nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒04‒24
three papers chosen by
Daniel Houser
George Mason University

  1. Intertemporal Substitution and Hyperbolic Discounting By Petra M. Geraats
  2. What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory By John Bone; John Hey; John Suckling
  3. Are People in Groups More Farsighted than Individuals? By John Bone; John Hey; John Suckling

  1. By: Petra M. Geraats
    Abstract: Evidence from behavioural experiments suggests that intertemporal preferences reflect a hyperbolic discount function. This paper shows that in contrast to exponential discounting, the elasticity of intertemporal substitution for hyperbolic consumers depends on the persistence of the change in the intertemporal relative price. In particular, lasting changes in the real interest rate are likely to generate a smaller degree of intertemporal substitution in consumption than temporary changes. This result holds for both sophisticated and naive hyperbolic consumers. It provides a novel testable implication of hyperbolic discounting and a new perspective on intertemporal substitution.
    Keywords: Intertemporal substitution, consumption, quasi-hyberbolic discounting
    JEL: D91 E21
    Date: 2005–04
  2. By: John Bone; John Hey; John Suckling
    Abstract: This paper provides a very simple experimental test of a prediction of Nash Bargaining Theory that seems counterintuitive. The context is a simple bargaining problem between two players who have to agree a choice from three alternatives. One alternative favors one player and a second favors the other. The third is a fair compromise, but is excluded as an agreed choice by Nash Bargaining Theory. Our experimental results show that agreement on this third outcome occurs rather often. So the Nash theory is not well-supported by our evidence, although neither is a Strategic explanation of the data. The Nash-precluded outcome appeals because of its compromise nature; indeed, players are prepared to pay a price which is (according to the Nash theory) irrationally high, in order to reach a fair compromise.
  3. By: John Bone; John Hey; John Suckling
    Abstract: A dynamic decision making experiment recently conducted on individuals suggested that people may look ahead but seem either unable or unwilling to predict their own future behaviour. In order to distinguish between these two possibilities, we repeated the experiment with pairs of individuals. The experiment consisted of two decision nodes (interleaved with two chance nodes), with one of the pair choosing at the first decision node and the second of the pair choosing at the second. Given the structure of the experiment, it was simple for the first player to predict the decisions of the second player. Nevertheless, the decisions of the first player indicate strongly that the first player does not in fact do so. It seems that people are unwilling to predict not only their own future behaviour but also the future behaviour of others.
    Keywords: Planning; prediction; dynamic decision making; pairs; individuals
    JEL: C91 C92 D81 C61

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