nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒01‒30
ten papers chosen by
Daniel Houser
George Mason University

  1. Arms or Legs: Isomorphic Dutch Auctions and Centipede Games By James C. Cox; Duncan James; ;
  2. Cognitive hierarchies and the centipede game By Bottero, Margherita
  3. Screening, Competition, and Job Design By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  4. Social Preferences and Competition By Schmidt, Klaus M.
  5. Bounded Rationality as Deliberation Costs: Theory and Evidence from a Pricing Field Experiment in India By Dean E. Spears
  6. Asking for Help: Survey And Experimental Evidence on Financial Advice And Behavior Change By Angela A. Hung; Joanne Yoong
  7. Do Migrants Improve Governance at Home? Evidence from a Voting Experiment By Catia Batista; Pedro Vicente
  8. Two Lighthouses to Navigate: Effects of Ideal and Counter-Ideal Values on Follower Identification and Satisfaction with their Leaders By Quaquebeke, N. van; Kerschreiter, R.; Buxton, A.E.; Dick, R. van
  9. Experimental Economic Approaches on Trade Negotiations By Hankyoung Sung
  10. Incomplete Preferences in Choice Experiments: A note on avoidable noise and bias in welfare estimates By Mitesh Kataria; Jason F. Shogren

  1. By: James C. Cox; Duncan James; ;
    Abstract: Centipede games and Dutch auctions provide important instances in which game theory fails empirically. The reasons for these empirical failures are not well understood. Standard centipede games and Dutch auctions differ from each other in terms of their Institutional Format (IF), Dynamic Structure (DS), and Information Environment (IE). This paper introduces new games that are constructed from centipede games and Dutch auctions by interchanging some of their IF, DS, and IE characteristics. The new games are introduced in isomorphic pairs. Experiment treatments with pairs of new isomorphic games provide data that yield insights into the effects on behavior of games' IF, DS, and IE characteristics.
    JEL: C72 C91 D44
    Date: 2010–01
  2. By: Bottero, Margherita (Dept. of Economics, Stockholm School of Economics)
    Abstract: In this work, I extend the normal form cognitive hierarchy model (Camerer et al. (2004)) to a class of nite two-person extensive form games. I study two versions of such a model: the rst is as faithful as possible to the normal form assumptions, while the second modi es them slightly. In both cases I consider the possibility of bayesian updating. I apply the two versions to the centipede game, testing empirically the relevant predictions. The results show that the cognitive hierarchy model outperforms backward induction in predicting experimental behavior. Moreover, modifying the original assumptions improves our understanding of the data.
    Keywords: centipede game; cognitive hierarchy; paradox backward induction; experimental data analysis
    JEL: C72 C92 D81
    Date: 2010–01–19
  3. By: Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
    Abstract: In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These “high-performance work systems” are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.
    Keywords: job design; high-performance work systems; screening; reputation; competition; trust; control; social preferences; complementarities
    JEL: C91 D86
    Date: 2010–01
  4. By: Schmidt, Klaus M.
    Abstract: There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results (Dufwenberg et al. 2008) suggest that competition forces people to behave as if they were purely self-interested. We qualify this view. Social preferences are irrelevant if and only if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.
    Keywords: Social preferences; competition; separability; incomplete contracts; asset markets; labor markets
    JEL: C9 D5 J0
    Date: 2010–01
  5. By: Dean E. Spears (Princeton University)
    Abstract: How might bounded rationality shape decisions to spend? A field experiment verifies a theory of bounded rationality as deliberation costs that can explain findings from previous experiments on pricing in developing countries. The model predicts that (1) eliminating deliberation costs will increase purchasing at a higher price without impacting behavior at a lower price, (2) bounded rationality has certain greater effects on poorer people, and (3) deliberation costs can suppress screening by prices. Each prediction is confirmed by an experiment that sold soap in rural Indian villages. The experiment interacted assignment to different subsidized prices with a treatment that eliminated marginal deliberation costs. The results suggest implications of bounded rationality for theory and social policy.
    Keywords: Rationality, price, India
    JEL: C01 D19 E30 H31 C93
    Date: 2009–10
  6. 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: 2010–01
  7. By: Catia Batista (Department of Economics and Institute for International Integration Studies, Trinity College Dublin; IZA); Pedro Vicente (Department of Economics and Institute for International Integration Studies, Trinity College Dublin; CSAE-Oxford; BREAD)
    Abstract: This paper tests the hypothesis that international migration experiences may promote better institutions at home by raising the demand for political accountability. In order to examine this question, we use a simple postcard voting experiment designed to capture the population’s desire for better governance. Using data from a tailored household survey, we examine the determinants of voting behavior in our experiment, and isolate the positive effect of international emigration on the demand for political accountability. We find that this effect can be mainly attributed to the presence of return migrants, particularly to those who emigrated to countries with better governance.
    Keywords: international migration, governance, political accountability, institutions, effects of emigration in origin countries, household survey, Cape Verde, sub-Saharan Africa
    JEL: F22 O12 O15 O43 P16
    Date: 2009–12
  8. By: Quaquebeke, N. van; Kerschreiter, R.; Buxton, A.E.; Dick, R. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Ideals (or ideal values) help people to navigate in social life. They indicate at a very fundamental level what people are concerned about, what they strive for, and what they want to be affiliated with. Transferring this to a leader-follower analysis, our first Study (N = 306) confirms that followers’ identification and satisfaction with their leaders are stronger, the more leaders match followers’ ideal leader values. Study 2 (N = 244) extends the perspective by introducing the novel concept of counter-ideals (i.e., how an ideal leader should not be) as a second, non-redundant point of reference. Results confirm that a leader’s match on ideal and on counter-ideal values have independent effects in that both explain unique variance in followers’ identification and satisfaction with their leader. Study 3 (N = 136) replicates the previous results in an experimental scenario study and provides evidence for the proposed causal direction of the underlying process. We conclude that counter-ideal values might be an additional point of reference that people use to triangulate targets above and beyond ideal values and discuss the implications of our findings for value research and management.
    Keywords: fit;followership;positive and negative forces;identification;ideals;leadership;satisfaction;values
    Date: 2010–01–05
  9. By: Hankyoung Sung (Korean Institute for International Economic Policy)
    Abstract: This paper experimentally examines the multilateral bargaining games to derive some policy implications for real trade negotiations. It shows the following findings- there are significant delays in games including veto players in some circumstances, but no delays in games including multiple-vote players. In addition, non-veto players as weak players, which are disadvantaged in taking share, make collusive attempts against veto players, but not effectively. As policy implications, this paper suggests enforceable deadlines or threats toward low-quality agreements to reduce the delay problems. Furthermore, as another remedy for the delays, it suggests an effort to group countries like multiple-vote players in unequal-weight games.
    Keywords: Veto, Trade negotiations, Delay
    JEL: C7 D7 C78 D72
    Date: 2010–01
  10. By: Mitesh Kataria (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Jason F. Shogren (University of Wyoming, Department of Economics and Finance, Laramie)
    Abstract: How does a choice experiment (CE) model derived under standard preference axioms perform for respondents with incomplete preferences? Using simulated data, we show how such miss-specification results in unnecessary noise and bias in welfare estimates, and can be avoided.
    Keywords: Choice experiment, Ordered Logit, Bias, Preference Axioms
    JEL: D61 Q51
    Date: 2010–01–15

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