nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒10‒04
six papers chosen by
Daniel Houser
George Mason University

  1. Experimental evidence on the persistence of output and inflation By Klaus Adam
  2. On the social dimension of time and risk preferences: An experimental study By M. Vittoria Levati; Werner Güth; Matteo Ploner
  3. Attitudes toward Private and Collective Risks in Individual and Strategic Choice Situations By Geoffrey Brennan; Werner Güth; Luis G. Gonzalez; M. Vittoria Levati
  4. When the shoe is on the other foot: experimental evidence on evaluation disparities By Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
  5. Satisficing in Financial Decision Making A Theoretical and Experimental Attempt to Explore Bounded Rationality By Gerlinde Fellner; Werner Güth; Boris Maciejovsky
  6. On Inequity Aversion By Werner Güth

  1. By: Klaus Adam (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany)
    Abstract: This paper presents experimental evidence from a monetary sticky price economy in which output and inflation depend on expected future inflation. With rational inflation expectations, the economy does not generate persistent deviations of output and inflation in response to a monetary shock. In the experimental sessions, however, output and inflation display considerable persistence and regular cyclical patterns. Such behavior emerges because subjects’ inflation expectations fail to be captured by rational expectations functions. Instead, a Restricted Perceptions Equilibrium (RPE), which assumes that agents use optimal but ’simple’ forecast functions, describes subjects’ inflation expectations surprisingly well and explains the observed behavior of output and inflation.
    Keywords: Experiments; Output and Inflation Dynamics; Restricted Perceptions Equilibrium; Rational Expectations.
    JEL: E32 E37 C91
    Date: 2005–06
  2. By: M. Vittoria Levati; Werner Güth; Matteo Ploner
    Abstract: We report on an experiment designed to explore the interrelation of other-regarding concerns with attitudes towards risk and delay when the latter have a social dimension, i.e., pertain to one's own and another person's payoffs. For this sake, we compare evaluations of several prospects, each of which allocates either certain or risky and either immediate or delayed payoffs to the actor and to another participant. We find that individuals are mainly self-oriented as to social allocation of risk and delay, although they are other-regarding with respect to expected payoff levels.
    Keywords: Willingness to accept, Risk attitudes, Time preferences, Other-regarding concerns
    JEL: C91 D63 D81
    Date: 2005–09
  3. By: Geoffrey Brennan; Werner Güth; Luis G. Gonzalez; M. Vittoria Levati
    Abstract: Idiosyncratic risk attitudes are usually assumed to be commonly known and restricted to own payoffs. However, the alternatives faced by a decision maker often involve risks for others' payoffs as well. Motivated by the importance of other-regarding preferences in social interactions, this paper explores idiosyncratic attitudes toward own and others' risks. We elicit risk attitudes in an experiment involving choices with and without strategic interaction.
    Keywords: Other-regarding concerns, Random price mechanism, Public goods experiments
    JEL: C90 D63 D81 H41
    Date: 2005–09
  4. By: Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
    Abstract: Research provides evidence that the method chosen to elicit value has an important effect on a person’s valuation. We hypothesize that role has a crucial effect on decision makers’ elicited values: Buyers prefer to pay less and sellers prefer to collect more. We conduct experimental sessions and replicate the disparity between willingness to pay and willingness to accept. We conduct additional sessions in which role is stripped away: Endowed decision makers provide values that are used to determine a price at which anonymous others transact. Importantly, decision makers’ earnings in the experiment are not affected by the elicited values, but the endowments influence decision makers’ valuations. Our findings suggest that decision makers consider their relative standing, in comparison to anonymous others, in providing valuations. The disparity between willingness to pay and willingness to accept disappears when decision makers’ endowments ensure that they are at least as well off as other participants.
    Date: 2005
  5. By: Gerlinde Fellner; Werner Güth; Boris Maciejovsky
    Abstract: In this paper, we apply the bounded rationality approach to an investment situation. In a simple setting where an investor decides between a riskless bond and a risky asset, we distinguish three aspiration levels: a lowest threshold which one wants to guarantee, the aspiration level given by investing all risk-free, and an even higher return level representing a real success. The ranges for such aspirations are naturally determined by the parameters. These three aspirations allow us to classify investors as actual or only potential satisficers, as well as risk shy or more open to risk. In the experiment, participants are first asked for their lowest and highest aspiration before investing. Thus, we can test whether they behave as predicted by their aspiration type. By presupposing specific cardinal utility functions, we also compare the bounded rationality approach to the rational choice-approach.
    Date: 2005–08
  6. By: Werner Güth
    Abstract: In close interaction, group allocations are often fair due to our desire to be treated fairly and to act fairly. When this desire conflicts with other strong motivations a typical reaction is to trade off fairness against these other concerns. Inequ(al)ity aversion allows capturing such trade off considerations in various ways (Bolton, 1991, Bolton and Ockenfels, 1998 and 2000, Fehr and Schmidt, 1999, are examples). Such trade off analysis measures how far one deviates from fairness what requires a unique fairness benchmark. More often than not there exist, however, multiple standards. In our view, this should not discourage using inequ(al)ity aversion altogether but limit it to where its prerequisites are granted.
    Date: 2005–09

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