nep-exp New Economics Papers
on Experimental Economics
Issue of 2008‒12‒14
eighteen papers chosen by
Daniel Houser
George Mason University

  1. Are ‘True’ Preferences Revealed in Repeated Markets? An Experimental Demonstration of Context-dependent Valuations By Fabio Tufano
  2. Are Religious People More Prosocial? A Quasi-Experimental Study with Madrasah Pupils in a Rural Community in India By Ahmed, Ali M.
  3. The Effect of Rating Agencies on Herd Behaviour By Giovanni Ferri; Andrea Morone
  4. Do threshold patterns matter in public good provision? By Ye, Maoliang; Nikolov, Plamen; Casaburi, Lorenzo; Asher, Sam
  5. Training Without Certification : An Experimental Study By Nadège Marchand; Claude Montmarquette
  6. The Attitude Toward Probabilities of Portfolio Managers : an Experimental Study By Nicolas Roux
  7. Competition and the Ratchet Effect By Gary Charness; Peter Kuhn; Marie-Claire Villeval
  8. Rebate Rules in Threshold Public Good Provision By Michael A. Spencer; Stephen K. Swallow; Jason F. Shogren; John A. List
  9. Rich meets Poor - An International Fairness Experiment By Alexander W. Cappelen; Karl Ove Moene; Erik Ø. Sørensen; Bertil Tungodden
  10. Loss Aversion and Rent-Seeking: An Experimental Study By Xiaojing Kong
  11. Fundraising through Competition: Evidence from the Lab By Henrik Orzen
  12. Alcohol Consumption and Risk Attitude By Alejandra Cortes Aguilar; Antonio Espín Martín; Filippos Exadaktylos; Oyediran Segun; Luis Alejandro Palacios García; Antonios Proestakis
  13. A proper test of overconfidence By Benoît, Jean-Pierre; Dubra, Juan; Moore, Don
  14. Errors in Judicial Decisions By Joep Sonnemans; Frans van Dijk
  15. Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico By Justine S. Hastings; Lydia Tejeda-Ashton
  16. Oxytocin and cooperative behavior in social dilemmas: The moderating role of explicit incentives, social cues and individual differences By Declerck C.H.; Boone Ch.; Kiyonari T.
  17. In the back of your mind: Subliminal influences of religious concepts on prosocial behavior By Ahmed, Ali M.; Salas, Osvaldo
  18. Comparing the neural basis of mixed-motive versus coordination games in people with different social preferences, an fMRI study By Emonds G.; Declerck C.H.; Boone Ch.; Vandervliet E.J.M.; Parizel P.M.

  1. By: Fabio Tufano (CeDEx, School of Economics, University of Nottingham; Cifrem, Università degli Studi di Trento)
    Abstract: This paper reports a new and significant experimental demonstration that market participants adjust their bids towards the price observed in previous market periods when – by design – individuals’ values should not be affiliated with the market price. This demonstration implies that market prices may not adjust as standard comparative statics predicts and emphasizes the significance of social aspects even in market contexts. Hence, the present study shows that market behaviour is not anomaly-free. Indeed, market behaviour does not reveal the underlying true preferences but rather context-dependent preferences.
    Keywords: Repeated markets; Economic principles; Anomalies; Experiment; Social interactions
    JEL: C92 D01 D44
    Date: 2008–10
  2. By: Ahmed, Ali M. (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Using quasi-experimental data, this paper examines the relationship between religiosity and prosocial behavior. In contrast to previous studies which identify religious people by how often they attend religious services or by their self-reported religiosity, this study compares the behavior of highly devout students who are preparing to enter the clergy, to the behavior of other students in a public-goods game and in the dictator game. The results show that religious students were significantly more cooperative in the public-goods game and significantly more generous in the dictator game than other students.<p>
    Keywords: generosity; trust; cooperation; religion; experiment
    JEL: C90 Z12
    Date: 2008–12–08
  3. By: Giovanni Ferri; Andrea Morone
    Abstract: This paper purports to provide some evidence on the effect of rating agencies on herding in financial markets. By means of a laboratory experiment, we investigate the effect and interaction between private and public information. Previous experiments showed that lemmings behaviour can survive in a market context where information is private (Hey and Morone, 2004), and that an experimental market can be very volatile and not efficient in transmitting information (Alfarano et al., 2006). We study experimentally, if socially undesirable behaviour – that survives in a market contest – may be eliminated owing to the presence of rating agencies.
    Keywords: Herd behaviour, informational cascades, rating agency, bubble.
    JEL: C91 D82 D83
    Date: 2008–10–21
  4. By: Ye, Maoliang; Nikolov, Plamen; Casaburi, Lorenzo; Asher, Sam
    Abstract: There is a substantial literature examining coordination in public goods games. We conducted an experiment to explore how varying patterns of thresholds affect the willingness of subjects to contribute to a public good. We had subjects play a multi-period game where each subject was allocated an initial point endowment and told a threshold for the group had to choose how much to contribute to the common pot. Each period is identical, except for the possibility of having a different threshold, which is always stated before the players make their contributions. We found that while contributions are similar for the increasing and decreasing threshold group types when thresholds were low, a sizeable gap opens up around the average threshold size. We found that for nearly every threshold, it is more profitable to be in an increasing than in a decreasing threshold group type. Early cooperation seems to facilitate the achievement of harder-to-reach thresholds, which require considerable contributions from all members of the group. These findings are also very robust in the regression specifications. Our findings shed light on the role of past cooperative success and threshold patterns on subsequent willingness to cooperate.
    Keywords: Experimental economics; Public goods decision making
    JEL: G14 D81 C92 H41 C91
    Date: 2008–12–08
  5. By: Nadège Marchand (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); Claude Montmarquette (University of Montreal and CIRANO)
    Abstract: Our study considers the question of training in firms using an experimental laboratory approach. We investigate the following questions : What conditions, excluding external certification, will bring workers and employers to cooperate and share a rent generated by the workers’ training? What conditions will induce workers to accept the training offer, for employers to initially offer the training and to reward the trained workers in the last stage of the game? We analyse the impact of the size of the rent created by training and the existence of an information system on employer reputation rewarding trained employees. Reputation does matter to induce cooperation, but in the absence of external institutions, coordination on the optimal outcome remains difficult.
    Keywords: general and speficic trainings in firms, accreditation, cooperation and reputation, experimental econonmics
    JEL: C91 I
    Date: 2008
  6. By: Nicolas Roux (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper proposes an experiment about the attitude toward probabilities on a population of portfolio managers. Its aim is to check whether or not portfolio managers are neutral toward probabilities. Meanwhile, it presents a experimental protocole that highlights an inconsistency between two experimental techniques. It also introduces a new functional form for the probability weighting function. Results unambiguously show that portfolio managers are not neutral toward probabilities and that they display a strong heterogeneity in their preferences.
    Keywords: Attitude toward probabilities, probability weighting function, expected utility, rank dependent expected utility, experimental economics, decision under risk.
    Date: 2008–11
  7. By: Gary Charness (Department of Economics, University of California, Santa Barbara); Peter Kuhn (Department of Economics, University of California, Santa Barbara); Marie-Claire Villeval (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)
    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
  8. By: Michael A. Spencer; Stephen K. Swallow; Jason F. Shogren; John A. List
    Abstract: This paper considers how six alternative rebate rules affect voluntary contributions in a threshold public-good experiment. The rules differ by (1) whether an individual can receive a proportional rebate of excess contributions, a winner-takes-all of any excess contributions, or a full rebate of one’s contribution in the event the public good is provided and excess contributions exist, and (2) whether the probability of receiving a rebate is proportional to an individual’s contribution relative to total contributions or is a simple uniform probability distribution set by the number of contributors. The paper adds to the existing experimental economics literature on threshold public goods by investigating both aggregate and individual demand revelation under the winner-take-all and random full-rebate rules. Half of the rules (proportional rebate, winner-take-all with uniform probability among all group members, and random full-rebate with uniform probability) provide total contributions that nearly equal total benefits, while the rest (winner-take-all with proportional probability, winner-take-all with uniform probability among contributors only, and random full-rebate with proportional probability) exceed benefits by over 30 percent. Only the proportional rebate rule is found to achieve both aggregate and individual demand revelation. Our experimental results have implications for both fundraisers and valuation practitioners.
    JEL: C9 C91 C92 H4 H41 Q0 Q5
    Date: 2008–12
  9. By: Alexander W. Cappelen (Norwegian School of Economics and Business Administration, Bergen); Karl Ove Moene (University of Oslo); Erik Ø. Sørensen (VU University Amsterdam); Bertil Tungodden (Norwegian School of Economics and Business Administration, and Chr. Michelsen Institute)
    Abstract: Why do people in rich countries not transfer more of their income to people in the world's poorest countries? To study this question and the relative importance of needs, entitlements, and nationality in people's social preferences, we conducted a real effort fairness experiment where people in two of the world's richest countries, Norway and Germany, interacted directly with people in Uganda and Tanzania, two of the world's poorest countries. In this experiment, the participants were given the opportunity to transfer money to poor persons with whom they were matched. The study provides four main findings. First, entitlement considerations are crucial in explaining the distributive behavior of rich people in the experiment; second, needs considerations matter a lot for some participants; third, the participants acted as moral cosmopolitans; and finally, the participants' choices are consistent with a self-serving bias in their social preferences.
    Keywords: fairness; experiments
    JEL: C90 D63
    Date: 2008–10–14
  10. By: Xiaojing Kong
    Abstract: We report an experiment designed to evaluate the impact of loss aversion on rent-seeking contests. We find, as theoretically predicted, a negative relationship between rent-seeking expenditures and loss aversion. However, for any degree of loss aversion, levels of rent-seeking expenditure are higher than predicted. Moreover, we find that the effect of loss aversion becomes weaker with repetition of the contest.
    Date: 2008–10
  11. By: Henrik Orzen (University of Nottingham)
    Abstract: This paper investigates mechanisms for the private provision of a public good which utilize competition to incentivize contributions. Theory predicts that “all-pay” competition is particularly effective for fundraising. Within this class of mechanisms different types of lotteries and all-pay auctions are analyzed and ranked. Four all-pay competition mechanisms are then examined in a laboratory experiment vis-à-vis a voluntary contribution mechanism (VCM). All four outperform the VCM and towards the end of the experiment fully efficient outcomes are attained in the “lowest common denominator” scheme, which is particularly accommodating for people who have a preference for cooperating conditionally on others doing their bit.
    Keywords: Public Goods; Provision Mechanisms; Experiments; Contests
    JEL: C72 C92
    Date: 2008–10
  12. By: Alejandra Cortes Aguilar (Department of Economic Theory and Economic History, University of Granada.); Antonio Espín Martín (Department of Economic Theory and Economic History, University of Granada.); Filippos Exadaktylos (Department of Economic Theory and Economic History, University of Granada.); Oyediran Segun (Department of Economic Theory and Economic History, University of Granada.); Luis Alejandro Palacios García (Department of Economic Theory and Economic History, University of Granada.); Antonios Proestakis (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: This study examines the effect of alcohol on individual preferences in lottery games of varying risk profiles. The experiment was carried out in the field where the subjects were randomly sampled from a pool of visiting adults in festive-mood who were in the natural environment for drinking and social interactions. The results suggest that men’s risky behaviour is negatively correlated with alcohol expectancies, while women’s risky behaviour is negatively correlated with their actual alcohol consumption. The environment seems to have an additional effect on the subject's risk preferences.
    Keywords: risk, alcohol, lottery
    JEL: C93 D85 Z13
    Date: 2008–12–02
  13. By: Benoît, Jean-Pierre; Dubra, Juan; Moore, Don
    Abstract: In this paper we conduct two proper tests of overconfidence. We reject the hypothesis "the data cannot be generated by a rational model" in both experiments.
    Keywords: Overconfidence; Better than Average; Experimental Economics; Irrationality; Signalling Models.
    JEL: D11 D12 D82 D83
    Date: 2008–12–05
  14. By: Joep Sonnemans (CREED, Amsterdam School of Economics, University of Amsterdam); Frans van Dijk (Council for the Judiciary, The Hague, the Netherlands)
    Abstract: In criminal cases the task of the judge is to transform the uncertainty about the facts into the certainty of the verdict. In this experiment we examine the relationship between evidence of which the strength is known, subjective probability of guilt and verdict for abstract cases. We look at two situations: (1) all evidence is given and (2) evidence can be acquired. Roughly half of the participants do not base their decision on a subjective belief of the probability of guilt. The others underestimate in general the probability of guilt, but this is more than compensated by a tendency to convict at too low probability of guilt. In the situation where evidence can be acquired, participants do not acquire enough evidence.
    Keywords: Decision under uncertainty; judicial decisions; experiment
    JEL: C91 D81 K4
    Date: 2008–09–19
  15. By: Justine S. Hastings; Lydia Tejeda-Ashton
    Abstract: We use responses to a survey and experiment with participants in Mexico’s privatized social security system to examine how financial literacy impacts workers’ choice behavior and how simplifying information on management fees may increase measures of price elasticity sensitivity among the financially illiterate. We find that by presenting fees in pesos instead of annual percentage rates, financially illiterate workers focus much more on fees when choosing between investment funds, selecting funds with lower average fees in hypothetical choice settings. Even though changes in information have small impacts on fees of the selected fund, holding fees constant, we show that changes in choice behavior imply a substantial increase in price sensitivity. Hence, the way in which information is presented to workers can have a substantial impact on optimal fees that firms can charge in the marketplace.
    JEL: H0 H55 L10
    Date: 2008–12
  16. By: Declerck C.H.; Boone Ch.; Kiyonari T.
    Abstract: The neuropeptide Oxytocin (OT), implicated in mammalian social behavior, may affect cooperation through its anxiolytic and affiliative properties. The current study experimentally investigates how OT interacts with three well-studied determinants of cooperative behavior in social dilemmas: extrinsic incentives, social cues, and individual differences. Participants received OT or a placebo following a double blind procedure and played two economic games with randomly determined partners: a Coordination Game (with strong extrinsic incentives to cooperate (CG)) and a Prisoner’s Dilemma (with weak extrinsic incentives (PD)). Social cues were present when participants had the chance to meet their partners in advance, and absent when the interactions were anonymous. A first prediction, that OT enhances cooperation when social cues are present, was confirmed by the data. This appeared to be more pronounced when participants played a CG. In contrast, in a PD we predicted that OT’s influence on cooperation would depend on the subject’s intrinsic willingness to cooperate, as assessed by means of his/her Social Value Orientation and Machiavellianism. The data indicate that for prosocials, OT and social cues appear to be substitutes, with either one being sufficient to overcome fear of betrayal and elicit cooperation. For proselfs, OT and social cues appear to be complements: their concurrence is essential to overcome greediness in situations with weak cooperative incentives. Machiavellists cooperated very little overall, and the combination of OT and social cues, in contrast to proselfs, actually reduced machiavellists’ willingness to cooperate.
    Date: 2008–09
  17. By: Ahmed, Ali M. (Department of Economics, School of Business, Economics and Law, Göteborg University); Salas, Osvaldo (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Does religion enhance prosocial behavior? We investigate the ways in which implicit influences of religious concepts affect generosity and cooperation. In contrast to previous studies, we assess the direct impact of religion as an independent variable on prosocial behavior. We do so by subliminally priming participants with religious concepts in a scrambled sentence task before they play a dictator game and a prisoner’s dilemma game. We found that implicit priming of religious concepts significantly increased prosocial behavior in both games. This result was present among both religious and nonreligious participants. Selfreported measure of religiosity was related neither to generosity nor to cooperation.<p>
    Keywords: religion; priming; dictator game; prisoner’s dilemma game
    JEL: C90 Z12 Z13
    Date: 2008–12–08
  18. By: Emonds G.; Declerck C.H.; Boone Ch.; Vandervliet E.J.M.; Parizel P.M.
    Abstract: We use fMRI to investigate the neurological correlates of two factors that are known to enhance cooperative strategies in social dilemmas: the provision of extrinsic cooperative incentives, and the intrinsic motivation to cooperate. The former is achieved by changing the pay-off matrix of a mixed motive game (e.g., a Prisoner’s Dilemma, PD) to a coordination game (CG). The latter is achieved by comparing people who differ along the personality trait Social Value Orientation. Previous studies have indicated that proself oriented individuals (“hawks”) adopt a competitive strategy in a PD but switch to a cooperative strategy in a CG, while prosocial individuals (“doves”) maintain high levels of cooperation across games. A major aim of this study is to examine if there are fundamental neurological differences between prosocials and proselfs that substantiate these different behavioral strategies. Our imaging data of a full brain analysis contrasting PD and CG confirm that the PD poses a conflict (increased ACC activation) and induces subjects to think about the possible consequences for self and others (more prefrontal cortex activity). More importantly, a region of interest analysis contrasting prosocials and proselfs suggests that proselfs’ strategies are driven by calculation and self-interest. Increased activation was found in the precuneus, DLPFC, the posterior STS, and caudate nucleus. Prosocials’ strategies reflect norm compliance, morality, and social interaction. Increased activation was found in the lateral orbotifrontal cortex and the social brain network (including the ventromedial cortex, anterior STS, inferior parietal lobule, and amygdala).
    Date: 2008–09

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