nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒05‒12
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse By Glenn W. Harrison; John A. List
  2. Selfish in the end? An investigation of consistency and stability of individual behaviour By Jeanette Brosig; Thomas Riechmann; Joachim Weimann
  3. Individual learning: theory formation, and feedback in a complex task By Novarese, Marco; Lanteri, Alessandro
  4. Are Imitative Strategies Game Specific? Experimental Evidence from Market Games By Niall O'Higgins; Patrizia Sbriglia
  5. Five Indefinitely Repeated Games in the Laboratory By Jim Engle-Warnick
  6. Bias and Size Effects of Price-Comparison Search Engines: Theory and Experimental Evidence By Aurora García-Gallego; Nikolaos Georgantzís; Pedro Pereira; José C. Pernías-Cerrillo
  7. Making Sense of the Experimental Evidence on Endogenous Timing in Duopoly Markets By Santos-Pinto, Luís
  8. Competition in product design: An experiment exploring innovation behavior By Uwe Cantner; Werner Güth; Andreas Nicklisch; Torsten Weiland
  9. Iterative Reasoning in an Experimental "Lemons" Market. By Annette Kirstein; Roland Kirstein
  10. Testing Theories of Reciprocity: Does Motivation Matter? By Luca Stanca, Luigino Bruni, Luca Corazzini
  11. Droft and Equilibrium Selection with Human and Computer Players By Mauro Caminati; Alessandro Innocenti; Roberto Ricciuti
  12. Like Mother Like Son? Experimental Evidence on the Transmission of Values from Parents to Children By Marco Cipriani; Paola Giuliano; Olivier Jeanne
  13. An Experimental Assessment of Confederate Reserve Price Bids in Online Auction By Tim Hoppe; Abdolkarim Sadrieh
  14. Productivity Effect of Piece Rate Contracts: Evidence from Two Small Field Experiments By Lan Shi
  15. Discrimination and In-Group Favoritism in a Citywide Trust Experiment By Armin Falk; Christian Zehnder

  1. By: Glenn W. Harrison; John A. List
    Abstract: There has been a dramatic increase in the use of experimental methods in the past two decades. An oft-cited reason for this rise in popularity is that experimental methods provide the necessary control to estimate treatment effects in isolation of other confounding factors. We examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain. Using common value auction theory as our guide, we identify naturally occurring settings in which one can test the theory. In our treatments the subjects are not picked at random, as in lab experiments with student subjects, but are deliberately identified by their trading roles in the natural field setting. We find that experienced agents bidding in familiar roles do not fall prey to the winner's curse. Yet, when experienced agents are observed bidding in an unfamiliar role, we find that they frequently fall prey to the winner's curse. We conclude that the theory predicts field behavior well when one is able to identify naturally occurring field counterparts to the key theoretical conditions.
    JEL: C90 C91 C93 D02 D44 L0
    Date: 2007–04
  2. By: Jeanette Brosig (Department of Economics, University of Cologne); Thomas Riechmann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Joachim Weimann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: This paper puts three of the most prominent specifications of ‘other-regarding’ preferences to the experimental test, namely the theories developed by Charness and Rabin, by Fehr and Schmidt, and by Andreoni and Miller. In a series of experiments based on various dictator and prisoner’s dilemma games, we try to uncover which of these concepts, or the classical selfish approach, is able to explain most of our experimental findings. The experiments are special with regard to two aspects: First, we investigate the consistency of individual behavior within and across different classes of games. Second, we analyze the stability of individual behavior over time by running the same experiments on the same subjects at several points in time. Our results demonstrate that in the first wave of experiments, all theories of other-regarding preferences explain a high share of individual decisions. Other-regarding preferences seem to wash out over time, however. In the final wave, it is the classical theory of selfish behavior that delivers the best explanation. Stable behavior over time is observed only for subjects, who behave strictly selfish. Most subjects behave consistently with regard to at least one of the theories within the same class of games, but are much less consistent across games.
    Keywords: individual preferences, consistency, stability, experimental economics
    JEL: C91 C90 C72 C73
    Date: 2007–02
  3. By: Novarese, Marco; Lanteri, Alessandro
    Abstract: We present an experiment for the study of learning in a complex task which requires both memorisation and the ability to process several pieces of information. The outcome of an action, for which immediate feedback is given, depends on the context (i.e. one of thirty-two sequences of three features) which is know and visible to the subjects. Subjects develop some theories of the experimental world, which result in the stable repetition of some actions in response to certain conditions. These theories are modified after feedback, however mistaken answers are repeated and correct answers abandoned. During the game, theories become more effective (i.e. they afford more correct answers and a higher score), yet the improvements slow down. The theories follow from only a portion of the available information and when they become successful (i.e. towards the end of the experiment) the subjects start refining them to include a larger subset of the information, this causes more stable mistakes.
    Keywords: cognitive economics; complexity; experiments; feedback; learning; theory formation; Heiner
    JEL: A12 D83 C91
    Date: 2007–04–26
  4. By: Niall O'Higgins; Patrizia Sbriglia
    Abstract: This paper studies imitation in price and quantity markets. We analyse the results of two experiments designed with different information settings. The analysis shows that information is used differently and has diverse effects according to the market under investigation.
    Keywords: Cournot, Bertrand experiments, imitation
    JEL: C91 D83
    Date: 2006–10
  5. By: Jim Engle-Warnick
    Abstract: I experimentally test play in five indefinitely repeated games: a hawk-dove game, a game of chicken, a trust game, a coordination game, and a constant-sum game. I compare the different game histories that affect decision making in each of the games. <P>Une étude expérimentale a été menée afin de tester les décisions prises lors de cinq jeux répétés où le nombre de répétitions est inconnu : un jeu de type hawk-dove, un jeu de type chicken, un jeu de confiance, un jeu de coordination et un jeu à somme constante. Les historiques des différents jeux sont comparés afin d’analyser les prises de décisions des participants dans chaque jeu.
    Keywords: experimental economics, repeated games, économie expérimentale, jeux répétés
    Date: 2007–05–01
  6. By: Aurora García-Gallego (Universitat Jaume I); Nikolaos Georgantzís (Universitat Jaume I); Pedro Pereira (Autoridade da Concorrência); José C. Pernías-Cerrillo (Universitat Jaume I)
    Abstract: This article, analyzes the impact on consumer prices of the size and bias of price comparison search engines. we develop a model, related to Burdett and Judd (1983) and Varian (1980), and test experimentally several theoretical predictions. The experimental results confirm the model’s predictions regarding the impact of the number of firms, and the type of bias of the search engine, but reject the model’s predictions regarding changes in the size of the index.
    Keywords: Search engines, incomplete information, biased information, price levels, experiments.
    JEL: C91 D43 D83 L13
    Date: 2007–02
  7. By: Santos-Pinto, Luís
    Abstract: The prediction of asymmetric equilibria with Stackelberg outcomes is clearly the most frequent result in the endogenous timing literature. Several experiments have tried to validate this prediction empirically, but failed to find support for it. By contrast, the experiments find that simultaneous-move outcomes are modal and that behavior in endogenous timing games is quite heterogeneous. This paper generalizes Hamilton and Slutsky’s (1990) endogenous timing games by assuming that players are averse to inequality in payoffs. I explore the theoretical implications of inequity aversion and compare them to the empirical evidence. I find that this explanation is able to organize most of the experimental evidence on endogenous timing games. However, inequity aversion is not able to explain delay in Hamilton and Slutsky’s endogenous timing games.
    Keywords: Endogenous Timing; Cournot; Stackelberg; Inequity Aversion.
    JEL: D43 D63 L13 C72
    Date: 2006–02–06
  8. By: Uwe Cantner (University of Jena, School of Busniess and Economics); Werner Güth (Max Planck Institute of Economics Jena, Strategic Interaction Unit); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Torsten Weiland (Max Planck Institute of Economics Jena, Strategic Interaction Unit)
    Abstract: We experimentally investigate competition in innovation in a patent race scenario. Pairs of subjects compete as seller firms on a duopoly market, engaging in risky search investments. Successful innovation is rewarded through temporary monopoly rents. Throughout the interaction, subjects receive feedback on own and other’s search success and profit margin. Partitioning subjects into subgroups of investor types reveals that the majority of subjects condition investments on the degree of competition as measured by sales shares, while for others no correlation is ascertained. Heterogeneity in individual risk attitudes and differing experiences with related search tasks may explain this finding.
    Keywords: innovation, competition, imitation, patent race
    JEL: D81 L11 O31
    Date: 2007–05–07
  9. By: Annette Kirstein; Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In this paper we experimentally test a theory of boundedly rational behavior in a "lemons" market. We analyze two different market designs, for which perfect rationality implies complete and partial market collapse, respectively. Our empirical observations deviate substantially from the predictions of rational choice theory: Even after 20 repetitions, the actual outcome is closer to efficiency than expected. We examine to which extent the theory of iterated reasoning contributes to the explanation of these observations. Perfectly rational behavior requires a player to perform an infinite 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: bounded rationality, market failure, adverse selection, regulatory failure, paternalistic regulation
    JEL: D8 C7 B4
    Date: 2007–04
  10. By: Luca Stanca, Luigino Bruni, Luca Corazzini (ISLA, Universita' Bocconi, Milano)
    Abstract: One of the key issues for understanding reciprocity is how people evaluate the kindness of an action. In this paper we argue that the motivation driving an action plays an important role for the reciprocating response to that action. We test experimentally the hypothesis that reciprocal behavior is stronger in response to actions driven by intrinsic motivation, as opposed to extrinsic motivation. Our results indicate that reciprocity is significantly stronger when extrinsic motivation can be ruled out, both at the aggregate and the individual level. These findings suggest that models of reciprocal behavior should take into account not only outcomes but also intentions and, in particular, motivations: the type of motivation of an action matters for its perceived kindness and, as a consequence, for reciprocity.
    Keywords: Reciprocity, Intrinsic Motivation, Laboratory Experiments.
    JEL: D63 C78 C91
    Date: 2007–05
  11. By: Mauro Caminati; Alessandro Innocenti; Roberto Ricciuti
    Abstract: The theory of drift (Binmore and Samuelson 1999) concerns equilibrium selection in which second order disturbances may have first-order effects in the emergence of one equilibrium over the other. We provided experimental evidence with human players supporting the model in Caminati, Innocenti and Ricciuti (2006). In this paper we test it with conditioning by computer players. When computers are removed and humans are matched against each other, the comparative static properties of the model are confirmed.
    Keywords: drift, equilibrium selection, evolutionary games, experiments.
    JEL: C72 C92
    Date: 2007–04
  12. By: Marco Cipriani (George Washington University); Paola Giuliano (Harvard University, IMF and IZA); Olivier Jeanne (IMF)
    Abstract: This paper studies whether prosocial values are transmitted from parents to their children. We do so through an economic experiment, in which a group of Hispanic and African American families play a standard public goods game. The experimental data presents us with a surprising result. We find no significant correlation between the degree of cooperation of a child and that of his or her parents. Such lack of cooperation is robust across age groups, sex, family size and different estimation strategies. This contrasts with the typical assumption made by the theoretical economic literature on the inter-generational transmission of values. The absence of correlation between parents' and children's behavior, however, is consistent with part of the psychological literature, which emphasizes the importance of peer effects in the socialization process.
    Keywords: culture, intergenerational transmission, public good games
    JEL: C92 H41 Z1
    Date: 2007–04
  13. By: Tim Hoppe (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Keywords: internet auctions, bid shilling, reserve price, internet fraud, market design
    JEL: D44 C93
    Date: 2007–04
  14. By: Lan Shi
    Abstract: I conducted two field experiments in a tree-thinning setting. In one experiment, farm workers were initially paid hourly wages, before a randomly chosen half were switched into piece rate pay. In the second experiment, workers were switched from hourly to piece rate pay all at once. The difference-in-difference and before-after estimators suggest that the productivity increase has a lower bound of 23 percent and an upper bound of 36 percent. Although the sample size is small, the estimates are statistically significant and robust. While the quality did not drop, the study highlights the measurement costs in setting up the right level of piece rates. I also provide evidence that high ability workers are attracted to piece rate contracts.
    Date: 2007–02
  15. By: Armin Falk (IZA, University Bonn and CEPR); Christian Zehnder (University of Zurich and IZA)
    Abstract: This paper provides field experimental evidence on the prevalence and determinants of discrimination and in-group favoritism in trust decisions. We observe choices of about 1,000 inhabitants of the city of Zurich who take part in a sequential trust game, in which first movers can condition their investments on the residential districts of second movers. Our main results can be summarized as follows: First movers discriminate significantly in their investment choices, i.e., strangers receive different investments depending on the district they live in. The systematics of the discrimination pattern is underlined by data from an additional newspaper study, where participants correctly guessed the outcome of the study. In terms of district characteristics two factors seem to be key for a district's reputation: while expected trustworthiness of a district increases in the socio-economic status it decreases in the degree of ethnic heterogeneity. Observed discrimination is not just based on mistaken stereotypes but can at least partly be classified as statistical discrimination. This can be inferred from the fact that, on a district level, both expected return on investment and actual investments are positively correlated with actual back transfers. First movers correctly anticipate different levels of trustworthiness and discriminate accordingly. Furthermore, we provide evidence of in-group favoritism, i.e., people trust strangers from their own district significantly more than strangers from other districts. Finally, we discuss individual determinants of discrimination and in-group favoritism.
    Keywords: discrimination, in-group favoritism, trust, trustworthiness, reciprocity, social capital, city development
    JEL: C90 D63
    Date: 2007–04

This nep-exp issue is ©2007 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.