Economics  (E) Session 1

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Time and Date: 14:15 - 15:45 on 19th Sep 2016

Room: A - Administratiezaal

Chair: Marco Alberto Javarone

112 Forgiveness evolves to ensure cooperation in long-term agreements [abstract]
Abstract: Commitments for enhancing cooperation are widespread in human societies. They offer an alternative to punishment and rewards. Commitments are defined within the context of social dilemmas as agreements to cooperate with posterior compensations when any of the parties involved defects. It has been shown to be an evolutionarily viable strategy in one-shot social dilemmas. However, in many situations agreements aim to establish long-term mutually beneficial interactions. Our analytical and numerical results reveal under which conditions revenge, apology, forgiveness and ostracism can evolve and deal with mistakes within ongoing agreements in the context of the Iterated Prisoner's Dilemma. We show that, when the agreement fails, participants prefer to take revenge by defecting in the subsisting encounters. Incorporating costly apology and forgiveness reveals that, even when mistakes are frequent, there exists a sincerity threshold for which mistakes will not lead to the destruction of the agreement, inducing even higher levels of cooperation. The apology cost should be high enough in order to avoid fake committers that intent to take advantage of the system defecting and apologizing continuously, yet not too high to be worth it. We also show that when interactions are taking place among group of individuals, reinserting individuals that where expelled after defecting is more efficient than maintaining them ostracized with the cost that may come from it. Forgiveness is, in its different ways, an evolutionarily viable strategy which plays a fundamental role in inducing cooperation in repeated dilemmas.
Luis A. Martinez-Vaquero, The Anh Han, Luís Moniz Pereira and Tom Lenaerts
263 Discontinuity and convergence in global economies [abstract]
Abstract: Economies are complex adaptive systems, and investigation of their dynamics within a complex systems framework may provide a deeper understanding of their behavior and response to perturbation. We borrow methodologies from ecology to test whether global economies have discontinuous size distributions, a signature of multi-scale processes in complex adaptive systems, and we contrast the theoretical assumptions underpinning our methodology with that of the economic convergence club literature. Discontinuous distributions in complex systems consist of groupings of similarly-sized entities, such as animal body mass, firm size, or, perhaps, economies, separated by gaps, in a pattern of non-random departures from a continuous or power law distribution. We analyse constant per capita GDP for all countries of the world, from 1970-2012. We tested each yearly distribution for discontinuities, and then compared the distributions over time using multivariate modelling. We find that the size distributions of economies are discontinuous and that there are persistent patterns of aggregations and gaps over time, suggesting that there are scale domains of structuring processes that act as basins of attraction. These size classes are outwardly similar to convergence clubs, but are derived from theory that is a more appropriate fit to economic dynamics because it adequately incorporates realistic expectations of economies as complex adaptive systems. We argue that the underlying mechanisms, rather than emerging from conditions of initial equivalence, evolve and operate in multiple scale domains that can be objectively identified and assessed. Understanding the patterns within and across scale domains may provide insight into the processes that structure wealth over time.
Shana Sundstrom, Craig Allen and David Angeler
124 Systemic distortions in digital reputation [abstract]
Abstract: The digital economy is self-organizing into a “platform society”, where individuals exchange knowledge and goods on a P2P basis. P2P platforms rely on trust, which is typically established by requiring users to develop a digital reputation through peer-review mechanisms. Given that revenues from P2P business such as the Sharing Economy are expected to increase more than twentyfold over the next ten years, digital reputation will increasingly become a key commodity in our online lives, as it will determine access to substantial economic opportunities. P2P systems are often thought to promote more economic freedom and democratization. Yet, their current lack of regulation exposes them to malicious behavior. Indeed, users are often incentivized to reciprocate ratings in order to mutually boost reputation or retaliate. Such practices have distorting effects, as they mask “true reputation” and prevent users from making informed decisions about their peers. In this work we investigate the impact of reciprocity on reputation in three platforms (Slashdot, Epinions, Wikipedia) where users exchange binary ratings, and which can be conveniently cast as signed networks. We find that reciprocity is markedly over-expressed in all three systems with respect to a wide range of null hypotheses, and we provide evidence of the biases it introduces on reputation. At the macro level, we observe that the contribution to reputation from reciprocated ratings is systematically over-expressed and larger than the contribution from non-reciprocated ones. We identify the root causes of such bias at the micro level: we prove that the patterns of interactions between users, and the relationship between a user’s reputation and that of her nearest neighbors in the network, are markedly different from those observed under several null hypotheses. In our conclusions we highlight possible policy guidelines that would mitigate the distorting effects of the aforementioned biases.
Giacomo Livan, Fabio Caccioli and Tomaso Aste
203 Liquidity crises in the limit order book: a tale of two time scales [abstract]
Abstract: We present an empirical analysis of the microstructure of financial markets and, in particular, of the static and dynamic properties of liquidity. We find that on relatively large time scales (15 min) large price fluctuations are connected to the failure of the subtle mechanism of compensation between the flows of market and limit orders: in other words, the missed revelation of the latent order book breaks the dynamical equilibrium between the flows,triggering the large price jumps. This behavior naturally leads to a dynamical definition of liquidity. On smaller time scales (30 s), instead, the static depletion of the limit order book is an indicator of an intrinsic fragility of the system, which leads to a strongly nonlinear enhancement of the response, in terms of price impact, to incoming orders, even if their volume is small. In order to quantify this phenomenon, we introduce a static measure of the liquidity imbalance present in the book and we show that this quantity is correlated to both the sign and the magnitude of the next price movement. These findings prove that large price fluctuations are due to different mechanisms that act at different time scales and, as a consequence, the effective liquidity should be defined in relation to the time interval one wants to consider. Reference: Corradi, F., Zaccaria, A., and Pietronero, L. Liquidity crises on different time scales. Physical Review E, 92(6), 062802 (2015).
Andrea Zaccaria, Francesco Corradi and Luciano Pietronero