nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒07‒03
twenty-one papers chosen by
Daniel Houser
George Mason University

  1. The Interaction between Explicit and Relational Incentives: An Experiment By Randolph Sloof; Joep Sonnemans
  2. Building Trust One Gift at a Time By Maroš Servátka;; Steven Tucker; Radovan Vadovic
  3. A Missing Link in Behavioural Economics? A Portmanteau Experiment on the Relevance of Individual Decision Anomalies for Households. By Alistair Munro; Danail Popov
  4. Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment By Lisa R. Anderson; Beth A. Freeborn; Jason P. Hulbert
  5. Strategic behavior in repeated voluntary contribution experiments By Mengel Friederike; Peeters Ronald
  6. Inconsistent Incomplete Information: A Betting Experiment By Werner Güth; Loreto Llorente Erviti; Anthony Ziegelmeyer
  7. A comparison of Candle Auctions and Hard Close Auctions with Common Values By Sascha Füllbrunn
  8. The Impact of Social Value Orientation and Risk Attitudes on Trust and Reciprocity By Kiridaran Kanagaretnam; Stuart Mestelman; Khalid Nainar; Mohamed Shehata
  9. Quantity Precommitment with Price Competition versus Quantity Precommitment with Market Clearing Prices in the Laboratory By David Goodwin; Stuart Mestelman
  10. Sabotage in Tournaments: Evidence from a Laboratory Experiment By Harbring, Christine; Irlenbusch, Bernd
  11. Trust and Reciprocity among International Groups: Experimental Evidence from Austria and Japan By Kenju Akai; Robert J. Netzer
  12. Experienced Utility versus Decision Utility: Putting the 'S' in Satisfaction By Steven Carter; Michael McBride
  13. Preference Elicitation under Oath By Nicolas Jacquemet; Robert-Vincent Joule; Stéphane Luchini; Jason F. Shogren
  14. Persuasive and Informative Advertising: A Classroom Experiment By Beth A. Freeborn; Jason P. Hulbert
  15. Coordination problems and the role of institutions: multi-agent simulations with learning By A. Arrighetti; S. Curatolo
  16. Anyone up for helping the Fisherman's wife? More solidarity with accidental misery than with man-made misery By Björn Frank; Sha Li; Heike Minich; Nina Muraro; Marco de Pinto; Christoph Sänger; Stephan Meisenzahl; Duncan Roth; Nils Saniter
  17. Trust and Reciprocity with Transparency and Repeated Interactions By Kiridaran Kanagaretnam; Stuart Mestelman; S.M.Khalid Nainar; Mohamed Shehata
  18. An Experimental Study of Japanese Procurement Auctions with Endogenous Minimum Prices By Kenju Akai,; Tatsuyoshi Saijo; Shigehiro Serizawa
  19. Auctions for Public Construction with Corner-cutting By Kenju Akai; Tatsuyoshi Saijo; Shigehiro Serizawa
  20. How Communication Improves Efficiency in Bargaining: Reconciling Theory with Evidence By Saran Rene
  21. Is Behavioral Economics Doomed? By David K Levine

  1. By: Randolph Sloof (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. We also explicitly test how game choice is affected by the length of the repeated game.
    Keywords: relational contracts; explicit incentives; crowding out; experiments
    JEL: C91 M52 J41
    Date: 2009–04–14
  2. By: Maroš Servátka; (University of Canterbury); Steven Tucker (University of Canterbury); Radovan Vadovic
    Abstract: This paper reports an experiment evaluating the effect of gift giving on building trust in a relationship. We have nested our explorations in the standard version of the investment game. Our gift treatment includes a dictator stage in which the trustee decides whether to give a gift to the trustor before both of them proceed to play the investment game. We observe that in such case the majority of trustees offer their endowment to trustors. Consequently, receiving a gift significantly increases the amounts sent by trustors when controlling for the differences in payoffs created by it. Trustees are, however, not better off by giving a gift as the increase in the amount sent by trustors is not large enough to offset the trustees’ loss associated with the cost of giving a gift. Our results indicate that a relationship which is initiated by gift giving leads to higher trust and efficiency but at the same time is probably not stable.
    Keywords: Experimental economics; gift; investment game; trust; trustworthiness
    JEL: C70 C90
    Date: 2009–06–17
  3. By: Alistair Munro (National Graduate Institute for Policy Studies, Tokyo, Japan); Danail Popov (Department of Economics, Royal Holloway University of London)
    Abstract: Although households are responsible for many important decisions, they have rarely been the subject of economics experiments. We conduct a series of linked and incentivized experiments on decision-making, designed to see if the anomalies typically found in individual choice experiments are found when the subjects are couples from long-term relationships. Specifically we investigate the endowment effect, the compromise effect, asymmetric dominance and the ‘more is less’ phenomena. Comparing the results with two control groups (students and non-student individuals) we find broadly the same pattern of anomalies in individuals as we do in couples. Thus behavioural patterns that appear in individual choices appear relevant for decisions made by established couples.
    Keywords: Household choice, Experiment, Family, Anomalies, Endowment Effect, Compromise Effect, Asymmetric Dominance, ‘More is less’.
    JEL: C92 D13 D80
    Date: 2009–06
  4. By: Lisa R. Anderson (Department of Economics, College of William and Mary); Beth A. Freeborn (Department of Economics, College of William and Mary); Jason P. Hulbert (Department of Economics, College of William and Mary)
    Abstract: We investigate the relationship between collusive behavior in Bertrand oligopoly experiments and subject heterogeneity in risk preferences. We find that risk aversion is positively associated with tacit collusion when the goods are complements, but find no evidence of collusive behavior when the goods are substitutes. Furthermore, risk aversion is associated with lower prices with complement goods, but does not impact pricing behavior with substitute goods. In both treatments, we find that subjects tend to follow the price change of the other seller. In the complements treatment, however, this tendency increases with the degree of risk aversion.
    Keywords: Bertrand duopoly, risk aversion, collusion, experiment
    JEL: C9 L1
    Date: 2009–06–11
  5. By: Mengel Friederike; Peeters Ronald (METEOR)
    Abstract: We conduct a repeated VCM (voluntary contribution mechanism) experiment using thestrategy method. We compare a partner and a stranger design and find that participantsin the partner treatment provide (i) higher initial contributions, (ii) higher contributionson average over all periods, and (iii) contributions that do not vary more strongly withpast contributions than participants in the stranger treatment. We conclude from ourevidence that strategic motives can account for a large share of the treatment differencestypically observed in this literature.
    Keywords: public economics ;
    Date: 2009
  6. By: Werner Güth (Max Planck Institute Jena, Strategic Interaction Group); Loreto Llorente Erviti (Universidad Publica de Navarra, Pamplona); Anthony Ziegelmeyer (Max Planck Institute Jena, Strategic Interaction Group)
    Abstract: We study two person-betting games with inconsistent commonly know beliefs, using an experimental approach. In our experimental games, participants bet against one another, each bettor choosing one of two possible outcomes, and payoff odds are know at the time bets are placed. Bettors' beliefs are always commonly known. Participants play a series of betting games, in some of which the occurrence probabilities of the two outcomes differ between bettors (inconsistent beliefs) while in others the same occurrence probabilities prevail for both bettors (consistent beliefs). In the betting games with consistent commonly know beliefs, we observe that participants refrain from betting. In the betting games with inconsistent commonly know beliefs, we observe significant betting rates and the larger the discrepancy between the two bettors' subjective expectations the larger the volume of bets. Our experimental results contrast with the existing evidence on zero-sum betting games according to which participants' irrational inclination to bet is difficult to eliminate.
    Keywords: Betting, Common prior, Harsanyi consistency, Experimental Economics.
    JEL: C72 C92 D84
    Date: 2009–06–11
  7. By: Sascha Füllbrunn (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: With this study, we contribute to the literature of auction design by presenting a new auction format: the Candle auction, a popular auction in the Middle Ages. Considering a common value framework, we theoretically and experimentally point out that the Candle auction, where bidding is allowed until a stochastic deadline, yields a better outcome to the seller than the Hard Close auction, the popular eBay online auction format.
    Keywords: online auctions, market design, experimental economics, common value
    JEL: C73 C9 D44
    Date: 2009–05
  8. By: Kiridaran Kanagaretnam; Stuart Mestelman; Khalid Nainar; Mohamed Shehata
    Abstract: Prior experimental studies provide evidence that the levels of trust and reciprocity are highly susceptible to individuals’ preferences towards payoffs, prior experience, capacity to learn more about personal characteristics of each other and social distance. The objective of this study is to examine whether social value orientation as developed by Griesinger and Livingstone (1973) and Liebrand (1984) and risk preferences can help to account for the variability of trust and trustworthiness. We use the Berg et al. (1995) investment game to generate indices of trust and reciprocity. Prior to their participation in the investment game, all subjects participated in two other games. One is used to measure their social value orientation (a measure of other regarding behavior) and the second to measure risk attitudes. These variables are introduced as treatments in the analysis of the trust and reciprocity data. In addition to these preference related variables, gender is introduced to capture any differences between men and women which may not be encompassed by value orientation and risk attitudes. The statistical analysis indicates that the social value orientation measure significantly accounts for variation in trust and reciprocity. As well, the level of trust exhibited by an investor significantly affects the reciprocity of the responders and this measure of trust interacts with social value orientation. Individuals who are highly pro-social reciprocate more as the sender’s trust increases, while those who are highly pro-self reciprocate less as the sender’s trust increases. For this sample of participants, the gender variable does not capture any differences in the behavior of men and women that is not already reflected by the differences captured by their value orientations. Risk attitudes do not significantly account for variation in trusting behavior, except for the case where individuals have neither strongly pro-social nor pro-self social value orientations. In this case, more riskseeking individuals are more trusting.
    Keywords: Trust, Reciprocity, Social Value Orientation, Risk Attitudes, Gender
    JEL: C92 D81 Z13
    Date: 2009–05
  9. By: David Goodwin; Stuart Mestelman
    Abstract: The paper reports the results of 39 laboratory duopoly markets for which pricing institution and participant experience are treatments. Cournot (C) duopolies (quantity precommitment and a price determined to clear the market) are contrasted with Kreps-Scheinkman (KS) duopolies (quantity precommitment and posted prices). Inexperienced participants in KS markets have much more difficulty selecting capacities consistent with the theoretical predictions than do those in C markets. With experience, the differences disappear.
    Keywords: Duopoly; Laboratory experiment; Quantity precommitment; Posted prices; Price competition; Market-clearing prices; Experience
    JEL: C92 D43 L13
    Date: 2009–06
  10. By: Harbring, Christine (University of Cologne); Irlenbusch, Bernd (London School of Economics)
    Abstract: Although relative performance schemes are pervasive in organizations reliable empirical data on induced sabotage behavior is almost non-existent. We study sabotage in tournaments in a controlled laboratory experiment and are able to confirm one of the key insights from theory: effort and sabotage increase with the wage spread. Additionally, we find that even in the presence of tournament incentives, agents react reciprocally to higher wages, which mitigates the sabotage problem. Destructive activities are reduced by explicitly calling them by their name 'sabotage'. Communication among principal and agents curbs sabotage due to agreements on flat prize structures and increased output.
    Keywords: sabotage, tournament, reciprocity, relative performance scheme, experiment
    JEL: M52 J33 J41 L23 C72 C91
    Date: 2009–06
  11. By: Kenju Akai; Robert J. Netzer
    Abstract: This paper aimed to compare the trust and reciprocity levels among international groups by adopting a modified trust game played among groups from Austria and Japan. Our results were as follows: (i) When the groups interacted intranationally, the trust and reciprocity levels among the Austrian and Japanese groups were identical. (ii) When they interacted internationally, the groups tended to display the same trust levels, and the Japanese groups tended to reciprocate more than the Austrian groups as the trust levels of their respective interacting group increased. These results suggest that a heterolytic group norm exists across nationalities. In other words, the trust between groups is identical across nationality, whereas reciprocity between groups differs. The fact that the Japanese display less in-group favoritism only in terms of reciprocity has an important implication in terms of a comparative analysis of group norms, not only between the EU and Japan but also between individualism and collectivism in larger sense.
    Date: 2009–05
  12. By: Steven Carter (Department of Economics, University of California-Irvine); Michael McBride (Department of Economics, University of California-Irvine)
    Abstract: Recent research distinguishes an individual's decision utility, inferred from her observed choices, from her experienced utility, which more closely matches the notion of happiness. Using various estimation techniques with a unique experimental data set, we test whether post-choice satisfaction (experienced utility), like decision utility, is S-shaped with loss aversion around a given reference point. We also present a model which estimates the satisfaction function and reference point simultaneously. When pooling the data across individuals, we find an S-shaped satisfaction function in which the reference point depends on past payments, social comparisons, and subjective expectations. There is mixed evidence of loss aversion. At the individual level, there is substantial variation in satisfaction function shapes, although the S-shape is common. Though the two notions of utility are distinct, our findings imply that the two are related at a fundamental level.
    Keywords: Happiness; Utility; Experiment; Value function; Prospect theory
    JEL: C91 D70 I30
    Date: 2009–06
  13. 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); Robert-Vincent Joule (Laboratoire de Psychologie Sociale - Université de Provence); Stéphane Luchini (GREQAM - Groupe de Recherche en Economie Quantitative d'Aix-Marseille); Jason F. Shogren (University of Wyoming - Department of Economics and Finance, Umeå University - Department of Economics)
    Abstract: Eliciting sincere preferences for non-market goods remains a challenge due to hypothetical bias - the so-called gap between hypothetical monetary values and real economic commitments. The gap arises because people either overstate hypothetical values or understate real commitments or a combination of both. Herein we examine whether the traditional real-world institution of the solenn oath can improve preference elicitation. Applying the social psychology theory on the oath as a truth-telling-commitment device, we ask our bidders to swear on their honour to give honest answers prior to participating in an incentive-compatible second-price auction. Results from our induced valuation testbed treatments suggest the oath-only auctions outperform all other auctions (real, hypothetical, and real-with-oath). In our homegrown valuation treatments eliciting preferences for dolphin protection, the oath-only design induced people to treat as binding both their budget constraint (i.e., lower values on the high end of the value distribution) and participation constraint (i.e., positive values rather than zero bids used to opt out of auction). Our oath-only results are robust to extra training on the auction and to consequential wording about the reason for the oath.
    Keywords: Oath, commitment, Vickrey auction, hypothetical bias, induced values, homegrown values.
    Date: 2009–06
  14. By: Beth A. Freeborn (Department of Economics, College of William and Mary); Jason P. Hulbert (Department of Economics, College of William and Mary)
    Abstract: This paper outlines a pair of classroom activities designed to provide an intuitive foundation to the theoretical introduction of advertising in monopoly markets. The roles of both informative and persuasive advertising are covered. Each student acts as a monopolist and chooses the number of (costly) advertisements and price. The experiments are intended for intermediate microeconomics or industrial organization courses, though may be utilized in any course that covers advertising models.
    Keywords: Classroom experiment, Advertising, Monopolist, Undergraduate Industrial Organization
    JEL: A22 C90 D21 L10
    Date: 2009–06–11
  15. By: A. Arrighetti; S. Curatolo
    Abstract: The paper develops an agent-based coordination game in which agents seek, try out and maintain coordination in the presence of positive search and coordination costs. Agents are perfectly rational in the sense that they optimise their individual payoff through coordination. They are moreover perfectly loyal, since they do not abandon coordination unless it becomes collectively impossible to maintain it and they share equally both the net advantage of coordination and the net loss of failure. Our findings appear to confirm that in context of ontological uncertainty, learning and coordination costs, cooperation often fails in terms of process and final outcome. The absence of opportunism thus do not ensure that agents will cooperate extensively. Moreover learning on one hand optimises search costs and makes the artificial world of the experiment more realistic. On the other hand, it leads agents to more prudent and conservative behaviour. Agents’ loyalty makes superfluous regulatory institutions preventing individual opportunism, but it gives them significant scope for intervention in context of coordination failure. As players involved in the game, rather than arbitrators or regulators, catalyst institutions accelerate coordination and induce cooperation equilibria higher than those single agents autonomously are able to reach.
    Date: 2009
  16. By: Björn Frank (University of Kassel); Sha Li (University of Kassel); Heike Minich (University of Kassel); Nina Muraro (University of Kassel); Marco de Pinto (University of Kassel); Christoph Sänger (University of Göttingen); Stephan Meisenzahl (University of Marburg); Duncan Roth (University of Marburg); Nils Saniter (University of Marburg)
    Abstract: We examine the willingness to donate depending on whether “misery” is random generated or self-inflicted by too high demands in bilateral negotiations. We find that randomness has a positive influence on the total amount of donation. In case of self-inflicted “misery” we observe that the subject who may have caused the unfavourable situation receives significantly less than the perceived innocent subject.
    Keywords: altruism, bargaining experiment
    JEL: C91 D31 D64
    Date: 2009
  17. By: Kiridaran Kanagaretnam; Stuart Mestelman; S.M.Khalid Nainar; Mohamed Shehata
    Abstract: This paper uses data from a controlled laboratory environment to study the impact of transparency (i.e., complete information versus incomplete information) and repeated interactions on the level of trust and trustworthiness in an investment game setting. The key findings of the study are that transparency (complete information) significantly increases trusting behavior in one-shot interactions. This result persists in repeated interactions. Further, transparency appears important for trustworthiness in one-shot interactions. In addition, repeated interaction increases trust and reciprocity with or without transparency. These results suggest transparency is important in building trust in business environments such as alliances and joint-ventures which are loosely connected organizational forms that bring together otherwise independent firms. It also provides support for the Sarbanes-Oxley Act of 2002 (SOX) and similar legislation elsewhere which attempt to regain investors’ trust in corporate management and financial markets by stipulating enhanced disclosures.
    Keywords: Transparency; Trust; Reciprocity; Repeated interaction; Business Alliances; SOX
    JEL: C70 C91 D63 D81 D82
    Date: 2009–05
  18. By: Kenju Akai,; Tatsuyoshi Saijo; Shigehiro Serizawa
    Abstract: Several Japanese local governments started to add endogenous minimum prices to firstprice auctions in their public procurements. Any bid less than the endogenous minimum price is referred to as abnormally low and is excluded from the procurement procedure. The endogenous minimum price is generally calculated as 80% to 90% of the average of some of the lowest bids or all bids. Therefore, producers who join this new institution have incentives to raise their bids and pull the endogenous minimum price to exclude others. We experimentally evaluate the performance of this new institution relative to the standard first-price auction which do not have any minimum price. We find that winning prices of this new institution (i) coincide with the ones of the standard first-price auction and are close to the production cost under our identical cost condition, and (ii) are higher than the ones of the standard first-price auction and diverge from the lowest production cost under our different cost condition when subjectsf identifications and all their bids are revealed.
    Date: 2009–06
  19. By: Kenju Akai; Tatsuyoshi Saijo; Shigehiro Serizawa
    Abstract: This paper reports the theoretical and experimental results of auctions for public construction in which firms cut corners. We show that winning bids and qualities of the constructed buildings are both zero in equilibria if there are at least two firms whose initial cash balances are zero. The experimental results support that firms with zeroinitial cash balance win and that the winning bids and the qualities of the constructed buildings are considerably low.
    Date: 2009–05
  20. By: Saran Rene (METEOR)
    Abstract: Previous theoretical literature proved the existence of an upper bound on efficiency in bilateral bargaining. In contrast, experiments consistently find players obtaining higher efficiency than the upper bound if they are allowed to communicate before the 1/2-double auction. We bridge this gap between theory and experiments by introducing an epsilon proportion of behavioral-type players who always truthfully reveal their valuations and declare a keenness to trade before bidding in the 1/2-double auction. Preplay communication is used by the strategic types to communicate their "tougher'''' bargaining position, forcing the behavioral types to adopt a "weaker'''' position. This further induces the strategic types to decrease the shading/exaggeration in the announcement of their valuations lest they miss the chance to trade with the "weaker'''' behavioral types. As a result, for any epsilon>0, the efficiency in equilibrium is greater than the upper bound.
    Keywords: microeconomics ;
    Date: 2009
  21. By: David K Levine
    Date: 2009–06–20

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