nep-exp New Economics Papers
on Experimental Economics
Issue of 2006‒11‒18
twenty papers chosen by
Daniel Houser
George Mason University

  1. Dynamic Choice, Independence and Emotions By Astrid Hopfensitz; Frans van Winden
  2. Group Polarization in the Team Dictator Game reconsidered By Wolfgang J. Luhan; Martin G. Kocher; Matthias Sutter
  3. What Motivates Common Pool Resource Users? Experimental Evidence from the Field By Maria Alejandra Vélez; John K. Stranlund; James J. Murphy
  4. On the Importance of Default Breach Remedies By Randolph Sloof; Hessel Oosterbeek; Joep Sonnemans
  5. Causes, consequences, and cures of myopic loss aversion - An experimental investigation By Gerlinde Fellner; Matthias Sutter
  6. Grow Rich while you sleep: Selection in Experiments with Voluntary Participation By Pieter Gautier; Bas van der Klaauw
  7. Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision By Dennis Dittrich; Martin G. Kocher
  8. A Laboratory Investigation of Compliance Behavior under Tradable Emissions Rights: Implications for Targeted Enforcement By James J. Murphy; John K. Stranlund
  9. Aspiration formation and satisficing in isolated and competitive search By Werner Güth; Ev Martin; Torsten Weiland
  10. Altruism in the (Social) Network. By Pablo Brañas-Garza; Ramón Cobo-Reyes; Maria Paz Espinosa; Natalia Jiménez; Giovanni Ponti
  11. Does Greater Competition Increase R&D Investments? Evidence from a Laboratory Experiment By Dario Sacco; Armin Schmutzler
  12. Rent-seeking versus Productive Activities in a Multi-task Experiment By Hessel Oosterbeek; Randolph Sloof; Joep Sonnemans
  13. Session Effects in the Laboratory By Guillaume R. Fréchette
  14. Is Group Lending A Good Enforcement Scheme for Achieving High Repayment Rates?: Evidence from Field Experiments in Vietnam By Kono, Hisaki
  15. Putting Reciprocity to Work - Positive versus Negative Responses in the Field By Sebastian Kube; Michel André Maréchal; Clemens Puppe
  16. An Investigation of Voluntary Discovery and Disclosure of Environmental Violations Using Laboratory Experiments By James J. Murphy; John K. Stranlund
  17. Thin-Slice Forecasts of Gubernatorial Elections By Daniel J. Benjamin; Jesse M. Shapiro
  18. Cooperation in the Classroom: Experimenting with R&D Cooperatives By Michelle Sovinsky Goeree; Jeroen Hinloopen
  19. L’économie expérimentale pour l’analyse de modifications au système centralisé de vente du quota laitier au Québec By Maurice Doyon; Lota Dabio Tamini; Virginie Simard; Kent Messer; Harry M. Kaiser
  20. Knowing What You Like versus Discovering What You Want: The Influence of Choice Making Goals on Decision Satisfaction By Cassie Mogilner; Tamar Rudnick; Sheena Iyengar

  1. By: Astrid Hopfensitz (University of Geneva); Frans van Winden (Universiteit van Amsterdam)
    Abstract: From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk”, that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision but before the resolution of the investment risk; (iii) after the resolution of the investment risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.
    Keywords: emotions; investment; global-risk; background risk; laboratory experiment; regret; anxiety
    JEL: A12 C91 D81
    Date: 2006–10–09
  2. By: Wolfgang J. Luhan (University of Innsbruck); Martin G. Kocher (Universiteit van Amsterdam); Matthias Sutter (University of Cologne)
    Abstract: While most papers on team decision-making find teams to behave more selfish, less trusting and less altruistic than individuals, Cason and Mui (1997) report that teams are more altruistic than individuals in a dictator game. Using a within-subjects design we re-examine group polarization by letting subjects make individual as well as team decisions in an experimental dictator game. In our experiment teams are more selfish than individuals, and the most selfish team member has the strongest influence on team decisions. Various sources of the different findings in Cason and Mui (1997) and in our paper are discussed.
    Keywords: experiment; dictator game; team behavior; social preferences
    JEL: C72 C91 C92 D70
    Date: 2006–11–01
  3. By: Maria Alejandra Vélez (The Earth Institute, Columbia University); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); James J. Murphy (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: This paper develops and tests several models of pure Nash strategies of individuals who extract from a common pool resource when they are motivated by a combination of self-interest and other motivations such as altruism, reciprocity, inequity aversion and conformism. We test whether an econometric summary of subjects’ strategies is consistent with one of these motivations using data from a series of common pool resource experiments conducted in three regions of Colombia. As expected, average extraction levels are less than that predicted by a model of pure self-interest, but are nevertheless sub-optimal. Moreover, we find that a model of conformism with monotonically increasing best response functions best describes average strategies. Our empirical results are inconsistent with models of altruism, reciprocity and inequity aversion.
    Keywords: common pool resources, experiments, altruism, reciprocity, conformism
    JEL: C93 D64 H41 Q20 C70
    Date: 2005–03
  4. By: Randolph Sloof (Universiteit van Amsterdam); Hessel Oosterbeek (Universiteit van Amsterdam); Joep Sonnemans (Universiteit van Amsterdam)
    Abstract: Theory predicts that default breach remedies are immaterial whenever contracting costs are negligible. Some experimental studies, however, suggest that in practice default rules do matter, as they may affect parties\' preferences over contract terms. This paper presents results from an experiment designed to address the importance of default breach remedies for actual contract outcomes. We find that default rules do have an impact. The reason for this is not that contract proposals and/or responses are biased towards the default, but rather that parties often disagree over what the best contract is and therefore end up with the default.
    Keywords: breach remedies; default remedies; experiments
    JEL: K12 C91
    Date: 2006–09–28
  5. By: Gerlinde Fellner (University of Bonn, Department of Economics, Adenauerallee 24-42, 53113 Bonn.; Matthias Sutter (University of Innsbruck and Max Planck Institute for Economics Jena)
    Abstract: Myopic loss aversion (MLA) has been established as one prominent explanation for the equity premium puzzle. In this paper we address two issues related to the effects of MLA on risky investment decisions. First, we assess the relative impact of feedback frequency and investment flexibility (via the investment horizon) on risky investments. Second, given that we observe higher investments with a longer investment horizon, we examine conditions under which investors might endogenously opt for a longer investment horizon in order to avoid the negative effects of MLA on investments. We find in our experimental study that investment flexibility seems to be at least as relevant as feedback frequency for the effects of myopic loss aversion. When subjects are given the choice to opt for a long or short investment horizon, there is no clear preference for either. Yet, if subjects face a default horizon (either long or short), there is rather little switching from the one to the other horizon, showing that a default might work to attenuate the effects of MLA. However, if subjects switch, they are more often willing to switch from the long to the short horizon than vice versa, suggesting a preference for higher investment flexibility.
    Keywords: loss aversion, risk, investment, experiment
    JEL: C91 D80 G11
    Date: 2005–06
  6. By: Pieter Gautier (Vrije Universiteit Amsterdam); Bas van der Klaauw (Vrije Universiteit Amsterdam)
    Abstract: We use data from a promotion campaign of NH-Hoteles to study self-selection of participants in a gift-exchange experiment. The promotion campaign allowed guests to pay any non negative amount of money for a stay in one of 36 hotels in Belgium and the Netherlands. The data allow us to distinguish between `regular guests', who booked prior to the announcement of the promotion campaign and guests who booked after the campaign was announced. During the promotion campaign we varied the posted price of a room that was communicated to the guests. Only the regular guests respond to the exogenous variation in the posted price and they pay substantially more on average. This different behavior cannot be explained by differences in satisfaction or observed compositional differences between both groups. We argue that the promotion campaign mainly attracted individuals who find it relatively unimportant to be viewed of as prosocial.
    Keywords: field experiment; gift-exchange game; self-selection
    JEL: C93
    Date: 2006–10–11
  7. By: Dennis Dittrich (University of Erfurt); Martin G. Kocher (Universiteit van Amsterdam)
    Abstract: We present an experimental test of a shirking model where monitoring intensity is endogenous and effort a continuous variable. Wage level, monitoring intensity and consequently the desired enforceable effort level are jointly determined by the maximization problem of the firm. As a result, monitoring and pay should be complements. In our experiment, between and within treatment variation is qualitatively in line with the normative predictions of the model under selfishness assumptions. Yet, we also find evidence for reciprocal behavior. The data analysis shows, however, that it does not pay for the employer to rely on the reciprocity of employees.
    Keywords: incentive contracts; supervision; efficiency wages; experiment; incomplete contracts; reciprocity
    JEL: C91 J31 J41
    Date: 2006–11–01
  8. By: James J. Murphy (Department of Resource Economics, University of Massachusetts Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: This paper uses laboratory experiments to test the theoretical observations that both the violations of competitive risk-neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their abatement costs and their initial allocations of permits. This conclusion has important implications for enforcing emissions trading programs because it suggests that regulators have no justification for targeting their enforcement effort based on firm-level characteristics. Consistent with the theory, we find that subjects’ violations were independent of parametric differences in their abatement costs. However, those subjects that were predicted to buy permits tended to have higher violation levels than those who were predicted to sell permits. Despite this, we find no statistically significant evidence that the marginal effectiveness of enforcement depends on any firmspecific characteristic. We also examine the determinants of compliance behavior under fixed emissions standards. As expected, we find significant differences between compliance behavior under fixed standards and emissions trading programs.
    Keywords: enforcement, compliance, emissions trading, permit markets, standards, commandand- control
    JEL: C91 L51 Q58
    Date: 2005–02
  9. By: Werner Güth; Ev Martin; Torsten Weiland
    Abstract: We experimentally explore individual and interactive decision making in a sequential search task and test whether generally accepted principles of bounded rationality (aspiration formation, satisficing, and aspiration adjustment) adequately explain the observed search behavior. Subjects can, at a cost, employ screening and selection methods facilitating their search and revealing their aspirations. The majority of subjects seems to follow the single threshold heuristic after extensive experimentation. Contrary to popular theories of sequential search, aspiration levels are set below the maximum value of all previously inspected alternatives. In a competitive search subjects tend to experiment less before engaging in satisficing and generally state lower aspirations. Finally, systematic satisficing seems to significantly enhance payoffs.
    Keywords: sequential search, secretary problem, optimal stopping, bounded rationality
    JEL: C44 C61 D83
    Date: 2006–11
  10. By: Pablo Brañas-Garza (Universidad de Granada); Ramón Cobo-Reyes (Universidad de Granada); Maria Paz Espinosa (Universidad del País Vasco); Natalia Jiménez (Universidad de Alicante); Giovanni Ponti (Università di Ferrara; Universidad de Alicante)
    Abstract: This paper explores the role of social integration on altruistic behavior. To this aim, we develop a two-stage experimental protocol based on the classic Dictator Game. In the first stage, we ask a group of 77 undergraduate students in Economics to elicit their social network; in the second stage, each of them has to unilaterally decide over the division of a fixed amount of money to be shared with another anonymous member in the group. Our experimental design allows to control for other variables known to be relevant for altruistic behavior: framing and friendship/acquaintance relations. Consistently with previous research, we find that subjects favor their friends and that framing enhances altruistic behavior. Once we control for these effects, social integration (measured by betweenness, a standard centrality measure in network theory) has a positive effect on giving: the larger social isolation within the group, the more likely it is the emergence of selfish behavior. These results suggest that information on the network structure in which subjects are embedded is crucial to account for their behavior.
    Keywords: altruism, social integration, social networks, experiments
    JEL: C91 D64 Z13
    Date: 2006–11–13
  11. By: Dario Sacco (Socioeconomic Institute, University of Zurich); Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: Using an experiment based on two-stage games, we analyze the effects of competitive intensity on firms’ incentives to invest in process innovations. The experiment suggests that intense competition is favorable to investments.
    Keywords: R&D investment, intensity of competition, experiment
    JEL: C92 L13 O31
    Date: 2006–11
  12. By: Hessel Oosterbeek (Universiteit van Amsterdam); Randolph Sloof (Universiteit van Amsterdam); Joep Sonnemans (Universiteit van Amsterdam)
    Abstract: Incentive instruments like asset ownership and performance pay often have to strike a balance between the productive incentives and the rent-seeking incentives they provide. Standard theory predicts that a given instrument becomes less attractive when the effectiveness of rent-seeking activities increases. More recent theories that emphasize the importance of reciprocity, however, suggest that this relationship may go the other way around. In this paper we test these predictions by means of a laboratory experiment. By and large our findings confirm standard theory. Incentive instruments typically become less attractive when the scope for rent-seeking activities increases. However, reciprocity motivations do seem to mitigate the adverse effects of rent-seeking opportunities to a considerable extent.
    Keywords: multi-task experiment; rent-seeking; reciprocity
    JEL: C91 M52
    Date: 2006–09–28
  13. By: Guillaume R. Fréchette
    Abstract: In experimental economics, where subjects participate in different sessions, observations across subjects of a given session might exhibit more correlation than observations across subjects in different sessions. The problem of session effects is related to similar problems in many experimental and non-experimental fields. This paper attempts to clarify what the issues are and proposes a set of practical tests to identify the problem as well as ways to test for treatment effects in the presence of session-effects. Simulations are used to assess how these tests perform given the relatively small samples typical of experimental data sets. <P>En économie expérimentale où les sujets participent à différentes sessions, les observations peuvent être plus corrélées à l'intérieur d'une même session qu'entre les participants ayant participé à différentes sessions. Ce type d'effet est présent également dans plusieurs autres domaines, autant expérimentaux que non-expérimentaux. Cette étude tente de mettre en lumière quelles sont les sources du problème et propose un ensemble de tests pour déterminer s'il y a ou non présence de corrélation intra-session dans une collecte de données, et pour identifier l'effet d'un traitement lorsque ce problème est présent. Des simulations ont été effectuées pour évaluer la performance de ces tests sur des échantillons avec peu d'observations, ce qui est commun lors de la collecte de données de type expérimental.
    Keywords: experimental economics, session effects, économie expérimentale, corrélation intra-session
    Date: 2006–11–01
  14. By: Kono, Hisaki
    Abstract: Microfinance institutions employ various kinds of incentive schemes but estimating the effect of each scheme is not easy due to endogeneity bias. We conducted field experiments in Vietnam to capture the role of joint liability, monitoring, cross-reporting, social sanctions, communication and group formation in borrowers’ repayment behavior. We find that joint liability contracts cause serious free-riding problems, inducing strategic default and lowering repayment rates. When group members observe each others’ investment returns, participants are more likely to choose strategic default. Even after introducing a cross-reporting system and/or penalties among borrowers, the default rates and the ratios of participants who chose strategic default under joint liability are still higher than those under individual lending. We also find that joint liability lending often failed to induce mutual insurance among borrowers. Those who had been helped or who had repaid a little in the previous round were more likely to default strategically and repay a little again in the current round and those who paid large amounts were always the same individuals.
    Keywords: Microfinance, Joint liability, Free-riding, Vietnam
    JEL: F15 O14 O30
    Date: 2006–05
  15. By: Sebastian Kube; Michel André Maréchal; Clemens Puppe
    Abstract: We study the role of reciprocity in a labor market field experiment. In a recent paper, Gneezy and List (2006) investigate the impact of gift exchange in this context and find that it has only a transient effect on long run outcomes. Extending their work to examine both positive and negative reciprocity, we find consonant evidence in the positive reciprocity condition: the gift does not work well in the long run (if at all). Yet, in the negative reciprocity treatment we observe much stronger effects: a wage reduction has a significant and lasting negative impact on efforts. Together, these results highlight the asymmetry of positive and negative reciprocity that exists in the field, and provide an indication of the relative importance of each in the long run.
    Keywords: reciprocity, gift exchange, field experiment
    JEL: C93 J30
    Date: 2006–11
  16. By: James J. Murphy (Department of Resource Economics, University of Massachusetts Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: This paper uses laboratory experiments to test individual responses to policies that seek to encourage firms to voluntarily discover and disclose violations of environmental standards. We find that while it is possible to motivate a significant number of voluntary disclosures without adversely affecting environmental quality, this result is sensitive to both the fine for disclosed violations and the assumption that firms know their compliance status without cost. When firms have to expend resources to determine their compliance status, motivating a significant number of violation disclosures yields worse environmental quality. Finally, relative to conventional enforcement, disclosure polices will result in more violations being sanctioned, but fewer of these sanctions are for violations that are uncovered by the government.
    Keywords: enforcement, compliance, environmental standards, self-reporting, self-auditing voluntary disclosure
    JEL: C91 L51 Q58
    Date: 2005–09
  17. By: Daniel J. Benjamin; Jesse M. Shapiro
    Abstract: We showed 10-second, silent video clips of unfamiliar gubernatorial debates to a group of experimental participants and asked them to predict the election outcomes. The participants' predictions explain more than 20 percent of the variation in the actual two-party vote share across the 58 elections in our study, and their importance survives a range of controls, including state fixed effects. In a horse race of alternative forecasting models, participants' visual forecasts significantly outperform economic variables in predicting vote shares, and are comparable in predictive power to a measure of incumbency status. Adding policy information to the video clips by turning on the sound tends, if anything, to worsen participants' accuracy, suggesting that naïveté may be an asset in some forecasting tasks.
    JEL: D72 J45
    Date: 2006–11
  18. By: Michelle Sovinsky Goeree (Claremont McKenna College); Jeroen Hinloopen (Universiteit van Amsterdam)
    Abstract: This paper describes a classroom experiment that illustrates the research and development investment incentives facing firms when technological spillovers are present. The game involves two stages in which student sellers first make investment decisions then production decisions. The classroom game can be used to motivate discussions of research joint ventures, the free-rider problem, collusion, and antitrust policy regarding research and development.
    Keywords: classroom games; research and development; research joint ventures; technological spillovers
    JEL: C91 L13 L41
    Date: 2006–09–27
  19. By: Maurice Doyon; Lota Dabio Tamini; Virginie Simard; Kent Messer; Harry M. Kaiser
    Abstract: This study experimentally tests whether a modification to the centralized quota sales system is capable of lowering the price of the milk quota in Québec, while at the same time minimizing the negative impacts on the auction's efficiency. This modification consists of applying two treatments on the uniformed price auction used to trade dairy production quota.. The first treatment excludes 5% or 15% of the sellers and the vendors' highest bids. The second treatment applies a tax of 2% or 10% to the units that the vendors put on the market but don't manage to sell. Different combinations of these two treatments are also tested. The generated data shows that the highest bids exclusion mechanism allows to lower the price of the quota, the 15% exclusion being more conclusive than the 5% one. Alternatively, the tax by itself has little impact on the price of the quota, while the combination of the two treatments causes a more important diminution of the number of transactions and of the price of the quota than when the tax treatment and the exclusion treatment are applied individually. This has as a consequence to lead to a greater loss of economic efficiency. <P>La présente étude teste de manière expérimentale la capacité d’une modification au système centralisé de vente du quota (SCVQ) à faire diminuer le prix du quota laitier au Québec tout en minimisant les impacts négatifs des changements sur l’efficacité de l’enchère. Cette modification consiste à appliquer deux traitements sur l’enchère de prix uniforme où s’échange le quota. Le premier traitement consiste en une exclusion (de 5 % ou de 15 %) des mises les plus élevées des acheteurs et des vendeurs. Le second traitement est une taxe (de 2 % ou de 10 %) appliquée aux unités que les vendeurs mettent en marché et ne réussissent pas à vendre. Différentes combinaisons de ces deux traitements sont également testées. Les données générées permettent de conclure que le mécanisme d’exclusion des mises les plus élevées permet de faire diminuer le prix du quota, l’exclusion de 15 % étant plus efficace que celle de 5 %. Pour sa part, la taxe seule a peu d’impact sur le prix du quota tandis que la combinaison des deux traitements entraîne une diminution du nombre de transactions et du prix du quota plus marquée que lorsque les traitements de taxe et d’exclusion sont appliqués individuellement. Cela a comme corollaire d’entraîner une perte d’efficacité économique plus importante.
    Keywords: exclusion, experimental economics, quota, taxation, uniform price auctions, enchères de prix uniformes, exclusion, économie expérimentale, quota, taxation
    JEL: C12 C91 Q13
    Date: 2006–11–01
  20. By: Cassie Mogilner; Tamar Rudnick; Sheena Iyengar (School of Business, Columbia University)
    Abstract: This investigation contrasts choosers who have one of two choice making goals—to either select an option matching previously established preferences or to construct a preference from among the options provided. Evidence from field and laboratory studies, in which choosers selected magazines, indicates that irrespective of the number of options provided, chooser satisfaction results from fulfilling one’s specific choice making goal. For Preference Matchers, satisfaction requires a choice set that includes their established favorite. For Preference Constructors, satisfaction requires perceptions of a variety of options to identify their optimal preference. Display cues (i.e., categories) serve to enhance these perceptions of choice.
    Keywords: Preference Matching, Preference Constructors, Display Cues
    Date: 2006–05

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