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on Experimental Economics |
| By: | Leuven, Edwin (University of Amsterdam); Oosterbeek, Hessel (University of Amsterdam); Sonnemans, Joep (University of Amsterdam); van der Klaauw, Bas (Free University of Amsterdam) |
| Abstract: | A vast body of empirical studies lends support to the incentive effects of rank-order tournaments. Evidence comes from experiments in laboratories and non-experimental studies exploiting sports or firm data. Selection of competitors across tournaments may bias these non-experimental studies, whereas short task duration or lack of distracters may limit the external validity of results obtained in lab experiments or from sports data. To address these concerns we conducted a field experiment where students selected themselves into tournaments with different prizes. Within each tournament the best performing student on the final exam of a standard introductory microeconomics course could win a substantial financial reward. A standard non-experimental analysis exploiting across tournament variation in reward size and competitiveness confirms earlier findings. We find however no evidence for effects of tournament participation on study effort and exam results when we exploit our experimental design, indicating that the non-experimental results are completely due to sorting. Treatment only affects attendance of the first workgroup meeting following the announcement of treatment status, suggesting a difference between short-run and long-run decision making. |
| Keywords: | tournaments, incentives, sorting, field experiments |
| JEL: | J33 C93 M52 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3326&r=exp |
| By: | Antonio Cabrales (Universidad Carlos III de Madrid); Raffaele Miniaci (Università di Brescia); Marco Piovesan (Department of Economics, University of Copenhagen); Giovanni Ponti (Universidad de Alicante) |
| Abstract: | This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the first two phases, P1 and P2; agents face simple games, which we use to estimate subjects' social and reciprocity concerns, together with their beliefs. In the last phase, P3; four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he "chooses to work" for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-off between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences. |
| Keywords: | social preferences; team incentives; mechanism design; experimental economics |
| JEL: | C90 D86 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0806&r=exp |
| By: | Hannah Hörisch (University of Munich, Seminar for Economic Theory, Ludwigstraße 28 (Rgb.), 80539 Munich, Germany, email: hannah.hoerisch@lrz.uni-muenchen.de.) |
| Abstract: | We implement the Rawlsian veil of ignorance in the laboratory. Our experimental design allows separating the effects of risk and social preferences behind the veil of ignorance. Subjects prefer more equal distributions behind than in front of the veil of ignorance, but only a minority acts according to maximin preferences. Men prefer more equal allocations mostly for insurance purposes, women also due to social preferences for equality. Our results contrast the Utilitarian's claim that behind the veil of ignorance maximin preferences necessarily imply infinite risk aversion. They are compatible with any degree of risk aversion as long as social preferences for equality are sufficiently strong. |
| Keywords: | deterrence, law and economics, incentives, crowding out, experiment |
| JEL: | D64 C99 D63 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:229&r=exp |
| By: | von Gaudecker, Hans-Martin (Free University of Amsterdam); van Soest, Arthur (Tilburg University); Wengström, Erik (University of Copenhagen) |
| Abstract: | We combine data from a risk preference elicitation experiment conducted on a representative sample via the Internet with laboratory data on students for the same experiment to investigate effects of implementation mode and of subject pool selection. We find that the frequency of errors in the lab experiment is drastically below that of the representative sample in the Internet experiment, and average risk aversion is also lower. Considering the student-like subsample of the Internet subjects and comparing a traditional lab design with an Internet-like design in the lab gives two ways to decompose these differences into differences due to subject pool selection and differences due to implementation mode. Both lead to the conclusion that the differences are due to selection and not implementation mode. An analysis of the various steps leading to participation or non-participation in the Internet survey leads shows that these processes are selective in selecting subjects who make fewer errors, but do not lead to biased conclusions on risk preferences. These findings point at the usefulness of the Internet survey as an alternative to a student pool in the laboratory if the ambition is to use the experiments to draw inference on a broad population. |
| Keywords: | risk aversion, internet surveys, laboratory experiments |
| JEL: | C90 D81 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3321&r=exp |
| By: | Ondrej Rydval,; Andreas Ortmann; Michal Ostatnicky |
| Abstract: | We study experimentally the nature of dominance violations in three minimalist dominancesolvable guessing games. We examine how subjects’ reported reasoning processes translate into their stated choices and beliefs about others’ choices, and how both reasoning processes and choices relate to their measured cognitive and personality characteristics. Only about a third of subjects reason in line with dominance; they all make dominant choices and almost all expect others to do so. By contrast, nearly two-thirds of subjects reason inconsistently with dominance, yet a quarter of them actually make dominant choices and half of those expect others to do so. Reasoning errors are more likely for subjects with lower ability to maintain and allocate attention, as measured by working memory, and for subjects with lower intrinsic motivation and premeditation attitude. Dominance-incompatible reasoning arises mainly from subjects misrepresenting the strategic nature (payoff structure) of the guessing games. |
| Keywords: | Cognition, bounded rationality, beliefs, guessing games, experiment. |
| JEL: | C72 C92 D83 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp347&r=exp |
| By: | L. Bagnoli; G. Negroni |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:627&r=exp |
| By: | Eike B. Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper explores cultural differences in risky choices between Australian and German students. The focus is not on risk itself, but on tension which is a positive attribute of risky choices. Furthermore, the effects of real versus hypothetical payoffs are analysed. The experiment of this paper shows that in a given set of tension creating choices, Australians do choose tension more often than Germans, while Germans prefer higher tension. Additionally it is shown that real payoffs do make a difference in the data, but the real payoff even increases the effect. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:08006&r=exp |
| By: | Brown, Martin (Swiss National Bank); Falk, Armin (University of Bonn); Fehr, Ernst (University of Zurich) |
| Abstract: | When unemployment prevails, relations with a particular firm are valuable for workers. As a consequence, a worker may adhere to an implicit agreement to provide high effort, even when performance is not third-party enforceable. But can implicit agreements – or relational contracts – also motivate high worker performance when the labor market is tight? We examine this question by implementing an experimental market in which there is an excess demand for labor and the performance of workers is not third-party enforceable. We show that relational contracts emerge in which firms reward performing workers with wages that exceed the going market rate. This motivates workers to provide high effort, even though they could shirk and switch firms. Our results thus suggest that unemployment is not a necessary device to motivate workers. We also discuss how market conditions affect relational contracting by comparing identical labor markets with excess supply and excess demand for labor. Long-term relationships turn out to be less frequent when there is excess demand for labor compared to a market characterized by unemployment. Surprisingly though, this does not compromise market performance. |
| Keywords: | relational contracts, involuntary unemployment |
| JEL: | D82 J3 J41 E24 C9 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3345&r=exp |