nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒11‒27
twelve papers chosen by
Daniel Houser
George Mason University

  1. Redistributive Politics and Market Efficiency: An Experimental Study By Jens Großer; Ernesto Reuben
  2. Information Gatekeepers: Theory and Experimental Evidence By Brocas, Isabelle; Carrillo, Juan D; Palfrey, Thomas R
  3. Buy-it-Now Prices in eBay Auctions-The Field in the Lab By Tim Grebe; Radosveta Ivanova-Stenzel; Sabine Kröger
  4. Measuring attention and strategic behavior in games with private information By Brocas, Isabelle; Camerer, Colin; Carrillo, Juan D; Wang, Stephanie W.
  5. Communication, Renegotiation, and the Scope for Collusion By Cooper, David J.; Kühn, Kai-Uwe
  6. Paying for Confidence: An Experimental Study of the Demand for Non-Instrumental Information By Eliaz, Kfir; Schotter, Andrew
  7. Strategies in Social Network Formation By Anna Conte; Daniela Di Cagno; Emanuela Sciubba
  8. Leadership in a Weak-Link Game By Joris Gillet; Edward Cartwright; Mark Van Vugt
  9. Gender Differences Disappear with Exposure to Competition By Christopher Cotton; Frank McIntyre; Joseph Price
  10. Fines, Leniency and Rewards in Antitrust: an Experiment By Bigoni, Maria; Fridolfsson, Sven-Olof; Le Coq, Chloé; Spagnolo, Giancarlo
  11. Going on the Long Race? - Employment Duration and (De)Regulation of Experimental Stochastic Labor Markets By Siegfried Berninghaus; Sabrina Bleich; Werner Güth
  12. Evaluating Nonexperimental Estimators for Multiple Treatments: Evidence from Experimental Data By Carlos A. Flores; Oscar A. Mitnik

  1. By: Jens Großer; Ernesto Reuben
    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.
    Date: 2009–11–12
  2. By: Brocas, Isabelle; Carrillo, Juan D; Palfrey, Thomas R
    Abstract: We consider a model where two adversaries can spend resources in acquiring public information about the unknown state of the world in order to influence the choice of a decision maker. We characterize the sampling strategies of the adversaries in the equilibrium of the game. We show that, as the cost of information acquisition for one adversary increases, that person collects less evidence whereas the other adversary collects more evidence. We then test the results in a controlled laboratory setting. The behavior of subjects is close to the theoretical predictions. Mistakes are relatively infrequent (15%). They occur in both directions, with more over-sampling (39%) than under-sampling (8%). The main difference with the theory is the smooth decline in sampling around the theoretical equilibrium. Comparative statics are also consistent with the theory, with adversaries sampling more when their own cost is low and when the other adversary's cost is high. Finally, there is little evidence of learning over the 40 matches of the experiment.
    Keywords: adversarial system; experiment; information acquisition; search
    JEL: C91 D83
    Date: 2009–09
  3. By: Tim Grebe; Radosveta Ivanova-Stenzel; Sabine Kröger
    Abstract: This article is an experimental investigation on decision making in online auction markets. We focus on a widely used format, the Buy-It-Now auction on eBay, where sellers post prices at which buyers can purchase a good prior to an auction. Even though, buyer behavior is well studied in Buy-It-Now auctions, up to date little is known about the behavior of sellers. In this article, we study how sellers set Buy-It-Now prices by combining the use of a real online auction market (the eBay platform and eBay traders) with the techniques of lab experiments. We find a striking relation between information about agents provided by eBay and their behavior. Information about buyers is correlated with their deviation from true value bidding. Sellers respond strategically to this information when deciding on their Buy-It-Now prices. Our results highlight consequences of information publicly available in (online) markets and underline the crucial role of institutional details.
    Keywords: Electronic markets, experience, online auctions, BIN price, buyout price, risk, single item auction, private value, experiment
    JEL: C72 C91 D44 D82
    Date: 2009
  4. By: Brocas, Isabelle; Camerer, Colin; Carrillo, Juan D; Wang, Stephanie W.
    Abstract: In experiments, people do not always appear to think very strategically or to infer the information of others from their choices. To understand this thinking process further, we use "Mousetracking" to record which game payoffs subjects look at, for how long, in games of private information with three information states, which vary in strategic complexity. Subjects often deviate from Nash equilibrium choices, converge only modestly toward equilibrium across 40 trials, and often fail to look at payoffs which they need to in order to compute an equilibrium response. Theories such as QRE and cursed equilibrium, which can explain non-equilibrium choices, are not well supported by the combination of both choices and lookups. When cluster analysis is used to group subjects according to lookup patterns and choices, the clusters appear to correspond approximately to level-3, level-2 and level-1 thinking in level-k cognitive hierarchy models. The connection between looking and choices is strong enough that the time durations of looking at key payoffs can predict choices, to some extent, at the individual level and at the trial-by-trial level.
    Keywords: asymmetric information; attention; laboratory experiment; mousetracking
    JEL: C92 D82
    Date: 2009–11
  5. By: Cooper, David J.; Kühn, Kai-Uwe
    Abstract: We use experiments to analyze what type of communication is most effective in achieving cooperation in a simple collusion game. Consistent with the existing literature on communication and collusion, even minimal communication leads to a short run increase in collusion. However, in a limited message-space treatment where subjects cannot communicate contingent strategies, this initial burst of collusion rapidly collapses. When unlimited pre-game communication is allowed via a chat window, an initial decline in collusion is reversed over time. Content analysis is used to identify multiple channels by which communication improves collusion in this setting. Explicit threats to punish cheating prove to be by far the most important factor to successfully establish collusion, consistent with the existing theory of collusion. However, collusion is even more likely when we allow for renegotiation, contrary to standard theories of renegotiation. What appears critical for the success of collusion with renegotiation is that cheaters are often admonished in strong terms. Allowing renegotiation therefore appears to increase collusion by allowing for an inexpensive and highly effective form of punishment.
    Keywords: collusion; communication; experiments; guilt aversion; renegotiation; trust
    JEL: C72 C73 C92 D43 L13 L41
    Date: 2009–11
  6. By: Eliaz, Kfir; Schotter, Andrew
    Abstract: This paper presents experimental evidence that when individuals are about to make a given decision under risk, they are willing to pay for information on the likelihood that this decision is ex-post optimal, even if this information will not affect their decision. Our findings suggest that this demand for non-instrumental information is caused by what we refer to as a "confidence effect": the desire to increase one’s posterior belief by ruling out "bad news", even when such news would have no effect on one’s decision. We conduct various treatments to show that our subjects’ behavior is not likely to be caused by an intrinsic preference for information, failure of backward induction or an attempt to minimize thinking costs.
    Keywords: Anticipatory feelings; Disjunction effect; Non-instrumental information; Thinking costs
    JEL: C91 D81
    Date: 2009–08
  7. By: Anna Conte (Max-Planck-Institut für Ökonomik); Daniela Di Cagno (LUISS Guido Carli); Emanuela Sciubba (Birkbeck College)
    Abstract: We run a computerised experiment of network formation where all connections are beneficial and only direct links are costly. Players simultaneously submit link proposals; a connection is made only when both players involved agree. We use both simulated and experimentally generated data to test the determinants of individual behaviour in network formation. We find that approximately 40% of the network formation strategies adopted by the experimental subjects can be accounted for as best responses. We test whether subjects follow alternative patterns of behaviour and in particular if they: propose links to those from whom they have received link proposals in the previous round; propose links to those who have the largest number of direct connections. We find that together with best response behaviour, these strategies explain approximately 75% of the observed choices. We estimate individual propensities to adopt each of these strategies, controlling for group effects. Finally we estimate a mixture model to highlight the proportion of each type of decision maker in the population.
    Keywords: network formation, experiments, mixture models
    Date: 2009–11–16
  8. By: Joris Gillet; Edward Cartwright; Mark Van Vugt
    Abstract: We investigate, experimentally, the effects of leadership in a four player weak-link game. A weak-link game is a coordination game with multiple Pareto-ranked Nash equilibria. Because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria. Previous studies have shown that leadership by example - in the form of one player acting publicly before the rest of the group - can lead to increased cooperation in collective action problems and we are interested in finding out whether this result extends to weak-link games. Our results suggest that leadership has no effect on initial behavior; the first time that they play the game participants behave the same with leadership as without. We also observe, however, that leadership can allow groups to raise efficiency over time and therefore overcome inefficiency. There doesn't appear to be a difference between voluntary leaders and leaders that are (randomly) appointed.
    Keywords: Leadership; coordination game; weak-link game; minimum-effort game
    JEL: C72 D01 H41
    Date: 2009–10
  9. By: Christopher Cotton (Department of Economics, University of Miami); Frank McIntyre (Department of Economics, Brigham Young University, Provo, UT 84602); Joseph Price (Department of Economics, Brigham Young University, Provo, UT 84602)
    Abstract: Past research nds that males outperform females in competitive situations. Using data from multiple-round math tournaments, we verify this nding during the initial round of competition. The performance gap between males and females, however, disappears after the rst round. In later rounds, only math ability (not gender) serves as a signicant predictor of performance. Several possible explanations are discussed. The results suggest that we should be cautious about using data from one-round experiments to generalize about behavior.
    Keywords: Competitiveness,Gender Differences, Field Experiment
    JEL: J16 C93
    Date: 2009–09
  10. By: Bigoni, Maria; Fridolfsson, Sven-Olof; Le Coq, Chloé; Spagnolo, Giancarlo
    Abstract: This paper reports results from an experiment studying how fines, leniency programs and reward schemes for whistleblowers affect cartel formation and prices. Antitrust without leniency reduces cartel formation, but increases cartel prices: subjects use costly fines as (altruistic) punishments. Leniency further increases deterrence, but stabilizes surviving cartels: subjects appear to anticipate harsher times after defections as leniency reduces recidivism and lowers post-conviction prices. With rewards, cartels are reported systematically and prices finally fall. If a ringleader is excluded from leniency, deterrence is unaffected but prices grow. Differences between treatments in Stockholm and Rome suggest culture may affect optimal law enforcement.
    Keywords: Cartels; Collusion; Competition policy; Coordination; Corporate crime; Desistance; Deterrence; Law enforcement; Organized crime; Price-fixing; Punishment; Whistleblowers
    JEL: C73 C92 K21 L41
    Date: 2009–08
  11. By: Siegfried Berninghaus (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe); Sabrina Bleich (Institut für Wirtschaftstheorie und Operations Research, University of Karlsruhe); Werner Güth (Max Planck Institute of Economics, Jena)
    Abstract: If the future market wage is uncertain, engaging in long-term employment is risky, with the risk depending on how regulated the labor market is. In our experiment long-term employment can result either from offering long-term contracts or from repeatedly and mutually opting for rematching. Treatments differ in how regulations restrict the employer's flexibility in adapting the employment contract to changes of the market (wage). All treatments allow for longer contract duration as well as for mutually opting to be rematched. Effort is chosen by employees after a contract is concluded. Treatments vary from no flexibility to no restriction at all. Will more (downward) flexibility be used in ongoing employment but reduce efficiency? If so, deregulation may weaken rather than promote labor market efficiency. And will regulation crowd out long-term employment, either in the form of long-term contracts or voluntary rematching?
    Keywords: deregulation, employment contracts, wage flexibility, principal-agent theory, experimental economics, repeated interaction
    JEL: C72 C90 F16 J21 J24 L10
    Date: 2009–11–12
  12. By: Carlos A. Flores (Department of Economics, University of Miami); Oscar A. Mitnik (Department of Economics, University of Miami and IZA)
    Abstract: This paper assesses the e¤ectiveness of unconfoundedness-based estimators of mean e¤ects for multiple or multivalued treatments in eliminating biases arising from nonrandom treatment assignment. We evaluate these multiple treatment estimators by simultaneously equalizing average outcomes among several control groups from a randomized experiment. We study linear regression estimators as well as partial mean and weighting estimators based on the generalized propensity score (GPS). We also study the use of the GPS in assessing the comparability of individuals among the di¤erent treatment groups, and propose a strategy to determine the overlap or common support region that is less stringent than those previously used in the literature. Our results show that in the multiple treatment setting there may be treatment groups for which it is extremely di¢ cult to ?nd valid comparison groups, and that the GPS plays a signi?cant role in identifying those groups. In such situations, the estimators we consider perform poorly. However, their performance improves considerably once attention is restricted to those treatment groups with adequate overlap quality, with di¤erence-in-di¤erence estimators performing the best. Our results suggest that unconfoundedness-based estimators are a valuable econometric tool for evaluating multiple treatments, as long as the overlap quality is satisfactory.
    Date: 2009–09

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