nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒11‒03
eleven papers chosen by
Daniel Houser
George Mason University

  1. Fair ultimatum: an experimental study of the Myerson value By Noemí NAVARRO; Róbert VESZTEG
  2. The Dynamic Interplay of Inequality and Trust - An Experimental Study By Ben Greiner; Axel Ockenfels; Peter Werner
  3. Substitution Between (and Motivations for) Charitable Contributions: An Experimental Study By David Reinstein
  4. Deception through telling the truth?! Experimental evidence from individuals and teams By Matthias Sutter
  5. A Theory of Reference-Dependent Behavior By Jose Apesteguia; Miguel A. Ballester
  6. Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments By John Smith
  7. Reputation, Social Identity and Social Conflict By John Smith
  8. Imitation and Selective Matching in Reputational Games By Thierry Vignolo
  9. Markets, Institutions and Sustainability By Reeks, Ella
  10. The Role of Patriotism in Explaining TV Audience of National Team Games - Evidence from Four International Tournaments By Egon Franck; Stephan Nüesch
  11. How to be an Ecological Economist By Malte Faber

  1. By: Noemí NAVARRO; Róbert VESZTEG
    Abstract: We conduct a laboratory experiment to test the empirical behavior of the bid-and-propose mechanism, defined in Navarro and Perea (2005). This mechanism implements the Myerson value for networks, and therefore its outcome posesses fairness properties. Since the bid-and-propose mechanism includes an ultimatum game in the last stage, we design an experiment with several treatments, where subjects also play the simple ultimatum game. In order to check whether subjectsbehave fairly in the sense of Myerson or they are inequity averse, we compare resultsfrom games with symmetric and asymmetric outside options.
    Keywords: experiments; fairness; Myerson value; ultimatum game
    JEL: C72 C91 D63
    Date: 2007–08
  2. By: Ben Greiner; Axel Ockenfels; Peter Werner
    Abstract: We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.
    Keywords: inequality, trust, growth, laboratory experiments
    JEL: C73 C92 D63 E25 O15
    Date: 2007–10–12
  3. By: David Reinstein
    Abstract: I run a series of laboratory experiments to estimate and describe the extent to which an individual’s charitable donation to one cause displaces his or her giving to another cause. The experiments also investigate motivations for giving, including the simple warm-glow and public-goods models, and the desire for influence, reputation, and normalizing behavior. In the first wave of experiments I allow 49 subjects to donate or keep any amount of their $10 "endowment" to any of three charities in each of six stages (with one stage randomly chosen for payments). Some of the stages include "shocks" (to certain charities), such as an expanded choice set, a higher "match" rate, and a promotional video. The second wave of experiments (48 subjects) has 13 stages, a larger set of treatments, and a $20 "endowment". All of the treatments have the hypothesized effect on giving, including the "price" shock; in contrast to previous experiments, the subjects exhibit price-elastic demand. Subjects also give significantly more when their decisions and identity are observed. The results demonstrate that "expenditure substitution" among charities can be seen in a laboratory setting. I find large own-price elasticities and very large cross-price elasticities - these charities are gross substitutes in the conventional sense. The substitution is stronger where the charities serve similar purposes, such as UNICEF and Care. In the "reduced form" model, using instrumental variables estimation, I estimate an expenditure substitution coefficient of 37% - when gifts to one charity are increased (or decreased) by a certain amount because of a shock, the sum of gifts to other charities decreases by 37% of this amount. The conditional-on-positive estimate of this substitution is 80%: where gifts to both charities remain positive, the "crowding out" is $0.80 for every $1.
    Date: 2007–10–22
  4. By: Matthias Sutter
    Abstract: Informational asymmetries abound in economic decision making and often provide an incentive for deception through telling a lie or misrepresenting information. In this paper I use a cheap-talk sender-receiver experiment to show that telling the truth should be classified as deception too if the sender chooses the true message with the expectation that the receiver will not follow the sender’s (true) message. The experimental data reveal a large degree of ‘sophisticated’ deception through telling the truth. The robustness of my broader definition of deception is confirmed in an experimental treatment where teams make decisions.
    Keywords: Deception, Expectations, Team decision making, Individual decision making, Experiment
    JEL: C72 C91 D82
    Date: 2007–10–23
  5. By: Jose Apesteguia; Miguel A. Ballester
    Abstract: Extensive field and experimental evidence in a variety of environments show that behavior depends on a reference point. This paper provides an axiomatic characterization of this dependence. We proceed by imposing gradually more structure on both choice correspondences and preference relations, requiring increasingly higher levels of rationality, and freeing the decision-maker from certain types of inconsistencies. The appropriate degree of behavioral structure will depend on the phenomenon that is to be modeled. Lastly, we provide two applications of our work: one to model the status-quo bias, and another to model addictive behavior.
    Keywords: Individual rationality, reference-dependence, rationalization, path independence, status-quo bias, addiction, habit formation, LeeX
    JEL: A12 B41 D11
    Date: 2007–10
  6. By: John Smith (Rutgers University-Camden)
    Abstract: In this paper we propose a theory of cognitive dissonance through imperfect memory. Cognitive dissonance is the tendency of a person to engage in self justification after a decision. We offer an interpretation of the single decision cognitive dissonance experiments: an agent has an unknown cost of effort and before the decision receives a private signal of the cost of effort, which is subsequently forgotten. Following the decision, the agent makes an inference regarding the content of this signal based on the publicly available information: the action taken and the wage paid. We explore the implications of this interpretation in a setting requiring a decision of effort in two periods. A preference for increasing payments naturally emerges from our model. With the auxiliary assumption that obtaining wage income requires an unknown cost of effort and obtaining rental income requires a known, zero cost of effort, our results provide an explanation for the experimental findings of Loewenstein and Sicherman (1991). These authors find evidence of stronger preferences for increasing "income from wages" rather than "income from rent." Our model makes the novel prediction that this preference for increasing payments will only occur when the contracts are neither very likely nor very unlikely to cover the cost of effort.
    Keywords: Cognitive Dissonance, Increasing Payments, Imperfect Memory, Imperfect Recall, Self-Perception Theory
    JEL: C73 D81
    Date: 2007–08–15
  7. By: John Smith (Rutgers University-Camden)
    Abstract: We interpret the psychology literature on social identity and examine its implications in a population partially composed of such agents. We model a population of agents from two exogenous and well defined social groups. Agents are randomly matched to play a reduced form bargaining game. We show that this struggle for resources drives a conflict through the rational destruction of surplus. We assume that the population contains both rational players and behavioral players. Behavioral players aggressively discriminate against members of the other social group. The existence and specification of the behavioral player is motivated by the social identity literature. For rational players, group membership has no payoff relevant consequences. We show that rational players can contribute to the conflict by aggressively discriminating and that this behavior is consistent with existing empirical evidence. Our paper relates to the empirical literature which finds that our measure of social heterogeneity tends to be increasing in economic variables which we interpret as signifying inefficiency. We provide an explanation that, as social groups compete for the benefits of public goods, disagreement and inefficiency can result. Our work also relates to the social conflict literature, which examines the relationship between macro level factors such as unemployment and civil disturbances. This literature finds that the amount of social conflict tends to be increasing in what we refer to as the inequitability of the environment.
    Keywords: reputation, conflict, identity
    JEL: C72 D74 L14
    Date: 2007–10–14
  8. By: Thierry Vignolo
    Abstract: This paper investigates imitation and selective matching in reputational games with an outside option. We identify two classes of such games, which are ultimatum and trust games. By selective matching we mean that short-runplayers have the possibility of selecting the long-run player they play against. We find that selective matching (unlike random matching) favors the equilibrium associated to reputation in the ultimatum game but not in the trust game.
    Keywords: Reputation; Long-run equilibria; Selective matching; Games with an outside option
    JEL: C72 C73 L1
    Date: 2007
  9. By: Reeks, Ella (School of Economics and Finance, University of Tasmania)
    Abstract: Encouraging and stimulating markets for new and innovative environmental goods and services is crucial to move our economy towards sustainability. Formal legislation, government policies, and price mechanisms alone, are not however, sufficient to guarantee the development of new markets. This paper demonstrates the importance of market participants developing their own ‘rules of the game’, their own sets of informal practices, routines, and institutions to make the market work. A case study on Australia’s successfully developing wind energy market is utilised to illustrate these market processes in action. Market ‘emergence’ or market ‘creation’ is explored from an institutional and evolutionary perspective. The first section is dedicated to elaborating the markets as institutions perspective whilst theoretical insights into how markets as institutions might emerge are detailed in the second section. In the third section institutional emergence of the wind energy market in Australia is explained by means of a theoretical framework developed from the case study. The research points to unique market behaviours, committed buyer-seller relationships, learned exchange capabilities, and institutionalised market practices as necessary features of successfully emergent markets. The paper concludes with directions to support new market development for environmental sustainability.
    Keywords: Market, Institution, Emergence, Learning, Exchange
    Date: 2007–07
  10. By: Egon Franck; Stephan Nüesch (Institute for Strategy and Business Economics, University of Zurich; Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Existing studies about the determinants of the so-called couch potato audience in sports concentrate on the quality of the sporting contest which involves both the absolute playing strength of the competing teams and the relative evenness of the competition. Regarding national team competitions, however, we expect that the TV audience should also be driven by patriotism. Analyzing the couch potato audience of all matches during the FIFA World Cup 2006 in Switzerland, we find strong evidence that the TV ratings are highly affected by the size of the groups of foreign residents affiliated to the teams playing on the field. Whereas absolute playing strength impacts on the TV ratings too, the effect of evenness of the competition is insignificant.
    Keywords: TV audience, soccer, FIFA World Cup, patriotism
    JEL: L83
    Date: 2007
  11. By: Malte Faber (University of Heidelberg, Department of Economics)
    Abstract: To answer the question "How to be an Ecological Economist", we must start by defining the field of Ecological Economics. Mainstream Economics altogether lacks the concepts required to deal adequately with nature, justice and time. It was the absence of these three concepts in this otherwise great social science that led to the establishment of Ecological Economics. The interest in nature, justice and time is its defining characteristic. The main thesis of this paper is that our field is a fragile institution and that the professional existence of an ecological economist is no less fragile. However, this very fragility also represents freedom, scope for free thinking, conceptualising and research. Nevertheless, to be able to really use and in turn enjoy the full scope of this freedom, an ecological economist needs certain specific characteristics, in particular what is termed in the German philosophical tradition "Urteilskraft" and in English "power of judgement". A description of these characteristics is developed in this paper, providing an answer to the question "How to be an ecological economist?"
    Keywords: ecological economics; mainstream economics; political economy; nature; justice; time; growth; power of judgement
    JEL: A10 A12 A13 B10 Q00 Q57 O40
    Date: 2007–10

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