nep-exp New Economics Papers
on Experimental Economics
Issue of 2007‒11‒17
ten papers chosen by
Daniel Houser
George Mason University

  1. Two are Better Than One! Individuals' Contributions to Unpacked Public Goods By Michele Bernasconi, Luca Corazzini, Sebastian Kube, Michel André Maréchal.
  2. An experimental investigation of collusion in hard-close auctions: partners and friends By Sascha Füllbrunn; Tibor Neugebauer
  3. On the Formation of Buyer-Seller Relationships when Product Quality is Perfectly Observable By Yann Bramoullé; John A. List; Michael K. Price
  4. Consumer Networks and Firm Reputation: A First Experimental Investigation By Gabriele K. Lünser; Jean-Robert Tyran
  5. Risk aversion in low income countries: experimental evidence from Ethiopia By Yesuf, Mahmud; Bluffstone, Randy
  6. Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States By Iris Bohnet; Fiona Greig; Benedikt Herrmann; Richard Zeckhauser
  7. Oxytocin Increases Generosity in Humans By Zak, Paul J.; Stanton, Angela A.; Ahmadi, Sheila
  8. What is Behavioural Economics Like? By Lanteri, Alessandro; Carabelli, Anna
  9. Cognitive Dissonance, Pessimism, and Behavioral Spillover Effects By David L. Dickinson; Robert Oxoby
  10. The Effect of Incentive Structure on Heuristic Decision Making: The Proportion Heuristic By Robert Oxoby

  1. By: Michele Bernasconi, Luca Corazzini, Sebastian Kube, Michel André Maréchal. (ISLA, Universita' Bocconi, Milano)
    Abstract: We study the effects on voluntary contributions of unpacking a single linear public good into distinct but identical parts. In our experiment, subjects either participate to a one linear public good game or a two linear and identical public goods game, with marginal per capita returns of contributions being constant across treatments. We find that unpacking public goods significantly increases contributions of both unexperienced and experienced subjects. Our results highlight new strategies for NGOs for increasing charitable donations.
    Keywords: Voluntary contributions to public goods, unpacking effect, laboratory experiment, charitable donations.
    JEL: C91 C92 H40 H41
    Date: 2007–11
  2. By: Sascha Füllbrunn (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Tibor Neugebauer (Leibniz University of Hanover)
    Abstract: We study collusion in the finitely repeated, hard-close auction experiment. Three subjects, identified by their bidder name, simultaneously compete in three auction markets. Due to the experimental design, subjects are enabled to the sharing of the benefits of cooperation by coordinating their individual demands. Similar collusive behavior has been suggested to play an important role in empirical markets (Klemperer 2002). We consider two treatments. In the first one, the partners treatment, subjects who are identified by bidder-names interact repeatedly but anonymously with each other. In the second one, the friends treatment, groups of three subjects who participate together in the experiment, interact repeatedly with another. In the experiment, we do not observe tacit collusion in the partners treatment; the outcome is efficient and prices converge quickly to the rational equilibrium prediction. Only in the friends treatment, cooperation gains can be realized, but much less cooperation is observed than one would imagine. We conclude that in the laboratory, cooperation is difficult to achieve in the hard-close auction market if anonymity prevails.
    Keywords: multi unit auctions, collusion, experimental economics
    JEL: D44 C92
    Date: 2007–11
  3. By: Yann Bramoullé; John A. List; Michael K. Price
    Abstract: This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve uncertainty over unobserved bargainer types. Relationships thus form as a means to reduce such transactions costs and uncertainty. We explore the usefulness of our theory by using a battery of simulations and experimental treatments. Overall, we find that our theoretical predictions are largely confirmed. Interestingly, the quantitative impact of relationships on overall market efficiency depends critically on the extend to which market structure affects the matching of buyers and sellers that could profitably transact. In certain important cases, a greater number of buyer-seller relationships can reduce market efficiency.
    Keywords: Field experiments, pricing, market structure
    JEL: C93 D4
    Date: 2007
  4. By: Gabriele K. Lünser (University College London); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: Arguing that consumers are the carriers of firms’ reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms' incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density.
    Keywords: trust; consumer networks; moral hazard; information conditions; reputation
    JEL: C72 C92 D40 L14
    Date: 2007–11
  5. By: Yesuf, Mahmud; Bluffstone, Randy
    Abstract: "Production systems in low-income developing countries are generally poorly diversified, focusing on rainfed staple crop production and raising livestock. These activities are inherently risky and investment and production decisions by farm households are therefore made within environments that are affected by risk. Because of poorly developed or absent credit and insurance markets it is difficult to pass any of these risks to a third party. As a result, it is often found that even when the expected net return is high, households are reluctant to adopt new agricultural technologies when they involve risk. Better understanding risk behavior will be essential for identifying appropriate farm-level strategies for adaptation to climate change by low-income farmers. Despite risk's potentially central role in farm investment decisions, there have been few attempts to estimate the magnitude and nature of risk aversion of farm households in low-income developing countries. To partially close this gap, this paper uses an experimental approach applied to 262 households in the Ethiopian highlands with real payoffs. By incorporating both small and large stakes and gains and losses into the experiment, we test for the presence of low stake risk aversion and loss aversion. We find that more than 50 percent of the households are severely or extremely risk averse. This contrasts with studies in Asia where most household decision-makers exhibit moderate to intermediate risk aversion. We find that households that stand to lose as well as gain something from participation in games are significantly more risk averse than households playing gains-only games. This strongly suggests that agricultural extension efforts involving losses as well as gains may face systematic resistance by farmers in low-income, high-risk environments. Promotion of technologies with downside risks – even if the upside potential is enormous – should therefore be combined with insurance or other support. We also find that even without the possibility of losses households are much more averse to risk when stakes are high. Results indicate that insurance or other support can likely be phased out. After initial successes have convinced farmers that technologies are viable, risk aversion declines. There are also significant differences in risk averting behavior between relatively poorer and wealthier farm households, which is consistent with decreasing absolute risk aversion. This suggests that as wealth is built up households are willing to take on more risk in exchange for higher returns. Both these findings suggest a strong path dependence. Efforts to develop poor rural areas through promotion of risky technologies should take this path dependence into account. Early successes are important, but households should also be allowed to build up wealth before they are challenged or tempted to take on more risky ventures. Furthermore, the finding that even without the possibility of losses households are much more risk averse when stakes are higher, suggests that agricultural extension should start modestly before asking households to take on larger gambles." from Authors' Abstract
    Keywords: experimental studies, loss aversion, risk aversion, econometric models, Farm households,
    Date: 2007
  6. By: Iris Bohnet (Kennedy School of Government, Harvard University); Fiona Greig (Kennedy School of Government, Harvard University); Benedikt Herrmann (School of Economics, University of Nottingham); Richard Zeckhauser (Kennedy School of Government, Harvard University)
    Abstract: Due to betrayal aversion, people take risks less willingly when the agent of uncertainty is another person rather than nature. Individuals in six countries (Brazil, China, Oman, Switzerland, Turkey, and the United States) confronted a binary-choice trust game or a risky decision offering the same payoffs and probabilities. Risk acceptance was calibrated by asking individuals their “minimum acceptable probability” (MAP) for securing the high payoff that would make them willing to accept the risky rather than the sure payoff. People’s MAPs are generally higher when another person rather than nature determines the outcome. This indicates betrayal aversion.
    JEL: C72 C91
    Date: 2007–10
  7. By: Zak, Paul J.; Stanton, Angela A.; Ahmadi, Sheila
    Abstract: Human beings routinely help strangers at costs to themselves. Sometimes the help offered is generous offering more than the other expects. The proximate mechanisms supporting generosity are not well-understood, but several lines of research suggest a role for empathy. In this study, participants were infused with 40 IU oxytocin (OT) or placebo and engaged in a blinded, one-shot decision on how to split a sum of money with a stranger that could be rejected. Those on OT were 80% more generous than those given a placebo. OT had no effect on a unilateral monetary transfer task dissociating generosity from altruism. OT and altruism together predicted almost half the interpersonal variation in generosity. Notably, OT had twofold larger impact on generosity compared to altruism. This indicates that generosity is associated with both altruism as well as an emotional identification with another person.
    Keywords: Oxytocin; generous; altruism; ultimatum game; dictator game; punishing; rejection
    JEL: D01
    Date: 2007–11–07
  8. By: Lanteri, Alessandro; Carabelli, Anna
    Abstract: Behavioural Economics’ milestones, Endowment Effect and Loss Aversion, have been recognized as ‘well documented,’ ‘robust,’ and ‘important’ even by the critics. But well documented, robust, and important what? Are these stylized facts, theoretical constructs, or psychological truths? Do they express genuine preferences or are they judgement mistakes? We discuss the problems with the nature of these claims in the lights of the goals of Behavioural Economics: to improve economics’ realisticness and to be considered mainstream. We argue that, under sensible interpretations of Loss Aversion and Endowment Effect, Behavioural Economics is neither more realistic than, nor part of the mainstream.
    Keywords: Behavioural Economics; Decision-Making; Endowment Effect; Loss Aversion; Uncertainty
    JEL: D81 A12 D8
    Date: 2007–11
  9. By: David L. Dickinson; Robert Oxoby
    Date: 2007–10–26
  10. By: Robert Oxoby
    Date: 2007–10–26

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