nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒08‒22
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Neural Responses to Sanction Threats in Two-Party Economic Exchange By Jian Li; Erte Xiao; Daniel Houser; P Read Montague
  2. Temptation at Work: A Field Experiment on Willpower and Productivity By Alessandro Bucciol; Daniel Houser; Marco Piovesan
  3. Reputation and Credit Market Formation: How Relational Incentives and Legal Contract Enforcement Interact By Fehr, Ernst; Zehnder, Christian
  4. Caste and Punishment: The Legacy of Caste Culture in Norm Enforcement By Hoff, Karla; Kshetramade, Mayuresh; Fehr, Ernst
  5. On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments By Bellemare, Charles; Shearer, Bruce S.
  6. Easy come, easy go - The role of windfall money in lab and field experiments By Carlsson, Fredrik; He, Haoran; Martinsson, Peter
  7. Bimodal Bidding in Experimental All-Pay Auctions By Christiane Ernst; Christian Thöni
  8. Does deceptive advertising reduce political participation? Theory and evidence By Daniel Houser; Sandra Ludwig; Thomas Stratmann
  9. Menstrual cycle and competitive bidding By Pearson, Matthew; Schipper, Burkhard C
  10. Forward Induction Works! An Experimental Study to Test the Robustness and the Power By Quazi Shahriar
  11. How to understand our willingness-to-pay to fight climate change? A choice experiment approach By Clément De Chaisemartin; Thuriane Mahé
  12. The Visible Hand: Finger ratio (2D:4D) and competitive behavior By Pearson, Matthew; Schipper, Burkhard C
  13. Beyond Procedural Equity and Reciprocity By Nadine Chlaß; Werner Güth; Topi Miettinen
  14. Experimental Tests of Survey Responses to Expenditure Questions By David Comerford; Liam Delaney; Colm Harmon

  1. By: Jian Li (Department of Psychology, New York University); Erte Xiao (Department of Social and Decision Sciences, Carnegie Mellon University); Daniel Houser (Interdisciplinary Center for Economic Science (ICES), George Mason University); P Read Montague (Menninger Department of Psychiatry & Behavioral Sciences, Baylor College of Medicine)
    Abstract: Sanctions are used ubiquitously to enforce obedience to social norms. Recent field studies and laboratory experiments have demonstrated, however, that cooperation is sometimes reduced when incentives meant to promote pro-social decisions are added to the environment. Although a variety of explanations have been suggested, the neural foundations of this effect have not been fully explored. Using a modified trust game, we find trustees reciprocate relatively less when facing sanction threats, and the presence of sanctions significantly reduces trusteeÕs brain activities involved in social reward valuation (VMPFC, LOFC, and Amygdala), while simultaneously increases brain activities in parietal cortex previously implicated in rational decision making. Moreover, we find that neural activity in trusteeÕs VMPFC area predicts her future level of cooperation under both sanction and no-sanction conditions, and that this predictive activity can be dynamically modulated by the presence of a sanction threat.
    Date: 2009–06
  2. By: Alessandro Bucciol (Department of General Economics, University of Amsterdam, Netspar, and Department of Economics, University of Verona); Daniel Houser (Interdisciplinary Center for Economic Science (ICES), George Mason University); Marco Piovesan (Department of Economics, University of Copenhagen)
    Abstract: Temptations are a largely unavoidable part of life. Resisting them is usually seen as a virtuous behavior. Recent research in social psychology, however, suggests that using willpower to delay gratification can detrimentally impact performance on immediately subsequent tasks. Using standard economic theory, we develop a model connecting willpower to productivity. When delaying gratification is difficult, the model predicts exposure to a tempting good detrimentally impacts productivity, while when delaying gratification is easy, exposure to temptation can lead to productivity gains. We then report data from a field experiment with children of different ages. Since the research in child development has established that younger children have difficulty delaying gratification, while after age 10 children become skilled at doing so, we exploited this exogenous variation to test the predictions of our model. Our results suggest that a prohibited temptation affects work productivity in a way consistent with theory: it is negative for the youngest children (aged under 8) and positive for the oldest (aged above 10). We also observe a significantly different impact by gender. It thus seems that prohibiting a temptation needs not eliminate its impact on productivity, a result of importance to anyone interested in designing policies to promote efficiency.
    Keywords: willpower; children; temptation; productivity; field experiment
    JEL: C93 J13
    Date: 2009–08
  3. By: Fehr, Ernst (University of Zurich); Zehnder, Christian (University of Lausanne)
    Abstract: The evidence suggests that relational contracting and legal rules play an important role in credit markets but on the basis of the prevailing field data it is difficult to pin down their causal impact. Here we show experimentally that relational incentives are a powerful causal determinant for the existence and performance of credit markets. In fact, in the absence of legal enforcement and reputation formation opportunities the credit market breaks down almost completely while if reputation formation is possible a stable credit market emerges even in the absence of legal enforcement of debt repayment. Introducing legal enforcement of repayments causes a further significant increase in credit market trading but has only a surprisingly small impact on overall efficiency. The reason is that legal enforcement of debt repayments weakens relational incentives and exacerbates another moral hazard problem in credit markets – the choice of inefficient high-risk projects.
    Keywords: credit markets, relationship lending, reputation formation, legal enforcement
    JEL: C91 G21 G28 L14
    Date: 2009–08
  4. By: Hoff, Karla (World Bank); Kshetramade, Mayuresh (affiliation not available); Fehr, Ernst (University of Zurich)
    Abstract: Well-functioning groups enforce social norms that restrain opportunism, but the social structure of a society may encourage or inhibit norm enforcement. Here we study how the exogenous assignment to different positions in an extreme social hierarchy – the caste system – affects individuals' willingness to punish violations of a cooperation norm. Although we control for individual wealth, education, and political participation, low caste individuals exhibit a much lower willingness to punish norm violations that hurt members of their own caste, suggesting a cultural difference across caste status in the concern for members of one's own community. The lower willingness to punish may inhibit the low caste's ability to sustain collective action and so may contribute to its economic vulnerability.
    Keywords: social norms, informal sanctions, third party punishment, endogenous social preferences, social exclusion, collective action, caste
    JEL: D02 D64
    Date: 2009–08
  5. By: Bellemare, Charles (Université Laval); Shearer, Bruce S. (Université Laval)
    Abstract: We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.
    Keywords: gift giving, structural models, field experiments
    JEL: J33 M52 C93
    Date: 2009–08
  6. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); He, Haoran (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: A growing number of experimental studies focus on the differences between the lab and the field. Important in this issue is the role of windfall money. By conducting a dictator game, where the recipient is a charity organization, in exactly the same way in the laboratory and in the field, we investigate the influence of windfall and earned endowment on behavior. We find a strong effect on donation amounts of earned endowment in the lab and the field. Subjects donate more if the endowment is a windfall gain. Thus, windfall money is important not only in a lab environment. However, even for earned endowment, there is a significant difference in behavior between the lab and the field.<p>
    Keywords: Charitable giving; Dictator game; Laboratory experiment; Field experiment; Windfall money
    JEL: C91 C93 D64
    Date: 2009–08–11
  7. By: Christiane Ernst; Christian Thöni
    Abstract: We report results from experimental first-price, sealed-bid, all-pay auctions for a good with a common and known value. We observe bidding strategies in groups of two and three bidders and under two extreme information conditions. As predicted by the Nash equilibrium, subjects use mixed strategies. In contrast to the prediction under standard assumptions bids are drawn from a bimodal distribution: very high and very low bids are much more frequent than intermediate bids. Standard risk preferences cannot account for our results. However, bidding behavior is consistent with the predictions of a model with reference dependent preferences as proposed by the prospect theory.
    Keywords: All-pay Auction; Prospect Theory, Experiment
    JEL: D44 D72 D80 C91
    Date: 2009–08
  8. By: Daniel Houser (George Mason University); Sandra Ludwig (LMU Munich); Thomas Stratmann (George Mason University)
    Abstract: We examine the effect of deceptive advertising on voting decisions in elections. We model two-candidate elections in which 1) voters are uncertain about candidates' attributes; and 2) candidates can inform voters of their attributes by sending advertisements. We compare political campaigns with truthful advertising to campaigns in which there is a small chance of deceptive advertising. Our theoretical model predicts that informed voters should act on the information contained in the advertisement. Thus, even in deceptive campaigns, informed voters should either vote for the candidate from whom they received an advertisement or abstain from voting; they should never vote for the opposing candidate. We test our model in laboratory elections, and, as predicted, find higher participation among informed voters in elections that allow only for truthful advertisement than in elections that permit deceptive advertising. Contrary to our theoretical predictions, we find substantial differences in voting behavior between truthful and deceptive campaigns. When faced with a small probability of deception, informed voters in deceptive campaigns vote for the candidate who did not send an advertisement, thereby making sub-optimal voting choices. Even when there is only a small chance that an advertisement is deceptive, voters are more likely to elect the candidate who generates less welfare.
    Date: 2009–08
  9. By: Pearson, Matthew; Schipper, Burkhard C
    Abstract: In an experiment using two-bidder first-price sealed bid auctions with symmetric independent private values, we collected information on the female participants' menstrual cycles. We find that women bid significantly higher than men in their menstrual and premenstrual phase but do not bid significantly different in other phases of the menstrual cycle. We suggest an evolutionary hypothesis according to which women are genetically predisposed by hormones to generally behave more riskily during their fertile phase of their menstrual cycle in order to increase the probability of conception, quality of offspring, and genetic variety. Our finding is in contrast to results by Chen, Katuscak and Ozdenoren (2005, 2009).
    Keywords: hormones; menstrual cycle; gender; likelihood of conception; first price auction; risk behavior; competition; bidding; endocrinological economics
    JEL: D81 C92 D44 C72 C91 D87
    Date: 2009–08–12
  10. By: Quazi Shahriar (Department of Economics, San Diego State University)
    Abstract: Cooper et al. (1993) found support for forward induction but its true predictive power was less than the apparent level due to a confounding focal point; an outside-option asymmetry generated the focal point. We test for the robustness and the true and independent predictive power of forward induction by changing the asymmetry type and constructing a symmetric game (i.e. no focal point). Our results, for the first time, confirm that forward induction functions (1) in games with different types of asymmetry, and (2) as an independent selection criterion in the absence of a confounding factor. We also find that controlling for social preferences provides some additional support to forward induction.
    Date: 2009–08
  11. By: Clément De Chaisemartin (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Thuriane Mahé (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: We explore the willingness-to-pay (WTP) to fight climate change in a choice experiment. Since tree planting prevents climate change, subjects are offered to choose between receiving a high amount of money or receiving a lower amount of money plus participating to tree planting action. This allows us to get an individual interval of the WTP to prevent climate change. We also set the experiment to control for framing effects: we measure whether subjects WTP is higher not to prevent a tree planting action (negative framing) than to contribute to it (positive framing). Finally, we measure subjects' individual characteristics like altruism and risk aversion with a questionnaire, to understand the determinants of WTP. The results show that the WTP to prevent climate change is high: subjects are ready to give up half their gains to participate to a tree planting action. Women tend to have a higher WTP. We also find that both altruistic and self-interested motives can explain WTP. Surprisingly, their degree of knowledge of climate change related issues do not influence subjects WTP. Finally, when the choice is negatively phrased, WTP increases: subjects are ready to pay more not to make the number of trees planted decrease than to increase it. This suggests that negative eco-labelling might have a greater impact on consumer preferences than positive labels.
    Keywords: willingness-to-pay, preferences elicitation, carbon-offset schemes, framing effect, climate change.
    Date: 2009–03–25
  12. By: Pearson, Matthew; Schipper, Burkhard C
    Abstract: In an experiment using two-bidder first-price sealed bid auctions with symmetric independent private values, we scan also the right hand of each subject. We study how the ratio of the length of the index and ring fingers (2D:4D) of the right hand, a measure of prenatal hormone exposure, is correlated with bidding behavior and total profits. 2D:4D has been reported to predict competitiveness in sports competition (Manning and Taylor, 2001, and Hoenekopp, Manning and Mueller, 2006), risk aversion in an investment task (Dreber and Hoffman, 2007), and the average profitability of high-frequency traders in financial markets (Coates, Gurnell and Rustichini, 2009). We do not find any significant correlation between 2D:4D and both bidding or profits. Yet, our study raises an issue of ethnic differences with respect to 2D:4D.
    Keywords: hormones; digit ratio; 2D:4D; risk behavior; competition; competitive behavior; bidding; endocrinological economics
    JEL: D81 C92 D44 C72 C91 D87
    Date: 2009–08–12
  13. By: Nadine Chlaß (Friedrich Schiller University Jena, Germany); Werner Güth (Max Planck Institute of Economics, Jena, Germany); Topi Miettinen (SITE Stockholm School of Economics, Sweden.)
    Abstract: Most research in economics models agents somehow motivated by outcomes. Here, we model agents motivated by procedures instead, where procedures are defined independently of an outcome. To that end, we design procedures which yield the same expected outcomes or carry the same information on other's intentions while they have different outcome-invariant properties. Agents are experimentally confirmed to exhibit preferences over these which link to psychological attributes of their moral judgment.
    Keywords: procedural preferences, experiment, procedural fairness
    JEL: C78 D63 Z13
    Date: 2009–08–12
  14. By: David Comerford (The Geary Institute University College Dublin); Liam Delaney (The Geary Institute University College Dublin); Colm Harmon (The Geary Institute University College Dublin)
    Abstract: This paper tests for a number of survey effects in the elicitation of expenditure items. In particular we examine the extent to which individuals use features of the expenditure question to construct their answers. We test whether respondents interpret question wording as researchers intend and examine the extent to which prompts, clarifications and seemingly arbitrary features of survey design influence expenditure reports. We find that over one quarter of respondents have difficulty distinguishing between "you" and "your household" when making expenditure reports; that respondents report higher pro-rata expenditure when asked to give responses on a weekly as opposed to monthly or annual time scale; that respondents give higher estimates when using a scale with a higher mid-point; and that respondents give higher aggregated expenditure when categories are presented in a disaggregated form. In summary, expenditure reports are constructed using convenient rules of thumb and available information, which will depend on the characteristics of the respondent, the expenditure domain and features of the survey question. It is crucial to further account for these features in ongoing surveys.
    Date: 2009–08–10

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