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# Behavioral and Network Origins of Wealth Inequality: Insights from a Virtual World

Almost universally, wealth is not distributed uniformly within societies or economies. Even though wealth data have been collected in various forms for centuries, the origins for the observed wealth-disparity and social inequality are not yet fully understood. Especially the impact and connections of human behavior on wealth could so far not be inferred from data. Here we study wealth data from the virtual economy of the massive multiplayer online game (MMOG) Pardus. This data not only contains every player's wealth at every point in time, but also all actions of every player over a timespan of almost a decade. We find that wealth distributions in the virtual world are very similar to those in western countries. In particular we find an approximate exponential for low wealth and a power-law tail. The Gini index is found to be $g=0.65$, which is close to the indices of many Western countries. We find that wealth-increase rates depend on the time when players entered the game. Players that entered the game early on tend to have remarkably higher wealth-increase rates than those who joined later. Studying the players' positions within their social networks, we find that the local position in the trade network is most relevant for wealth. Wealthy people have high in- and out-degree in the trade network, relatively low nearest-neighbor degree and a low clustering coefficient. Wealthy players have many mutual friendships and are socially well respected by others, but spend more time on business than on socializing. We find that players that are not organized within social groups with at least three members are significantly poorer on average. We observe that high `political' status and high wealth go hand in hand. Wealthy players have few personal enemies, but show animosity towards players that behave as public enemies.

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# Bounded Rationality and Beyond

News on the effects of bounded rationality in economics and business, relationships and politics
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## Music Enrichment Programs Improve the Neural Encoding of Speech in At-Risk Children

Abstract

Musicians are often reported to have enhanced neurophysiological functions, especially in the auditory system. Musical training is thought to improve nervous system function by focusing attention on meaningful acoustic cues, and these improvements in auditory processing cascade to language and cognitive skills. Correlational studies have reported musician enhancements in a variety of populations across the life span. In light of these reports, educators are considering the potential for co-curricular music programs to provide auditory-cognitive enrichment to children during critical developmental years. To date, however, no studies have evaluated biological changes following participation in existing, successful music education programs. We used a randomized control design to investigate whether community music participation induces a tangible change in auditory processing. The community music training was a longstanding and successful program that provides free music instruction to children from underserved backgrounds who stand at high risk for learning and social problems. Children who completed 2 years of music training had a stronger neurophysiological distinction of stop consonants, a neural mechanism linked to reading and language skills. One year of training was insufficient to elicit changes in nervous system function; beyond 1 year, however, greater amounts of instrumental music training were associated with larger gains in neural processing. We therefore provide the first direct evidence that community music programs enhance the neural processing of speech in at-risk children, suggesting that active and repeated engagement with sound changes neural function.

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## What Is Intrinsic Motivation?

When you're intrinsically motivated to accomplish something, you have an internal desire to achieve it; you'll initiate the activity for its own sake, because it's interesting and satisfying in itself. Intrinsic motivation stands in direct contrast to extrinsicmotivation, which happens when some external force (like a boss), influences, motivates or requires you to do something. Because of the difference between intrinsic and extrinsic motivation, we can, generally speaking, separate activities into two different buckets: tasks that we want to do and tasks that we have to do. Have you ever wondered why it's so much easier to get something done when we want to do it? (Or conversely, why it's so difficult to accomplish something even though we know we "have to?") It all boils down to motivation — and more specifically, the dichotomy between intrinsic motivators and extrinsic motivators. Let's take a deeper look and explore the role intrinsic motivators can play in business performance.As we established above, it seems much easier to get things done when we're intrinsically motivated to do them, and research supports that hunch. Over the years, studies have shown that intrinsic motivators are much more powerful than extrinsic motivators.

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## Neural Mechanisms of Gain–Loss Asymmetry in Temporal Discounting

Abstract

Humans typically discount future gains more than losses. This phenomenon is referred to as the “sign effect” in experimental and behavioral economics. Although recent studies have reported associations between the sign effect and important social problems, such as obesity and incurring multiple debts, the biological basis for this phenomenon remains poorly understood. Here, we hypothesized that enhanced loss-related neural processing in magnitude and/or delay representation are causes of the sign effect. We examined participants performing intertemporal choice tasks involving future gains or losses and compared the brain activity of those who exhibited the sign effect and those who did not. When predicting future losses, significant differences were apparent between the two participant groups in terms of striatal activity representing delay length and in insular activity representing sensitivity to magnitude. Furthermore, participants with the sign effect exhibited a greater insular response to the magnitude of loss than to that of gain, and also a greater striatal response to the delay of loss than to that of gain. These findings may provide a new biological perspective for the development of novel treatments and preventive measures for social problems associated with the sign effect.

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## The Functional and Structural Neural Basis of Individual Differences in Loss Aversion

Abstract

Decision making under risk entails the anticipation of prospective outcomes, typically leading to the greater sensitivity to losses than gains known as loss aversion. Previous studies on the neural bases of choice-outcome anticipation and loss aversion provided inconsistent results, showing either bidirectional mesolimbic responses of activation for gains and deactivation for losses, or a specific amygdala involvement in processing losses. Here we focused on loss aversion with the aim to address interindividual differences in the neural bases of choice-outcome anticipation. Fifty-six healthy human participants accepted or rejected 104 mixed gambles offering equal (50%) chances of gaining or losing different amounts of money while their brain activity was measured with functional magnetic resonance imaging (fMRI). We report both bidirectional and gain/loss-specific responses while evaluating risky gambles, with amygdala and posterior insula specifically tracking the magnitude of potential losses. At the individual level, loss aversion was reflected both in limbic fMRI responses and in gray matter volume in a structural amygdala–thalamus–striatum network, in which the volume of the “output” centromedial amygdala nuclei mediating avoidance behavior was negatively correlated with monetary performance. We conclude that outcome anticipation and ensuing loss aversion involve multiple neural systems, showing functional and structural individual variability directly related to the actual financial outcomes of choices. By supporting the simultaneous involvement of both appetitive and aversive processing in economic decision making, these results contribute to the interpretation of existing inconsistencies on the neural bases of anticipating choice outcomes.

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## Prospect Theory for Online Financial Trading

Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are risk-averse with respect to gains and risk-seeking with respect to losses, a phenomenon called "loss aversion". Despite of the fact that prospect theory has been well developed in behavioral economics at the theoretical level, there exist very few large-scale empirical studies and most of them have been undertaken with micro-panel data. Here we analyze over 28.5 million trades made by 81.3 thousand traders of an online financial trading community over 28 months, aiming to explore the large-scale empirical aspect of prospect theory. By analyzing and comparing the behavior of winning and losing trades and traders, we find clear evidence of the loss aversion phenomenon, an essence in prospect theory. This work hence demonstrates an unprecedented large-scale empirical evidence of prospect theory, which has immediate implication in financial trading, e.g., developing new trading strategies by minimizing the effect of loss aversion. Moreover, we introduce three risk-adjusted metrics inspired by prospect theory to differentiate winning and losing traders based on their historical trading behavior. This offers us potential opportunities to augment online social trading, where traders are allowed to watch and follow the trading activities of others, by predicting potential winners statistically based on their historical trading behavior rather than their trading performance at any given point in time.

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## Quantum Information Biology: from information interpretation of quantum mechanics to applications in molecular biology and cognitive psychology

We discuss foundational issues of quantum information biology (QIB) -- one of the most successful applications of the quantum formalism outside of physics. QIB provides a multi-scale model of information processing in bio-systems: from proteins and cells to cognitive and social systems. This theory has to be sharply distinguished from "traditional quantum biophysics". The latter is about quantum bio-physical processes, e.g., in cells or brains. QIB models the dynamics of information states of bio-systems. It is based on the quantum-like paradigm: complex bio-systems process information in accordance with the laws of quantum information and probability. This paradigm is supported by plenty of statistical bio-data collected at all scales, from molecular biology and genetics/epigenetics to cognitive psychology and behavioral economics. We argue that the information interpretation of quantum mechanics (its various forms were elaborated by Zeilinger and Brukner, Fuchs and Mermin, and D' Ariano) is the most natural interpretation of QIB. We also point out that QBIsm (Quantum Bayesianism) can serve to find a proper interpretation of bio-quantum probabilities. Biologically QIB is based on two principles: a) adaptivity; b) openness (bio-systems are fundamentally open). These principles are mathematically represented in the framework of a novel formalism -- quantum adaptive dynamics which, in particular, contains the standard theory of open quantum systems as a special case of adaptivity (to environment).

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## Online Social Network Analysis: A Survey of Research Applications in Computer Science

The emergence and popularization of online social networks suddenly made available a large amount of data from social organization, interaction and human behaviour. All this information opens new perspectives and challenges to the study of social systems, being of interest to many fields. Although most online social networks are recent (less than fifteen years old), a vast amount of scientific papers was already published on this topic, dealing with a broad range of analytical methods and applications. This work describes how computational researches have approached this subject and the methods used to analyse such systems. Founded on a wide though non-exaustive review of the literature, a taxonomy is proposed to classify and describe different categories of research. Each research category is described and the main works, discoveries and perspectives are highlighted.

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## The Pychology of Economic Forecasting

Is the imprecision of economic forecasts due to the judgments of ‘biased’ decision makers? This study explores decision-making among expert forecasters in Sweden using semi-structured interviews. The results indicate that forecasters’ decision
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## Outsmart Your Own Biases

How to broaden your thinking and make better decisions.

Suppose you’re evaluating a job candidate to lead a new office in a different country. On paper this is by far the most qualified person you’ve seen. Her responses to your interview questions are flawless. She has impeccable social skills. Still, something doesn’t feel right. You can’t put your finger on what—you just have a sense. How do you decide whether to hire her?

You might trust your intuition, which has guided you well in the past, and send her on her way. That’s what most executives say they’d do when we pose this scenario in our classes on managerial decision making. The problem is, unless you occasionally go against your gut, you haven’t put your intuition to the test. You can’t really know it’s helping you make good choices if you’ve never seen what happens when you ignore it.

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## Computational Neuropsychology, Studying Emergence | SciTech Connect

Warren Tryon, author of Cognitive Neuroscience and Psychotherapy, dives into computational neuropsychology, discussing emergence and synaptic reorganization.

It is not enough to call for the study of emergence as I have done in my appeal for a paradigm shift in my book,Cognitive Neuroscience and Psychotherapy: Network Principles for a Unified Theory and in some of my previous blogs. One must also provide tools and some direction for using them to get the ball rolling.

Every parallel-distributed processing connectionist neural network (PDP-CNN) model that I have encountered has focused on the properties of the fully trained “adult” model rather than the process by which these properties emerged. This is because the authors of these simulations have presented their models as demonstration proofs that artificial neural networks are capable of performing certain functions. I agree that this is a necessary first step. It would be premature to study the emergent process unless, or until, one first demonstrated that the network in question is capable of generating the desirable psychological properties. But now that so many psychological and behavioral phenomena have been effectively simulated using PDP-CNN models, it is time to ask how these properties emerge. This line of inquiry is needed to generate full scientific explanations of these psychological and behavioral phenomena.

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## How Does Aging Affect Financial Decision Making? | Center for Retirement Research

Abstract: The brief’s key findings are: *With the shift from traditional pensions to 401(k) plans, the welfare of retirees depends increasingly on their ability to make sound financial decisions. *Using a dataset that follows a group of older individuals in the Chicago area, the analysis examines how aging affects financial decision making. *Participants who suffer cognitive decline experience a reduction in their financial literacy but no change in their confidence in managing their money. *Perhaps not surprisingly then, while they are more likely to get help with financial decisions, more than half retain primary responsibility for managing their money.
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## The Dark Side of Competition for Status

Abstract: Unethical behavior within organizations is not rare. We investigate experimentally the role of status-seeking behavior in sabotage and cheating activities aiming at improving one’s performance ranking in a flat-wage environment. We find that average effort is higher when individuals are informed about their relative performance. However, ranking feedback also favors disreputable behavior. Some individuals do not hesitate to incur a cost to improve their rank by sabotaging others’ work or by increasing artificially their own performance. Introducing sabotage opportunities has a strong detrimental effect on performance. Therefore, ranking incentives should be used with care. Inducing group identity discourages sabotage among peers but increases in-group rivalry.

ftp://ftp.gate.cnrs.fr/RePEc/2014/1431.pdf

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## 15 Lessons from Behavioural Economics

The following deck was used by @tjalve in our internal #teachme session. It covers 15 lessons from Behavioural Economics you can apply to your ongoing projects.
The concepts covered are:
1. The Endowment Effect
2. Hyperbolic Discounting
3. The IKEA effect
4. Anchoring Bias
5. The Von Restorff Effect
6. Loss Aversion
7. Hedonic Adaption
8. The Bandwagon Effect
9. The Inaction inertia effect
10. The Zeigarnik Effect
11. The Framing Effect
12. The Goal Gradient Effect
13. The Choice Paradox
14. Round Pricing Preference
15. Reciprocity

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## Five Curious Facts about Music and Brain Damage

What happens if a musician experiences some sort of brain damage? Music is the ultimate “brain” activity, as it involves the motor, visual, auditory, audiovisual, somatosensory, parietal and frontal areas in both hemispheres and the cerebellum. By being such a “complete” brain activity, music has a lot of beneficial effects on the brain. Amid the countless examples of the virtues of music, let’s mention a new study published in the Journal of Neuroscience, which determined that kids who took music lessons for two years did not just witness an improvement in their abilities to play their instrument, but they also processed language more easily: in fact, learning music improves the brain’s ability to process pitch, timing and timbre, which actually helps pick up language too.

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## Self Improvement Resources

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## Psychologists’ Food Fight Over Replication of “Important Findings”

Psychologists are up in arms over, of all things, the editorial process that led to the recent publication of a special issue of the journal Social Psychology.This may seem like a classic case of ivory tower navel gazing, but its impact extends far beyond academia. The issue attempts to replicate 27 “important findings in social psychology.” Replication—repeating an experiment as closely as possible to see whether you get the same results—is a cornerstone of the scientific method. Replication of experiments is vital not only because it can detect the rare cases of outright fraud, but also because it guards against uncritical acceptance of findings that were actually inadvertent false positives, helps researchers refine experimental techniques, and affirms the existence of new facts that scientific theories must be able to explain.

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## Tax Compliance and Public Goods Provision -- An Agent-based Econophysics Approach

We calculate the dynamics of tax evasion within a multi-agent econophysics model which is adopted from the theory of magnetism and previously has been shown to capture the main characteristics from agent-based based models which build on the standard Allingham and Sandmo approach. In particular, we implement a feedback of public goods provision on the decision-making of selfish agents which aim to pursue their self interest. Our results imply that such a feedback enhances the moral attitude of selfish agents thus reducing the percentage of tax evasion. Two parameters govern the behavior of selfish agents, (i) the rate of adaption to changes in public goods provision and (ii) the threshold of perception of public goods provision. Furtheron we analyze the tax evasion dynamics for different agent co mpositions and under the feedback of public goods provision. We conclude that policymakers may enhance tax compliance behavior via the threshold of perception by means of targeted public relations.

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## Time-Inconsistent Planning: A Computational Problem in Behavioral Economics

In many settings, people exhibit behavior that is inconsistent across time --- we allocate a block of time to get work done and then procrastinate, or put effort into a project and then later fail to complete it. An active line of research in behavioral economics and related fields has developed and analyzed models for this type of time-inconsistent behavior.
Here we propose a graph-theoretic model of tasks and goals, in which dependencies among actions are represented by a directed graph, and a time-inconsistent agent constructs a path through this graph. We first show how instances of this path-finding problem on different input graphs can reconstruct a wide range of qualitative phenomena observed in the literature on time-inconsistency, including procrastination, abandonment of long-range tasks, and the benefits of reduced sets of choices. We then explore a set of analyses that quantify over the set of all graphs; among other results, we find that in any graph, there can be only polynomially many distinct forms of time-inconsistent behavior; and any graph in which a time-inconsistent agent incurs significantly more cost than an optimal agent must contain a large "procrastination" structure as a minor. Finally, we use this graph-theoretic model to explore ways in which tasks can be designed to help motivate agents to reach designated goals.

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## Improving detection of influential nodes in complex networks

Recently an increasing amount of research is devoted to the question of how the most influential nodes (seeds) can be found effectively in a complex network. There are a number of measures proposed for this purpose, for instance, high-degree centrality measure reflects the importance of the network topology and has a reasonable runtime performance to find a set of nodes with highest degree, but they do not have a satisfactory dissemination potentiality in the network due to having many common neighbors (CN(1)) and common neighbors of neighbors (CN(2)). This flaw holds in other measures as well. In this paper, we compare high-degree centrality measure with other well-known measures using ten datasets in order to find a proportion for the common seeds in the seed sets obtained by them. We, thereof, propose an improved high-degree centrality measure (named \textit{DegreeDistance}) and improve it to enhance accuracy in two phases, FIDD and SIDD, by put a threshold on the number of common neighbors of already-selected seed nodes and a non-seed node which is under investigation to be selected as a seed as well as considering the influence score of seed nodes directly or through their common neighbors over the non-seed node. To evaluate the accuracy and runtime performance of DegreeDistance, FIDD, and SIDD, they are applied to eight large-scale networks and it finally turns out that SIDD dramatically outperforms other well-known measures and evinces comparatively more accurate performance in identifying the most influential nodes.

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## Ants Swarm Like Brains Think - Issue 23: Dominoes - Nautilus

Deborah Gordon spent the morning of August 27 watching a group of harvester ants foraging for seeds outside the dusty town of Rodeo, N.M. Long before the first rays of sun hit the desert floor, a group of patroller ants was already on the move. Their task was to find out whether the area near the nest was free from flash floods, high winds, and predators. If they didn’t return to the nest, departing foragers would know it wasn’t safe to go search for food.

When the patrollers returned and the first foragers did leave, they scattered in all directions, hunting for the fat-laden, energy-rich seeds on which the colony depends. Other foragers waited in the entrance of the nest for the first wave to return. If lots of food were nearby, foragers would return and depart quickly, creating a massive chain reaction. If food was scarce, however, the second group of foragers might not leave the nest at all.

“It’s a brilliant system. The ants can take advantage of sudden windfalls of food but they don’t waste energy and resources if there’s nothing there,” said Gordon, who is an ecologist at Stanford University.

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## Konstantinos Katsikopoulos on decision theory - YouTube

At the Summer Institute on Bounded Rationality junior researchers discuss how people make everyday decisions. This forum for PhD students and postdocs took place from July 3 2012 at the Max Planck Institute for Human Development in Berlin. In his talk Konstantinos Katsikopoulos, professor at the Max Planck Institute for Human Development, argues that standard decision theory should be combined with rules of thumb and how this can be achieved.

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## What Works Cities

BUT THEY SHARE THE SAME MISSION:
TO SERVE CITIZENS IN THE MOST EFFECTIVE WAYS POSSIBLE.

Join leading cities across America that are using data and evidence to improve results for their residents.

What Works Cities helps you build on the work you're doing—to go further with what you've got.

What Works Cities is designed to accelerate Cities’ use of data and evidence to improve people’s lives. Bloomberg Philanthropies has assembled an unparalleled group of leading practitioners to focus on your goals and your citizens. They are, simply, world-class partners for world-class cities. Behavioural Insights Team Harvard Kennedy School Government Performance Lab Results for America …
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## Destructive Behavior in a Fragile Public Good Game

Abstract: Socially destructive behavior in a public good environment - like damaging public goods - is an underexposed phenomenon in economics. In an experiment we investigate whether such behavior can be influenced by the very nature of an environment. To that purpose we use a Fragile Public Good (FPG) game which puts the opportunity for destructive behavior (taking) on a level playing field with constructive behavior (contributing). We find substantial evidence of destructive decisions, sometimes leading to sour relationships characterized by persistent hurtful behavior. While positive framing induces fewer destructive decisions, shifting the selfish Nash towards minimal taking doubles its share to more than 20%. Female subjects are found to be more inclined to use destructive decisions. Finally, subjects’ social value orientation turns out to be partly predictive of (at least initial) destructive choices.

Downloads: (external link)
ftp://ftp.gate.cnrs.fr/RePEc/2014/1429.pdf

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## Cognitive Bubble

Abstract: Smith et al. (1988) reported large bubbles and crashes in experimental asset markets, a result that has been replicated by a large literature. Here we test whether the occurrence of bubbles depends on the experimental subjects' cognitive sophistication. In a two-part experiment, we rst run a battery of tests to assess the subjects' cognitive sophistication and classify them into low or high levels of cognitive sophistication. We then invite them separately to two asset market experiments populated only by subjects with either low or high cognitive sophistication. We observe classic bubble- crash patterns in the sessions populated by subjects with low levels of cognitive sophistication. Yet, no bubbles or crashes are observed with our sophisticated subjects. This result lends strong support to the view that the usual bubbles and crashes in experimental asset markets are caused by subjects' confusion and, therefore, raises some doubts about the external validity of this type of experiments.Downloads: (external link)
http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2015-006.pdf  ;
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## Major health benefits of music uncovered | Newsroom - McGill University

In the first large-scale review of 400 research papers in the neurochemistry of music, a team led by Prof. Daniel J. Levitin of McGill University’s Psychology Dept. has been able to show that playing and listening to music has clear benefits for both mental and physical health. In particular, music was found both to improve the body’s immune system function and to reduce levels of stress. Listening to music was also found to be more effective than prescription drugs in reducing anxiety prior to surgery.

“We’ve found compelling evidence that musical interventions can play a health care role in settings ranging from operating rooms to family clinics,” says Prof. Levitin. “But even more importantly, we were able to document the neurochemical mechanisms by which music has an effect in four domains: management of mood, stress, immunity and as an aid to social bonding.”

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