nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒07‒20
eighteen papers chosen by
Daniel Houser
George Mason University

  2. Kinship and friendship in a trust game with third party punishment By Björn Vollan
  3. Individual Behavior In Auctions with Price Proportional Benefits By Mark Isaac; Svetlana Pevnitskaya; Tim C. Salmon
  4. Inefficient but Effective? A field experiment on the effectiveness of direct and indirect transfer mechanisms By Hannes Koppel; Günther G. Schulze
  5. Correlated Equilibria, Good and Bad: An Experimental Study By John Duffy; Nick Feltovich
  6. Prior-Free Optimality and Satisficing - A Common Framework and its Experimental Implementation - By Werner Güth
  7. Testing the Modigliani-Miller theorem directly in the lab: a general equilibrium approach By Prashanth Mahagaonkar; Jianying Qiu†
  8. The Ostrich and its Conscience: Information in Dictator and Impunity Games By Alexander S. Kritikos; Jonathan H. W. Tan
  9. Indenture as a Self-Enforced Contract Device: An Experimental Test By Alexander S. Kritikos; Jonathan H. W. Tan
  10. Does Mandatory Labeling of Genetically Modified Food Grant Consumers the Right to Know? Evidence from an Economic Experiment By Dannenberg, Astrid; Scatasta, Sara; Sturm, Bodo
  11. Giving it now or later: altruism and discounting By Jaromir Kovarik
  12. Cooperation in local and global groups By Gerlinde Fellner; Gabriele K. Lünser
  13. Individual Behaavior and Bidding Heterogeneity in Sealed Bid Auctions Where the Number of Bidders is Unknown By R. Mark Isaac; Svetlana Pevnitskaya; Kurt Schnier
  14. The elicitation of time preferences By Paola Manzini; Marco Mariotti; Luigi Mittone
  15. Wealthy people do better? Experimental Evidence on Endogenous Time Preference Heterogeneity and the Effect of Wealth in Renewable Common-Pool Resources Exploitation By Gastón A. Giordana
  16. Games of Capacity Allocation in Many-to-One Matching with an Aftermarket By Ayse Mumcu; Ismail Saglam
  17. Measuring “Awareness of Environmental Consequences”: Two Scales and Two Interpretations By Anthony Ryan; Clive L Spash
  18. Eliciting Subjective Expectations in Internet Surveys By Adeline Delavande; Susann Rohwedder

  1. By: URS FISCHBACHER (University of Konstanz); SIMON GAECHTER (University of Nottingham, School of Economics)
    Abstract: We provide a direct test of the role of social preferences and beliefs in voluntary cooperation and its decline. We elicit individuals’ cooperation preference in one experiment and use them – as well as subjects’ elicited beliefs – to make predictions about contributions to a public good played repeatedly. We find substantial heterogeneity in people’s preferences. With simulation methods based on this data, we show that the decline of cooperation is driven by the fact that most people have a preference to contribute less than others. Belief formation and virtual learning do not contribute to the decline of cooperation. Universal free riding is very likely despite the fact that most people are not selfish.
    Keywords: Public goods experiments, social preferences, conditional cooperation, free riding
    JEL: C91 C72 H41 D64
    Date: 2008–05
  2. By: Björn Vollan (Philipps-University Marburg/University of Mannheim)
    Abstract: This paper reports on a set of trust games with third party punishment (TPP) where participants are either family members or friends or unrelated villagers. The experimental sessions were carried out in southern Namibia (Karas) and the bordering northern South Africa (Namaqualand). The aim was to test several hypotheses derived from kin selection theory as well as to assess the importance of third party punishment for encounters among family members and friends. Building on Hamilton, (1964) it was proposed by e.g. Madsen et al., (2007) that kinship is the baseline behaviour among humans. Thus, I use kinship as basis for comparison of how we treat friends and unrelated people and when there is the possibility to punish free-riding behaviour. It turns out that kinship is the baseline behaviour when no other features are available to humans. However, a personal exchange among friends that has a third party observer performs better than a personal exchange among family members without third party punishment. Contributions to family members can substantially be increased by third party punishment. Thus, human ability to sustain a norm by punishing freeriders at personal costs could also have played an important role in sustaining co-operation among kin.
    Keywords: Trust, field experiment, third party punishment, kinship, friendship
    Date: 2008
  3. By: Mark Isaac (Department of Economics, Florida State University); Svetlana Pevnitskaya (Department of Economics, Florida State University); Tim C. Salmon (Department of Economics, Florida State University)
    Abstract: Auctions with price proportional benefits involve situations in which bidders receive utility from the revenue raised by the auctioneer. We conduct experimental treatments with three classes of induced preferences and find that while bidders' response to incentives is on average consistent with theory, only one class of preferences leads to a significant increase in revenue. We then test for the presence of such preferences in experiments where auction revenue is donated to an actual charity. The latter sessions were conducted with a standard subject pool and with a special subject pool consisting of individuals with a very strong connection to the relevant charity. Subjects with a strong connection to charity evidence slightly more aggressive bidding behavior when the revenue is going to a charity but this is not strong enough to generate a significant increase in revenue. These results suggest that preferences in the natural environment are consistent with the manner of preferences assumed in the theory.
    Keywords: auctions, charitable giving, economic experiments
    JEL: D44 D64
    Date: 2008–07
  4. By: Hannes Koppel (Justus Liebig University Gießen, Faculty of Business Administration and Economics); Günther G. Schulze (Albert Ludwigs University Freiburg, Institute for Economic Research, Department of International Economic Policy)
    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
  5. By: John Duffy; Nick Feltovich
    Abstract: We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of the Nash equilibrium concept. Specifically, we seek to understand the conditions under which subjects will condition their behavior on private, third-party recommendations drawn from known distributions in playing the game of Chicken. In a `good-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs better than any symmetric payoff in the convex hull of Nash equilibrium payoff vectors. In a `bad-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs worse than any Nash equilibrium payoff vector. In a `Nash-recommendations` treatment, the distribution is a convex combination of Nash equilibrium outcomes (which is also a correlated equilibrium), and in a fourth `very-good-recommendations` treatment, the distribution yields high payoffs, but following recommendations does not comprise a correlated equilibrium. We compare behavior in all of these treatments to the case where subjects do not receive recommendations. We find that when recommendations are not given to subjects, behavior is very close to mixed-strategy Nash equilibrium play. When recommendations are given, behavior does differ from mixed-strategy Nash equilibrium, with the nature of the differences varying according to the treatment. Our main finding is that subjects will follow third-party recommendations only if those recommendations derive from a correlated equilibrium, and further, if that correlated equilibrium is payoff-enhancing relative to the available Nash equilibria.
    JEL: D83 C72 C73
    Date: 2008–07
  6. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group)
    Abstract: Similar to welfare economics where with(out) interpersonal comparisons one defines unique (set-valued) welfare (Pareto) optima, we present a framework for one-person decision making where with(out) a prior probability distribution individual optimality prescribes usually a unique (set of) choice(s). Satisfiable aspirations in the sense that there exists some choice guaranteeing them define a much larger choice set whose intersection with the set of prior-free optimal choices is never empty. We also review experimental procedures and results which incentivize aspiration formation and reject even prior-free optimality experimentally.
    Keywords: Satisficing, bounded rationality, optimality
    JEL: B4 D81 D10
    Date: 2008–07–02
  7. By: Prashanth Mahagaonkar (Max Planck Institute of Economics, EGP Group, Jena, Germany); Jianying Qiu† (Max Planck Institute of Economics, EGP Group, Jena, Germany)
    Abstract: In this paper, we experimentally test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structure, we are able to address a question fundamental to the valuation of firms: does capital structure affect the value of the firm? If so, how? We find that, consistent with the Modigliani-Miller theorem, experimental subjects well recognized the increased systematic risk of the equity with increasing leverage and accordingly demanded higher rate of return. Yet, this adjustment was not perfect: subjects underestimated the systematic risk of low leveraged equity whereas overestimated the systematic risk of high leveraged equity, resulting in a U shape weighted average cost of capital.
    Keywords: Modigliani-Miller Theorem, Experimental Study, Decision Making under Uncertainty, General Equilibrium
    JEL: G32 C91 G12 D53
    Date: 2008–07–08
  8. By: Alexander S. Kritikos; Jonathan H. W. Tan
    Abstract: This paper studies the role of information in dictator and impunity games. We experiment with four settings: i) a standard dictator game; ii) a dictator game where the surplus size is stochastic, with a probability of being a big or small pie, and the actual size is unobservable to the responder; iii) an impunity game where responders can reject offers . proposers learn their responderfs action but this action does not affect a proposerfs payoff, and; iv) an impunity game where proposers will never learn their responderfs choice. In the dictator game with incomplete information, we observe that many proposers with big pies make offers as if they make generous offer, but had only a small pie to split. In the impunity game, proposers tend to make extreme offers of either nothing or half the pie. In the impunity game with incomplete information, gratuitous offers (0 < xR . 0.1) such as those commonly observed in the other games almost vanish, while many more proposers offer absolutely nothing. Our results point in favor of a utility-based approach to modeling social preferences in games of giving.
    Date: 2008–04
  9. By: Alexander S. Kritikos; Jonathan H. W. Tan
    Abstract: We experimentally test the efficacy of indenture as a self-enforced contract device. In an indenture game, the principal signals the intention of payment-on-delivery, by tearing a banknote and giving the agent half of it as “prepayment”; the agent receives the completing half after delivering the service. By forward induction, cooperation is incentive-compatibly self-enforcing. The indenture performs very well, inducing a significantly higher level of cooperation than that in a three-stage centipede game, which we use to benchmark the natural rate of cooperation. The difference between cooperation rates in both games increases over time.
    Date: 2008–02
  10. By: Dannenberg, Astrid; Scatasta, Sara; Sturm, Bodo
    Abstract: Opponents of the voluntary labeling scheme for genetically modified (GM) food products often argue that consumers have the “right to know” and therefore advocate mandatory labeling. In this paper we argue against this line of reasoning. Using experimental auctions conducted with a sample of the resident population of Mannheim, Germany, we show that the quality of the informational signal generated by a mandatory labeling scheme is affected by the number of labels in the market. If there are two labels, one for GM products and one for non-GM products, mandatory and voluntary labeling schemes generate a similar degree of uncertainty about the quality of products that do not carry a label.
    Keywords: labeling, genetically modified foods, consumer preferences, experimental auctions
    JEL: C91 Q18 Q51
    Date: 2008
  11. By: Jaromir Kovarik (Universidad de Alicante)
    Abstract: We experimentally study the e¤ect of time on altruism. By postponing payments in a standard Dictator game, subjects allocate a future payment between themselves and others. Since both the payoffs of the Dictator and the Receiver are delayed until the same time, standard intertemporal utility maximization would predict that waiting time should not affect the Dictator's choice. In this respect, we observe that Dictators' decisions are not affected, as long as the time interval between the decision and payment is not large. On the other hand, for large time gaps, subjectsbecome more self-interested.
    Keywords: Altruism, Discounting, Dictator game, Intertemporal choice.
    JEL: C91 D64 D90
    Date: 2008–06
  12. By: Gerlinde Fellner (Department of Economics, Vienna University of Economics & B.A.); Gabriele K. Lünser (University College London, Department of Economics & ELSE)
    Abstract: Multiple group memberships are the rule rather than the exception. Locally operating groups frequently offer the advantage of providing social recognition and higher marginal benefits to the individual, whereas globally operating groups may be more beneficial from a social perspective. Within a voluntary contribution environment we experimentally investigate the tension that arises when subjects belong to a smaller local and a larger global group. When the global public good is more efficient individuals first attempt to cooperate in the global public good. However, this tendency quickly unravels and cooperation in the local public good builds up.
    JEL: C92 D71 D82 H41
    Date: 2008–07
  13. By: R. Mark Isaac (Department of Economics, Florida State University); Svetlana Pevnitskaya (Department of Economics, Florida State University); Kurt Schnier (University of Rhode Island)
    Abstract: This paper analyzes individual bidding data from a series of first price (FP) and second price (SP) sealed-bid auctions in which the number of bidders is unknown. In SP auctions we find a substantial amount of coincidence with theory. We observe systematic deviations from risk neutral bidding in FP auctions and show theoretically that these deviations are consistent with risk averse preferences. We find essentially no heterogeneity in bidding in SP auctions where risk preferences and the number of bidders do not affect the optimal bid, while in the FP auctions heterogeneity in bidding persists and increases with experience. We conclude that heterogeneity in bidding in FP auctions is consistent with heterogeneity in risk preferences, the attempt to count the number of bidders in the auction, and bidder specific noise. (JEL D44, C91)
    Keywords: auctions, risk aversion
    JEL: D44 C91
    Date: 2008–03
  14. By: Paola Manzini; Marco Mariotti; Luigi Mittone
    Abstract: We compare three methods for the elicitation of time preferences in an experimental setting: the Becker-DeGroot-Marschak (BDM) procedure (BDM), a second price auction and the multiple price list format. The first two methods have been used rarely to elicit time preferences. Although all methods used are broadly strategically equivalent, and should induce the same 'truthful' revelation, we find that the methods do differ: the money discount rates elicited with the multiple price list tend to be higher than those elicited with the other two methods. Furthermore, there are no significant differences between the rates elicited with the BDM and the auction elicitation procedure.
    Date: 2008
  15. By: Gastón A. Giordana
    Abstract: Aiming to better characterize the exploitation behavior of renewable common-pool resources, in this paper we explore alternative hypothesis about the valuation of the future by the agents and the possibility of heterogeneous behavior on this regard. To do this, we further analyze the experimental data of an N-person discrete-time deterministic dynamic game of T periods fixed duration. Firstly, we consider the homogeneous case where withdrawers’ rate of time preference is symmetrically determined. Then, we calibrate the best fitting model assuming alternatively, exogenous and endogenous time preference. The exogenous time preference case is the traditional assumption in modeling intertemporal choices, i.e. every period, players discount future values at the same level. In the endogenous case, we statistically model the reduced form of the discount factor as a transformation of a second order polynomial on wealth. Secondly, we further explore the endogenous case looking forward to assess the extent of heterogeneity in the rate of time preference formation process. Dynamic problems resolution gives scope for the implementation of ‘rules of thumb’ as a consequence of its' intrinsic complexity. Then, in order to identify the different decisions rules and to classify appropriators within them, we implement a Bayesian classification algorithm based on Houser et al (2004) work. The application of this econometric procedure has allowed us to identify two types of appropriators: “Quasi Myopic” (QM) appropriators and “Disrupted Farsighted” (DF) appropriators. The algorithm has classified near 85% of the appropriators in our sample as QM, and 5% as DF; the lasting agents could not be identified. We used the fitted empirical model to perform simulations. Some results are: (i) initial wealth increase the average efficiency of exploitation; (ii) when initial wealth is high (low), a more equally (unequally) distribution of wealth between types results in higher efficiency in the exploitation of the resource.
    Date: 2008–07
  16. By: Ayse Mumcu; Ismail Saglam
    Date: 2008–07
  17. By: Anthony Ryan; Clive L Spash (CSIRO Sustainable Ecosystems, Australia)
    Abstract: Moderate or poor reliabilities, worrisome correlation patterns and ambiguous dimensionality raise questions about the awareness of consequences scale being a valid measure of egoistic, social-altruistic and biospheric value orientations. These results may, however, indicate something else. An exploratory analysis performed on three samples collected from the general public provides evidence for a reinterpretation of the scale. We believe the concepts of egoistic, social and biospheric value orientations remain important as a potential explanation of behaviour. However, our results imply that whether people cognitively organise their beliefs in this way when considering adverse environmental consequences requires a different approach from the current awareness of consequences scale. The evidence shows the current scale must be reinterpreted as a measure of concern over the positive and negative consequences of environmental action and inaction.
    Keywords: environmental beliefs, value orientations, environmental scales, egoistic, altruistic, biospheric, value-belief-norm model
    JEL: D46 D64 D83
    Date: 2008–07
  18. By: Adeline Delavande; Susann Rohwedder
    Abstract: IndividualsÕ subjective expectations are important in explaining heterogeneity in individual choices, but their elicitation poses challenges. In this paper, the authors present their findings from testing an innovative visual representation of an Internet survey in the context of individualsÕ Social Security expectations. Respondents were randomly divided into two groups: Half were administered the standard Òpercent chanceÓ format; half were asked to allocate a total of 20 balls across seven bins to express what they believe the chances to be that their future Social Security benefits would fall into any one of those bins. The authors found that the main advantage of the visual format is that it generates usable answers for virtually all respondents. This suggests that the visual format is a viable alternative that leads to more complete data.
    Keywords: subjective expectations, web survey, social security
    JEL: C42 C81 D83 D84 D91
    Date: 2008–06

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