nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒04‒29
ten papers chosen by
Daniel Houser
George Mason University

  1. Minimal Social Cues in the Dictator Game By Rigdon, Mary; Ishii, Keiko; Watabe, Motoki; Kitayama, Shinobu
  2. Does Fairness of the Outside Option Matter? By Maroš Servátka; Radovan Vadovic
  3. Adaptive Experimental Design Using the Propensity Score By Hahn, Jinyong; Hirano, Keisuke; Karlan, Dean
  4. Risk Taking in Winner-Take-All Competition By Matthias Kräkel; Petra Nieken; Judith Przemeck
  5. Cooling-Off in Negotiations - Does It Work? By Oechssler, Jörg; Roider, Andreas; Schmitz, Patrick W.
  6. Analysts, Incentives, and Exaggeration By Timothy Shields
  7. Limited Insurance Within the Household: Evidence from a Field Experiment in Kenya By Robinson, Jonathan
  8. Homo Sapiens Sapiens Meets Homo Strategicus at the Laboratory By Ludovic Renou; Ralph C. Bayer
  9. Understanding Credit Risk: A Classroom Experiment By Maroš Servátka; George Theocharides
  10. Ashamed to be Selfish By Dillenberger, David; Sadowski, Philipp

  1. By: Rigdon, Mary; Ishii, Keiko; Watabe, Motoki; Kitayama, Shinobu
    Abstract: This paper reports results of an incentivized laboratory experiment manipulating an extremely weak social cue in the Dictator Game. Prior to making their decision, we present dictators with a simple visual stimlulus: either three dots in a “watching-eyes” configuration, or three dots in a neutral configuration. The watching-eyes configuration is suggestive of a schematic face—a stimuli that is known to weakly activate the fusiform face area of the brain (Tong, et al., 2000; Bednar and Miikkulainen, 2003; Johnson and Morton, 1991). Given the experimental evidence for automatic priming of watching eyes of others, it is thus reasonable to hypothesize that even though the social cue is very weak, this activation might be sufficient to produce a significant change in social behavior. Our results demonstrate that such a weak social cue does increase giving behavior—even under conditions of complete anonymity—and this difference in behavior across subjects is entirely explained by differences in the choice behavior of males. In fact, males in our treatment condition, who typically act more selfishly than do females in conditions of complete anonymity, give twice as much to anonymous recipients than females give.
    Keywords: dictator game; social preferences; laboratory experiment; social distance
    JEL: C70 D01 C91
    Date: 2008–03–26
  2. By: Maroš Servátka (University of Canterbury); Radovan Vadovic
    Abstract: Experimental evidence suggests that the size of the foregone outside option does not affect the behavior of the opponent in a lost wallet and pie sharing games but that it matters in a mini-ultimatum game. In this paper we experimentally test a conjecture that it is the fairness property of the outside option which could be responsible for this effect. We compare the behavior of subjects in the lost wallet game when they face a fully unequal (“unfair”) outside option, i.e., the first mover gets 10 and the second mover gets nothing, and when they face an equal (“fair”) outside option, i.e., both get an equal amount of 5. Contrary to our conjecture we do not find a significant difference.
    Keywords: Experimental economics; Outside option; Fairness
    JEL: C72 C78 C91
    Date: 2008–04–13
  3. By: Hahn, Jinyong; Hirano, Keisuke; Karlan, Dean
    Abstract: Many social experiments are run in multiple waves, or are replications of earlier social experiments. In principle, the sampling design can be modified in later stages or replications to allow for more efficient estimation of causal effects. We consider the design of a two-stage experiment for estimating an average treatment effect, when covariate information is available for experimental subjects. We use data from the first stage to choose a conditional treatment assignment rule for units in the second stage of the experiment. This amounts to choosing the propensity score, the conditional probability of treatment given covariates. We propose to select the propensity score to minimize the asymptotic variance bound for estimating the average treatment effect. Our procedure can be implemented simply using standard statistical software and has attractive large-sample properties.
    JEL: C90 C42 C93 C01
    Date: 2008–04–15
  4. By: Matthias Kräkel (University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany, tel: +49 228 733914, fax: +49 228 739210, e-mail:; Petra Nieken (University of Cologne, Herbert-Lewin-Str. 2, D-50931 Köln, Germany, tel: +49 221 4706310, fax: +49 221 4705078, e-mail:; Judith Przemeck (University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany, tel: +49 228 739213, fax: +49 228 739210, e-mail:
    Abstract: We analyze a two-stage game between two heterogeneous players. At stage one, common risk is chosen by one of the players. At stage two, both players observe the given level of risk and simultaneously invest in a winner-take-all competition. The game is solved theoretically and then tested by using laboratory experiments. We find three effects that determine risk taking at stage one - an effort effect, a likelihood effect and a reversed likelihood effect. For the likelihood effect, risk taking and investments are clearly in line with theory. Pairwise comparison shows that the effort effect seems to be more relevant than the reversed likelihood effect when taking risk.
    Keywords: Tournaments, Competition, Risk-Taking, Experiment
    JEL: M51 C91 D23
    Date: 2008–03
  5. By: Oechssler, Jörg; Roider, Andreas; Schmitz, Patrick W.
    Abstract: Negotiations frequently end in conflict after one party rejects a final offer. In a large-scale internet experiment we investigate whether a 24-hour cooling-off period leads to fewer rejections in ultimatum bargaining. We conduct a standard cash treatment and a lottery treatment, where subjects received lottery tickets for several large prizes - emulating a high-stakes environment. In the lottery treatment, unfair offers are less frequently rejected, and cooling-off significantly reduces the rejection rate further. In the cash treatment, rejections are more frequent and remain so after cooling-off. This treatment difference is particularly pronounced for subjects with lower cognitive abilities.
    Keywords: behavioural biases; cognitive abilities; cooling-off; emotions; internet experiment; negotiations; ultimatum game
    JEL: C78 C99 D8
    Date: 2008–04
  6. By: Timothy Shields
    Abstract: Sell-side analysts are compensated, at least in part, by brokerage commissions. These commissions create an incentive to bias forecasts to generate trade. Thus, analysts have clear economic incentives to deceive and traders have economic incentives to detect deception. Prior analytical theories of information transmission games starkly predict that there will always be some deception (with trade) at best and uninformative messages (and no trade) at worst when the sender's and receiver's incentives are not aligned. Prior experimental evidence of information transmission games show senders do elect to deceive, although they send messages more informative than theory predicts. Likewise, receivers rely more upon messages than theory predicts. Can behavior that deviates from prediction be explained by normative social behavior, such as trust and honesty? Alternatively, are subjects boundedly rational, failing to sufficiently consider other players' incentives when predicting their decisions? To answer these questions, I design and conduct an experiment to investigate whether forecasting and trading behaviors are best explained by analytical theory, limited strategic sophistication, or social norms. The experimental results confirm a majority of subjects adopt dishonest forecasting strategies, but at the same time, a majority of subjects adopts trusting trading strategies. Additionally, subjects do not appear to revise trading behavior despite evidence of deceptive forecasts. The results suggest subjects' behavior within the setting is better explained by limited strategic sophistication than by social normative behavior or sequential rationality. <P>Les analystes du « côté vendeur » sont rémunérés, du moins en partie, au moyen de commissions de courtage. Ces commissions représentent une incitation à fausser les prévisions dans le but d'accroître les activités du marché. Ainsi, les analystes font l'objet de stimulants économiques clairs qui les portent à décevoir, tandis que les négociateurs ont des stimulants économiques qui les incitent à détecter la déception. Les théories analytiques avancées antérieurement à partir des jeux de transmission de l'information prédisent, de façon catégorique, qu'il existera toujours une certaine déception (avec transaction) dans le meilleur des cas et des messages dénudés de renseignements (et sans transaction) dans le pire des cas, à moins que les stimulants de l'émetteur et du récepteur ne concordent. La preuve expérimentale qui a été faite dans le passé par les jeux de transmission de l'information a démontré que les émetteurs choisissent effectivement de décevoir, même si leurs messages sont plus informatifs que la théorie laisse entendre. De la même façon, les récepteurs comptent davantage sur les messages que ce qui est proposé par la théorie. Le comportement qui s'écarte des prédictions peut-il s'expliquer par un comportement social normatif, en l'occurrence la confiance et l'honnêteté? Par ailleurs, les sujets font-ils preuve de rationalité limitée et négligent-ils de considérer suffisamment les stimulants des autres joueurs au moment de prédire leurs décisions? Dans le but de répondre à ces questions, je mets au point, puis je conduis une expérience visant à observer les comportements liés aux prévisions et à la négociation et à établir si ces comportements s'expliquent mieux par la théorie analytique, la sophistication stratégique limitée ou les normes sociales. Les résultats de l'expérience confirment que, d'une part, une majorité de sujets adoptent des stratégies prévisionnelles malhonnêtes et, d'autre part, une majorité de sujets adoptent des stratégies commerciales fondées sur la confiance. De plus, les sujets ne semblent pas revoir leur comportement face au marché, malgré l'évidence de prévisions décevantes. Les résultats portent à croire qu'on peut mieux expliquer le comportement des sujets, dans un contexte donné, par la sophistication stratégique limitée que par le comportement social normatif ou la rationalité séquentielle.
    Keywords: analyst forecast, levels of sophistication, social norm, bounded rationality, trust, honesty , prédictions des analystes, niveau de sophistication, norme sociale, rationnalité limitée, confiance, honnêteté
    Date: 2008–04–01
  7. By: Robinson, Jonathan
    Abstract: This paper presents results from a randomized field experiment to test for the importance of limited commitment (due to incomplete contract enforceability) in explaining intra-household risk sharing arrangements in Kenya. The experiment followed 142 daily income earners and their spouses for 8 weeks. Every week, each individual had a 50% chance of receiving a 150 Kenyan shilling (US $2) income shock (equivalent to about 1.5 days' income for men and 1 week's income for women). This paper has 2 main results. First, since the experimental payments are random, they allow for a direct test of allocative Pareto efficiency. I reject efficiency, as male private goods expenditures are sensitive to the receipt of the payment. Second, the experiment varied the level of intra-household correlation in the experimental payments between couples. I find that women send bigger transfers to their husbands when shocks are independent or negatively correlated, a result consistent with the presence of limited commitment. I find no difference in transfers for men, likely because the shocks were too small to cause the limited commitment constraint to bind for them.
    JEL: O12
    Date: 2008–04–17
  8. By: Ludovic Renou; Ralph C. Bayer
    Abstract: Homo Strategicus populates the vast plains of Game Theory. He knows all logical implications of his knowledge (logical omniscience) and chooses optimal strategies given his knowledge and beliefs (rationality). This paper investigates the extent to which the logical capabilities of Homo Sapiens Sapiens resemble those possessed by Homo Strategicus. Controlling for other-regarding preferences and beliefs about the rationality of others, we show, in the laboratory, that the ability of Homo Sapiens Sapiens to perform complex chains of iterative reasoning is much better than previously thought. Subjects were able to perform about three iterations of reasoning on average.
    Keywords: iterative reasoning; depth of reasoning; logical omniscience; rationality; experiments; other-regarding preferences
    JEL: C70 C91
    Date: 2008–04
  9. By: Maroš Servátka (University of Canterbury); George Theocharides
    Abstract: This classroom experiment introduces students to the notion of credit risk by allowing them to trade on comparable corporate bond issues from two types of markets - investment-grade and high-yield. Investment-grade issues have a lower probability of default than high-yield issues, and thus provide a lower yield. There are three ways in which participants can earn money - from coupon payments, the face value of the bond, and by capital gains. Students learn about the notion of risk and return, how credit risk affects bond prices, as well as some general characteristics of the bond markets.
    Keywords: Teaching Experiment; Credit Risk; Bond Market; Risk and Return
    JEL: A20 C90 D84
    Date: 2007–12–11
  10. By: Dillenberger, David; Sadowski, Philipp
    Abstract: We study a two-stage choice problem, where alternatives are allocations between the decision maker (DM) and a passive recipient. The recipient observes choice behavior in stage two, while stage one choice is unobserved. Choosing selfishly in stage two, in the face of a fairer available alternative, may inflict shame on DM. DM has preferences over sets of alternatives that represent period two choices. We axiomatize a representation that identifies DM's selfish ranking, her norm of fairness and shame. Altruism is the most prominent motive that can explain non-selfish choice. We identify a condition under which shame to be selfish can mimic altruism, when only stage-two choice is observed by the experimenter. An additional condition implies that the norm of fairness can be characterized as the Nash solution of a bargaining game induced by the second-stage choice problem. The representation is generalized to allow for finitely many recipients and applied to explain a social decision maker's incentive for obfuscation.
    JEL: C78 D63 D81 D64 D78 D80
    Date: 2008–04–16

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