Experimental Economics: Volume 1: Economic Decisions

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The most shocking fact about war is that its victims and its instruments are individual human beings. The reality of our era […] is that torture is rampant, murdering civilians commonplace, and driving the survivors from their homes often the main goal of a particular military offensive.

Conflict and war are a disaster enacted by man and have been a constant throughout human history, but unlike the natural disaster its victims may not be random. War has been the instrument of kings and warlords, its study was limited to tactics and costs with little thought spared to the flotsam 1 and jetsam 2 it created.

The Handbook of Experimental Economics, Volume 2

Individuals caught in the storm are often set adrift as a consequence of conflict, but until recently have not been included into the cost estimates of war. These calculation are greater than the military expenditure or infrastructure damage, as they now include the loss of lives, human and social capital. We have identified that non-combatants are placed in grave danger and in desperate need of assistance, the most vulnerable being the weak, the elderly and those too young to flee or defend themselves.

Recent research has demonstrated that conflict and war zones like disasters can be examined through the lens of a naturally occurring field experiment. Such that we can examine behaviour and choices in an environment that is otherwise exceedingly difficult. Disasters, whether man-made or natural, represent a danger to life, the destruction of property and a threat to a culture or society.

A fundamental reason to apply behavioural economics to conflict zones is that decisions made in this extreme environment can significantly affect the probability of survivability, not only for an individual but also for family, friends or even other members of that society. In conflict zones around the world we observe tragedies being paid for in human lives, the destruction social structures and the eradication of entire cultures.

Scarcity, it is the nature of economics and the world that we have a resource allocation problem, for which the allocation of humanitarian aid and support is no different as there are too many in need with too few resources to go around. Ironically it is often the shortage of resources that is the root cause of many conflicts. For the maximisation of our limited resources, we require a better understanding of behaviour and extreme environments, to enable the prediction of resource needs and better facilitate deployment strategies.

While the advancement of knowledge and understanding is a worthy goal in and of itself, such insight will enable us to anticipate humanitarian crises and as well as better predict the needs of refugees.

BEHAVIORAL ECONOMICS AND BEHAVIORAL FINANCE: A BIBLIOMETRIC ANALYSIS OF THE SCIENTIFIC FIELDS

The seminal work of Jack Hirshleifer examined many forms of conflict, focusing on its mechanisms and causes rather than the behavioural or decision-making aspects, 5 with particular attention paid to insurance see e. Kunreuther ; Kunreuther and Roth Economists mostly restricted their estimations to economic losses, such as buildings, infrastructure and productivity, rather than on human life, social capital or social structure. This is not unsurprising given the difficulties of estimating the value of a human life and direct valuations have been avoided, resulting in abstracted estimations like the Value of Simulated Life VSL , remaining lifetime productivity or an estimation of insurance value.

The remainder of this paper is laid out as following: The next sections discuss how behavioural economics may facilitate research of the conflict environment with a broad discussion of behavioural economics and an overview of applicable research; This is followed by a discussion of the potential impact of moral and social norms, identity, the panic myth and the fight, flight or affiliate model of behaviour; A methodological section outlines the potential for conducting experimental and narrative research within conflict zones with approaches and limitations; concluding with a discussion on ethics, morality and policy.

From the outside it is often difficult to comprehend extreme environments or the actions and behaviour of individuals within them. Decisions made in conflict zones are neither minor or simple and are likely to be some of the most difficult, costly choices an individual could be forced to make in their lifetime. This decision uproots family, from all that is familiar and forces them to travel into the unknown, full of uncertainty and trepidation.

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It is little wonder that from the outside it is difficult to understand the gravity of these decisions, but this is precisely what we must attempt to do if we are to have any chance of gaining insight into such an extreme decision process. Regardless of the extreme environment type conflict, disaster or terrorism many of the same questions are raised about the actions, behaviour and decision-making of individuals.

The most fundamental questions we seek answers to are likely to be some of the hardest to obtain, as they will require innovative analysis and have potential risk to the researcher. Simon described behavioural economics as an empirical test for the validity of neoclassical behavioural assumptions and when found lacking, to provide new empirical evidence to guide policy.

There are problems when it comes to identifying deviations from the assumptions: Firstly, the difficulty in obtaining empirical data with which to test. This will require some innovation in the methodological as individual level data from these zones is not common. Secondly, we need to identify the right questions to ask. We need an understanding of why people choose to stay or leave and what factors influence this decision process? If or when do individuals choose to flee a conflict zone, do they have an specific demographic identity and are they somehow different from those who chose to stay?

Finally, once we have access to empirical data and have set upon a question, we need an understanding of behaviour to apply as an analytical framework. This may require us to cast our net outside the mainstream of economic theory, challenge assumptions and include concepts from the broader social and behavioural sciences. In its most abstract form, the decision to stay or leave a conflict zone is a rational choice problem Becker , between two current value estimations of future utility — one to stay the other to go.

The complexity comes not from the final decision, but from the how that valuation is reached or estimated, the assumption that individuals are self-interested utility maximisers with stable preferences and are not influenced by external factors. Behavioural economics BE exists because research has demonstrated that in many situations individuals deviate from the predictions of the model breaking the assumption of rationality.

For example, under duress or in high stress circumstances individuals find it difficult to judge between closely weighted options and are prone to errors in weighting options Johnston, Poirer, and Smith-Jentsch Kahneman proposed that we have dual processing system fast and slow thinking , a quick intuitive vs. Additionally, humans suffer from a status quo bias, such that we are often more comfortable to leave things as they currently are even if it is not the best choice Thaler and Sunstein An important factor influencing the decision making process are risk preferences, i.

In line with this is prospect theory, Kahneman and Tversky posited that the way in which choices are framed affect the willingness to take or avoid risk, specifically in the direction of losses.

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Lerner and Keltner and Shahrabani et al. They conclude that geographical distance from a war zone does not always affect negative emotions and that there is a positive correlation between perception risk and self-risk Rosenboim et al. It may be of interest to analyse the relationship between risk preferences and perceptions and behaviour, as differences will create temporal variations in the decision to flee a conflict zone. This understanding would assist in the prediction of movements of refugees fleeing conflict zones and for modelling the timing of movements. One of the assumptions we make when individuals choose to stay in a risky environment is that the disutility of fleeing is less than the risk corrected utility of staying.

In this regard, not all disasters are the same even within a singular disaster type where the size, scope and nature of the event can vary greatly. This is also true for conflict and the relationship that an individual has with it can differ. It would be important to be able to identify and understand the environmental factors Simon associated with the different operational conflict types and their philosophical nature. There are fundamental differences in the way that conflicts can be conducted, e.

Balcells , This results in regions of more or less conflict but no clear safe areas behind the lines. This was evident during the Vietnam War the Vietcong hid underground and moved with relative ease through villages and terrain to be able to engage in conflict across a broad regions and areas.

Introduction to Economics; Economic Decision Making (Cost Benefit)

This tactics was also present in the recent conflicts in Afghanistan, for while the Taliban have strongholds and loose regional control, it is difficult to pinpoint a clear line of conflict Larsdotter In addition to how conflict unfolds, the underlying reason for the conflict can vary widely which can include ethnic, religious or economic. The expansion of the Caliphate into Europe in the 7th and 8th centuries and the Christian crusades from the 11th to 13th centuries are historical examples of religious conflicts.


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The Holocaust can be viewed as either an ethnic and economic conflict or both , such that the Jews were identified as being responsible for the woes of the german people at that time, but while ethnic justification was espoused it was also for clear economic benefit Caruso , forthcoming.

It is difficult to seperate ethnic an religious conflict as they are often both present in the differences between groups. The differences of risk between conflict types will have direct ramifications on uncertainty; clearly defined conflict zones are more predictable with relatively consistent levels of risk. However, guerrilla conflicts are more random in nature and are likely to generate greater levels of uncertainty, both of which are likely to have a significant impact on utility estimations, as will demographic identity 7 distance from the conflict.

In all conflict types there will be some underlying relationship with individuals, that will make them either more or less likely to be targeted or caught within the conflict. Economists were aware that individuals were not all the same for quite some time, as it required simple abstract modelling to have assumptions of homogeneity to be tractable. This created some very detailed econometric solutions for the heterogeneity or omitted variable bias problem. The advent of behavioural economics meant we have pursued individual differences, attempting to model how variations impact the decision process.

We recognise that individuals belong to and identify with being part of specific groups, which often have clearly defined and identifiable sets of behaviours, customs and ideals. This identity has a significant impact not only on the decision making process, but also on the manner in which individuals estimate the utility payoffs values.

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Identity can increase or decrease an individuals payoff depending on how well they identify with the ideal member of their own group Akerlof and Kranton This indicates that individuals, who do not conform to the ideal expectations, either through low effort or through non-compliance of social normative behaviours, would suffer from a decrease in utility. In collectivist societies members gain additional utility from pro-social behaviour such as altruism and helping-behaviour.

Alternatively, individualistic type groups or societies have norms where individual achievement or task is of greater importance than following the social norms. This demonstrates that actions can be dependent on the structure of that society. However, in pluralistic societies we observe a vast range of groups and identities, often individuals can identify to many groups at the same time.

This may generate cognitive dissonance Festinger a , b where the choices could be inconsistent with their underlying beliefs of the other identity, both of which could be vital but require different actions. For example, as the environment becomes more dangerous from rising levels of conflict, individuals with family are faced with a choice between staying and leaving.

Males are often in the roles of the provider or protector of the family unit, which are can be closely aligned goals and create no tension.


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  • As the protector they have the desire to keep the family away from danger and the provider also keeps them from harm but using shelter and food. When conflict closes in the two roles begin to have different agendas, the protector want to take the family out of harms way, leaving the conflict zone. However, the provider will not be able to do so if they move, shelter, sustenance and support are all rooted to the locality and the individual does not know if they will be able to perform this function if they move.

    They know they should move, but do not want to leave the security of the home environment, the uncertainty of the conflict and the uncertainty of leaving are causing the cognitive dissonance. This dissonance could also be seen in the desire to remain with ones people, to help them to fight as a group for survival and the desire to flee, to take your direct family kin and get to a place of safety.

    If the payoff of the group survival outweighs that of the smaller family unit, it may account for reasons why individuals do not flee.


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    One of the problems with identity is that it exists in a symbiotic feedback loop with both social and moral norms, both of which directly and indirectly affect the decision-making. Social norms direct both individual and group behaviours and are the conditions under which a society operates, as members are observed conforming to a social norm others follow Banerjee Alternatively, moral norms are guided by internal belief systems and do not require exogenous stimuli, they are unconditional and not affected by the presence or behaviour of others Elster , We must also be aware that social norms erode if there is no stabilising presence such as social sanctions or retaliation Heckathorn It may be possible to break socially acceptable behaviour under some circumstances, e.

    Experimental Economics: Volume I: Economic Decisions

    In this case it could result in antisocial or criminal behaviour if survival is at stake. Norms are not just the cultural identity of an individual, but also includes their beliefs about equity, fairness and justice Frey, Savage, and Torgler ; Savage and Torgler As such it may also be interesting to investigate additional aspects of norms such as internalisation, moral norms and observation.

    One of the enduring myths that plague disaster research and policy is that of panic, specifically mass panic. Quarantelli clearly refutes this point that despite major evidence to the contrary, panic remains part of the popular imagination and continues to be evoked as part of disaster management plans worldwide.

    Indeed a large volume of the literature rejects these assumptions, demonstrating the lack of such behaviour which has included: the inability to act rationally with chaos, social breakdown and antisocial behaviour — crime, looting, or exploitation Brown ; Drabek ; Goldthorpe ; Gwynne, Galea, and Lawrence ; Heide ; Howard ; Johnson ; Mawson ; Mintz ; Quarantelli , A breadth of empirical work has also demonstrated that tenets of acceptable behaviour and respect for law do not break down Aguirre, Wenger, and Vigo ; Drabek ; Hancock and Szalma ; Johnson, Feinberg, and Johnston ; Quarantelli ; Tierney, Lindell, and Perry Van der Heide concludes that four conditions that need to be present for individual panic to occur: Victims perceive an immediate threat of entrapment; Escape routes appear to be rapidly closing; Flight seems the only way to survive; and No one is available to help.

    To have all four of these conditions present in a single situation would be highly uncommon, thus making panic also rare. Mawson also believed that the conditions for mass panic to occur were that people believed that major physical danger is present or imminent and that escape routes are either limited or rapidly closing. If is evidence of patterned behaviour or some demographic determinant of survival, this would indicate that however, unusual it may seem from the outside individuals have acted in some systematic or predictable fashion.

    Ergo, no panic! If individuals are not panicking, then how are they behaving? The movement of individuals within these zones is complex and the only way to disentangle it is to understand the motivation for the movement. While it may seem that some individuals flee while others remain where they are, we need to question the why. Are these moving running to or from something and those that are currently stationary have they already arrived or not yet left? Human physiology can provide insight into some movement, specifically the immediate response to danger — the fight or flight reflex.

    However, this is a short run adrenaline burst designed to either fight off an attacker or run from them but does not persist over the longer term. This effect can be observed in the survival differences in a comparison of the Titanic and Lusitania disasters Frey, Savage, and Torgler a. Once individuals have cleared this stage they seek the familiar, the support of family and loved ones even if that means moving towards the perceived danger, this is the social attachment model of human behaviour.

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