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on Experimental Economics |
| By: | Lisa V. Bruttel (University of Konstanz, Department of Economics); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Ulrich Kamecke (Humboldt-University Berlin, Department of Business and Economics); Vera Popova (Max Planck Institute of Economics, Strategic Interaction Group) |
| Abstract: | Unlike previous attempts to implement cooperation in a prisoners' dilemma game with an infinite horizon in the laboratory, we focus on extended prisoners' dilemma games in which a second (pure strategy) equilibrium allows for voluntary cooperation in all but the last round. Our four main experimental treatments distinguish long versus short horizon and strict versus non-strict additional equilibrium compared to the control treatment, a standard prisoners' dilemma. Quite surprisingly, according to our results, only a strict additional equilibrium increases cooperation rate for a given time horizon. As expected a longer time horizon promotes cooperation. |
| Keywords: | Folk theorem, Finite horizon, Prisoners' dilemma, Experiment |
| JEL: | C73 C91 |
| Date: | 2009–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-030&r=exp |
| By: | Peter Cramton (Economics Department, University of Maryland) |
| Abstract: | I begin by describing some of the problems of the simultaneous ascending auction. Then I present the package clock auction, which retains the benefits, while addressing the weaknesses, of the simultaneous ascending auction. I emphasize two essential elements of the package clock auction: the pricing rule and the activity rule. Along the way, I summarize both experimental and field results with the package clock auction. |
| Keywords: | Auctions, spectrum auctions, market design, package auction, clock auction, combinatorial auction |
| JEL: | D44 C78 L96 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09add&r=exp |
| By: | Peter Cramton (Economics Department, University of Maryland) |
| Abstract: | Spectrum auctions are used by governments to assign and price licenses for wireless communications. The standard approach is the simultaneous ascending auction, in which many related lots are auctioned simultaneously in a sequence of rounds. I analyze the strengths and weaknesses of the approach with examples from US spectrum auctions. I then present a variation, the package clock auction, adopted by the UK, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The package clock auction is a simple dynamic auction in which bidders bid on packages of lots. Most importantly, the auction allows alternative technologies that require the spectrum to be organized in different ways to compete in a technology-neutral auction. In addition, the pricing rule and information policy are carefully tailored to mitigate gaming behavior. An activity rule based on revealed preference promotes price discovery throughout the clock stage of the auction. Truthful bidding is encouraged, which simplifies bidding and improves efficiency. Experimental tests and early auctions confirm the advantages of the approach. |
| Keywords: | Auctions, spectrum auctions, market design, package auction, clock auction, combinatorial auction |
| JEL: | D44 C78 L96 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09sad&r=exp |
| By: | Peter Cramton (Economics Department, University of Maryland); Pacharasut Sujarittanonta |
| Abstract: | We analyze a discrete clock auction with lowest-accepted bid (LAB) pricing and provisional winners, as adopted by India for its 3G spectrum auction. In a perfect Bayesian equilibrium, the provisional winner shades her bid while provisional losers do not. Such differential shading leads to inefficiency. The size of the inefficiency declines with smaller bid increments. An auction with highest-rejected bid (HRB) pricing and exit bids is strategically simple, has no bid shading, and is fully efficient. In addition, it has higher revenues than the LAB auction, assuming profit maximizing bidders. The bid shading in the LAB auction exposes bidders to the possibility of losing the auction at a price below the bidder's value. Thus, fear of losing may cause bidders in the LAB auction to bid more aggressively than predicted assuming profit-maximizing bidders. We extend the model by adding an anticipated loser's regret to the payoff function. Revenue from the LAB auction yields higher expected revenue than the HRB auction when bidders' fear of losing at profitable prices is sufficiently strong. This would provide one explanation why India, with an expressed objective of revenue maximization, adopted the LAB auction for its upcoming 3G spectrum auction, rather than the seemingly superior HRB auction. |
| Keywords: | Auctions, clock auctions, spectrum auctions, behavioral economics, market design |
| JEL: | D44 C78 L96 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09prca&r=exp |
| By: | Peter Cramton (Economics Department, University of Maryland) |
| Keywords: | Auctions, market design |
| JEL: | D44 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09mdc&r=exp |
| By: | Lawrence M. Ausubel (Economics Department, University of Maryland); Peter Cramton (Economics Department, University of Maryland); Emel Filiz-Ozbay; Nathaniel Higgins; Erkut Ozbay; Andrew Stocking |
| Abstract: | On 3 October 2008, the US Congress passed and the President signed the Emergency Economic Stabilization Act of 2008 (Public Law 110-343). The Act authorizes the US Treasury to purchase up to $700 billion in troubled assets in order to restore liquidity to financial markets. Since its adoption, the Treasury has earmarked approximately $250 billion for direct purchases of bank equity; as much as $450 billion may be available for the purchase of mortgage-related assets. The Act favors the use of market mechanisms such as reverse auctions for purchasing assets, and the government is currently examining alternative auction designs. This paper is intended to help us understand the outcomes and relative advantages of alternative auction formats. We conducted laboratory tests of sealed-bid and dynamic clock auction formats during the period October 12-24, 2008, using commercial auction software customized for the purpose. The experiments demonstrate the feasibility of implementing reverse auctions for troubled assets in a short period of time using either a sealed-bid or dynamic auction format. The experiments suggest that under either format the taxpayer cost of the purchase is apt to be small (or even negative). However, the dynamic format by letting a bank better manage its liquidity needs has significant advantages for both the banks and the taxpayers. |
| Keywords: | Auctions, financial auctions, financial crisis |
| JEL: | D44 G21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09cvawln&r=exp |
| By: | Lawrence M. Ausubel (Economics Department, University of Maryland); Peter Cramton (Economics Department, University of Maryland) |
| Abstract: | On Monday, 23 March 2009, Treasury Secretary Geithner presented the Public-Private Investment Program as a key instrument to resolve the financial crisis (www.financialstability.gov). The Treasury’s description still leaves many issues unanswered. We flesh out the auction design for legacy loans. A two-sided auction is required. Both banks and private investors must compete in a transparent and competitive process. |
| Keywords: | Auctions, financial auctions, financial crisis |
| JEL: | D44 G21 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pcc:pccumd:09tsall&r=exp |
| By: | Marie-Pierre Dargnies (Paris School of Economics - Centre d'Economie de la Sorbonne); Guillaume Hollard (Paris School of Economics - Centre d'Economie de la Sorbonne) |
| Abstract: | Miscalibration can be defined as the fact that people think that their knowledge is more precise than it actually is. In a typical miscalibration experiment, subjects are asked to provide subjective confidence intervals. A very robust finding is that subjects provide too narrow intervals at the 90% level. As a result a lot less than 90% of correct answers fall inside the 90% intervals provided. As miscalibration is linked with bad results on a experimental financial market (Biais et al., 2005) and entrepreneurial success is positively correlated with good calibration (Regner et al., 2006), it appears interesting to look for a way to cure or at least reduce miscalibration. Previous attempts to remove the miscalibration bias relied on extremely long and tedious procedures. Here, we design an experimental setting that provides several different incentives, in particular strong monetary incentives ; i.e. that make miscalibration costly. Our main result is that a thirty-minute training session has an effect on men's calibration but no effect on women's. |
| Keywords: | Miscalibration, overconfidence, incentives, gender effect. |
| JEL: | D81 C91 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:v08088&r=exp |
| By: | Michalis Drouvelis; Wieland Muller; Alex Possajennikov |
| Abstract: | The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a common prior in a two-person signaling game. For a specific probability distribution of the sender's type, the long-run behavior without an induced common prior is shown to be different from the behavior when a common prior is induced, while for other distributions behavior is similar under both regimes. We also present a learning model that allows players to learn about the other players' strategies and the prior distribution of the sender's type. We show that this learning model accurately accounts for all main features of the data. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:09/08&r=exp |
| By: | Ninghua Du; Maroš Servátka (University of Canterbury) |
| Abstract: | In this paper we experimentally study effects of exogenous revenue shocks on long-term relationships between firms and workers. While we find that shocks have no significant effect on wages and a little effect on the duration of relationships, we observe their significant effect on effort levels: given the same wage, the workers exert lower effort in the condition with shocks than in the condition with no shocks. As a result, the presence of shocks in our experiment decreases market efficiency. |
| Keywords: | Experiment; exogenous revenue shocks; gift exchange |
| JEL: | C91 D82 J41 |
| Date: | 2009–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:09/07&r=exp |
| By: | Migheli, Matteo; Scacciati, Francesco |
| Abstract: | Participants (96 students) were divided into three groups. Subjects in Group 1 were asked their labor supply, being their income burdened by a 25% tax rate. Then they were asked their labor supply if the tax rate were 40%. Subjects in G2 were asked their labor supply with a 25% tax rate, and subjects in G3 with a 40% tax rate. We first compared labor supplies within G1; then we compared labor supplies between G2 and G3. Finally we compared the two comparisons. In G1, subjects' labor supply is different, negatively related with the tax rate: this is probably due to how the questions are put, which suggest different answers. In fact, comparing G2 and G3, the labor supply is almost the same. Students who are part-time workers and students who are not supply different amounts of labor. There is no difference at all when comparing G2 and G3 as for non-working students, being the whole difference between G2 and G3 due to working students, who probably compare the tax rate they pay on their real income to the ones suggested in the questionnaire. Singling out non-biased responders, i.e. non-working students in G2 and G3, the tax rate on income – if given, independently of its level – does not influence the labor supply. |
| Keywords: | labour supply, taxation, individual behaviour |
| JEL: | H39 J20 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:uca:ucapdv:124&r=exp |
| By: | James Habyarimana; William Jack |
| Abstract: | In economies with weak enforcement of traffic regulations, drivers who adopt excessively risky behavior impose externalities on other vehicles, and on their own passengers. In light of the difficulties of correcting inter-vehicle externalities associated with weak third-party enforcement, this paper evaluates an intervention that aims instead to correct the intra-vehicle externality between a driver and his passengers, who face a collective action problem when deciding whether to exert social pressure on the driver if their safety is compromised. We report the results of a field experiment aimed at solving this collective action problem, which empowers passengers to take action. Evocative messages encouraging passengers to speak up were placed inside a random sample of over 1,000 long-distance Kenyan minibuses, or matatus, serving both as a focal point for, and to reduce the cost of, passenger action. Independent insurance claims data were collected for the treatment group and a control group before and after the intervention. Our results indicate that insurance claims fell by a half to two-thirds, from an annual rate of about 10 percent without the intervention, and that claims involving injury or death fell by at least 50 percent. Results of a driver survey eight months into the intervention suggest passenger heckling was a contributing factor to the improvement in safety. |
| Keywords: | Kenya, traffic, driving regulations, matatus, safety |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:169&r=exp |
| By: | Bramsen, Jens-Martin |
| Abstract: | A classic argument in economics is that experience in the market place will eliminate mistakes and cognitive biases. Internet auctions are a popular market were some bidders gather extensive experience. In a unique data set from a Scandinavian auction site I question if and what bidders learn. At face value experienced bidders do adapt better bidding strategies. However, the so-called pseudo-endowment effect does not disappear. Regardless of their experience, bidders will be inclined to increase their willingness to pay as a response to having had “ownership” (the leading bid) before being outbid. Thus, this data can confirm that feedback, and especially negative feedback, seems to be a critical component in learning. |
| Keywords: | Experience; Learning; Internet auctions; Reference-Dependent Preferences; Endowment Effect; Bidding behavior; eBay. |
| JEL: | D12 D44 D83 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14815&r=exp |
| By: | M. Vittoria Levati (Max Planck Institute of Economics, Jena); Ro'i Zultan (The Center for Rationality, The Hebrew University of Jerusalem) |
| Abstract: | This paper provides a new way to identify conditional cooperation in a real-time version of the standard voluntary contribution mechanism. Our approach avoids most drawbacks of the traditional procedures because it relies on endogenous cycle lengths, which are defined by the number of contributors a player waits before committing to a further contribution. Based on hypothetical distributions of randomly generated contribution sequences, we provide strong evidence for conditionally cooperative behavior. Moreover, notwithstanding a decline in contributions, conditional cooperation is found to be stable over time. |
| Keywords: | Public goods game, Real-time protocol, Information feedback, Conditional cooperation, Simulations |
| JEL: | C72 C92 H41 |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-029&r=exp |