nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒11‒21
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Altruism and Social Integration. By Pablo Brañas-Garza; Ramón Cobo-Reyes; María Paz Espinosa; Natalia Jiménez; Jaromír Kovárík; Giovanni Ponti
  2. Incentive Effects on Risk Attitude in Small Probability Prospects By Mathieu Lefebvre; Ferdinand Vieider; Marie-Claire Villeval
  3. Personal identity. A theoretical and experimental analysis. By Fernando Aguiar; Pablo Brañas-Garza; María Paz Espinosa; Luis M. Miller
  4. Sequential vs. Simultaneous Schelling Models: Experimental Evidence By Juan Miguel Benito; Pablo Brañas-Garza; Penélope Hernández; Juan A. Sanchis
  5. The power of delegation: Allowing workers to choose their wage By Ramón Cobo-Reyes; Natalia Jiménez; Juan Antonio Lacomba; Francisco Lagos
  6. CSR, rationality and the ethical preferences of investors in a laboratory experiment By Costanza Consolandi; Alessandro Innocenti; Alessandro Vercelli
  7. Walking the Talk in Multiparty Bargaining: An Experimental Investigation By Kathleen L. McGinn; Katherine L. Milkman; Markus Nöth
  8. Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis By Christian Thöni; Simon Gächter
  9. The Impact of Risk Aversion and Stress on the Incentive Effect of Performance Pay By C. Bram Cadsby; Fei Song; Francis Tapon
  10. The Ratio Bias Phenomenon : Fact or Artifact ? By Mathieu Lefebvre; Ferdinand Vieider; Marie-Claire Villeval
  11. Framing effects of risk communication in health-related decision making. Learning from a discrete choice experiment By Florence Nguyen; Marie-Odile Carrere; Nora Moumjid
  12. Fairness Concerns in Environmental Economics - Do They Really Matter and If So How? By Johansson-Stenman, Olof; Konow, James
  13. Teaching Bank Runs with Classroom Experiments By Balkenborg, Dieter; Kaplan, Todd R.; Miller, Tim
  14. Measurement of Social Preference from Utility-Based Choice Experiments By Katsunori Yamada; Masayuki Sato; Yasuhiro Nakamoto

  1. By: Pablo Brañas-Garza (Universidad de Granada); Ramón Cobo-Reyes (Universidad de Granada); María Paz Espinosa (The University of the Basque Country); Natalia Jiménez (Universidad de Granada); Jaromír Kovárík (The University of the Basque Country); Giovanni Ponti (Università di Ferrara and Universidad de Alicante)
    Abstract: We report on a two-stage experiment in which i) we first elicit the social network within a section of undergraduate students and ii) we then measure their altruistic attitudes by means of a standard Dictator game. We observe that more socially integrated subjects are also more altruistic, as betweenness centrality and reciprocal degree are positively correlated with the level of giving, even after controlling for framing and social distance, which have been shown to significantly affect giving in previous studies. Our findings suggest that social distance and social integration are complementary determinants of altruistic behavior.
    Keywords: Altruism, centrality, social network experiments.
    JEL: C93 D85
    Date: 2009–11–16
  2. By: Mathieu Lefebvre (University of Liège, CREPP; Boulevard du Rectorat, 7 Bâtiment 31, boîte 39, 4000 Liège, Belgium); Ferdinand Vieider (University Lyon 2, Lyon, F-69007, France; CNRS, GATE, 93, Chemin de Mouilles Ecully, F- 69130, France, and DIW, Berlin, Germany); Marie-Claire Villeval (University Lyon 2, Lyon, F-69007, France; CNRS, GATE, 93, Chemin de Mouilles Ecully, F- 69130, France, IZA, Bonn, Germany, and CCP, Aarhus, Denmark)
    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
  3. By: Fernando Aguiar (IESA-CSIC); Pablo Brañas-Garza (Universidad de Granada); María Paz Espinosa (The University of the Basque Country); Luis M. Miller (University of Oxford)
    Abstract: This paper aims to analize the role of personal identity in altruism. To this end, it starts by reviewing critically the growing literature on economics and identity. Considering the ambiguities that the concept of social identity poses, our proposal focuses on the concept of personal identity. A formal model to study how personal identity enters in individuals' utility function when facing a Dictator Game decision is then presented. Finally, this 'identity-based' utility function is studied experimentally. The experiment allows us to study the main parameters of the model, suggesting that we should move with caution when attributing identities to individuals.
    Keywords: personal identity, dictator game, game theory, experiments.
    Date: 2009–11–16
  4. By: Juan Miguel Benito (Universidad Pública de Navarra (Spain)); Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Penélope Hernández (Universitat de Valéncia and ERI-CES (Spain)); Juan A. Sanchis (Universitat de Valéncia and ERI-CES (Spain))
    Abstract: This work shows the results of experiments where subjects play the Schelling's spatial proximity model (1969, 1971a), in which choices are made sequentially, and a variation of it where the decision-making is simultaneous. The results of the sequential experiments are identical to Schelling's prediction: subjects finish in a segregated equilibrium. Likewise, in the variant of simultaneous decision the same result is reached: segregation. Subjects’ heterogeneity generates a series of focal points in the first round; the subjects in order to locate themselves use these focal points immediately, and as a result, the segregation takes place again.
    Keywords: Schelling models, economic experiments, segregation
    Date: 2009–09–29
  5. By: Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada.); Natalia Jiménez (Department of Economic Theory and Economic History, University of Granada.); Juan Antonio Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco Lagos (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: This paper analyzes the effect of delegating on the employees’ performance in an experimental gift exchange game where employers may allow workers to choose their own wages. Our results show that higher effort levels are displayed when workers are free to choose their wage, even when wages chosen by employees are similar to those assigned by employers. Notwithstanding this better performance, the employers’ profits depend on whether the wage decision is bounded or not. Perceiving the delegating decision as a signal of trust or as a larger responsibility for the allocation of payoffs, might trigger a higher employees’ performance.
    Keywords: labor market, gift exchange-game, delegation, responsibility-allevietion, reciprocity, experiments.
    Date: 2009–10–07
  6. By: Costanza Consolandi; Alessandro Innocenti; Alessandro Vercelli
    Abstract: This experimental study aims to clarify to what extent and in which direction investors react to CSR (Corporate Social Responsibility) initiatives meant to upgrade the ethical standards of firms beyond the minimal requirements of law. Subjects in the laboratory were invited to invest their endowment in a portfolio of financial assets. We provided information on the expected returns of each stock and on its inclusion in an ethical index, or exclusion from it. Our findings show that subjects’ behavior appears to be a function not only of their individual pay-offs but also of the information on the ethical standards of the firms issuing stocks. Most of them, however, did not show a fully irrational behavior as they consistently correlated the share of stocks with their expected returns. We may conclude that the sizeable reaction of our sample’s investors to the inclusion of a stock in the ethical index, or its exclusion from it, is the fruit of a deliberate choice.
    Keywords: ethical stock indexes, Corporate Social Responsibility, investors, experiment.
    JEL: G30 M14 Q56
    Date: 2009–08
  7. By: Kathleen L. McGinn (Harvard Business School, Negotiation, Organizations & Markets Unit); Katherine L. Milkman (Wharton School, University of Pennsylvania); Markus Nöth (Universität Hamburg,)
    Abstract: We study the framing effects of communication in multiparty bargaining. Communication has been shown to be more truthful and revealing than predicted in equilibrium. Because talk is preference-revealing, it may effectively frame bargaining around a logic of fairness or competition, moving parties on a path toward or away from equal-division agreements. These endogenous framing effects may outweigh any overall social utility effects due to the mere presence of communication. In two experiments, we find that non-binding talk of fairness within a three-party, complete-information game leads toward off-equilibrium, equal division payoffs, while non-binding talk focusing on competitive reasoning moves parties away from equal divisions. Our two studies allow us to demonstrate that spontaneous within-game dialogue and manipulated pre-game talk lead to the same results.
    Keywords: communication, fairness, bargaining
    JEL: C72 C78 D74
    Date: 2009–11
  8. By: Christian Thöni; Simon Gächter
    Abstract: We investigate the impact of wage comparisons for worker productivity. We present three studies which all use three-person gift-exchange experiments. Consistent with Akerlof and Yellen's (1990) fair wage-effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average. Two studies allow us to measure wage comparison effects at the individual level. We observe strongly heterogeneous wage comparison effects. We also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences.
    Keywords: fair wage-effort hypothesis, wage comparison, gift exchange, horizontal fairness, discrimination
    JEL: J31 J71 C91 C92
    Date: 2009–11
  9. By: C. Bram Cadsby (Department of Economics, University of Guelph); Fei Song (Ted Rogers School of Business Management, Ryerson University); Francis Tapon (Department of Economics, University of Guelph)
    Abstract: We demonstrate that effectiveness of performance-contingent incentives is inversely related to individual risk-aversion levels through two mechanisms: 1) rational optimizing decisions about the amount of effort to supply when effort is positively correlated with risk exposure and 2) the possibly choke-inducing stress accompanying financial uncertainty. In two laboratory studies using real-effort tasks, we find a significant inverse relationship between productivity improvement under performance pay and risk-aversion levels. Moreover, we show that both mechanisms help explain this result. For about 25% of participants, performance actually deteriorates under performance pay, and the probability of such deterioration increases with risk aversion and stress.
    Keywords: risk aversion, performance pay, incentive, stress, choking under pressure, productivity, pay for performance, piece rate, experiment, compensation.
    JEL: C91 M52 J33
    Date: 2009
  10. By: Mathieu Lefebvre (University of Liège, CREPP; Boulevard du Rectorat, 7 Bâtiment 31, boîte 39, 4000 Liège, Belgium); Ferdinand Vieider (University Lyon 2, Lyon, F-69007, France; CNRS, GATE, 93, Chemin de Mouilles Ecully, F- 69130, France, and DIW, Berlin, Germany); Marie-Claire Villeval (University Lyon 2, Lyon, F-69007, France; CNRS, GATE, 93, Chemin de Mouilles Ecully, F- 69130, France, IZA, Bonn, Germany, and CCP, Aarhus, Denmark)
    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: D81 I19
    Date: 2009
  11. By: Florence Nguyen (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France ; Centre Leon Berard, Lyon, F-69003, France); Marie-Odile Carrere (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France ; Centre Leon Berard, Lyon, F-69003, France); Nora Moumjid (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France ; Centre Leon Berard, Lyon, F-69003, France)
    Abstract: Background How to communicate uncertainty is a major concern in medicine and in health economics. We aimed at studying the framing effects of risk communication on stated preferences in a discrete choice experiment (DCE) performed to elicit women’s preferences for Hormone Replacement Therapy. Methods Two versions of the questionnaire were randomly administered to respondents. Multiple risks were expressed as natural frequencies using either a constant reference class (Design 1) or variable reference classes (Design 2). We first tested whether Design 1 would impose a lower cognitive burden than Design 2. We then examined whether the two designs resulted in different utility model estimates. Results Design 1 improved consistency (monotonicity and stability). However, rates of dominance or intransitive responses did not differ across designs. Design 1 decreased women’s sensitivity to the risk of fractures and increased their sensitivity to the risk of breast cancer as compared to all other attributes. Discussion Framing effects of risk communication on stated preferences may be a major problem in the design of DCEs. More research is needed to determine whether our findings are replicable and to further investigate the normative question of how to improve risk communication in health-related decision-making.
    Keywords: Framing effects, Risk communication, Discrete choice experiment
    JEL: C12 I19 D83
    Date: 2009
  12. By: Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Konow, James (Department of Economics, Loyola Marymount University)
    Abstract: Are fairness concerns of relevance to environmental economics and, if so, are they sufficiently structured to improve analysis in this field? On both of these questions, we answer in the affirmative, arguing that people’s fairness views are based on both general rules and the context, where context refers to the set of variables and persons employed to interpret and apply the principles. The fairness rules analyzed are accountability (i.e., rewards that are proportional to contributions individuals control), efficiency, need and equality. We conclude that stakeholders typically exhibit a “fairness bias”, i.e., they tend, consciously or not, to interpret and apply fairness principles in a self-serving manner, whereas the views of spectators, or impartial third parties, tend to converge significantly more. Further, we argue that fairness considerations are relevant to both descriptive and prescriptive analysis in environmental economics. These fairness concerns are reflected in the behavior of private and public decision-makers and have potentially important policy implications through the overall social objective function.<p>
    Keywords: Justice; Fairness rules; accountability; equity theory; environmental economics
    JEL: D63 H40 Q50
    Date: 2009–11–16
  13. By: Balkenborg, Dieter; Kaplan, Todd R.; Miller, Tim
    Abstract: Once relegated to cinema or history lectures, bank runs have become a modern phenomenon that captures the interest of students. We use a simple classroom experiment based upon the Diamond-Dybvig Model (1983) to demonstrate how a bank run, a seemingly irrational event, can occur rationally. We then present possible topics for discussion including various ways to prevent bank runs and moral hazard.
    Keywords: bank runs; multiple equilibria
    JEL: A22 C92 G21
    Date: 2009–01–12
  14. By: Katsunori Yamada; Masayuki Sato; Yasuhiro Nakamoto
    Abstract: Ever since the classical works of Smith and Veblen, economists have recognized that individuals care about their relative positions and status in addition to their own consumption. This paper addresses a new framework of choice experiments in order to specify the shape of utility function with preference externalities. Theoretical studies on social preference, which are conducted without estimating or calibrating important parameters of social preference and put forward various propositions in accordance with the parameters assumed, can refer to the parameters estimated in this paper. Our findings complement those of happiness studies which support the view of social preference. We show that preference externality is, on average, characterized by jealousy among Japanese respondents, and also that heterogeneity in social preference parameters is driven by differences in income levels, age, and gender.
    Date: 2009–11

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