nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒02‒22
ten papers chosen by
Daniel Houser
George Mason University

  1. Hidden Information, Bargaining Power and Efficiency: An Experiment By Gary Charness; Marie Claire Villeval; Antonio Cabrales
  2. Individuals' Voting Choice and Cooperation in Repeated Social Dilemma Games By Annamaria Nese; Patrizia Sbriglia
  3. Immaterial rewards and sanctions in a voluntary contribution experiment By Peeters Ronald; Vorsatz Marc
  4. Expected Behavior in the Dictator Game. By Pablo Brañas-Garza
  5. Risk and Inequality Aversion in Social Dilemmas By Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
  6. Emotion and economic decision in the ultimatum game (In French) By Emmanuel PETIT (GREThA UMR CNRS 5113)
  7. Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts By Antonio Cabrales; Raffaele Miniaci; Marco Piovesan; Giovanni Ponti
  8. Experimental tests on consumption, savings and pensions By Enrique Fatás; Juan A. Lacomba; Francisco M. Lagos; Ana I. Moro
  9. Procuring Commodities: Request for Quote or Reverse Auctions? By Shachat, Jason
  10. Employee types and endofenous organizational design: An experiment By Antoni Cunyat; Randolph Sloof

  1. By: Gary Charness; Marie Claire Villeval; Antonio Cabrales
    Abstract: We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies remain. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more ‘generous’ (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
    Date: 2009–02
  2. By: Annamaria Nese; Patrizia Sbriglia
    Abstract: In this paper we explore the relationship between the individual’s preference for cooperation and the establishment of cooperative norms. Our aim is to provide an experimental test of the evolutionary hypothesis (see Carpenter, 2004, Fehr and Gachter 2002; Gintis 2000; Boyd, Bowles, Gintis and Richerson 2003; Bowles and Gintis 2004), according to which individuals are prepared to punish defectors in experimental social dilemma games because they want to enforce a social (“altruistic”) norm which may conduce to increasing their future payoffs, as in the case of sanctions against free riding behaviour. According to this line of research , the high levels of cooperation we observe in our societies can, therefore, be strictly related to the establishment of social norms which are able to enforce and maintain cooperation in the long run. We study the results of two experiments in which the individuals decided both whether to participate in a common project and the institutional rule according to which the profits of the project had to be shared among each of the participants in the group. They could choose between 1) a regime where gains were shared equally, regardless of individuals’ contributions and without sanctions and rewards (System A); 2) a regime where individuals were paid according to their marginal contribution, but the profits of the investments were lower than in the other contexts (System B); finally 3) a regime in which gains were shared equally (as in System A), but individuals were allowed to punish (and\or reward) free riding (cooperative) behaviours as in Sefton, Shupp and Walker (2007). Before the experiments took place, our subjects were required to fill a questionnaire composed of four sections, where their attitude to cooperate and their opinions on civic values and free riding behaviours were thoroughly explored. We then monitored the behaviour of potential free riders and cooperators in the game and their institutional choices. Our results partly contradict the evolutionary hypothesis in as much as System A and B received the largest shares of votes in almost all rounds and they were voted by free riders and cooperators alike. Thus, most individuals do not like sanctions (incentives) against defectors and free riders (cooperators), and their institutional preferences do not seem to be related to their willingness to cooperate. The inspection of individual data, however, reveals some interesting points. In fact, we can assert that System C was mostly chosen by cooperative individuals in response to observed free riding behaviour. Furthermore, when a cooperative individual chose C, she would tend to punish free riders and reward cooperators. Our conclusion is that, as far as the institutional choices are concerned, beside the profit motivations underlined in the evolutionary hypothesis, the ethical and cultural unobserved individual preferences play an important role. There is a number of individuals (limited in our experiments, ranging between 15 and 30 per cent of the entire population) who see cooperation as the “right” thing to do, and therefore are prepared to implement institutional rules that may favour this collective outcome. Most people in our experiments did not share these same values.
    Keywords: public good games, experiments, voting choices
    JEL: C90 C91
    Date: 2009–02
  3. By: Peeters Ronald; Vorsatz Marc (METEOR)
    Abstract: In this paper, we compare the cause and effect of immaterial rewards and sanctions oncooperation in a voluntary contributions experiment. We find that both rewards andsanctions increase contributions only when subjects interact repeatedly, though rewardsseem to be more effective than sanctions. Moreover, in contrast to sanctions, rewards dohave an impact on future contributions. Although the direct effect is negative, there is apositive indirect effect that applies to subjects who contribute above (below) the groupaverage in a partner (stranger) matching. From this we conclude that sanctions andrewards are mainly used as a communication channel to coordinate on a more efficientoutcome. Nevertheless, subjects also seem to experience additional utility from receivingapproval, whereas they are insensitive to disapprovals.
    Keywords: public economics ;
    Date: 2009
  4. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, GLOBE, University of Granada.)
    Abstract: This paper provides novel results for the extensive literature on dictator games: recipients do not expect dictators to behave selfishly, but instead expect the equal split division. We performed a field experiment in Baja California among a population of unexperienced subjects. Using monetary incentives we find that only 10 percent of subjects correctly guessed the expected Nash equilibrium payoff (zero). In sharp contrast, the modal subject predicts the equal split. The predictions made by dictators are notably different: 45% predicted the zero contribution and 40% expected the equal split. Surprisingly, their actions are uncorrelated with their predictions: they choose a donation in the interior of the interval. We conjecture that the equal split is the natural solution to the problem but because the dictators are involved, they also consider the chance of keeping the complete pie for themselves. Dictators solve the puzzle by passing a positive amount of money which reflects the tension between fairness and self-interest. In consequence, any giving smaller than the equal split division may not be considered altruistic behavior. Only a donation larger than the 50/50 split would reflect generosity.
    Keywords: expectations, dictator game, equal split, guessing.
    JEL: D63 D64 C91
    Date: 2008–12–21
  5. By: Brice Magdalou; Dimitri Dubois; Phu Nguyen-Van
    Abstract: We experimentally investigate cooperative behavior in a social dilemma situation, where the socially efficient outcome may be encouraged by risk aversion and/or inequality aversion. The first part of our experiment is devoted to the elicitation of subjects' aversion profile, taking care to not confuse the two dimensions. Subjects are then grouped by three according to their aversion profiles, and interact in a repeated social dilemma game. In this game, agents are characterised by a social status so that higher the agent's status, higher will be her earnings. Cooperation is costly for a majority of agents at each period, but statuses can be reversed in future periods. We show that cooperation is strongly in°uenced by the group's aversion profile. Groups averse in both dimensions cooperate more than groups averse in only one dimension. Moreover cooperation seems to be more affected by risk aversion, whereas one might interpret cooperative behavior as an inequality averse or altruistic attitude.
    Date: 2009–02
  6. By: Emmanuel PETIT (GREThA UMR CNRS 5113)
    Abstract: We study the impact of induced positive or negative emotions on economic decisions in a negotiation context. Decision was assessed with a well studied social task, the Ultimatum game. In this task, subjects had to make decisions to either accept or reject fair or unfair offers from other players. Emotion was induced with short movie clips. Our results show that participants induced with negative emotions (such as anger or indignation) reject significantly more unfair offers than subjects induced with positive emotions (such as joy or elation). These results demonstrate that even subtle emotions can play an important role in biasing decision making.
    Keywords: Moral emotions, negotiation, induction procedure
    JEL: A12 C70 C91
    Date: 2009
  7. By: Antonio Cabrales; Raffaele Miniaci; Marco Piovesan; Giovanni Ponti
    Abstract: This paper reports a 3-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects’ social and reciprocity concerns, together with their beliefs. In the last phase, four principals, who face four teams of two agents, compete by offering agents a contract from a fixed menu. Then, each agent selects one of the available contracts (i.e. he “chooses to work” for a principal). Production is determined by the outcome of a simple e ort game induced by the chosen contract. We find that (heterogeneous) social preferences are significant determinants of choices in all phases of the experiment. Since the available contracts display a trade-o between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences.
    Date: 2009–02
  8. By: Enrique Fatás (LINEX, University of Valencia.); Juan A. Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco M. Lagos (Department of Economic Theory and Economic History, University of Granada.); Ana I. Moro (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: As part of the current debate on the reform of pension systems, this article examines the potential effects on consumption behaviour of implementing a lump-sum payment in a public pension system. This work explores an experimental investigation into retirement consumption behaviour with two central features: first, there exists a decreasing probability of surviving; second, there are two sequences of income, one when individual works and another when she is retired. The results show how subjects seem to plan their consumption and saving choices conditionated by both the long horizon with no incomes and the lump-sum payment. This yields, in the majority of periods, a surprising over-saving behaviour.
    Keywords: Experimental test, consumption, savings, lump-sum payment.
    JEL: C91 H55 J26
    Date: 2008–12–23
  9. By: Shachat, Jason
    Abstract: We examine the relative performances of reverse auctions and request for quotes in a simple commodity environment. Enterprises embarking on a reverse auction initiative often start with their commodity purchases. We conduct laboratory experiments and find that this is a poor starting point. Both the mean and variance of prices when sourcing through reverse auctions. With respect to the general investigation of auctions, the request for quote is the mirror image of a first price sealed bid auction and has the same symmetric Nash equilibrium. However, the request for quote allows identification of simple behavioral rules such as always bidding a percentage of your signal, which is indistinct from Nash equilibrium strategies in the sell auction counterpart. Consequently we estimate that one-fourth of the subjects follow a simple mark-up rule and approximately two-thirds follow a strategic Nash equilibrium strategy.
    Keywords: Procurement; Auction; Experiment
    JEL: C92 D44 C72
    Date: 2009–02–08
  10. By: Antoni Cunyat (Universitat de València); Randolph Sloof (CERGE-EI)
    Abstract: When managers are sufficiently guided by social preferences, incentive provision through an organizational mode based on informal implicit contracts may provide a cost-effective alternative to a more formal mode based on explicit contracts and monitoring. This paper reports the results from a laboratory experiment designed to test whether organizations make full effective use of the available preference types within their work force when drafting their organizational design. Our main finding is that they do not do so; although the importance of social preferences is recognized by those choosing the organizational mode, the significant impact managers' preferences have on the behavior of workers in the organization seems to be overlooked. Keywords:employee, organizational design, social preferences. Cuando los managers poseen unas preferencias sociales lo suficientemente importantes, los incentivos generados en organizaciones basadas en contratos informales implícitos pueden ser una alternativa menos costosa que la basada en contratos formales explícitos y supervisión. En este trabajo presentamos los resultados de un experimento en el laboratorio diseñado para examinar si las organizaciones hacen un uso completamente efectivo de los diferentes tipos de preferencias presentes en su fuerza de trabajo a la hora de diseñar una organización Nuestro principal resultado es que éste uso no es completo; aunque los responsables de diseñar los modos organizativos reconocen la importancia de las preferencias sociales, el impacto significativo que las preferencias de los managers tienen sobre el comportamiento de los trabajadores es aparentemente es ignorado
    Keywords: empleado, diseño organizativo, preferencias sociales. employee, organizational design, social preferences.
    JEL: C91 J40 M50
    Date: 2009–01

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