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on Experimental Economics |
| By: | Hongbin Cai; Yuyu Chen; Hanming Fang |
| Abstract: | We present results about the effects of observing others' choices, called observational learning, on individuals' behavior and subjective well-being in the context of restaurant dining from a randomized natural field experiment. Our experimental design aims to distinguish observational learning effect from saliency effect (because observing others' choices also makes these choices more salient). We find that, depending on specifications, the demand for the top 5 dishes was increased by an average of about 13 to 18 percent when these popularity rankings were revealed to the customers; in contrast, being merely mentioned as some sample dishes did not significantly boost their demand. Moreover, we find that, consistent with theoretical predictions, some modest evidence that observational learning effect was stronger among infrequent customers. We also find that customers' subjective dining experiences were improved when presented with the information about the top choices by other consumers, but not when presented with the names of some sample dishes. |
| JEL: | C93 D83 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13516&r=exp |
| By: | Peter Bossaerts (California Institute of Technology Centre for Economic Policy Research and Swiss Finance Institute); Charles Plott (California Institute of Technology); William R. Zame (UCLA and California Institute of Technology) |
| Abstract: | Many tests of asset pricing models address only the pricing predictions — but these pricing predictions rest on portfolio choice predictions which seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices, based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio choices. Novel econometric tests link the price and portfolio predictions and take account of the general equilibrium effects of sample-size bias. The paper works through the approach in detail for the case of the classical CAPM, producing a model called CAPM+€. When these econometric tests are applied to data generated by large-scale laboratory asset markets which reveal both prices and portfolio choices, CAPM+€ is not rejected. |
| Keywords: | experimental finance, experimental asset markets, risk aversion |
| JEL: | C91 C92 D51 G11 G12 |
| Date: | 2003–07 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0705&r=exp |
| By: | David Masclet; Marc Willinger; Charles Figuières |
| Abstract: | We run a series of experiments in which subjects have to choose their level of contribution to a pure public good. The design differs from the standard public good game with respect to the decision procedure. Instead of deciding simultaneously in each round, subjects are randomly ordered in a sequence which differs from round to round. We compare sessions in which subjects can observe the exact contributions from earlier decisions ("sequential treatment with information") to sessions in which subjects decide sequentially but cannot observe earlier contributions ("sequential treatment without information"). The results indicate that sequentiality increases the level of contribution to the public good when subjects are informed about the contribution levels of lower ranked subjects while sequentiality alone has no effect on contributions. Moreover, we observe that earlier players try to influence positively the contributions of subsequent decision makers in the sequence, by making a large contribution. Such behaviour is motivated by the belief that subsequent players will reciprocate by also making a large contribution. We also discuss the effect of group size on aggregate contributions. Finally, we conceptualize a model where agents’ preferences incorporate a “weak” moral motivation element. The moral motivation is “weak” in the sense that contributors update their morally ideal level of contribution according to observed behaviours. This suggested qualification of rational contributors fits well with the patterns observed in the lab. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:03&r=exp |
| By: | Giorgio Coricelli; Mateus Joffily; Claude Montmarquette; Marie-Claire Villeval |
| Abstract: | The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance. <P>Les modèles économiques d'évasion fiscale prédisent que les individus devraient frauder dès que le bénéfice attendu de l'évasion dépasse son coût espéré. Sous cette condition, le fort taux de revenu déclaré pourtant observé constitue une énigme. Dans cet article, nous nous intéressons au rôle des émotions comme explication possible de ce phénomène. Notre expérience de laboratoire montre que l'intensité des émotions, mesurée par la conductance de la peau, augmente avec la proportion du revenu qui n'est pas déclarée. La perspective d'une sanction à l'issue d'un contrôle, en particulier lorsque la photo des contrevenants est diffusée, soulève également des émotions. Nous montrons qu'une politique de contrôle qui suscite la honte chez les fraudeurs favorise l'honnêteté fiscale. |
| Keywords: | tax evasion, emotions, neuro-economics, physiological measures, shame, experiments., fraude fiscale, émotions, neuro-économie, mesures physiologiques, honte, expériences. |
| JEL: | C91 C92 D87 H26 |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2007s-22&r=exp |
| By: | Siegfried K. Berninghaus (Institut fuer Wirtschaftstheorie und Operations Research, University of Karlsruhe); Sabrina Bleich (Institut fuer Wirtschaftstheorie und Operations Research, University of Karlsruhe); Werner Gueth (Max Planck Institute of Economics, Jena, Germany) |
| Abstract: | Facing a stochastic market wage, which is independent of their own hiring policy, employers offer contracts specifying ï¬xed wage, revenue share and employment duration. In ongoing employment relations it depends on the treatment whether ï¬xed wages can be only increased or also decreased. Will the uncertainty of the future market wage and less wage flexibility lead to temporary employment? And, if not, will employers adjust wages to changing market wages and will workers in ongoing employment relations react to wage decreases via effort choices? Our results partly question empirical claims, e.g. of Bewley (1995), and conï¬rm the tendency to establish ongoing employment relations. Granting more wage flexibility to employers altogether questions rather than enhances effciency since it induces opportunistic wage cuts to which employees react with lower efforts. |
| Keywords: | noncooperative game, labor contracts, labor market flexibility, principal-agent theory, experimental economics |
| JEL: | C72 C90 F16 J21 J24 L10 |
| Date: | 2007–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-072&r=exp |
| By: | Sandra Saïd; Sophie Thoyer |
| Abstract: | Auctions are increasingly used in agri-environmental contracting. However, the issue of synergy effect between agri-environmental measures has been consistently overlooked, both by decision-makers and by the theoretical literature on conservation auction. Based on laboratory experiments, the objective of this paper is to compare the performance of different procurement auction designs (simultaneous, sequential and combinatorial) in the case of multiple heterogeneous units where bidders may potentially want to sell more than one unit and where their supply cost structure displays positive synergies. The comparison is made by using two performance criteria: budget efficiency and allocative efficiency. We also test if performance results are affected by information feedback to bidders after each auction period. Finally we explain performance results by the analysis of bidding behaviour in the three mechanisms. |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:02&r=exp |
| By: | Emmanuel Sol; Sylvie Thoron; Marc Willinger |
| Abstract: | We investigate whether "binding agreements" can provide a solution to the social dilemma that arises in the presence of pure public goods. Signing a binding agreement can prevent players to free ride on the contributions to the public good. However, a well known theoretical result is that the outcome of the endogenous formation of agreements is not necessarily efficient. In our setting, the individual level of contribution to the public good increases with the size of the coalition reaching an agreement and the global agreement is always the socially optimal structure. Agreements form sequentially. The equilibrium outcome is an asymmetric structure, which consists of two coalitions of different sizes, the small one free riding on the contributions of the bigger one. In our experiment, we propose two treatments which differ in the degree of strategic uncertainty with which the subjects are faced. The results lend force to the theoretical conclusion that outcomes may be inefficient. The average gains achieved are sub-optimal. They are even lower than predicted by the equilibrium agreement structure in the treatment in which the strategic uncertainty is high. They are larger than predicted in the treatment in which the strategic uncertainty is limited. However, it seems that subjects "learn to cooperate" over time and reach the global agreement more often towards the end of sessions. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:04&r=exp |
| By: | Jack Stecher; Radhika Lunawat; Kira Pronin; John Dickhaut |
| Abstract: | What is a rational decision-maker supposed to do when facing an unfamiliar problem, where there is uncertainty but no basis for making probabilistic assessments? One answer is to use a form of expected utility theory, and assume that agents assign their own subjective probabilities to each element of the (presumably known) state space. In contrast, this paper presents a model in which agents do not form subjective probabilities over the elements of the state space, but nonetheless use new information to update their beliefs about what the elements of the state space are. This model is shown to lead to different predictions about trading behavior in a simple asset market under uncertainty. A controlled laboratory experiment tests the predictions of this model against those of expected utility theory and against the hypothesis that subjects act na¨ıvely and non-strategically. The results suggest that a lack of subjective probabilities does not imply irrational or unpredictable behavior, but instead allows individuals to use both what they know and knowledge of what they do not know in their decision making. <P>Comment un décideur rationnel est-il censé réagir face à un problème qui ne lui est pas familier lorsqu’il existe une certaine incertitude, et en l’absence d’une base sur laquelle effectuer des estimations probabilistes? Une solution consiste à utiliser une forme de la théorie de l’utilité espérée et de présumer que les agents attribuent leurs propres probabilités subjectives à chaque élément de la représentation d’état (sans doute connue). Par contraste, notre article présente un modèle où les agents ne forment pas de probabilités subjectives sur les éléments de la représentation d’état, mais utilisent de nouveaux renseignements afin de mettre à jour leurs croyances sur les éléments formant la représentation d’état. Le comportement des échanges avec ce modèle dans un marché d’actifs simple et incertain nous mène à des prédictions différentes. En utilisant une expérience contrôlée en laboratoire, nous avons vérifié les prédictions de ce modèle contre celles de la théorie de l’utilité espérée et contre l’hypothèse que les sujets agissent avec naïveté et sans recourir à une stratégie. Les résultats suggèrent qu’un manque de probabilités subjectives n’implique pas un comportement irrationnel ou imprévisible, mais permet plutôt aux individus d’utiliser autant l’information qu’ils possèdent que la connaissance de l’information qu’ils ne possèdent pas dans leur prise de décision. |
| Keywords: | Uncertainty; non-expected utility; incomplete preferences; ambiguity., Incertitude, utilité non espérée, préférences incomplètes, ambiguïté. |
| JEL: | M41 D80 D82 D83 |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2007s-21&r=exp |
| By: | Anke Gerber (University of Zurich and Swiss Banking Institute); Kirsten I.M. Rohde (Erasmus University, Department of Applied Economics, The Netherlands) |
| Abstract: | This paper argues that observations of non-stationary choice behavior need not necessarily imply specific properties of the individual’s discount function. As we show, the observed “anomalies” in intertemporal choice can alternatively be explained by an individual’s perception of the risk that is involved whenever an outcome is to be received in the future. This risk may concern the size of the actual outcome or the endowment consumption stream to which the outcome is added. Both types of uncertainty naturally appear in the context of intertemporal choice and both are difficult to control in experiments. We show how relative degrees of changes in risk over time can predict choices. |
| Keywords: | Hyperbolic Discounting, Decreasing Impatience, Increasing impatience, Risk, Magnitude Effect, Gain-Loss Asymmetry |
| JEL: | D91 D81 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0712&r=exp |
| By: | Enrico De Giorgi (University of Lugano); Thierry Post (Erasmus University Rotterdam) |
| Abstract: | This study develops a framework for dealing with stochastic reference points and endogenously selecting the reference point in reference-dependent choice theories that accounts for the joint probability distribution of the prospects and the reference point. Without accounting for the dependence structure, the endogenous reference point can deviate from the decision-maker’s optimum. Accounting for dependence, reference dependence affects choice behavior only if the reference point is (in part or in whole) exogenously fixed. In an application to well-known US investment benchmark data, investors invest in riskless T-bills rather than stocks if we ignore the dependence structure, while investing in small value stocks is optimal when we account for dependence. |
| Keywords: | Reference-dependent preferences, loss aversion, prospect theory, dependence structure |
| JEL: | D81 C23 C91 C93 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0714&r=exp |