nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒01‒26
eight papers chosen by
Daniel Houser
George Mason University

  1. Yesterday's expectation of tomorrow determines what you do today: The role of reference-dependent utility from expectations By Astrid Matthey
  2. Is observed other-regarding behavior always genuine? By Astrid Matthey; Tobias Regner
  3. Don’t aim too high: the potential costs of high aspirations By Astrid Matthey; Nadja Dwenger
  4. Causes, consequences, and cures of myopic loss aversion - An experimental investigation By Gerlinde Fellner; Matthias Sutter
  5. A contribution of experimental economics toward characterization of the use of market power in oligopolisitc markets By Fabien Petit; Yannick Phulpin; Marcelo Saguan; Philippe Dessante
  6. Do Legal Standards Affect Ethical Concerns of Consumers? By Dirk Engelmann; Dorothea Kübler
  7. Training Without Certification: An Experimental Study By Nadège Marchand; Claude Montmarquette
  8. Determining the Number of Market Segments Using an Experimental Design By Ana Oliveira-Brochado; Francisco Vitorino Martins

  1. By: Astrid Matthey (Max-Planck-Institute of Economics)
    Abstract: The paper introduces the concept of adjustment utility, that is, reference-dependent utility from expectations. It offers an explanation for observed preferences that cannot be explained with existing models, and yields new predictions for individual decision making. The model gives a simple explanation for, e.g., why people are reluctant to change their plans even when these turn out to be unexpectedly costly; people's aversion towards positive but false information, which cannot be explained with previous models; and the increasing acceptance of risks when people get used to them.
    Keywords: utility, expectations, reference-dependent preferences, anticipation, prospect theory, experiments
    JEL: D11 D81 D84 C99
    Date: 2008–01–15
  2. By: Astrid Matthey (Max Planck Institute of Economics, Jena, Germany); Tobias Regner (Friedrich Schiller University, Jena, Germany)
    Abstract: We investigate to what extent genuine social preferences can explain observed other-regarding behavior. In a social dilemma situation (a dictator game variant), people can choose whether to learn about the consequences of their choice for the receiver. We ï¬nd that a majority of the people that show other-regarding behavior when the payoffs of the receiver are known chose to ignore them if possible. This behavior is inconsistent with genuine other-regarding preferences. Our model explains other-regarding behavior as avoiding cognitive dissonance: People do not behave fairly because they genuinely care for others, but because they like to think of themselves as being fair. The model can explain our data as well as earlier experimental data.
    Keywords: social preferences, experiments, social dilemma, cognitive dissonance
    JEL: C9 C7 D8
    Date: 2007–12–21
  3. By: Astrid Matthey; Nadja Dwenger
    Abstract: The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We first develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on the factor found to be crucial: the adjustment of reference states to changes in expectations. The results suggest that the costs of high aspirations can be significant, since reference states do not adjust quickly. We use a novel, indirect approach that allows us to infer the determinants of the reference state from observed behavior, rather than to rely on cheap talk.
    Keywords: aspirations, reference state, expectations, individual utility, experiments
    JEL: D11 D84 C91
    Date: 2008–01
  4. By: Gerlinde Fellner (Department of Economics, Vienna University of Economics & B.A.); Matthias Sutter (University of Innsbruck, Deparment of Public Finance, and University of Goeteborg)
    Abstract: We examine in an experiment the causes, consequences and possible cures of myopic loss aversion (MLA) for investment behaviour under risk. We find that both, investment horizons and feedback frequency contribute almost equally to the effects of MLA. Longer investment horizons and less frequent feedback lead to higher investments. However, when given the choice, subjects prefer on average shorter investment horizons and more frequent feedback. Exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention that increases investment levels.
    JEL: C91 D80 G11
    Date: 2008–01
  5. By: Fabien Petit (SUPELEC-Campus Gif - SUPELEC); Yannick Phulpin (SUPELEC-Campus Gif - SUPELEC); Marcelo Saguan (SUPELEC-Campus Gif - SUPELEC); Philippe Dessante (SUPELEC-Campus Gif - SUPELEC)
    Abstract: Despite the numerous researches about imperfect competition, the market power remains difficult to quantify using traditional economics methods. In this paper, we propose an experimental economics design and outline some ways of analysis of its results toward characterization of the use of market power. A simple system with two regions and a limited interconnection transfer capacity allocated by an implicit auction is studied. Depending on the experiments two or three subjects share equitably the production capacity in one region, while the production capacity is equitably shared among 5 subjects leading to a more competitive situation in the second one. In both regions, we observe a market price that is different from the theoretical results allowing a quantification of the use of market power. Results are also analyzed based on a characterization of the subjects’ behaviour. Further the impact of subjects’ behaviour on the market price evolution is described.
    Keywords: experimental economics, market power, electricity markets, oligopolistic markets
    Date: 2007–06–13
  6. By: Dirk Engelmann; Dorothea Kübler
    Abstract: In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.
    Keywords: Fairness, Crowding Out, Consumer Behavior, Minimum Wage, Experimental Economics
    JEL: C91 J88 K31
    Date: 2008–01
  7. By: Nadège Marchand; Claude Montmarquette
    Abstract: Our study considers the question of training in firms using an experimental laboratory approach. We investigate the following questions : What conditions, excluding external certification, will bring workers and employers to cooperate and share a rent generated by the workers' training? What conditions will induce workers to accept the training offer, for employers to initially offer the training and to reward the trained workers in the last stage of the game? We analyse the impact of the size of the rent created by training and the existence of an information system on employer reputation rewarding trained employees. Reputation does matter to induce cooperation, but in the absence of external institutions, coordination on the optimal outcome remains difficult. <P>Nous étudions les déterminants de la formation des travailleurs en entreprises en mobilisant l’économie expérimentale. Nous voulons répondre aux questions suivantes : Sous quelles conditions, excluant la formule d’une accréditation externe, les travailleurs et les employeurs acceptent de collaborer dans la formation des travailleurs? Sous quelles conditions une offre de formation est proposée par l’employeur, acceptée par le travailleur, et honorée par l’employeur dans la dernière phase du jeu? L’étude montre l’impact du niveau des gains générés par la formation sur la coopération entre employeurs et travailleurs. Elle montre également qu’un système d’information qui révèle aux travailleurs la réputation de l’employeur à honorer ses promesses, favorise la coopération et la formation des travailleurs. Mais, néanmoins, sans institution externe validant la formation reçue, la coopération optimale demeure difficile à réaliser.
    Keywords: general and specific training in firms, accreditation, cooperation and reputation, experimental economics., formation générale et spécifique en entreprises, accréditation, coopération et réputation, économie expérimentale.
    JEL: C91
    Date: 2008–01–01
  8. By: Ana Oliveira-Brochado (EDGE, CESUR, DECIVIL-IST, Universidade Técnica de Lisboa); Francisco Vitorino Martins (EDGE, Faculdade de Economia da Universidade do Porto)
    Abstract: The aim of this work is to determine how well criteria designed to help the selection of the adequate number of mixture components perform in mixture regressions of normal data. We address this research question based on results of an extensive experimental design. The simulation experiment compares several criteria (26), including information criteria and classification-based criteria. In this full factorial design we manipulate 9 factors and 22 levels, namely: true number of segments (2 or 3), mean separation between segments (low, medium or high), number of consumers (100 or 300), number of observations per consumer (5 or 10), number of predictors (2, 6 or 10), measurement level of predictors (binary, metric or mixed), error variance (20% or 60%), minimum segment size (5-10%, 10-20% or 20-30%) and error distribution (normal versus uniform). The performance of the segment retention criteria is evaluated by their success rates; we also investigate the influence of experimental factors and their levels on success rates. The best results were obtained for the criteria AIC3, AIC4, HQ, ICLBIC and ICOMPLBIC. BIC and CAIC also perform well with large samples and a large number of market segments.
    Keywords: Market segmentation, information criteria, classification criteria, experimental design, simulation
    JEL: C15 C52 M31
    Date: 2008–01

This nep-exp issue is ©2008 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.