nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒02‒19
eight papers chosen by
Daniel Houser
George Mason University

  1. Public Implementation Eliminates Detrimental Effects of Punishment on Human Cooperation By Erte Xiao; Daniel Houser
  2. Prices and Portfolio Choices in Financial Markets: Theory and Experiments By Peter Bossaerts; Charles Plott; William R. Zame
  3. Poverty, politics, and preferences: Field Experiments and survey data from Vietnam By Tomomi Tanaka; Colin F Camerer; Quang Nguyen
  4. Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey By Dohmen, Thomas J; Falk, Armin; Huffman, David; Schupp, Jürgen; Sunde, Uwe; Wagner, Gert Georg
  5. Choosing the Stick or the Carrot? Endogenous Institutional Choice in Social Dilemma Situations By Haigner, Stefan; Kocher, Martin; Sutter, Matthias
  6. Inducing a Self-Fulfilling Prophecy in Public Goods Games. By Pablo Brañas-Garza; Enrique Fatas; Pablo Guillen
  7. Deal or No Deal? Decision-making under Risk in a Large-payoff Game Show By Thierry Post; Guido Baltussen; Martijn van den Assem

  1. By: Erte Xiao (George Mason University and IZA Bonn); Daniel Houser (George Mason University)
    Abstract: Development of human societies requires cooperation among unrelated individuals and obedience to social norms. Although punishment is widely agreed to be potentially useful in fostering cooperation, many recent results in psychology and economics highlight punishments' failures in this regard. These studies ignore punishments' social effects, and particularly its role in promoting social norms. We show here, using experiments with human subjects, that public implementation of punishment can eliminate its detrimental effects on cooperation. In a public goods game designed to create tension between group and individual interests, we find that privately implemented punishment reduces cooperation relative to a baseline treatment without punishment. However, when that same incentive is implemented publicly, but anonymously, cooperation is sustained at significantly higher rates than in both baseline and private punishment treatments. These data support our hypothesis that public implementation of punishment enhances the salience of the violated social norm to both the punished and those who observed the punishment, and that this increased salience positively affects group members' norm obedience. Our findings point to the importance of accounting for social consequences of punishment when designing procedures to deter misconduct in social environments including schools, companies, markets and courts.
    Keywords: punishment, cooperation, public goods game, social norms, experiments, behavioral economics
    JEL: C92 D71 H41
    Date: 2006–02
  2. By: Peter Bossaerts (California Institution of Technology); Charles Plott (California Institution of Technology); William R. Zame (California Institution of Technology)
    Date: 2005–03–01
  3. By: Tomomi Tanaka; Colin F Camerer; Quang Nguyen
    Date: 2006–02–08
  4. By: Dohmen, Thomas J; Falk, Armin; Huffman, David; Schupp, Jürgen; Sunde, Uwe; Wagner, Gert Georg
    Abstract: This paper presents new evidence on the distribution of risk attitudes in the population, using a novel set of survey questions and a representative sample of roughly 22,000 individuals living in Germany. Using a question that asks about willingness to take risks in general, on an 11-point scale, we find evidence of heterogeneity across individuals, and show that willingness to take risks is negatively related to age and being female, and positively related to height and parental education. We test the behavioral relevance of this survey measure by conducting a complementary field experiment, based on a representative sample of 450 subjects, and find that the general risk question is a good predictor of actual risk-taking behavior. We then use a more standard lottery question to measure risk preferences in our sample of 22,000, and find similar results regarding heterogeneity and determinants of risk preferences, compared to the general risk question. The lottery question also makes it possible to estimate the coefficient of relative risk aversion for each individual in the sample. Using five questions about willingness to take risks in specific domains - car driving, financial matters, sports and leisure, career, and health - the paper also studies the impact of context on risk attitudes, finding a strong but imperfect correlation across contexts. Using data on a collection of risky behaviors from different contexts, including traffic offences, portfolio choice, smoking, occupational choice, participation in sports, and migration, the paper compares the predictive power of all of the risk measures. Strikingly, the general risk question predicts all behaviors whereas the standard lottery measure does not. The best predictor for any specific behavior is typically the corresponding context-specific measure.
    Keywords: age; context; experimental validation; field experiment; gender differences; health; height; migration; occupational choice; risk preferences; SOEP; subjective well-being
    JEL: C91 C93 D0 D1 D80 D81 I1 J16 J24 J61
    Date: 2006–02
  5. By: Haigner, Stefan; Kocher, Martin; Sutter, Matthias
    Abstract: We analyse an experimental public goods game in which group members can endogenously determine whether they want to supplement a standard voluntary contribution mechanism with the possibility of rewarding or punishing other group members. We find a large and positive effect of endogenous institutional choice on the level of cooperation in comparison to exogenously implemented institutions. This suggests that democratic participation rights enhance cooperation in groups. With endogenous choice, groups typically vote for the reward option, even though punishment is actually more effective in sustaining high levels of cooperation. Our results are evaluated against the predictions of social preference models.
    Keywords: endogenous institutional choice; experiment; public goods; punishment; reward; voting
    JEL: C72 C91 C92
    Date: 2006–02
  6. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Enrique Fatas (LINEEX, Universidad de Valencia); Pablo Guillen (Harvard Business School)
    Abstract: This study explores how a self-fulfilling prophecy can solve a social dilemma. We ran two experimental treatments, baseline and automata. Both consisted of a finitely repeated public goods game with a surprise restart. In the automata treatment it was announced that there might be automata playing a grim trigger strategy. This announcement became a self-fulfilling prophecy. That is, most participants actually followed a grim trigger strategy in the automata treatment resulting on an increase on the average contributions to the public good relative to the baseline treatment. Moreover, four out of nine groups managed to fully cooperate almost until the last period. Furthermore, after the surprise restart, when the automata threat is less credible, subjects’ behavior was very close to that in the original game.
    Keywords: self-fulfilling prophecy, public goods game, grim trigger strategy,cooperation, automata, beliefs.
    JEL: C92 H41 C72
    Date: 2006–02–08
  7. By: Thierry Post (Faculty of Economics, Erasmus Universiteit Rotterdam); Guido Baltussen (Faculty of Economics, Erasmus Universiteit Rotterdam); Martijn van den Assem (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: The popular television game show 'Deal or No Deal' offers a unique opportunity for analyzing decision making under risk: it involves very large stakes, simple take-or-leave decisions that require minimal skill or strategy and near-certainty about the probability distribution. Based on a panel data set of the choices of contestants in all game rounds of 53 episodes from Australia and the Netherlands, we find an average Pratt-Arrow relative risk aversion (RRA) between roughly 1 and 2 for initial wealth levels between 0 and 50,000. The RRA differs substantially across the contestants and some even exhibit risk seeking behavior. The cross-sectional differences in RRA can be explained in large part by the previous outcomes experienced by the contestants during the game. Most notably, consistent with the 'break-even effect', the RRA strongly decreases following earlier losses and risk seeking arises after large losses.
    Keywords: Decision making under risk; Relative risk aversion; break-even effect; real incentives; game show
    JEL: D81 C23 C93
    Date: 2006–01–11
  8. By: Dirk Engelmann (CERGE-EI); Veronika Grimm (Universidad de Alicante)
    Abstract: We present laboratory experiments of five different multi-unit auction mechanisms. Two units of a homogeneous object were auctioned off among two bidders with flat demand for two units. We test whether expected demand reduction occurs in open and sealed-bid uniform-price auctions. Revenue equivalence is tested for these auctions as well as for the Ausubel, the Vickrey and the discriminatory sealed-bid auction. Furthermore, we compare the five mechanisms with respect to the efficient allocation of the units. We also provide some theoretical insights concerning the equilibria of uniform-price auctions with incomplete information.
    Keywords: Multi–Unit Auctions, Demand Reduction, Experimental Economics.
    JEL: D44 C91
    Date: 2004–03

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.