzes the relationship between income and subjective well-being, in particular in the increasingly relevant context of developing countries. A number of chapters in the book set out new evidence to explain why, despite the remarkable rate of economic growth that has been experienced in the country, the average level of happiness in China appears not to have risen. The various arguments raised in these chapters appeal to a number of matters such as increased insecurity, unemployment, adaptation to new higher living standards, and peer comparison. The collection also contains more mitigated points of view with regard to welfare in developing countries, taking as their basis the role of income growth in reducing the risk of low well-being, as well as more generally the inherent difficulties involved when studies attempt to use self-reported well-being measures as a metric of development.

This book deals with satisfaction analysis, that is, the way humans evaluate many aspects of their situation. It focuses on that which precedes decision taking (i.e., judgements and evaluations, likes and dislikes) on which preference orderings are based. Although written by two economists, the book covers many fields in the social sciences in the broadest sense, including psychology, sociology, and political science, with the aim of promoting discussion between the disciplines. It presents methodologies by which satisfaction can be analysed.

Honours fulfil one of the most fundamental desires of human beings, to be recognized and held in esteem by others. There are thousands of awards in all areas of society: the state (orders), arts and media, sports, religion, the voluntary sector, academia, and business. The book presents empirical evidence using modern statistical techniques to argue that awards affect the motivation of recipients. They can significantly raise performance in different contexts (e.g. in academia, the voluntary and for-profit sectors)—even if they are purely symbolic. Overall, honours are shown to be a useful intervention, above and beyond monetary incentives in the form of pay-for-performance or bonuses. The book makes the case for reorienting our focus—away from the monetary or material dimensions of work and private life, and towards the symbolic dimensions to celebrate and shine a light on merit and achievement. This is the first book on the Economics of Awards; it integrates insights from economics, psychology, management, and political science.

What is the best way to auction an asset? How should a group of people organize themselves to ensure the best provision of public goods? How should exchanges be organized? This book addresses these questions and more through an exploration of the economic theory of mechanism design. Mechanism design is reverse game theory. Whereas game theory takes the rules of the game as a given and makes predictions about the behavior of strategic players, the theory of mechanism design goes a step further and selects the optimal rules of the game. A relatively new economic theory, mechanism design studies the instrument itself as well as the results of the instrument. This book provides explanations of classic results in the theory of mechanism design, such as Myerson's theorem on expected revenue maximizing auctions, Myerson and Satterthwaite's theorem on the impossibility of ex post efficient bilateral trade with asymmetric information, and Gibbard and Satterthwaite's theorem on the non-existence of dominant strategy voting mechanisms. It also provides an examination of the frontiers of current research in the area.

Having broadly stabilized inflation over the past two decades, many policymakers in sub-Saharan Africa are now asking more of their monetary policy frameworks. They are looking to avoid policy misalignments and respond appropriately to both domestic and external shocks, including swings in fiscal policy and spikes in food and export prices. In many cases they are finding current regimes—often characterized as ‘money targeting’—lacking, with opaque and sometimes inconsistent objectives, inadequate transmission of policy to the economy, and difficulties in responding to supply shocks. At the same time, little existing research on monetary policy is targeted to low-income countries. What do we know about the empirics of monetary transmission in low-income countries? (How) Does monetary policy work in countries characterized by a huge share of food in consumption, underdeveloped financial markets, and opaque policy regimes? (How) Can we use methods largely derived in advanced countries to answer these questions? And (how) can we use the results to guide policymakers? This book draws on years of research and practice at the IMF and in central banks from the region to shed empirical and theoretical light on these questions and to provide practical tools and policy guidance. A key feature of the book is the application of dynamic general equilibrium models, suitably adapted to reflect key features of low-income countries, for the analysis of monetary policy in sub-Saharan African countries.

This book explains why moral beliefs can and likely do play an important role in the development and operation of market economies. It shows why the maximization of general prosperity requires that people genuinely trust others—even others whom they know don’t particularly care about them. It then identifies characteristics that moral beliefs must have for people to trust others even when there is no chance of detection and no possibility of harming anyone. It shows that when moral beliefs with these characteristics are held by a sufficiently high proportion of the population, a high-trust society emerges that supports maximum cooperation and creativity while permitting honest competition at the same time. The required characteristics are not tied to any specific religious narrative and have nothing to do with the moral earnestness of individuals or the set of moral values. What really matters is how moral beliefs affect the way people think about morality. The required characteristics are based on abstract ideas that must be learned, so they are matters of culture, not genes, and are therefore potentially capable of explaining differences in material success across human societies. This work has many theoretical and empirical implications including but not limited to social capital theory and trust-based economic experiments.

In the great boom of the 1990s, compensation to the top level of management soared, but the wage levels of most Americans barely grew at all. This stagnation has baffled experts, but this book points to information technology (IT) as the prime cause of this growing wage disparity. Many economists, technologists and business consultants have predicted that IT would liberate the work force, bringing self-managed work teams and decentralized decision making. The book argues that the opposite has happened. Reengineering, a prime example of how business processes have been computerized, has instead simplified the work of middle and lower level employees, fenced them in with elaborate rules, and set up digital monitoring to make sure that the rules are obeyed. This is true even in such high-skill professions as medicine, where decision-making software in the hands of HMO's decides the length of a patient's stay in hospital and determines the treatments patients will or will not receive. In lower-skill jobs, such as in the call center industry, workers are subject to the indignity of scripting software that lays out the exact conversation, line by line, which agents must follow when speaking with customers. The book argues that these computer systems devalue a worker's experience and skill, and subject employees to a degree of supervision which is excessive and demeaning. The harsh and often unstable work regime of reengineering also undermines the security of employees and so weakens their bargaining power in the workplace.

Happiness research is raising new questions that capture the attention of a growing public audience. This book considers three classes of such questions, attempting to provide answers in a format that is broadly accessible. The first class of questions considered pertains to foundational issues and can be summarized as follows: should happiness research be taken seriously for the purposes of policy-making? Is subjective well-being a meaningful policy target at all? Can research on subjective well-being be used to advise governments on reforms aimed at increasing happiness? This book tries to answer by directly confronting happiness advocates and their opponents. The second class of questions pertains to more practical issues and can be summarized as follows: if happiness research can be taken seriously, does it identify dimensions of well-being that have been neglected by traditional policies? In particular, does it suggest that we should shift the current focus of policies from growth to something different? This book tries to answer by asking questions to leading global experts on the subject. The last class of questions pertains to the history of political and economic thought, and can be summarized as follows: what can we learn from the way we used to think about happiness and public policies in the past? What is the relationship with how we think about it now? The answers in this book come from the study of “civil economy” and “relational goods.”

What is property, and why does our species happen to have it? The Property Species explores how Homo sapiens acquires, perceives, and knows the custom of property, and why it might be relevant for understanding how property works in the twenty-first century. Arguing from some hard-to-dispute facts that neither the natural sciences nor the humanities—nor the social sciences squarely in the middle—are synthesizing a full account of property, this book offers a cross-disciplinary compromise that is sure to be controversial: All human beings and only human beings have property in things, and at its core, property rests on custom, not rights. Such an alternative to conventional thinking contends that the origins of property lie not in food, mates, territory, or land, but in the very human act of creating, with symbolic thought, something new that did not previously exist. Integrating cognitive linguistics with the philosophy of property and a fresh look at property disputes in the common law, this book makes the case that symbolic-thinking humans locate the meaning of property within a thing. The provocative implications are that property—not property rights—is an inherent fundamental principle of economics, and that legal realists and the bundle-of-sticks metaphor are wrong about the facts regarding property. Written by an economist who marvels at the natural history of humankind, the book is essential reading for experts and any reader who has wondered why people claim things as “Mine!,” and what that means for our humanity.

This book begins with a careful development of fundamental concepts, including the notions of a repeated game, strategy, and equilibrium. It synthesizes and unifies the vast body of work in repeated games and reputations, bringing the reader to the research frontier. Detailed arguments and proofs are given throughout; they are interwoven with examples, discussions of how the theory is to be used in the study of relationships, and economic applications of the theory. The book will be useful to those doing basic research in the theory of repeated games as well as those using repeated games as tools in more applied research. The classic folk theorem and reputation results for games of perfect and imperfect public monitoring are presented, with the benefit of the modern analytical tools of decomposability and self-generation. More recent developments are also presented, including results beyond folk theorems and recent work in games of private monitoring and alternative approaches to reputations. The book provides an integration of game theory and economics, moving from the theory of repeated games to the study of economic relationships.

Thomas Schelling won the Nobel Prize “for having enhanced our understanding of conflict and cooperation through game-theory analysis.” This came after he had taught a game theory and rational choice course for forty-five years at an advanced level. This book presents the concepts Schelling taught as they are useful tools for understanding decisions and consequences. Mathematics often makes game theory challenging but it is presented as something very simple in this book. Along with a summary of the material Schelling presented this book looks at problems from his course and similar less challenging questions. While considerable analysis is carried out with the basic game theory tool—the two-by-two matrix—much of the book is descriptive and rational decision-making is presented through stories and explanation. Chapter supplements are added to illuminate points presented by Schelling and two chapters are case studies for detailed analysis of strategic thinking. The story of professional basketball coach Phil Jackson concerns the conflict between self-interest and group interest of star players in a multi-person form of the prisoner's dilemma. The second study illustrates the most dangerous decision-making moment in history, the Cuban missile crisis. This book is based on Thomas Schelling's course, which has provided guidance and insight to a great number of people around the world in academic and leadership positions.

“This is an exceedingly long short book, stretching at least fifty thousand years into the past and who knows how many into the future…” So begins this book, the basic premise of which is stunning in its elegant simplicity. The book contends that throughout all of human history there have really only been three distinct ways of looking at the future. In the Distant Past (Prehistory to the 17th century) there was no notion of a future measurably and materially different from the present or the past. In the period the book calls Yesterday (1700–1950), science, capitalism, and democracy gave humanity an unwavering faith in the superiority of the future. While Today, we feel a palpable anxiety that is quite apart from both the resignation of the Distant Past or the bright optimism of Yesterday.