nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒03‒06
four papers chosen by
Daniel Houser
George Mason University

  1. It's What You Say Not What You Pay By Jordi Brandts; David J. Cooper
  2. Assessing the External Validity of an Experimental Wage Subsidy By Kamionka, Thierry; Lacroix, Guy
  3. Base-Rate Neglect and Imperfect Information Acquisition By Philipp C. Wichardt; Pavlo R. Blavatskyy
  4. Learning in and about Games By Anke Gerber

  1. By: Jordi Brandts; David J. Cooper
    Abstract: We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees' financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers' communication, the most effective messages specifically request a high effort, point out the mutual benefits of high effort, and imply that employees are being paid well.
    Keywords: Change, Incentives, Coordination, Communication, Experiments, Organizations
    JEL: C92 D23 J31 L23 M52
    Date: 2005–02–18
  2. By: Kamionka, Thierry (CRNS and CREST); Lacroix, Guy (Université Laval, CIRPEE, CIRANO and IZA Bonn)
    Abstract: In Canada, a policy aiming at helping single parents on social assistance become self-reliant was implemented on an experimental basis. The Self-Sufficiency Entry Effects Demonstration randomly selected a sample of 4,134 single parents who had applied for welfare between January 1994 and March 1995. It turned out only 3,315 took part in the experiment despite a 50% chance of receiving a generous, time-limited, earnings supplement conditional on finding a full-time job and leaving income assistance within a year. The purpose of this paper is to determine whether a non-response rate of 20% is likely to harm the external validity of the experiment. We compare the estimated impact of the program using experimental data only to that obtained using additional data on individuals not taking part in the experiment. We find strong evidence of non-response bias in the data. When we correct for the bias, we find that estimates that rely on experimental data only significantly underestimate the true impact of the program.
    Keywords: social experiments, external validity, duration analysis
    JEL: I38 C41 C93
    Date: 2005–03
  3. By: Philipp C. Wichardt; Pavlo R. Blavatskyy
    Abstract: Base-rate neglect is a robust experimental finding that individuals do not update their prior beliefs according to the Bayes' rule and, typically, underestimate their posterior probabilities. Another empirical finding is that individuals often do not acquire information even when there are no strategic considerations and the cost of new information is justifiable economically. This paper combines these two different fields of research. Specifically, it is demonstrated that base-rate neglect may lead to imperfect information acquisition. An application to the pricing of new financial assets as well as general implications for the socially optimal pricing of information are discussed.
    Keywords: Bayes' rule, base-rate neglect, decision making, information acquisition
    JEL: C91 D83
  4. By: Anke Gerber
    Abstract: We study finitely repeated 2 / 2 normal form games, where players have incomplete information about their opponents’ payoffs. In a laboratory experiment we investigate whether players (a) learn the game they are playing, (b) learn to predict the behavior of their opponent, and (c) learn to play according to a Nash equilibrium of the repeated game. Our results show that the success in learning the opponent’s type depends on the characteristics of the true game. The learning success is much higher for games with pure strategy Nash equilibria than for games with a unique mixed strategy Nash equilibrium, and it is higher for games with symmetric pure strategy Nash equilibria than for games with asymmetric equilibria. Moreover, subjects learn to predict the opponents’ behavior very well. However, they rarely play according to a Nash equilibrium and we observe no correlation between equilibrium play and learning about the game.
    Keywords: Learning, game theory, incomplete information, experiments
    JEL: C72 C92 D83

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