nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒10‒27
eleven papers chosen by
Daniel Houser
George Mason University

  2. How much is a friend worth?: directed altruism and enforced reciprocity in social networks By Stephen Leider; Markus M. Möbius; Tanya Rosenblat; Quoc-Anh Do
  3. Vertical separation vs. independent downstream entry in the Spanish electricity network: An experimental approach By Nikolaos Georgantzis; Enrique Fatas; Carlos Gutierrez-Hita; Aitor Ciarreta
  4. Measuring social capital with a myograph By Roberto, Censolo; Laila, Craighero; Luciano, Fadiga; Giovanni, Ponti; Leonzio, Rizzo
  5. Group Size and Incentive to Contribute: A Natural Experiment at Chinese Wikipedia By Xiaoquan (Michael) Zhang; Feng Zhu;
  6. Trust and Reputation in Internet Auctions By Andreas Diekmann; Ben Jann; David Wyder
  7. The Scope of Cooperation: Values and incentives By Tabellini, Guido
  8. New light on von Neumann: politics, psychology and the creation of game theory By Leonard Robert
  9. Auctions with a Buy Price: The Case of Reference-Dependent Preferences By Nicholas Shunda
  10. Hold-up, Asset Ownership, and Reference Points By Oliver Hart
  11. Language, meaning and games: a model of communication, coordination and evolution By Stefano Demichelis; Jörgen W. Weibull

  1. By: Jim Engle-Warnick; Javier Escobal; Sonia Laszlo
    Abstract: The lack of adoption of new farming technologies despite known benefits is a well-documented phenomenon in development economics. In addition to a number of market constraints, risk aversion predominates the discussion of behavioral determinants of technology adoption. We hypothesize that ambiguity aversion may also be a determinant, since farmers may have less information about the distribution of yield outcomes from new technologies compared with traditional technologies. We test this hypothesis with a laboratory experiment in the field in which we measure risk and ambiguity preferences. We combine our experiment with a survey in which we collect information on farm decisions and identify market constraints. We find that ambiguity aversion does indeed predict actual technology choices on the farm.
    JEL: O33 O18 C91
    Date: 2007–05
  2. By: Stephen Leider; Markus M. Möbius; Tanya Rosenblat; Quoc-Anh Do
    Abstract: We conduct field experiments in a large real-world social network to examine why decision-makers treat their friends more generously than strangers. Subjects are asked to divide a surplus between themselves and named partners at varying social distances, but only one of these decisions is implemented. We decompose altruistic preferences into baseline altruism towards strangers, and directed altruism towards friends. In order to separate the motives that are altruistic from the ones that anticipate a future interaction or repayment, we implement an anonymous treatment in which neither player is told at the end of the experiment which decision was selected for payment, and a non-anonymous treatment where both players are told the outcome. Moreover, in order to distinguish between different future interaction channels—including signaling one’s propensity to be generous and enforced reciprocity, where the decision-maker grants the partner a favor because she expects it to be repaid in the future—the experiments include games where transfers both increase and decrease social surplus. We find that decision-makers vary widely in their baseline altruism, but pass at least 50 percent more surplus to friends as opposed to strangers when decision-making is anonymous. Under non-anonymity, transfers to friends increase by an extra 24 percent relative to strangers, but only in games where transfers increase social surplus. This effect increases with the density of the social network structure between both players. Our findings are well explained by enforced reciprocity, but not by signaling or preference-based reciprocity. We also find that partners’ expectations are well attuned to directed altruism, but that they completely ignore the decision-makers’ baseline altruism. Partners with higher baseline altruism have friends with higher baseline altruism and, therefore, are treated better by their friends.
    Keywords: Altruism
    Date: 2007
  3. By: Nikolaos Georgantzis (LEE/LINEEX, Universitat Jaume I and University of Cyprus); Enrique Fatas (LINEEX and Applied Economics Department, University of Valencia); Carlos Gutierrez-Hita (Elx University); Aitor Ciarreta
    Abstract: We present experimental results from a series of sessions organized using the Power Market simulator; a software designed to realistically replicate the Spanish Electricity Market. In the experiments reported here we compare the status quo to two alternative treatments which represent alternative market structures. In one of them, labeled as vertical separation, we assume that power generating firms and electricity distributors-endsuppliers belong to separate business groups. In the second, we study the effect of entry by independent end-suppliers. Both alternative scenarios dominate the status quo in terms of market efficiency, whereas the latter of them dominates the former.
    Keywords: Experimental economics, Spanish Electricity Market, vertical relations.
    JEL: C90 L43 L51 L53 L94
    Date: 2007–09
  4. By: Roberto, Censolo; Laila, Craighero; Luciano, Fadiga; Giovanni, Ponti; Leonzio, Rizzo
    Abstract: We study the behavior of 12 pairs of undergraduate students while they were involved in a simple coordination game requiring motor interaction. Three experimental conditions were defined according to whether a monetary prize was given to both or only one subject, if the couple was in successfully completing the required assignment. Electromyographic potentials (EMG) were recorded from the right first dorsal interosseus (FDI) muscle, a muscle critically involved in the motor task. We also collected written answers from a standard questionnaire from which we constructed individual measures of Social Capital (SC), based on organized group interaction, religious and political involvement. These measures are collected, by standard practice, to estimate individual pro-social attitudes and behavior. Consistently with our simple behavioral model, by which EMG signals are direct measures of subjects’ personal concern (call it utility) associated to the given task, our evidence shows that EMG is increasing in the subjects’ own monetary reward. When we split the subject pool into two subsamples (according to various measures of Social Capital obtained from the questionnaire), we find that monetary incentives explain the level of subjects’ EMG only in the subsample characterized by low SC, while, for subjects with (comparatively) higher SC, effort in the coordination task is much less sensitive to whether it is directly rewarded or not. This result is robust across the different SC index specifications. The present findings seem to support the possibility that an electrophysiological measure, such as EMG, could reveal the most profound attitudes and believes that guide social interaction, and that our relatively inexpensive and ready-to-use technology can back-up socio-economic research in a very effective way.
    Keywords: NeuroEconomics; Social Capital
    JEL: Z10 C9 Z1 A13 Z13 C90 Z19 Z12 C91
    Date: 2006–06
  5. By: Xiaoquan (Michael) Zhang (Hong Kong University of Science and Technology); Feng Zhu (Havard Business School);
    Abstract: The literature of private provision of public goods suggests that incentive to contribute is inversely related to group size. This paper empirically tests this relationship using field data from Chinese Wikipedia, an online encyclopedia. We exploit an exogenous reduction in group size as a result of the blocking of Wikipedia in mainland China and examine whether individual contributions increase after the block as predicted in the literature. Our result indicates the opposite: individual contribution of unaffected contributors decreases by 42% on average as a result of the block. We attribute the cause to social effects: contributors care about the number of beneficiaries of their contributions. We build a simple model to illustrate how social effects and group size affect individual incentive to contribute. Consistent with our model prediction, we find that the more a contributor values social recognition, the greater the reduction in her contributions after the block. A series of robustness checks appear to support our explanation.
    Keywords: incentive to contribute; group size; public goods; social effects
    JEL: D85 H44 L14 L31 L86
    Date: 2007–09
  6. By: Andreas Diekmann; Ben Jann; David Wyder
    Abstract: Exchange between anonymous actors in Internet auctions corresponds to a one-shot prisoner's dilemma-like situation. Therefore, in any given auction the risk is high that seller and buyer will cheat and, as a consequence, that the market will collapse. However, mutual cooperation can be attained by the simple and very efficient institution of a public rating system. By this system, sellers have incentives to invest in reputation in order to enhance future chances of business. Using data from about 200 auctions of mobile phones we empirically explore the effects of the reputation system. In general, the analysis of nonobtrusive data from auctions may help to gain a deeper understanding of basic social processes of exchange, reputation, trust, and cooperation, and of the impact of institutions on the efficiency of markets. In this study we report empirical estimates of effects of reputation on characteristics of transactions such as the probability of a successful deal, the mode of payment, and the selling price (highest bid). In particular, we try to answer the question whether sellers receive a "premium" for reputation. Our results show that buyers are willing to pay higher prices for reputation in order to diminish the risk of exploitation. On the other hand, sellers protect themselves from cheating buyers by the choice of an appropriate payment mode. Therefore, despite the risk of mutual opportunistic behavior, simple institutional settings lead to cooperation, relatively rare events of fraud, and efficient markets.
    Keywords: trust, reputation, auctions, electronic markets, feedback mechanisms, price premiums, information asymmetry
    JEL: C24 D44 D82 L14 L86
    Date: 2004–01
  7. By: Tabellini, Guido
    Abstract: What explains the range of situations in which individuals cooperate? This paper studies a theoretical model where individuals respond to incentives but are also influenced by norms of good conduct inherited from earlier generations. Parents rationally choose what values to transmit to their offspring, and this choice is influenced by the quality of external enforcement and the pattern of likely future transactions. The equilibrium displays strategic complementarities between values and current behaviour, which reinforce the effects of changes in the external environment. Values evolve gradually over time, and if the quality of external enforcement is chosen under majority rule, there is hysteresis: adverse initial conditions may lead to a unique equilibrium path where external enforcement remains weak and individual values discourage cooperation.
    Keywords: cooperation; cultural transmission; culture; institutions
    JEL: A10 A14
    Date: 2007–10
  8. By: Leonard Robert
    Date: 2007–07
  9. By: Nicholas Shunda (University of Connecticut)
    Abstract: In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. The "Buy-It-Now" option on eBay is a leading example of an auction with a buy price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. Introducing a small reference-price effect can shrink the range of buy prices bidders are willing to exercise. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.
    Keywords: Auction, Buy price, Internet, Reference-dependence?
    JEL: D44 D82 L86
    Date: 2007–10
  10. By: Oliver Hart
    Abstract: We study two parties who desire a smooth trading relationship under conditions of value and cost uncertainty. A rigid contract fixing price works well in normal times since there is nothing to argue about. However, when value or cost is exceptional, one party will hold up the other , damaging the relationship and causing deadweight losses as parties withhold cooperation. We show that a judicious allocation of asset ownership can help by reducing the incentives to engage in hold up. In contrast to the literature, the driving force in our model is payoff uncertainty rather than noncontractible investments.
    JEL: D23 D86 K12
    Date: 2007–10
  11. By: Stefano Demichelis; Jörgen W. Weibull
    Abstract: Language is arguably a powerful coordination device in real-life interactions. We here develop a game-theoretic model of two-sided pre-play communication that generalizes the cheap-talk approach by way of introducing a meaning correspondence between messages and actions, and postulating two axioms met by natural languages. Deviations from this correspondence are called dishonest and players have a lexicographic preference for honesty, second to material payoffs. The model is first applied to finite and symmetric two-player games and we establish that, in generic and symmetric n x n -coordination games, a Nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique Pareto efficient outcome of the underlying game. We discus Aumann’s (1990) example of a Pareto efficient equilibrium that is not self-enforcing. We also extend the approach to one-sided communication.
    Keywords: Communication, coordination, language, honesty, evolutionary stability.
    JEL: C72 C73 D01
    Date: 2007

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