nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒11‒11
nine papers chosen by
Daniel Houser
George Mason University

  1. Checking Out Temptation: An Natural Experiment with Purchases at the Grocery Register By Daniel Houser; David Reiley; Michael Urbancic
  2. Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals By Antonio Guarino; Marco Cipriani
  3. Everyone Is A Winner: Promoting Cooperation Through Non-Rival Intergroup Competition By Ernesto Reuben; Jean-Robert Tyran
  4. Competition and the Ratchet Effect By Charness, Gary; Kuhn, Peter J.; Villeval, Marie-Claire
  5. Experiments with the Traveler's Dilemma: Welfare, Strategic Choice and Implicit Collusion By Kaushik Basuy; Leonardo Becchetti; Luca Stanca
  6. Earned Wealth, Engaged Bidders? Evidence from a second price auction By Nicolas Jacquemet; Stephane Luchini; Robert-Vincent Joule; Jason Shogren
  7. Behavioral Foundations of Microcredit: Experimental and Survey Evidence From Rural India By Michal Bauer; Julie Chytilová; Jonathan Morduch
  8. Words Speak Louder Than Money By MaroÅ¡ Servátka; Steven Tucker; Radovan VadoviÄ
  9. The Experimental Approach to Development Economics By Abhijit V. Banerjee; Esther Duflo

  1. By: Daniel Houser (Interdsciplinary Center for Economic Science, George Mason University); David Reiley (Department of Economics, University of Arizona); Michael Urbancic (Department of Economics, University of California at Berkeley)
    Abstract: A long literature in psychology, as well as a more recent theory literature in economics, suggests that prolonged exposure to a tempting stimulus can eventually lead people to ¨Dsuccumb¡¬ to that temptation. Here we develop a model for decision under temptation, and test its predictions using data from a natural experiment. We take advantage of naturally occurring, exogenous variation in the amount of time individual consumers spend waiting in grocery store checkout lines. We collect over 2,800 observations from three grocery stores. We obtain robust evidence that time spent in line economically and statistically significantly increases the probability that one purchases a tempting item. For example, people who wait in line 25 percent longer than average are about 17 percent more likely to purchase a tempting item. Moreover, for any fixed time in line, we find that the presence of a child significantly increases the likelihood of a purchase. These results are consistent with models that connect purchasing decisions to temptation, and also suggest that children yield to temptation more rapidly than adults. Our results offer novel quantitative and empirical content to the rapidly expanding economics literature on decisions under temptation.
    Date: 2004–08
  2. By: Antonio Guarino; Marco Cipriani
    Abstract: We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects herd seldom, in accordance with both the theory and previous experimental evidence on student subjects. A proportion of subjects, however, engage in contrarianism, something not accounted for by the theory. In the second treatment, the proportion of herding decisions increases, but not as much as theory suggests; moreover, contrarianism disappears altogether.
    Keywords: Capital markets , Price controls , Economic models , Data analysis ,
    Date: 2008–06–06
  3. By: Ernesto Reuben (Northwestern University); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: In this paper, we study the effectiveness of intergroup competition in promoting cooperative behavior. We focus on intergroup competition that is non-rival in the sense that everyone can be a winner. This type of competition does not give groups an incentive to outcompete others. However, in spite of this fact, we find that intergroup competition produces a universal increase in cooperation. Furthermore, in settings where there are strong incentives to compete, intergroup competition benefits a majority of individuals.
    Keywords: intergroup competition; cooperation; public goods; experiment
    JEL: H41 M52 C92
    Date: 2008–08
  4. By: Charness, Gary (University of California, Santa Barbara); Kuhn, Peter J. (University of California, Santa Barbara); Villeval, Marie-Claire (CNRS, GATE)
    Abstract: The 'ratchet effect' refers to a situation where a principal uses private information that is revealed by an agent's early actions to the agent's later disadvantage, in a context where binding multi-period contracts are not enforceable. In a simple, context-rich environment, we experimentally study the robustness of the ratchet effect to the introduction of ex post competition for principals or agents. While we do observe substantial and significant ratchet effects in the baseline (no competition) case of our model, we find that ratchet behavior is nearly eliminated by labor-market competition; interestingly this is true regardless of whether market conditions favor principals or agents.
    Keywords: ratchet effect, competition, experiment, private information, labor markets
    JEL: C91 D23 D82 J24 L14
    Date: 2008–10
  5. By: Kaushik Basuy; Leonardo Becchetti; Luca Stanca
    Abstract: This paper investigates behavior in the Traveler's Dilemma game and isolates deviations from textbook predictions caused by di®erences in welfare perceptions and strategic miscalculations. It presents the results of an experimental analysis based on a 2x2 design where the own and the other subject's bonus-penalty parameters are changed independently. We ¯nd that the change in own bonus-penalty alone entirely explains the e®ect on claims of a simultaneous change in one's own and the other's bonus-penalty. An increase in the other subject's bonus-penalty has a signi¯cant negative e®ect on claims when the own bonus-penalty is low, whereas it does not have a signi¯cant e®ect when the own bonus-penalty is high. We also ¯nd that expected claims are inconsistent with actual claims in the asymmetric treatments. Focus- ing on reported strategies, we document substantial heterogeneity and show that changes in choices across treatments are to a large extent explained by risk aversion.
    Date: 2008–10
  6. By: Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Robert-Vincent Joule (LPS - Laboratoire de Psychologie Sociale - Ecole des Hautes Etudes en Sciences Sociales); Jason Shogren (Departement Economy and Finance, University of Wyoming - University of Wyoming)
    Abstract: Recent work in experimental economics has explored whether observed behavior depends on whether wealth was windfall or earned. This paper extends this work by considering whether earned wealth ffects bidding behavior in an induced-value second-price auction. We find people bid more sincerely in the auction with earned wealth given monetary incentives; earned wealth did not induce sincere bidding in hypothetical auctions.
    Keywords: Auctions; Demand revelation; Experimental valuation; Hypothetical bias; Earned Money
    Date: 2008–05–06
  7. By: Michal Bauer (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Julie Chytilová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jonathan Morduch (NYU)
    Abstract: This paper draws a link between self-control problems and the contractual mechanisms of microcredit. We use a series of “lab experiments in the field” which were designed to elicit measures of time discounting on a sample of 573 individuals in rural Karnataka, India. Evidence from the experiments were integrated with individual survey data on the economic and financial lives of villagers. One third of participants made choices consistent with hyperbolic preferences (more impatient now than in the future), and would be made better off if they could discipline their time inconsistent preferences. While hyperbolic preferences have been often associated with saving behavior, we describe links to borrowing as well. We find that “hyperbolic” women save a lower share of their savings at home and save less in total levels. Women with hyperbolic preferences are also more likely to borrow--and to do so through microcredit institutions specifically. The finding highlights the role of the fixed and frequent installment schedule ubiquitous in microcredit contracts. While microcredit contracts are celebrated for mitigating informational asymmetries, the evidence suggests that they also offer helpful structure for people with self-discipline problems who seek to accumulate capital but who lack suitable contractual saving devices.
    Keywords: banking; : time preference, hyperbolic discounting, loan contracts, microfinance
    JEL: C93 D91 O12
    Date: 2008–11
  8. By: MaroÅ¡ Servátka (University of Canterbury); Steven Tucker (University of Canterbury); Radovan VadoviÄ
    Abstract: This paper reports on an experiment studying the effectiveness of two types of mechanisms for promoting trust: pecuniary and non-pecuniary as well as their mutual interaction. Our data provide evidence that both mechanisms significantly enhance trust in comparison to the standard investment game. However, we find that the pecuniary mechanism performs significantly worse than the non-pecuniary one. Our results also point to the fact that pecuniary mechanism, which depends on monetary incentives, can be counterproductive when combined with mechanism which relies primarily on psychological incentives.
    Keywords: Communication; Deposit; Experimental economics; Trust; Trustworthiness
    JEL: C70 C91
    Date: 2008–10–29
  9. By: Abhijit V. Banerjee; Esther Duflo
    Abstract: Randomized experiments have become a popular tool in development economics research, and have been the subject of a number of criticisms. This paper reviews the recent literature, and discusses the strengths and limitations of this approach in theory and in practice. We argue that the main virtue of randomized experiments is that, due to the close collaboration between researchers and implementers, they allow the estimation of parameters that it would not otherwise be possible to evaluate. We discuss the concerns that have been raised regarding experiments, and generally conclude that while they are real, they are often not specific to experiments. We conclude by discussing the relationship between theory and experiments.
    JEL: O1
    Date: 2008–11

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