nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒10‒08
seven papers chosen by
Daniel Houser
George Mason University

  1. Playing the wrong game: An experimental analysis of relational complexity and strategic misrepresentation By Giovanna Devetag; Massimo Warglien
  2. What Citizens Know Depends on How You Ask Them: Experiments on Time, Money and Political Knowledge By Markus Prior; Arthur Lupia
  3. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  4. The gain-loss asymmetry and single-self preferences By Antoni Bosch; Joaquim Silvestre
  5. Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block By Esther Duflo; William Gale; Jeffrey Liebman; Peter Orszag; Emmanuel Saez
  6. Neural correlates of the affect heuristic during brand choice By Hilke Plassmann; Peter Kenning; Michael Deppe; Harald Kugel; Wolfram Schwindt
  7. Internet Auctions with Artificial Adaptive Agents: A Study on Market Design By John Duffy; M. Utku Unver

  1. By: Giovanna Devetag; Massimo Warglien
    Abstract: It has been suggested that players often produce simplified and/or misspecified mental representations of interactive decision problems (Kreps, 1990). We submit that the relational structure of players’ preferences in a game induces cognitive complexity, and may be an important driver of such simplifications. We provide a formal classification of order structures in two-person normal form games based on the two properties of monotonicity and projectivity, and present experiments in which subjects must first construct a representation of games of different relational complexity, and subsequently play the games according to their own representation. Experimental results support the hypothesis that relational complexity matters. More complex games are harder to represent, and this difficulty is correlated with measures of short term memory capacity. Furthermore, most erroneous representations are less complex than the correct ones. In addition, subjects who misrepresent the games behave consistently with such representations according to simple but rational decision criteria. This suggests that in many strategic settings individuals may act optimally on the ground of simplified and mistaken premises.
    Keywords: pure motive, mixed motive, preferences, bi-orders, language, cognition, projectivity, monotonicity, short term memory, experiments
    JEL: C70 C72 C91
    Date: 2005
  2. By: Markus Prior (Princeton University); Arthur Lupia (University of Michigan)
    Abstract: Surveys provide widely cited measures of political knowledge. Do unusual aspects of survey interviews affect these measures? An experiment on a nationally representative sample of over 1200 Americans provides an answer. Respondents are randomly assigned to one of four groups. A control group answers questions in a typical survey context. Respondents in three treatment groups are given a longer window of time in which to answer questions, a small monetary incentive for answering questions correctly, or both. These variations increase performance significantly for almost every knowledge question we asked. Overall, average knowledge scores in the treatment groups are 11-24 percent higher than in the control group. The treatments also cause significant reductions in the magnitude of respondents’ errors on open-ended questions. The findings imply that new elicitation strategies can improve our understanding of what citizens know about politics and other socially relevant phenomena.
    Keywords: information economics, political information, experimental economics, incentives
    JEL: C9
    Date: 2005–10–05
  3. By: Alessandra Casella; Thomas Palfrey; Raymond Riezman
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desidered over a series of binary decisions. By cumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only of its strength of preferences is high and the majority's strength of preferences is low. The result is that aggregate efficiency either falls little or in fact rises. The theoretical predictions are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    JEL: C9 D7 H1 K19
    Date: 2005–10
  4. By: Antoni Bosch; Joaquim Silvestre
    Abstract: Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a “reflection effect” which occurs when an individual prefers a sure gain of $ pz to an uncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz. We focus on this class of choices (actuarially fair), and explore the extent to which the reflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences. We decompose the reflection effect into two components, a “probability switch” effect, which is compatible with single-self preferences, and a “translation effect,” which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label “homothetic” and “weakly homothetic.” In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth. We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.
    Keywords: Reflection, gains, losses, experiments, risk attitude
    JEL: D11 D81
    Date: 2005–09
  5. By: Esther Duflo; William Gale; Jeffrey Liebman; Peter Orszag; Emmanuel Saez
    Abstract: This paper analyzes the effects of a large randomized field experiment carried out with H&R Block, offering matching incentives for IRA contributions at the time of tax preparation. About 14,000 H&R Block clients, across 60 offices in predominantly low- and middle-income neighborhoods in St. Louis, were randomly offered a 20 percent match on IRA contributions, a 50 percent match, or no match (the control group). The evaluation generates two main findings. First, higher match rates significantly raise IRA participation and contributions. Take-up rates were 3 percent for the control group, 8 percent in the 20 percent match group, and 14 percent in the 50 percent match group. Average IRA contributions (including non-contributors, excluding the match) for the 20 percent and 50 percent match groups were 4 and 7 times higher than in the control group, respectively. Second, several additional findings are inconsistent with the full information, rational-saver model. In particular, we find much more modest effects on take-up and amounts contributed from the existing Saver's Credit, which provides an effective match for retirement saving contributions through the tax code; we suspect that the differences may reflect the complexity of the Saver's Credit as enacted, and the way in which its effective match is presented. Taken together, our results suggest that the combination of a clear and understandable match for saving, easily accessible savings vehicles, the opportunity to use part of an income tax refund to save, and professional assistance could generate a significant increase in contributions to retirement accounts, including among middle- and low-income households.
    JEL: H0 H3
    Date: 2005–10
  6. By: Hilke Plassmann (Stanford NeuroEconomics Lab, Stanford University); Peter Kenning (Department of General Management,); Michael Deppe (Department of Neurology, University of Muenster); Harald Kugel (Department of Radiology, University of Muenster); Wolfram Schwindt (Department of Radiology, University of Muenster)
    Abstract: In this working paper it is investigated how affect and cognition interact in consumer decision making. The research framework is multidisciplinary by applying a neuroscientific method to answer the question which information is processed during brand choice immediately when the decision is computed in the test person’s brain. In a neuroscientific experiment test persons perform binary decision-making tasks between different brands of the same product class. The results suggest that the presence of the respondent’s first choice brand leads to a specific modulation of the neural brain activity, which can be described as neural correlate of Slovic’s affect heuristic concept.
    Keywords: Neuroeconomics, brand choice, cognition, affect
    JEL: C9
    Date: 2005–09–29
  7. By: John Duffy (University of Pittsburgh); M. Utku Unver (University of Pittsburgh)
    Abstract: Many internet auction sites implement ascending-bid, second-price auctions. Empirically, lastminute or “late” bidding is frequently observed in “hard-close” but not in “soft-close” versions of these auctions. In this paper, we introduce an independent private-value repeated internet auction model to explain this observed difference in bidding behavior. We use finite automata to model the repeated auction strategies. We report results from simulations involving populations of artificial bidders who update their strategies via a genetic algorithm. We show that our model can deliver late or early bidding behavior, depending on the auction closing rule in accordance with the empirical evidence. As an interesting result, we observe that hard-close auctions raise less revenue than softclose auctions. We also investigate interesting properties of the evolving strategies and arrive at some conclusions regarding both auction designs from a market design point of view.
    JEL: C8
    Date: 2005–10–01

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