Economics Insights @ CBS

After decades of research highlighting the fallibility of first impressions, recent years have featured reports of valid impressions based on surprisingly limited information, such as photos and short videos. Yet beneath mean levels of accuracy lies tremendous variance—some snap judgments are well-founded, others wrongheaded. An essential question for perceivers, therefore, is whether and when to trust their initial intuitions about others.

The actions of different agents sometimes reinforce each other. Examples are network effects and the threshold models used by sociologists as well as Harvey Leibensteins's "bandwagon effects." We model such situations as a game with increasing differences, and show that tipping of equilibria, cascading and clubs with entrapment are natural consequences of this mutual reinforcement. If there are several equilibria, one of which Pareto dominates, then the inefficient equilibria can be tipped to the efficient one, a result of interest in the context of coordination problems.

This paper reports a positive and statistically significant relation between short-term discount rates elicited with a monetary and a primary reward (chocolate). This finding suggests that high short-term discount rates are related to an underling individual trait.

The final version of this article can be found at http://dx.doi.org/10.1016/j.econlet.2009.10.020