nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒06‒17
ten papers chosen by
Daniel Houser
George Mason University

  1. Incentive Compatible Contracts? By Lisa Bruttel; Gerald Eisenkopf
  2. Do Race and Fairness Matter in Generosity? Evidence from a Nationally Representative Charity Experiment By Christina M. Fong; Erzo F.P. Luttmer
  3. An experimental investigation of imprecision attitude and its relation with risk attitude and impatience. By Michèle Cohen; Jean-Marc Tallon; Jean-Christophe Vergnaud
  4. Testing alternative theories of financial decision making: an experimental study with lottery bonds By Patrick Roger
  5. Emotions, competence and confidence in choice under uncertainty By Anna MAFFIOLETTI; Michele SANTONI
  6. The ABCs of Charitable Solicitation By Jonathan Meer; Harvey S. Rosen
  7. Risk-seeking behavior of preschool children in a gambling task By Moreira, Bruno; Matsushita, Raul; Da Silva, Sergio
  8. Testing the Modigliani-Miller theorem directly in the lab: a general equilibrium approach By Jianying Qiu; Prashanth Mahagaonkar
  9. Building Social Trust: A Human Capital Approach By Fali Huang
  10. Why Do Skilled Immigrants Struggle in the Labor Market? A Field Experiment with Six Thousand Resumes By Philip Oreopoulos

  1. By: Lisa Bruttel; Gerald Eisenkopf
    Abstract: Property rights theory suggests that vertical integration is a sensible solution to hold-up problems and therefore improves social welfare. Theories of reciprocity, in contrast, suggest that vertical integration can reduce social welfare if it implies an unfair distribution. Translating the hold-up situation into a simple prisoners’ dilemma game, we provide experimental evidence for social preferences at the individual level. Some individuals behave conditionally cooperative in the hold-up situation and some do not cooperate when they are offered an incentive compatible but unfair contract. Nevertheless, property rights theory correctly predicts that vertical integration increases aggregate welfare even in the case of unfair outcomes.
    Keywords: Prisoners’ Dilemma, Hold-up Problem, Experiment
    Date: 2009
  2. By: Christina M. Fong; Erzo F.P. Luttmer
    Abstract: We present a dictator game experiment where the recipients are local charities that serve the poor. Donors consist of approximately 1000 participants from a nationally representative respondent panel that is maintained by a private survey research firm, Knowledge Networks. We randomly manipulate the perceived race and worthiness of the charity recipients by showing respondents an audiovisual presentation about the recipients. The experiment yields three main findings. First, we find significant racial bias in perceptions of worthiness: respondents rate recipients of their own racial group as more worthy. Second, respondents give significantly more when the recipients are described as more worthy. These findings may lead one to expect that respondents would also give more generously when shown pictures of recipients belonging to their own racial group. However, our third result shows that this is not the case; despite our successfully manipulating perceptions of race, giving does not respond significantly to recipient race. Thus, while our respondents do seem to rate ingroup members as more worthy, they appear to overcome this bias when it comes to giving.
    JEL: C93 D63 D64 H41 J71
    Date: 2009–06
  3. By: Michèle Cohen (Centre d'Economie de la Sorbonne - Paris School of Economics); Jean-Marc Tallon (Centre d'Economie de la Sorbonne - Paris School of Economics); Jean-Christophe Vergnaud (Centre d'Economie de la Sorbonne)
    Abstract: We report in this paper the result of three experiments on risk, ambiguity and time attitude. The first two differed by the population considered (students vs general population) while the third one used a different protocol and concerned students and portfolio managers. We find quite a lot of heterogeneity at the individual level. Of principal interest was the elicitation of risk, time and ambiguity attitudes and the relationship among these (model free) measures. We find that on the student population, there is essentially no correlation. A non negligible fraction of the population behaves in an extremely cautions manner in the risk and ambiguity domain. When we drop this population from the sample, the correlation between our measures is also non significant. We also raise three questions linked to measurement of ambiguity attitudes that come out from our data sets.
    Keywords: Experiments, risk aversion, impatience, imprecision aversion.
    JEL: C90 D81 C91
    Date: 2009–03
  4. By: Patrick Roger (Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg)
    Abstract: In this article, a simple paper-and-pencil experiment, based on lottery bonds, shows that financial decisions taken by participants are inconsistent with the traditional view of economic agents as risk averse expected utility maximizers. First, our results cast doubt on the relevance of variance as a measure of risk and put to light the importance of skewness in decision making. The decisions taken by participants are consistent with the optimal distortion of beliefs introduced in Brunnemeier and Parker (2005) and Brunnemeier et al. (2007). As a by-product of this study, we also illustrate the fact that people use heuristics when they choose numbers at random and have, in general, a poor opinion about the rationality of others.
    Keywords: Lottery bonds, optimal beliefs, probability distortion, risk aversion.
    JEL: D81
    Date: 2009
  5. By: Anna MAFFIOLETTI; Michele SANTONI
    Abstract: This paper presents the results of two experiments testing reaction to risk and uncertainty of a sample of 66 Italian university students. Risky prospects were based on games of chance, while uncertain lotteries were based on the forthcoming results of either the May 2001 Italian general political election or the June 2004 election for the European Parliament. We computed decision weights for risk and uncertainty; we also collected data as regards the subjects’ degree of belief, expressed by probability judgements, for the same uncertain events. Our results show that the subjects’ behaviour is consistent with expected utility theory as regards risk, but not under uncertainty. In particular, our subjects show a strong superadditivity in the decision weights and the possibility effect (lower subadditivity) is stronger than the certainty effect (upper subadditivity). There is also evidence that emotions, actual competence and confidence positively affect the possibility effect, whereas they do not have any influence on the certainty effect, reinforcing the lack of symmetry between the two effects
    Keywords: Uncertainty, Subadditivity, Emotions, Competence, Confidence
    JEL: D81
    Date: 2007–09–18
  6. By: Jonathan Meer; Harvey S. Rosen
    Abstract: A substantial experimental literature suggests that a personal solicitation is an effective way to induce people to make charitable donations. We examine whether this result generalizes to a non-experimental setting. Specifically, we estimate the effect of a marginal personal solicitation using observational data on alumni giving at an anonymous research university, which we refer to as Anon U. At Anon U, volunteers use lists provided by the Development Office to telephone classmates and solicit them for donations. The names on these lists are always in alphabetical order. The volunteers who do the soliciting often run out of time before they reach the end of their lists. These observations suggest a simple strategy for testing whether personal solicitation matters, viz., examine whether alumni with names toward the end of the alphabet are less likely to give than alumni with names toward the beginning, ceteris paribus. If so, then a marginal personal solicitation matters. Our main finding is that location in the alphabet -- and hence, a personal solicitation -- has a strong effect on probability of making a gift. A rough estimate of the elasticity of the probability of giving with respect to the probability of receiving a personal solicitation is 0.15. However, there is no statistically discernible effect on the amount given, conditional on donating. We also find that women respond more strongly to a personal solicitation than men. This is consistent with a robust result in the psychology literature, that women find it more difficult than men to refuse requests that they perceive as being legitimate.
    JEL: D64 I22
    Date: 2009–06
  7. By: Moreira, Bruno; Matsushita, Raul; Da Silva, Sergio
    Abstract: A recent neurobiology study showed that monkeys systematically prefer risky targets in a visual gambling task. We set a similar experiment with preschool children to assess their attitudes toward risk and found the children, like the monkeys, to be risk seeking. This suggests that adult humans are not born risk averse, but become risk averse. Our experiment also suggests that this behavioral change may be due to learning from negative experiences in their risky choices. We also showed that though emotional states and predetermined prenatal testosterone can influence children’s preferences toward risk, these factors could not override learning experiences.
    Keywords: Risk; Children
    JEL: D81 C92 D87
    Date: 2008–11–01
  8. By: Jianying Qiu (Department of Economics, University of Innsbruck SOWI Building, Universitaetstrasse 15 6020 Innsbruck, Austria // Max Planck Institute of Economics, ESI Group, Kahlaische Str. 10, D-07745 Jena, Germany); Prashanth Mahagaonkar (Max Planck Institute of Economics, EGP Group, Kahlaische Str. 10, D-07745 Jena, Germany // Schumpeter School of Business and Economics, University of Wuppertal, Germany)
    Abstract: In this paper, we directly test the Modigliani-Miller theorem in the lab. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we are able to address this issue without making any assumptions about individuals' risk attitudes and initial wealth positions. We find that, consistent with the Modigliani-Miller theorem, experimental subjects well recognized the increased systematic risk of equity with increasing leverage and accordingly demanded higher rate of return. Furthermore, the correlation between the value of the debt and equity is -0.94, which is surprisingly comparable with the -1 predicted by the Modigliani-Miller theorem. Yet, a U shape cost of capital seems to organize the data better.
    Keywords: The Modigliani-Miller Theorem, Experimental Study, Decision Making under Uncertainty, General Equilibrium
    JEL: G32 C91 G12 D53
    Date: 2009–06
  9. By: Fali Huang (School of Economics, Singapore Management University)
    Abstract: Much evidence suggests individuals differ in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and ineffciencies exist due to positive externalities. An innovative fi?nding is that, when institutions are more e¤ective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results
    JEL: Z13 J24
    Date: 2007–09
  10. By: Philip Oreopoulos
    Abstract: Thousands of resumes were sent in response to online job postings across multiple occupations in Toronto to investigate why Canadian immigrants, allowed in based on skill, struggle in the labor market. Resumes were constructed to plausibly represent recent immigrants under the point system from the three largest countries of origin (China, India, and Pakistan) and Britain, as well as non-immigrants with and without ethnic-sounding names. In addition to names, I randomized where applicants received their undergraduate degree, whether their job experience was gained in Toronto or Mumbai (or another foreign city), whether they listed being fluent in multiple languages (including French). The study produced four main findings: 1) Interview request rates for English-named applicants with Canadian education and experience were more than three times higher compared to resumes with Chinese, Indian, or Pakistani names with foreign education and experience (5 percent versus 16 percent), but were no different compared to foreign applicants from Britain. 2) Employers valued experience acquired in Canada much more than if acquired in a foreign country. Changing foreign resumes to include only experience from Canada raised callback rates to 11 percent. 3) Among resumes listing 4 to 6 years of Canadian experience, whether an applicant’s degree was from Canada or not, or whether the applicant obtained additional Canadian education or not had no impact on the chances for an interview request. 4) Canadian applicants that differed only by name had substantially different callback rates: Those with English-sounding names received interview requests 40 percent more often than applicants with Chinese, Indian, or Pakistani names (16 percent versus 11 percent). Overall, the results suggest considerable employer discrimination against applicants with ethnic names or with experience from foreign firms.
    JEL: J15 J31 J7 K31
    Date: 2009–06

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