nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒01‒02
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Trust Games Measure Trust By Houser, Daniel; Schunk, Daniel; Winter, Joachim
  2. Road Traffic Congestion and Public Information: An Experimental Investigation By Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer
  3. Learning-by-Doing in an Ambiguous Environment By Jim Engle-Warnick; Sonia Laszlo
  4. Leading by example with and without exclusion power in voluntary contribution experiments By Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
  5. Monitoring and Pay: An Experiment on Employee under Endogenous Supervision By Dittrich, Dennis; Kocher, Martin
  6. Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence By Andrea Morone; Ozlem Ozdemir
  7. Reciprocity and Payment Schemes: When Equality Is Unfair By Johannes Abeler; Steffen Altmann; Sebastian Kube; Matthias Wibral
  8. Gender based prescriptions: evidence for altruism By Fernando Aguiar; Pablo Brañas-Garza; Ramón Cobo-Reyes; Natalia Jiménez; Luis M. Miller
  9. A Simple Test of Learning Theory By Jim Engle-Warnick; Ed Hopkins
  10. How Much Collusion. A Meta-Analysis On Oligopoly Experiments By Christoph Engel
  11. Trust, Communication and Contracts: An Experiment By Avner Ben-Ner; Louis Putterman
  12. Competition Fosters Trust By Huck, Steffen; Ruchala, Gabriele K.; Tyran, Jean-Robert
  13. Lead Them to Water and Pay Them to Drink: An Experiment with Services and Incentives for College Achievement By Joshua Angrist; Daniel Lang; Philip Oreopoulos
  14. Online Auctions By Axel Ockenfels; David Reiley; Abdolkarim Sadrieh
  15. How to Help Unemployed Find Jobs Quickly: Experimental Evidence from a Mandatory Activation Program By Brian Krogh Graversen; Jan C. van Ours

  1. By: Houser, Daniel; Schunk, Daniel; Winter, Joachim
    Abstract: The relationship between trust and risk is a topic of enduring interest. Although there are substantial differences between the ideas the terms express, many researchers from different disciplines have pointed out that these two concepts become very closely related in personal exchange contexts. This raises the important practical concern over whether behaviors in the widely-used “trust game” actually measure trust, or instead reveal more about risk attitudes. It is critical to confront this question rigorously, as data from these games are increasingly used to support conclusions from a wide variety of fields including macroeconomic development, social psychology and cultural anthropology. The aim of this paper is to provide cogent evidence on the relationship between trust and risk in “trust” games. Subjects in our experiment participate either in a trust game or in its risk game counterpart. In the trust version, subjects play a standard trust game and know their counterparts are human. In the risk version, subjects know their counterparts are computers making random decisions. We compare decisions between these treatments, and also correlate behavior with subjects’ risk attitudes as measured by the Holt and Laury (2002) risk instrument. We provide evidence that trusting behavior is different than behavior under risk. In particular, (i) decisions patterns in our trust and risk games are significantly different; and (ii) risk attitudes correlate with decisions in the risk game, but not the trust game.
    Keywords: trust; risk attitudes; laboratory experiments
    JEL: C91 C92
    Date: 2006–12
  2. By: Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer
    Abstract: This paper reports two laboratory studies designed to study the impact of public information about past departure rates on congestion levels and travel costs. Our experimental design is based on a discrete version of Arnott, de Palma, and Lindsey’s (1990) bottleneck model where subjects have to choose their departure time in order to reach a common destination. Experimental treatments in our first study differ in terms of the level of public information on past departure rates and the relative cost of delay. In all treatments, congestion occurs and the observed total travel costs match the predicted ones. In other words, subjects' capacity to coordinate is neither affected by the availability of public information on past departure rates nor by the relative cost of delay. This absence of treatment effects is confirmed by our finding that a parameter-free reinforcement learning model best characterizes individual behavior. The number of experimental subjects taking the role of drivers is four times larger in our second study than in our first study. We observe that subjects’ capacity to coordinate is not affected by the size of the population.
    Keywords: Travel behavior; Congestion; Information in intelligent transportation systems; Laboratory experiments
    JEL: C91 C92 D83 R40 R41
    Date: 2006–12
  3. By: Jim Engle-Warnick; Sonia Laszlo
    Abstract: We experimentally test whether risk aversion or ambiguity aversion can explain decisions in a learning-by-doing game. We first measure subjects' preferences toward risk and ambiguity, and then use these measures to predict behavior in the game. We find that ambiguity averse subjects pay more often to resolve ambiguity, and we find that less risk averse subjects earn more in the game. Our results, in light of a previous field study of farmers in a developing economy, provide further evidence of a link between ambiguity aversion and technology choice, as well as a link between risk aversion and farm profitability. <P>Une étude expérimentale a été menée afin de tester si l’aversion au risque ou l’aversion à l’ambiguïté peuvent expliquer les décisions prises par les sujets lors d’un jeu d’apprentissage par essais. Nous avons d’abord mesuré la préférence des sujets face au risque et à l’ambiguïté, et avons ensuite utilisé ces mesures pour prédire le comportement des sujets au cours du jeu. Nous avons pu constater que les sujets qui éprouvent de l’aversion à l’ambiguïté décident de payer plus souvent afin de clarifier cette ambiguïté. D’autre part, nous avons constaté que moins les sujets éprouvent de l’aversion au risque, plus leurs gains lors du jeu sont élevés. À la lumière d’une étude sur le terrain ayant eu lieu avec des fermiers travaillant dans une économie en développement, nos résultats confirment l'évidence d'un lien entre l'aversion à l'ambiguïté et les choix technologiques, ainsi que d'un lien entre l'aversion au risque et la rentabilité d'une ferme.
    Keywords: learning-by-doing, technology choice, risk preferences, risk measurement instruments, ambiguity aversion, experimental economics, apprentissage par essais, choix technologiques, préférences vis-à-vis du risque, instruments de mesure du risque, aversion à l’ambiguïté, économie expérimentale
    JEL: C91 D80
    Date: 2006–12–01
  4. By: Werner Güth; M. Vittoria Levati; Matthias Sutter; Eline van der Heijden
    Abstract: We examine the effects of leading by example in voluntary contribution experiments. Leadership is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority in the form of granting the leader exclusion power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.
    Keywords: Voluntary contribution experiment, leadership, exclusion power, endogenous selection
    JEL: C72 C92 H41
    Date: 2006–12
  5. By: Dittrich, Dennis; Kocher, Martin
    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: efficiency wages; experiment; incentive contracts; incomplete contracts; reciprocity; supervision
    JEL: C91 J31 J41
    Date: 2006–12
  6. By: Andrea Morone; Ozlem Ozdemir
    Abstract: The study investigates protective responses in low probability and high loss risk situations. Particularly, it (1) detects individual protection valuations to variations in probability versus to variations in loss for payment decisions and choice decisions, (2) elicits the threshold probability in individuals’ minds that make them consider having protective measure, (3)calculates relative risk aversion. The results of the experiment indicate that as the probability of loss and loss amount increases, individuals tend to buy/pay more for protection. They are more responsive to the variation in probabilities than to the variation in loss amounts when they decide whether to buy the protective measure or not: choice decision. Yet, the opposite is true when they decide the amount of willingness to pay for buying the protective measure: payment decision. In addition, bid expected loss values have a bimodal distribution. Consistent with previous studies, individuals (particularly women) are found to be risk averse for low probabilities.
    Keywords: experiments, risk, insurance
    JEL: C91 D81
    Date: 2006–12
  7. By: Johannes Abeler (IZA Bonn and University of Bonn); Steffen Altmann (IZA Bonn and University of Bonn); Sebastian Kube (University of Karlsruhe); Matthias Wibral (IZA Bonn and University of Bonn)
    Abstract: A growing literature stresses the importance of reciprocity, especially for employment relations. In this paper, we study the interaction of different payment modes with reciprocity. In particular, we analyze how equal wages affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts and efficiency. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference is rather driven by the fact that reciprocity is violated far more frequently in the equal wage treatment. Agents suffering from a violation of reciprocity subsequently withdraw effort. Our results suggest that individual reward and punishment opportunities are crucial for making reciprocity a powerful contract enforcement device.
    Keywords: laboratory experiment, wage setting, wage equality, gift exchange, reciprocity, social norms, incomplete contracts, multiple agents
    JEL: C92 J33 J41 M12 M52
    Date: 2006–12
  8. By: Fernando Aguiar (IESA/CSIC); Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada.); Natalia Jiménez (Department of Economic Theory and Economic History, University of Granada.); Luis M. Miller (IESA/CSIC)
    Abstract: This paper analyzes the way in which men and women are expected to behave differently in an experimental situation. To do so, we concentrate on a single topic: altruism. Since the dictator game provides the most suitable design for studying altruism and generosity in the lab setting, we use a modified version to study the beliefs involved in the game. Our results are substantial: men and women are expected to behave differently and both believe that women are more generous. These two premises affect their behavior.
    Keywords: prescriptions, dictator game, beliefs, generosity, gender
    JEL: C91 D64 J16
    Date: 2006–12–14
  9. By: Jim Engle-Warnick; Ed Hopkins
    Abstract: We report experiments designed to test the theoretical possibility, first discovered by Shapley (1964), that in some games learning fails to converge to any equilibrium, either in terms of marginal frequencies or of average play. Subjects played repeatedly in fixed pairings one of two 3 ´ 3 games, each having a unique Nash equilibrium in mixed strategies. The equilibrium of one game is predicted to be stable under learning, the other unstable, provided payoffs are sufficiently high. We ran each game in high and low payoff treatments. We find that, in all treatments, average play is close to equilibrium even though there are strong cycles present in the data. <P>Nous faisons le compte rendu d'expériences élaborées afin de tester la possibilité théorique, découverte par Shapley (1964), que dans certains jeux, l'apprentissage ne converge pas vers un équilibre, que ce soit en termes de fréquences marginales ou de jeu moyen. Les sujets ont joué à répétition en paires fixes à un de deux jeux 3 ´ 3, chaque jeu ayant un équilibre de Nash unique avec stratégies mixtes. On prévoit que l'équilibre du premier jeu soit stable après apprentissage, et le deuxième jeu instable, à condition que les gains soient suffisamment élevés. Pour chaque jeu, nous avons eu recours à deux différents traitements : un avec gains faibles et l’autre avec gains élevés. Nous avons constaté que dans tous les traitements, le jeu moyen est près de l'équilibre bien qu'il y ait présence de cycles importants dans les données.
    Keywords: games, learning, experiments, stochastic fictitious play, mixed strategy equilibria, jeux, apprentissage, expériences, jeu fictif stochastique, équilibres à stratégie mixte
    JEL: C72 C73 C92 D83
    Date: 2006–12–01
  10. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Oligopoly has been among the first topics in the experimental economics. Over half a century, some 150 papers have been published. Each individual paper was interested in demonstrating one effect. But in order to do so, experimenters had to specify many more parameters. That way they have generated a huge body of evidence, untapped thus far. This meta-analysis makes this evidence available. More than 100 of the papers lend themselves to calculating an index of collusion. The data bank behind this paper covers some 700 different settings. The experimental results may be normalised as a percentage of the span between the Walrasian and the Pareto outcomes. The same way, results may be expressed as a percentage of the distance between the Nash and the Pareto outcomes. For each and every of the parameters, these two indices make it possible to answer two questions: how far is the market outcome away from the competitive equilibrium? And how good is the Nash prediction? Most importantly, however, the meta-analysis sheds light on how features of the experimental setting interact with each other. Most main effects and many interaction effects are indeed statistically significant.
    Keywords: oligopoly, collusion, unilateral effect, experiment
    JEL: C91 D21 D43 K21 L13 L41
    Date: 2006–12
  11. By: Avner Ben-Ner; Louis Putterman
    Abstract: In the one-shot trust or investment game without opportunities for reputation formation or contracting, economic theory predicts no trusting because there is no incentive for trustworthiness. Under these conditions, theory predicts (a) no effect of pre-play communication, and (b) universal preference for moderate cost binding contracts over interacting without contracts. We introduce the opportunities to engage in pre-play communication and to enter binding or non-binding contracts, and find (a) communication increases trusting and trustworthiness, (b) contracts are largely unnecessary for trusting and trustworthy behaviors and are eschewed by many players, and (c) more trusting leads to higher earnings, and (d) both trustors and trustees favor “fair and efficient” proposals over the more unequal proposals predicted by theory.
    Keywords: trust game, trust, trustworthiness, reciprocity, commitment, communication. Comparative analysis of agency problems, Production of public goods
    JEL: C72 C91 D63
  12. By: Huck, Steffen; Ruchala, Gabriele K.; Tyran, Jean-Robert
    Abstract: We study the effects of reputation and competition in a stylized market for experience goods. If interaction is anonymous, such markets perform poorly: sellers are not trustworthy, and buyers do not trust sellers. If sellers are identifiable and can, hence, build a reputation, efficiency quadruples but is still at only a third of the first best. Adding more information by granting buyers access to all sellers’ complete history has, somewhat surprisingly, no effect. On the other hand, we find that competition, coupled with some minimal information, eliminates the trust problem almost completely.
    Keywords: moral hazard; competition; experience goods; information conditions; reputation; trust
    JEL: C72 C92 D40 L14
    Date: 2006–12
  13. By: Joshua Angrist; Daniel Lang; Philip Oreopoulos
    Abstract: High attrition rates, delayed completion, and poor achievement are growing concerns at colleges and universities in North America. This paper reports on a randomized field experiment involving two strategies designed to improve these outcomes among first-year undergraduates at a large Canadian university. One treatment group was offered peer advising and tutorial services. Another was offered substantial merit-scholarships for solid, but not necessarily top, first year grades. A third treatment group combined both interventions. Service take-up rates were much higher for students offered both services and scholarships than for those offered services alone. Females also used services more than males. No program had an effect on grades for males. However, first-term grades were significantly higher for females in the two scholarship treatment groups. These effects faded somewhat by year's end, but remain significant for females who planned to take enough courses to qualify for a scholarship. There also appears to have been an effect on retention for females offered both scholarships and services. This effect is large enough to generate an overall increase in retention. On balance, the results suggest that a combination of services and incentives is more promising than either alone.
    JEL: I22 I28 J24
    Date: 2006–12
  14. By: Axel Ockenfels; David Reiley; Abdolkarim Sadrieh
    Abstract: The economic literature on online auctions is rapidly growing because of the enormous amount of freely available field data. Moreover, numerous innovations in auction-design features on platforms such as eBay have created excellent research opportunities. In this article, we survey the theoretical, empirical, and experimental research on bidder strategies (including the timing of bids and winner's-curse effects) and seller strategies (including reserve-price policies and the use of buy-now options) in online auctions, as well as some of the literature dealing with online-auction design (including stopping rules and multi-object pricing rules).
    JEL: D44
    Date: 2006–12
  15. By: Brian Krogh Graversen (Danish National Institute of Social Research); Jan C. van Ours (Tilburg University, CentER, CEPR and IZA Bonn)
    Abstract: This paper investigates how a mandatory activation program in Denmark affects the job finding rate of unemployed workers. The activation program was introduced in an experimental setting where about half of the workers who became unemployed in the period from November 2005 to March 2006 were randomly assigned to the program while the other half was not. It appears that the activation program is very effective. The median unemployment duration of the control group is 14 weeks, while it is 11.5 weeks for the treatment group. The analysis shows that the job finding rate in the treatment group is 30% higher than in the control group. This result is mainly driven by the more intensive contacts between the unemployed and the public employment service.
    Keywords: unemployment insurance, unemployment duration, experiment
    JEL: C41 H55 J64 J65
    Date: 2006–12

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