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on Experimental Economics |
| By: | Falk, Armin (University of Bonn); Heckman, James J. (University of Chicago) |
| Abstract: | Laboratory experiments are a widely used methodology for advancing causal knowledge in the physical and life sciences. With the exception of psychology, the adoption of laboratory experiments has been much slower in the social sciences, although during the last two decades, the use of lab experiments has accelerated. Nonetheless, there remains considerable resistance among social scientists who argue that lab experiments lack "realism" and "generalizability". In this article we discuss the advantages and limitations of laboratory social science experiments by comparing them to research based on non-experimental data and to field experiments. We argue that many recent objections against lab experiments are misguided and that even more lab experiments should be conducted. |
| Keywords: | laboratory experiments, field experiments, controlled variation |
| JEL: | C90 C91 C92 C93 D00 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4540&r=exp |
| By: | Pablo Brañas-Garza (Universidad de Granada- España); Juan C. Cárdenas (Universidad de los Andes- Colombia); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República) |
| Abstract: | There is not general consensus about if women are more or less generous than men. Although the number of papers supporting more generous females is a bit larger than the opposed it is not possible to establish any definitive and systematic gender bias. This paper provides new evidence on this topic using a unique experimental dataset. We used data from a field experiment conducted under identical conditions (and monetary payoffs) in 6 Latin American cities, Bogotá, Buenos Aires, Caracas, Lima, Montevideo and San José. Our dataset amounted to 3,107 experimental subjects who played the Trust Game. We will analyze the determinants of behavior of second movers, that is, what determines reciprocal generosity. In sharp contrast to previous papers we found that males are more generous than females. In the light of this result, we carried out a systematic analysis of individual features (income, education, age, etc.) for females and males separately. We found differential motivations for women and men. Third, we see that (individual) education enhances prosocial behavior. Lastly, we see that subjects’ expectations are crucial. |
| Keywords: | reciprocal altruism, gender, education |
| JEL: | C93 D64 J16 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:1609&r=exp |
| By: | Quazi Shahriar (Department of Economics, San Diego State University) |
| Abstract: | Existing experimental studies have shown that an outside option, when offered to one of the two players who later participate in a battle-of-the-sexes game, facilitates coordination by making the equilibrium that favors the same player focal. Since the other player’s payoff in the outside option was lower than that in the focal point, it is possible that there was a reciprocal motive of the other player to coordinate on the focal point. Then it is possible that the actual power of the outside option to generate the focal point was either lower or non-existent. The current paper reports results of an experiment designed to test for the focal point effect of the outside option by controlling for the reciprocal motive of the other player. The results confirm that the outside option can generate the focal point even when the reciprocal motive is absent. In fact, the saliency of the focal point is higher after controlling for reciprocity. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:sds:wpaper:0035&r=exp |
| By: | Lefèbvre, Mathieu (CREPP, Université de Liège); Vieider, Ferdinand M. (CNRS, GATE); Villeval, Marie Claire (CNRS, GATE) |
| Abstract: | Most studies on the role of incentives on risk attitude report data obtained from within-subject experimental investigations. This may however raise an issue of sequentiality of effects as later choices may be influenced by earlier ones. This paper reports instead between-subject results on the effect of monetary stakes on risk attitudes for small probability prospects in a laboratory experiment. Under low stakes, we find the typical risk seeking behavior for small probabilities predicted by the prospect theory. But under high stakes, we provide some evidence that risk seeking behavior is dramatically reduced. This could suggest that utility is not consistently concave over the outcome space, but rather contains a convex section for very small amounts. |
| Keywords: | risk attitude, incentives, decision, experiment |
| JEL: | C91 D81 D89 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4545&r=exp |
| By: | Großer, Jens (Florida State University); Reuben, Ernesto (Columbia University) |
| Abstract: | We study the interaction between competitive markets that produce large but unequally distributed welfare gains and elections through which the poor majority can redistribute income away from the rich minority. In our simple laboratory democracy, subjects first earn their income by trading in a double auction market and thereafter vote on redistributive policies in two-candidate elections. In addition, in one of the treatments subjects can attempt to influence the candidates’ policy choices by transferring money to them. We observe very high levels of redistribution – even when transfers to candidates are possible – with little effect on market efficiency. Overall, the experimental results are explained by our equilibrium predictions. |
| Keywords: | redistribution, double auction, elections, lobbying |
| JEL: | H23 D41 D72 D73 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4549&r=exp |
| By: | Carmen Herrero (U. de Alicante e IVIE); Juan D. Moreno-Ternero (U. de Málaga, Universidad Pablo de Olavide y CORE, Universit´e catholique de Louvain); Giovanni Ponti (U. de Alicante y Università di Ferrara) |
| Abstract: | This paper reports an experimental study on three well-known solutions for problems of adjudicating conflicting claims: the constrained equal awards, the proportional, and the constrained equal losses rules. We first let subjects play three games designed such that the unique equilibrium allocation coincides with the recommendation of one of these three rules. In addition, we let subjects play an additional game, that has the property that all (and only) strategy profiles in which players coordinate on the same rule constitute a strict Nash equilibrium. While in the first three games subjects’ play easily converges to the unique equilibrium rule, in the last game the proportional rule overwhelmingly prevails as a coordination device, especially when we frame the game as an hypothetical bankruptcy situation. We also administered a questionnaire to a different group of students, asking them to act as impartial arbitrators to solve (among others) the same problems played in the lab. Also in this case, respondents were sensitive to the framing of the questions, but the proportional rule was selected by the vast majority of respondents. |
| Keywords: | Claims problems, Proportional rule, Experimental Economics |
| JEL: | C91 D63 D74 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:09.10&r=exp |
| By: | Julian Jamison; David Owens; Glenn Woroch |
| Abstract: | Firms often face choices about when to upgrade and what to upgrade to. We discuss this in the context of upgrading to a new technology (for example, a new computer system), but it applies equally to the upgrading of processes (for example, a new organizational structure) or to individual choices (for example, buying a new car). This paper uses an experimental approach to determine how people address such problems, with a particular focus on the impact of information flows. Specifically, subjects face a multi-round decision, choosing when (if ever) to upgrade from the status quo to either a safe or a risky new technology. The safe technology yields more than the status quo, and the risky technology may yield either less than the status quo or more than the safe technology. Every round, subjects who have not yet upgraded receive noisy information about the true quality of the risky technology. Our focus on the timing of endogenous choice is novel and differentiates the results from previous experimental papers on herding and cascades. We find that, in the single-person decision problem, subjects tend to wait too long before choosing (relative to optimal behavior). In the second treatment, they observe payoff-irrelevant choices of other subjects. This turns out to induce slightly faster decisions, so the "irrationality" of fads actually improves profits in our framework. In the third and final treatment, subjects observe payoff-relevant choices of other subjects (that is, others who have the same value for the risky technology but independent private signals). Behavior here is very similar to the second treatment, so having "real" information does not seem to have a strong marginal effect. Overall we find that social learning, whether or not the behavior of others is truly informative, plays a large role in upgrade decisions and hence in technology diffusion. |
| Keywords: | Human behavior |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:09-11&r=exp |
| 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); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Jason Shogren (Departement Economy and Finance, University of Wyoming - University of Wyoming) |
| Abstract: | This paper considers whether earned wealth affects bidding behavior in an induced-value second-price auction. We find people bid more sincerely in the auction with earned wealth given monetary incentives; earned wealth did not induce sincere bidding in hypothetical auctions. |
| Keywords: | Auctions; Demand revelation; Experimental valuation; Hypothetical bias; Earned money |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00429894_v1&r=exp |
| By: | Carmen Herrero (Universidad de Alicante); Juan D. Moreno-Ternero (Department of Economic Theory, Universidad de Mˆlaga); Giovanni Ponti (Universidad de Alicante) |
| Abstract: | This paper reports an experimental study on three well-known solutions for problems of adjudicating conflicting claims: the constrained equal awards, the proportional, and the constrained equal losses rules. We first let subjects play three games designed such that the unique equilibrium allocation coincides with the recommendation of one of these three rules. In addition, we let subjects play an additional game, that has the property that all (and only) strategy profiles in which players coordinate on the same rule constitute a strict Nash equilibrium. While in the first three games subjectsÕ play easily converges to the unique equilibrium rule, in the last game the proportional rule overwhelmingly prevails as a coordination device, especially when we frame the game as an hypothetical bankruptcy situation. We also administered a questionnaire to a different group of students, asking them to act as impartial arbitrators to solve (among others) the same problems played in the lab. Also in this case, respondents were sensitive to the framing of the questions, but the proportional rule was selected by the vast majority of respondents. |
| Keywords: | Claims problems, Proportional rule, Experimental Economics |
| JEL: | C91 D63 D74 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:mal:wpaper:2009-5&r=exp |
| By: | Cheung, Stephen L. (University of Sydney); Palan, Stefan (University of Graz) |
| Abstract: | We study the effect of team decision-making on bubbles and crashes in experimental asset markets of the kind introduced by Smith, Suchanek and Williams (1988). We find that populating such markets with teams of size two instead of individuals significantly reduces the severity of mispricing. In particular we observe that under our teams treatment, deviations in prices away from intrinsic value are significantly smaller in magnitude, shorter in duration and associated with lower volume and price volatility. We also find an unexpected gender effect in team composition, manifesting itself in more extreme – though not consistently more profitable – behaviour by all-male teams. Since these effects are not observed among male participants generally, we conjecture that they may be due to factors specific to the psychology of decision-making in male-dominated environments. |
| Keywords: | asset market experiments, price bubbles, group decision-making, gender composition of teams |
| JEL: | C92 D70 G12 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4507&r=exp |
| By: | Gill, David (University of Southampton); Prowse, Victoria L. (University of Oxford) |
| 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: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4536&r=exp |
| By: | Gerlinde Fellner; Rupert Sausgruber; Christian Traxler |
| Abstract: | We run a large-scale natural field experiment to evaluate alternative strategies to en- force compliance with the law. The experiment varies the text of mailings sent to potential evaders of TV license fees. We find a strong alert effect of mailings, leading to a substantial increase in compliance. Among different mailing conditions a legal threat that stresses a high detection risk has a significant and highly robust deterrent effect. Neither appealing to morals nor imparting information about others' behavior enhances compliance. However, the information condition has a positive effect in municipalities where evasion is believed to be common. Overall, the economic model of crime performs remarkably well in explaining our data. |
| Keywords: | Field experiments, law enforcement, compliance, deterrence |
| JEL: | K42 C93 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2009_23&r=exp |
| By: | Alice Becker (Max Planck Institute for Economics, Jena); Tobias Brünner (Goethe University Frankfurt) |
| Abstract: | A unique indivisible commodity with an unknown common value is owned by group of individuals and should be allocated to one of them while compensating the others monetarily. We study the so-called fair division game (Güth, Ivanova-Stenzel, Königstein, and Strobel (2002, 2005)) theoretically and experimentally for the common value case and compare our results to the corresponding common value auction. Whereas symmetric risk neutral Nash equilibria are rather similar for both games, behavior differs strikingly. Implementing auctions and fair division games in the lab in a repeated setting under first- and second-price rule, we find that overall behavior is much more dispersed for the fair division games than for the auctions. Winners' profit margins and shading rates are on average slightly lower for the fair division game. Moreover, we find that behavior in the fair division game separates into extreme over- and underbidding. |
| Keywords: | common value auction, winner's curse, fair division game |
| JEL: | C73 C91 D44 |
| Date: | 2009–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-090&r=exp |
| By: | Pearson, Matthew (University of California, Davis); Schipper, Burkhard C. (University of California, Davis) |
| 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 Honekopp, Manning and Muller, 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. |
| JEL: | C72 C91 C92 D44 D81 D87 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ucdeco:09-12&r=exp |
| By: | Etienne Farvaque (EQUIPPE - Université de Lille I); Hubert Jayet (EQUIPPE - Université de Lille I); Lionel Ragot (EQUIPPE - Université de Lille I, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | In this paper, we expose the results of a voting experiment realised in 2007, during the French Presidential election. This experiment aimed at confronting the Single Transferable vote (SVT) procedure to two criteria : simplicity and the selection of a Condorcet-winner. Building on our electoral sample's preferences, we show that this voting procedure can design a different winner, depending on the vote counting process. With the vote counting process advocated by Hare, the winner is Nicolas Sarkozy, while the Coombs vote counting process has François Bayrou as winner. For these two vote counting processes, the details of the experiment are the same and it is shown that the simplicity criterion is respected. However, with regard to the Condorcet-winner criterion, the Coombs methods is the only one to elect the Condorcet-winner, i.e. François Bayrou. |
| Keywords: | Field experiments, elections, Single Transferable Vote, voting system, Condorcet Winner. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00429725_v1&r=exp |
| By: | Michael Kirchler; Jürgen Huber; Thomas Stöckl |
| Abstract: | For the past two decades a market model introduced by Smith, Suchanek, and Williams (1988, henceforth SSW) has dominated experimental research on financial markets. In SSW the fundamental value of the traded asset is determined by the expected value of a finite stream of dividend payments. This setup implies a deterministically falling fundamental value with a predetermined end of the life-span of the asset and extremely high dividend-payouts. We present a new market model in which we implement the fundamental value by adopting a random walk process. Compared to SSW-markets, prices in the new markets (SAVE) are more efficient and end-of-experiment imbalances common in SSW-markets are not observed. Our results demonstrate, that implicit features of the SSW market model contribute to bubble formation. |
| Keywords: | Experimental economics, asset market, bubble, market efficiency |
| JEL: | C92 D83 D84 G12 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2009-26&r=exp |
| By: | Fabian Winter (Max Planck Institute of Economics, Jena); Heiko Rauhut (ETH Zurich, Swiss Federal Institute of Technology); Dirk Helbing (ETH Zurich, Swiss Federal Institute of Technology) |
| Abstract: | Norms play an important role in establishing social order. The current literature focuses on the emergence, maintenance and impact of norms with regard to coordination and cooperation. However, the issue of norm-related conflict deserves more attention. We develop a general theory of "normative conflict" by differentiating between two different kinds of conflict. The first results from distinct expectations of which means should be chosen to fulfil the norm, the second from distinct expectations of how strong the norm should restrain the self-interest. We demonstrate the empirical relevance of normative conflict in an experiment that applies the "strategy method" to the ultimatum game. Our data reveal normative conflict among different types of actors, in particular among egoistic, equity, equality and "cherry picker" types. |
| Keywords: | Social norms, normative conflict, cooperation, ultimatum game, strategy method, equity |
| JEL: | Z13 C91 D30 |
| Date: | 2009–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2009-087&r=exp |
| By: | Rupert Sausgruber; Jean-Robert Tyran |
| Abstract: | Tax incentives can be more or less salient, i.e. noticeable or cognitively easy to process. Our hypothesis is that taxes on consumers are more salient to consumers than equivalent taxes on sellers because consumers underestimate the extent of tax shifting in the market. We show that tax salience biases consumers’ voting on tax regimes, and that experience is an effective de-biasing mechanism in the experimental laboratory. Pre-vote deliberation makes initially held opinions more extreme rather than correct and does not eliminate the bias in the typical committee. Yet, if voters can discuss their experience with the tax regimes they are less likely to be biased. |
| Keywords: | Tax salience, learning, deliberation, voting |
| JEL: | C92 H22 D72 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2009_25&r=exp |
| By: | Angela A. Hung; Joanne Yoong |
| Abstract: | When do individuals actually improve their financial behavior in response to advice? Using survey data from current defined-contribution plan holders in the RAND American Life Panel (a probability sample of US households), the authors find little evidence of improved DC plan behaviors due to advice, although they cannot rule out problems of reverse causality and selection. To complement the analysis of survey data, they design and implement a hypothetical choice experiment in which ALP respondents are asked to perform a portfolio allocation task, with or without advice. Their results show that unsolicited advice has no effect on investment behavior, in terms of behavioral outcomes. However, individuals who actively solicit advice ultimately improve performance, in spite of negative selection on financial ability. One interesting implication for policymakers is that expanding access to advice can have positive effects (particularly for the less financially literate); however, more extensive compulsory programs of financial counseling may be ultimately ineffective. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:714&r=exp |
| By: | Lefèbvre, Mathieu (CREPP, Université de Liège); Vieider, Ferdinand M. (CNRS, GATE); Villeval, Marie Claire (CNRS, GATE) |
| Abstract: | The ratio bias – according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers – has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not change this outcome. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best. |
| Keywords: | ratio bias, financial incentives, error rates, experiment |
| JEL: | C91 D81 I19 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4546&r=exp |
| By: | Li, Jingping; Riyanto, Yohanes E. |
| Abstract: | Harbaugh (1998a) has shown theoretically that charities can increase the size of donations by publicly acknowledging their donors using categories. In a complementary paper,using the data on the donations given by 146 lawyers to their almamater law school, Harbaugh (1998b) provided empirical support for this theoretical assertion. Essentially, being acknowledged in categories gives donors some prestige benefits. In this paper, we experimentally investigate the impact of various reporting plans as described in Harbaugh (1998a and 1998b) on the behavior of donors. Our results show that, although the category reporting plan has no significant impact on the size of donations when compared to the exact reporting plan and the no reporting plan, it does signi ficantly alter the charitable behavior of donors. We show that the presence of a category reporting plan induces the clustering of donations on the lower boundaries of categories, which suggests that donors are motivated by prestige. We also discover that in some circumstances the presence of prestige benefi ts crowds out the warm glow motive for giving. |
| Keywords: | laboratory experiment; charitable giving; reporting plans; prestige; warm glow |
| JEL: | D64 C90 H00 C91 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18414&r=exp |
| By: | Johanna Etner (CERSES - Centre de recherche sens, ethique, société - CNRS : UMR8137 - Université Paris Descartes - Paris V); Meglena Jeleva (GAINS - Université du Maine); Jean-Marc Tallon (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) |
| Abstract: | We review recent advances in the field of decision making under uncertainty or ambiguity. |
| Keywords: | Ambiguity, ambiguity aversion, uncertainty, decision. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00429573_v1&r=exp |