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on Experimental Economics |
| By: | Ernesto Reuben; Frans van Winden |
| Abstract: | This is an experimental study of a three-player power-to-take game where a take authority is matched with two responders. The game consists of two stages. In the first stage, the take authority decides how much of the endowment of each responder that is left after the second stage will be transferred to the take authority (the so-called take rate). In the second stage, each responder can react by destroying any part of his or her own endowment. Two treatments are considered: one in which all players are ‘strangers’ to each other (random matching), and one in which the responders know each other from outside the lab and are more or less close ‘friends’ (whereas the take-authority is again randomly selected). We focus on how the intensity of ties between responders impacts the decisions, beliefs, and emotions of both the responders and the take-authority. Some of our findings are: (1) although take rates are about the same, friends destroy more than strangers when faced with high take rates; (2) coordination on the same destruction level is stronger among friends; (3) the high level of coordination among friends can be explained by their emotional reaction towards one another; (4) the difference between the actual and expected take rate is a much better predictor of experienced emotions and destruction than the difference between the actual and (what is considered as) the fair take rate. |
| Keywords: | reciprocity, social ties, emotions, expectations, experiment, friends, principal-agent relationship, appropriation, fairness |
| JEL: | A10 C72 C91 C92 H20 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1674&r=exp |
| By: | Ernesto Reuben; Frans van Winden |
| Abstract: | This experimental study investigates how behavior changes after punishment for an unkind action. It also studies how fairness perceptions affect the reaction to punishment and whether this effect is consistent across repeated play and role experiences. A repeated version of the power-to-take game is used. In this game, the proposer can make a claim on the resources of a responder. Then, the responder can destroy any part of her own resources. The focus is on how proposers adjust their behavior depending on their fairness perceptions, their experienced emotions, and their interaction with responders. We find that fairness plays an important role in the behavior of proposers. Specifically, deviations from a perceived fairness norm trigger feelings of shame and guilt, which induce proposers to lower their claims. However, we also find that the perceived fairness norm varies considerably between individuals. Therefore, it is not the case that proposers who considered they were acting fairly were particularly nice to responders. Our results also show that the different types of individuals predicted by models of social preferences, can be traced among the subjects that played the same role in both periods, but fail to describe the behavior of subjects who switched from one role to the other. |
| JEL: | C90 Z13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1685&r=exp |
| By: | Diego Salzman (CORE, Université catholique de Louvain.); Emanuel Trifan (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)) |
| Abstract: | This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory. |
| Keywords: | Judgement under uncertainty, Bayesian Inference, Behavioral Finance, Decision Making, Emotions |
| JEL: | G1 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:tud:ddpiec:166&r=exp |
| By: | Wolfers, Justin; Zitzewitz, Eric |
| 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: | event futures; forecasting; futures; information aggregation; information markets; prediction markets |
| JEL: | C53 D8 G14 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5578&r=exp |
| By: | Alois Stutzer; Lorenz Goette; Michael Zehnder |
| Abstract: | In this paper, we propose a decision framework where people are individually asked to either actively consent or dissent to some pro-social behavior. We hypothesize that confronting individuals with the choice of engaging in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences while simultaneously involving a commitment. The hypothesis is tested in a large-scale field experiment on blood donation. We find that this "active-decision" intervention substantially increases the stated willingness to donate blood, as well as the actual donation behavior of people who have not fully formed preferences beforehand. |
| Keywords: | active decision, pro-social behavior, field experiment, blood donation |
| JEL: | C93 D64 I18 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:279&r=exp |
| By: | White, Lucy; Williams, Mark |
| Abstract: | The game-theoretic bargaining literature insists on non-cooperative bargaining procedure but allows 'cooperative' implementation of agreements. The effect of this is to allow free-reign of bargaining power with no check upon it. In reality, courts cannot implement agreements costlessly, and parties often prefer to use 'non-cooperative' implementation. We present a bargaining model which incorporates the idea that agreements may be enforced non-cooperatively. We show that this has a substantial impact in limiting the inequality of agreements, and results in a non-montonicity of the discount rate. The general need to maintain incentives for co-operation means it may appear that 'other-regarding' elements enter agents' utility functions. This helps us to understand why experimental subjects might begin negotiations anticipating 'fair' bargains. The model also explains why some parties may have incentives to deliberately write incomplete contracts which cannot be enforced in a court of law. |
| Keywords: | enforcement; incomplete contracts; non-cooperative bargaining; strength in weakness |
| JEL: | C72 C78 C91 D23 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5495&r=exp |
| By: | Brandts, Jordi; Riedl, Arno; van Winden, Frans A.A.M. |
| Abstract: | This paper experimentally studies the effects of competition in an environment where people's actions can not be contractually fixed. We find that, in comparison with no competition, the presence of competition does neither increase efficiency nor does it yield any gains in earnings for the short side of the exchange relation. Moreover, competition has a clearly negative impact on the disposition towards others and on the experienced well-being of those on the long side. Since subjective well-being improves only for those on the short side competition contributes to larger inequalities in experienced well-being. All in all competition does not show up as a positive force in our environment. |
| Keywords: | competition; emotions; happiness; laboratory experiment; market interaction; well-being |
| JEL: | A13 C92 D30 J50 M50 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5532&r=exp |
| By: | Lydia Mechtenberg |
| Abstract: | In this paper, I o¤er a theoretical explanation of the robust gender differences in educational achievement distributions of school children. I consider a one shot cheap talk game with two different types of senders (biased teachers and fair teachers), two types of receivers ("normal" and "special" pupils) and uncertainty about the sender type on the side of the receiver. I demonstrate that the group of pupils who, in expectation, get either too much or too little encouragement will have less top achievers and a lower average achievement than the group of pupils who get a more accurate feedback message, even if the prior talent distribution is the same for both groups of pupils. |
| Keywords: | Cheap talk, Education, Discrimination, Gender |
| JEL: | D82 I21 J16 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2006-019&r=exp |
| By: | Pavlo Blavatskyy; Ganna Pogrebna |
| Abstract: | In the television show Affari Tuoi a contestant is endowed with a sealed box containing a monetary prize between one cent and half a million euros. In the course of the show the contestant learns more information about the distribution of possible monetary prizes inside her box. Consider two groups of contestants, who learned that the chances of their boxes containing a large prize are 20% and 80% correspondingly. Contestants in both groups receive qualitatively similar price offers for selling the content of their boxes. If contestants are less risk averse when facing unlikely gains, the price offer is likely to be more frequently rejected in the first group than in the second group. However, the fraction of rejections is virtually identical across two groups. Thus, contestants appear to have identical risk attitudes over (large) gains of low and high probability. |
| Keywords: | risk attitude, risk aversion, risk seeking, natural experiment |
| JEL: | C93 D81 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:278&r=exp |
| By: | Marco Caliendo (DIW Berlin, IAB Nuremberg and IZA Bonn); Katharina Wrohlich (DIW Berlin and IZA Bonn) |
| Abstract: | Increasing work incentives for people with low incomes is a common topic in the policy debate across European countries. The "Mini-Job" reform in Germany - introduced on April 1, 2003 - can be seen in line with these policies, exempting labour income below a certain threshold from taxes and employees’ social security contributions. We carry out an ex-post evaluation to identify the short-run effects of this reform. Our identification strategy uses an exogenous variation in the interview months in the German Socio-Economic Panel, that allows us to distinguish groups that are (or are not) affected by the reform. To account for seasonal effects we additionally use a difference-in-differences strategy. The results show that the short-run effects of the reform are limited. We find no significant short-run effects for marginal employment. However, there is evidence that single men who are already employed react immediately and increase secondary job holding. |
| Keywords: | evaluation, natural experiment, difference-in-differences, marginal employment |
| JEL: | C25 H31 J68 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2041&r=exp |
| By: | Daniel Haile; Abdolkarim Sadrieh; Harrie A. A Verbon |
| Abstract: | Trust games are employed to investigate the effect of heterogeneity in income and race on cooperation in South Africa. The amount of socio-economic information available to the subjects about their counterparts is varied. No significant behavioural differences are observed, when no such information is provided. However, when the information is available, it significantly affects individual trust behaviour. The low income subjects from both racial groups invest significantly less in partnerships with the high income subjects of the other racial group than in any other partnership. We attribute this behaviour to cross-racial envy, which on aggregate may lead to substantial underinvestment in the economy. |
| Keywords: | trust game, ethnic diversity, income inequality, cooperation |
| JEL: | C91 J15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1657&r=exp |