nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒01‒14
twenty papers chosen by
Daniel Houser
George Mason University

  1. An Experiment on Spatial Price Competition By Henrik Orzen; Martin Sefton
  2. How eBay Sellers set “Buy-it-now” prices - Bringing The Field Into the Lab By Tim Grebe; Radosveta Ivanova-Stenzel; Sabine Kröger
  3. The Effects of (Incentivized) Belief Elicitation in Public Good Experiments By Simon Gaechter; Elke Renner
  4. Do individuals recognize cascade behavior of others? An Experimental Study By Tim Grebe; Julia Schmid; Andreas Stiehler
  5. Emotions Enforce Fairness Norms (a Simple Model of Strong Reciprocity) By López-Pérez, Raúl
  6. FIXED PRICE PLUS RATIONING: AN EXPERIMENT By Veronika Grimm; Giovanni Ponti; Jaromir Kovarik
  7. The limits of self-governance in the presence of spite: Experimental evidence from urban and rural Russia By Simon Gaechter; Benedikt Herrmann
  8. AN EXPERIMENTAL ANALYSIS OF CONDITIONAL COOPERATION By Rachel Croson; Enrique Fatas; Tibor Neugebauer
  9. The Framing of Games and the Psychology of Strategic Choice By Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
  10. The Nature of Salience Revisited: Cognitive Hierarchy Theory versus Team Reasoning By Nicolas Bardsley; Judith Mehta; Chris Starmer; Robert Sugden
  11. Communication and Coordination in the Laboratory Collective Resistance Game By Cason, Timothy N.; Mui, Vai-Lam
  12. Imitation with Intention and Memory: an Experiment By Astrid Matthey
  13. Market Experience Eliminates Some Anomalies – And Creates New Ones By Jacinto Braga; Steven Humphrey; Chris Starmer
  14. Modeling collective rationality: a nonparametric test on experimental data By Sabrina Buyneel; Laurens Cherchye; Bram De Rock
  15. Experiments with Network Formation By John Duffy; Dean Corbae
  16. Anomalies in Auction Choice Behavior By Radosveta Ivanova-Stenzel; Timothy C. Salmon
  17. Hierarchy and Opportunism in Teams By Eline van der Heijden; Jan Potters; Martin Sefton
  18. 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
  19. Private-Collective Innovation and the Fragility of Knowledge Sharing By Simon Gaechter; Georg von Krogh; Stefan Haefliger
  20. Technical and Data Appendix to `Experiments with Network Formation` By John Duffy; Dean Corbae

  1. By: Henrik Orzen (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We conduct an experiment on price competition in a segmented market. Each segment contains one seller and one consumer, and consumers incur transportation costs when they buy from a seller located in another segment. We observe persistent price dispersion in our experimental markets with the implication that consumers frequently switch suppliers. We find that larger markets are more competitive, and that competitive pressures in large markets preclude sellers from exploiting higher consumers’ willingness to pay. We compare laboratory outcomes against several theoretical benchmarks. We find that mixed strategy equilibrium predictions from the analysis of a static model perform better than alternative benchmarks in organizing the data.
    Keywords: Spatial Price Competition; Price Dispersion; Experiments
    JEL: C72 C92
    Date: 2006–09
  2. By: Tim Grebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany.; Radosveta Ivanova-Stenzel (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany.; Sabine Kröger (Département d'économie, Université Laval, Pavillon J.A.DeSève, Québec City, Québec G1K 7P4, Canada.
    Abstract: In this paper we introduce a new type of experiment that combines the advantages of lab and field experiments. The experiment is conducted in the lab but using an unchanged market environment from the real world. Moreover, a subset of the standard subject pool is used, containing those subjects who have experience in conducting transactions in that market environment. This guarantees the test of the theoretical predictions in a highly controlled environment and at the same time enables not to miss the specific features of economic behavior exhibited in the field. We apply the proposed type of experiment to study seller behavior in online auctions with a Buy-It-Now feature, where early potential bidders have the opportunity to accept a posted price offer from the seller before the start of the auction. Bringing the field into the lab, we invited eBay buyers and sellers into the lab to participate in a series of auctions on the eBay platform. We investigate how traders' experience in a real market environment influences their behavior in the lab and whether abstract lab experiments bias subjects' behavior.
    Keywords: online auctions, experiments, buyout prices
    JEL: C72 C91 D44 D82
    Date: 2006–11
  3. By: Simon Gaechter (University of Nottingham); Elke Renner (University of Nottingham)
    Abstract: We investigate the impact of eliciting beliefs about the average contribution of other group members in finitely repeated public goods experiments. We find that belief accuracy is significantly higher when beliefs are incentivized. The distribution of beliefs as well as the relationship between contributions and beliefs are unaffected by incentives. Eliciting incentivized beliefs increases contribution levels relative to a benchmark treatment without belief elicitation, and significantly so in the latter half of the experiment. This result contradicts Croson (2000). We discuss the implications of our results for the design of experiments.
    Keywords: Incentives, beliefs, experiments, public goods
    JEL: C90
    Date: 2006–09
  4. By: Tim Grebe (Institut für Wirtschaftstheorie I, Humboldt.Universität zu Berlin, Spandauer Str. 1, D-10099 Berlin, Germany.; Julia Schmid (Institut für Volkswirtschaftslehre und Wirtschaftsrecht, Technische Universität Berlin, Straße des 17. Juni 135, D-10623 Berlin, Germany.; Andreas Stiehler (Berlecon Research GmbH, Oranienburger Str. 32 D-10117 Berlin, Germany.
    Abstract: In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.
    Keywords: information cascades, Bayes' Rule, decision under risk and uncertainty, experimental economics
    JEL: C91 D81 D82
    Date: 2006–10
  5. By: López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: In experimental games, many subjects cooperate contrary to their material interest and they do that in a reciprocal manner. In addition, many subjects punish those others who behave unkindly, and previous history usually influences subjects’ choices. We propose a simple game-theoretical model to account for these and other experimental phenomena, and compare it with other models of social preferences and reciprocity.
    Keywords: Emotions; Fairness; Path-Dependency; Strong Reciprocity; Social Norms
    JEL: C70 C72 D63 D64 D74 Z13
  6. By: Veronika Grimm (Universidad de Alicante); Giovanni Ponti (Universidad de Alicante); Jaromir Kovarik (Universidad de Alicante)
    Abstract: This paper theoretically and experimentally explores a fixed price mechanism inwhich, if aggregate demand exceeds supply, bidders are proportionally rationed. Ifdemand is uncertain, in equilibrium bidders overstate their true demand in order toalleviate the effects of being rationed. This effect is the more intense the lower theprice, and bids reach their upper limit for sufficiently low prices. In the experiment weobserve a significant proportion of equilibrium play. However, subjects tend to overbidthe equilibrium strategy when prices are low and underbid when prices are high. Weexplain the experimental evidence by a simple model in which the probability of adeviation is decreasing in the expected loss associated with it
    Keywords: Fixed Price Mechanism, Rationing, Experimental Economics.
    JEL: C90 D45
    Date: 2006–11
  7. By: Simon Gaechter (University of Nottingham); 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
  8. By: Rachel Croson (University of Pennsylvania); Enrique Fatas (Universitat de València); Tibor Neugebauer (University Hannover)
    Abstract: Experimental and empirical evidence identifies the existence of socialpreferences and proposes competing models of such preferences. In this paper, wefurther examine one such social preference: conditional cooperation. We run threeexperimental public goods games, the traditional voluntary contribution mechanism(VCM, also called the linear public goods game), the weak-link mechanism (WLM) andthe best-shot mechanism (BSM). We then analyze the existence and types ofconditional cooperation observed. We find that participants are responsive to the pastcontributions of others in all three games, but are most responsive to differentcontributions in each game: the median in the VCM, the minimum in the WLM and themaximum in the BSM. We conclude by discussing implications of these differences forbehavior in these three mechanisms. This paper thus refines our notions of conditionalcooperation to allow for different types of public good production functions and byextension, other contexts.
    Keywords: experimental economics, conditional cooperation, public goods
    JEL: C72 C92 D44 H41
    Date: 2006–11
  9. By: Martin Dufwenberg (University of Arizona); Simon Gaechter (University of Nottingham); Heike Hennig-Schmidt (University of Bonn)
    Abstract: Psychological game theory can provide a rational choice explanation of framing effects; frames influence beliefs, and beliefs influence motivations. We explain this point theoretically, and explore its empirical relevance experimentally. In a 2×2-factorial framing design of one-shot public good experiments we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords: Framing; psychological games; guilt aversion; reciprocity; public good games; voluntary cooperation
    JEL: C91 C72 D64 Z13
    Date: 2006–10
  10. By: Nicolas Bardsley (National Centre for Research Methods, University of Southampton); Judith Mehta (School of Economics, University of East Anglia); Chris Starmer (CeDEx, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: This paper reports experimental tests of two alternative explanations of how players use focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory explains coordination as the result of common beliefs about players’ pre-reflective inclinations towards the relevant strategies; the theory of team reasoning explains it as the result of the players’ using a non-standard form of reasoning. We report two experiments; one finds support for the first theory, the other for the second. In the light of additional questionnaire evidence, we conclude that players’ reasoning is sensitive to the decision context.
    Keywords: salience, focal point, cognitive hierarchy, team reasoning
    JEL: C72 C92
    Date: 2006–09
  11. By: Cason, Timothy N.; Mui, Vai-Lam
    Abstract: This paper presents a laboratory collective resistance (CR) game to study how different forms of non-binding communication among responders can help coordinate their collective resistance against a leader who transgresses against them. Contrary to the predictions of analysis based on purely self-regarding preferences, we find that non-binding communication about intended resistance increases the incidence of no transgression even in the one-shot laboratory CR game. In particular, we find that the incidence of no transgression increases from 7 percent with no communication up to 25-37 percent depending on whether communication occurs before or after the leader’s transgression decision. Responders’ messages are different when the leaders can observe them, and the leaders use the observed messages to target specific responders for transgression.
    Keywords: Communication ; Cheap Talk ; Collective Resistance ; Laboratory Experiment ; Social Preferences
    JEL: C92 D74
    Date: 2006–11
  12. By: Astrid Matthey
    Abstract: Three results emerge from a simple experiment on imitation. First, I find behavior which strongly suggests an intention to imitate. Second, players im- itate successful other players rather than repeating successful actions. Third, to find imitation examples, players use several periods of memory. This lends support to learning models with a non-trivial role of memory. The experiment analyzes imitation in an individual learning context. It sup- plements the results obtained for imitation in evolutionary processes.
    Keywords: Imitation, Learning, Memory, Experiments
    JEL: D01 D83
    Date: 2006–12
  13. By: Jacinto Braga (University of Nottingham); Steven Humphrey (University of Nottingham); Chris Starmer (University of Nottingham)
    Abstract: We report two experiments which investigate whether experience of decision-making in repeated markets purges behavior of preference reversals. We investigate two behavioral mechanisms that may be shaping bids in repeated auctions: a tendency to adjust bids towards previously observed market prices, and a tendency to reduce bids following bad market outcomes. We find little support for the former but strong support for the latter. Also, whilst 'just enough' market exposure eliminates the typical preference reversal phenomenon, continued exposure fosters the mirror image anomaly. Therefore, although market experience shapes behavior, it does not generally promote consistency with standard preference theory.
    Keywords: preference reversal, Vickrey auction, refining, loss experience, price following
    JEL: C91 D81 D83
    Date: 2006–10
  14. By: Sabrina Buyneel; Laurens Cherchye; Bram De Rock
    Abstract: We provide a .first nonparametric (revealed preference) test of the collective consumption model on the basis of experimental data. By using nonparametric testing tools and experimental data, we avoid the usual problems associated with parametric tests (e.g. non-verifiable parametric structure) and the use of ‘real life’ data sets (e.g. preference heterogeneity). In addition, our collective rationality test complements the existing nonparametric-experimental evidence on individual rationality. Focusing on dyads, we find that all observed consumption choices are consistent with the nonparametric collective rationality conditions. In fact, the consistency results for the parsimonious ‘egoistic’ collective consumption model (as a tool for describing dyads’ choice behavior) are closely similar to those for the individual rationality model (as a tool for describing individuals’.choice behavior). This suggest that for simple consumption decision settings, such as that considered in our experiment, the egoistic model may be useful for practical analysis. Still, our results also suggest that the more general collective consumption model, which accounts for consumption externalities and public consumption, can be useful even for modeling such simple decision settings. In fact, we can interpret that the appropriate model specification also depends on the specific dyad type (e.g. friends or partners; gender composition) and choice setting (e.g. public consumption or not) at hand.
    Keywords: collective consumption decisions, Generalized Axiom of Revealed Preference, nonparametric analysis, experimental data
    JEL: C14 C92 D11 D12 D13
    Date: 2006
  15. By: John Duffy; Dean Corbae
    Abstract: We examine how groups of agents form trading networks in the presence of idiosyncratic risk and the possibility of contagion. Specifically` four agents play a two--stage finite repeated game. In the first stage` the network structure is endogenously determined through a noncooperative proposal game. In the second stage` agents play multiple rounds of a coordination game against all of their chosen `neighbors\` after the realization of a payoff relevant shock. While parsimonious` our four agent environment is rich enough to capture all of the important interaction structures that have appeared in the networks literature` including bilateral (marriage)` local interaction (wheel)` star` and uniform matching (complete) networks. Marriage is not only the ex-ante efficient network in our environment` but also stable in the sense of being immune to unilateral deviations. Since our framework admits multiple equilibria` we examine which types of networks are likely to emerge through a series of experiments. Our experimental findings largely confirm the predictions of our model.
    Date: 2006–12
  16. By: Radosveta Ivanova-Stenzel (Humboldt-University of Berlin, Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany.; Timothy C. Salmon (Florida State University, Department of Economics, Tallahassee, FL, 32306-2180. Tel: 850-644-7207, Fax: 850-644-4535.
    Abstract: Ivanova-Stenzel and Salmon (2004a) established some interesting yet puzzling results regarding bidders’ preferences between auction formats. The finding is that bidders strongly prefer the ascending to the first price sealed bid auction on a ceteris paribus basis but they are not willing to pay up to an entry price for entering into an ascending auction instead of a first price that would equalize the profits between the two. While it was found that risk aversion on the part of the bidders could resolve this anomaly the claim that risk aversion drives overbidding in first price auctions is somewhat controversial. In this study we examine two competing explanations for the observed behavior; loss aversion and “clock aversion”, i.e. a dislike for some aspect of the clock based bidding mechanism. We find that neither alternative explanation can account for bidders’ auction choice behavior leaving risk aversion as the only un-falsified hypothesis.
    Keywords: bidder preferences, private values, sealed bid auctions, ascending auctions
    JEL: C91 D44
    Date: 2006–10
  17. By: Eline van der Heijden (Department of Economics, Tilburg University); Jan Potters (Department of Economics, Tilburg University); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We use an experiment to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenue-sharing team members have an incentive to free-ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free-riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance.
    Keywords: leadership, team production, experiment
    JEL: C9 D2 L2
    Date: 2006–09
  18. 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
  19. By: Simon Gaechter (University of Nottingham); Georg von Krogh (ETH Zurich); Stefan Haefliger (ETH Zurich)
    Abstract: Incentives to innovate is a central element of innovation theory. In the private-investment model, innovators privately fund innovation and then use intellectual property protection mechanisms to appropriate returns from these investments. In the collective-action model, public subsidy funds public goods innovations, characterized by non-rivalry and non-exclusivity. Recently, these models have been compounded in the privatecollective innovation model where innovators privately fund public goods innovations (von Hippel and von Krogh, 2003). Private-collective innovation can be illustrated in the case of open source software development. The current paper contributes to the work on private-collective innovation by investigating incentives that motivate innovators to share their knowledge in an initial situation devoid of community activity. We use game theory to predict knowledge sharing behavior, and test these predictions in a laboratory setting. The results show that knowledge sharing is a coordination game with multiple equilibria, reflecting the fragility of knowledge sharing between innovators with conflicting interests. The experimental results demonstrate important asymmetries in the fragility of knowledge sharing and, in some situations, much more knowledge sharing than theoretically predicted. A behavioral analysis suggests that knowledge sharing is not only affected by the material incentives, but also by social preferences. The results offer general insights into the relationship between incentives and knowledge sharing and contribute to a better understanding of the inception of privatecollective innovation.
    Keywords: innovation, private-collective innovation model, knowledge sharing, incentive, open source software, experimental economics, game theory
    Date: 2006–10
  20. By: John Duffy; Dean Corbae
    Abstract: This appendix provides proofs and the entire set of data used in Corbae and Duffy (2006)` ``Experiments with Network Formation\`\`. In particular we show that for the environment laid out in that paper` a marriage network is not only the ex-ante efficient network` but also stable in the sense of being immune to unilateral deviations.
    Date: 2006–12

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