nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒03‒13
eight papers chosen by
Daniel Houser
George Mason University

  1. Trust in Second Life By John Duffy
  2. Do consumers make too much effort to save on cheap items and too little to save on expensive items? experimental results and implications for business strategy By Azar, Ofer H.
  3. Experimenting with Strategic Experimentation: Risk Taking, Neighborhood Size and Network Structure By Niels D. Grosse
  4. Wage Transparency and Performance: A Real-Effort Experiment By Ben Greiner; Axel Ockenfels; Peter Werner
  5. Measuring the Willingness to Pay to Avoid Guilt: Estimation using Equilibrium ad Stated Belief Models By Charles Bellemare; Alexander Sebald; Martin Strobel
  6. Committing to Incentives: Should the Decision to Sanction be Revealed or Hidden? By Charlotte Klempt; Kerstin Pull
  7. Ostracism and Common Pool Resource Management in a Developing Country: Young Fishers in the Laboratory By Wisdom Akpalu; Peter Martin
  8. Extending the production dice game. By Lambrecht, Marc; Creemers, Stefan; Boute, Robert; Leus, Roel

  1. By: John Duffy
    Abstract: Some issues are raised with regard to conducting economic decision-making experiments in virtual worlds. The issues are illustrated via a visit to an experimental laboratory on Second Life. Some suggestions for addressing these issues are proposed.
    JEL: C72 C92 C93 C99
    Date: 2008–02
  2. By: Azar, Ofer H.
    Abstract: The article presents an experiment that illustrates a behavior that I denote “relative thinking.” Subjects in the experiment revealed the minimal price difference for which they were willing to spend 20 minutes and go to a cheaper store. Five different goods and nine different prices were used in a between-subjects design. Subjects showed striking positive correlation between the good’s price and their valuation of their time as it was reflected in their decisions. The experiment suggests that subjects think about both the relative and the absolute price differences, even though according to economic theory they should only consider the absolute price difference. Quantifying the effect suggests that consumers’ valuation of their time is approximately proportional to the square root of the price of the good they want to purchase. Studying economics courses seems to mitigate relative thinking. Several alternative explanations for the observed behavior are suggested and discussed, but the conclusion is that only the relative thinking explanation can account for the experimental results. Finally, several implications of relative thinking for business strategy are discussed.
    Keywords: Relative thinking; Consumer behavior; Behavioral economics
    JEL: M30 D10 M10 C91
    Date: 2009
  3. By: Niels D. Grosse (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: This paper investigates the effects of neighborhood size and network structure on strategic experimentation. We analyze a multi-arm bandit game with one safe and two risky alternatives. In this setting, risk taking produces a learning externality and an opportunity for free riding. We conduct a laboratory experiment to investigate whether group size and the network structure affect risk taking. We find that group size has an effect on risk taking that is qualitatively in line with equilibrium predictions. Introducing an asymmetry among agents in the same network with respect to neighborhood size leads to substantial deviations from equilibrium play. Findings suggests that subjects react to changes in their direct neighborhood but fail to play a best-response to their position within the network.
    Keywords: strategic experimentation, experiment, bandit game, risk taking
    JEL: C91 D81 D85 O33
    Date: 2010–02–23
  4. By: Ben Greiner; Axel Ockenfels; Peter Werner
    Abstract: We study the effect of wage changes on performance under varying contract schemes in a real-effort experiment. Without transparency about peer wages, an increase or decrease of wages does not affect performance. With transparency about peer wages, higher paid workers tend to work more accurately, and lower paid workers shirk more if wages are piece rate rather than flat.
    Keywords: labor market experiments, real effort, social comparison, wage schemes
    JEL: C91 J33 M52
    Date: 2010–03–01
  5. By: Charles Bellemare; Alexander Sebald; Martin Strobel
    Abstract: We estimate structural models of guilt aversion to measure the population level of willingness to pay (WTP) to avoid feeling guilt by letting down another player. We compare estimates of WTP under the assumption that higher-order beliefs are in equilibrium (i.e. consistent with the choice distribution) with models estimated using stated beliefs which relax the equilibrium requirement. We estimate WTP in the later case by allowing stated beliefs to be correlated with guilt aversion, thus controlling for a possible source of a consensus effect. All models are estimated using data from an experiment of proposal and response conducted with a large and representative sample of the Dutch population. Our range of estimates suggests that responders are willing to pay between 0.40 and 0.80 Euro to avoid letting down proposers by 1 Euro. Furthermore, we find that WTP estimated using stated beliefs is substantially overestimated (by a factor of two) when correlation between preferences and beliefs is not controlled for. Finally, we find no evidence that WTP is significantly related to the observable socio-economic characteristics of players.
    Keywords: Guilt aversion, Willingness to pay, Equilibrium and stated beliefs models
    JEL: C93 D63 D84
    Date: 2010
  6. By: Charlotte Klempt (Max Planck Institute of Economics, Jena); Kerstin Pull (Eberhard-Karls-Universität Tübingen, Faculty of Economics and Business Administration)
    Abstract: Sanctions are widely used to promote compliance in principal-agent-relationships. While there is ample evidence confirming the predicted positive incentive effect of sanctions, it has also been shown that imposing sanctions may in fact reduce compliance by crowding-out intrinsic motivation. We add to the literature on the hidden costs of control by showing that these costs are restricted to situations where principals ex ante reveal their decision to sanction low compliance. If this decision is not revealed and agents do not know whether they will be sanctioned or not in case of low compliance, we do not find evidence of crowding-out - not even in those cases where agents firmly believe that they will be sanctioned in case of low performance.
    Keywords: Intrinsic Motivation, Monetary Incentives, Job Performance
    JEL: C72 C91
    Date: 2010–03–03
  7. By: Wisdom Akpalu; Peter Martin
    Date: 2009
  8. By: Lambrecht, Marc; Creemers, Stefan; Boute, Robert; Leus, Roel
    Abstract: The production dice game is a powerful learning exercise focusing on the impact of variability and dependency on throughput and work-in-process inventory of flow lines. In this paper we will extend the basic dice game along the following lines. First, we allow that the operations take place concurrently as opposed to the more traditional way of playing the game sequentially. Second, we allow both starvation and blocking of the line. Third, we consider balanced lines with work stations characterized by different degrees of variability. Fourth, we use different sets of dice in order to represent a wide range of coefficients of variation of the production line. The game can be played manually in a classroom setting, but it is also modelled as an easy-to-use simulation tool.
    Date: 2010–02

This nep-exp issue is ©2010 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.