nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒06‒21
fourteen papers chosen by
Daniel Houser
George Mason University

  1. From Overt to Tacit Collusion By Jeroen Hinloopen; Adriaan Soetevent
  2. Do you do what you say or do you do what you say others do? By Carlsson, Fredrik; Daruvala, Dinky; Jaldell, Henrik
  3. Investment, Resolution of Risk, and the Role of Affect By Frans van Winden; Michal Krawczyk; Astrid Hopfensitz
  4. Employee Types and Endogenous Organizational Design By Antoni Cunyat; Randolph Sloof
  5. Determinants of In-group Bias: Group Affiliation or Guilt-aversion? By Werner Güth; Matteo Ploner; Tobias Regner
  6. Social Effects in a Multi-Agent Investment Game. An Experimental Analysis By Luigi Mittone; Matteo Ploner
  7. Naked Exclusion: An Experimental Study of Contracts with Externalities By Landeo, Claudia M.; Spier, Kathryn E.
  8. The Problem of Maintaining Compliance within Stable Coalitions: Experimental Evidence By David M. McEvoy; James J. Murphy; John M. Spraggon; John K. Stranlund
  9. Complex Evolutionary Systems in Behavioral Finance By Cars Hommes; Florian Wagener
  10. Separating Real Incentives and Accountability By Ferdinand M. Vieider
  11. Complex evolutionary systems in behavioral finance By Hommes, C.H.; Wagener, F.O.O.
  12. The Information Content of a Stated Choice Experiment By Jan Rouwendal; Arianne de Blaeij; Piet Rietveld; Erik Verhoef
  13. The Role of Information in the Take-up of Student Loans By Adam Booij; Edwin Leuven; Hessel Oosterbeek
  14. Speculative Bubbles without Stupid Investors By Milo Bianchi; Philippe Jehiel

  1. By: Jeroen Hinloopen (University of Amsterdam); Adriaan Soetevent (University of Amsterdam)
    Abstract: Recent laboratory experiments support the popular view that the introduction of corporate leniency programs has significantly decreased cartel activity. The design of these repeated game experiments however is such that engaging in illegal price discussions is the only way for subjects to avoid the one-shot competitive equilibrium. Subjects in the experiment of this paper have multiple feasible Nash equilibrium strategies to avoid the competitive equilibrium. These strategies differ in the difficulty of the coordination problem they have to solve. The experimental results show that if the efforts of the antitrust authority and the leniency program are directed exclusively to the most straightforward collusive scheme, subjects manage to switch to a more intricate form of coordination. This shift from overt collusion to tacit collusion questions the acclaimed success of corporate leniency programs.
    Keywords: overt collusion; tacit collusion; corporate leniency program; antitrust policy
    JEL: C72 C92 L41
    Date: 2008–06–09
  2. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Daruvala, Dinky (Department of Economics, Karlstad University); Jaldell, Henrik (Department of Economics, Karlstad University)
    Abstract: We design a donations vs. own money choice experiment comparing three different treatments. In two of the treatments the pay-offs are hypothetical. In the first of these, a short cheap talk script was used, and subjects were required to state their own preferences in this scenario. In the second, subjects were asked to state how they believed an average student would respond to the choices. In the third treatment the pay-offs were real, allowing us to use the results to compare the validity of the two hypothetical treatments. We find a strong hypothetical bias in both hypothetical treatments where the marginal willingness to pay for donations are higher when subjects state their own preferences but lower when subjects state what they believe are other students preferences. The explanation is probably a self-image effect in both cases. We find that it is mainly women who are prone to hypothetical bias in this study.<p>
    Keywords: Stated preferences; cheap talk; hypothetical bias; third person approach; choice experiment
    JEL: C91 D64 Q51
    Date: 2008–06–12
  3. By: Frans van Winden (University of Amsterdam, CEPR, CESifo); Michal Krawczyk (University of Amsterdam); Astrid Hopfensitz (TSE (GREMAQ), University of Toulouse)
    Abstract: This experimental study is concerned with the impact of the timing of the resolution of risk on people’s willingness to take risks, with a special focus on the role of affect. While the importance of anticipatory emotions has so far been only inferred from decisions regarding hypothetical choice problems, we had participants put their own money at risk in a real investment task. Moreover, emotions were explicitly measured, including anticipatory emotions experienced during the waiting period under delayed resolution (which involved two days). Affective traits and risk attitudes were measured through a web-based questionnaire before the experiment and participants’ preferences for resolution timing, risk, and time were incentive compatibly measured during the experiment. Main findings are that delayed resolution can affect investment, that the effect depends on the risk involved, and that (among all the measures considered) only emotions can explain our results, albeit in ways that are not captured by existing models.
    Keywords: Investment decision; delayed resolution of risk; emotions; experiment
    JEL: C91 D81 G11
    Date: 2008–05–15
  4. By: Antoni Cunyat (University of Valencia); Randolph Sloof (University of Amsterdam)
    Abstract: When managers are sufficiently guided by social preferences, incentive provision through an organizational mode based on informal implicit contracts may provide a cost-effective alternative to a more formal mode based on explicit contracts and monitoring. This paper reports the results from a laboratory experiment designed to test whether organizations make <I>full</I> effective use of the available preference types within their work force when drafting their organizational design. Our main finding is that they do not do so; although the importance of social preferences is recognized by those choosing the organizational mode, the significant impact managers' preferences have on the behavior of workers in the organization seems to be overlooked.
    Keywords: Organizational design; social preference types; experiments
    JEL: C91 J40 M50
    Date: 2008–02–20
  5. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Tobias Regner (Friedrich Schiller University, Jena, Germany)
    Abstract: In-group favoritism in social dilemma situations is one of the main findings of studies in Social Identity Theory. We investigate what causes the in-group bias: is it due to mere group affiliation or, alternatively, is guilt-aversion a possible explanation? We induce group membership in a minimal group setting, observe in-/out-group transfers and elicit re- spective beliefs. We ?nd that mere group affiliation affects beliefs and explains a substantial part of the bias, but we also ?nd evidence in favor of guilt-aversion as a source of motivation.
    Keywords: social preferences, experiments, social dilemma, group identity, guilt aversion
    JEL: C72 D01 C91 C92 D84
    Date: 2008–06–10
  6. By: Luigi Mittone; Matteo Ploner
    Abstract: We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the Investment Game (Berg et al., 1995). In our setting four trustees and one trustor are interacting and the access to choices of peers in the group of trustees is experimentally manipulated. We find that when the trust- worthiness of some participants is made available to peers, the high levels of trustworthiness displayed by those being observed tend to negatively impact on the trustworthiness of those observing them.
    Date: 2008
  7. By: Landeo, Claudia M.; Spier, Kathryn E.
    Abstract: This paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts. We use the strategic environment described by Rasmusen, Ramseyer, and Wiley (1991) and Segal and Whinston (2000) where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent. When discrimination is impossible, the game resembles a stag-hunt (coordination) game in which the buyers' payoffs are endogenously chosen by the incumbent seller. Exclusion occurs when the buyers fail to coordinate on their preferred equilibrium. Two-way non-binding pre-play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller. When discrimination and communication are possible, the exclusion rate rises. Divide-and-conquer strategies are observed more frequently when buyers can communicate with each other. Exclusion rates are significantly higher when the buyers' payoffs are endogenously chosen rather than exogenously given. Finally, secret offers are shown to decrease the incumbent's power to profitably exclude.
    Keywords: Bargaining with Externalities; Contracting with Externalities; Experiments; Exclusive Dealing; Antitrust; Discrimination; Endogenous Payoffs; Communication; Coordination Games; Equilibrium Selection
    JEL: D86 C9 L0 K0 K21 D4 L1 L4 C72
    Date: 2007–12–11
  8. By: David M. McEvoy; James J. Murphy; John M. Spraggon; John K. Stranlund
    Abstract: This study examines the performance of stable cooperative coalitions that form to provide a public good when coalition members have the opportunity to not comply with their commitments. A stable coalition is one in which no member wishes to leave and no non-member wishes to join. To counteract the incentive to violate their commitments, coalition members fund a third-party enforcer. This leads to the theoretical conclusion that stable coalitions are larger (and provide more of a public good) when their members must finance enforcement relative to when compliance is ensured without the need for costly enforcement. However, our experiments reveal that giving coalition members the opportunity to violate their commitments while requiring them to finance enforcement to maintain compliance reduces the overall provision of the public good. The decrease in the provision of the public good is attributed to an increase in the participation threshold for a theoretically stable coalition to form and to significant levels of noncompliance. When we abandon the strict stability conditions and require all subjects to join a coalition for it to form, the average provision of the public good increases significantly. Key Words: stable coalitions, self-enforcing agreements, compliance, enforcement, public goods
    JEL: H41 C92
    Date: 2008
  9. By: Cars Hommes (University of Amsterdam); Florian Wagener (University of Amsterdam)
    Abstract: Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics. Prices and beliefs about future prices co-evolve over time with mutual feedback. Strategy choice is driven by evolutionary selection, so that agents tend to adopt strategies that were successful in the past. Calibration of "simple complexity models" with heterogeneous expectations to real financial market data and laboratory experiments with human subjects are also discussed.
    Keywords: Asset pricing; heterogeneous beliefs; empirical validation; forecasting experiments
    JEL: C13 C91 C92 D84 G12
    Date: 2008–05–27
  10. By: Ferdinand M. Vieider (Faculty of Economics, Erasmus University Rotterdam)
    Abstract: In experimental investigations of the effect of real incentives, accountability—the implicit or explicit expectation of a decision maker that she may have to justify her decisions in front of somebody else—is often confounded with the incentives themselves. This confounding of accountability with incentives makes causal attributions of any effects found problematic. We separate accountability and incentives, and find different effects. Accountability is found to reduce preference reversals between frames, for which incentives have no effect. Incentives on the other hand are found to reduce risk seeking for losses, where accountability has no effect. In a choice task between simple and compound events, accountability increases the preference for the simple event, while incentives have a weaker effect going in the opposite direction. It is thus shown that the confounding of accountability and incentives is relevant for studies on the effect of the latter, and that existing conclusions on the effect of incentives need to be reconsidered in light of this issue.
    Keywords: Real v. hypothetical incentives; experimental economics; accountability; dual processing models; internal validity; simple and compound events; external validity; anchoring and adjustment; framing effects
    JEL: C91 D71 D81 Z13
    Date: 2008–06–02
  11. By: Hommes, C.H. (Universiteit van Amsterdam); Wagener, F.O.O. (Universiteit van Amsterdam)
    Abstract: Traditional finance is built on the rationality paradigm. This chapter discusses simple models from an alternative approach in which financial markets are viewed as complex evolutionary systems. Agents are boundedly rational and base their investment decisions upon market forecasting heuristics. Prices and beliefs about future prices co-evolve over time with mutual feedback. Strategy choice is driven by evolutionary selection, so that agents tend to adopt strategies that were successful in the past. Calibration of "simple complexity models" with heterogeneous expectations to real financial market data and laboratory experiments with human subjects are also discussed.
    Date: 2008
  12. By: Jan Rouwendal (VU University Amsterdam); Arianne de Blaeij (LEI, The Hague); Piet Rietveld (VU University Amsterdam); Erik Verhoef (VU University Amsterdam)
    Abstract: This paper presents a method to assess the distribution of values of time, and values of statistical life, over participants to a stated choice experiment, that does not require the researcher to make an a priori assumption on the type of distribution, as is required for example for mixed logit models. The method requires a few assumptions to hold true, namely that the valuations to be determined are constant for each individual, and that respondents make choices according to their preferences. These assumptions allow the derivation of lower and upper bounds on the (cumulative) distribution of the values of interest over respondents, by deriving for each choice set the value(s) for which the respondent would be indifferent between the alternatives offered, and next deriving from the choice actually made the respondent’s implied minimum or maximum value(s). We also provide an extension of the method that incorporates the possibility that errors are made. The method is illustrated using data from an experiment investigating the value of time and the value of statistical life. We discuss the possibility to improve the information content of stated choice experiments by optimizing the attribute levels shown to respondents, which is especially relevant because it would help in selecting the appropriate distribution for mixed logit estimates for the same data.
    Keywords: stated preferences; value of a statistical life
    JEL: C81 D12 D61 R41
    Date: 2008–05–22
  13. By: Adam Booij (University of Amsterdam); Edwin Leuven (University of Amsterdam); Hessel Oosterbeek (University of Amsterdam)
    Abstract: Policies need not only to be well designed to effectively address market failures, but their parameters also need to be part of agents’ information sets. This is illustrated by government student loans in the Netherlands which are intended to alleviate liquidity constraints. Despite generous loan conditions, take-up rates on these loans are low. Some have argued that this is due to limited knowledge about these conditions. We examine the importance of information constraints through a randomized experiment. Half of the students who responded to an Internet questionnaire were given factual information on loan conditions, whereas the other half did not receive such information. Six months later, students who received information have better knowledge about the loan conditions. While OLS regressions reveal a large and significantly positive association between knowledge about loan conditions and borrowing, our instrumental variable estimates suggest that this is not a causal effect which would rule out that the low take-up rate is caused by information constraints.
    Keywords: Field experiment; Student debt; Student loans; Loan conditions
    JEL: I22 I28 D83
    Date: 2008–04–08
  14. By: Milo Bianchi; Philippe Jehiel
    Date: 2008–06–09

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