nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒09‒19
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Caste and punishment : the legacy of caste culture in norm enforcement By Hoff, Karla; Kshetramade, Mayuresh; Fehr, Ernst
  2. Game Harmony: A Behavioral Approach to Predicting Cooperation in Games By Daniel John Zizzo; Jonathan H.W. Tan
  3. An experimental methodology testing for prudence and third-order preferences By Sebastian Ebert; Daniel Wiesen
  4. Moral Judgments in Social Dilemmas: How Bad is Free Riding? By Robin Cubitt; Michalis Drouvelis; Simon Gaechter; Ruslan Kabalin
  5. Comparing Open-Ended Choice Experiments and Experimental Auctions: An Application to Golden Rice By Jay R. Corrigan; Dinah Pura T. Depositario; Rodolfo M. Nayga, Jr.; Ximing Wu; Tiffany P. Laude
  6. Preference for Skew in Lotteries: Evidence from the Laboratory By Santos-Pinto, Luís; Astebro, Thomas; Mata, José
  7. Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy By Samuel Bowles; Sandra Polanía Reyes
  8. A Structural Analysis of Disappointment Aversion in a Real Effort Competition By David Gill; Victoria Prowse
  9. Professionals Do Not Play Minimax: Evidence from Major League Baseball and the National Football League By Kenneth Kovash; Steven D. Levitt
  10. The Right Amount of Trust By Jeffrey Butler; Paola Giuliano; Luigi Guiso
  11. Decision time in Belgium: an experiment as to how business angels evaluate investment opportunities By Joël Ludvigsen
  12. Learning backward induction: a neural network agent approach By Leonidas, Spiliopoulos
  14. The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits By Jay R. Corrigan
  15. Public Goods Games, Altruism, and Evolution By Ingela Alger

  1. By: Hoff, Karla; Kshetramade, Mayuresh; Fehr, Ernst
    Abstract: Well-functioning groups enforce social norms that restrain opportunism, but the social structure of a society may encourage or inhibit norm enforcement. This paper studies 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 the analysis controls 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: Gender and Social Development,Corruption&Anitcorruption Law,Anthropology,Access to Finance,Social Inclusion&Institutions
    Date: 2009–09–01
  2. By: Daniel John Zizzo (University of East Anglia, School of Economics, Norwich, UK); Jonathan H.W. Tan (Nottingham University Business School, UK)
    Abstract: Game harmony describes how harmonious (non-conflictual) or disharmonious (conflictual) the interests of players are in a game, as embodied in the game? raw payoffs. It departs from the traditional game-theoretic approach in that it is a non equilibrium behavioral approach which can be psychologically founded. We experimentally test the predictive power of basic game harmony measures on a variety of well-known 2×2 games and randomly-generated 2×2 and 3×3 generic games. Our findings support its all rounded predictive power. Game harmony provides an alternative tool that is both powerful and parsimonious, as it does not require information on a subject? degree of rationality, social preferences, beliefs and perceptions are required.
    Keywords: games, game harmony, cooperation, behavioral economics.
    Date: 2009–07–13
  3. By: Sebastian Ebert; Daniel Wiesen
    Abstract: We propose an experimental method to test individuals for prudence (i.e. downside risk aversion) outside the expected utility framework. Our method relies on a novel representation of compound lotteries which allows for a systematic parameterization that captures the full generality of prudence. Therefore, we develop a general technique for lottery calibration in experiments. Since we investigate a very subtle third-order property we test our method in the laboratory employing a factorial design. We find that it yields robust results and that prudence is observed on the aggregate as well as on the individual level. Further we show that preferences based on statistical moments, in particular skewness seeking, can at most approximately explain individuals' behavior in the experiment.
    Keywords: Decision making under uncertainty, risk preferences, prudence, downside risk, statistical moments, laboratory experiment
    JEL: D81 C91
    Date: 2009–09
  4. By: Robin Cubitt (University of Nottingham); Michalis Drouvelis (University of York); Simon Gaechter (University of Nottingham); Ruslan Kabalin (University of Nottingham)
    Abstract: In the last thirty years economists and other social scientists investigated people’s normative views on principles of distributive justice. Here we study people’s normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people’s moral judgments empirically. We vary others’ contributions, the framing (“give-some” vs. “take-some”) and whether contributions are simultaneous or sequential. We find that moral judgments depend strongly on others’ behaviour; and that failing to give is condemned more strongly than withdrawing all support.
    Keywords: moral judgments, framing effects, public goods experiments, free riding
    Date: 2009–08
  5. By: Jay R. Corrigan; Dinah Pura T. Depositario; Rodolfo M. Nayga, Jr.; Ximing Wu; Tiffany P. Laude
    Abstract: We use two different experimental valuation methods to estimate consumer demand for genetically-modified golden rice. The first is an open-ended choice experiment (OECE) where participants name the quantities of golden rice and conventional rice demanded at each of several price combinations, one of which will be randomly chosen as binding. This allows us to estimate market demand by aggregating demand across participants. This estimate of market demand also allows us to estimate own-price elasticity and consumer surplus for golden rice. Comparing willingness-to-pay (WTP) estimates from the OECE with those from a uniform-price auction, we find that OECE WTP estimates exhibit less affiliation across rounds, and the effects of positive and negative information under the OECE are more consistent with prior expectations and existing studies. We also find that while auction WTP estimates more than double across five rounds, OECE WTP estimates are stable across rounds and are always roughly equal to those from the final auction round.
    Keywords: choice experiments, experimental auctions, golden rice, valuation
    Date: 2009–08
  6. By: Santos-Pinto, Luís; Astebro, Thomas; Mata, José
    Abstract: Using a laboratory experiment we investigate how skew in uences choices under risk. We find that subjects make significantly riskier choices when the distribution of payoffs is positively skewed, these choices being driven in part by the shape of the utility function but also by subjective distortion of probabilities. A utility model with probability distortion calibrated on laboratory data is able to explain why most gamblers in public lotteries buy only a small number of tickets.
    Keywords: Risk; Skew; Gambling; Lab Experiment
    JEL: D81 C91
    Date: 2009–06–09
  7. By: Samuel Bowles (Santa Fe Institute, University of Siena, and University of Massachusetts Amherst); Sandra Polanía Reyes (University of Siena)
    Abstract: Policies and explicit incentives designed for self-regarding individuals sometimes are less effective or even counterproductive when they diminish altruism, ethical norms and other social preferences. Evidence from 51 experimental studies indicates that this crowding out effect is pervasive, and that crowding in also occurs. A model in which self-regarding and social preferences may be either substitutes or complements is developed and evidence for the mechanisms underlying this non-additivity feature of preferences is provided. The result is a preference-based analogue to the Lucas Critique restricting feasible implementation to allocations that are supportable given the effect of incentives on preferences. JEL Categories: D64, H41, D78, Z13, C90
    Keywords: Public goods, behavioral experiments, social preferences, second best, motivational crowding, explicit incentives
    Date: 2009–09
  8. By: David Gill; Victoria Prowse
    Abstract: We develop a novel computerized real effort task, based on moving sliders across a screen, to test experimentally whether agents are disappointment averse when they compete in a real effort sequential-move tournament. Our theory predicts that a disappointment averse agent, who is loss averse around her endogenous expectations-based reference point, responds negatively to her rival’s effort. We find significant evidence for this discouragement effect, and use the Method of Simulated Moments to estimate the strength of disappointment aversion on average and the heterogeneity in disappointment aversion across the population.
    Keywords: Disappointment aversion, Loss aversion, Reference-dependent preferences, Reference point adjustment, Expectations, Tournament, Real effort experiment, Slider task
    JEL: C91
    Date: 2009
  9. By: Kenneth Kovash; Steven D. Levitt
    Abstract: Game theory makes strong predictions about how individuals should behave in two player, zero sum games. When players follow a mixed strategy, equilibrium payoffs should be equalized across actions, and choices should be serially uncorrelated. Laboratory experiments have generated large and systematic deviations from the minimax predictions. Data gleaned from real-world settings have been more consistent with minimax, but these latter studies have often been based on small samples with low power to reject. In this paper, we explore minimax play in two high stakes, real world settings that are data rich: choice of pitch type in Major League Baseball and whether to run or pass in the National Football League. We observe more than three million pitches in baseball and 125,000 play choices for football. We find systematic deviations from minimax play in both data sets. Pitchers appear to throw too many fastballs; football teams pass less than they should. In both sports, there is negative serial correlation in play calling. Back of the envelope calculations suggest that correcting these decision making errors could be worth as many as two additional victories a year to a Major League Baseball franchise, and more than a half win per season for a professional football team.
    JEL: D01 D82
    Date: 2009–09
  10. By: Jeffrey Butler; Paola Giuliano; Luigi Guiso
    Abstract: A vast literature has investigated the relationship between trust and aggregate economic performance. We investigate the relationship between individual trust and individual economic performance. We find that individual income is hump-shaped in a measure of intensity of trust beliefs available in the European Social Survey. We show that heterogeneity of trust beliefs in the population, coupled with the tendency of individuals to extrapolate beliefs about others from their own level of trustworthiness, could generate the non-monotonic relationship between trust and income. Highly trustworthy individuals think others are like them and tend to form beliefs that are too optimistic, causing them to assume too much social risk, to be cheated more often and ultimately perform less well than those who happen to have a trustworthiness level close to the mean of the population. On the other hand, the low-trustworthiness types form beliefs that are too conservative and thereby avoid being cheated, but give up profitable opportunities too often and, consequently, underperform. Our estimates imply that the cost of either excessive or too little trust is comparable to the income lost by foregoing college. Furthermore, we find that people who trust more are cheated more often by banks as well as when purchasing goods second hand, when relying on the services of a plumber or a mechanic and when buying food. We complement the survey evidence with experimental evidence showing that own trustworthiness and expectations of others' trustworthiness in a trust game are strongly correlated and that performance in the game is hump-shaped.
    JEL: A1 A12 D01 O15 Z1
    Date: 2009–09
  11. By: Joël Ludvigsen (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: To what extent do business angels really understand their own decision process? This paper is the first in business angel research literature to use conjoint analysis to capture decision makers’ actual decision policies and to compare these results with their stated decision policies. Although more than twenty papers discussing the decision criteria of business angels have been published, most of these studies rely on post hoc methodologies (e.g. interviews and surveys) to capture the decision process. Post hoc methods assume that business angels can accurately introspect about their own decision processes, but studies from cognitive psychology suggest that decision makers are poor at introspecting. In addition, experiments in the venture capital industry have shown that venture capitalists are poor at introspecting and do not fully understand their decision processes. Taking cues from cognitive psychology, this paper starts with the hypothesis that, like venture capitalists, business angels do not fully understand their own decision processes. To test this hypothesis, an experiment including twenty-four Belgian business angels and using conjoint analysis is performed. The findings suggest that business angels are not good at introspecting about their own decision processes. Even within the confines of a controlled experiment, which greatly reduces the amount of information considered, business angels lacked strong understanding of how they made decisions.
    Keywords: business angels, decision making, entrepreneurial finance, investment evaluation, conjoint analysis
    JEL: G24 G11 M13
    Date: 2009–09
  12. By: Leonidas, Spiliopoulos
    Abstract: This paper addresses the question of whether neural networks (NNs), a realistic cognitive model of human information processing, can learn to backward induce in a two-stage game with a unique subgame-perfect Nash equilibrium. The NNs were found to predict the Nash equilibrium approximately 70% of the time in new games. Similarly to humans, the neural network agents are also found to suffer from subgame and truncation inconsistency, supporting the contention that they are appropriate models of general learning in humans. The agents were found to behave in a bounded rational manner as a result of the endogenous emergence of decision heuristics. In particular a very simple heuristic socialmax, that chooses the cell with the highest social payoff explains their behavior approximately 60% of the time, whereas the ownmax heuristic that simply chooses the cell with the maximum payoff for that agent fares worse explaining behavior roughly 38%, albeit still significantly better than chance. These two heuristics were found to be ecologically valid for the backward induction problem as they predicted the Nash equilibrium in 67% and 50% of the games respectively. Compared to various standard classification algorithms, the NNs were found to be only slightly more accurate than standard discriminant analyses. However, the latter do not model the dynamic learning process and have an ad hoc postulated functional form. In contrast, a NN agent’s behavior evolves with experience and is capable of taking on any functional form according to the universal approximation theorem.
    Keywords: Agent based computational economics; Backward induction; Learning models; Behavioral game theory; Simulations; Complex adaptive systems; Artificial intelligence; Neural networks
    JEL: C45 C7 C73
    Date: 2009–09–12
  13. By: Marcel Voia (Department of Economics, Carleton University); Liqun Wang (Department of Statistics, University of Manitoba); Ricardas Zitikis (Department of Statistical and Actuarial Sciences, University of Western Ontario)
    Abstract: When analyzing treatment effects, the average treatment value is frequently compared to that of the control group. This approach, naturally, is not particularly informative about specifc regions of the treatment and control distributions. For this reason and having in view a specifc application, in the present paper we consider tests that provide us with more detailed analysis of treatments and their effectiveness. The tests are based on comparing the treatment and control distributions (e.g., whether they are equal, one dominates another, or intersect) over their entire or partial domains of de¯nition. The test of intersection of distributions is introduced in the paper with the scope of pinpointing the region of the tested distribution that is subject to an adverse treatment effect. We illustrate the tests on a simulation study which is based on a matched data and apply them to analyze the Pennsylvania Bonus Experiment.
    Keywords: Stochastic dominance, effective treatment, testing for intersection
    JEL: C12 D31 D63
    Date: 2009–04–23
  14. By: Jay R. Corrigan
    Abstract: This classroom exercise illustrates the strengths and weaknesses of various regulatory frameworks aimed at internalizing negative externalities from pollution. Specifically, the exercise divides students into three groups—the government regulatory agency and two polluting firms—and allows them to work through a system of uniform command-and-control regulation, a tradable emissions permit framework, and an emissions tax. Students have the opportunity to observe how flexible, market-oriented regulatory frameworks can outperform inflexible command-and-control. More importantly given the ongoing debate about how best to regulate carbon dioxide emissions, students can also observe how the introduction of abatement-cost uncertainty can cause one market-oriented solution to outperform another.
    Keywords: classroom experiments, emissions taxes, pollution, tradable emissions permits
    Date: 2009–06
  15. By: Ingela Alger (Department of Economics, Carleton University)
    Abstract: How can a desire to cooperate in one-shot interactions survive, even though it gives a material disadvantage to its carrier? I analyze this issue using a one-shot public goods game between two altruistic individuals. Within a pair, the least altruistic individual is better off materially. Between pairs, individuals in the pair with the highest degree of altruism are better off materially. I determine the evolutionarily stable degree of altruism, allowing for assortative matching. The stable degree of altruism is strictly smaller than the degree of assortativity, and it may be negative. It is also increasing in the degree of assortativity. For a given degree of assortativity, the stable degree of altruism depends on the relative strength of the within-pair and the between-group e¤ect on material welfare. This relative strength in turn depends on the production and cost functions in the underlying public goods game.
    Keywords: public goods, teamwork, altruism, evolution of preferences, evolutionary stability
    JEL: D02 D13
    Date: 2009–08–26

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