nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒12‒19
twenty papers chosen by
Daniel Houser
George Mason University

  1. Managed Floats to Damp Shocks like 1982-5 and 2006-9: Field and Laboratory Evidence for Chinese Interest in a Single World Currency By Robin Pope, ,; Reinhard Selten,; Sebastian Kube,; Jürgen von Hagen
  2. An Experimental Study of Auctions Versus Grandfathering to Assign Pollution Permits By Goeree, Jacob K.; Holt, Charles A.; Palmer, Karen; Shobe, William; Burtraw, Dallas
  3. Ascending auctions: some impossibility results and their resolutions with final price discounts By Laurent Lamy
  4. Divisible-good uniform price auctions: the role of allocation rules and communication among bidders By Martin Sefton; Ping Zhang
  5. Multi-Unit Auctions and Competition Stricture By Raphaële Préget; Sophie Thoyer
  6. Teaching Opportunity Cost in an Emissions Permit Experiment By Holt, Charles; Myers, Erica; Wråke, Markus; Mandell, Svante; Burtraw, Dallas
  7. The Role of Expectations and Gender in Altruism By Rigdon, Mary L.; Levine, Adam Seth
  8. Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis By Simon Gaechter; Christian Thoeni
  9. Communication, Coordination and Networks By Choi, Syngjoo; Lee, Jihong
  10. Social preferences under risk: an experimental analysis By Bradler, Christiane
  11. Climate Change in a Public Goods Game: Investment Decision in Mitigation versus Adaptation By Hasson, Reviva; Löfgren, Åsa; Visser, Martine
  12. Do clubs foster provision success ? By Mohamed Ali Bchir; Marc Willinger
  13. Discrimination in grading?: experimental evidence from primary school By Sprietsma, Maresa
  14. Preference reversals and disparities between willingness to pay and willingness to accept in repeated markets By Graham Loomes; Chris Starmer; Robert Sugden
  15. Understanding the Plott-Wit-Yang Paradox By Katarina Kalovcova; Andreas Ortmann
  16. The effect of monitoring unemployment insurance recipients on unemployment duration: evidence from a field experiment By John Micklewright; Gyula Nagy
  17. Heuristics and Biases in Travel Mode Choice By Alessandro Innocenti; Patrizia Lattarulo; Maria Grazia Pazienza
  18. Fairness: A Critique to the Utilitarian Approach By Philipp Kircher; Sandra Ludwig; Alvaro Sandroni
  19. Development Assistance, Institution Building, and Social Cohesion after Civil War: Evidence from a Field Experiment in Liberia By James Fearon; Macartan Humphreys; Jeremy Weinstein
  20. The Effect of Mere Agreement on Compliance By M. PANDELAERE; B. BRIERS; S. DEWITTE; L. WARLOP

  1. By: Robin Pope, ,; Reinhard Selten,; Sebastian Kube,; Jürgen von Hagen
    Abstract: This paper’s field evidence is: (1) many official sectors rapidly forget the damage of the 1982-85 exchange rate liquidity crisis and reverted to what caused that crisis, namely a closed economy clean floats perspective; and (2) the 2006-2008/9 exchange rate liquidity shock would have been more drastic but for central bank currency swaps. This evidence is bolstered by a laboratory experiment that incorporates more aspects of real world complexity and more different sorts of official and private sector agents than are feasible in econometric or algebraic investigations and employs a new central bank cooperation-conflict model of exchange rate determination , and is within an umbrella theory of Pope, namely SKAT, the Stages of Knowledge Ahead Theory. SKAT allows for risk effects from stages omitted in normal models, including those from (a) difficulties of agents in evaluating alternatives in a complex environment in which the assumed maximization of expected utility is impossible; and (b) preference for safety and reliability is not trivialized. Our joint field plus laboratory evidence indicates that official sectors should maintain an international exchange rate oriented perspective, or better yet, a single world currency as recommended by Zhou Xiaochuan, head of the People’s Bank of China. To avoid rapid forgetting of havoc from isolationist clean floats and the value of stable exchange rates, a new syllabus, as under the SKAT umbrella, is fundamental in the education of official sector members in order to furnish them with a coherent alternative intellectual framework to current university education that excludes liquidity crises.
    Keywords: clean float, managed float, IMF imposed conditions, exchange rate regime, exchange rate volatility, experiment, SKAT the Stages of Knowledge Ahead Theory, monetary policy, transparent policy, exchange rate shocks, central bank cooperation, central bank conflict
    JEL: D80 F31
    Date: 2009–10
  2. By: Goeree, Jacob K.; Holt, Charles A.; Palmer, Karen; Shobe, William; Burtraw, Dallas (Resources for the Future)
    Abstract: We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot market should erase inefficiencies due to initial mis-allocations. In the experiment, high emitters exercise market power in the spot market and permit holdings under grandfathering remain skewed towards high emitters. Furthermore, the opportunity costs of “free” permits are fully “passed through.” In the auction, the majority of permits are won by low emitters, reducing the need for spot-market trading. Auctions generate higher consumer surplus and slightly lower product prices in the laboratory arkets. Moreover, auctions eliminate the large “windfall profits” that are observed in the treatment with free, grandfathered permit allocations.
    Keywords: market-based regulation, emissions trading, allocation, auctions, grandfathering, climate policy, windfall profits
    JEL: C92 D43 D44 Q58
    Date: 2009–09–29
  3. By: Laurent Lamy
    Abstract: When bidders are not substitutes, we show that there is no standard ascend-ing auction that implements a bidder-optimal competitive equilibrium under truthful bidding. Such an impossibility holds also in environments where the Vickrey payoff vector is a competitive equilibrium payoff and is thus stronger than de Vries, Schummer and Vohra s [On ascending Vickrey auctions for het-erogeneous objects, J. Econ. Theory, 132, 95-118] impossibility result with regards to the Vickrey payoff vector under general valuations. Similarly to Mishra and Parkes [Ascending price Vickrey auctions for general valuations, J. Econ. Theory, 132, 335-366], the impossibility can be circumvented by giving price discounts to the bidders from the final vector of prices. Nevertheless, the similarity is misleading: the solution we propose satisfies a minimality infor-mation revelation property that fails to be satisfied in any ascending auction that implements the Vickrey payoffs for general valuations. We investigate related issues when strictly positive increments have to be used under general continuous valuations.
    Date: 2009
  4. By: Martin Sefton (School of Economics, University of Nottingham); Ping Zhang (School of Economics, University of Nottingham)
    Abstract: We use laboratory experiments to compare allocation rules in uniform price divisible good auctions. “Standard” and “uniform” allocation rules admit different types of low-price equilibria, which are eliminated by a “hybrid” rule. We observe little evidence of revenue differences among the allocation rules. Under all three allocation rules, prices are competitive when bidders cannot explicitly communicate, and collusive when bidders can explicitly communicate. With explicit communication we find that collusive agreements are more fragile when the gain from a unilateral deviation is larger. We also find that the standard allocation rule is particularly vulnerable to collusive equilibria.
    Keywords: experiment, uniform price auction, multi-unit auction, divisible-good auction, allocation rule, communication
    JEL: D44 C72 C92
    Date: 2009–11
  5. By: Raphaële Préget; Sophie Thoyer
    Abstract: Is it better for a seller who wants to auction multiple units to face many small bidders or few large bidders? Since multi-unit auction models usually have many equilibria, there are no theoretical predictions on the impact of the competition structure on the performance of a multi-unit auction (in terms of expected revenue and allocation efficiency). Our experimental results with uniform-price auctions support that with a constant competition degree (identical aggregate demand and supply), when the number of bidders increases while individual demand decreases, there is less strategic bidding (demand reduction). It leads to higher expected revenue with a lower variance but allocation efficiency is not significantly different.
    Date: 2009–12
  6. By: Holt, Charles; Myers, Erica (Resources for the Future); Wråke, Markus; Mandell, Svante; Burtraw, Dallas (Resources for the Future)
    Abstract: This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.
    Keywords: opportunity cost, emissions permits, allowance allocation, classroom experiments
    JEL: A22 C90 Q52
    Date: 2009–05–21
  7. By: Rigdon, Mary L.; Levine, Adam Seth
    Abstract: A central question in the study of altruism has been whether there is a systematic gender difference in giving behavior. Most experimental economics research has found that women are more generous than men. Evidence also suggests that gender differences depend upon the price of giving: males are more altruistic when the price of giving is low, while females are more altruistic when the price of giving is high. However, in the modified dictator game, a key variable in one’s decision to give is what one expects to receive. Systematic differences in those expectations may well contribute to systematic differences in altruistic behavior. We show that these expectations drive an important and widely reported result. When these expectations are homegrown, we replicate the finding. When expectations of receiving are uniform rather than homegrown, gender differences in price sensitivity disappear: males and females give equal amounts. This suggests that it is gender differences in expectations about others’ giving — not differences in tastes for fairness — that explains the previous results.
    Keywords: altruism; charitable giving; dictator game; gender differences; experiment
    JEL: D64 C91
    Date: 2009–12–09
  8. By: Simon Gaechter (University of Nottingham); Christian Thoeni (University of St. Gallen)
    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: Choi, Syngjoo; Lee, Jihong
    Abstract: We study experimentally how the network structure and length of pre-play communication affect behavior and outcome in a multi-player coordination game with conflicting preferences. Network structure matters but the interaction between network and time effects is more subtle. Under each time treatment, substantial variations are observed in both the rate of coordination and distribution of coordinated outcomes across networks. But increasing the communication length improves both efficiency an equity of coordination. In all treatments, coordination is mostly explained by convergence in communication. We also identify behaviors that explain variations in the distribution of coordinated outcomes both within and across networks.
    Keywords: experiment; pre-play communication; coordination; network; efficiency; equity
    JEL: C92 D83 C72
    Date: 2009–11–20
  10. By: Bradler, Christiane
    Abstract: The literature on social preferences provides overwhelming evidence of departures from pure self-interest of individuals. Experiments show that people care about others' well-being and their relative standing. This paper investigates whether this type of behavior persists when risk comes into play. I devise an experiment which sheds light on the interrelation of risk and social preferences by measuring (1) individual risk preferences, (2) interpersonal risk preferences, and (3) social preferences under certainty. The results reveal that a large share of subjects choose to accept more risk or less potential gain than individually preferred in order to increase another subject's payoff. Further, the willingness to do so appears to be influenced by the need of the other person and her potential relative standing. Surprisingly, the results do not suggest that a subject's social behavior under risk is related to his social concerns exhibited under certainty. --
    Keywords: social preferences,risk,other-regarding behavior,inequality aversion
    JEL: C91 D63 D81
    Date: 2009
  11. By: Hasson, Reviva (Department of Economics, Faculty of Commerce, University of Cape Town); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Visser, Martine (Department of Economics, Faculty of Commerce, University of Cape Town)
    Abstract: We use behavioral and experimental economics to study a particular aspect of the economics of climate change: the potential tradeoff between countries’ investments in mitigation versus adaptation. While mitigation of greenhouse gases can be viewed as a public good, adaptation to climate change is a private good, benefiting only the country or the individual that invests in adaptation. We use a one-shot public-goods game that deviates from the standard public-goods game by introducing a stochastic term to account for probabilistic destruction in a climate-change setting. Probability density function is mapped to within-group levels of mitigation. We compare low-vulnerability and high-vulnerability treatments by varying the magnitude of disaster across treatments. Our results show that there is no significant difference in the level of mitigation across these treatments. Further, our results emphasize the important role of trust in enhancing cooperation.<p>
    Keywords: Public good; climate change; mitigation; adaptation; experiment; risk
    JEL: H41 Q54
    Date: 2009–12–08
  12. By: Mohamed Ali Bchir; Marc Willinger
    Abstract: We report the results of an experiment on the provision of a step-level collective good. We compare subjects’ behavior in a public good game and in a club good game. In the club good game, players who contribute less than the amount required to become a member, do not benefit from the collective good. Compared to the benchmark step-level public good, we find that the introduction of a small membership fee has surprisingly strong effects. It increases significantly the provision success of the collective good.
    Date: 2009–12
  13. By: Sprietsma, Maresa
    Abstract: This paper studies the effect of teacher expectations on essay grades in an experimental setting. To this purpose, we randomly assign Turkish or German first names to a set of essays so that some teachers believe a given essay was written by a German native pupil, whereas others believe it was written by a pupil of Turkish origin. We find that essays obtain significantly lower grades and lower secondary school recommendations when bearing a Turkish sounding name. --
    Keywords: Experiment,discrimination,grading,pupils with migration,background
    JEL: I20
    Date: 2009
  14. By: Graham Loomes (Department of Economics, University of Warwick); Chris Starmer (School of Economics, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: Previous studies suggest that two otherwise robust ‘anomalies’ – preference reversals and disparities between buying and selling valuations – are eroded when respondents participate in repeated markets. We report an experiment which investigates whether this is true when factors neglected in previous studies are controlled, and which distinguishes between anomalies revealed in the behaviour of individual market participants and anomalies revealed in market prices. Our results confirm the decay of buy/sell disparities, but not of preference reversal. This raises doubts about the hypothesis that, in general, repeated markets reveal anomaly-free preferences, even among the marginal traders who determine prices.
    Keywords: preference reversal, willingness to accept, willingness to pay, repeated market
    JEL: C91
    Date: 2009–11
  15. By: Katarina Kalovcova; Andreas Ortmann
    Abstract: Plott, Wit & Yang (2003) conduct a betting market experiment and nd: First, information was aggregated. This suggests that traders updated their private information based on observed market odds. Second, a model based only on the use of private information seems to fit their data best. The authors call this paradoxical. Because the original data are lost, we replicate their experiment. Our results suggest that the paradox seems due to aggregate rather than individual level data analysis. We analyze the individual level data and explain the paradoxical results reported in Plott et al. (2003).
    Keywords: Experimental betting markets, private information, information aggregation.
    JEL: D81 D82 G14
    Date: 2009–11
  16. By: John Micklewright (Depatment of Quantitative Social Science - Institute of Education, University of London.); Gyula Nagy (Department of Human Resources, Corvinus University of Budapest)
    Abstract: Programme administration is a relatively neglected issue in the analysis of disincentive effects of unemployment benefit systems. We investigate this issue with a field experiment in Hungary involving random assignment of benefit claimants to treatment and control groups. Treatment increases the monitoring of claims - claimants make more frequent visits to the employment office and face questioning about their search behaviour. Treatment has quite a large effect on durations on benefit of women aged 30 and over, while we find no effect for younger women or men.
    Keywords: field experiment, monitoring, job search, unemployment insurance, Hungary
    JEL: J64 J65 P23
    Date: 2009–11–26
  17. By: Alessandro Innocenti; Patrizia Lattarulo; Maria Grazia Pazienza
    Abstract: . This study applies experimental methods to analyze travel mode choice. Two different scenarios are considered. In the first scenario, subjects have to decide whether to commute by car or by metro. Metro costs are fixed, while car costs are uncertain and determined by the joint effect of casual events and traffic congestion. In the second scenario, subjects have to decide whether to travel by car or by bus, both modes in which costs are determined by the combination of chance and congestion. Subjects receive feedback information on the actual travel times of both modes. We find that individuals exhibit a marked preference for cars, are inclined to confirm their first choice and demonstrate travel mode stickiness. We conclude that travel mode choice is subject to heuristics and biases that lead to robust deviations from rational choice.
    Keywords: travel mode choice, learning, information, heuristics, cognitive biases.
    JEL: C91 D83 R41 R48
    Date: 2009–12
  18. By: Philipp Kircher (Department of Economics, University of Pennsylvania); Sandra Ludwig (Department of Economics, University of Pennsylvania); Alvaro Sandroni (Department of Economics, University of Munich)
    Abstract: We address a basic diffculty with incorporating fairness into standard utilitarian choice theories. Standard utilitarian theories evaluate lotteries according to the (weighted) utility over final outcomes and assume in particular that a lottery is never preferred over getting the most preferred underlying outcome with certainty. While nearly universally adopted in economics (including behavioral economics) and appealing for choices among consumption goods, this approach is problematic when choices directly affect the payoffs of other individuals. A difficulty is that randomization may in itself be valued as a desirable procedure for allocating scarce resources. We highlight this in two simple choice settings. Individuals can choose between three options: to get more money; to get less money and someo ther good; to flip a coin between these two alternatives. When the good is a regular consumption good like a coffeemug, hardly any of our subjects randomize. When the good is a social good that yields payoffs directly to some other individual,nearly a third of our subjects choose to randomize. Our results indicate that fairness concerns are conducive to behavioral anomalies that the standard utilitarian model cannot accommodate.
    Keywords: risky choice, betweenness axiom, social preferences, preference for randomness
    JEL: D81 C91 D63
    Date: 2009–11
  19. By: James Fearon; Macartan Humphreys; Jeremy Weinstein
    Abstract: Can brief, foreign-funded efforts to build local institutions have positive effects on local patterns of governance, cooperation, and well-being? Prior research suggests that such small-scale, externally driven interventions are unlikely to substantially alter patterns of social interaction in a community, and that the ability of a community to act collectively is the result of a slow and necessarily indigenous process. We address this question using a randomized field experiment to assess the effects of a community-driven reconstruction (CDR) project carried out by the International Rescue Committee (IRC) in northern Liberia. The project attempted to build democratic, community-level institutions for making and implementing decisions about local public goods. We find powerful evidence that the program was successful in increasing social cohesion, some evidence that it reinforced democratic political attitudes and increased confidence in local decision-making procedures, but only weak evidence that material well-being was positively affected. There is essentially no evidence of adverse effects.
    Keywords: Liberia; reconstruction; post-conflict; institution building; democracy; development; peacebuilding
    Date: 2009–12
    Abstract: The present paper shows that people’s compliance with a request can be substantially increased if the requester first gets them to agree with a series of statements unrelated to the request, but selected to induce agreement. We label this effect the ‘mere agreement effect’, and present a two-step similarity-based mechanism to explain it. Across six studies, we show that induced mere agreement subtly causes respondents to view the presenter of the statements as similar to themselves, which in turn increases compliance with a request from that same person. We support the similarity explanation by showing that the effect of agreement on compliance is suppressed when agreement is induced to indicate dissimilarity with the interviewer, when the request is made by some other person, and when the artificially high level of agreement is made salient. We also validate the practical relevance of the mere agreement persuasion technique in a field study. We discuss how the mere agreement effect can be broadly used as a tool to increase cooperation and be readily implemented in marketing interactions
    Date: 2009–09

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