nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒08‒12
nine papers chosen by
Daniel Houser
George Mason University

  1. What is fair? Experimental evidence By D. Dickinson; J. Tiefenthaler
  2. Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment By Charles Bellemare; Bruce S. Shearer
  3. The Limits of Self-Governance in the Presence of Spite: Experimental Evidence from Urban and Rural Russia By Simon Gächter; Benedikt Herrmann
  4. Measuring Risk Aversion and the Wealth Effect By Frank Heinemann
  5. Dispute resolution with combined arbitration By David Dickinson
  6. A comparison of conventional, final offer, and combined arbitration for dispute resolution By David Dickinson
  7. The carrot vs. the stick in work team motivation By D. Dickinson
  8. The Effects of Induced Mood on Bidding in Random N-th Price Auctions By C. Mónica Capra; Shireen Meer; Kelli Lanier
  9. That's News to Me! Information Revelation in Professional Certification Markets By Ginger Zhe Jin; Andrew Kato; John A. List

  1. By: D. Dickinson; J. Tiefenthaler
    Abstract: There has been growing interest within the economics discipline in the role of equity concerns in the distribution of resources. This paper presents empirical evidence from a series of controlled laboratory experiments where third-party decision-makers must allocate resources between two individuals. The experimental results indicate that subjects view a wide range of different allocations as the fair distribution of resources. However, regression analysis indicates that both treatment effects and a few demographic variables explain some of this variation in fairness concepts. Most significantly, decision-makers rewarded subjects who earned their favorable positions and the gender of the decision-maker was an important predictor of the allocation chosen.
    Keywords: Fairness, equity, experiments
    JEL: D63 C91 Z00
  2. By: Charles Bellemare (Université Laval, CIRPÉE and IZA Bonn); Bruce S. Shearer (Université Laval, CIRPÉE and IZA Bonn)
    Abstract: The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; Workers in our sample are risktolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences.
    Keywords: risk aversion, sorting, incentive contracts, field experiments
    JEL: J33 M52 C93
    Date: 2006–07
  3. By: Simon Gächter (University of Nottingham, CESifo and IZA Bonn); Benedikt Herrmann (University of Nottingham)
    Abstract: We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is substantial spiteful punishment of high contributors in all four subject pools. Thus, spite undermines the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only.
    Keywords: social norms, free riding, punishment, spite, experiments
    JEL: H41 C91 D23 C72
    Date: 2006–07
  4. By: Frank Heinemann (Technische Universität Berlin, Sekretariat H 52 Strasse des 17. Juni 135, 10623 Berlin
    Abstract: Measuring risk aversion is sensitive to assumptions about the wealth in subjects’ utility functions. Data from the same subjects in low- and high-stake lottery decisions allow estimating the wealth in a pre-specified one-parameter utility function simultaneously with risk aversion. This paper first shows how wealth estimates can be identified assuming constant relative risk aversion (CRRA). Using the data from a recent experiment by Holt and Laury (2002), it is shown that most subjects’ behavior is consistent with CRRA at some wealth level. However, for realistic wealth levels most subjects’ behavior implies a decreasing relative risk aversion. An alternative explanation is that subjects do not fully integrate their wealth with income from the experiment. Within-subject data do not allow discriminating between the two hypotheses. Using between-subject data, maximum-likelihood estimates of a hybrid utility function indicate that aggregate behavior can be described by expected utility from income rather than expected utility from final wealth and partial relative risk aversion is increasing in the scale of payoffs.
    Keywords: lottery choice, risk aversion, myopic risk aversion
    JEL: C81 C91 D81
    Date: 2005–09
  5. By: David Dickinson
    Abstract: Binding arbitration is a common method of alternative dispute resolution used in resolving labor disputes. Two different forms of binding arbitration dominate in practice: conventional arbitration (CA) and final offer arbitration (FOA). In CA, the arbitrator is allowed to choose any settlement as the arbitrated outcome. Criticisms that arbitrators merely “split the difference” of the disputants’ final positions led to the arguments that FOA, in which the arbitrator is constrained. to choose one of the disputant’s final offers, might induce more negotiated settlements. A large literature has developed showing that disputants are not, however, theoretically predicted to converge towards agreement under FOA. This paper presents results from a controlled laboratory study of bargaining behavior and dispute rates under an innovative procedure called “combined arbitration” or CombA (Brams and Merrill, 1986). The rules of CombA involve a simple combination of using CA or FOA, depending on whether or not the arbitrator’s notion of a fair settlement lies between the disputants’ final offers. The potential importance of the procedure is that it is theoretically shown to induce convergence of disputants’ final offers. The result is that it theoretically predicts negotiated, as opposed to arbitrated settlements. Disputants generally prefer negotiated settlements, which would also imply substantial cost savings by not actually invoking arbitration. In our experimental environment, subjects anonymously bargain over the size of a disputed variable, X. Subject payoffs are such that bargaining is zero-sum over a $2 pie in each of 20 bargaining rounds. Different dispute resolution procedures are implemented in the event of bargaining impasse at the end of a 2-minute round. We test CombA along with two modified forms of CombA (also suggested in Brams and Merrill) and find that dispute rates are still significantly higher than when disputes are resolved by destroying the disputed monetary pie (i.e., simulating the high cost of a labor strike perhaps). On the other hand, as the theory predicts, the CombA procedure induces statistically significantly lower dispute rates than the modified CombA procedures that lower the uncertainty costs of basic CombA procedure. To the procedure’s credit, CombA is also shown to not adversely affect negotiated outcomes. The implications of these findings may be significant, and they call for direct comparisons of disputant behavior under CombA, FOA, and CA.
    Keywords: dispute settlement, arbitration, bargaining, experiments
    JEL: J5 C9 C7
  6. By: David Dickinson
    Abstract: This paper presents results from a controlled laboratory study of bargaining behavior and dispute rates under three types of arbitration procedures. Two of these—conventional and final-offer arbitration—are commonly used in practice, while an innovative procedure called “Combined Arbitration” (Brams and Merrill 1986) is not currently used. Combined Arbitration combines the rules of the two most commonly used forms of binding arbitration (conventional and final-offer arbitration) in such a way as to generate convergent final offers in theory. Controlled laboratory results show, however, that disputes are most likely in Combined Arbitration and least likely in conventional arbitration. These results challenge the theoretical predictions of Combined Arbitration as well as the hypothesis that final-offer arbitration would be more likely to reduce disputes compared to conventional arbitration. The results may be consistent with the hypothesis that disputants are relatively optimistic about the arbitrator’s notion of a fair settlement. Implications of these findings are also discussed.
    Keywords: dispute resolution, arbitration, bargaining, experiments
    JEL: J5 C9 C7
  7. By: D. Dickinson
    Abstract: This paper reports on the use of carrot (positive) and stick (negative) incentives as methods of increasing effort among members of work teams. We study teams of four members in a laboratory environment in which giving effort towards the team goal is simulated by eliciting voluntary contributions towards the provision of a public good. We test the efficiency improving properties of four distinct environments: monetary prizes given to high contributors versus monetary fines assessed to low contributors, where high/low contributor is defined first in terms of absolute contributions and then in terms of contributions relative to abilities—which we call handicapping. Our results show that both carrot and stick increase efficiency levels by 11-29%. We find that handicapped incentives promise the highest efficiency levels, and when handicapping is not used certain types of penalties may be more effective than prizes. The implications for work teams and suggestions for practical implementation are discussed.
  8. By: C. Mónica Capra; Shireen Meer; Kelli Lanier
    Abstract: In this paper we study whether mood affects 1) willingness to pay (WTP) and 2) the effectiveness of the demand revealing mechanism. We study decisions using a random nth price auction with induced values and homegrown values. Our data show no clear support for negative mood effects on WTP and, under some conditions, they show weak support for positive mood effects on WTP. However, mood does affect the effectiveness of the value elicitation mechanism in revealing value. Under good mood, subjects submit bids that are significantly higher than their induced values.
    Date: 2006–07
  9. By: Ginger Zhe Jin; Andrew Kato; John A. List
    Abstract: This study uses field experiments to investigate empirically the informational role of professional certifiers. We explore a certification market that has evolved in such a manner that provides a unique opportunity to measure the information provision of a monopolist certifier and that of subsequent entrants. Empirical results suggest that the certification industry plays a dual role: it reduces the information asymmetry between informed and uninformed parties and generates new information to all market players. Interestingly, the second role isn’t conspicuous until the certification market becomes competitive, as the monopolist certifier credibly distinguishes lemons from non-lemons for the uninformed party, but adds little information to experienced agents. On the contrary, new entrants adopt more precise signals and use finer grading cutoffs to differentiate from the incumbent. Our measured differentiated grading cutoffs map consistently into prevailing market prices, suggesting that the market recognizes differences across multiple grading criteria.
    JEL: D8 C93
    Date: 2006–07

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