nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒04‒28
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Experimental Economics: Contributions, Recent Developments, and New Challenges By Marie-Claire Villeval
  2. Does context matter more for hypothetical than for actual contributions? Evidence from a natural field experiment By Alpizar, Francisco; Carlsson, Fredrik; Johansson-Stenman, Olof
  3. Dumbing down rational players : Learning and teaching in an experimental game. By Antoine Terracol; Jonathan Vaksmann
  4. Punishment, Inequality and Emotions By David Masclet; Marie-Claire Villeval
  5. Frames and Games By Jordi Brandts; Christiane Schwieren
  6. Let Me See You! A Video Experiment on the Social Dimension of Risk Preferences By Werner Güth; M. Vittoria Levati; Matteo Ploner
  7. Effort and Comparison Income : Survey and Experimental Evidence By Andrew Clark; David Masclet; Marie-Claire Villeval
  8. How enforcement institutions affect markets By Benito Arruñada; Marco Casari
  9. Effort Self-Selection and the Efficiency of Tournaments By Tor Eriksson; Sabrina Teyssier; Marie-Claire Villeval
  10. Personal Identity in the Dictator Game By Fernando Aguiar; Pablo Branas-Garza; Maria Paz Espinosa; Luis M. Miller
  11. Exploring a New ExpAce: The Complementarities between Experimental Economics and Agent-based Computational Economics By Bruno Contini; Roberto Leombruni; Matteo Richiardi
  12. Competition, Hidden information, and Efficiency: an Experiment By Antonio Cabrales; Gary Charness
  13. Hypothetical bias in choice experiments: Within versus between subject tests By Johansson-Stenman, Olof; Svedsäter, Henrik
  14. Mixture Models of Choice Under Risk By Anna Conte; John D Hey; Peter G Moffatt

  1. By: Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: Although economics has long been considered as a non-experimental science, the development of experimental economics and behavioral economics is amazingly rapid and affects most fields of research. This paper first attempts at defining the main contributions of experiments to economics. It also identifies four main trends in the development of experimental research in economics. The third contribution of this paper is to identify the major theoretical and methodological challenges faced by behavioral and experimental economics.
    Keywords: behavioral economy ; Experimental economics ; field experiment ; quantitative methods
    Date: 2007–04–19
  2. By: Alpizar, Francisco (Environment for Development Center, Tropical Agricultural and Higher Education Center (CATIE)); Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We investigate the importance of the social context for people’s voluntary contributions to a national park in Costa Rica, using a natural field experiment. Some subjects make actual contributions while others state their hypothetical contribution. Both the degree of anonymity and provided information about the contributions of others influence subject contributions in the hypothesized direction. We do find a substantial hypothetical bias with regard to the amount contributed. However, the influence of the social contexts is about the same when the subjects make actual monetary contributions as when they state theirhypothetical contributions. Our results have important implications for validity testing of stated preference methods: a comparison between hypothetical and actual behavior should be done for a given social context. <p>
    Keywords: Environmental valuation; stated preference methods; voluntary contributions; anonymity; conformity; natural field experiment
    JEL: C93 Q50
    Date: 2007–04–19
  3. By: Antoine Terracol (GREMARS et Centre d'Economie de la Sorbonne); Jonathan Vaksmann (Centre d'Economie de la Sorbonne)
    Abstract: This paper uses experimental data to examine the existence of a teaching strategy among bounded rational players. If players realize that their own actions modify their opponent's beliefs and actions, they might play certain actions to this specific end ; and forego immediate payoffs if the expected payoffs if the expected payoff gain from a teaching strategy is high enough. Our results support the existence of a teaching strategy in several ways : First they show that players update their beliefs in order to take account of the reaction of their opponents to their own action. Second, we examine if players actually use a teaching strategy by playing an action that induces a poor immediate payoff but is likely to modify the opponent's behavior so that a preferable outcome might emerge in the future. We find strong evidence of such a strategy in the data and confirm this finding within a logistic model which suggests that the future expected payoff that could arise from a teaching strategy has indeed a significant impact on choice probabilities. Finally, we investigate the effective impact of a teaching strategy on achieved outcomes and find that efficient teachers can successfully use teaching in order to reach their favorite outcome at the expense of their opponents.
    Keywords: Game theory, teaching, beliefs, experiment.
    JEL: C72 C91 D83
    Date: 2007–03
  4. By: David Masclet (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: Cooperation among people who are not related to each other is sustained by the availability of punishment devices which help enforce social norms (Fehr and Gächter, 2002). However, the rationale for costly punishment remains unclear. This paper reports the results of an experiment investigating inequality aversion and negative emotions as possible determinants of punishment. We compare two treatments of a public good game, one in which costly punishment reduces the immediate payoff inequality between the punisher and the target, and one in which it does not affect inequality. We show that while inequality-aversion prevents some subjects from punishing in the equal cost treatment, negative emotions are the primary motive for punishment. Results also indicate that the intensity of punishment increases with the level of inequality, and reduces earnings inequality over time.
    Keywords: cooperation ; experiment ; Free-Riding ; inequity aversion ; negative emotions
    Date: 2007–04–23
  5. By: Jordi Brandts; Christiane Schwieren
    Abstract: Decision-makers are sometimes influenced by the way in which choice situations are presented to them or "framed" This can be seen as an important challenge to the social sciences, since strong and pervasive framing effects would make it difficult to study human behavior in a synthetic or theoretic manner. We present results from experiments with dilemma games designed to shed light on the effects of several frame variations. We study, among others, the particular public bad frame used by Andreoni (1995) and two more naturalistic frames involving stories. Our results show that none of the frame manipulations have a significant effect on average behavior, but we do find some effects on extreme behavior. We also find that incentives do matter where frames do not matter.
    Keywords: Framing, Experiments, Public Goods
    JEL: C92 H41
    Date: 2007–03–15
  6. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Jena, Strategic Interaction Group); Matteo Ploner (Max Planck Institute of Economics, Jena, Strategic Interaction Group)
    Abstract: Previous studies have shown that decision makers are less other-regarding when their own payoff is risky than when it is sure. Empirical observations also indicate that people care more about identifiable than unidentifiable others. In this paper, we report on an experiment designed to explore whether rendering the other identifiable - via a short speechless video - can affect the relation between other-regarding concerns and attitudes toward social risk. For this sake, we elicit risk attitudes under two treatments differing in whether the actor can see the other or not. We find that seeing the other does not affect behavior significantly: regardless of the treatment, individuals are mainly self-oriented as to social allocation of risk, though they are other-regarding with respect to expected payoff levels.
    Keywords: Risk attitudes, other-regarding concerns, identifiability
    JEL: C90 D63 D81
    Date: 2007–04–20
  7. By: Andrew Clark (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - [CNRS : UMR8545] - [Ecole Normale Supérieure de Paris][Ecole des Hautes Etudes en Sciences Sociales]); David Masclet (CREM - Centre de Recherche en Economie et Management - [CNRS : UMR6211] - [Université Rennes I][Université de Caen]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: This paper combines ISSP survey data and experimental evidence from a gift-exchange game to determine the effect of status or relative income on work effort. We find a strong effect of others' incomes on individual effort decisions in both datasets. The individual's rank in the income distribution has a more powerful effect on effort than does others' average income, suggesting that comparisons are more ordinal than cardinal. We further show that, controlling for own income and income rank, the width of the relevant income distribution matters, with effort increasing in the distance from the bottom of the income distribution. Last, effort is also affected by comparisons over time: those who received higher income offers or had higher income rank in the past exert lower levels of effort for a given current income
    Keywords: comparison income ; effort ; experiment ; income distribution ; peak-end ; rank
    Date: 2007–04–23
  8. By: Benito Arruñada; Marco Casari
    Abstract: In an experiment we study market outcomes under alternative incentive structures for thirdparty enforcers. Our transactions resemble an anonymous credit market where lenders can give loans and borrowers can repay them. When borrowers default, judges are free to enforce repayment but are themselves paid differently in each of three treatments. First, paying judges according to lenders’ votes maximizes surplus and the equality of earnings. In contrast, paying judges according to borrowers’ votes triggers insufficient enforcement, destroying the market and producing the lowest surplus and the most unequal distribution of earnings. Lastly, judges paid the average earnings of borrowers and lenders achieve results close to those based on lender voting. We employ a steps-of-reasoning argument to interpret the performances of different institutions. When voting and enforcement rights are allocated to different classes of actors, the difficulty of their task changes, and arguably as a consequence they focus on high or low surplus equilibria.
    Keywords: impersonal exchange ; third-party enforcement ; experiments ; steps of reasoning ; judges’ incentives ; repeated interaction
    JEL: C91 C92 D63 D72 K40
    Date: 2007–04
  9. By: Tor Eriksson (Department of economics - [University of Aarhus]); Sabrina Teyssier (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Marie-Claire Villeval (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: When exogenously imposed, rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter, and Weigelt 1987). However, since the efficiency of performance-related pay is attributable both to its incentive effect and to its selection effect among employees (Lazear, 2000), it is important to investigate the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on the degree of risk aversion, sorting is efficiency-enhancing since it increases the homogeneity of the contestants. We suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay.
    Keywords: experiment ; Incentives ; performance pay ; selection ; selection ; tournament
    Date: 2007–04–23
  10. By: Fernando Aguiar; Pablo Branas-Garza; Maria Paz Espinosa; Luis M. Miller (Max Planck Institute of Economics Jena, Strategic Interaction Group)
    Abstract: This paper aims to analize the role of personal identity in decision making. To this end, it starts by reviewing critically the growing literature on economics and identity. Considering the ambiguities that the concept of social identity poses, our proposal focuses on the concept of personal identity. A formal model to study how personal identity enters in individuals’ utility function when facing a Dictator Game decision is then presented. Finally, this "identity-based" utility function is studied experimentally. The experiment allows us to study the main parameters of the model, suggesting that we should move with caution when attributing identities to individuals.
    Keywords: personal identity, dictator game, game theory, experiments
    JEL: A13 C72 C91
    Date: 2007–04–20
  11. By: Bruno Contini; Roberto Leombruni; Matteo Richiardi
    Abstract: What is the relationship, if any, between Experimental Economics and Agent-based Computational Economics? Experimental Economics (EXP) investigates individual behaviour (and the emergence of aggregate regularities) by means of human subject experiments. Agent-based Computational Economics (ACE), on the other hand, studies the relationships between the micro and the macro level with the aid of artificial experiments. Note that the way ACE makes use of experiments to formulate theories is indeed similar to the way EXP does. The question we want to address is whether they can complement and integrate with each other. What can Agent-based computational Economics give to, and take from, Experimental Economics? Can they help and sustain each other, and ultimately gain space out of their restricted respective niches of practitioners? We believe that the answer to all these questions is yes: there can be and there should be profitable “contaminations” in both directions, of which we provide a first comprehensive discussion.
    Keywords: Experimental Economics, Agent-based Computational Economics, Agent-Based Models, Simulation.
    JEL: B4 C9 C63
    Date: 2006
  12. By: Antonio Cabrales (Departamento de Economía - [Universidad Carlos III de Madrid]); Gary Charness (Department of Economics - [University of California, Santa Barbara])
    Abstract: We devise an experiment to explore the effect of different degrees of competition on optimal contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how these different degrees of competition affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies remain. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents' informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more ‘generous' (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
    Keywords: competition ; efficiency ; experiment ; hidden information
    Date: 2007–04–23
  13. By: Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Svedsäter, Henrik (Department of Psychology, Göteborg University)
    Abstract: A choice experiment eliciting environmental values is set up in order to test for hypothetical bias based on both within and between sample designs. A larger hypothetical bias was found in the latter case, which explains parts of the previous diverging results in the literature. People seem to prefer to do what they say they would do.<p>
    Keywords: Stated-preference methods; choice experiment; hypothetical bias; internal consistency; non-market valuation;
    JEL: C91 Q28
    Date: 2007–04–20
  14. By: Anna Conte; John D Hey; Peter G Moffatt
    Abstract: This paper is concerned with estimating preference functionals for choice under risk from the choice behaviour of individuals. We start from the observation that there is heterogeneity in behaviour between individuals and within individuals. By ‘heterogeneity between individuals’ we mean that people are different, not only in terms of which type of preference functional that they have, but also in terms of their parameters for these functionals. By ‘heterogeneity within individuals’ we mean that behaviour may be different even by the same individual for the same choice problem. Given the heterogeneity between individuals, the assumption of a ‘representative agent’ preference functional to represent the preference functional of all individuals may well lead to biased estimates. Given the heterogeneity within individuals, we should think carefully about the source of this heterogeneity and model it appropriately, for otherwise we get biased estimates. We propose solutions to both of these problems, concentrating particularly, but not exclusively, on using a Mixture Model to capture the heterogeneity of preference functionals across individuals.
    Keywords: errors, expected utility theory, experimental economics, maximum simulated likelihood, mixture models, preference functionals, risky choice, rank dependent expected utility theory, unobserved heterogeneity
    JEL: C15 C29 C51 C87 C91 D81
    Date: 2007–04

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