nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒09‒20
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Strategic Play and Risk Aversion in One-Shot Normal-Form Games: An Experimental Study By Asen Ivanov
  2. Is a Donor in Hand Better than Two in the Bush? Evidence from a Natural Field Experiment By Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
  3. Study of a Small-Market Investment Game with Common and Private Values By Asen Ivanov; Dan Levin; James Peck
  4. Satisficing and prior-free optimality in price competition: a theoretical and experimental analysis By Werner Güth; M. Vittoria Levatia; Matteo Ploner
  5. Curse of Mediocrity - On the Value of Asymmetric Fundamental Information in Asset Markets By Michael Kirchler
  6. Against Applicability: A critique of Guala’s Methodology of Experimental Economics By Martin K. Jones
  7. Can Relaxation of Beliefs Rationalize the Winner’s Curse?: An Experimental Study By Asen Ivanov; Dan Levin; Muriel Niederle
  8. Participation and Decision Making: A Three-person Power-to-take Experiment By Max Albert; Vanessa Mertins
  9. Is altruism bad for cooperation? By Sung Ha Hwang; Samuel Bowles
  10. A Framed Field Experiment on Collective Enforcement Mechanisms with Ethiopian Farmers By Reichhuber, Anke; Camacho, Eva; Requate, Till
  11. Competitive Behavior in Market Games: Evidence and Theory By John Duffy; Alexander Matros; Ted Temzelides
  12. Gift Exchange in the Workplace By Robert Dur
  13. Sequencing Anomalies in Choice Experiments By Brett Day; Jose Luis Pinto Prades
  14. Outflow Dynamics in Modeling Oligopoly Markets: The Case of the Mobile Telecommunications Market in Poland By Sznajd-Weron, Katarzyna; Weron, Rafal; Wloszczowska, Maja
  15. Gender Differences in Market Competitiveness in a Real Workplace: Evidence from Performance-based Pay Tournaments among Teachers By Victor Lavy

  1. By: Asen Ivanov (Department of Economics, VCU School of Business)
    Abstract: Based on subjects’ play and stated beliefs in ten one-shot normal-form games, we study behavior along the two general dimensions “naive vs. strategic” and “risk neutral vs. risk averse”. We also investigate how behavior varies depending on whether (A) subjects play without interference from belief elicitation, (B) subjects state beliefs while playing, or (C) subjects choose between lottery tickets instead of between actions in a game. With our games and graduate subjects, we find that under (A) a small minority of subjects is naive and a minority is risk neutral. However, these findings are not robust to changing the games or the subject population. Regarding the comparative statics across (A), (B) and (C), we find that naive behavior diminishes from (A) to (B) to (C) and that considerably more subjects are risk neutral under (B) than under (A) or (C). The latter is interpreted in terms of ambiguity aversion.
    Keywords: games, experiments, beliefs, risk aversion, ambiguity aversion
    JEL: C72 C92 C51 D81 D84
    Date: 2008–09
  2. By: Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
    Abstract: This study develops theory and conducts an experiment to provide an understanding of why people initially give to charities, why they remain committed to the cause, and what factors attenuate these influences. Using an experimental design that links donations across distinct treatments separated in time, we present several insights. For example, we find that previous donors are more likely to give, and contribute more, than donors asked to contribute for the first time. Yet, how these previous donors were acquired is critical: agents who are initially attracted by signals of charitable quality transmitted via an economic mechanism are much more likely to continue giving than agents who were initially attracted by non-mechanism factors.
    JEL: C93 H41 Q5
    Date: 2008–09
  3. By: Asen Ivanov (Department of Economics, VCU School of Business); Dan Levin (Department of Economics, The Ohio State University); James Peck (Department of Economics, The Ohio State University)
    Abstract: We experimentally test an endogenous-timing investment model in which subjects privately observe their cost of investing and a signal correlated with the common investment return. Subjects overinvest, relative to Nash. We separately consider whether subjects draw inferences, in hindsight, and use foresight to delay profitable investment and learn from market activity. In contrast to Nash, cursed equilibrium, and level-k predictions, behavior hardly changes across our experimental treatments. Maximum likelihood estimates are inconsistent with belief-based theories. We offer an explanation in terms of boundedly rational rules of thumb, based on insights about the game, which provides a better fit than QRE.
    Keywords: endogenous timing investment, level-k model, cursed equilibrium, quantal response equilibrium, rules of thumb
    JEL: C92 D82 D83
    Date: 2008–01
  4. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levatia (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany; University of Trento, Italy)
    Abstract: On a heterogeneous experimental oligopoly market, sellers choose a price, specify a set-valued prior-free conjecture about the others' behavior, and form their own profit-aspiration for each element of their conjecture. We formally define the concepts of satisficing and prior-free optimality and check if seller participants behave in accordance with them. We find that seller participants are satisficers, but fail to be "prior-free" optimal.
    Keywords: Satisficing behavior, Bounded rationality, Triopoly
    JEL: C92 C72 D43
    Date: 2008–09–09
  5. By: Michael Kirchler
    Abstract: In this paper we present results from experimental asset markets and simulations with traders who receive asymmetric information about the fundamental value of an asset. In the experimental markets with repetition insiders outperform the market and uninformed random traders perform equally well as average informed traders. This is in line with the results of the equilibrium simulation output in which traders choose be- tween a random strategy and their fundamental strategy. We further ¯nd that the persistent underperformance of the average informed is not due to their overcon¯dence but due to the asymmetric information structure of the market.
    Keywords: Information economics, experimental economics, agent-based model, overconfidence, value of information
    JEL: C91 C92 G14
    Date: 2008–09
  6. By: Martin K. Jones
    Abstract: The methodology of experimental economics has developed rapidly over the last ten years with many exciting debates within the field. One of the main contributors to this debate has been Guala who has written several articles and a well- received book on the subject. This paper argues that, while much of what he argues is correct, his views on external validity are not justified and the conclusions which he draws from these views could fatally undermine the experimental economics enterprise. In rejecting the justification of these views, the paper reaffirms the importance of the experiments in economics.
    Keywords: Experiments, External Validity, Applicability
    JEL: B41
    Date: 2007–12
  7. By: Asen Ivanov (Department of Economics, VCU School of Business); Dan Levin (Department of Economics, The Ohio State University); Muriel Niederle (Stanford University)
    Abstract: We use a second-price common-value auction, the maximal game, to experimentally study whether the Winner’s Curse (WC) can be explained by models which retain best-response behavior but allow for inconsistent beliefs. In the maximal game, the WC can be rationalized only by a belief that others use weakly-dominated strategies. Yet, we find that the WC is widespread. In addition, we create environments where, regardless of beliefs, there should be a correction of the WC. We find little evidence of such a correction. Overall, our study suggests that the WC, at least in initial periods of play in the laboratory, represents a more fundamental departure from NE than a mere inconsistency of beliefs.
    Keywords: common-value auctions, winner’s curse, beliefs, cursed equilibrium, level-k model, quantal response equilibrium
    JEL: C92 D82 D83 D44
    Date: 2008–09
  8. By: Max Albert (Justus Liebig University Giessen, Dept of Economics); Vanessa Mertins (Saarland University, Dept of Economics)
    Abstract: It is often conjectured that participatory decision making may increase acceptance even of unfavorable decisions. The present paper tests this conjecture in a three-person power-to-take game. Two takers decide which fraction of the responder's endowment to transfer to themselves; the responder decides which part of the endowment to destroy. Thus, the responder can punish greedy takers, but only at a cost to herself. We modify the game by letting the responder participate in takers' transfer decision and consider the eect of participation on the destruction rate. We nd that participation matters. Responders destroy more if they (1) had no opportunity to participate in the decision making process and (2) are confronted with highly unfavorable outcomes. This participation eect is highly signicant for those responders (the majority) who show negative reciprocity (i.e., destroy more when takers are greedier).
    Keywords: fairness, participatory decision making, power-to-take game, procedural fairness, reciprocity
    JEL: C72 C91 D72
    Date: 2008
  9. By: Sung Ha Hwang (University of Massachusetts, Amherst); Samuel Bowles (Santa Fe Institute, University of Siena and University of Massachusetts)
    Abstract: Some philosophers and social scientists have stressed the importance for good government of an altruistic citizenry that values the well being of one another. Others have emphasized the need for incentives that induce even the self interested to contribute to the public good. Implicitly most have assumed that these two approaches are complementary or at worst additive. But this need not be the case. Behavioral experiments find that if reciprocity-minded subjects feel hostility towards free riders and enjoy inflicting harm on them, near efficient levels of contributions to a public good may be supported when group members have opportunities to punish low contributors. Cooperation may also be supported if individuals are sufficiently altruistic that they internalize the group benefits that their contributions produce. Using a utility function embodying both reciprocity and altruism we show that unconditional altruism towards other members attenuates the punishment motive and thus may reduce the level of punishment inflicted on defectors, resulting in lower rather than higher levels of contributions. Increases in altruism may also reduce the level of benefits from the public project net of contribution costs and punishment costs. The negative effect of altruism on cooperation and material payoffs is greater the stronger is the reciprocity motive among the members. JEL Categories: D64 (altruism); H41 (public goods)
    Keywords: public goods, altruism, spite, reciprocity, punishment, cooperation
    Date: 2008–09
  10. By: Reichhuber, Anke; Camacho, Eva; Requate, Till
    Abstract: We present the results of a framed field experiment with Ethiopian farmers that use the mountain rain forest as a common pool resource. Harvesting honey causes damage to the forest, and open access leads to overharvesting. We test different mechanisms for mitigating excessive harvesting: a collective tax with low and high tax rates, and a tax/subsidy system. We find that the high-tax scheme works best in inducing the desired level of harvesting while the tax-subsidy scheme may trigger tacit collusion. Via a panel data analysis we further investigate which variables influence the subjects’ decisions during the treatments.
    Keywords: common pool resources, collective tax, framed field experiment
    Date: 2008
  11. By: John Duffy; Alexander Matros; Ted Temzelides
    Abstract: We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some, and possibly all, markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient `full` Nash equilibria in which all markets are open and there is a large volume of trade. We further find that as the number of agents participating in the market game increases, the full Nash equilibria they achieve come closer to approximating the associated Walrasian equilibrium of the economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in such games. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.
    JEL: C72 C73 C92 D51
    Date: 2008–09
  12. By: Robert Dur (Erasmus University Rotterdam, and CESifo)
    Abstract: We develop a model of manager-employee relationships where employees care more for their manager when they are more convinced that their manager cares for them. Managers can signal their altruistic feelings towards their employees in two ways: by offering a generous wage and by giving attention. Contrary to the traditional gift-exchange hypothesis, we show that altruistic managers may offer lower wages and nevertheless build up better social-exchange relationships with their employees than egoistic managers do. In such equilibria, a low wage signals to employees that the manager has something else to offer -- namely, a lot of attention -- which will induce the employee to stay at the firm and work hard. Our predictions are well in line with some recent empirical findings about gift exchange in the field.
    Keywords: manager-employee relationships; wages; extra-role behavior; sabotage; gift exchange; social exchange; conditional altruism; reciprocity; signaling game
    JEL: D86 J41 M50 M54 M55
    Date: 2008–09–03
  13. By: Brett Day (School of Environmental Sciences, University of East Anglia.); Jose Luis Pinto Prades (Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper investigates whether responses to choice experiments (CEs) are subject to sequencing anomalies. While previous research has focussed on the possibility that such anomalies relate to position in the sequence of choice tasks, our research reveals that the particular sequence of tasks matters. Using a novel experimental design that allows us to test our hypotheses using robust nonparametric statistics, we observe sequencing anomalies in CE data similar to those recorded in the dichotomous choice contingent valuation literature. Those sequencing effects operate in both price and commodity dimensions and are observed to compound over a series of choice tasks. Our findings cast serious doubt on the current practice of asking each respondent to undertake several choice tasks in a CE whilst treating each response as an independent observation on that individual’s preferences.
    Keywords: Choice experiments; sequencing anomalies; ordering effects; dichotomous choice contingent valuation; non-parametric testing.
    JEL: Q51 C14 I10
    Date: 2008–09
  14. By: Sznajd-Weron, Katarzyna; Weron, Rafal; Wloszczowska, Maja
    Abstract: In this paper we introduce two models of opinion dynamics in oligopoly markets and apply them to a situation, where a new entrant challenges two incumbents of the same size. The models differ in the way the two forces influencing consumer choice - (local) social interactions and (global) advertising - interact. We study the general behavior of the models using the Mean Field Approach and Monte Carlo simulations and calibrate the models to data from the Polish telecommunications market. For one of the models criticality is observed - below a certain critical level of advertising the market approaches a lock-in situation, where one market leader dominates the market and all other brands disappear. Interestingly, for both models the best fits to real data are obtained for conformity level 0.3<p<0.4. This agrees very well with the conformity level found by Solomon Asch in his famous social experiment.
    Keywords: opinion dynamics; outflow dynamics; agent-based model; oligopoly market; advertising; mobile telephony
    JEL: D70 L13 M37 C15
    Date: 2008–09–10
  15. By: Victor Lavy
    Abstract: Recent lab and field experiments suggest that women are less effective than men in a competitive environment. In this paper I examine how individual performance in a real work place is affected by a competitive environment and by its gender mix. The competition is among math, English and Language teachers who participated in a rank order tournament that rewarded teachers with large cash bonuses based on the test performance of their classes. The evidence suggest that the average ranking, winning rate and awarded prize did not differ by gender nor between teachers in competition groups with only female teachers or with both genders. I also find that the direct impact of the bonus program on students' outcomes did not vary by male and female teachers or by the type of competitive environment in terms of gender mix of the participants. As for mechanisms that can explain these results, I found no differences by either gender or by the gender mix of the competition group in teachers' awareness and familiarity with the program and its rules, and in effort and teaching methods. Women though were more pessimistic about the effectiveness of teachers' performance pay and more realistic than men about their likelihood of winning bonuses.
    JEL: I2 I21 J00 J16 J18 J33
    Date: 2008–09

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