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on Experimental Economics |
| By: | Jason Aimone (Interdsciplinary Center for Economic Science, George Mason University); Daniel Houser |
| Abstract: | Trust promotes economic growth and development, and previous research has shed much light on reciprocity and other motives for trusting decisions. Why people choose not to trust has received substantially less attention, perhaps in part because not trusting is predicted by standard economic theory: selfish people consider the (perhaps subjective) stochastic nature of the environment and make the earnings-maximizing decision. This explanation is incomplete: we provide evidence from a laboratory analysis with an investment game that people¡¯s decisions vary according to how an environment¡¯s uncertainty will be resolved. In particular, if resolving uncertainty requires an investor to learn whether her trustee chose to betray then she is much less likely to trust. Our data thus provide evidence that ¡°betrayal aversion¡± detrimentally affects propensities for trusting decisions. Our results also emphasize the importance of impersonal, institution-mediated exchange in promoting investment and economic efficiency. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1007&r=exp |
| By: | Jason Aimone (Interdsciplinary Center for Economic Science, George Mason University) |
| Abstract: | Economists have begun to embrace the notion, already accepted by the market, that GEDs and High School Diplomas signal similar cognitive abilities, but different non-cognitive abilities. To better understand this phenomenon and its implications, this paper presents a study of an education environment, prison, which provides natural controls for non-cognitive abilities. The study reveals similarities in decisions between the two types of agents that are surprising in light of decisions made in standard educational environments. The results support the mixed-signal theory and furthermore suggest that stricter enforcement of discipline and other non-cognitive attributes may help to reduce dropout rates in non-prison educational facilities. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1006&r=exp |
| By: | Eike B. Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper investigates decisions about inter-temporal tradeoffs. The objective of the study is to explore the valuation of time itself without tradeoffs between time and consequences. In an experimental study subjects made decisions about waiting time, where the time was subject to risk. We find that subjects are risk-seeking for decisions about time, which leads to the conclusion that waiting time is experienced as a loss. Subjects in this experiment show similar choice patters as can be seen in studies about money when losses are involved. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:08027&r=exp |
| By: | Marco Faillo (University of Trento - Faculty of Economics); Stefania Ottone (Università degli Studi di Milano-Bicocca); Lorenzo Sacconi (University of Trento - Faculty of Economics) |
| 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: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ent:wpaper:wp02&r=exp |
| By: | Feri, Francesco (University of Innsbruck); Irlenbusch, Bernd (London School of Economics); Sutter, Matthias (University of Innsbruck) |
| Abstract: | The need for efficient coordination is ubiquitous in organizations and industries. The literature on the determinants of efficient coordination has focused on individual decision-making so far. In reality, however, teams often have to coordinate with other teams. We present an experiment with 825 participants, using six different coordination games, where either individuals or teams interact with each other. We find that teams coordinate much more efficiently than individuals. This finding adds one important cornerstone to the recent literature on the conditions for successful coordination. We explain the differences between individuals and teams using the experience weighted attraction learning model. |
| Keywords: | coordination games, individual decision-making, team decision-making, experience-weighted attraction learning, experiment |
| JEL: | C71 C91 C92 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3741&r=exp |
| By: | Peter Dürsch (University of Heidelberg, Department of Economics); Jörg Oechssler (University of Heidelberg, Department of Economics); Radovan Vadovic (ITAM, Department of Economics) |
| Abstract: | Sick pay is a common provision in most labor contracts. This paper employs an experimental gift-exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate sick pay in the same way as they reciprocate wage payments? Second, do firms benefit from offering sick pay? Firms may benefit in two different ways: directly, from workers reciprocating higher sick pay with higher efforts; and indirectly, from self-selection of reciprocal workers into contracts with higher sick pay. Our main finding is that the direct effect is rather weak in terms of effort and negative in terms of profits. However, when there is competition among firms for workers, sick pay can become an important advantage. Consequently, competition leads to a higher provision of sick pay relative to a monopsonistic labor market. |
| Keywords: | sick pay, sick leave, experiment, gift exchange |
| JEL: | C72 C91 C92 D43 L13 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0476&r=exp |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany, and University of Trento, Italy) |
| Abstract: | The satisficing approach is generalized and applied to finite n-person games. Based on direct elicitation of aspirations, we formally define the concept of satisficing, which does not exclude (prior-free) optimality but includes it as a border case. We also review some experiments on strategic games illustrating and partly supporting our theoretical approach. |
| Keywords: | Strategic interaction, Satisficing behavior, Bounded rationality |
| JEL: | C72 C92 D01 |
| Date: | 2008–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-078&r=exp |
| By: | Stephanie Rosenkranz; Utz Weitzel |
| Abstract: | This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoulle and Kranton (2007). In particular, we are interested in disentangling the influence of global, local and individual factors. We study subjects' strategic investment decisions in four basic network structures. As predicted, we find that global factors, such as the regularity of the network structure, influence behavior. However, we also find evidence that individual play in networks is to some extent boundedly rational, in the sense that coordination is influenced by local and individual factors, such as the number of (direct) neighbors, local clustering and individuals' risk attitudes. |
| Keywords: | networks, experiment, coordination, strategic substitutes, risk aversion |
| JEL: | C91 D00 D81 D85 C72 H41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0824&r=exp |
| By: | Juan Camilo Cardenas Author-X-Name_First: Juan Camilo Author-X-Name_Last: Cardenas; Natalia Candelo Author-X-Name_First: Natalia Author-X-Name_Last: Candelo; Alejandro Gaviria Author-X-Name_First: Alejandro Author-X-Name_Last: Gaviria; Sandra Polania Author-X-Name_First: Sandra Author-X-Name_Last: Polania; Rajiv Sethi Author-X-Name_First: Rajiv Author-X-Name_Last: Sethi |
| Abstract: | This paper uses an experimental field approach to investigate the pro-social preferences and behavior of social services providers and the behavior of potential beneficiaries in Bogota, Colombia. Field experiments were conducted using games including a newly designed Distributive Dictator Game in order to examine traits and mechanisms guiding pro-sociality. Replicating the patterns of previous studies, individuals showed a preference for fair outcomes, positive levels of trust and reciprocity, and willingness to punish unfair outcomes. The results provide evidence that the poor trigger more pro-social behavior from all citizens, including public servants, but the latter display strategic generosity. Additional observations include a bias in favor of women and households with more dependents, but discriminatory behavior against stigmatized groups. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:3247&r=exp |
| By: | Andreas Park; Daniel Sgroi |
| Abstract: | We undertook the first market trading experiments that allowed heterogeneously informed subjects to trade in endogenous time, collecting over 2000 observed trades. Subjects’ decisions were generally in line with the predictions of exogenous-time financial herding theory when that theory is adjusted to allow rational informational herding and contrarianism. While herding and contrarianism did not arise as frequently as predicted by theory, such behavior occurs in a significantly more pronounced manner than in comparable studies with exogenous timing. Types with extreme information traded earliest. Of those with more moderate information, those with signals conducive to contrarianism traded earlier than those with information conducive to herding. |
| Keywords: | Herding, Contrarianism, Endogenous-time, Informational Efficiency, Experiments |
| JEL: | C91 D82 G14 |
| Date: | 2008–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-341&r=exp |
| By: | Eike B. Kroll (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | Experimental economists have discovered various violations of expected utility theory and offered alternative models that can explain laboratory results. This study discovers a new violation in risky choices that cannot be explained by theories like Prospect Theory, Disappoint- ment or Regret Theory. In an experimental setting using a between- subject design, the influence of a dominated alternative on certainty equivalents is shown. One group of subjects was offered a series of choices between a lottery ticket with a 50-50 chance of winning and a sure payoff. A second group was offered the same choice plus a third alternative, that as it turned out was not chosen by any participant. As a result, the average chosen sure payoff in the second group was higher than in the first group. That means, by adding a dominated alternative to a choice set, the certainty equivalent of a lottery is in- creased. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:08028&r=exp |
| By: | Menno Middeldorp; Stephanie Rosenkranz |
| Abstract: | We use experimental evidence from a complex trading environment to evaluate the rational expectations theory of information acquisition in an asset market. Although theoretical predictions correctly identify the main drivers of information acquisition in our experimental data, we observe much higher levels of information acquisition. Our evidence suggests that this comes about because the theory overstates the informativeness of trading and thus predicts that few agents will want to buy information. We use indicators such as trading volume to confirm that information acquisition is sensitive to the informativeness of trading. We also test three other theories presented in recent models in the tradition of the rational expectations approach. We find some confirmation that subjects have a strategic incentive to increase their own acquisition in reaction to the acquisition of others. On the other hand, we find no indications of wealth effects or overconfidence in our experimental setup. Overall our evidence suggests that more realistic assumptions, particularly about the informativeness of trading, are needed to accurately predict the levels of information acquisition. |
| Keywords: | Information and Financial Market Efficiency, Private Information Acquisition, Experimental Economics |
| JEL: | G14 D82 C92 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0825&r=exp |
| By: | Alberto Chong Author-X-Name_First: Alberto Author-X-Name_Last: Chong; Hugo Ñopo Author-X-Name_First: Hugo Author-X-Name_Last: Ñopo; Juan Camilo Cardenas Author-X-Name_First: Juan Camilo Author-X-Name_Last: Cardenas |
| Abstract: | This paper explores the extent to which individuals trust, reciprocate, cooperate and pool risk by using a battery of field experiments containing the trust game, the voluntary contributions mechanism and the risk pooling game; applied in six capital cities in Latin America. The results suggest that: (i) on average, the propensity to trust and cooperate among Latin Americans is remarkably similar to that found in other regions of the world; (ii) expectations about the behavior of other players are the main driver of trust, reciprocity and cooperation; and (iii) behaviors involving socialization, trust and cooperation are closely interconnected. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4577&r=exp |
| By: | de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of California, San Diego) |
| Abstract: | In a recent randomized experiment we found mean returns to capital of between 5 and 6 percent per month in Sri Lankan microenterprises, much higher than market interest rates. But returns were found to be much higher among men than among women, and indeed were not different from zero for women. In this paper, we explore different explanations for the lower returns among female owners. We find no evidence that the gender gap is explained by differences in ability, risk aversion, or entrepreneurial attitudes. Nor do we find that differential access to unpaid family labor or social constraints limiting sales to local areas are important. We do find evidence that women invested the grants differently from men. A smaller share of the smaller grants remained in the female-owned enterprises, and men were more likely to spend the grant on working capital and women on equipment. We also find that the gender gap is largest when we compare male-dominated sectors to female-dominated sectors, although female returns are lower than male returns even for females working in the same industries as men. We then examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. The results suggest there is a large group of high-return male owners and smaller group of poor, high-ability, female owners who might benefit from more access to capital. |
| Keywords: | microenterprises, gender, microfinance, randomized experiment |
| JEL: | O12 O16 C93 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3743&r=exp |
| By: | Hugo Ñopo Author-X-Name_First: Hugo Author-X-Name_Last: Ñopo; Alberto Chong Author-X-Name_First: Alberto Author-X-Name_Last: Chong; Juan Camilo Cardenas Author-X-Name_First: Juan Camilo Author-X-Name_Last: Cardenas |
| Abstract: | This paper explores the link between what people say they prefer to do and what they actually do. Using data from an experimental project exploring trust and pro-sociality for representative samples of individuals in six Latin American capital cities, the paper links the results of these experiments with the responses obtained from representative surveys to the same participating individuals. Individuals with higher agreement with a set of pro-social statements are those more willing to contribute and collaborate to the social welfare in the community, and what people say is linked to what people do. This supports the idea that the inclusion of subjective controls in the lefthand- side in an empirical specification does carry useful information. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4575&r=exp |
| By: | Tom Coupé; Victor Ginsburgh; Abdul Noury |
| Abstract: | Leading papers in a journal’s issue attract, on average, more citations than those that follow. It is, however, difficult to assess whether they are of better quality (as is often suggested), or whether this happens just because they appear first in an issue. We make use of a natural experiment that was carried out by a journal in which papers are randomly ordered in some issues, while this order is not random in others. We show that leading papers in randomly ordered issues also attract more citations, which casts some doubt on whether, in general, leading papers are of higher quality. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2008_014&r=exp |
| By: | Máximo Torero Author-X-Name_First: Máximo Author-X-Name_Last: Torero; Marco Castillo Author-X-Name_First: Marco Author-X-Name_Last: Castillo; Ragan Petrie Author-X-Name_First: Ragan Author-X-Name_Last: Petrie |
| Abstract: | This paper presents a series of experiments on discrimination in urban Lima, Peru. The experiments exploit degrees of information on performance as a way to assess how personal characteristics affect how people sort into groups, and the results show that behavior is not correlated with personal socio-economic and racial characteristics. However, people do use personal characteristics to sort themselves into groups. Height is a robust predictor of being desirable, as is being a woman. Looking indigenous makes one less desirable, and looking “white” increases one’s desirability. Interestingly, our experiments show that once information on performance is provided, almost all evidence of discrimination is eliminated. Although there is evidence of stereotyping or preference-based discrimination, clear information trumps discrimination. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:3246&r=exp |
| By: | Menno Middeldorp; Stephanie Rosenkranz |
| Abstract: | Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), suggest that central bank communication crowds out private information acquisition and that this effect can lead to a deterioration of the ability of financial markets to predict future policy interest rates. We examine this result in an experimental asset market that closely follows the theoretical model. Crowding out of information acquisition takes place and, where this crowding out is most rapid, there is deterioration of the market’s predictive ability. This supports the theoretical result that central bank communication can actually make it more difficult for financial markets to predict future policy rates. |
| Keywords: | Experimental Economics, Private Information Acquisition, Information and Financial Market Efficiency, Central bank transparency and communication |
| JEL: | C92 D82 E58 G14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0826&r=exp |
| By: | Jessica Cohen; Pascaline Dupas |
| Abstract: | It is often argued that cost-sharing -- charging a subsidized, positive price -- or a health product is necessary to avoid wasting resources on those who will not use or do not need the product. We explore this argument through a field experiment in Kenya, in which we randomized the price at which prenatal clinics could sell long lasting anti-malarial insecticide-treated nets (ITNs) to pregnant women. We find no evidence that cost-sharing reduces wastage on those that will not use the product: women who received free ITNs are not less likely to use them than those who paid subsidized positive prices. We also find no evidence that cost-sharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the average prenatal client in the area in terms of measured anemia (an important indicator of malaria). Cost-sharing does, however, considerably dampen demand. We find that uptake drops by 75 percent when the price of ITNs increases from zero to $0.75 (i.e. from 100 to 87.5 percent subsidy), the price at which ITNs are currently sold to pregnant women in Kenya. We combine our estimates in a cost-effectiveness analysis of ITN prices on child mortality that incorporates both private and social returns to ITN usage. Overall, our results suggest that free distribution of ITNs could save many more lives than cost-sharing programs have achieved so far, and, given the large positive externality associated with widespread usage of ITNs, it would likely do so at a lesser cost per life saved. |
| JEL: | C93 D12 H23 H42 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14406&r=exp |
| By: | David Dillenberger (Department of Economics, University of Pennsylvania); Philipp Sadowski (Department of Economics, Duke University) |
| Abstract: | We study a two-stage choice problem, where alternatives are allocations between the decision maker (DM) and a passive recipient. The recipient observes choice behavior in stage two, while stage one choice is unobserved. Choosing selfishly in stage two, in the face of a fairer available alternative, may inflict shame on DM. DM has preferences over sets of alternatives that represent period two choices. We axiomatize a representation that identifies DM’s selfish ranking, her norm of fairness and shame. Altruism is the most prominent motive that can explain non-selfish choice. We identify a condition under which shame to be selfish can mimic altruism, when only stage-two choice is observed by the experimenter. An additional condition implies that the norm of fairness can be characterized as the Nash solution of a bargaining game induced by the second-stage choice problem. The representation is generalized to allow for finitely many recipients and applied to a simple strategic situation, a game of trust. |
| Keywords: | selfishness, fairness, shame, altruism |
| JEL: | C78 D63 D64 D80 D81 |
| Date: | 2008–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:08-037&r=exp |
| By: | David Bravo Author-X-Name_First: David Author-X-Name_Last: Bravo; Claudia Sanhueza Author-X-Name_First: Claudia Author-X-Name_Last: Sanhueza; Sergio Urzua Author-X-Name_First: Sergio Author-X-Name_Last: Urzua |
| Abstract: | The objective of this paper is to study the Chilean labor market and determine the presence or absence of gender discrimination. In order to transcend the limitations of earlier works, an experimental design is used, the first of its kind in Chile. This study also allows socioeconomic discrimination associated with names and places of residence to be addressed. The study consists of sending fictitious Curriculum Vitae for real job vacancies published weekly in the Santiago newspaper El Mercurio. A range of strictly equivalent CVs in terms of qualifications and employment experience of applicants are sent out, varying only in gender, name and surname, and place of residence. The results show no significant differences in callback rates across groups, in contrast with what is found in other international studies. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:3242&r=exp |