GUERCI Eric

Recently quantum probability theory started to be actively used in studies of human decision-making, in particular for the resolution of paradoxes (such as the Allais, Ellsberg, and Machina paradoxes). Previous studies were based on a cognitive metaphor of the quantum double-slit experiment - the basic quantum interference experiment. In this paper, we report on an economics experiment based on a three-slit experiment design, where the slits are menus of alternatives from which one can choose. The test of nonclassicality is based on the Sorkin equality (which was only recently tested in quantum physics). Each alternative is a voucher to buy products in one or more stores. The alternatives are obtained from all disjunctions including one, two or three stores. The participants have to reveal the amount for which they are willing to sell the chosen voucher. Interference terms are computed by comparing the willingness to sell a voucher built as a disjunction of stores and the willingness to sell the vouchers corresponding to the singleton stores. These willingness to sell amounts are used to estimate probabilities and to test both the law of total probabilities and the Born Rule. Results reject neither classical nor quantum probability. We discuss this initial experiment and our results and provide guidelines for future studies.

Information search and opinion formation are central aspects of decision making in consumers choices. Indeed, before taking a decision, the alternatives among which the rational choice will be made should be clearly valued. In standard economic theory, the search dynamics is generally neglected because the process is assumed to be carried out without any cost or without spending time. However, whenever only a significant collection of experience can provide the bulk of relevant information to make the best choice, as it is the case for experience goods (Nelson, 1970), some engendered costs in collecting such information might be considered. Our paper lies on a conceptual framework for the analysis of an individual sequential search task among a finite set of alternatives. This framework is inspired by both the Secretary problem (Ferguson et al., 1989) and the multi-armed bandit problem (Robbins, 1952). We present a model where an individual is willing to locate the best choice among a set of alternatives. The total amount of time for searching is finite and the individual aims at maximizing the expected payoff given by an exploration-exploitation trade-off: a first phase for exploring the value of new alternatives, and a second phase for exploiting her past collected experience. The task involves an iterative exploitation – i.e., where the final payoff does not only depend on the value of the chosen alternative, but also on the remaining time that has not been dedicated to exploration –. Given the finite horizon of time, the optimal stopping strategy can be assimilated to a satisficing behavior (Simon, 1956). We manipulate the degree of certainty of information, and we find that the optimal stopping time is later under the uncertain information condition. We experimentally test the model’s predictions and find a tendency to oversearch when exploration is costly, and a tendency to undersearch when exploration is relatively cheap. We also find under the certain information condition that participants learn to converge towards the optimal stopping time, but this learning effect is less present under the uncertain information condition. Regret and anticipation lead to more exploration under both information conditions. A gender effect is also exhibited with women tending to explore more than men.

Information search and opinion formation are central aspects of decision making in consumers choices. Indeed, before taking a decision, the alternatives among which the rational choice will be made should be clearly valued. In standard economic theory, the search dynamics is generally neglected because the process is assumed to be carried out without any cost or without spending time. However, whenever only a significant collection of experience can provide the bulk of relevant information to make the best choice, as it is the case for experience goods (Nelson, 1970), some engendered costs in collecting such information might be considered. Our paper lies on a conceptual framework for the analysis of an individual sequential search task among a finite set of alternatives. This framework is inspired by both the Secretary problem (Ferguson et al., 1989) and the multi-armed bandit problem (Robbins, 1952). We present a model where an individual is willing to locate the best choice among a set of alternatives. The total amount of time for searching is finite and the individual aims at maximizing the expected payoff given by an exploration-exploitation trade-off: a first phase for exploring the value of new alternatives, and a second phase for exploiting her past collected experience. The task involves an iterative exploitation - i.e., where the final payoff does not only depend on the value of the chosen alternative, but also on the remaining time that has not been dedicated to exploration -. Given the finite horizon of time, the optimal stopping strategy can be assimilated to a satisficing behavior (Simon, 1956). We manipulate the degree of certainty of information, and we find that the optimal stopping time is later under the uncertain information condition. We experimentally test the model’s predictions and find a tendency to oversearch when exploration is costly, and a tendency to undersearch when exploration is relatively cheap. We also find under the certain information condition that participants learn to converge towards the optimal stopping time, but this learning effect is less present under the uncertain information condition. Regret and anticipation lead to more exploration under both information conditions. A gender effect is also exhibited with women tending to explore more than men.

Over the last two decades, numerous empirical studies have highlighted the differences in individual choices when they are made on the basis of a description of the space of states of the world and their underlying probabilities (decision from description), and when they result from experimentation with this space via sampling (decision from experience). Indeed, in the first case, the individual has a perfect knowledge of the space of states of the world. In contrast, in the second case, the individual does not know in advance all the possible alternatives and/or their probabilities of occurrence. This divergence between the individual choices observed in these two configurations is commonly referred to as the description/experience gap. The phenomenon of undersearch is one of the causes put forward in the literature to explain this gap. Given the importance of the issue of choice under uncertainty in economics, the search process deserves further attention. This thesis aims to contribute to the theoretical and experimental literature that studies this process and the exploration-exploitation dilemma that is inherent to it, both at the individual and collective level. The thesis is composed of 3 essays combining theoretical modeling, multi-agent modeling, evolutionary algorithms and laboratory experiments. The first chapter of this thesis examines the determinants of the search process in the context of an individual optimal stopping problem. The results show that this process depends to a large extent on the degree of certainty of the information and that regret and anticipation play an important role. The second chapter studies the information sharing behavior in the context of a competitive collective search using multi-agent simulations and evolutionary algorithms. It highlights the existence of individual benefits to sharing, even when others do not share in return, provided that two mechanisms are present: imitation with a certain level of innovation and local visibility. The third chapter tests and validates experimentally these results and underlines the crucial role of learning.

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We analyze the behavior of the Italian electricity market with an agent-based model. In particular, we are interested in testing the assumption that the market participants are fully rational in the economical sense. To this aim, we extend a previous model by considering a wider class of cases. After checking that the new model is a correct generalization of the existing model, we compare three optimization methods to implement the agents rationality and we verify that the model exhibits a very good fit to the real data. This leads us to conclude that our model can be used to predict the behavior of this market.

Individuals are required to cope with uncertain, dispersed, incomplete, and incompatible sources of information in real life. We devised an experiment to reveal empirical “anomalies” in the process of acquisition, elaboration and retrieval of economic related information. Our results support the existence of a dual process in memory that is posited by the Fuzzy Trace Theory: acquisition of information leads to the formation of a gist representation which may be incompatible with the exact verbatim information stored in memory. We gave participants complex and complete information and then measured their cognitive ability. We conclude that individuals used their gist representation rather than processing verbatim information appropriately to make an evaluation Finally, we provide evidence that subjects with low cognitive abilities tend to demonstrate more often this specific behavior.

We analyze the behavior of the Italian electricity market with an agent-based model. In particular, we are interested in testing the assumption that the market participants are fully rational in the economical sense. To this aim, we extend a previous model by considering a wider class of cases. After checking that the new model is a correct generalization of the existing model, we compare three optimization methods to implement the agents rationality and we verify that the model exhibits a very good fit to the real data. This leads us to conclude that our model can be used to predict the behavior of this market.

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This paper studies the influence of allowing borrowing and short selling on market prices and traders’ forecasts in an experimental asset market. We verify, although not statistically significantly so, that borrowing tends to increase asset overvaluation and price orecasts, while short selling tends to reduce these measures. We also show that a number of results on beliefs, traders’ types, cognitive sophistication, and earnings obtained in earlier experimental studies in which borrowing and short selling are not possible, generalize to markets with borrowing and short sales.

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In this paper, we will put forward an original experiment to reveal empirical “anomalies” in the process of acquisition, elaboration and retrieval of information in the context of reading economic related content. Our results support the existence of the memory dual process suggested in the Fuzzy Trace Theory: acquisition of information leads to the formation of a gist representation which may be incompatible with the exact verbatim information stored in memory. We give to subjects complex and complete information and evaluate their cognitive ability. To answer some specific questions, individuals used this gist representation rather than processing verbatim information appropriately.

This paper studies the influence of allowing borrowing and short selling on market prices and traders’ forecasts in an experimental asset market. We verify, although not statistically significantly so, that borrowing tends to increase asset overvaluation and price orecasts, while short selling tends to reduce these measures. We also show that a number of results on beliefs, traders’ types, cognitive sophistication, and earnings obtained in earlier experimental studies in which borrowing and short selling are not possible, generalize to markets with borrowing and short sales.

By employing binary committee choice problems, this paper investigates how varying or eliminating feedback about payoffs affects: (1) subjects' learning about the underlying relationship between their nominal voting weights and their expected payoffs in weighted voting games. and (2) the transfer of acquired learning from one committee choice problem to a similar but different problem. In the experiment, subjects choose to join one of two committees (weighted voting games) and obtain a payoff stochastically determined by a voting theory. We found that: (i) subjects learned to choose the committee that generates a higher expected payoff even without feedback about the payoffs they received. and (ii) there was statistically significant evidence of ``meaningful learning'' (transfer of learning) only for the treatment with no payoff-related feedback. This finding calls for re-thinking existing models of learning to incorporate some type of introspection.

This thesis addresses the topic of bounded rationality through four chapters, combining theoretical models, laboratory experiments and statistical and econometric analyses. In the first two chapters, we test the validity of new models in economics that use the mathematical formalism of quantum mechanics to account for cognitive biases. In chapter 1, we consider models explaining the order effect and derive new experimental predictions. In Chapter 2, we propose an original experiment to test a wide range of quantum models that account for the conjunction error. Both groups of models fail our empirical tests. We then discuss possible ways to improve these models. Chapter 3 explores how individuals process successive, complex and abundant economic information. Our experimental results show the inability of subjects to combine such information, which confirms the fuzzy trace theory. Finally, Chapter 4 is a chapter of experimental finance. It studies how buying on margin (respectively selling short) increases (decreases) the price level, volatility, market heterogeneity and price expectations of traders as well as how it changes trading strategies. Our results highlight the clear consequences of each of these techniques separately, and identify unexpected phenomena when they are combined. Our analyses pave the way for regulators to take better account of these destabilizing interactions.

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Classical probability theory requires that the probability of the conjunction of two events be lower than the probability of one of the events alone. However, empirically, subjects do not always judge this way: this is the conjunction error. One of the currently promising explanations of this paradox is based on so-called "quantum" models, developed from the mathematical tools of quantum mechanics. But which versions of these models can precisely be used? In particular, can the simplest versions, called non-degenerate, be sufficient? This paper tests these non-degenerate versions through some of their experimental predictions, using an original experimental protocol. The results obtained in the laboratory suggest that non-degenerate models are not empirically adequate, and that future research concerning quantum models should be directed towards degenerate models.

Human agents happen to judge that a conjunction of two terms is more probable than one of the terms, in contradiction with the rules of classical probabilities—this is the conjunction fallacy. One of the most discussed accounts of this fallacy is currently the quantum-like explanation, which relies on models exploiting the mathematics of quantum mechanics. The aim of this paper is to investigate the empirical adequacy of major quantum-like models which represent beliefs with quantum states. We first argue that they can be tested in three different ways, in a question order effect configuration which is different from the traditional conjunction fallacy experiment. We then carry out our proposed experiment, with varied methodologies from experimental economics. The experimental results we get are at odds with the predictions of the quantum-like models. This strongly suggests that this quantum-like account of the conjunction fallacy fails. Future possible research paths are discussed.

Lately, so-called “quantum” models, based on parts of the mathematics of quantum mechanics, have been developed in decision theory and cognitive sciences to account for seemingly irrational or paradoxical human judgments. We consider here some such quantum-like models that address question order effects, i.e. cases in which given answers depend on the order of presentation of the questions. Models of various dimensionalities could be used. can the simplest ones be empirically adequate? From the quantum law of reciprocity, we derive new empirical predictions that we call the Grand Reciprocity equations, that must be satisfied by several existing quantum-like models, in their non-degenerate versions. Using substantial existing data sets, we show that these non-degenerate versions fail the GR test in most cases, which means that, if quantum-like models of the kind considered here are to work, it can only be in their degenerate versions. However, we suggest that the route of degenerate models is not necessarily an easy one, and we argue for more research on the empirical adequacy of degenerate quantum-like models in general.

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In this paper, we evaluate the impact of the introduction of electricity produced by Nuclear Power (NP) plants on the electricity price formed in a liberalized, power-exchange based market. In order to do so, we build a realistic large-scale agent-based model that replicates the features of a real market (the Italian one). Firstly, we validate the computational model using exact historical data about supply, demand and network characteristics. A statistical analysis confirms that the simulator well replicates the observed prices. Then, a future scenario is simulated, based on plausible market evolutions and energy carriers' price dynamics. The future electricity prices are evaluated with and without NP plants. Different NP plants' ownerships are considered to take into account how agents' competition is affected by the introduction of such a large base-load generator. It is shown that NP reduces the prices and volatility, but the size (and the sign) of the impact depends on the pattern of the expected demand load and the ownership structure of the NP plants.

We conducted a sensitivity analysis of the results of weighted voting experiments by varying two features of the experimental protocol by Montero et al. (Soc Choice Welf 30(1):69-87, 2008): (1) the way in which the roles of subjects are reassigned in each round [random role (RR) vs. fixed role (FR)] and (2) the number of proposals that subjects can simultaneously approve [multiple approval (MA) vs. single approval (SA)]. It was observed that the differences in these protocols had impacts on the relative frequencies of minimum winning coalitions (MWCs) as well as how negotiations proceed. 3-player MWCs were more frequently observed, negotiations were much longer, subjectsmade less mistakes, and proposal-objection dynamics were more frequently observed, under the protocol with FR and SA than under the protocol with RR and MA.

We propose an agent-based computational model to investigate sequential Dutch auctions with particular emphasis on markets for perishable goods and we take as an example wholesale fish markets. Buyers in these markets sell the fish they purchase on a retail market. The paper provides an original model of boundedly rational behavior for wholesale buyers' behavior incorporating learning to improve profits, conjectures as to the bids that will be made and fictitious learning. We analyse the dynamics of the aggregate price under different market conditions in order to explain the emergence of market price patterns such as the well-known declining price paradox and the empirically observed fact that the very last transactions in the day may be at a higher price. The proposed behavioral model provides alternative explanations for market price dynamics to those which depend on standard hypotheses such as diminishing marginal profits. Furthermore, agents learn the option value of having the possibility of bidding in later rounds. When confronted with random buyers, such as occasional participants or new entrants, they learn to bid in the optimal way without being conscious of the strategies of the other buyers. When faced with other buyers who are also learning their behavior still displays some of the characteristics learned in the simpler case even though the problem is not analytically tractable.

We propose an agent-based computational mode to investigate sequential Dutch auctions with particular emphasis on markets for perishable goods and we take as an example wholesale fish markets. Buyers in these markets sell the fish they purchase on a retail market. The paper provides an original model of boundedly rational behavior for wholesale buyers' behavior incorporating inter-temporal profit maximization, conjectures on opponents' behavior and fictive learning. We analyse the dynamics of the aggregate price under different market conditions in order to explain the emergence of market price patterns such as the well-known declining price paradox. The proposed behavioral model provides alternative explanations for market price dynamics to those which depend on standard hypotheses such as diminishing marginal profits.

We propose an agent-based computational mode to investigate sequential Dutch auctions with particular emphasis on markets for perishable goods and we take as an example wholesale fish markets. Buyers in these markets sell the fish they purchase on a retail market. The paper provides an original model of boundedly rational behavior for wholesale buyers' behavior incorporating inter-temporal profit maximization, conjectures on opponents' behavior and fictive learning. We analyse the dynamics of the aggregate price under different market conditions in order to explain the emergence of market price patterns such as the well-known declining price paradox. The proposed behavioral model provides alternative explanations for market price dynamics to those which depend on standard hypotheses such as diminishing marginal profits.