nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒04‒09
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Gender bias in trustworthiness By Bonein, Aurélie; Serra, Daniel
  2. Trust Games Measure Trust By Daniel Houser; Daniel Schunk; Joachim Winter
  3. Leadership and Overcoming Coordination Failure with Asymmetric Costs By Jordi Brandts; David J. Cooper; Enrique Fatas
  4. Political Autonomy and Independence: Theory and Experimental Evidence By Klaus Abbink; Jordi Brandts
  5. Personal Relations and their Effect on Behavior in an Organizational Setting: An Experimental Study By Jordi Brandts; Carles Solà
  6. The Response to Incentives and Contractual Efficiency: Evidence from a Field Experiment By Harry J. Paarsch; Bruce S. Shearer
  7. Why the Ultimatum Game is not the Ultimate Experiment By Peters, Michael; Halevy, Yoram
  8. The meritocracy as a mechanism to overcome social dilemmas By Gunnthorsdottir, Anna; Vragov, Roumen; Mccabe, Kevin
  9. Transaction costs and informational cascades in financial markets - theory and experimental evidence By Marco Cipriani; Antonio Guarino
  10. Entry and Market Selection of Firms: A Laboratory Study By Jordi Brandts; Ayça Ebru Giritligil
  11. Instinctive and Cognitive Reasoning: A Study of Response Times By Ariel Rubinstein
  12. Adding a Stick to the Carrot? The Interaction of Bonuses and Fines By Ernst Fehr; Klaus M. Schmidt
  13. Gift Exchange within a Firm: Evidence from a Field Experiment By Charles Bellemare; Bruce Shearer
  14. Joker: Choice in a simple game with large stakes By Egil Matsen; Bjarne Strøm
  15. Some Personal Views of Game Theory By Ehud Kalai

  1. By: Bonein, Aurélie; Serra, Daniel
    Abstract: Gender differences are often observed in real life-situations. We implement an experiment on the investment game which explores the influence of knowledge of partner's gender in trust and reciprocity by means of two treatments of information: the first one, without knowledge of partner's gender and the second treatment where gender's partner is common knowledge. A great heterogeneity of individuals’ behaviors is observed: from selfish behavior to complete trust and trustworthiness. Knowledge of responder’s gender does not imply different sending, even if men trust more their partners than women. However, a phenomenon of gender bias dominates in trustworthiness behavior.
    Keywords: investment game; experiment; trust; reciprocity; gender
    JEL: Z13 C91 C0 D69 J16
    Date: 2006–04
  2. By: Daniel Houser; Daniel Schunk; Joachim Winter (Mannheim Research Institute for the Economics of Aging (MEA))
    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 predict decisions in the risk game, but not the trust game.
    Date: 2006–12–31
  3. By: Jordi Brandts; David J. Cooper; Enrique Fatas
    Abstract: We study how the heterogeneity of agents affects the extent to which changes in financial incentives can pull a group out of a situation of coordination failure. We focus on the connections between cost asymmetries and leadership. Experimental subjects interact in groups of four in a series of weak-link games. The treatment variable is the distribution of high and low effort cost across subjects. We present data for one, two and three low-cost subjects as well as control sessions with symmetric costs. The overall pattern of coordination improvement is common across treatments. Early coordination improvements depend on the distribution of high and low effort costs across subjects, but these differences disappear with time. We find that initial leadership in overcoming coordination failure is not driven by low-cost subjects but by subjects with the most frequent cost. This conformity effect can be due to a kind of group identity or to the cognitive simplicity of acting with identical others.
    Keywords: Experiments, Coordination, Organizational change, Heterogeneous agents, Leadership
    JEL: C70 C90 D63 D64
    Date: 2006–05–12
  4. By: Klaus Abbink; Jordi Brandts
    Abstract: We study the process by which subordinated regions of a country can obtain a more favourable political status. In our theoretical model a dominant and a dominated region first interact through a voting process that can lead to different degrees of autonomy. If this process fails then both regions engage in a costly political conflict which can only lead to the maintenance of the initial subordination of the region in question or to its complete independence. In the subgame-perfect equilibrium the voting process always leads to an intermediate arrangement acceptable for both parts. Hence, the costly political struggle never occurs. In contrast, in our experiments we observe a large amount of fighting involving high material losses, even in a case in which the possibilities for an arrangement without conflict are very salient. In our experimental environment intermediate solutions are feasible and stable, but purely emotional elements prevent them from being reached.
    Keywords: Secession, collective action, independence movements, laboratory experiments, rent-seeking
    JEL: C92 C93 D72 D74
    Date: 2007–03–01
  5. By: Jordi Brandts; Carles Solà
    Abstract: We study how personal relations affect performance in organizations. In the experimental game we use a manager has to assign different degrees of decision power to two employees. These two employees then have to make distributive decisions which affect themselves and the manager. Our focus is on the effects on managers' assignment of decision power and on employees' distributive decisions of one of the employees and the manager knowing each other personally. Our evidence shows that managers tend to favor employees that they personally know and that these employees tend, more than other employees, to favor the manager in their distributive decisions. However, this behavior does not affect the performance of the employees that do not know the manager. All these effects are independent of whether the employees that know the manager are more or less productive than those who do not know the manager. The results shed light on discrimination and nepotism and its consequences for the performance of family firms and other organizations.
    Keywords: Family firms, nepotism, corporate governance, procedural fairness, experiments
    JEL: C92 D23 M50
    Date: 2006–12–01
  6. By: Harry J. Paarsch; Bruce S. Shearer
    Abstract: We investigate the efficiency of piece-rate contracts using data from a field experiment, conducted within a tree-planting firm. During the experiment, the piece rate paid to planters was exogenously increased. Regression methods yield an estimate of the elasticity of output with respect to changes in the piece rate of 0.39. Regression methods are limited in their ability to predict the performance of alternative contracts. Therefore, we apply structural methods to interpret the experimental data. Our structural estimate of the elasticity is 0.37, very close to the regression estimate. Importantly, our structural model is identified without imposing profit maximization. This allows us to evaluate the optimality of the observed contract. We simply measure the profit distance between the observed contract and the profit-maximizing contract, evaluated at the structural parameter estimates. We estimate this distance to be negligible, suggesting that the observed contract closely approximates the expected-profit maximizing contract under asymmetric information. Under complete information, expected profits would increased by approximately fourteen percent, holding expected utility constant.
    Keywords: Incentives, Contractual Efficiency, Field Experiments
    JEL: J33 J41 C93
    Date: 2007
  7. By: Peters, Michael; Halevy, Yoram
    Abstract: The Ultimatum Game seems to be the ideal experiment to test the sequential rationality assumptions underlying subgame perfection. We illustrate with a simple example why this interpretation of the experimental results may be misguided. Instead, we approach the ultimatum game as a mechanism designed to elicit information about the preferences and beliefs of players. While remaining agnostic about the right way to interpret preferences, we maintain the assumption that preferences are interdependent - the utility of a player may be a function of other players types. We explain how to recast the best known explanations of the experimental evidence in these terms. We then illustrate how standard arguments can be used to extract the information conveyed by existing experimental results, and how the latter can restrict the set of plausible models of interdependence.
    Date: 2007–03–31
  8. By: Gunnthorsdottir, Anna; Vragov, Roumen; Mccabe, Kevin
    Abstract: A new mechanism that substantially mitigates social dilemmas is examined theoretically and experimentally. It resembles the voluntary contribution mechanism (VCM) except that in each decision round subjects are ranked and then grouped according to their public contribution. The game has multiple mostly asymmetric, Pareto-ranked pure-strategy equilibria which are rather counterintuitive, yet experimental subjects tacitly coordinate the payoff-dominant equilibrium reliably and quite precisely. In the VCM grouping is random which, with its arbitrary relation to contribution corresponds to any grouping unrelated to output, for example grouping based on race or gender. The new mechanism resembles a meritocracy since based on how much they contribute; participants are assigned to strata that vary in payoff. The findings shed light on the nature of merit-based social and organizational grouping and provide guidelines for future research and application.
    Keywords: social dilemmas; Nash equilibrium; non-cooperative games; coordination; mechanism design; experiment
    JEL: D7
    Date: 2007–02–10
  9. By: Marco Cipriani (Department of Economics, George Washington University, 2121 I Street, N.W., Washington, D.C. 20052, US.); Antonio Guarino (Department of Economics and ELSE, University College, Gower Street, London WCIE 6BT, UK.)
    Abstract: We study the effect of transaction costs (e.g., a trading fee or a transaction tax, like the Tobin tax) on the aggregation of private information in financial markets. We analyze a financial market à la Glosten and Milgrom, in which informed and uninformed traders trade in sequence with a market maker. Traders have to pay a cost in order to trade. We show that, eventually, all informed traders decide not to trade, independently of their private information, i.e., an informational cascade occurs. We replicated our financial market in the laboratory. We found that, in the experiment, informational cascades occur when the theory suggests they should. Nevertheless, the ability of the price to aggregate private information is not significantly affected. JEL Classification: C92, D8, G14.
    Keywords: Informational Cascades, Herd Behavior, Trade Costs, Tobin Tax.
    Date: 2007–03
  10. By: Jordi Brandts; Ayça Ebru Giritligil
    Abstract: We study competition in experimental markets in which two incumbents face entry by three other firms. Our treatments vary with respect to three factors: sequential vs. block or simultaneous entry, the cost functions of entrants and the amount of time during which incumbents are protected from entry. Before entry incumbents are able to collude in all cases. When all firms' costs are the same entry always leads consumer surplus and profits to their equilibrium levels. When entrants are more efficient than incumbents, entry leads consumer surplus to equilibrium. However, total profits remain below equilibrium, due to the fact that the inefficient incumbents produce too much and efficient entrants produce too little. Market behavior is satisfactory from the consumers' standpoint, but does not yield adequate signals to other potential entrants. These results are not affected by whether entry is simultaneous or sequential. The length of the incumbency phase does have some subtle effects.
    Keywords: Market selection, Imperfect competititon, Entry, Experiments
    JEL: C72 D43 D83 L13
    Date: 2006–09–01
  11. By: Ariel Rubinstein
    Abstract: Lecture audiences and students were asked to respond to virtual decision and game situations at Several thousand observations were collected and the response time for each answer was recorded. There were significant differences in response time across responses. It is suggested that choices made instinctively, that is, on the basis of an emotional response, require less response time than choices that require the use of cognitive reasoning.
    Keywords: Response Time, Instinctive and Cognitive Reasoning, Experimental Game Theory
    JEL: C9
  12. By: Ernst Fehr (Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich, Switzerland.; Klaus M. Schmidt (Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, CH-8006 Zurich, Switzerland.
    Abstract: In this paper we report on a principal-agent experiment where the principal can choose whether to rely on an unenforcable bonus contract or to combine the bonus contract with a fine if the agent’s effort falls below a minimum standard. We show that most principals do not use the fine and that the pure bonus contract is more efficient than the combined contract. Our experiment suggests that principals who are less fair are more likely to choose a combined contract and less likely to actually pay the announced bonus. This offers a new explanation for why explicit and implicit incentives are substitutes rather than complements.
    Keywords: moral hazard, bonus contract, implicit incentives, fairness, incentives
    JEL: C7 C9 J3
    Date: 2007–01
  13. By: Charles Bellemare; Bruce Shearer
    Abstract: We present results from a field experiment testing the gift-exchange hypothesis inside a tree-planting firm paying its workforce incentive contracts. Firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attribuable to past planting productivity. We compare planter productivity - the number of trees planted per day - on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block, and thus under similar planting conditions. We find direct evidence that the gift had a significant and positive effect on daily planter productivity, controlling for planter-fixed effects, weather conditions and other random daily shocks. Moreover, reciprocity is the strongest when the relationship between planters and the firm is long term.
    Keywords: Subsidy, Marginal Tax Reforms, Egypt
    JEL: J33 M52 C93
    Date: 2007
  14. By: Egil Matsen (Department of Economics, Norwegian University of Science and Technology); Bjarne Strøm (Department of Economics, Norwegian University of Science and Technology)
    Abstract: This paper examines data from the Norwegian television game show Joker, where contestants make well-specified choices under risk. The game involves very large stakes, randomly drawn contestants, and ample opportunities for learning. Expected utility (EU) theory gives a simple prediction of choice under weak conditions, as one choice is always first-order stochastically dominating. We document frequent, systematic and costly violations of dominance. Most alternative theories fail to add explanatory power beyond the EU benchmark, but many contestants appear to have a systematic expectation bias that can be related to Tversky and Kahneman?s (1973) "availability heuristic". In addition, there seems to be a stochastic element in choice that is well captured by the so-called Fechner model.
    Keywords: Risky choice; stochastic dominance; choice models; stakes; game show
    JEL: C9 C93 D81
    Date: 2006–12–19
  15. By: Ehud Kalai
    Abstract: This is a draft of a chapter for a book called "Game Theory, 5 Questions," to be published by Automatic Pressed/VIP.Below are five questions and my answers. Any feedback is appreciated.
    Keywords: game theory, applications, game science, bounded rationality, behavioral game theory

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