nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒03‒18
twelve 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 Gächter
  2. Subject Pool Bias in Economics Experiments By Pablo Guillen; Robert F.Veszteg
  3. Performance Pay and Multi-dimensional Sorting: Productivity, Preferences and Gender By Thomas Dohmen; Armin Falk
  4. Impact of Risk and Uncertainty in the Provision of Local and Global Environmental Goods: An Experimental Analysis By Lata Gangadharan; Veronika Nemes
  5. Performance Pay and the Erosion of Worker Cooperation: Field Experimental Evidence By Stephen Burks; Jeffrey Carpenter; Lorenz Goette
  6. An Experimental Analysis ofGroup Size and Risk Sharing By A. Chaudhuri; L. Gangadharan; Pushkar Maitra
  7. Fatal Attraction: Focality, Naivete, and Sophistication in Experimental Hide-and-Seek Games By Vincent P. Crawford; Nagore Iriberri
  8. The Effects of Total Sleep Deprivation on Bayesian Updating By David L. Dickinson; Sean P.A. Drummond
  9. The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence using Random Assignment to Real Social Groups By Lorenz Goette; David Huffman; Stephan Meier
  10. Deciding to distrust By Iris Bohnet; Stephan Meier
  11. The Perils of Betting to Win: Aspiration and Survival in Jeopardy! Tournament of the Champions By Elizabeth Boyle; Zur Shapira
  12. Exploring the Nature of Loss Aversion By Eric J. Johnson; Simon Gächter; Andreas Herrmann

  1. By: Urs Fischbacher (University of Zurich); Simon Gächter (University of Nottingham, CESifo and IZA Bonn)
    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: 2006–03
  2. By: Pablo Guillen (Harvard Business School); Robert F.Veszteg (University of Navarra)
    Abstract: In this paper we consider data from a large number of economic experiments, and look for demographic effects that may be a source of subject pool bias if not carefully accounted for in the subsequent statistical analysis. Our dataset contains information on 2,408 subjects and 597 experimental sessions from 74 experiments recorded over more than 2 years at an experimental laboratory. Using different estimation methods and model specifications, we identify the significant demographic determinants of personal earnings, and find that they account for less than 4% of the observed variation. Thus we deliver empirical evidence supporting the experimental method as monetary incentives, and therefore some kind of strategic behavior, seem to be more important than demographics in the laboratory. Exploiting the timeseries nature of the data we also study some dynamic issues of the subject pool: we analyze the factors that influence subjects’ decisions on returning to the laboratory.
    Keywords: Experiments, Subject pool bias, Demographic characteristics
    JEL: C9
    Date: 2006–03–08
  3. By: Thomas Dohmen (IZA Bonn); Armin Falk (IZA Bonn and University of Bonn)
    Abstract: This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. In a first step we elicit subjects’ productivity levels. Subjects then face the choice between a fixed or a variable payment scheme. Depending on the treatment, the variable payment is either a piece rate, a tournament or a revenue-sharing scheme. We elicit additional individual characteristics such as subjects’ risk attitudes, measures of selfassessment and overconfidence, social preferences, gender and personality. We also elicit self-reported measures of work effort, stress and exhaustion. Our main findings are as follows. First, output is much higher in the variable pay schemes (piece rate, tournament, and revenue sharing) compared to the fixed payment scheme. Second, this difference is largely driven by productivity sorting. On average, the more productive a worker is, the more likely he self-selects into the variable pay scheme. Third, relative self-assessment and overconfidence affect worker self-selection, in particular into tournaments. Fourth, risk averse workers prefer fixed payments and are less likely to sort into variable pay schemes. Fifth, people endowed with social preferences are less likely to sort into tournaments. Sixth, variable pay schemes attract men more than women, a difference that is partly explained by gender-specific risk attitudes. Seventh, self-selection is also affected by personality differences. Finally, reported effort is significantly higher in all variable pay conditions than in the fixed wage condition. In sum, our findings underline the importance of multi-dimensional sorting, i.e., the tendency for different incentive schemes to systematically attract people with different abilities, preferences, self-assessments, gender and personalities.
    Keywords: personnel economics, sorting, incentives, productivity, ability, piece rates, tournament, revenue sharing, risk preferences, overconfidence, gender, experiment
    JEL: M52 M55 J00 J3 J33 J31 J16 J22 J24 C91 D81
    Date: 2006–03
  4. By: Lata Gangadharan; Veronika Nemes
    Abstract: Uncertainties and risks in the decision making process are abundant in the area of environmental economics, irrespective of whether the problems being discussed are local or global. This paper uses laboratory evidence from public goods games to examine how in payoff equivalent situations, decision makers contribute towards local or global environmental goods, in the presence of risk and uncertainties in the provision of these goods. We use a within subject design that allows for comparisons across seven different treatments in which subjects are exposed to internal (strategic) and external (environmental) risk and uncertainty. Our results show that the location of the risk and uncertainty matters, with subjects moving away from the external uncertainty in favor of internal uncertainty, when that uncertainty is associated with the local environmental good. When the uncertainty relates to the global environmental good, subjects face both external and internal uncertainty on the same good leading to a significant drop in contributions. We find that in the presence of risk and uncertainty subjects use feedback from other members of their group when deciding about future contributions. The reward for research and development and innovation is captured in the experimental design by the increased probability of obtaining the desired outcome in the endogenous probability treatment. Subjects seem to understand this incentive and contribute more towards global goods in this treatment.
    Keywords: Experiments, Public Goods, Local and Global Environmental Problems, Risk, Uncertainty.
    JEL: C91 Q00 H41
    Date: 2005
  5. By: Stephen Burks (University of Minnesota, Morris and IZA Bonn); Jeffrey Carpenter (Middlebury College and IZA Bonn); Lorenz Goette (University of Zurich, CEPR and IZA Bonn)
    Abstract: We report the results of a field experiment with bicycle messengers in Switzerland and the United States. Messenger work is individualized enough that firms can choose to condition pay on it, but significant externalities in messenger behavior nonetheless give their on-the-job interactions the character of a social dilemma. Firms therefore suffer efficiency losses when messengers fail to cooperate. Second-mover behavior in our sequential Prisoner's Dilemma allows us to characterize the cooperativeness of our participants. We find that messengers, like our student controls, have heterogeneous social preferences, but are much more cooperative than students. Among messengers, we find that employees at firms that pay for performance are significantly less cooperative than those who are paid hourly or are members of cooperatives. To examine whether the difference is the result of treatment or selection we exploit the fact that firm type is location-specific in Switzerland and that entering messengers must work in performance pay firms in the U.S. We find that the erosion of cooperation under performance pay is predominantly due to treatment, and that the treatment effect is relatively rapid, more akin to the differential cueing of a behavioral norm than the gradual acquisition of a new preference.
    Keywords: field experiment, social preference, altruism, conditional cooperation, egoism, social dilemma
    JEL: C72 C78 C93 D23 J33 J54 Z13
    Date: 2006–03
  6. By: A. Chaudhuri; L. Gangadharan; Pushkar Maitra
    Abstract: We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires.
    Keywords: Reciprocity, Risk Sharing, Group Size, Experiments
    JEL: O12 C92 D81
    Date: 2005
  7. By: Vincent P. Crawford; Nagore Iriberri
    Date: 2006–03–03
  8. By: David L. Dickinson; Sean P.A. Drummond
    Abstract: Recent evidence suggests that nearly 25% of U.S. adults (47 million) suffer from some level of sleep deprivation. The impact of this sleep deprivation on the U.S. economy includes direct medical expenses related to sleep deprivation and related disorders, the cost of accidents, and the cost of reduced worker productivity. Sleep research has examined the effects of sleep deprivation on a number of performance measures, but the effects of sleep deprivation on decision-making under uncertainty are largely unknown. In this article, subjects perform a decision task (Grether, 1980) in both a well-rested and experimentally sleep-deprived state. The experimental task allows us to explore the extent to which subjects weight prior odds versus new evidence (i.e., information) when forming subjective (posterior) beliefs of a particular event. Wellrested subjects display a tendency to overweight the evidence in forming subjective posterior probability estimates, which is inconsistent with Bayes rule but possibly consistent with use of a ‘representativeness’ heuristic. In his original Bayes rule experiment, Grether (1980) also found that typical student-subjects overweighted the evidence relative to the prior odds in making posterior assessments. Ironically, behavior following sleep-deprivation is more consistent with the use of Bayes rule, because this treatment significantly reduces the (over)weight that subjects place on the new evidence. Because choice accuracy is not significantly affected by sleep deprivation, the significant difference in estimated decision-model parameters may indicate that the brain compensates under adversity in certain risky choice decision environments.
    Date: 2006
  9. By: Lorenz Goette (University of Zurich, CEPR and IZA Bonn); David Huffman (IZA Bonn); Stephan Meier (Federal Reserve Bank of Boston)
    Abstract: Due to incomplete contracts, efficiency of an organization depends on willingness of individuals to take non-selfish actions, e.g., cooperate when there is no incentive to do so, or punish inefficient actions by others. Organizations also constitute a social boundary, or group. We investigate whether this social aspect of organizations has an important benefit, fostering unselfish cooperation and norm enforcement within the group, but whether there is also a dark side, in the form of hostility between groups. Our experiment provides the first evidence without the confounding effect of self-selection into groups. Individuals are randomly assigned to different platoons during a four-week portion of officer training in the Swiss Army. We conduct choice experiments - simultaneous prisoner’s dilemma games, with and without third-party punishment - in week three. Random assignment significantly increases willingness to cooperate with fellow platoon members. Assignment does not lead to hostility, in the sense of vindictive punishment of outsiders, but does affect norm enforcement, enhancing willingness to enforce a norm of cooperation towards fellow platoon members. This suggests that the social aspect of organizations motivates efficient behavior even when ordinary incentives fail, and helps explain practices designed to foster social ties or group identification within an organization.
    Keywords: organizations, in-group favoritism, social identity, punishment
    JEL: D23 J00
    Date: 2006–03
  10. By: Iris Bohnet; Stephan Meier
    Abstract: We employ experiments to illustrate one factor contributing to the lack of distrust in the recent corporate scandals: Trust rather than no trust was the default. People are more trusting when the default is full trust than when it is no trust. We introduce a new game, the distrust game (DTG), where the default is full trust and find that in it, trust levels are higher than in the Berg, Dickhaut, and McCabe (1995) trust game (TG), where the default is no trust. At the same time, trustworthiness levels are lower in the DTG than in the TG. Agents (second movers) punish distrust more in the DTG than the lack of trust in the TG, but principals (first movers) do not correctly anticipate this. The distrust game produces more efficient outcomes than the trust game but also more inequality: Principals end up much worse than their agents in the DTG.
    Keywords: Trust ; Corporations - Corrupt practices
    Date: 2005
  11. By: Elizabeth Boyle; Zur Shapira
    Abstract: Behavior in competitive situations requires decision makers to evaluate their own as well as their competitors’ positions. Using data from a realistic competitive risk-taking setting, Jeopardy’s Tournament of Champions (TOC), we test whether players choose the strategic best response when making their betting decisions. Analyses show that the percentage of players choosing the strategic best response is very low, a surprising finding because the TOC is contested by the best and most experienced players of the game. We conjecture that performance aspiration and survival targets that guide risk-taking behavior in competitive situations may lead players to select inferior competitive strategies.
    JEL: D81 C72
    Date: 2006–03
  12. By: Eric J. Johnson (Columbia University); Simon Gächter (University of Nottingham, CESifo and IZA Bonn); Andreas Herrmann (University of St. Gallen)
    Abstract: Loss aversion, the fact that losses have a greater impact than gains, is a fundamental property of behavioral accounts of choice. In this paper, we suggest four possible characterizations of the relative impact of losses and gains: (1) It could be a constant, such as the much cited value of 2, as in losses have twice the impact of gains. (2) It could be a systematic individual difference, with some individuals more or less loss aversion, (3) it could be a property of the attribute, or (4) a property of the different processes used to construct selling and buying prices. We examine the behavior of a large sample of auto buyers using an experiment which allows us to measure loss aversion, at the individual level for several different attributes. A set of hierarchical linear models shows that to understand loss aversion, one must consider the process used to construct prices. Interestingly, we show that knowledge of the attribute lowers loss aversion and that age and attribute importance increases loss aversion.
    Keywords: loss aversion, consumer choice, reference-dependent preferences
    JEL: C90 M31 D11
    Date: 2006–03

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