nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒03‒28
seven papers chosen by
Daniel Houser
George Mason University

  1. The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics By Angrist, Joshua; Pischke, Jörn-Steffen
  2. Guilt from Promise-Breaking and Trust in Markets for Expert Services – Theory and Experiment By Beck, Adrian; Kerschbamer, Rudolf; Qiu, Jianying; Sutter, Matthias
  3. Co-employment of permanently and temporarily employed agents By Werner Güth; Martin G. Kocher; Vera Popova
  4. Can We Measure Individual Risk Attitudes in a Survey? By Ding, Xiaohao; Hartog, Joop; Sun, Yuze
  5. On the Beliefs off the Path: Equilibrium Refinement due to Quantal Response and Level-k* By Yves Breitmoser; Jonathan H.W. Tan
  6. Does Conflict Affect Preferences? Results from Field Experiments in Burundi By M. Voorst; E. Nillesen; Philip Verwimp; E. Bulte; R. Lensink; D. van Soest
  7. Measuring the Willingness to Pay to Avoid Guilt: Estimation Using Equilibrium and Stated Belief Models By Bellemare, Charles; Sebald, Alexander; Strobel, Martin

  1. By: Angrist, Joshua (MIT); Pischke, Jörn-Steffen (London School of Economics)
    Abstract: This essay reviews progress in empirical economics since Leamer's (1983) critique. Leamer highlighted the benefits of sensitivity analysis, a procedure in which researchers show how their results change with changes in specification or functional form. Sensitivity analysis has had a salutary but not a revolutionary effect on econometric practice. As we see it, the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate. Design-based studies are most often found in the microeconomic fields of Development, Education, Environment, Labor, Health, and Public Finance, but are still rare in Industrial Organization and Macroeconomics. We explain why IO and Macro would do well to embrace a design-based approach. Finally, we respond to the charge that the design-based revolution has overreached.
    Keywords: structural models, research design, natural experiments, quasi-experiments
    JEL: C01
    Date: 2010–03
  2. By: Beck, Adrian (Department of Economics, University of Innsbruck); Kerschbamer, Rudolf (Department of Economics, University of Innsbruck); Qiu, Jianying (Department of Economics, University of Innsbruck); Sutter, Matthias (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We examine the influence of guilt and trust on the performance of credence goods markets. An expert can make a promise to a consumer first, whereupon the consumer can express her trust by paying an interaction price before the expert's provision and charging decisions. We argue that the expert's promise induces a commitment that triggers guilt if the promise is broken, and guilt is exacerbated by higher interaction prices. An experiment qualitatively confirms our predictions: (1) most experts make the predicted promise; (2) proper promises induce consumer-friendly behavior; and (3) higher interaction prices increase the commitment value of proper promises.<p>
    Keywords: Promises; Guilt; Trust; Credence Goods; Experts; Reciprocity
    JEL: C72 C91 D82
    Date: 2010–03–17
  3. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Martin G. Kocher (University of Munich, Department of Economics); Vera Popova (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: One-shot interaction and repeated interaction often co-exist in the real world. We study possible behavioral effects of this co-existence in a principal-agent setting, in which a principal simultaneously employs a permanent and a temporary agent. Our experimental results indicate that there is "discrimination" between the two agents and that the available information for agents determines the extent of this discrimination, even though the theoretical solution of the game implies equal treatment of agents. Discrimination is, thus, a consequence of reciprocity. Agents that are discriminated against react negatively by withholding effort.
    Keywords: principal-agent problem, permanent and temporary employment, fairness, wage discrimination
    JEL: C72 C91 D21 J31
    Date: 2010–03–16
  4. By: Ding, Xiaohao (Peking University); Hartog, Joop (University of Amsterdam); Sun, Yuze (Peking University)
    Abstract: We combine a survey and an experiment with real pay-out among Peking University students to measure and validate individual risk attitudes. The experiment involves choosing between a cash payment and playing a lottery. The survey questions ask for the reservation price of a hypothetical lottery and self-assessment of risk attitude on a 0-10 scale. We confirm familiar findings: risk aversion dominates, women are more risk averse than men, risk aversion decreases with increasing parental income, risk attitudes are domain-specific. Correlations between survey measures and experimental measures, are in the right direction, but not very high. The survey measures are valid indicators of experimentally measured risk attitude, but with substantial noise remaining. Heterogeneity in levels and structures of risk attitude is large.
    Keywords: risk attitude, survey question, experimental validation
    JEL: D12
    Date: 2010–03
  5. By: Yves Breitmoser (Department of Economics, EUV Frankfurt (Oder), Germany); Jonathan H.W. Tan (Nottingham University Business School, UK; University of East Anglia, School of Economics, Norwich, UK)
    Abstract: This paper studies the relevance of equilibrium and nonequilibrium explanations of behavior, with respects to equilibrium refinement, as players gain experience. We investigate this experimentally using an incomplete information sequential move game with heterogeneous preferences and multiple perfect equilibria. Only the limit point of quantal response (the limiting logit equilibrium), and alternatively that of level-k reasoning (extensive form rationalizability), restricts beliefs off the equilibrium path. Both concepts converge to the same unique equilibrium, but the predictions differ prior to convergence. We show that with experience of repeated play in relatively constant environments, subjects approach equilibrium via the quantal response learning path. With experience spanning also across relatively novel environments, though, level-k reasoning tends to dominate.
    Keywords: Incomplete information, equilibrium refinement, logit equilibrium, rationalizability, quantal response, level-k, inequity aversion, experiment.
    JEL: C72 C91 D62
    Date: 2009–03–17
  6. By: M. Voorst; E. Nillesen; Philip Verwimp; E. Bulte; R. Lensink; D. van Soest
    Abstract: We use experimental data from 35 randomly selected communities in Burundi to examine the impact of exposure to conflict on social-, risk- and time preferences. These types of preferences are important as they determine people’s propensity to invest and their ability to overcome social dilemmas, so that changes therein foster or hinder economic growth. We find that conflict affects preferences. Individuals that have been exposed to greater levels of violence display more altruistic behavior towards their neighbors, are more risk seeking, and have higher discount rates. Adverse, but temporary, shocks can thus alter savings and investments decisions, and potentially have long-run consequences.
    Keywords: civil war, preferences, field experiments, Africa.
    Date: 2010
  7. By: Bellemare, Charles (Université Laval); Sebald, Alexander (University of Copenhagen); Strobel, Martin (Maastricht University)
    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: 2010–03

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