nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒02‒12
ten papers chosen by
Daniel Houser
George Mason University

  1. Heterogeneous social preferences and the dynamics of free riding in public goods By Urs Fischbacher; Simon Gaechter
  2. Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman By Antoni Bosch; Joaquim Silvestre
  3. Courtesy and Idleness: Gender Differences in Team Work and Team Competition By Radosveta Ivanova-Stenzel; Dorothea Kübler
  4. Price formation in a sequential selling mechanism By Radosveta Ivanova-Stenzel; Sabine Kröger
  5. Risk aversion and embedding bias By Antoni Bosch; Joaquim Silvestre
  6. Fairness vs. Social Welfare in Experimental Decisions By Stefan Kohler
  7. Ain't no puzzle anymore: Comparative statics and experimental economics By Armin Schmutzler
  8. Validity and Reliability of Willingness-to-Pay Estimates: Evidence from Two Overlapping Discrete-Choice Experiments By Harry Telser; Karolin Becker; Peter Zweifel
  9. Trust on the Streets: A Natural Field Experiment on Newspaper Purchasing By Gerald Pruckner; Rupert Sausgruber
  10. Understanding Overbidding in Second Price Auctions: An Experimental Study By David J. Cooper; Hanming Fang

  1. By: Urs Fischbacher (Institute for Empirical Research in Economics); Simon Gaechter (School of Economics, University of Nottingham)
    Abstract: We provide a direct test of the role of social preferences in voluntary cooperation. We elicit individuals’ cooperation preference in one experiment and make a point prediction about the contribution to a repeated public good. This allows for a novel test as to whether there are "types" of players who behave consistently with their elicited preferences. We find clear-cut evidence for the existence of "types". People who express free rider preferences show the most systematic deviation from the predicted contributions, because they contribute in the first half of the experiment. We also show that the interaction of heterogeneous types explains a large part of the dynamics of free riding.
    Keywords: Public goods games, experiments, voluntary contributions, conditional cooperation, free riding
    JEL: C91 C72 H41 D64
    Date: 2006–01
  2. By: Antoni Bosch; Joaquim Silvestre
    Abstract: We experimentally question the assertion of Prospect Theory that people display risk attraction in choices involving high-probability losses. Indeed, our experimental participants tend to avoid fair risks for large (up to € 90), high-probability (80%) losses. Our research hinges on a novel experimental method designed to alleviate the house-money bias that pervades experiments with real (not hypothetical) loses. Our results vindicate Daniel Bernoulli’s view that risk aversion is the dominant attitude, But, contrary to the Bernoulli-inspired canonical expected utility theory, we do find frequent risk attraction for small amounts of money at stake. In any event, we attempt neither to test expected utility versus nonexpected utility theories, nor to contribute to the important literature that estimates value and weighting functions. The question that we ask is more basic, namely: do people display risk aversion when facing large losses, or large gains? And, at the risk of oversimplifying, our answer is yes.
    Keywords: Losses, Risk Attraction, Risk Aversion, Experiments, Prospect Theory, Bernoulli, Kahneman, Tversky
    JEL: C91 D81
    Date: 2006–01
  3. By: Radosveta Ivanova-Stenzel (Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany.; Dorothea Kübler (Department of Economics and Management, Straße des 17. Juni 135, D-10623 Berlin, Germany.
    Abstract: Does gender play a role in the context of team work? Our results based on a real-effort experiment suggest that performance depends on the composition of the team. We find that female and male performance differ most in mixed teams with revenue sharing between the team members, as men put in significantly more effort than women. The data also indicate that women perform best when competing in pure female teams against male teams whereas men perform best when women are present or in a competitive environment.
    Keywords: team incentives, gender, tournaments
    JEL: C72 C73 C91 D82
    Date: 2005–09
  4. By: Radosveta Ivanova-Stenzel (Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany.; Sabine Kröger (Université Laval, Département d’économique, Pavillon J.A.DeSève, Québec city, Québec, G1K 7P4 Canada.
    Abstract: This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second–price sealed–bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers’ behavior, but is not sufficient to explain sellers’ decisions. We discuss other behavioral explanations that could account for the observed deviations.
    Keywords: auction, negotiation, combined mechanism, sequential mechanism, risk preferences, experiment
    JEL: C72 C91 D44 D82
    Date: 2005–10
  5. By: Antoni Bosch; Joaquim Silvestre
    Abstract: In Selten (1967) “Strategy Method,” the second mover in the game submits a complete strategy. This basic idea has been exported to nonstrategic experiments, where a participant reports a complete list of contingent decisions, one for each situation or state in a given sequence, out of which one and only one state, randomly selected, will be implemented. In general, the method raises the following concern. If S0 and S1 are two different sequences of states, and state s is in both S0 and S1, would the participant make the same decision in state s when confronted with S0 as when confronted with S1? If not, the experimental results are suspect of suffering from an “embedding bias.” We check for embedding biases in elicitation methods of Charles Holt and Susan Laury (Laury and Holt, 2000, and Holt and Laury, 2002), and of the present authors (Bosch-Domènech and Silvestre, 1999, 2002, 2006a, b) by appropriately chosen replications of the original experiments. We find no evidence of embedding bias in our work. But in Holt and Laury’s method participants tend to switch earlier to the riskier option when later pairs of lotteries are eliminated from the sequence, suggesting the presence of some embedding bias.
    Keywords: Embedding bias, strategy method, Holt, Laury, Risk Attraction, Risk Aversion, Experiments
    JEL: C91 D81
    Date: 2006–01
  6. By: Stefan Kohler
    Abstract: Experimental evidence from modified dictator games and simple choice situations indicates that concern for overall welfare is an important motive in human decision making. Models of inequality averse agents, as suggested by Fehr and Schmidt (1999) or Bolton and Ockenfels (2000), fall short in explaining behavior of proposers, who reduce their payoff below a fair split of the endowment to maximize social welfare, while other types of social preferences do well on these data. This has created the impression that inequality aversion is a misguided concept. This paper presents a formal model and shows that a combination of welfare concern and inequality aversion changes this result in favor of inequality aversion. It also establishes a unique link between altruism and social welfare in the proposed model.
    Keywords: Social Preferences, Inequality Aversion, Welfare Concern, Reciprocity
    JEL: A13 B49 C70 D63 D64
    Date: 2005
  7. By: Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: This paper develops a new explanation of observations from laboratory experiments that seem to contradict game-theoretic comparative-statics results. I consider situations where explicit calculation of Nash equilibria predicts no effect of a parameter change on behavior, whereas experimental evidence shows a clear change. I argue that it is often possible to arrive at correct predictions for the direction of change by ignoring details of the game, taking only basic structural properties into account. In most cases, this Embedding Method exploits strategic complementarities between the action variables. I also show that, when applied to games with multiple equilibria, the approach yields the same comparative-statics implications as the application of selection criteria such as risk dominance or potential maximization. Further, I argue that the comparative-statics predictions obtained from the embedding method correspond to those that result from application of the Nash equilibrium to a wide class of perturbed versions of the original game. Finally, I show that the comparative-statics approaches can also be deduced from two plausible behavioral hypotheses about how players adjust to changes in the environment.
    Keywords: experimental economics, game theory, Nash equilibrium, embedding method
    JEL: C70 C91
    Date: 2006–02
  8. By: Harry Telser (Socioeconomic Institute, University of Zurich); Karolin Becker (Socioeconomic Institute, University of Zurich); Peter Zweifel (Socioeconomic Institute, University of Zurich)
    Abstract: Discrete-choice experiments, while becoming increasingly popular, have rarely been tested for validity and reliability. This contribution purports to provide some evidence of a rather unique type. Two surveys designed to measure willingness-to-accept (WTA) for reform op-tions in Swiss health care and health insurance are used to provide independent information with regard to two elements of reform. The issue to be addressed is whether WTA values converge although the three overlapping attributes (a more restrictive drug benefit, a delayed access to medical innovation, and a change in the monthly insurance premium) are embedded in widely differing choice sets. Experiment A contains rather radical health system reform options, while experiment B concentrates on more familiar elements such as copayment and the benefit catalogue. While mean WTA values differ between experiments, they tend to vary in similar ways, suggesting at least theoretical validity and reliability.
    Keywords: willingness-to-pay, discrete choice experiments, validity, reliability, framing effects
    JEL: C35 C93 I11
    Date: 2004–09
  9. By: Gerald Pruckner (Department of Economics and Statistics, University of Innsbruck); Rupert Sausgruber (Department of Economics and Statistics, University of Innsbruck)
    Abstract: A publisher uses an honor-system for selling a newspaper in the street. The customers make payments into a cash-box, but can also just take the paper without paying. Payments are not monitored and highly anonymous; hence customers exhibit trustworthiness if they pay for the paper. We run a natural field experiment to identify motives behind payments. The experiment reveals that trustworthiness is based on a social rather than a legal norm. Additional survey questions serve to identify individual-specific components of trustworthiness. We find effects of gender, age, family status, church attendance, measures of reciprocity, social connectedness, and social risk.
    Keywords: trust, trustworthiness; natural field experiment; survey
    JEL: C93 K42
    Date: 2006–02
  10. By: David J. Cooper (Dept. of Economics, Weatherhead School of Management, Case Wester Reserve University); Hanming Fang (Dept. of Economics and Cowles Foundation, Yale University)
    Abstract: This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about opponents' value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the "strength" (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by "spite" motives or by the "joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modified "joy of winning" hypothesis than with the "spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also find that bidder heterogeneity plays an important role in explaining their bidding behavior.
    Keywords: Overbidding, Second price auctions, Spite, Joy of winning, Bounded rationality
    JEL: C91 C72
    Date: 2006–01

This nep-exp issue is ©2006 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.