nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒06‒13
twelve papers chosen by
Daniel Houser
George Mason University

  1. Strategic Use of Trust By Maroš Servátka; Steven Tucker; Radovan Vadovic
  2. Truck, barter and exchange versus the endowment effect: virtual field experiments in an online game environment. By Munro, Alistair; Ferreira De Sousa, Yannick
  3. The family under the microscope: an experiment testing economic models of household choice. By Munro, Alistair; Bateman, Ian J.; McNally, Tara
  4. The Efficiency of Direct Public Involvement in Environmental Policymaking: An Experimental Test By Christopher Bruce; Jeremy Clark
  5. Taking it in turn: an experimental test of theories of the household By Munro, Alistair; McNally, Tara; Popov, Danail
  6. Strategic delegation in experimental duopolies with endogenous incentive contracts By Nikolaos Georgantzís; Constantine Manasakis; Evangelos Mitrokostas; Emmanuel Petrakis
  7. Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device By Brown, Martin; Falk, Armin; Fehr, Ernst
  8. Inefficient but effective? A field experiment on the effectiveness of direct and indirect transfer mechanisms By Hannes Koppel; Günther G. Schulze
  9. Whom will you choose? - Collaborator Selection and Selector’s Self-Prediction By Marion Eberlein; Judith Przemeck
  10. Design Effects in Web Surveys: Comparing Trained and Fresh Respondents By Toepoel, V.; Das, J.W.M.; Soest, A.H.O. van
  11. The Today and Tomorrow of Kids By Marco Castillo; Paul Ferraro; Jeff Jordan; Ragan Petrie
  12. Event-Related Potentials Reveal Differential Brain Regions Implicated in Discounting in Two Tasks By Liam Delaney; Caroline Rawdon; Kevin Denny; Wen Zhang; Richard A.P. Roche

  1. By: Maroš Servátka (University of Canterbury); Steven Tucker (University of Canterbury); Radovan Vadovic
    Abstract: While most of the previous literature interprets trust as an action, we adopt a view that trust is represented by a belief that the other party will return a fair share. The agent’s action is then a commitment device that signals this belief. In this paper we propose and test a conjecture that economic agents use trust strategically. That is, the agents have incentives to inflate the perceived level of trust (the signal) in order to induce a more favorable outcome for themselves. In the experiment we study the behavior of subjects in a modified investment game which is played sequentially and simultaneously. While the sequential treatment allows for strategic use of trust, in the simultaneous treatment the first mover’s action is not observed and hence does not signal her belief. In line with our prediction we find that first movers send significantly more in the sequential treatment than in simultaneous. Moreover, second movers reward trusting action, but only if it is maximal. We also find that signaling with trust enhances welfare.
    Keywords: Experimental Economics; Trust; Beliefs
    JEL: C70 C91
    Date: 2008–05–15
  2. By: Munro, Alistair; Ferreira De Sousa, Yannick
    Abstract: We examine the feasibility of using a massively multiplayer online role-playing game (MMORPG) to test economic theories. As a test vehicle we use the well-known hypothesis about the relationship between market experience and the endowment effect. Our results confirm earlier field experiments that individuals with more trading experience are less likely to exhibit status quo behaviour in trade. However, we also find evidence that highly experienced individuals are more likely to swap the item rather than keep it – i.e. there appears to be a propensity to ‘truck, barter and exchange’. A further experiments suggests that this feature is robust and is unlikely to be due to subject misperception or experimenter demand effects. We conclude that virtual economies may be a useful venue for field experiments.
    Keywords: Endowment effect; virtual field experiment; Runescape; MMORPG
    JEL: D11 C93 D01
    Date: 2008–01–20
  3. By: Munro, Alistair; Bateman, Ian J.; McNally, Tara
    Abstract: We devise and execute three experiments to test key features of models of household decision-making. Using established couples (married and unmarried) we test income pooling, unanimity and Pareto efficiency. Subjects make choices individually and jointly and are asked to make predictions about their partner’s choices. Unanimity is rejected. Income pooling is not rejected in joint choice but has less explanatory power in individual choice. In direct tests both sexes do not pool income completely, but in econometric tests across all tasks, women place an equal weight on payoffs but men discount their partner’s payoffs by between 15 and 20%. We find that transparency has little impact on deviations from income pooling or indeed on behaviour generally. Many joint choices deviate from the Pareto principle in a systematic manner suggesting that choices made as a couple are more risk averse than individual decisions.
    Keywords: experiment; household; unitary; income pooling; Pareto; family
    JEL: C78 C92 J12 C93 D1
    Date: 2008–06–02
  4. By: Christopher Bruce; Jeremy Clark (University of Canterbury)
    Abstract: In one of the most ambitious forms of environmental decision-making, representatives of interested parties – environmentalists, developers, farmers, loggers, miners, etc. - are charged with the responsibility of developing a set of public policies that is acceptable to all of them. Although this approach has become increasingly popular, and has been widely discussed in the academic literature, little is known about the characteristics of the outcomes that are reached in this type of negotiation. We do not know, for example, whether these outcomes meet the standard criteria for efficiency or equity. In this paper, we use laboratory experiments to test whether a number of axiomatic models of bargaining can predict the behavior of the parties to environmental decision making. In recognition of the multi-dimensional aspect of most public land use conflicts, we ask pairs of subjects to negotiate over two goods, without the possibility of cash side payments. We thus provide one of the first experimental tests of a prediction associated with the Edgeworth Box: that parties with an initial endowment that is Pareto inefficient will make trades until they reach a Pareto efficient allocation. We further test whether parties in particular reach the Nash bargain when it coincides with or conflicts with outcomes that maximise the parties’ joint payoffs and with outcomes at which the parties’ receive equal payoffs. Finally, the effect of providing parties with full or partial information regarding payoffs is also examined.
    Keywords: Axiomatic models of bargaining; Experimental tests; Land use conflicts; Collaborative policymaking
    JEL: C92 D74 H41 J52 Q51
    Date: 2008–05–05
  5. By: Munro, Alistair; McNally, Tara; Popov, Danail
    Abstract: Using a sample of established couples, we conduct an experiment on household decision-making. Individual partners first make a series of dichotomous choices between household goods and vouchers for experiences and then the couple jointly face the same choices. A random lottery device is used to incentivize the decisions. We find clear evidence of turn-taking as a method of resolving disagreements. In other words, when one partner wins one disputed question, it raises the probability that the other partner wins the next dispute. Given the arbitrary order of the questions this suggests that standard decision-theoretic models of household behaviour are inadequate and that instead, much behaviour might be concerned with relationship maintenance rather than the allocation of goods.
    Keywords: experiment; household choice; turn-taking; invariance; marriage; family
    JEL: C78 C92 J12 C93 D1
    Date: 2008–05–15
  6. By: Nikolaos Georgantzís (LEE-LINEEX, Universitat Jaume I); Constantine Manasakis (Department of Economics, University of Crete, Greece); Evangelos Mitrokostas (Department of Economics, University of Crete); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: Often, deviations of firm behavior from profit maximization are the result of managerial incentive contracts. We study the endogenous emergence of incentive contracts used by firm owners to delegate the strategic decisions of the firm. These contracts are linear combinations either of own firm's profits and revenues, or own and rival firms' profits. A two- and three-stage game are studied depending on whether owners commit or not to a certain contract type before setting the managerial incentives and the level of output to produce in the market. We report experimental results which confirm some of the predictions of the model, especially those concerning owners' preference for relative performance incentives over profit-revenue contracts. Neglected behavioral aspects are proposed as possible explanation of some divergence between the theory and the experimental evidence, more specifically the relation between contract terms and managers' output choices
    Keywords: Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts.
    JEL: D43 L21
    Date: 2008–06–05
  7. 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 no 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: C90 D82 E24 J30 J41
    Date: 2008–02–01
  8. By: Hannes Koppel; Günther G. Schulze (Department of International Economic Policy, University of Freiburg)
    Abstract: We conduct a field experiment on direct and indirect transfer mechanisms. It shows that people are willing to donate significantly more if the donation is indirect, i.e., it is tied to the purchase of a good with a price premium, rather than made directly. This points to an efficiency–effectiveness trade–off: even though indirect donations are less efficient than direct donations, they are more effective in mobilizing resources. Our findings hold for ‘Fair Trade’ coffee as well as for ‘normal’ coffee. However, the strength of the efficiency–effectiveness trade–off is higher in the case of ‘Fair Trade’.
    Keywords: Tied transfers, donations, charity, efficiency versus effectiveness, ‘fair trade’
    JEL: C93 D63 D64 H21 H41
    Date: 2008–02
  9. By: Marion Eberlein; Judith Przemeck
    Abstract: Our experiment investigates managers’ self-predictions of their subsequent performance and, based upon, their choice of a collaborator. Our results show that managers’ self-predictions are not biased anymore after they are informed about the performance of a reference group. In spite of this, most managers do not rationally choose a collaborator given their beliefs. In a second treatment, superiors (who are assumed to be at a higher hierarchy level than the managers) obtain various information, e.g. about managers’ self-predictions, and have to predict the managers’ performances. Our data show that superiors adapt their predictions into the direction of the managers’ self- predictions, although not completely. Particularly, superiors think that their managers’ self-predictions are biased if they are lower than the average performance of the reference group. Based upon their predictions, superiors have to select a collaborator for their managers. We find that superiors’ collaborator choices do not significantly differ from the managers’ choices. This proves due to excellent information processing by both, managers and superiors, which on the whole leads to very similar predictions of managers’ subsequent performance.
    Keywords: Employee selection, self-prediction, overconfidence, experiment
    JEL: M5 C91
    Date: 2008–06
  10. By: Toepoel, V.; Das, J.W.M.; Soest, A.H.O. van (Tilburg University, Center for Economic Research)
    Abstract: In this paper we investigate whether there are differences in design effects between trained and fresh respondents. In three experiments, we varied the number of items on a screen, the choice of response categories, and the layout of a five point rating scale. We find that trained respondents are more sensitive to satisficing and select the first acceptable response option more often than fresh respondents. Fresh respondents show stronger effects with regard to verbal and nonverbal cues than trained respondents, suggesting that fresh respondents find it more difficult to answer questions and pay more attention to the details of the response scale in interpreting the question.
    Keywords: professional respondents;questionnaire design;items per screen;response categories;layout
    JEL: C81 C93
    Date: 2008
  11. By: Marco Castillo; Paul Ferraro; Jeff Jordan; Ragan Petrie
    Abstract: We experimentally investigate the distribution of children's time preferences along gender and racial lines. We find that boys are more impatient than girls and black children are no more impatient than white children. However, this pattern hides the fact that black boys have the highest discount rates of all groups. Most importantly, we show that impatience has a direct effect on behavior. An increase of one standard deviation in the discount rate increases the probability that a child has at least 3 disciplinary referrals by 5 percent. Time preferences might play a large role in setting appropriate incentives for children.
    Date: 2008–06
  12. By: Liam Delaney (Geary Institute, University College Dublin); Caroline Rawdon (Geary Institute, University College Dublin + Department of Psychology, National University of Ireland, Maynooth, Co. Kildare); Kevin Denny (Geary Institute, University College Dublin); Wen Zhang (Geary Institute, University College Dublin); Richard A.P. Roche (Geary Institute, University College Dublin + Department of Psychology, National University of Ireland, Maynooth, Co. Kildare)
    Abstract: The way people make decisions about future benefits termed discounting - has important implications for both financial planning and health behaviour. Several theories assume that, when delaying gratification, the lower weight given to future benefits (the discount rate) declines exponentially. However there is considerable evidence that it declines hyperbolically with the rate of discount being proportionate to the delay distance. There is relatively little evidence as to whether neural areas mediating timedependent discounting processes differ according to the nature of the task. The present study investigates the potential neurological mechanisms underpinning domain-specific discounting processes. We present high-density event-related potentials (ERPs) data from a task in which participants were asked to make decisions about financial rewards or their health over short and long time-horizons. Participants (n=17) made a button-press response to their preference for an immediate or delayed gain (in the case of finance) or loss (in the case of health), with the discrepancy in the size of benefits/losses varying between alternatives. Waveform components elicited during the task were similar for both domains and included posterior N1, frontal P2 and posterior P3 components. We provide source dipole evidence that differential brain activation does occur across domains with results suggesting the possible involvement of the right cingulate gyrus and left claustrum for the health domain and the left medial and right superior frontal gyri for the finance domain. However, little evidence for differential activation across time horizons is found.
    Date: 2008–04–17

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.
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.