nep-exp New Economics Papers
on Experimental Economics
Issue of 2004‒12‒12
seventeen papers chosen by
Daniel Houser
George Mason University

  1. Transfers and Altruistic Punishments in Third Party Punishment Game Experiments. By Ottone, Stefania
  2. An experimental test of career concerns By Alexander K. Koch; Albrecht Morgenstern; Philippe Raab
  3. Ethical Differentiation and Market Behavior: An Experimental Approach By Julian Rode; Robin Hogarth; Marc Le Menestrel
  4. Myopic Loss Aversion, Information Dissemination, and the Equity Premium Puzzle By Charles Bellemare; Michaela Krause; Sabine Kröger; Chendi Zhang
  5. Excess Entry, Ambiguity Seeking, and Competence: An Experimental Investigation By Daniela Grieco; Robin Hogarth
  6. Stochastic Evolution of Rules for Playing Normal Form Games By Fabrizio Germano
  7. Do Co-Workers’ Wages Matter? Theory and Evidence on Wage Secrecy, Wage Compression and Effort By Charness, Gary; Kuhn, Peter
  8. Verified Trust: Reciprocity, Altruism, and Noise in Trust Games By Marius Brülhart; Jean-Claude Usunier
  9. Agent-Based Models and Human Subject Experiments By John Duffy
  10. Patience and Turnout By James H. Fowler
  11. The Timing Effect in Public Good Games By Abele, Susanne; Ehrhart, Karl-Martin
  12. Effects of Portfolio Planning Methods on Decision Making: Experimental Results* By JS Armstrong; Roderick J. Brodie
  13. Budget Processes: Theory and Experimental Evidence By Ehrhart, Karl-Martin; Gardner, Roy; von Hagen, Jürgen; Keser*, Claudia
  14. Design of the 3G Spectrum Auctions in the UK and in Germany: An Experimental Investigation By Seifert, Stefan; Ehrhart, Karl-Martin
  15. Efficient elicitation of utility and probability weighting functions By Pavlo Blavatskyy
  16. Do Cultures Clash? Evidence from Cross-National Ultimatum Game Experiments By Swee Hoon Chuah; Robert Hoffmann; Martin Jones; Geoffrey Williams
  17. Experiments on Intertemporal Consumption with Habit Formation and Social Learning By Colin F. Camerer; Zhikang Chua

  1. By: Ottone, Stefania
    Abstract: Our research is a variant of the third party punishment game. In particular, we want to test whether players have heterogeneous preferences; the levels of the sanction and of the transfer are proportional to the unfairness of the Dictator; the change of the role influences the Observer’s reaction to unfair behavior; players’ decision to punish the Dictator and/or to help the Receiver depends on how costly their intervention is.
    JEL: A12 A13 C72 C91 D63 D64
    Date: 2004–12
  2. By: Alexander K. Koch (Department of Economics, Royal Holloway, University of London); Albrecht Morgenstern (Federal Ministry of Finance, Berlin); Philippe Raab (Bonn Graduate School of Economics)
    Abstract: Holmstrom's (1982/99) career concerns model has become an important workhorse for the analysis of agency issues in many fields. The underlying signal jamming argument requires players to use information in a Bayesian way – which may or may not reasonably approximate real-life decision makers' behavior. Testing this theory with field data is diffcult since typically little is known about the information that individuals base their decisions on, and this explains the dearth of empirical studies. We provide experimental evidence that the signal jamming mechanism works in a laboratory setting. Moreover, subjects' beliefs fit remarkably well requirements imposed by the Bayesian equilibrium concept.
    Keywords: incentives, reputation, career concerns, signal jamming, experiments.
    JEL: C91 D83 L14
    Date: 2004–11
  3. By: Julian Rode; Robin Hogarth; Marc Le Menestrel
    Abstract: We constructed triopolistic experimental markets where producers set prices. One producer’s costs were higher than the others. In two experiments, costs were attributed to compliance with ethical guidelines. In the third, no justification was provided. Consumers paid premia for the ethically differentiated product and even larger premia if they did not know the producers’ 'ethical' costs. Individual differences were important (students of business/economics paid smaller premia than others). We also provide evidence consistent with a large attitude-behavior gap for ethical consumption. Finally, we speculate about the observed 'demand function' for ethics and emphasize the potential of experimental methodology for understanding contextual effects in market settings
    Keywords: Fair trade, ethical premia, price competition, contextual effects
    JEL: A13 B41 D43 D46
    Date: 2004–10
  4. By: Charles Bellemare; Michaela Krause; Sabine Kröger; Chendi Zhang
    Abstract: We experimentally disentangle the effect of information dissemination from the effect of the time horizon on the investment behavior of a myopically loss averse investor. Our findings show that varying the information condition only suffices to induce behavior that is in line with the hypothesis of Myopic Loss Aversion.
    Keywords: Myopic loss aversion, information dissemination
    JEL: D81 C91
    Date: 2004
  5. By: Daniela Grieco; Robin Hogarth
    Abstract: Excess entry refers to the high failure rate of new entrepreneurial ventures. Economic explanations suggest 'hit and run' entrants and risk-seeking behavior. A psychological explanation is that people (entrepreneurs) are overconfident in their abilities (Camerer & Lovallo, 1999). Characterizing entry decisions as ambiguous gambles, we alternatively suggest–following Heath and Tversky (1991)–that people seek ambiguity when the source of uncertainty is related to their competence. Overconfidence, as such, plays no role. This hypothesis is confirmed in an experimental study that also documents the phenomenon of reference group neglect. Finally, we emphasize the utility that people gain from engaging in activities that contribute to a sense of competence. This is an important force in economic activity that deserves more explicit attention.
    Keywords: Competence, excess entry, entrepreneurship, overconfidence
    JEL: C91 L10
    Date: 2004–10
  6. By: Fabrizio Germano
    Abstract: The evolution of boundedly rational rules for playing normal form games is studied within stationary environments of stochastically changing games. Rules are viewed as algorithms prescribing strategies for the different normal form games that arise. It is shown that many of the folk results of evolutionary game theory typically obtained with a fixed game and fixed strategies carry over to the present case. The results are also related to recent experiments on rules and games.
    Keywords: Rules, evolutionary dynamics, stochastic dynamics, bounded rationality, learning, normal form games
    JEL: C72 C73 D81 D83
    Date: 2004–06
  7. By: Charness, Gary (University of California, Santa Barbara); Kuhn, Peter (University of California, Santa Barbara and IZA Bonn)
    Abstract: We study worker and firm behavior in an environment where worker effort could depend on co-workers’ wages. Theoretically, we show that an increase in workers’ ‘concerns’ with coworkers’ wages should lead profit-maximizing firms to compress wages under quite general conditions. However, firms should be harmed by such concerns, and such concerns can justify paying equal wages to workers of unequal productivity only when those concerns are asymmetric (in the sense that only underpayment matters). Our laboratory experiments indicate that workers’ effort choices are highly sensitive to their own wages, but largely unresponsive to co-workers’ wages. Despite this, in apparent anticipation of a negative worker reaction, firms in our experiment were more likely to compress wages when wages became public information. Profits were not significantly reduced by a requirement to make wages public. Overall, our results seem to weaken the case that either wage secrecy or wage compression is a profit-maximizing policy in practice.
    Keywords: experiments, effort, social preferences, jealousy, wage compression, wage secrecy
    JEL: C92 J33 M12 M52
    Date: 2004–11
  8. By: Marius Brülhart; Jean-Claude Usunier
    Abstract: Behavioral economists have come to recognize that reciprocity, the interaction of trust and trustworthiness, is a distinct and economically relevant component of individual preferences alongside selfishness and altruism. This recognition is principally due to observed decisions in experimental "trust games". However, recent research has cast doubt on the explanatory power of trust as a determinant of those decisions, suggesting that altruism may explain much of what "looks like" trust. Moreover, empirical tests for alternative behavioral determinants can be sensitive to experimental bias due to differences in protocols and framing. Therefore, we propose discriminatory tests for altruism and trust that can be based on within-treatment and within-subject comparisons, and we control for group attributes of experimental subjects. Our results support trust (i.e. expected reciprocation) as the dominant motivation for "trust like" decisions.
    Keywords: reciprocity; altruism; trust game; experimental error
    JEL: C91 D63 D64
    Date: 2004–10
  9. By: John Duffy (University of Pittsburgh)
    Abstract: This paper considers the relationship between agent-based modeling and economic decision-making experiments with human subjects. Both approaches exploit controlled ``laboratory'' conditions as a means of isolating the sources of aggregate phenomena. Research findings from laboratory studies of human subject behavior have inspired studies using artificial agents in ``computational laboratories'' and vice versa. In certain cases, both methods have been used to examine the same phenomenon. The focus of this paper is on the empirical validity of agent-based modeling approaches in terms of explaining data from human subject experiments. We also point out synergies between the two methodologies that have been exploited as well as promising new possibilities.
    Keywords: agent-based models, human subject experiments, zero- intelligence agents, learning, evolutionary algorithms
    JEL: C8 C9
    Date: 2004–12–09
  10. By: James H. Fowler (UC Davis)
    Abstract: A number of scholars have demonstrated that voter turnout is influenced by the costs of processing information and going to the polls, and the policy benefits associated with the outcome of the election. However, no one has yet noted that the costs of voting are paid on and before Election Day while policy benefits may not materialize until several days, months, or even years later. Since the costs of voting must be borne before the benefits are realized, people who are more patient should be more willing to vote. I use a “choice game” from experimental economics to estimate individual discount factors which are used to measure patience. I then show that patience significantly increases voter turnout. Moreover, patience is significantly related to two other correlates of turnout, church attendance and political interest. The results suggest that variation in patience may explain why those who follow politics and those who attend church are more likely to vote.
    JEL: C9
    Date: 2004–12–03
  11. By: Abele, Susanne (Universitaet Mannheim, Fakultaet fuer Sozialwissenschaften); Ehrhart, Karl-Martin (Universitaet Karlsruhe)
    Abstract: In public good situations, expectations concerning other persons’ moves are important and subtle cues can affect these expectations. In Experiment 1, participants in a public good game who moved simultaneously made high contributions and expected their opponents to make high contributions. However, participants who moved pseudo-sequentially (one after the other, but without knowledge of the other’s decision) expected their opponents to make medium-sized contributions, but made almost no contribution themselves. In Experiment 2, we manipulated expectations experimentally. Participants who moved simultaneously reciprocated what they expected their partners to do. Participants who moved pseudo-sequentially defected, regardless of what they expected from their opponents. Furthermore, we found that simultaneous movers were more likely than pseudo-sequential movers to conceptualize themselves and the other player as a group. This sense of groupness seemed to account partly for their inclination to reciprocate anticipated behavior.
    Date: 2004–12–03
  12. By: JS Armstrong (The Wharton School - University of Pennsylvania); Roderick J. Brodie (Department of Marketing, University of Auckland,)
    Abstract: Subjects (n = 1015) working individually in the role of managers were asked to choose between investment opportunities that would either double their investment or cause the loss of half of it. Six administrators ran experiments on 27 occasions in six countries over a five-year period. Information about the BCG matrix increased the subjects' likelihood of selecting the project that was clearly less profitable. Of subjects exposed to the BCG matrix, 64% selected the unprofitable investment. Of subjects who used the BCG matrix in their analysis, 87% selected the less profitable investment.
    Keywords: decision making, marketing, portfolio planning methods
    JEL: A
    Date: 2004–12–06
  13. By: Ehrhart, Karl-Martin (Universitaet Karlsruhe); Gardner, Roy (Indiana University and ZEI, University of Bonn); von Hagen, Jürgen (University of Bonn, Indiana University, and CEPR); Keser*, Claudia (IBM T.J. Watson Research Center, New York)
    Abstract: This paper studies budget processes, both theoretically and experimentally. We give a sufficient condition for top-down and bottom-up budget processes to have the same voting equilibrium. Furthermore, at a voting equilibrium, it is not always true, as often presumed, that a top-down budget process leads to a smaller overall budget than does a bottom-up budget process. To test the implications for budget processes of voting equilibrium theory, we conduct a series of 128 voting experiments using subjects in a behavior laboratory. The experimental evidence from these experiments is well organized by voting equilibrium theory, both at the aggregate level and at the individual subject level. In particular, subjects display considerable evidence of rationality in their proposals and votes. More complete information and fewer spending categories lead to greater predictive success of voting equilibrium theory, and reduce the time needed to reach a budget decision.
    Date: 2004–12–03
  14. By: Seifert, Stefan (Universitaet Karlsruhe, IWM); Ehrhart, Karl-Martin (Universitaet Karlsruhe)
    Abstract: This paper analyses the auction designs chosen for awarding 3G licenses in the UK and in Germany and compares them with respect to revenues and bidders’ surplus using a laboratory experiment. In our study with a given number of bidders, the German design leads to higher revenues. However, bidder surplus in the German design is lower and bidders face a severe exposure problem. Because this might discourage participation, it will probably lead to less competitive bidding in real applications.
    Date: 2004–12–03
  15. By: Pavlo Blavatskyy
    Abstract: Elicitation methods in decision making under risk allow a researcher to infer the subjective utilities of outcomes as well as the subjective weights of probabilities from the observed preferences of an individual. An optimally efficient elicitation method is proposed, which takes into account the inevitable distortion of preferences by random errors and minimizes the effect of such errors on the inferred utility and probability weighting functions. Under mild assumptions, the optimally efficient method for eliciting utilities (weights) of many outcomes (probabilities) is the following three-stage procedure. First, a probability is elicited whose subjective weight is one half. Second, an individual’s utility function is elicited through the midpoint chaining certainty equivalent method employing the probability elicited at the first stage as an input. Finally, an individual’s probability weighting function is elicited through the probability equivalent method.
    Keywords: decision theory, rank-dependent expected utility, cumulative prospect theory, von Neumann-Morgenstern utility, probability weighting, elicitation
    JEL: C91 D81
  16. By: Swee Hoon Chuah (Nottingham University Business School); Robert Hoffmann (Nottingham University Business School); Martin Jones (Department of Economic Studies, University of Dundee); Geoffrey Williams (Nottingham University Business School)
    Abstract: Economic, political and social globalisation entails increasing interaction between individuals of different cultures. While experimental economists have established differences between the behaviour within different cultures, the effect of cultural difference on cross-culture interactions has so far not been sufficiently explored. This paper reports on the results of experiments with ultimatum games designed for this purpose, in which Malaysian Chinese and UK subjects played opponents of their own as well as of the other culture. We find that cultural differences exist between the behaviour of Western and Asians interacting (a) within their own respective national groups, and (b) with members of the other group. This evidence is discussed in terms of the possibility of a 'clash of cultures'.
    Keywords: Note:
    JEL: C78 C91 D64 Z13
    Date: 2004–11–16
  17. By: Colin F. Camerer; Zhikang Chua
    Date: 2004–12–02

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