nep-exp New Economics Papers
on Experimental Economics
Issue of 2005‒12‒09
ten papers chosen by
Daniel Houser
George Mason University

  1. Herding With and Without Payoff Externalities - An Internet Experiment By Drehmann, Mathias; Oechssler, Jörg; Roider, Andreas
  2. Coordination in Networks Formation: Experimental Evidence on Learning and Salience By Matteo Galizzi; Michele Bernasconi
  3. The effect of precommitment and past-experience on insurance choices : an experimental study. By Thomas Papon
  4. Trust and Reciprocity in Incentive Contracting By Mary Rigdon
  5. Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block By Duflo, Esther; Gale, William; Liebman, Jeff; Orszag, Peter; Saez, Emmanuel
  6. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  7. The Evolution of Cooperative Norms: Evidence from a Natural Field Experiment By Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
  8. The demand for socially responsible products: empirical evidence from a pilot study on fair trade consumers By Leonardo Becchetti; Furio Camillo Rosati
  9. Efficiency, Equity and Timing in Voting Mechanisms By Battaglini, Marco; Morton, Rebecca; Palfrey, Thomas R
  10. Preferences, Choices, and Satisfaction in a Bargaining Game By Angela Amborino; Alessandro Lanteri; Marco Novarese

  1. By: Drehmann, Mathias; Oechssler, Jörg; Roider, Andreas
    Abstract: Most real world situations that are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature on herding has focused on pure informational externalities. In this paper we experimentally investigate the effects of several different forms of payoff externalities (e.g., network effects, first-mover advantage, etc.) in a standard information-based herding model. Our results are based on an internet experiment with more than 6000 subjects, including a subsample of 267 consultants from an international consulting firm. We also replicate and review earlier cascade experiments. Finally, we study reputation effects (i.e., the influence of success models) in the context of herding.
    Keywords: experiment; herding; information cascades; internet; network effects
    JEL: C92 D8
    Date: 2005–10
  2. By: Matteo Galizzi (Università di Brescia); Michele Bernasconi (Università dell’Insubria)
    Abstract: We present experiments on repeated non-cooperative network formation games, based on Bala and Goyal (2000). We treat the one-way and the two-ways flow models, each for high and low link costs. The models show both multiple equilibria and coordination problems. We conduct experiments under various conditions which control for salient labeling and learning dynamics. Contrary to previous experiments, we find that coordination on non-empty Strict Nash equilibria is not an easy task for subjects to achieve, even in the mono-directional model where the Strict Nash equilibria is a wheel. We find that salience significantly helps coordination, but only when subjects are pre-instructed to think of the wheel network as a reasonable way to play the networking game. Evidence on learning behavior provides support for subjects choosing strategies consistent with various learning rules, which include as the main ones Reinforcement and Fictitious Play.
    Keywords: Experiments, Networks, Behavioral game theory, Salience, Learning dynamics
    JEL: C92 C72 D83
    Date: 2005–09
  3. By: Thomas Papon (EUREQua)
    Abstract: This paper reports results from an experimental study that investigates insurance behaviours in low-probability high-loss risk situations. This study reveals that insurance behaviours may depend on the individual prior experience towards risk. It may also depend on the duration of the commitment period, namely the period during which individuals commit themselves to maintain the same insurance decision. Non-additive decision models such as Dual Theory and Cumulative Prospect Theory seem to have a higher descriptive power than Expected Utility Theory when explaining subjects' behaviours. This paper presents a direct experimental test of the prediction of Myopic Prospect Theory relative to insurance demand. This study is also designed to test the significance of gambler's fallacy and availability bias in the insurance decision process. These theoretical concepts help to understand many behaviours commonly observed in reality but which remain unexplained within the E.U framework. In particular, this paper provides new explanations about the puzzling fact that people usually fail to obtain insurance against disaster-type risks such as natural disasters, even when premiums are close to actuarially fair levels. According to our experimental results, the deficiency of insurance demand for natural disasters may be due to the lack of individual prior experience towards such risks ; as well as the relatively short commitment period of insurance policies (usually one fiscal year) compared with the empirical frequency of major natural hazards (centennial and even more).
    Keywords: Insurance demand, Low-probability high-consequence risks, heuristics and bias in risk perception, experimental methodology, Cumulative Prospect Theory, Dual Theory.
    JEL: C90 C91 D1 D81 D84 G22 M31
    Date: 2004–09
  4. By: Mary Rigdon (University of Michigan)
    Abstract: Principals can attempt to get agents to perform certain actions preferable to the principal by using ex post}punishments and rewards to align incentives. Field data is mixed on whether, and to what extent, such informal incentive contracting (paradoxically) crowds out efficient solutions to the agency problem. This paper explores, via a novel set of laboratory experiments, the impact of ex post incentives on informal contracts between principals and agents in bargaining environments in which there are gains from exchange and when there is an opportunity for the principal to relay a no-cost demand of the division of those gains. Incentive contracting in these environments does not crowd-out off- equilibrium cooperation, and at high incentive levels cooperation is crowded in.
    Keywords: incentives, principal-agent, bargaining, trust, cooperation, punishment, reward
    JEL: C70 C91 D63 D81
    Date: 2005–11–30
  5. By: Duflo, Esther; Gale, William; Liebman, Jeff; Orszag, Peter; Saez, Emmanuel
    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 neighbourhoods 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. This strategy would not, however, produce contribution rates anywhere near 100 percent.
    Keywords: field experiment; retirement savings
    JEL: H0
    Date: 2005–11
  6. 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 desired over a series of binary decisions. By accumulating 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 if its strength of preference is high and the majority’s strength of preference is low. The result is that with storable votes, aggregate efficiency either falls little or in fact rises. The theoretical predictions of our model 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: D70
    Date: 2005
  7. By: Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
    Abstract: We document the establishment and evolution of a cooperative norm among workers using evidence from a natural field experiment on a leading UK farm. Workers are paid according to a relative incentive scheme under which increasing individual effort raises a worker's own pay but imposes a negative externality on the pay of all co-workers, thus creating a rationale for cooperation. As a counterfactual, we analyse worker behaviour when workers are paid piece rates and thus have no incentive to cooperate. We find that workers cooperate more as their exposure to the relative incentive scheme increases. We also find that individual and group exposure are substitutes, namely workers who work alongside colleagues with higher exposure cooperate more. Shocks to the workforce in the form of new worker arrivals disrupt cooperation in the short term but are then quickly integrated into the norm. Individual exposure, group exposure, and the arrival of new workers have no effect on productivity when workers and paid piece rates and there is no incentive to cooperate.
    Keywords: cooperation; group exercise; individual exposure
    JEL: C93 M52
    Date: 2005–11
  8. By: Leonardo Becchetti (Economics Department, University of Rome “Tor Vergata”); Furio Camillo Rosati (Economics Department, University of Rome “Tor Vergata”)
    Abstract: We analyze behaviour and motivations of a sample of about one thousand consumers purchasing “fair trade (FT) goods”, i. e. food and artisan goods which include socially responsible (SR) characteristics and a price premium for primary product producers with respect to equivalent non SR products. By estimating a simultaneous two-equation treatment regression model we find that FT products have less than unit income elasticity and their demand is negatively (positively) correlated with geographical distance from the nearest shop (age and awareness of SR criteria). Awareness of SR criteria depends, in turn, on a series of factors (consumption habits, membership of volunteer associations) which, indirectly (via increased awareness), significantly affect consumption. We also measure consumers’ willingness to pay in excess for the SR features of FT products with a contingent evaluation approach and find that it is positively correlated with awareness of SR criteria.
    Keywords: fair trade, social preferences, willingness to pay
    JEL: F14 H23
    Date: 2005–11
  9. By: Battaglini, Marco; Morton, Rebecca; Palfrey, Thomas R
    Abstract: We compare the behaviour of voters, depending on whether they operate under sequential and simultaneous voting rules, when voting is costly and information is incomplete. In many real political institutions, ranging from small committees to mass elections, voting is sequential, which allows some voters to know the choices of earlier voters. For a stylized model, we characterize the equilibria for this rule, and compare it to simultaneous voting, and show how these equilibria vary for different voting costs. This generates a variety of predictions about the relative efficiency and equity of these two systems, which we test using controlled laboratory experiments. Most of the qualitative predictions are supported by the data, but there are significant departures from the predicted equilibrium strategies, in both the sequential and simultaneous voting games. We find a tradeoff between information aggregation, efficiency, and equity in sequential voting: a sequential voting rule aggregates information better, and produces more efficient outcomes on average, compared to simultaneous voting, but sequential voting leads to significant inequities, with later voters benefiting at the expense of early voters.
    Keywords: committees; costly voting; information aggregation; sequential voting
    JEL: D71 D72
    Date: 2005–10
  10. By: Angela Amborino (Università di Torino); Alessandro Lanteri (Erasmus Institute for Philosophy & Economics – Erasmus University Rotterdam); Marco Novarese (Centre for Cognitive Economics - Università Amedeo Avogadro)
    Abstract: The first aim of this contribution is to study the role of cheap talk in the determination of a focal point in a bargaining game. A general discussion was therefore conducted before the bargaining, followed by a poll in which players must find a common solution to an abstract bargaining problem. On this issue, our conclusions are negative: no signifcant effect seems to emerge. This is not entirely unexpected; since the common discussion and the voting procedure staged the confrontation of different viewpoints, there has been no unanimous result. On the other hand, we can conclude that knowing individual preferences may help predicting towards which solutions players will converge, at least in a social setting, and understanding their satisfaction. These considerations refer to variables traditionally left out of economic analysis, which focuses instead on the final payoff and not on its relation to preferences or satisfaction, which are deemed non-measurable. On the contrary, this work has shown that consistent data emerge by simply asking players to express preferences and satisfaction. This makes us confident in formulating new hypotheses aiming at uncovering and understanding individual behaviour. Even if our results do not allow drawing strong final conclusions, they point out new possible answers, new ideas and topics for discussion.
    Keywords: bargaining, cheap-talk, expectations, preferences, satisfaction, cognitive economics
    JEL: C78 C90
    Date: 2005–12–02

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