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on Experimental Economics |
| By: | Lucca Corazzini; Marco Faravelli; Lucca Stanca |
| Abstract: | This paper investigates fund-raising mechanisms based on a prize as a way to overcome free riding in the private provision of public goods, under the assumptions of income heterogeneity and incomplete information about income levels. We compare experimentally the performance of a lottery, an all-pay auction and a benchmark voluntary contribution mechanism. We find that prize-based mechanisms perform better than voluntary contribution in terms of public good provision after accounting for the cost of the prize. Comparing the prize-based mechanisms, total contributions are significantly higher in the lottery than in the all-pay auction. Focusing on individual income types, the lottery outperforms voluntary contributions and the all-pay auction throughout the income distribution. |
| Keywords: | Auctions, Lotteries, Public Goods, Laboratory Experiments |
| JEL: | C91 D44 H4 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:159&r=exp |
| By: | Luca Stanca (Department of Economics, University of Milan-Bicocca); Luigino Bruni (Department of Economics, University of Milan-Bicocca); Luca Corazzini (Department of Economics, University of Milan-Bicocca) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:109&r=exp |
| By: | Leonardo Becchetti; Giacomo Degli Antoni; Marco Faillo; Luigi Mittone |
| Abstract: | The role of “relational goods” is almost unexplored in the literature, yet our experimental results document that, even in their weakest form (opportunity of meeting an unknown player at the end of an experimental game), they significantly affect important “lubricants” of economic activity such as trust and trustworthiness and generate significant departures from the standard Nash equilibrium outcome in trust (investment) games. Our findings suggest that relational goods are an important “source of energy” in economic interactions and that the study of this “neglected particle” of socioeconomic life may produce significant advancements on both positive and normative economics. |
| Keywords: | relational goods, trust, experimental games |
| JEL: | C72 C91 A13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpce:0705&r=exp |
| By: | Andreas Ortmann (Center for Economic Research and Graduate Education, Charles University, and Economics Institute, Academy of Sciences of the Czech Republic (CERGE-EI).); Alexandra Prokosheva (Center for Economic Research and Graduate Education, Charles University, and Economics Institute, Academy of Sciences of the Czech Republic (CERGE-EI).); Ondrej Rydval (Max-Planck-Institute of Economics (Strategic Interaction Group), Jena, Germany); Ralph Hertwig (University of Basel, Switzerland) |
| Abstract: | Gneezy, List and Wu [Q. J. Econ. 121 (2006) 1283-1309] document that lotteries are often valued less than the lotteries’ worst outcomes. We show how to undo this result. |
| Keywords: | Risky choice, framing, experiments, task ambiguity, subject confusion |
| JEL: | C81 C91 C93 D83 |
| Date: | 2007–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-038&r=exp |
| By: | Helga Fehr-Duda (Institute of Economic Research, Swiss Federal Institute of Technology Zurich); Adrian Bruhin (Socioeconomic Institute, University of Zurich); Thomas Epper (Institute of Economic Research, Swiss Federal Institute of Technology Zurich); Renate Schubert (Institute of Economic Research, Swiss Federal Institute of Technology Zurich) |
| Abstract: | It has long been recognized that relative risk aversion over gains increases with stake size. The evidence for losses is mixed, however. Based on experimental data on choices over real gains and losses in China, we find that average behavior under losses is not sensitive to stake size. In the gain domain, increasing relative risk aversion can be attributed to a significant change in probability weights: The probability weighting curve for high gains lies significantly closer to the rational, i.e. linear, weighting line than the curve for low gains. A finite mixture regression analysis of heterogeneity shows that the majority of subjects weight low-gain probabilities much more optimistically than high-gain probabilities. A minority of near rational types do not react to rising stakes at all. Our results question the validity of rank-dependent theories of choice. |
| Keywords: | Risk Aversion, Stake-Size Effect, Prospect Theory, Latent Heterogeneity |
| JEL: | D81 C91 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0708&r=exp |
| By: | Adrian Bruhin (Socioeconomic Institute, University of ZurichAuthor-Name: Helga Fehr; Institute of Economic Research, Swiss Federal Institute of Technology Zurich); Thomas Epper (Institute of Economic Research, Swiss Federal Institute of Technology Zurich) |
| Abstract: | It has long been recognized that there is considerable heterogeneity in individual risk taking behavior but little is known about the distribution of risk taking types. We present a parsimonious characterization of risk taking behavior by estimating a finite mixture regression model for three different experimental data sets, two Swiss and one Chinese, over a large number of real gains and losses. We find two distinct types of individuals: In all three data sets, the choices of roughly 80% of the subjects exhibit significant deviations from rational probability weighting consistent with prospect theory. 20% of the subjects weight probabilities linearly and behave essentially as expected value maximizers. Moreover, the individuals are assigned to one of these two groups with probabilities of close to one resulting in a low measure of entropy. The reliability and robustness of our classification suggest using a mix of preference theories in applied economic modeling. |
| Keywords: | individual risk taking behavior, latent heterogeneity, finite mixture regression models |
| JEL: | D81 C49 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0705&r=exp |
| By: | Helga Fehr (Institute of Economic Research, Swiss Federal Institute of Technology Zurich); Thomas Epper (Institute of Economic Research, Swiss Federal Institute of Technology Zurich); Adrian Bruhin (Socioeconomic Institute, University of Zurich); Renate Schubert (Institute of Economic Research, Swiss Federal Institute of Technology Zurich) |
| Abstract: | When valuing risky prospects, people tend to overweight small probabilities and to underweight large probabilities. Nonlinear probability weighting has proven to be a robust empirical phenomenon and has been integrated in decision models, such as cumulative prospect theory. Based on a laboratory experiment with real monetary incentives, we show that incidental emotional states, such as preexisting good mood, have a significant effect on the shape of the probability weighting function, albeit only for women. Women in a better than normal mood tend to exhibit mood-congruent behavior, i.e. they weight probabilities of gains and losses relatively more optimistically. Men’s probability weights are not responsive to mood state. We find that the application of a mechanical decision criterion, such as the maximization of expected value, immunizes men against effects of incidental emotions. 40% of the male participants indeed report applying expected values as decision criterion. Only a negligible number of women do so. |
| Keywords: | prospect theory, probability weighting function, risk taking behavior, incidental emotions, rationality |
| JEL: | D81 C91 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:soz:wpaper:0703&r=exp |
| By: | Ondrej Rydval (Max Planck Institute of Economics, Jena, Germany.) |
| Abstract: | This paper extends existing evidence on the interaction between financial incentives and cognitive capital. I focus on the impact of task-specific cognitive capital, the role of which is central to the capital-labor-production framework of Camerer and Hogarth (1999) and has long been studied in cognitive science and behavioral decision research. Using a task situated in an accounting setting, I show that both financial incentives and task-specific cognitive capital, and especially their interaction, matter for performance. In particular, the effect of task-specific cognitive capital on performance is stronger under performance-based financial incentives as compared to flat-rate incentives. The interaction effect arises because performance-based financial incentives lead to better performance only for individuals with more task-specific cognitive capital. I draw implications for compensation practices in experiments as well as work settings. |
| Keywords: | Financial incentives, Cognitive abilities, Experiments, Field experiments |
| JEL: | C81 C91 C93 D83 |
| Date: | 2007–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-039&r=exp |
| By: | Palfrey, Thomas R.; Wang, Stephanie W. |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1271&r=exp |
| By: | Itaoka, Kenshi; Krupnick, Alan (Resources for the Future); Saito, Ava; Akai, Makoto |
| Abstract: | We conducted a choice experiment presenting respondents with risk reductions for three types of illnesses related to air pollution—pollen allergy, chronic bronchitis, and lung cancer—splitting the sample to test the effects of private-good and public-good contexts on the value of a statistical case (VSC) of each illness type. The results indicate that pollen allergy would be valued less than chronic bronchitis, which would be valued less than lung cancer. In terms of the private/public goods context, when exogenous rates of time preference/discount rates were applied to the estimation procedure, the VSC for a specific illness almost always was larger for the public-goods context. However, because estimated rates of time preference are far larger in the private-goods context (17% versus 1.3%), the benefits are lower, and, as they are the denominator in the VSC calculation, the VSCs are larger. We also find some effects that could be attributed to paternalistic altruism on the rate of time preference, as well as on willingness to pay for illness risk reduction. For instance, respondents with children were willing to pay more for pollen allergy risk reduction than respondents without children but less for lung cancer in the public-goods context. |
| Keywords: | morbidity, valuation, choice experiment, Japan |
| JEL: | H41 I12 I18 J17 |
| Date: | 2007–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-07-07&r=exp |
| By: | Joanna Lahey; (National Bureau of Economic Research); ; |
| Abstract: | As the baby boom cohort reaches retirement age, demographic pressures on public programs such as Social Security may cause policy makers to cut benefits and encourage employment at later ages. This prospect raises the question of how much employer demand exists for older workers. This paper reports on a labor market experiment to determine the hiring conditions for older women in entry-level jobs in Boston, MA and St. Petersburg, FL. Differential interviewing by age is found for these jobs. A younger worker is more than 40 percent more likely to be offered an interview than is an older worker. No evidence is found to support taste-based discrimination as a reason for this differential, and some suggestive evidence is found to support statistical discrimination. |
| Keywords: | baby boomers, older workers, women, hiring, entry-level jobs, discrimination, taste-based, statistical |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2006-23&r=exp |
| By: | Peeters Ronald; Strobel Martin; Vermeulen Dries; Walzl Markus (METEOR) |
| Abstract: | In a laboratory experiment, we investigate the impact of temporary buy-options on efficiency, revenues, and bidding behavior in online proxy-auctions when bidders have independent private valuations. We show that the introduction of a buy-option reduces efficiency and at the same time fails to enhance revenues. In particular, we observe that the former presence of a temporary buy-option lowers final prices in an auction (even though the option is no longer available once an auction has started). If bidders have imprecise information about their private value, auction prices are increasing in the price of the buy-option which suggests anchoring as an explanation. Surprisingly, the former presence of a temporary buy-option also tends to reduce final auction prices if bidders are perfectly informed about their private value. In fact, we demonstrate that bidders are reluctant to bid above the option price regardless of the precision of their private information and the price of the option. |
| Keywords: | microeconomics ; |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2007028&r=exp |
| By: | Ernesto Reuben (Northwestern University); Arno Riedl (Maastricht University, CESifo and IZA) |
| Abstract: | In public good provision, privileged groups enjoy the advantage that some of its members find it optimal to supply a positive amount of the public good. However, their inherent asymmetric nature may make the enforcement of cooperative behavior through informal sanctioning harder to accomplish. In this paper we experimentally investigate public good provision in normal and privileged groups with and without decentralized punishment. We find that compared to normal groups, privileged groups are relatively ineffective in using costly sanctions to increase everyone's contributions. Punishment is less targeted towards strong free-riders and they exhibit a weaker increase in contributions after being punished. Thus, we show that privileged groups are not as privileged as they initially seem. |
| Keywords: | privileged groups, public goods, punishment, cooperation, collective action |
| JEL: | H41 D01 C92 Z13 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2916&r=exp |
| By: | Ondrej Rydval (Max Planck Institute of Economics, Jena, Germany.) |
| Abstract: | I examine how financial incentives interact with intrinsic motivation and especially cognitive abilities in explaining heterogeneity in performance. Using a forecasting task with varying cognitive load, I show that the effectiveness of high-powered financial incentives as a stimulator of economic performance can be moderated by cognitive abilities in a causal fashion. Identifying the causality of cognitive abilities is a prerequisite for studying their interaction with financial and intrinsic incentives in a unifying framework, with implications for the design of efficient incentive schemes. |
| Keywords: | Financial incentives, Cognitive ability, Heterogeneity, Performance, Experiment |
| JEL: | C81 C91 D83 |
| Date: | 2007–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-040&r=exp |
| By: | Gastón Giordana (LAMETA, Université Montpellier I); Marc Willinger (LAMETA, Université Montpellier I) |
| Abstract: | We evaluate the effectiveness of non optimal and temporally inconsistent incentive policies for regulating the exploitation of a renewable common-pool resource. The corresponding game is an N-person discrete-time deterministic dynamic game of T periods fixed duration. Three policy instruments with parameters that remain constant for the whole horizon are evaluated: a pigouvian tax (flat tax), an ambient tax (ambient flat tax) and an instrument combining the two previous ones (mixed flat instrument). We test in the lab the predictions of the model solved for 3 distinct behavioural assumptions: (a) sub-game perfection, (b) myopic behaviour, and (c) joint payoff maximization. We find that subjects behave myopically in the unregulated situation, which agrees with previous results in the literature. Conditional on predictions, the mixed flat instrument and the flat tax are the most effective policies in approaching the optimum extraction path. However, in absolute terms the ambient flat tax and the mixed flat instrument curb most significantly the mean extraction path towards the optimum path. Paradoxically, these instruments are the less efficient ones. |
| Keywords: | Policy Instruments, Renewable Common-pool Resources, Dynamic Externalities, Experimental Economics |
| JEL: | D9 D62 H23 H26 H30 Q20 Q28 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.72&r=exp |
| By: | Reuben Ernesto; Riedl Arno (METEOR) |
| Abstract: | In public good provision, privileged groups enjoy the advantage that some of its members find it optimal to supply a positive amount of the public good. However, their inherent asymmetric nature may make the enforcement of cooperative behavior through informal sanctioning harder to accomplish. In this paper we experimentally investigate public good provision in normal and privileged groups with and without decentralized punishment. We find that compared to normal groups, privileged groups are relatively ineffective in using costly sanctions to increase everyone''s contributions. Punishment is less targeted towards strong free-riders and they exhibit a weaker increase in contributions after being punished. Thus, we show that privileged groups are not as privileged as they initially seem. |
| Keywords: | public economics ; |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2007029&r=exp |
| By: | Suresh de Mel (University of Peradeniya); David McKenzie (World Bank and IZA); Christopher Woodruff (University of California, San Diego) |
| Abstract: | Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. We use a randomized experiment to overcome this problem, and to measure the return to capital for the average microenterprise in our sample, regardless of whether or not they apply for credit. We accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, we find the average real return to capital to be 5.7 percent per month, substantially higher than the market interest rate. We then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household, but not to vary with risk aversion or uncertainty. |
| Keywords: | microenterprises, returns to capital, self-employment |
| JEL: | O12 O17 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2934&r=exp |
| By: | Mbolatiana RAMBONILAZA (ADER CEMAGREF); Patrick POINT (GREThA); Jeanne DACHARY-BERNARD (ADER CEMAGREF) |
| Abstract: | This paper is part of an investigation to evaluate the benefits of landscape policies. Such policies are, within a specific area (here the Monts d’Arrée in Brittany), favouring some landscape attributes. We test out a procedure based on a double device. The first one relies on the choice experiments method and focuses on each attribute. Without prior information about the presence of substitution and complementarity effects between attributes, we work on the basis of scenarios built to ensure the independence of attributes. The important question of the impact of an attribute variation on the aesthetic value of another one, when these attributes are jointly perceived, is tackled by use of the multi-programme method. The two surveys were launched after an interval of one year, sampling among the same population. The WTP results obtained from each method are not statistically different. |
| Keywords: | Valuation; choice modelling; multi-attributes choice set; multi-programme method; choice experiments; landscape; Monts d’Arrée |
| JEL: | Q51 D61 R52 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2007-12&r=exp |