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on Experimental Economics |
| By: | Vincent P. Crawford |
| Date: | 2006–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000517&r=exp |
| By: | Jeremy Clark (University of Canterbury); Lana Friesen |
| Abstract: | Overconfidence can have important economic consequences, but has received little direct testing within the discipline. We test for overconfidence in forecasts of own absolute or relative performance in two unfamiliar experimental tasks. Given their choice of effort at the tasks, participants have incentives to forecast accurately, and have opportunities for feedback, learning and revision. Forecast accuracy is evaluated at both the aggregate level, and at the individual level using realized outcomes. We find very limited evidence of overconfidence, with zero mean error or under-confidence more prevalent. Under-confidence is greatest in tasks with absolute rather than relative win criteria, often among subjects using greater or "smarter" effort. |
| Keywords: | Overconfidence; forecast errors; self-assessment |
| JEL: | C91 D83 D84 J24 |
| Date: | 2006–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:06/09&r=exp |
| By: | David Dickinson; Ronald Oaxaca |
| Abstract: | Statistical discrimination occurs when distinctions between demographic groups are made on the basis of real or imagined statistical distinctions between the groups. While such discrimination is legal in some cases (e.g., insurance markets), it is illegal and/or controversial in others (e.g., racial profiling and gender-based labor market discrimination). “First moment” statistical discrimination occurs when, for example, female workers are offered lower wages because females are perceived to be less productive, on average, than male workers. “Second moment” discrimination occurs when risk averse employers offer female workers lower wages based not on lower average productivity but on a higher variance in their productivity. Empirical work on statistical discrimination is hampered by the difficulty of obtaining suitable data from naturally-occurring labor markets. This paper reports results from controlled laboratory experiments designed to study second moment statistical discrimination in a labor market setting. Since decision-makers may not view risk in the same way as economists or statisticians (i.e., risk = variance of distribution), we also examine two possible alternative measures of risk: the support of the distribution, and the probability of earning less than the expected (maximum) profits for the employer. Our results indicate that individuals do respond to these alternative measures of risk, and employers made statistically discriminatory wage offers consistent with loss-aversion in our full sample (though differences between male and female employers can be noted). If one can transfer these results outside of the laboratory, they indicate that labor market discrimination based only on first moment discrimination is biased downward. The public policy implication is that efforts and legislation aimed at reducing discrimination of various sorts face an additional challenge in trying to identify and limit relatively hidden, but significant, forms of statistical discrimination. |
| URL: | http://d.repec.org/n?u=RePEc:usu:wpaper:2004-04&r=exp |
| By: | Steffen Huck; Philippe Jehiel; Tom Rutter |
| Date: | 2006–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000541&r=exp |
| By: | John D. Burger (Department of Economics, Loyola College in Maryland); Stephen J.K. Walters (Department of Economics, Loyola College in Maryland) |
| Abstract: | In a 1980 article in this journal, Cassing and Douglas provided widely-cited field evidence for the existence of a Winner’s Curse in the baseball labor market. This study takes advantage of recent developments in the measurement and valuation of individual output in this market to, first, reassess their finding of considerable overbidding for baseball free agents during the late 1970s. We find no evidence of negative average returns to teams on player contracts in these early years of free agency, though we do find evidence that teams had difficulty efficiently adjusting their bids in accord with available information, especially about risk. Next, we examine winning bids in a more recent and larger sample of players to test whether such systematic errors have persisted over time. The evidence indicates that teams continue to overvalue inconsistent (risky) free agents and are unable to limit their bids to conform to players’ lower values in small markets, though on average returns to winning bidders are non-negative. This is consistent with experimental evidence that finds bounded-rational behavior when bidders are faced with complex valuation problems involving multiple elements. |
| Keywords: | market efficiency, bounded rationality, overbidding |
| JEL: | D44 D81 J41 C93 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0625&r=exp |
| By: | Jeremy Clark (University of Canterbury); Lana Friesen |
| Abstract: | CV researchers have found that the hypothetical values respondents place on a nested sequence of environmental goods are sensitive to the order in which the goods are presented. Typically, the smallest bundle of goods is valued more highly if presented first than if following more comprehensive bundles. Such effects appear even when each bundle is valued from an "exclusive" list, or as an alternative to any other, so that income and substitution effects are controlled. Order of presentation has also affected the degree to which values are sensitive to scope. We conduct lab experiments where participants are asked to value sequences of nested goods for actual purchase from an exclusive list using the incentive compatible BDM mechanism. We test whether order effects occur in valuation for a) induced value goods, b) actual private goods, and c) identical private goods that are to be donated to charities. We find significant order effects when the goods are valued for own use, but not when they are valued for donation. |
| Keywords: | Order effects; exclusive list; warm glow; contingent valuation |
| Date: | 2006–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:06/06&r=exp |
| By: | John D. Burger (Department of Economics, Loyola College in Maryland); Richard D. Grayson; Stephen J.K. Walters (Department of Economics, Loyola College in Maryland) |
| Abstract: | As a field study of choice under uncertainty, we examine baseball teams' investments in amateur players. Though most prospects fail to deliver any return on their multi-million dollar signing bonuses, returns on the minority who succeed easily offset these losses: the expected annual yield on the median first-round draftee is 33 percent. However, the pattern of returns is inconsistent with market efficiency. Yields are lower for high schoolers than collegians (27 percent vs. 43 percent), lower for pitchers than position players (24 percent vs. 41 percent), decline for later round long-shots, and may be negative under competitive bidding. |
| Keywords: | Market efficiency; Bounded rationality; Prospect theory; Winner’s curse |
| JEL: | D8 G14 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:spe:wpaper:0624&r=exp |