|
on Experimental Economics |
| By: | Marco Castillo; Ragan Petrie; Maximo Torero |
| Abstract: | We investigate the distribution of risk preferences and the frequency of expected utility violations along the gradient of market development. To do this, we collect experimental and survey data from a random sample of the population at four sites in Peru that differ in their level of competition and development. Similar to previous studies, we find that violations of expected utility theory are frequent. More importantly, however, violations are far less frequent the more competitive the market is. Also, our study suggests that experience in trade is not always associated with fewer behavioral anomalies. For instance, wholesale traders in an oligopolistic market with many years of experience are more likely to violate expected utility theory than entrepreneurs in an adjacent market with less experience. As hypothesized by Alchian (1950), it is in highly competitive markets where the evidence of rational behavior is found. |
| JEL: | C91 C93 D81 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2008-12&r=exp |
| By: | Benedikt Herrmann (University of Nottingham); Henrik Orzen (University of Nottingham) |
| Abstract: | While numerous experiments demonstrate how pro-sociality can influence economic decision-making, evidence on explicitly anti-social economic behavior has thus far been limited. In this paper we investigate the importance of spite in experimental rent-seeking contests. Although, as we show, existing evidence of excessive rent-seeking is in theory compatible with fairness considerations, our social preference elicitations reveal that subjects’ investments are driven by spite, not fairness or reciprocity. We also observe a striking disconnect between individuals’ revealed social preferences in our contest game and in a standard prisoner’s dilemma, rejecting the idea that there are consistent pro-social, selfish or anti-social “types”. Moreover, we find that cooperation and reciprocity rates drop substantially after subjects have been exposed to rent-seeking competition. |
| Keywords: | Contests; Other-regarding preferences; Experiments |
| JEL: | A13 C9 D0 D72 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2008-10&r=exp |
| By: | Robin Hogarth; Mariona Portell; Anna Cuxart; Gueorgui I. Kolev |
| Abstract: | The importance of emotion in risk perception has been well documented in field and experimental studies. However, little is known about its role in everyday life. On thirty occasions over ten consecutive working days, ninety-four participants were prompted at random – via mobile telephones – to report on their emotions and to assess perceived risks. Subsequently, risks associated with six occasions were re-assessed. Emotion was found to explain significant variance in risk perception over and above “reason” (assessed severity and possibility of risks) and to contribute to the tendency to assess risk lower in retrospect than when experienced. Our investigation illuminates the pervasive role of emotion in everyday risk perception and the value and feasibility of collecting meaningful samples of naturally occurring behavior with simple technology. |
| Keywords: | Experience sampling method, multilevel analysis, risk perception, self-assessment manikinds (SAM) |
| JEL: | C39 C93 M10 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1108&r=exp |
| By: | D'Exelle, Ben (University of Antwerp); Riedl, Arno (Maastricht University) |
| Abstract: | We experimentally study the influence of local information conditions on elite capture and social exclusion in community-based development schemes with heterogeneous groups. Not only information on the distribution of aid resources through community-based schemes, but also information on who makes use of an available punishment mechanism through majority voting may be important. The main results are the following. First, many rich community representatives try to satisfy a political majority who would then abstain from using the punishment mechanism, and exclude those community members whose approval is then not required. The frequency of this exclusion strategy is highest with private information on the distribution and public voting. Second, when voting is public, responders are more reluctant to make use of the punishment mechanism, and representatives who follow the exclusion strategy are more inclined to exclude the poorest responder. Third, punishment is largely ineffective as it induces rich representatives to capture all economic resources. Fourth, if a poor agent takes the representative’s role, punishment rates drop, efficiency increases, and final distributions become more equal. |
| Keywords: | distribution of aid, inequality, social exclusion, laboratory experiment |
| JEL: | D72 C91 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3673&r=exp |
| By: | Fehr, Ernst; Hoff, Karla; Kshetramade, Mayuresh |
| Abstract: | In a wide variety of settings, spiteful preferences would constitute an obstacle to cooperation, trade, and thus economic development. This paper shows that spiteful preferences - the desire to reduce another's material payoff for the mere purpose of increasing one's relative payoff - are surprisingly widespread in experiments conducted in one of the least developed regions in India (Uttar Pradesh). In a one-shot trust game, the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects. In experiments to study coordination and to measure social preferences, the findings reveal empirical patterns suggesting that the willingness to reduce another's material payoff - either for the sake of achieving more equality or for the sake of being ahead - is stronger among individuals belonging to high castes than among those belonging to low castes. Because extreme social hierarchies are typically accompanied by a culture that stresses status-seeking, it is plausible that the observed social preference patterns are at least partly shaped by this culture. Thus, an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development. |
| Keywords: | Economic Theory&Research,Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Gender and Social Development |
| Date: | 2008–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4619&r=exp |
| By: | Marco Faillo; Stefania Ottone; Lorenzo Sacconi |
| Abstract: | The main contribution of this paper is twofold. First of all, it focuses on the decisional process that leads to the creation of a social norm. Secondly, it analyses the mechanisms through which subjects conform their behaviour to the norm. In particular, our aim is to study the role and the nature of Normative and Empirical Expectations and their influence on people’s decisions. The tool is the Exclusion Game, a sort of ‘triple mini-dictator game’. It represents a situation where 3 subjects – players A - have to decide how to allocate a sum S among themselves and a fourth subject - player B - who has no decisional power. The experiment consists of three treatments. In the Baseline Treatment participants are randomly distributed in groups of four players and play the Exclusion Game. In the Agreement Treatment in each group participants are invited to vote for a specific non-binding allocation rule before playing the Exclusion Game. In the Outsider Treatment, after the voting procedure and before playing the Exclusion Game, a player A for each group (the outsider) is reassigned to a different group and instructed about the rule chosen by the new group. In all the treatments, at the end of the game and before players are informed about the decisions taken during the Exclusion Game by the other co-players, first order and second order expectations (both normative and empirical) are elicited through a brief questionnaire. The first result we obtained is that subjects’ choices are in line with their empirical (not normative) expectations. The second result is that even a non-binding agreement induces convergence of empirical expectations – and, consequently, of choices. The third results is that expectation of conformity is higher in the partner protocol. This implies that a single outsider breaks the ‘trust and cooperation’ equilibrium. |
| Keywords: | fairness, social norms, beliefs, psychological games, experimental games |
| JEL: | C72 C91 A13 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpde:0810&r=exp |
| By: | Hannah Hörisch (University of Munich, Seminar for Economic Theory, Ludwigstraße 28 (Rgb.), 80539 Munich, Germany, email: hannah.hoerisch@lrz.uni-muenchen.de.) |
| Abstract: | We implement the Rawlsian veil of ignorance in the laboratory. Our experimental design allows separating the effects of risk and social preferences behind the veil of ignorance. Subjects prefer more equal distributions behind than in front of the veil of ignorance, but only a minority acts according to maximin preferences. Men prefer more equal allocations mostly for insurance purposes, women also due to social preferences for equality. Our results contrast the Utilitarian's claim that behind the veil of ignorance maximin preferences necessarily imply infinite risk aversion. They are compatible with any degree of risk aversion as long as social preferences for equality are sufficiently strong. |
| Keywords: | deterrence, law and economics, incentives, crowding out, experiment |
| JEL: | D64 C99 D63 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:230&r=exp |
| By: | Oliver Kirchkamp (Universität Jena, School of Economics); J. Philipp Reiß (Maastricht University, Economics Department) |
| Abstract: | We present results from a series of experiments that allow us to measure overbidding and, in particular, underbidding in first-price auctions. We investigate how the amount of underbidding depends on seemingly innocent parameters of the experimental setup. To structure our data we present and test a theory of constant markdown bids. While a fraction of bidders can be well described by Bayesian Nash equilibrium bids, a larger fraction seems to either use constant markdown bids or seems to rationally optimise against a population where some members use markdown bids and some are rational. |
| Keywords: | Auction, Experiment, Overbidding, Underbidding, Risk-Aversion |
| JEL: | C92 D44 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-066&r=exp |
| By: | Lorenzo Sacconi; Marco Faillo |
| Abstract: | Compliance with a social norm is a matter of self-enforceability and endogenous motivation to conform, which is relevant not just to social norm,s but also to a wide array of institutions. Here we consider endogenous mechanisms that become effective once the game description has been enriched with pre-play communication allowing impartial agreements on a norm (even if they remain not binding in any sense). Behavioral models understand conformity as the maximization of some “enlarged” utility function properly defined to make room for the individual’s “desire” to comply with a norm reciprocally adhered to by other participants – whose conformity in turn depends on the expectation that the norm will be in fact reciprocally adhered to. In particular this paper presents an experimental study on the “conformity-with-the-ideal preference theory” (Grimalda and Sacconi 2005), based of a simple experimental three person game called the “exclusion game”. If the players participate in a “constitutional stage” (under a veil of ignorance ) in which they decide the rule of division unanimously, the experimental data show a dramatic change in the participants’ behavior pattern. Most of them conform to the fair rule of division to which they have agreed in a pre-play communication stage, whereas in the absence of this agreement they behave egoistically. The paper also argues that this behavior is largely consistent with what John Rawls (1971) called the “sense of justice”, a theory of norm compliance unfortunately overlooked by economists and which should be reconsidered after the behaviorist turn in economics. |
| Keywords: | conformist preferences, reciprocity, veil of ignorance, psychological games, fairness, experiments |
| JEL: | C7 C9 D63 D64 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpde:0814&r=exp |
| By: | Luca Stanca |
| Abstract: | This paper presents an experimental analysis of the role of out comes and intentions for fair behavior. We consider a symmetric version of the gift-exchange game in a 2x2 design with two treatment variables: intentionality (¯rst mover's choice is either intentional or randomly determined) and outcome (¯rst mover's choice is either costly or free, ie compensated by the experimenter). The four treatments differ with respect to the presence-absence of intentionality and cost for the ¯rst mover, whereas the outcome of the ¯rst mover's action for the second mover's payo® is kept constant across treatments. The results indicate that intentions do not matter for fair behavior, whereas outcomes do matter. In particular, the effect of outcomes is due to concerns for distributional fairness, whereas there is no evidence of an intention-based role for outcomes through signalling kindness. |
| Keywords: | Reciprocity, Export, Intentions, Laboratory Experiments |
| JEL: | D63 C78 C91 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:145&r=exp |
| By: | Joep Sonnemans (University of Amsterdam); Jan Tuinstra (University of Amsterdam) |
| Abstract: | In repeated number guessing games choices typically converge quickly to the Nash equilibrium. In positive expectations feedback experiments, however, convergence to the equilibrium price tends to be very slow, if it occurs at all. Both types of experimental designs have been suggested as modeling essential aspects of financial markets. In order to isolate the source of the differences in outcomes we present several new treatments in this paper. We conclude that the feedback strength (i.e. the ‘p-value’ in standard number guessing games) is essential for the results. Furthermore, positive expectations feedback experiments may provide good representations of highly speculative markets while standard number guessing games model financial markets with more emphasis on dividend yield and value stocks. |
| Keywords: | number guessing game; beauty contest game; expectations feedback systems |
| JEL: | C91 G12 |
| Date: | 2008–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080076&r=exp |
| By: | Ola Andersson (Department of Economics,Stockholm School of Economics); Matteo M. Galizzi (Department of Economics,University of Brescia); Tim Hoppe (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Sebastian Kranz (Department of Economics,University of Bonn); Karen van der Wiel (CentER,Tiburg University); Erik Wengström (Department of Economics,University of Copenhagen) |
| Abstract: | This paper experimentally studies persuasion effects in ultimatum games and finds that Proposers' payoffs significantly increase if, along with offers, they can send messages which Responders read before their acceptance decision. Higher payoffs are due to higher acceptance rates as well as more aggressive offers by Proposers. |
| Keywords: | Communication in Games; Cheap Talk |
| JEL: | C72 C91 D83 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:08020&r=exp |
| By: | Heike Hennig-Schmidt |
| Abstract: | Psychological game theory can help provide a rational choice explanation of framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically, and explore the empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either. |
| Keywords: | Framing, psychological games, guilt aversion, reciprocity, public good games, voluntary cooperation |
| JEL: | C91 C72 D64 Z13 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse15_2008&r=exp |
| By: | Carlos Alós-Ferrer; Christoph Kuzmics |
| Abstract: | This paper provides a general formal framework to define and analyze the concepts of focal points and frames for normal form games. The information provided by a frame is captured by a symmetry structure which is consistent with the payoff structure of the game. The set of alternative symmetry structures has itself a clear structure (a lattice). Focal points are strategy profiles which respect the symmetry structure and are chosen according to some meta-norm, which is not particular to the framed game at hand. We also clarify the difference between different concepts of symmetry used in the literature. |
| Keywords: | symmetry, focal points, Nash equilibria |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:twi:respas:0035&r=exp |
| By: | Francesco Guala; Luigi Mittone |
| Abstract: | Recent experiments with the Dictator Game (and the ensuing discussions) have been affected by considerable confusion regarding the purpose of this design. A common complaint is that the design gives rise to fragile regularities and therefore is of little use for theory-testing. We take issue with this view, and instead argue that the Dictator Game is potentially a very useful tool for experimental game theory, if properly used. It is particularly useful for investigating social norms, but economists have failed to take advantage of the Dictator Game because they still lack an adequate theory of norms. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpce:0807&r=exp |