nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒04‒21
twelve papers chosen by
Daniel Houser
George Mason University

  1. Searching for a better deal - on the influence of group decision making, time pressure and gender in a search experiment By Ibanez, Marcela; Czermak, Simon; Sutter, Matthias
  2. Monitoring optimistic agents By Nicolas Jacquemet; Jean-Louis Rullière; Isabelle Vialle
  3. Understanding Perpetual R&D Races By Yves Breitmoser; Jonathan H. W. Tan; Daniel John Zizzo
  4. Feedback and Incentives: Experimental Evidence By Eriksson, Tor; Poulsen, Anders; Villeval, Marie-Claire
  5. Fast or Fair? A Study of Response Times By Marco Piovesan; Erik Wengström
  6. Information Revelation in an Online Auction with Common Values By Sascha Füllbrunn
  7. “Ingroup Love" and “Outgroup Hate" as Motives for Individual Participation in Intergroup Conflict: A New Game Paradigm By Nir Halevy; Gary Bornstein; Lilach Sagiv
  8. Institutions and Contract Enforcement By Falk, Armin; Huffman, David; MacLeod, W. Bentley
  9. "Voluntarily Separable Prisoner's Dilemma with Reference Letters" By Takako Fujiwara-Greve; Masahiro Okuno-Fujiwara; Nobue Suzuki
  10. Mental Accounting and Small Windfalls: Evidence from an Online Grocer By Katherine L. Milkman; John Leonard Beshears; Todd Rogers; Max H. Bazerman
  11. Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings By Goldstein, Robin; Almenberg, Johan; Dreber, Anna; Herschkowitsch, Alexis; Katz, Jacob
  12. Learning by Doing vs. Learning from Others in a Principal-Agent Model By Jasmina Arifovic; Alexander Karaivanov

  1. By: Ibanez, Marcela (Department of Economics, School of Business, Economics and Law, Göteborg University); Czermak, Simon (University of Innsbruck); Sutter, Matthias (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We study behavior in a search experiment where sellers receive randomized bids from a computer. At any time, sellers can accept the highest standing bid or ask for another bid at positive costs. We find that sellers stop searching earlier than theoretically optimal. Inducing a mild form of time pressure strengthens this finding in the early periods. There are marked gender differences. Men search significantly shorter than women. If subjects search in groups of two subjects, there is no difference to individual search, but teams of two women search much longer than men and recall more frequently.<P>
    Keywords: Search experiment; Time; Group decision; Gender differences
    JEL: C91 C92 D83
    Date: 2008–03–31
  2. By: Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Jean-Louis Rullière (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Isabelle Vialle (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: Monitoring is typically included in economic models of crime thanks to a probability of detection, constant across individuals. We build on recent results in psychology to argue that comparative optimism deeply affects this standard relation. To this matter, we introduce an experiment involving proper incentives that allow a measurement of optimism bias. Our experiments support the relevance of so-called comparative optimism in decision under risk. In the context of illegal activities, our results provide a guide into costless devices to undermine fraud, through well-designed information campaigns.
    Keywords: Optimism; Risk aversion; Monitoring design; Illegal activity; Experimental economics
    Date: 2008
  3. By: Yves Breitmoser (Institute of Microeconomics, European University Viadrina); Jonathan H. W. Tan (Institute of Microeconomics, European University Viadrina); Daniel John Zizzo (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper presents an experimental study of dynamic indefinite horizon R and D races with uncertainty and multiple prizes. The theoretical predictions are highly sensitive: small parameter changes determine whether technological competition is sustained, or converges into a market structure with an entrenched leadership and lower aggregate R&D. The subjects' strategies are far less sensitive. In most treatments the R&D races tend to converge to entrenched leadership. Investment is highest when rivals are close. This stylized fact, and so the usefulness of neck-to-neck competition in general, is largely unrelated to rivalry concerns but can be explained using a quantal response extension of Markov perfection.
    Keywords: R&D race, innovation, dynamics, experiment
    JEL: C72 C91 O31
    Date: 2008–03
  4. By: Eriksson, Tor (Aarhus School of Business); Poulsen, Anders (University of East Anglia); Villeval, Marie-Claire (CNRS, GATE)
    Abstract: This paper experimentally investigates the impact of different pay and relative performance information policies on employee effort. We explore three information policies: No feedback about relative performance, feedback given halfway through the production period, and continuously updated feedback. The pay schemes are a piece rate payment scheme and a winner-takes-all tournament. We find that, regardless of the pay scheme used, feedback does not improve performance. There are no significant peer effects in the piece-rate pay scheme. In contrast, in the tournament scheme we find some evidence of positive peer effects since the underdogs almost never quit the competition even when lagging significantly behind, and frontrunners do not slack off. Moreover, in both pay schemes information feedback reduces the quality of the low performers’ work.
    Keywords: performance pay, tournament, piece rate, peer effects, information, feedback, evaluation, experiment
    JEL: C70 J16 J24 M52 J33 J31 C91
    Date: 2008–04
  5. By: Marco Piovesan (Department of Economics, University of Copenhagen); Erik Wengström (Department of Economics, University of Copenhagen)
    Abstract: This paper uses a modified dictator game to investigate the relationship between response times and social preferences. We find that egoistic subjects make faster decisions than subjects with social preferences. Moreover, our within-analysis reveals that, for a given individual, egoistic payoff maximizing decisions are reached quicker than choices expressing social preferences.
    Keywords: response times; social preferences
    JEL: C72 C91
    Date: 2008–04
  6. By: Sascha Füllbrunn (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: The Hard Close auction has become a familiar auction format in online markets and in a private value framework this dynamic second-price auction format has experimentally been tested in recent studies. Considering a common value framework, Bajari and Hortaçsu (2003) demonstrate that in the Hard Close auction format bidders, using a sniping strategy, do not provide information during the auction. We provide contrary results from a laboratory experiment. Bidders provide information during the bidding process, resulting in different bid functions that depend on the bidders private information rank.
    Keywords: auctions, electronic markets, experiments
    JEL: C73 C9 D44
    Date: 2008–04
  7. By: Nir Halevy; Gary Bornstein; Lilach Sagiv
    Abstract: What motivates individual self-sacrificial behavior in intergroup conflicts? Is it the altruistic desire to help the ingroup or the aggressive drive to hurt the outgroup? This paper introduces a new game paradigm, the Intergroup Prisoner’s Dilemma – Maximizing Difference (IPD-MD) game, designed specifically to distinguish between these two motives. The game involves two groups. Each group member is given a monetary endowment and can decide how much of it to contribute. Contribution can be made to either of two pools, one which benefits the ingroup at a personal cost, and another which, in addition, harms the outgroup. An experiment demonstrated that contributions in the IPD-MD game are made almost exclusively to the cooperative within-group pool. Moreover, pre-play intragroup communication increases intragroup cooperation but not intergroup competition. These results are compared with those observed in the Intergroup Prisoner's Dilemma (IPD) game, where group members' contributions are restricted to the competitive between-group pool.
    Date: 2007–12
  8. By: Falk, Armin (University of Bonn); Huffman, David (Swarthmore College); MacLeod, W. Bentley (Columbia University)
    Abstract: We provide evidence on how two important types of institutions – dismissal barriers, and bonus pay – affect contract enforcement behavior in a market with incomplete contracts and repeated interactions. Dismissal barriers are shown to have a strong negative impact on worker performance, and market efficiency, by interfering with firms' use of firing threat as an incentive device. Dismissal barriers also distort the dynamics of worker effort levels over time, cause firms to rely more on the spot market for labor, and create a distribution of relationship lengths in the market that is more extreme, with more very short and more very long relationships. The introduction of a bonus pay option dramatically changes the market outcome. Firms are observed to substitute bonus pay for threat of firing as an incentive device, almost entirely offsetting the negative incentive and efficiency effects of dismissal barriers. Nevertheless, contract enforcement behavior remains fundamentally changed, because the option to pay bonuses causes firms to rely less on long-term relationships. Our results show that market outcomes are the result of a complex interplay between contract enforcement policies and the institutions in which they are embedded.
    Keywords: employment protection, efficiency wages, bonus pay, incomplete contracts, firing costs, experiment
    JEL: J41 J3 C9 D01
    Date: 2008–04
  9. By: Takako Fujiwara-Greve (Department of Economics, Keio University); Masahiro Okuno-Fujiwara (Faculty of Economics, University of Tokyo); Nobue Suzuki (Department of Economics, Komazawa University)
    Abstract: We consider voluntarily separable repeated Prisoner's Dilemma in which a pair of players meet randomly and repeatedly play Prisoner's Dilemma only by mutual agreement. Fujiwara-Greve and Okuno-Fujiwara (2007) consider the case that once a partnership is dissolved there is no information flow to other partnerships. We consider the case that players can issue a reference letter to the partner if they entered cooperation periods, but the content of a letter is not verifiable. We show that the sheer existence of a letter shortens the trust-building periods of new matches and thus improves efficiency in equilibrium.
    Date: 2008–03
  10. By: Katherine L. Milkman (Harvard Business School, Ph.D. in Information Technology and Management); John Leonard Beshears (Harvard Business School, Ph.D. in Business Economics); Todd Rogers (Harvard Business School, Ph.D. in Organizational Behavior Psychology); Max H. Bazerman (Harvard Business School, Negotiation, Organizations & Markets Unit)
    Abstract: We study the effect of small windfalls on consumer spending decisions by examining the purchasing behavior of a sample of online grocery shoppers over the course of a year. We compare the purchases customers make when redeeming a $10-off coupon they received from their online grocer with the purchases the same customers make when shopping without a coupon. Controlling for customer fixed effects and other relevant variables, we find that grocery spending increases by $1.59 with the use of a $10-off coupon. In addition, even though the receipt of a $10-off coupon does not correspond to a meaningful increase in wealth, the extra spending associated with the redemption of such a coupon is focused on "marginal" grocery items, or grocery items that a customer does not typically buy. These findings are consistent with a simple mental accounting model but are not consistent with the standard permanent income or lifecycle theory of consumption.
    Date: 2007–09
  11. By: Goldstein, Robin (Fearless Critic Media); Almenberg, Johan (Dept. of Economics, Stockholm School of Economics); Dreber, Anna (Dept. of Economics, Stockholm School of Economics); Herschkowitsch, Alexis (Fearless Critic Media); Katz, Jacob (Fearless Critic Media)
    Abstract: Individuals who are unaware of the price do not derive more enjoyment from more expensive wine. In a sample of more than 6,000 blind tastings, we find that the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less. For individuals with wine training, however, we find indications of a positive, or at any rate non-negative, correlation. Our results are robust to the inclusion of individual fixed effects, and are not driven by outliers: when omitting the top and bottom deciles of the price distribution, our qualitative results are strengthened, and the statistical significance is improved even further. Our results indicate that both the prices of wines and wine recommendations by experts may be poor guides for non-expert wine consumers.
    Keywords: Wine; price/quality relation; expertise
    JEL: L15 L66 M30 Q13
    Date: 2008–04–16
  12. By: Jasmina Arifovic (Simon Fraser University); Alexander Karaivanov (Simon Fraser University)
    Abstract: We introduce learning in a principal-agent model of stochastic output sharing under moral hazard. Without knowing the agents' preferences and technology the principal tries to learn the optimal agency contract. We implement two learning paradigms - social (learning from others) and individual (learning by doing). We use a social evolutionary learning algorithm (SEL) to represent social learning. Within the individual learning paradigm, we investigate the performance of reinforcement learning (RL), experience-weighted attraction learning (EWA), and individual evolutionary learning (IEL). Overall, our results show that learning in the principal-agent environment is very difficult. This is due to three main reasons: (1) the stochastic environment, (2) a discontinuity in the payoff space in a neighborhood of the optimal contract due to the participation constraint and (3) incorrect evaluation of foregone payoffs in the sequential game principal-agent setting. The first two factors apply to all learning algorithms we study while the third is the main contributor for the failure of the EWA and IEL models. Social learning (SEL), especially combined with selective replication, is much more successful in achieving convergence to the optimal contract than the canonical versions of individual learning from the literature. A modified version of the IEL algorithm using realized payoff evaluation performs better than the other individual learning models; however, it still falls short of the social learning's ability to converge to the optimal contract.
    Keywords: learning, principal-agent model, moral hazard
    JEL: D83 D86 C63
    Date: 2007–11

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