nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒04‒04
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Asset Bubbles without Dividends - An Experiment By Oechssler, Jörg; Schmidt, Carsten; Schnedler, Wendelin
  2. Risky Punishment and Reward in the Prisoner By Dürsch, Peter; Servátka, Maros
  3. Satisficing in sales competition: experimental evidence By Berninghaus, Siegfried K.; Gueth, Werner; Levati, M. Vittoria; Qiu, Jianying
  4. Estimating Ambiguity Aversion in a Portfolio Choice Experiment By David Ahn; Syngjoo Choi; Douglas Gale; Shachar Kariv
  5. Myopically Forward-Looking Agents in a Network Formation Game: Theory and Experimental Evidence By Berninghaus, Siegfried K.; Ehrhart, Karl-Martin; Ott, Marion
  6. How People perceive the Welfare State. A real effort experiment By Ottone, Stefania; Ponzano, Ferruccio
  7. Strategic Voting under Proportional Representation and Coalition Governments: A Simulation and Laboratory Experiment By Meffert, Michael F.; Gschwend, Thomas
  8. Polls, Coalition Signals, and Strategic Voting: An Experimental Investigation of Perceptions and Effects By Meffert, Michael F.; Gschwend, Thomas
  9. Uniform vs. Discriminatory Auctions with Variable Supply - Experimental Evidence By Damianov, Damian S.; Oechssler, Jörg; Becker, Johannes Gerd
  10. Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives By Samuel Bowles; Sung Ha Hwang
  11. Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds By James J Choi; David Laibson; Brigitte C Madrian
  12. Can Auditors Be Independent? - Experimental Evidence By Koch, Christopher; Weber, Martin; Wüstemann, Jens
  13. Imitation and the Evolution of Walrasian Behavior: Theoretically Fragile but Behaviorally Robust By Apesteguia, Jose; Huck, Steffen; Oechssler, Jörg; Weidenholzer, Simon
  14. Continuous and Step-level Pay-off Functions in Public Good Games: A Conceptual Analysis By Abele, Susanne; Stasser, Garold

  1. By: Oechssler, Jörg (Department of Economics, University of Heidelberg); Schmidt, Carsten (Sonderforschungsbereich 504, University of Mannheim); Schnedler, Wendelin (Department of Economics, University of Heidelberg)
    Abstract: Bubbles in asset markets have been documented in numerous experimental studies. However, all experiments in which bubbles occur pay dividends after each trading day. In this paper we study whether bubbles can occur in markets without dividends. We investigate the role of two features that are present in real markets. (1) The mere possibility that some traders may have inside information, and (2) the option to communicate with other traders. We find that bubbles can indeed occur without dividends. Surprisingly, communication turns out to be counterproductive for bubble formation, whereas the possibility of inside information is, as expected, crucial.
    Keywords: asset markets, bubbles, experiment, mirages, dividends
    JEL: C92 G12 D8
    Date: 2007–04–04
  2. By: Dürsch, Peter (Department of Economics, University of Heidelberg); Servátka, Maros (Department of Economics, University of Canterbury)
    Abstract: We conduct a prisoner’s dilemma experiment with a punishment/reward stage, where punishments and rewards are risky. This is compared with a risk free treatment. We find that subjects do not change their behavior in the face of risky outcomes. Additionally, we measure risk attitude and the emotions of subjects. While we find a strong influence of emotions, individual risk aversion has no effect on the decision to punish or reward. This is good news for lab experiments who abstract from risky outcomes. From the perspective of social preferences, our results provide evidence for risk neutral inclusion of other player’s payoffs in the decisionmaker’s utility function.
    Date: 2007–09–05
  3. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Gueth, Werner (Max Planck Institute for Research into Economic Systems, Strategic Interaction Group); Levati, M. Vittoria (Max Planck Institute of Economics, Strategic Interaction Group); Qiu, Jianying (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: In a duopoly market, aspirations express how much sellers want to earn given their expectations about the other's behavior. We define individually and mutually satisficing sales behavior for given individual beliefs and aspirations. In a first experimental phase, whenever satisficing is not possible, beliefs, aspirations, or sales have to be adapted. In a second phase, testing the absorption of satisficing, participants are free to select nonsatisficing sales profiles. The results reveal that most people are satisficers who, either mandatorily or deliberately, tend to adjust aspiration levels if they cannot be satisfied.
    Date: 2007–05–16
  4. By: David Ahn; Syngjoo Choi; Douglas Gale; Shachar Kariv
    Date: 2008–03–21
  5. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Ehrhart, Karl-Martin (Universitaet Karlsruhe); Ott, Marion (Universitaet Karlsruhe)
    Abstract: A population of players is considered in which each agent can select her neighbors in order to play a 2x2 Hawk-Dove game with each of them. We design our experiment in continuous time where participants may change their Hawk-Dove action and/or their neighborhood at any point in time. We are interested in the resulting formation of networks and the action distributions. Compared with static Nash equilibrium (e.g., Berninghaus and Vogt, 2004, 2006; Bramoulle, Lopez-Pintado, Goyal, and Vega-Redondo, 2004) and social optimum as theoretical benchmark solutions, subjects seem to employ a more complex, forward-looking thinking. We develop an other benchmark solution, called one-step-ahead stability, that combines forward-looking belief formation with rational response and that fits the data much better.
    Date: 2008–01–31
  6. By: Ottone, Stefania; Ponzano, Ferruccio
    Abstract: The main activity of a welfare state is to impose taxes in order to collect money to provide services. In this paper we want to test subjects’ perception of these two steps in the lab. In particular, using a real effort experiment as a tool, we aim at measuring both the labour supply and the consensus as the level of taxation and the efficiency of the welfare state vary.
    Date: 2008–03
  7. By: Meffert, Michael F. (Sonderforschungsbereich 504); Gschwend, Thomas (Sonderforschungsbereich 504)
    Abstract: The theory of strategic voting has been tested in experiments for elections in single member districts with three candidates or parties. It is unclear whether it can explain strategic voting behavior in a fairly common type of political system, multi-party systems with proportional representation, minimum vote thresholds, and coalition governments. In this paper, we develop a (non-formal) strategic voting game and show in a simulation that the model produces election scenarios and outcomes with desirable characteristics. We then test the decision-theoretic model in a laboratory experiment. Participants with a purely instrumental (financial) motivation voted in a series of 25 independent elections. The availability of polls and coalition signals by parties was manipulated. The results show that voters are frequently able to make optimal or strategic vote decisions, but that voters also rely on simple decision heuristics and are highly susceptible to coalition signals by parties.
    Date: 2007–07–30
  8. By: Meffert, Michael F. (Sonderforschungsbereich 504); Gschwend, Thomas (Sonderforschungsbereich 504)
    Abstract: The paper investigates how poll information and coalition signals affect strategic voting, defined as casting a vote for a party other than the most preferred party to better influence the election outcome. In particular if the outcome of an election is perceived to be close, voters in multi-party systems with proportional representation and coalition governments should have an incentive to cast a vote for the party that best influences the formation of the next government. The study focuses in particular on voters’ attention to and perception of polls and coalition signals sent by parties before elections. The study used an innovative design that embedded a laboratory experiment in two real election campaigns, allowing the manipulation of poll results and coalition signals in a realistic environment. The findings suggest that political sophistication plays a crucial role for the accurate perception of polls and strategic voting. Coalition signals are found to have a surprisingly strong effect on (apparently) strategic voting.
    Date: 2007–09–26
  9. By: Damianov, Damian S. (The University of Texas-Pan American); Oechssler, Jörg (Department of Economics, University of Heidelberg); Becker, Johannes Gerd (ETH Zurich, Department of Economics)
    Abstract: In the variable supply auction considered here, the seller decides how many costumers with unit demand to serve after observing their bids. Bidders are uncertain about the seller's cost. We experimentally investigate whether a uniform or a discriminatory price auction is better for the seller in this setting. Exactly as predicted by theory, it turns out that the uniform price auction produces substantially higher bids, and consequently yields higher revenues and profits for the seller. Somewhat surprisingly but again predicted by theory, it also yields a higher number of transactions, which makes it the more efficient auction format.
    Date: 2007–12–05
  10. By: Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts); Sung Ha Hwang (University of Massachusetts, Amherst)
    Abstract: Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these conditions. We identify cases in which a sophisticated planner cognizant of these non-additive effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent. JEL Categories: D52, D64, H21. H41
    Keywords: Social preferences, implementation theory, incentive contracts, incomplete contracts, framing, motivational crowding out, ethical norms, constitutions
    Date: 2008–03
  11. By: James J Choi; David Laibson; Brigitte C Madrian
    Date: 2008–03–21
  12. By: Koch, Christopher (Sonderforschungsbereich 504); Weber, Martin (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre); Wüstemann, Jens (Lehrstuhl für ABWL und Wirtschaftsprüfung/Sonderforschungsbereich 504)
    Abstract: The Sarbanes-Oxley Act of 2002 has transformed the institutional environment in the US by making the audit committee responsible for the appointment, compensation and oversight of the auditor. We examine whether this institutional change successfully resolves the alleged problem of an unconscious favoring of the management (Bazerman et al. 1997, 2002, 2006) by changing the effects of auditors’ economic incentives and psychological pressure. In our experimental design, we make use of the particular features of the German institutional setting as it enables us to manipulate the client of the auditor in a realistic and clear-cut way. 72 German auditors with at least two years of job experience participated in our experiment. Following Turner (2001), we distinguish in our analyses between belief tasks (e.g. evidence evaluation) and action tasks (e.g. audit opinion). Our findings imply that certain institutional features seem to be helpful in ensuring auditor independence. First, we find that auditors demonstrate professional scepticism in belief tasks. This seems to counteract any potentially negative effect of the acceptability heuristic in actions tasks. Second, experience helped auditors in coping with psychological pressure. Third, making the auditor accountable to a supervisory board was helpful in reducing the risk that financial considerations would impair auditor independence.
    Date: 2007–08–09
  13. By: Apesteguia, Jose (Department of Economics and Business, Universitat Pompeu Fabra); Huck, Steffen (Department of Economics, University College London); Oechssler, Jörg (Department of Economics, University of Heidelberg); Weidenholzer, Simon (Department of Economics, University of Vienna)
    Abstract: A well-known result by Vega-Redondo implies that in symmetric Cournot oligopoly, imitation leads to the Walrasian outcome where price equals marginal cost. In this paper we show that this result is not robust to the slightest asymmetry in fixed costs. Instead of obtaining the Walrasian outcome as unique prediction, every outcome where agents choose identical actions will be played some fraction of the time in the long run. We then conduct experiments to check this fragility. We obtain that, contrary to the theoretical prediction, the Walrasian outcome is still a good predictor of behavior.
    Date: 2007–12–05
  14. By: Abele, Susanne (Miami University, Department of Psychology); Stasser, Garold (Miami University, Department of Psychology)
    Abstract: Conflicts between individuals’ and collective interests are ubiquitous in social life. Numerous experimental studies have investigated the resolution of such conflicts using public good games with either continuous or step-level payoff functions. A conceptual analysis using both classic game theory and social exchange theory shows that these two types of games are fundamentally different. A continuous function game is a social dilemma in that it contains a conflict between individual and collective interests whereas a step-level game is primarily a social coordination game. Thus, we conclude that one can not safely generalize results from step-level to continuous form games. Additionally, our analysis shows that the distinction between continuous and single-step games can be blurred by segmenting a continuous function into steps or adding steps to a single-step game. We identify characteristics of the payoff function that conceptually mark the transition from a dilemma to a coordination problem.
    Date: 2007–12–17

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.
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