nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒10‒31
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Do You Reward and Punish In The Way You Think Others Expect You To? By Omar Al-Ubaydli; Min Sok Lee
  2. The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality By Dohmen Thomas; Falk Armin; Huffman David; Marklein Felix; Sunde Uwe
  3. Are Risk Aversion and Impatience Related to Cognitive Ability? By Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe
  4. Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences By Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe; Schupp Jürgen; Wagner Gert G.
  5. Are CEOs Expected Utility Maximizers? By John List; Charles Mason
  6. Does indignation lead to generosity? An experimental investigation By Emmanuel PETIT (GREThA UMR CNRS 5113)
  7. Going Once, Going Twice, Reported! Cartel Activity And The Effectiveness Of Leniency Programs in Experimental Auctions By Jeroen Hinloopen; Sander Onderstal
  8. Unequal Outside Options in the Lost Wallet Game By Maroš Servátka; Radovan Vadovic
  9. The Impact of Female Sex Hormones on Competitiveness By Thomas Buser
  10. Mitigating Hypothetical Bias in Value of Time Studies: Lab-Experiment Results By Hultkrantz, Lars; Shengcong, Xue
  11. Social Background, Cooperative Behavior, and Norm Enforcement By Kocher, Martin; Martinsson, Peter; Visser, Martine
  12. Outrunning the Gender Gap – Boys and Girls Compete Equally By Dreber, Anna; Emma , von Essen; Ranehill, Eva
  13. Normality Bias in the Field: Evidence from Panel Data By Stephan Nüesch; Hartmut Haas
  14. Does age matter for the value of life? - Evidence from a choice experiment in rural Bangladesh By Johansson-Stenman, Olof; Mahmud, Minhaj; Martinsson, Peter

  1. By: Omar Al-Ubaydli (Department of Economics and Mercatus Center, George Mason University); Min Sok Lee (Citadel Group Foundation, Chicago, IL)
    Abstract: This paper addresses three questions: (1) When deciding on whether to reward or punish someone, how does how you think others expect you to behave affect your decision? (2) Does it depend upon whether others expect you to reward them vs. punish them? (3) What is the interpretation of such a causal effect? We investigate these questions using a modification of the lost wallet trust game (Dufwenberg and Gneezy (2000)) that permits punishment. Like previous studies, we collect data on what second- movers think that first-movers expect them to do by directly eliciting the second-moversÕ expectations. Unlike previous studies, we ensure exogeneity of these expectations by instrumenting for them. The instrument is the expectations of neutral observers which are disclosed to second-movers prior to the elicitation of second-moversÕ expectations. We find that what you think others expect you to do has a zero causal effect on both reward and punishment decisions. We also find that it is important to instrument for second-order expectations because they are endogenous. We interpret these findings in terms of models of guilt-aversion and intentional reciprocity.
    Keywords: Behavioral confirmation, guilt, intentions, reciprocity, reward, punishment
    JEL: D63 D64 D84
    Date: 2009–06
  2. By: Dohmen Thomas; Falk Armin; Huffman David; Marklein Felix; Sunde Uwe (METEOR)
    Abstract: The ability to process new information and to compute conditional probabilities is crucial for making appropriate decisions under uncertainty. In this paper, we investigate the capability of inferring conditional probabilities in a representative sample of the German population. Our results show that only a small fraction of the population responds consistently with Bayes'' rule. Instead, most individuals either neglect the base probability, or the arrival of new information, in their responses. The probability to give normatively correctanswers decreases with the level of education.
    Keywords: labour economics ;
    Date: 2009
  3. By: Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe (METEOR)
    Abstract: This paper investigates whether risk aversion and impatience are correlated with cognitive ability. We conduct incentive compatible choice experiments measuring risk aversion, and impatience over an annual time horizon, for a representative sample of roughly 1,000 German adults. A measure of cognitive ability is provided by two submodules of one of the most widely used IQ tests. Interviews are conducted in subjects'' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are statistically and economically significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of liquidity constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.
    Keywords: Economics ;
    Date: 2009
  4. By: Dohmen Thomas; Falk Armin; Huffman David; Sunde Uwe; Schupp Jürgen; Wagner Gert G. (METEOR)
    Abstract: This paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects'' homes. Using a question asking people about their willingness to take risks "in general", we find that gender, age, height, and parental background have an economically significant impact on willingness to take risks. The experiment confirms the behavioral validity of this measure, using paid lottery choices. Turning to other questions about risk attitudes in specific contexts, we find similar results on the determinants of risk attitudes, and also shed light on the deeper question of stability of risk attitudes across contexts. We conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks, occupational choice, and smoking. The question about risk-taking in general generates the best all-around predictor of risky behavior.
    Keywords: Economics ;
    Date: 2009
  5. By: John List; Charles Mason
    Abstract: Are individuals expected utility maximizers? This question represents much more than academic curiosity. In a normative sense, at stake are the fundamental underpinnings of the bulk of the last half-century’s models of choice under uncertainty. From a positive perspective, the ubiquitous use of benefit-cost analysis across government agencies renders the expected utility maximization paradigm literally the only game in town. In this study, we advance the literature by exploring CEO’s preferences over small probability, high loss lotteries. Using undergraduate students as our experimental control group, we find that both our CEO and student subject pools exhibit frequent and large departures from expected utility theory. In addition, as the extreme payoffs become more likely CEOs exhibit greater aversion to risk. Our results suggest that use of the expected utility paradigm in decision making substantially underestimates society’s willingness to pay to reduce risk in small probability, high loss events.
    JEL: C9 C91 C93 Q5 Q58
    Date: 2009–10
  6. By: Emmanuel PETIT (GREThA UMR CNRS 5113)
    Abstract: We test the effect of emotions on moral behaviour in a one shot gift-exchange game. Using the emotional induction technique, we induce either positive or negative emotions to the subjects before they play the game. We also consider a control treatment, without any affect manipulation. Emotional induction was effective: participants who saw the shocking and appalling movie reported significantly stronger negative emotions and weaker positive emotions than those who saw the funny movie. We find that players’ choices differ significantly across emotional conditions: we observe essentially that second movers who experience positive or neutral emotions do reciprocate whereas subjects overwhelmed with indignation, anger or guilt feelings show a very strong unconditional generous behaviour and do not reciprocate at all. We argue that indignation has a strong proactive force which allows subjects to reveal to themselves their own true values.
    Keywords: Emotions; moral values; gift-exchange game
    JEL: A12 C70 C91
    Date: 2009
  7. By: Jeroen Hinloopen (University of Amsterdam); Sander Onderstal (University of Amsterdam)
    Abstract: We experimentally examine the effectiveness of a leniency program against bidding rings in two
    Keywords: Leniency Programs; Auctions; Cartels; Laboratory Experiments
    JEL: C92 D44 L41
    Date: 2009–10–09
  8. By: Maroš Servátka (University of Canterbury); Radovan Vadovic
    Abstract: Experimental evidence suggests the size of the foregone outside option of the first mover does not affect the behavior of the second mover in the lost wallet game. In this paper we experimentally compare the behavior of subjects when they face an outside option with unequal payoffs, i.e., the first mover gets 10 and the second mover gets 0, and when they face an outside option with equal payoffs, i.e., both get 5. Consistent with the most of the literature we do not find a significant difference in behavior of second movers.
    Keywords: Experimental economics; fairness; inequality; lost wallet game; outside option
    JEL: C72 C78 C91
    Date: 2009–10–16
  9. By: Thomas Buser (School of Economics, University of Amsterdam)
    Abstract: We use fluctuations of female sex hormones occurring naturally over the menstrual cycle or induced by hormonal contraceptives to determine the importance of sex hormones in explaining gender differences in competitiveness. Participants in a laboratory experiment solve a simple arithmetics task first under a piece rate and then under a competitive tournament scheme. Subjects can then choose which compensation scheme to apply in a third round. We find that sex hormones have a strong effect on whether women select into the competitive environment. The observed patterns are consistent with a negative impact especially of progesterone on competitiveness and our results therefore provide a partial biological explanation for gender differences in competitiveness. We consider three possible indirect pathways through which sex hormones could affect competitiveness: via an impact on risk aversion, via an impact on performance, and via an impact on overconfidence. None of these hold up to the data and we conclude that sex hormones have a more direct impact on competitiveness.
    Keywords: competitiveness; gender differences; hormones; lab experiment
    JEL: C91 C92 J16
    Date: 2009–09–29
  10. By: Hultkrantz, Lars (Department of Business, Economics, Statistics and Informatics); Shengcong, Xue (Department of Business, Economics, Statistics and Informatics)
    Abstract: We present results from a series of willingness to-accept value-of-time choice experiments with students in Sweden and China, using both real and hypothetical purchases of the students´ time. Our results confirm negative hypothetical bias in stated choice elicitation of value-of-time. However, we find no evidence of hypothetical bias in a choice experiment where respondents to hypothetical or real offers have equal reference points (i.e., for purchase of their time “here and now”). Moreover, at least in the Chinese sample, we find that ex-post mitigation of negative hypothetical bias by certainty calibration, through recoding of uncertain “yes” responses into “no”, overshoots, while calibration by restricting estimations to confident “yes” and “no” responses possibly performs better.
    Keywords: Stated choice; Certainty calibration; Preference certainty
    JEL: C20 C91 D80
    Date: 2009–10–16
  11. By: Kocher, Martin (Department of Economics, University of Munich,); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Visser, Martine (School of Economics, University of Cape Town)
    Abstract: Studies have shown that there are differences in cooperative behavior across countries. Furthermore, differences in the use and the reaction on the introduction of a norm enforcement mechansism have been documented in cross-cultural studies, recently. We present data which prove that stark differences in both dimensions can exist even within the same town. For this end, a unique data set was created, based on public goods experiments conducted in South Africa. Most of the group differences can, however, be explained by variables accounting for social capital and social environment, such as trust or household violence.<p>
    Keywords: Cooperation; public goods; punishment; experiment; social capital; South Africa
    JEL: C72 C91 H41 Z13
    Date: 2009–10–19
  12. By: Dreber, Anna (Institute for Financial Research (SIFR)); Emma , von Essen (Dept. of Economics, Stockholm University); Ranehill, Eva (Stockholm School of Economics)
    Abstract: Recent studies find that women are less competitive than men. This gender difference in competitiveness has been suggested as a possible explanation for why men occupy the majority of top positions in many sectors. In this study we explore competitiveness in children. A related field experiment on Israeli children shows that only boys react to competition by running faster when competing in a race, and that only girls react to the gender of their opponent. Here we test if these results carry over to 8-10 year old Swedish children. Sweden is typically ranked among the most gender equal countries in the world, thus culture could explain a potential difference in our results to those on Israeli children. We also introduce two more “female” sports: skipping rope and dancing, in order to study if reaction to competition is task dependent. Our results contradict previous findings in two ways. First, we find no gender difference in reaction to competition in running. In our study, both boys and girls compete. We also find no gender differences in reaction to competition in skipping rope and dancing. Second, we find no clear effect on competitiveness of the opponent’s gender, neither on girls or boys, in any of the tasks. Our findings suggest that the existence of a gender gap in competitiveness among children may be partly cultural, and that the gap found in previous studies on adults may be caused by factors that emerge later in life. It remains to be explored whether these later factors are biological or cultural.
    Keywords: competitiveness; gender differences; field experiment
    JEL: C93 J16
    Date: 2009–10–19
  13. By: Stephan Nüesch (Institute for Strategy and Business Economics, University of Zurich); Hartmut Haas (Towers Perrin)
    Abstract: Scenario studies in social psychology have shown that more negative feelings are attributed to negative outcomes following abnormal behavior than to the same negative outcomes caused by normal behavior. This study employs field data to test whether individuals avoid unconventional behavior in order to reduce anticipated negative affections. Using panel data from professional German soccer, we find evidence that after a positive game result, soccer coaches follow the “never change a winning team” heuristic, whereas after a lost game, coaches become more active and change the starting lineup. This effect is robust to the inclusion of potential confounders such as injuries, suspensions, and unobserved heterogeneity of the coaches and the teams and cannot be explained by increased subsequent team performance.
    Date: 2009
  14. By: Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Mahmud, Minhaj (Queen’s University Belfast); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Using a random sample of individuals in rural Bangladesh, this paper investigates people’s preferences regarding relative values of lives when it comes to different ages of the individuals being saved. By assuming that an individual has preferences concerning different states of the world, and that these preferences can be described by an individual social welfare function, the individuals’ preferences for life-saving programs are elicited using a pair-wise choice experiment between different life-saving programs. In the analyses, we calculate the social marginal rates of substitution between saved lives of people of different ages. We also test whether people have preferences for saving more life-years rather than only saving lives. In particular, we test and compare the two hypotheses that only lives matter and that only life-years matter. The results indicate that the value of a saved life decreases rapidly with age and that people have strong preferences for saving life-years rather than lives per se. Overall, the results clearly show the importance of the number of life-years saved in the valuation of life.<p>
    Keywords: social preferences; life-saving programs; choice experiment; relative value of life
    JEL: D63 I18 J17
    Date: 2009–10–19

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