nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒01‒05
ten papers chosen by
Daniel Houser
George Mason University

  1. Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods By Blumkin, Tomer; Ruffle , Bradley J.; Ganun , Yosef
  2. Why Votes Have a Value By Ingolf Dittmann; Dorothea Kübler; Ernst Maug; Lydia Mechtenberg
  3. The Peter Principle: An Experiment By David L. Dickinson; Marie Claire Villeval
  4. The effects of expectations on perception: experimental design issues and further evidence By Tyler Williams
  5. Active decisions and pro-social behavior By Alois Stutzer; Lorenz Goette; Michael Zehnder
  6. Tie-Breaking Rules and Divisibility in Experimental Duopoly Markets By Puzzello, Daniela
  7. Cooperation, reciprocity and self-esteem: A theoretical approach By Marcello Basili; Maurizio Franzini
  8. Deception and Incentives: How Dishonesty Undermines Effort Provision By Florian Ederer; Ernst Fehr
  9. Reducing intergroup prejudice and conflict with the media: A field experiment in Rwanda By Elizabeth Levy Paluck
  10. Sudden Termination Auctions – An Experimental Study By Sascha Füllbrunn; Abdolkarim Sadrieh

  1. By: Blumkin, Tomer; Ruffle , Bradley J.; Ganun , Yosef
    Abstract: The public finance literature demonstrates the equivalence between consumption and labor income (wage) taxes. We construct an environment in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this experimental framework to test whether a labor income tax and an equivalent consumption tax lead to an identical labor-leisure allocation. Despite controlling for subjects' work ability and inherent labor-leisure preferences and not allowing for saving, subjects reduce their labor supply significantly more in response to an income tax than they do in response to an equivalent consumption tax. We discuss the economic implications of a policy shift from an income to a consumption tax.
    Keywords: experimental economics; tax equivalence; income tax; consumption tax; behavioral economics
    JEL: H22 H31 C91
    Date: 2007–12–28
  2. By: Ingolf Dittmann; Dorothea Kübler; Ernst Maug; Lydia Mechtenberg
    Abstract: We perform an experiment where subjects pay for the right to participate in a shareholder vote. We find that experimental subjects are willing to pay a significant premium for the voting right even though there should be no such premium in our setup under full rationality. Private benefits from controlling the firm are absent from our setup and overconfidence cannot explain the size of the observed voting premium. The premium disappears in treatments where voting has no material consequences for the subjects. We conclude that individuals enjoy being part of a group that exercises power and are therefore willing to pay for the right to vote even when the impact of their own vote on their payoffs is negligible.
    Keywords: Smoking, Voting, dual-class shares, paradox of voting, experimental economics
    JEL: C92 D72 G32
    Date: 2007–12
  3. By: David L. Dickinson (Appalachian State University); Marie Claire Villeval (CNRS-GATE, University of Lyon and IZA)
    Abstract: The Peter Principle states that, after a promotion, the observed output of promoted employees tends to fall. Lazear (2004) models this principle as resulting from a regression to the mean of the transitory component of ability. Our experiment reproduces this model in the laboratory by means of various treatments in which we alter the variance of the transitory ability. We also compare the efficiency of an exogenous promotion standard with a treatment where subjects self-select their task. Our evidence confirms the Peter Principle when the variance of the transitory ability is large. In most cases, the efficiency of job allocation is higher when using a promotion rule than when employees are allowed to self-select their task. This is likely due to subjects’ bias regarding their transitory ability. Naïve thinking, more than optimism/pessimism bias, may explain why subjects do not distort their effort prior to promotion, contrary to Lazear’s (2004) prediction.
    Keywords: promotion, Peter Principle, sorting, experiment
    JEL: C91 J24 J33 M51 M52
    Date: 2007–12
  4. By: Tyler Williams
    Abstract: Numerous studies have found that top-down processes can affect perceptions. This study examines some of the issues involved in designing field experiments aimed at discovering whether top-down mental processes affect perceptions, and, if so, how the influence takes place. Lee, Frederick, and Ariely (2006) (LFA) attempt to go further by testing whether expectations affect perception directly, by altering how sensory receptors and/or the brain’s processing centers interpret a outside stimulus—or indirectly, for example, by changing the amount of attention paid to the outside stimulus. In order to test the robustness of the findings in LFA, this paper reports the results of a field experiment similar to the one analyzed in LFA. The field experiment, designed to address some potential confounding factors in this type of research, confirms that expectations can alter perceptions. However, it also shows that heterogeneity across individuals can play a role in determining the nature of this effect, a finding that complicates the interpretation of results such as those in LFA. To frame the analysis, this paper discusses the difficulties in designing this type of experiment, makes some improvements to existing designs, and suggests some ways of eliminating the confounding influences that remain.
    Keywords: Uncertainty
    Date: 2007
  5. By: Alois Stutzer; Lorenz Goette; Michael Zehnder
    Abstract: In this paper, we propose a decision framework where people are individually asked to either actively consent to or dissent from some pro-social behavior. We hypothesize that confronting individuals with the choice of whether to engage in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences, while simultaneously involving a commitment. The hypothesis is tested in a large-scale field experiment on blood donations. We find that this “active-decision” intervention substantially increases the actual donation behavior of people who had not fully formed preferences beforehand.
    Keywords: Human behavior ; Altruism
    Date: 2007
  6. By: Puzzello, Daniela
    Abstract: This experimental study investigates pricing behavior of sellers in duopoly markets with posted prices and market power. The two treatment variables are given by tie breaking rules and divisibility of the price space. The first treatment variable deals with the rule under which demanded units are allocated between sellers in case of a price tie. A change in divisibility is modeled by making the sellers' price space finer or coarser. The main finding is that the incidence of perfect collusion is significantly higher under the sharing tie breaking rule than under the random (coin-toss) one, especially when the price space is less divisible.
    Keywords: Collusion; Tie Breaking Rules; Divisibility; Bertrand model.
    JEL: C9 L1
    Date: 2007
  7. By: Marcello Basili; Maurizio Franzini
    Abstract: Cooperation occurs even where it is not predicted by economic theory, owing to what is widely recognized as too narrow a conception of self-interest. In particular, relying on plenty of experimental evidence, it has been maintained that agents adopt such a strong reciprocity rules in their behavior as make it worthwhile to punish those who defect or do not act fairly, costly though as this may be. We propose to lay the analytical foundation of such behavior – and more generally to cooperation-proneness – by considering self-esteem. Agents may include self-esteem in their utility (or goal) function and actually produce or destroy self-esteem through their behavior. This amounts to introducing a moral system in individual behavior in such a way as to make it amenable to rational maximization. We also show how the impact of self-esteem on the best contract in Principal-Agents situations and how such impact differs in Moral Hazard and Adverse Selection situations.
    Keywords: self-esteem, reciprocity, motivation, incentive, agency.
    JEL: J41 D64
    Date: 2007–11
  8. By: Florian Ederer (MIT); Ernst Fehr (University of Zurich and IZA)
    Abstract: In this paper we show that subtle forms of deceit undermine the effectiveness of incentives. We design an experiment in which the principal has an interest in underreporting the true performance difference between the agents in a dynamic tournament. According to the standard approach, rational agents should completely disregard the performance feedback of self-interested principals and choose their effort level as if they had not been given any information. However, despite substantial underreporting many principals seem to exhibit lying aversion which renders their feedback informative. Therefore, the agents respond to the feedback but discount it strongly by reducing their effort relative to fully truthful performance feedback. Moreover, previous experiences of being deceived exacerbate the problem and eventually reduce average effort even below the level that prevails in the absence of any feedback. Thus, both no feedback and truthful feedback are better for incentives than biased feedback.
    Keywords: deception, dishonesty, communication, cheap talk, dynamic tournaments
    JEL: D83 C92 M12
    Date: 2007–12
  9. By: Elizabeth Levy Paluck (Harvard University)
    Abstract: Can the media reduce intergroup prejudice and conflict? Despite the high stakes of this question, understanding of the mass media’s role in shaping prejudiced beliefs, norms, and behaviors is very limited. A yearlong field experiment in Rwanda tested the impact of a radio soap opera about two Rwandan communities in conflict, which featured messages about reducing intergroup prejudice, violence, and trauma. Compared to communities who listened to a control radio soap opera, listeners’ perceptions of social norms and their behaviors changed concerning some of the most critical issues for Rwanda’s post conflict society, namely intermarriage, open dissent, trust, empathy, cooperation and discussion of personal trauma. However, the radio program did little to influence listeners’ personal beliefs. Group discussion was a notable feature of the listening experience. Taken together, the results suggest that radio can communicate social norms and influence behaviors that contribute to intergroup tolerance and reconciliation.
    Keywords: Education-entertainment, prejudice reduction, conflict reduction, trauma, field experiment, mass media, radio, social norms
    Date: 2007–10
  10. By: Sascha Füllbrunn (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: The design of markets has become a major issue due to the capability of online operators to implement almost any set of market rules overnight. With this study we contribute to the literature of market design by presenting a theoretical and experimental analysis of sudden termination auctions. Our main focus is on the candle auction that has a positive termination probability at any time in the course of the auction. The second price candle auction which is technically demanding and rarely implemented offline proves to be a faster and equally efficient alternative to standard hard close auctions.
    Keywords: auctions, termination rules, electronic markets
    JEL: C73 C9 D44
    Date: 2007–02

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