nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒06‒11
eighteen papers chosen by
Daniel Houser
George Mason University

  1. Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior By James C. Cox; Klarita Sadiraj; Vjollca Vjollca
  2. Altruism Spillovers: Are Behaviors in Context-Free Experiments Predictive of Altruism Toward a Naturally Occurring Public Good? By Susan K. Laury; Laura O. Taylor
  3. Discrimination in the Lab: Experiments Exploring the Impact of Performance and Appearance on Sorting and Cooperation By Marco Castillo; Ragan Petrie
  4. When the Shoe is on the Other Foot: Experimental Evidence on Valuation Disparities By Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
  5. Direct Tests of Models of Social Preferences and a New Model By James C. Cox; Vjollca Sadiraj
  6. Which way to cooperate By Kaplan, Todd; Ruffle, Bradley
  7. Let Me Vote! An experimental study of vote rotation in committees By R. Bosman; P. Maier; V. Sadiraj; F. van Winden
  8. Pay One or Pay All: Random Selection of One Choice for Payment By Susan K. Laury
  9. Trust, Fear, Reciprocity, and Altruism: Theory and Experiment By James C. Cox
  10. Cognitive Dissonance, Pessimism, and Behavioral Spillover Effects By David L. Dickinson; Robert J. Oxoby
  11. Economic Experiments and Neutrality in Internet Access By Shane Greenstein
  12. On Modeling Voluntary Contributions to Public Goods By James C. Cox; Vjollca Sadiraj
  13. Social Barriers to Cooperation: Experiments on the Extent and Nature of Discrimination in Peru By Marco Castillo; Ragan Petrie; Maximo Torero
  14. Herding And Social Pressure In Trading Tasks: A Behavioural Analysis By Baddeley, M.; Pillas, D.; Christopoulos, Y.; Schultz, W.; Tobler, P.
  15. Social Distance and Reciprocity By Lucy F. Ackert; Bryan K. Church; Shawn Davis
  16. The 2 × 2 × 2 case in causality, of an effect, a cause and a confounder. A cross-over’s guide to the 2 × 2 × 2 contingency table By Colignatus, Thomas
  17. The New Social Science Imperialism and the Problem of Knowledge in Contemporary Economics By William Milberg
  18. Revealed Altruism By James C. Cox; Daniel Friedman; Vjollca Sadiraj

  1. By: James C. Cox; Klarita Sadiraj; Vjollca Vjollca
    Abstract: This paper reports three experiments with triadic or dyadic designs. The experiments include the moonlighting game in which first-mover actions can elicit positively or negatively reciprocal reactions from second movers. First movers can be motivated by trust in positive reciprocity or fear of negative reciprocity, in addition to unconditional other-regarding preferences. Second movers can be motivated by unconditional other-regarding preferences as well as positive or negative reciprocity. The experimental designs include control treatments that discriminate among actions with alternative motivations. Data from our three experiments and a fourth one are used to explore methodological questions, including the effects on behavioral hypothesis tests of within-subjects vs. across-subjects designs, single-blind vs. double-blind payoffs, random vs. dictator first-mover control treatments, and strategy responses vs. sequential play.
    JEL: C70 C91 D63 D64
  2. By: Susan K. Laury; Laura O. Taylor
    Abstract: This paper addresses the external validity of experiments investigating the characteristics of altruism in the voluntary provision of public goods. We conduct two related experiments that allow us to examine whether individuals who act more altruistically in the context-free environment are also more likely to act altruistically toward a naturally-occurring public good. We find that laboratory behavior can be predictive of contributions toward naturally-occurring goods, but not in a uniform way. In fact, parametric measures of altruism do a poor job of predicting which subjects are most likely to contribute to a naturally-occurring public good.
    JEL: C91 D64 H41
  3. By: Marco Castillo; Ragan Petrie
    Abstract: We present experimental evidence consistent with statistical discrimination in a public good and group formation game. We find that behavior is correlated with race and gender, and people use race and gender to predict behavior when no other information is available. When information on behavior is provided, people disregard personal characteristics completely. These characteristics are also disregarded when individual behavior is induced to break the correlation between characteristics and behavior. That is, people disregard race and gender even when observed behavior is unusual but relevant to payoffs. Finally, our experiments show that sorting into groups has dramatic implications on cooperation. Overall payoffs are higher when sorting is possible than when groups are randomly assigned. This only occurs, however, when personal characteristics are known. Higher payoffs are attained at the cost of an equitable distribution.
    Date: 2006–07
  4. By: Lucy F. Ackert; Bryan K. Church; Gerald P. Dwyer
    Abstract: The method of elicitation has an important effect on valuations. We investigate the effect of perspective on decision makers’ elicited values. We conduct experimental sessions in which participants act as sellers or buyers and replicate the disparity between willingness to accept and willingness to pay: sellers want to collect more and buyers want to pay less. We conduct additional sessions in which endowed decision makers provide values that are used to determine a price at which anonymous others transact. In these sessions, decision makers’ experimental earnings are not affected by valuations, but rather determined by their endowment. Decision makers appear to consider their standing relative to anonymous others in providing valuations, i.e., decision makers’ endowments affect their valuations. The results indicate that the disparity between willingness to accept and willingness to pay disappears when decision makers’ endowment ensures that they are at least as well off as anonymous others.
    JEL: C91 C92
    Date: 2006–06
  5. By: James C. Cox; Vjollca Sadiraj
    Abstract: Departures from "economic man" behavior in many games in which fairness is a salient characteristic are now well documented in the experimental economics literature. These data have inspired development of new models of social preferences incorporating inequality aversion and quasi-maximin preferences. We report experiments that provide direct tests of these social preference models. Data from the experiments motivate a new model of egocentric altruism. The model rationalizes data from our direct test experiments and data from experiments with proposer competition and responder competition. We discuss generalizations of the egocentric altruism model that incorporate agents’ intentions and thus provide a unified approach to modeling behavior in games both with and without reciprocal motivation.
    JEL: A12 A13 B49 C70 C91 D63
  6. By: Kaplan, Todd; Ruffle, Bradley
    Abstract: Cooperation in real-world dilemmas takes many forms. We introduce a class of two-player games that permits two distinct ways to cooperate in the repeated game. One way to cooperate is to play cutoff strategies, which rely solely on a player's private value to defection. The second cooperative strategy is to take turns, which relies on publicly available information. Our initial experiments reveal that almost all cooperators adopt cutoff strategies. However, follow-up experiments in which the distribution of values to defection are made more similar show that all cooperators now take turns. Our results offer insight into what form a cooperative norm will take: for mundane tasks or where individuals otherwise have similar payoffs, taking turns is likely; for difficult tasks that differentiate individuals by skill or by preferences, cutoff cooperation will emerge.
    Keywords: experimental economics; cooperation; incomplete information; alternating; cutoff strategies; random payoffs.
    JEL: C90
    Date: 2007–06–01
  7. By: R. Bosman; P. Maier; V. Sadiraj; F. van Winden
    Abstract: We conduct an experiment to investigate (i) whether rotation in voting increases a committee’s efficiency, and (ii) the extent to which rotation is likely to critically influence collective and individual welfare. The experiment is based on the idea that voters have to trade-off individual versus common interests. Our findings indicate that the choice of a rotation scheme has important consequences: it ‘pays’ to be allowed to vote, as voting committee members earn significantly more than non-voting members. Hence, rotation is not neutral. We also find that smaller committees decide faster and block fewer decisions. This reduces frustration among committee members.
    JEL: D70 D78 E58
  8. By: Susan K. Laury
    Abstract: It has become increasingly common in economics experiments to elicit a series of choices from participants, and then pay for only one, selected at random, after all have been made. This allows the researcher to observe a large number of individual decisions, and to increase payoffs for each decision since only one of them will be used for payment. It has not been demonstrated, however, whether subjects behave as if each of these choices involves the stated payoffs, or if subjects scale-down payoffs to account for the random selection that is made. This paper reports an experiment that tests this directly. In an environment where payoff scale effects have been demonstrated to matter, three treatments are conducted: pay for one of 10 choices under low payoffs, pay for all 10 choices under low payoffs, and pay for 1 of 10 choices under 10x the low payoff level. Increasing payoff scale has a significant effect on choices compared with the low payoff treatments where all 10 decisions are paid, or where one decision is paid. However, there is no significant difference in choices between paying for one or all 10 decisions at the low payoff level. This supports the validity of using the random-choice payment method.
  9. By: James C. Cox
    Abstract: This paper describes central topics in our research program on social preferences. The discussion covers experimental designs that discriminate among alternative components of preferences such as unconditional altruism, positive reciprocity, trust (in positive reciprocity), negative reciprocity, and fear (of negative reciprocity). The paper describes experimental data on effects of social distance and decision context on reciprocal behavior and male vs. female and group vs. individual differences in reciprocity. The exposition includes experimental designs that provide direct tests of alternative models of social preferences and summarizes implications of data for the models. The discussion reviews models of other-regarding preferences that are and are not conditional on others’ revealed intentions and the implications of data for these models.
  10. By: David L. Dickinson; Robert J. Oxoby
    Abstract: This paper reports results from a unique two-stage experiment designed to examine the spillover effects of optimism and pessimism. In stage 1, we induce optimism or pessimism onto subjects by randomly assigning a high or low piece rate for performing a cognitive task. We find that participants receiving the low piece rate are significantly more pessimistic with respect to performance on this task. In stage 2 individuals participate in an ultimatum game. We find that minimum acceptable offers are significantly lower for pessimistic subjects, though this pessimism was generated in a completely unrelated environment. These results highlight the existence of important spillover effects that can be behaviorally and economically important - for example, pessimism regarding one’s initial conditions (e.g., living in poverty) may have spillover effects on one’s future labor market outcomes.
    Date: 2007
  11. By: Shane Greenstein
    Abstract: Economic experiments yield lessons to firms that can be acquired only through market experience. Economic experiments cannot take place in a laboratory; scientists, engineers, or marketing executives cannot distill equivalent lessons from simply building a prototype or interviewing potential customers and vendors. The historical record illustrates that economic experiments were important for value creation in Internet access markets. In general, industry-wide returns from economic experiments exceed private returns, with several important exceptions. Those conclusions motivate an inquiry into whether regulatory policy can play a role in fostering the creation of value. The net neutrality debate is reinterpreted through this lens. A three part test is proposed for encouraging economic experiments from both broadband carriers and providers of complementary services.
    JEL: L5 L86 L96 O31
    Date: 2007–06
  12. By: James C. Cox; Vjollca Sadiraj
    Abstract: This paper addresses four "stylized facts" that summarize data from experimental studies of voluntary contributions to provision of public goods. Theoretical propositions and testable hypotheses for voluntary contributions are derived from two models of social preferences, the inequity aversion model and the egocentric other-regarding preferences model. We find that the egocentric other-regarding preferences model with classical regularity properties can better account for the stylized facts than the inequity aversion model with non-classical properties.
    JEL: C70 C91 D64 H41
    Date: 2006–10
  13. By: Marco Castillo; Ragan Petrie; Maximo Torero
    Abstract: We present a series of experiments to understand the nature and extent of discrimination in urban Lima, Peru. The experiments exploit varying degrees of information on performance and personal characteristics as people sort into groups to test for statistical versus taste-based discrimination. This allows us to examine the nature of discrimination. Our sample is similar to the racial and socio-economic diversity of young adults in urban Lima. This allows us to look at the extent of discrimination. We use a unique method to measure race, along four racial dimensions common in Peru, and find that race is clearly observable. This gives us confidence that we can examine discrimination based on race. While behavior is not correlated with personal, socio-economic or racial characteristics, people do use personal characteristics to sort themselves into groups. Beauty is a robust predictor of being a desirable group member as is being a woman. Being unattractive or looking indigenous makes one less desirable and looking white increases one’s desirability. Interestingly, indigenous subjects are three times more likely to be classified as unattractive, suggesting that beauty might mask discrimination. We find that once information on performance is provided, almost all evidence of discrimination is eliminated, except in the most-preferred group. The evidence in these cases is consistent with taste-based, rather than statistical, discrimination.
    Date: 2006–12
  14. By: Baddeley, M.; Pillas, D.; Christopoulos, Y.; Schultz, W.; Tobler, P.
    Abstract: We extend the experimental literature on Bayesian herding using evidence from a financial decision-making experiment. We identify significant propensities to herd increasing with the degree of herd-consensus. We test various herding models to capture the differential impacts of Bayesian-style thinking versus behavioural factors. We find statistically significant associations between herding and individual characteristics such as age and personality traits. Overall, our evidence is consistent with explanations of herding as the outcome of social and behavioural factors. Suggestions for further research are outlined and include verifying these findings and identifying the neurological correlates of propensities to herd.
    Keywords: Herding, Bayesian updating, social learning, social pressure
    JEL: D7 D8 D81 D82 D83
    Date: 2007–05
  15. By: Lucy F. Ackert; Bryan K. Church; Shawn Davis
    Abstract: Contrary to the predictions of non-cooperative game theory, trust and reciprocity are commonly reported in simple games. We conduct a one-shot investment game to examine how social distance affects behavior in two-person exchanges. Two aspects of social distance are examined: ex post revelation of complete information on the second player’s choice set and ex post revelation of information regarding the second player’s identity. The results indicate that reciprocity is not affected by knowledge of the choice set, but depends critically on the possible revelation of the decision maker’s identity. That is, the possibility that the second player’s identity (picture) is revealed to his/her counterpart has a profound effect on the degree of reciprocity extended.
    Date: 2006–03
  16. By: Colignatus, Thomas
    Abstract: Basic causality is that a cause is present or absent and that the effect follows with a success or not. This happy state of affairs becomes opaque when there is a third variable that can be present or absent and that might be a seeming cause. The 2 × 2 × 2 layout deserves the standard name of the ETC contingency table, with variables Effect, Truth and Confounding and values {S, -S}, {C, -C}, {F, -F}. Assuming the truth we can find the impact of the cause from when the confounder is absent. The 8 cells in the crosstable can be fully parameterized and the conditions for a proper cause can be formulated, with the parameters interpretable as regression coefficients. Requiring conditional independence would be too strong since it neglects some causal processes. The Simpson paradox will not occur if logical consistency is required rather than conditional independence. The paper gives a taxonomy of issues of confounding, a parameterization by risk or safety, and develops the various cases of dependence and (conditional) independence. The paper is supported by software that allows variations. The paper has been written by an econometrician used to structural equations models but visiting epidemiology hoping to use those techniques in experimental economics.
    Keywords: Experimental economics; causality; cause and effect; confounding; contingency table; Simpson paradox; conditional independence; risk; safety; epidemiology; correlation; regression; Cornfield’s condition; inference
    JEL: C10
    Date: 2007–05–30
  17. By: William Milberg (New School for Social Research, New York, NY)
    Keywords: imperialism; contemporary economics; knowledge
    Date: 2007–02–23
  18. By: James C. Cox; Daniel Friedman; Vjollca Sadiraj
    Abstract: This paper develops a nonparametric theory of preferences over one's own and others' monetary payoffs. We introduce "more altruistic than" (MAT), a partial ordering over preferences, and interpret it with known parametric models. We also introduce and illustrate "more generous than" (MGT), a partial ordering over opportunity sets. Several recent studies focus on two player extensive form games of complete information in which the first mover (FM) chooses a more or less generous opportunity set for the second mover (SM). Here reciprocity can be formalized as the assertion that an MGT choice by the FM will elicit MAT preferences in the SM. A further assertion is that the effect on preferences is stronger for acts of commission by FM than for acts of omission. We state and prove propositions on the observable consequences of these assertions. Finally, empirical support for the propositions is found in existing data from investment games and from Stackelberg games and in new data from Stackelberg mini-games.

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