nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒03‒11
seven papers chosen by
Daniel Houser
George Mason University

  1. Bidding Behavior in Multi-Unit Auctions - An Experimental Investigation By Dirk Engelmann; Veronika Grimm
  2. Overcoming Incentive Constraints? The (In-)effectiveness of Social Interaction By Dirk Engelmann; Veronika Grimm
  3. An Experiment on subjective Game Valuations By Aurora Garcia-Gallego; Nikolaos Georgantzis; Maria Jose Gil Molto; Vicente Orts
  4. Self-Selection and the Efficiency of Tournaments By Tor Eriksson; Sabrina Teyssier; Marie-Claire Villeval
  5. Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments By Uri Gneezy; John A. List
  6. Risk, Ambiguity - Gains, Losses By Chakravarty Sujoy; Roy Jaideep
  7. Prediction Markets in Theory and Practice By Justin Wolfers; Eric Zitzewitz

  1. By: Dirk Engelmann; Veronika Grimm
    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.
    Keywords: Multi-Unit Auctions, Demand Reduction, Experimental Economics
    JEL: D44 C91
    Date: 2006–02–28
  2. By: Dirk Engelmann; Veronika Grimm
    Abstract: We experimentally study behavior in a simple voting game where players have private information about their preferences. With random matching, subjects overwhelmingly follow the dominant strategy to exaggerate their preferences. Applying the linking mechanism suggested by Jackson and Sonnenschein (2005) captures nearly all achievable efficiency gains. Repeated interaction leads to significant gains in truthful representation and efficiency only if players can choose their partners.
    Keywords: Experimental Economics, Mechanism Design, Implementation, Linking, Bayesian Equilibrium, Efficiency
    JEL: A13 C72 C91 C92 D64 D72 D80
    Date: 2006–02–28
  3. By: Aurora Garcia-Gallego (LEE/LINEEX and Dpt Economics, Universitat Jaume I); Nikolaos Georgantzis (LEE/LINEEX and Dpt Economics, Universitat Jaume I); Maria Jose Gil Molto (Dpt Economics, Loughborough University); Vicente Orts (IEI, LEE and Dpt Economics, Universitat Jaume I)
    Abstract: We experimentally test the hypothesis that players' valuations of a game coincide with their Nash equilibrium earnings. Our results offer significantly less support for this hypothesis than for the prediction of dominant strategy play.
    Keywords: Game Value, Subgame Perfection, Dominant Strategies, Behavioral Game Theory
    JEL: C72 C91
    Date: 2006–04
  4. By: Tor Eriksson (Aarhus School of Business); Sabrina Teyssier (GATE (CNRS, University of Lyon 2, ENS-LSH)); Marie-Claire Villeval (GATE (CNRS, University of Lyon 2, ENS-LSH) and IZA Bonn)
    Abstract: When exogenously imposed, rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter, and Weigelt 1987). However, since the efficiency of performance-related pay is attributable both to its incentive effect and to its selection effect among employees (Lazear, 2000), it is important to investigate the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on risk aversion, sorting is efficiency-enhancing since it increases the homogeneity of the contestants. We suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay.
    Keywords: tournament, performance pay, incentives, sorting, selection, experiment
    JEL: M52 J33 J31 C81 C91
    Date: 2006–02
  5. By: Uri Gneezy; John A. List
    Abstract: Recent discoveries in behavioral economics have led scholars to question the underpinnings of neoclassical economics. We use insights gained from one of the most influential lines of behavioral research -- gift exchange -- in an attempt to maximize worker effort in two quite distinct tasks: data entry for a university library and door-to-door fundraising for a research center. In support of the received literature, our field evidence suggests that worker effort in the first few hours on the job is considerably higher in the "gift" treatment than in the "non-gift treatment." After the initial few hours, however, no difference in outcomes is observed, and overall the gift treatment yielded inferior aggregate outcomes for the employer: with the same budget we would have logged more data for our library and raised more money for our research center by using the market-clearing wage rather than by trying to induce greater effort with a gift of higher wages.
    JEL: J2 J30 J41 C93
    Date: 2006–03
  6. By: Chakravarty Sujoy; Roy Jaideep
    Abstract: We use a multiple price list (MPL) method to elicit attitudes to risky and ambiguous prospects. In particular we wish to investigate if there are differences in agent behaviour under uncertainty over gain amounts vis a vis uncertainty over loss amounts. On an aggregate level, we find that (i) in the domain of risk, subjects are risk averse over both gain and loss lotteries with the degree of risk aversion being lower for losses than gains, (ii) subjects are ambiguity averse over ambiguous prospects that involve gains, but that they are mildly ambiguity seeking over such prospects that involve loss and (iii) attitudes toward risk and ambiguity are positively correlated in the domain of gains and are independent of each other in the domain of losses. These behavioural observations are statically significant using both parametric as well as non-parametric tests. Further analysis shows that at an individual level, (a) in the domain of risk, there is a high incidence of a reflection effect across gains and losses though the subjects’ behaviour is bimodal, that is, many are risk averse in gains and risk seeking in losses while many others are risk seeking in gains and risk averse in losses, while (b) in the domain of ambiguity, there is also a high incidence of a reflection effect although almost all such cases exhibit ambiguity aversion in gains and ambiguity seeking in losses.
    Keywords: Risk, Smooth Ambiguity, Gains, Losses.
    JEL: C9
    Date: 2006–02–27
  7. By: Justin Wolfers (Wharton, University of Pennsylvania, CEPR, NBER and IZA Bonn); Eric Zitzewitz (Stanford GSB)
    Abstract: Prediction Markets, sometimes referred to as "information markets", "idea futures" or "event futures", are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as market-aggregated forecasts. This article summarizes the recent literature on prediction markets, highlighting both theoretical contributions that emphasize the possibility that these markets efficiently aggregate disperse information, and the lessons from empirical applications which show that market-generated forecasts typically outperform most moderately sophisticated benchmarks. Along the way, we highlight areas ripe for future research.
    Keywords: prediction markets, information markets, information aggregation
    JEL: C53 D8 G14
    Date: 2006–03

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