nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒03‒24
eight papers chosen by
Daniel Houser
George Mason University

  1. Assigning Intentions when Actions are Unobservable: the Impact of Trembling in the Trust Game By James C. Cox; Cary A. Deck
  2. Setting the Anchor: Price Communication, Level-n Theory and Communication By Wengström, Erik
  3. Group versus Individual Liability: A Field Experiment in the Philippines By Giné, Xavier; Karlan, Dean S.
  4. Less Rationality, More Efficiency: a Laboratory Experiment on "Lemons" Markets. By Roland Kirstein; Annette Kirstein
  5. The trade off between time and money: Is there a difference between real and hypothetical choices? By Isacsson, Gunnar
  6. The development of trust and social capital in rural Uganda: An experimental approach. By Paul Mosley; Arjan Verschoor
  7. R&D Delegation in a Duopoly with Spillovers By Bruno Versaevel; Désiré Vencatachellum
  8. International Competition in Hiring Labor and Selling Output - A Theoretical and Experimental Analysis By Siegfried K. Berninghaus; Werner Güth; Christian Hoppe; Christian Paul

  1. By: James C. Cox; Cary A. Deck
    Abstract: This paper reports laboratory experiments investigating behavior when players may make inferences about the intentions behind others’ prior actions based on higher- or lower-accuracy information about those actions. We investigate a trust game with first mover trembling, a game in which nature determines whether the first mover’s decision is implemented or reversed. The results indicate that second movers give first movers the benefit of the doubt. However, first movers do not anticipate this response. Ultimately, it appears that subjects are thinking on at least three levels when making decisions: they are concerned with their own material well being, the trustworthiness of their counterpart, and how their own actions will be perceived.
    JEL: C70 C91 D64 D84
    Date: 2006
  2. By: Wengström, Erik (Department of Economics, Lund University)
    Abstract: This paper analyzes communication from the viewpoint of the level-n theory of bounded rationality. It examines if communication can be understood by the effect it has on high-level types’ beliefs about the actions of simpleminded level-0 players. We present experimental evidence from a slightly perturbed price competition game designed to test this interpretation. The main finding is that communication affects subjects in a way that seems compatible with the level-n model, indicating that people lie in order to fool other players that they believe do less thinking. Moreover, the results indicate that the predictive power of the level-n model does crucially depend on the possibility for high level players to form homogenous beliefs about the behavior of the level-0 players.
    Keywords: Noncooperative Game Theory; Communication; Bounded Rationality; Experiments
    JEL: C72 C92 D84
    Date: 2007–03–20
  3. By: Giné, Xavier; Karlan, Dean S.
    Abstract: Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor and enforce each other’s loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender’s overall profitability and the poor’s access to financial markets. We worked with a bank in the Philippines to conduct a field experiment to examine these issues. We randomly assigned half of the 169 pre-existing group liability 'centres' of approximately twenty women to individual-liability centres (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in centre size by attracting new clients.
    Keywords: group liability; informal economies; joint liability; micro-enterprises; microfinance; social capital
    JEL: C93 D71 D82 D91 O12 O16 O17
    Date: 2007–03
  4. By: Roland Kirstein; Annette Kirstein (Universität Karlsruhe)
    Abstract: In this paper we experimentally test a theory of boundedly rational behavior in a "lemons market." We analyzed two different market designs, for which perfect rationality implies complete and partial market collapse, respectively. Our empirical observations deviate substantially from these predictions of rational choice theory: Even after 20 repetitions, the actual outcome is closer to e±ciency than expected. Our bounded rationality approach to explaining these observations starts with the insight that perfect rationality would require the players to perform an in¯nite number of iterative reasoning steps. Boundedly rational players, however, carry out only a limited number of such iterations. We have determined the iteration type of the players independently from their market behavior. A significant correlation exists between the iteration types and the observed price offers.
    Keywords: guessing games, beauty contests, market failure, adverse selection, lemon problem, regulatory failure, paternalistic regulation,
    JEL: D8 C7 B4
  5. By: Isacsson, Gunnar (VTI)
    Abstract: This paper reports the results from one experiment and one quasi-experiment used to investigate the potential problem of “hypothetical bias” in surveys involving an individual’s valuation of time. The experiment compares hypothetical and real choices regarding an offer to participate in a survey in exchange for money. The quasi-experiment compares hypothetical and real choices regarding two bus journeys, one fast and expensive and the other slow and cheap. In both of these experiments, real choices differ significantly from hypothetical ones. The paper estimates parametric distributions of the value of time by applying the general method of moments (GMM) estimator. Since the samples are relatively small a parametric bootstrap is used to obtain asymptotic refinement of statistical tests. The results in the experiment as well as in the quasi-experiment suggest a value of time which is higher when the choice is for real than when the choice is hypothetical. Assuming that the value of time distribution is exponential, real choices produce a mean value of time twice as large as the corresponding hypothetical value.
    Keywords: Hypothetical bias; Experiment; Value of time; Generalized Method of Moments estimator; Bootstrap; Asymptotic refinement
    JEL: C12 C15 C91 H54
    Date: 2007–03–12
  6. By: Paul Mosley; Arjan Verschoor (Department of Economics, The University of Sheffield)
    Abstract: Trust is important for development but can be hard to build. In this paper, we report on experiments designed to understand the determinants of trust in villages in eastern Uganda, and in particular whether trust can be `built´ by offering insurance to people as a protection against the possibility that the trust they offer will not be reciprocated. We find, firstly, that the effects of income and wealth on trust are ambiguous: trust is higher in the richer than the poorer village, but once association and female education are added as explanatory variables, the wealth effect disappears. Secondly, although the offer of insurance is taken up by a majority of players, this is in most cases not an `effective demand´ in the sense of incentivising higher levels of trust. Effective demand for insurance, defined in this way, however responds positively to high levels of risk efficacy, microfinance membership and female education. Insurance offered in this form, therefore, is on its own apparently not a reliable technology for building trust; but its effectiveness as a trust-building instrument appears to increase if certain complementary institutions are in position.
    Keywords: Trust, Social Capital, Insurance, Uganda
    JEL: O12 O16 C93
    Date: 2005–06
  7. By: Bruno Versaevel (GATE CNRS); Désiré Vencatachellum (HEC Montréal)
    Abstract: There is evidence that competing firms delegate R&D to the same independent profit-maximizing laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange of user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm's transfer payment offers to the laboratory. This in turn determines the laboratory's capacity to earn profits, R&D outcomes, delegating firms' profits, and social welfare. We compare the delegated R&D game to two other ones where firms (i) cooperatively conduct in-house R&D, and (ii) non-cooperatively choose in-house R&D. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive profits, only if within-laboratory R&D services are suffciently complementary but inter-firm spillovers are suffciently low. We find no room for policy intervention, because the privately profitable decision to delegate R&D, when the laboratory participates, always benefits consumers.
    Keywords: common agency, externalities, research and development
    JEL: C72 L13 O31
    Date: 2006–10
  8. By: Siegfried K. Berninghaus; Werner Güth; Christian Hoppe; Christian Paul
    Abstract: Two firms, firm A in country A and firm B in country B, compete in hiring two types of workers. Type 1-workers would be less productive when working abroad whereas type 2-workers are equally productive when working abroad or at home. Employers compete by offering employment contracts for both types of workers as well as for workers in both countries. Hiring determines output and thus the sales on the homogenous international sales market. We show that the scenario with firm A(B) hiring only workers from country A(B) is an equilibrium, i.e., there exists a parameter region with this equilibrium outcome. For our experiment with a specific parameter constellation we want to explore some qualitative hypotheses, related to this equilibrium scenario.
    Date: 2007–03

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