nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒04‒04
ten papers chosen by
Daniel Houser
George Mason University

  1. An Experimental Test of the Pigovian Hypothesis By Jason Delaney
  2. Inflation Expectations and Stability in an Overlapping Generations Experiment with Money Creation By Peter Heemeijer; Cars Hommes; Joep Sonnemans; Jan Tuinstra
  3. Guilt from Promise-Breaking and Trust in Markets for Expert Services: Theory and Experiment By Beck, Adrian; Kerschbamer, Rudolf; Qiu, Jianying; Sutter, Matthias
  4. Loss Aversion and Intertemporal Choice: A Laboratory Investigation By Robert Oxoby; William G. Morrison
  5. Inconsistency of fairness evaluation in simulated labot market. By Ch'ng , Kean Siang; Loke, Yiing Jia
  6. An Egalitarian Regime Breeds Generosity: The Effect of Endowment Allocation Procedures on Social Preferences By Riyanto, Yohanes Eko; Zhang, Jianlin
  7. Overconfidence is a Social Signaling Bias By Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz; Rustichini, Aldo
  8. Let me sleep on it: Delay reduces rejection rates in Ultimatum Games By Grimm Veronika; Mengel Friederike
  9. Is Fairness Blind? - The effect of framing on preferences for effort-sharing rules By Carlsson,, Fredrik; Kataria, Mitesh; Lampi, Elina; Löfgren, Åsa; Sterner, Thomas
  10. Risk-taking middle-borns: A study on birth-order and risk preferences By Lampi, Elina; Nordblom, Katarina

  1. By: Jason Delaney
    Abstract: Implementation of Pigovian taxation relies on the presumption that individuals follow self-interested Nash equilibrium predictions of behavior when making decisions. Experimental evidence indicates that, while Nash predictions perform quite well in impersonal exchange, in other environments, subjects behave in ways inconsistent with these equilibria. The predictive power of game-theoretic results with respect to an optimal subsidy in a common-pool resource game (CPR) remains an open question. This paper presents an experiment with training and a simplified decision task, allowing more tractable computerized CPR experiments. In this experiment, subject behavior converges to the Nash prediction, but it takes a number of periods to reach convergence. In addition, this paper provides the first experimental test of theoretical predictions of behavior under an optimal subsidy in CPR games. I find that a Pigovian subsidy effectively moves subject behavior to the pre-subsidy social optimum. Finally, this paper provides evidence of a small and non-persistent effect of information provision in moving subjects toward the social optimum.
    Date: 2009–12
  2. By: Peter Heemeijer; Cars Hommes; Joep Sonnemans; Jan Tuinstra
    Abstract: We investigate how non-specialists form inflation expectations by running an experiment using a basic Overlapping Generations (OLG) model. The participants of the experiment are students of the University of Amsterdam, who predict inflation during 50 successive periods and are rewarded based on their accuracy. We include a central bank in the OLG model which increases the money supply at a constant rate. Participants are placed in separate OLG economies and are divided over two treatments: one with a "low" and one with a "high" money supply growth. We find that participants in the second treatment have substantially more difficulty in stabilizing inflation development by submitting accurate predictions than participants in the first treatment. However, when linear prediction rules are estimated on individual predictions, there is little difference between the two treatments. In both treatments, the most popular rules are Fundamentalist Expectations (predictions equal to the inflation sample mean) and Focal Expectations (predictions equal to a constant close to equilibrium). To verify whether participants adjust their prediction rules during the experiment, the estimated rules are checked for structural breaks. We find a surprisingly small number of structural breaks in both treatments.
    Keywords: Experimental economics; Expectations feedback; Inflation expectations; Price stability; Anchoring.
    JEL: C D E1 E2 E6 G J
    Date: 2010–02
  3. By: Beck, Adrian (University of Innsbruck); Kerschbamer, Rudolf (University of Innsbruck); Qiu, Jianying (University of Innsbruck); Sutter, Matthias (University of Innsbruck)
    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.
    Keywords: promises, guilt, trust, credence goods, experts, reciprocity
    JEL: C72 C91 D82
    Date: 2010–03
  4. By: Robert Oxoby; William G. Morrison
    Abstract: We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.
    JEL: C91 D91
    Date: 2010–01–26
  5. By: Ch'ng , Kean Siang; Loke, Yiing Jia
    Abstract: Reciprocal behavior was often explained by perception of fairness derived from either agents’ intention or distributional outcome. In this paper, we demonstrated that fairness perception depended on the evaluability of the partner’s type. We conducted experiments to investigate how workers formed fairness perception on the employers. We found inconsistency in fairness evaluation in the two simulated worker-employer relations; workers derived fairness by comparing own wage with market wage in a one shot interaction, but workers derived fairness based on current and previous wage when interacting with same employer. The reversal of fairness perception suggested the role of evaluability of partners’ attribute in effort decision among workers.
    Keywords: Preference reversal; reciprocity; gift exchange; evaluability hypothesis;experiment.
    JEL: D86 B21 C92
    Date: 2010–01
  6. By: Riyanto, Yohanes Eko; Zhang, Jianlin
    Abstract: We experimentally investigate the effect of endowment allocation procedures on social preferences using a two-stage dictator game. In the first stage, participants who were randomly selected as allocators had to perform a task in order to earn money. Better performance on the task resulted in higher earnings. In our baseline meritocratic treatment, the allocators' initial endowment was set equal to their individual earnings. We compared this with an egalitarian treatment whereby the allocators' initial endowment was set equal to the average earnings of all allocators. Essentially, high performers were taxed and under performers were subsidized by the high performers. In the second stage, the allocators had to divide their endowment with the recipients. We show that the allocators were more generous in the egalitarian treatment than in the meritocratic treatment. Interestingly, being taxed did not reduce the high performers' generosity but being subsidized did significantly increase the under performers' generosity. Thus, being treated kindly induced the under performers to reciprocate forward to other people.
    Keywords: Other-regarding Behavior; Dictator Game; Endowment Allocation Procedures; Meritocratic; Egalitarian; Forward Reciprocity
    JEL: D63 D64 C91
    Date: 2010–01
  7. By: Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Rustichini, Aldo (University of Minnesota)
    Abstract: Evidence from psychology and economics indicates that many individuals overestimate their ability, both absolutely and relatively. We test three different theories about observed relative overconfidence. The first theory notes that simple statistical comparisons (for example, whether the fraction of individuals rating own skill above the median value is larger than half) are compatible (Benoît and Dubra, 2007) with a Bayesian model of updating from a common prior and truthful statements. We show that such model imposes testable restrictions on relative ability judgments, and we test the restrictions. Data on 1,016 individuals' relative ability judgments about two cognitive tests rejects the Bayesian model. The second theory suggests that self-image concerns asymmetrically affect the choice to get new information about one’s abilities, and this asymmetry produces overconfidence (Kőszegi, 2006; Weinberg, 2006). We test an important specific prediction of these models: individuals with a higher belief will be less likely to search for further information about their skill, because this information might make this belief worse. Our data also reject this prediction. The third theory is that overconfidence is induced by the desire to send positive signals to others about one’s own skill; this suggests either a bias in judgment, strategic lying, or both. We provide evidence that personality traits strongly affect relative ability judgments in a pattern that is consistent with this third theory. Our results together suggest that overconfidence in statements is most likely to be induced by social concerns than by either of the other two factors.
    Keywords: IQ, field experiment, social signaling, self-image, Bayesian updating, overconfidence, numeracy, personality, MPQ
    JEL: D83 C93
    Date: 2010–03
  8. By: Grimm Veronika; Mengel Friederike (METEOR)
    Abstract: We show that delaying acceptance decisions in the Ultimatum Game drastically increases acceptance rates of low offers. While in standard treatments without delay less than 20% of low offers are accepted, these numbers increase to around 65-75% as we delay the acceptance decisions by around 10 minutes. Our findings provide precise evidence for familiar notions such as ''sleeping on it'' and show that there may be a good reason why public administrations often communicate bad news on Friday afternoons. They shed new light on recent evidence in Neuroscience on brain activation after receiving bad news and raise questions about the extent to which decisions reveal the preferences of a decision-maker.
    Keywords: microeconomics ;
    Date: 2010
  9. By: Carlsson,, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Kataria, Mitesh (Max Planck Institute of Economics, Germany); Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: By using a choice experiment, this paper focuses on citizens’ preferences for effort-sharing rules of how carbon abatement should be shared among countries. We find that Swedes do not rank the rule favoring their own country highest. Instead, they prefer the rule where all countries are allowed to emit an equal amount per person, a rule that favors Africa at the expense of high emitters such as the U.S. The least preferred rule is reduction proportional to historical emissions. Using two different treatments, one where the respondents were informed about the country names and one where the country names were replaced with anonymous labels A-D, we also test whether people’s preferences for effort-sharing rules depend on the framing of the problem. We find that while the ranking of the principles is the same in both treatments, the strength of the preferences is significantly increased when the actual names of the countries are used.<p>
    Keywords: climate change; fairness; framing; ethics; effort-sharing rules
    JEL: Q54
    Date: 2010–03–29
  10. By: Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We analyze the impacts of birth order and presence/absence of siblings on risk preferences with respect to economic, health/safety, and sport/lifestyle related risks. We study both the answer to a hypothetical lottery question and stated risky behavior and find that middle-borns are consistently less risk averse than others irrespective of the type of risk. Moreover, the answer to the lottery question is strongly correlated with economic and sport/lifestyle related risky behavior.<p>
    Keywords: siblings; birth-order; middle-born; different risks; lottery
    JEL: D89 J10
    Date: 2010–03–29

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