nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒04‒17
39 papers chosen by
Daniel Houser
George Mason University

  1. Getting It Right the First Time: Belief Elicitation with Novice Participants By Li Hao; Daniel Houser
  2. The role of training in experimental auctions By Andreas C. Drichoutis; Rodolfo M. Nayga, Jr.; Panagiotis Lazaridis
  3. Punishment despite Reasonable Doubt – A Public Goods Experiment with Uncertainty over Contributions By Kristoffel Grechenig; Andreas Nicklisch; Christian Thöni
  4. Comparing the Effectiveness of Regulation and Pro-Social Emotions to Enhance Cooperation: Experimental Evidence from Fishing Communities in Colombia By Maria Claudia Lopez; James J. Murphy; John M. Spraggon; John K. Stranlund
  5. Hidden Costs of Control: Three Repetitions and an Extension By Matteo Ploner; Katrin Schmelz; Anthony Ziegelmeyer
  6. Applying Quadratic Scoring Rule transparently in multiple choice settings: A note By Florian Artinger; Filippos Exadaktylos; Hannes Koppel; Lauri Sääksvuori
  7. Loss Aversion and Intertemporal Choice: A Laboratory Investigation By Oxoby, Robert J.; Morrison, William G.
  8. Equity versus Efficiency? - Evidence from Three-Person Generosity Experiments - By Werner Güth; Kerstin Pull; Manfred Stadler; Agnes Stribeck
  9. Do Social Networks Prevent Bank Runs? By Garcia-Rosa, Alfonso; Kiss, Hubert Janos; Rodriguez-Lara, Ismael
  11. Testing Enforcement Strategies in the Field: Legal Threat, Moral Appeal and Social Information By Gerlinde Fellner; Rupert Sausgruber; Christian Traxler
  12. Guilt from Promise-Breaking and Trust in Markets for Expert Services - Theory and Experiment By Adrian Beck; Rudolf Kerschbamer; Jianying Qiu; Matthias Sutter
  13. Explaining Gender Differences in Competitiveness: Gender-Task Stereotypes By Niels D. Grosse; Gerhard Riener
  14. The effect of reliability, content and timing of public announcements on asset trading behavior By Brice Corgnet; Praveen Kujal; David Porter
  15. Does experience eliminate the effect of a default option? - A field experiment on CO2-offsetting for air transport By Löfgren, Åsa; Martinsson, Peter; Hennlock, Magnus; Sterner, Thomas
  16. The Dynamics of Cooperation in Group Lending - A Microfinance Experiment By Peter Werner
  17. Turning the Lab into Jeremy Bentham’s Panopticon. The Effect of Punishment on Offenders and Non-Offenders By Christoph Engel; Bernd Irlenbusch
  18. Unraveling Public Good Games: The Role of Priors. By Pablo Brañas-Garza; Maria Paz Espinosa
  19. Asymmetric Enforcement of Cooperation in a Social Dilemma By Nikos Nikiforakis; Hans-Theo Normann; Brian Wallace
  20. Modelling Noise and Imprecision in Individual Decisions By Graham Loomes; José Luis Pinto-Prades; Jose Maria Abellan-Perpinan; Eva Rodriguez-Miguez
  21. Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study By Kurtis Swope; Pamela Schmitt; John Cadigan; Ryan Wielgus
  22. Overconfidence, Experience, and Professionalism: An Experimental Study By Lukas Menkhoff; Maik Schmeling; Ulrich Schmidt
  23. Testing Independence Conditions in the Presence of Errors and Splitting Effects By Michael H. Birnbaum; Ulrich Schmidt; Miriam D. Schneider
  24. Institutions and Information in Multiple-Offer Multilateral Bargaining Games: Theory and Experimental Evidence By Kurtis Swope; Pamela Schmitt; John Cadigan; Robert Shupp
  25. Beware of Broken Windows!First Impressions in Public-good Experiment By Martin Beckenkamp; Christoph Engel; Andreas Glöckner; Bernd Irlenbusch; Heike Hennig-Schmidt; Sebastian Kube; Michael Kurschilgen; Alexander Morell; Andreas Nicklisch; Hans-Theo Normann; Emanuel Towfigh
  26. Reverse Common Ratio Effect By Pavlo R. Blavatskyy
  27. Caste and punishment: the legacy of caste culture in norm enforcement By Karla Hoff; Mayuresh Kshetramade; Ernst Fehr
  28. Competition as a Socially Desirable Dilemma. Theory vs. Experimental Evidence By Christoph Engel
  29. Rules (of Bidding) to Generate Equal Stated Profits - An Axiomatic Approach - By Werner Güth
  30. Reining in Excessive Risk Taking by Executives : Experimental Evidence By Mathieu Lefebvre; Ferdinand Vieider
  31. Overconfident Behavior In Informational Cascades: An Eye-Tracking Study By Alessandro Innocenti; Alessandra Rufa; Jacopo Semmoloni
  32. Common Consequence Effects with Pricing Data By Ulrich Schmidt; Stefan T. Trautmann
  33. Experimental Practices in Economics: Performativity and the Creation of Phenomena By Dorothea Kübler
  34. The Holdout Problem and Urban Sprawl: Experimental Evidence By Kurtis Swope; Pamela Schmitt; John Cadigan; Robert Shupp
  35. Dictator Games: A Meta Study By Christoph Engel
  36. Allais Paradoxes Can be Reversed by Presenting Choices in Canonical Split Form By Michael H. Birnbaum; Ulrich Schmidt
  37. Peace and goodwill? Using an experimental game to analyse the Desarrollo y Paz initiative in Colombia By Orazio Attanasio; Luca Pellerano; David Phillips
  38. Information and Beliefs in a Repeated Normal-form Game By Dietmar Fehr, Dorothea Kübler, David Danz
  39. Financial Incentives and Student Achievement: Evidence from Randomized Trials By Roland G. Fryer, Jr

  1. By: Li Hao (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: The auction design literature makes clear that theoretically equivalent mechanisms can perform very differently in practice. Though of equal importance, much less is known about the empirical performance of theoretically equivalent mechanisms for belief elicitation. This is especially unfortunate given the increasing interest in eliciting beliefs from (often novice) respondents in large-scale surveys. Using laboratory experiments with novice participants endowed with heterogeneous beliefs, we compare the empirical merit of two belief elicitation mechanisms proposed by Karni (2009), which we denote as ÒdeclarativeÓ and Òclock.Ó These mechanisms are of interest because incentive compatibility does not require strong assumptions such as risk neutrality or expected utility maximization. Our key findings are that under the clock mechanism, (i) subjects are more likely to report their beliefs truthfully; and (ii) the distribution of elicited beliefs more accurately characterizes the true belief distribution. Our findings have substantial practical value to anyone wishing to elicit beliefs from novice respondents, a goal of increasing importance to large-scale survey design.
    Keywords: probabilistic belief elicitation, declarative mechanism, clock mechanism, proper scoring rules, laboratory experiment
    JEL: C91
    Date: 2010–04
  2. By: Andreas C. Drichoutis (Department of Economics, University of Ioannina); Rodolfo M. Nayga, Jr. (Department of Agricultural Economics & Agribusiness, University of Arkansas); Panagiotis Lazaridis (Department of Agricultural Economics & Rural Development, Agricultural University of Athens)
    Abstract: In this paper we examine the role of providing extensive training to subjects in the context of experimental auctions. We conducted an experiment where we auctioned several lotteries with varying payoffs. One group of subjects was extensively trained while another group of subjects was only minimally trained. We find that subjects in the extensive training treatment, were submitting bids significantly higher than subjects in the minimal training treatment, suggesting that subjects without proper training may underreport their WTP.
    Keywords: lottery,training, Vickrey auctions
    JEL: D81 D0
    Date: 2010
  3. By: Kristoffel Grechenig (Max Planck Institute for Research on Collective Goods, Bonn); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn); Christian Thöni (University of St. Gallen, Department of Economics)
    Abstract: Under a great variety of legally relevant circumstances, people have to decide whether or not to cooperate, when they face an incentive to defect. The law sometimes provides people with sanctioning mechanisms to enforce pro-social behavior. Experimental evidence on voluntary public good provision shows that the option to punish others substantially improves cooperation, even if punishment is costly. However, these studies focus on situations where there is no uncertainty about others' behavior. We investigate punishment in a world with “reasonable doubt” about others' contributions. Interestingly, people reveal a high willingness to punish even if their information about cooperation rates is inaccurate, or noisy. If there is some non-trivial degree of noise, unishment (1) cannot maintain high contributions and (2) reduces welfare even below the level of a setting without punishment. Our findings suggest that sufficient information accuracy about others' behavior is crucial for he efficiency of sanction mechanisms. If a situation is characterized by low information accuracy, precluding sanctions can be optimal.
    Keywords: Public Goods, Experimental Law & Economics, Enforcement under Uncertainty
    JEL: H41 K42 C91 K14
    Date: 2010–04
  4. By: Maria Claudia Lopez (School of Environmental and Rural Studies, Bogota Colombia); James J. Murphy (Department of Economics, University of Alaska, Anchorage); John M. Spraggon; John K. Stranlund (Department of Resource Economics, University of Massachusetts, Amherst)
    Abstract: This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro-social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual’s contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions.
    Keywords: public goods, field experiments, pro-social emotions, social dilemma, regulation, enforcement.
    JEL: C93 H41 Q20 Q28
    Date: 2009–08
  5. By: Matteo Ploner (University of Trento, Department of Economics, Computable and Experimental Economics Laboratory); Katrin Schmelz (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Anthony Ziegelmeyer (Max Planck Institute of Economics, Strategic Interaction Group, Jena)
    Abstract: We report three repetitions of Falk and Kosfeld's (2006) low and medium control treatments with 364 subjects. Each repetition employs a sample drawn from a standard subject pool of students and demographics vary across samples. Our results largely conflict with those of the original study. We mainly observe hidden costs of control of low magnitude that lead to low-trust principal-agent relationships. Our subjects were asked, at the end of the experimental session, to complete a questionnaire in which they had to state their work motivation in hypothetical scenarios. Our questionnaires are identical to the ones administered in Falk and Kosfeld's (2006) questionnaire study. In contrast to the game play data, our questionnaire data are similar to those of the original questionnaire study. In an attempt to solve this puzzle, we report an extension with 228 subjects where performance-contingent earnings are absent i.e. both principals and agents are paid according to a flat participation fee. We observe that hidden costs outweigh benefits of control which shows that control aversion is more prevalent under hypothetical than under real incentives. Still, in the low control treatment, we observe much weaker negative responses to control in our extension than in the original study. This observation, the fact that the original study uses real incentives, and preliminary findings on the relationship between demographics and the degree of control aversion lead us to conclude that Falk and Kosfeld's (2006) experimental regularities originate from the characteristics of their subjects.
    Keywords: Control, Demographics, Experimental Economics, Incentives, Intrinsic Motivation
    JEL: C81 C91 M52 C81 C91 M52
    Date: 2010–02–18
  6. By: Florian Artinger (Max Planck Institute for Human Development and Technical University Berlin); Filippos Exadaktylos (University of Granada); Hannes Koppel (Max Planck Institute of Economics, Jena); Lauri Sääksvuori (Max Planck Institute of Economics, Jena)
    Abstract: The quadratic scoring rule (QSR) is often used to guarantee an incentive compatible elicitation of subjective probabilities over events. Experimentalists have regularly not been able to ensure that subjects fully comprehend the consequences of their actions on payoffs given the rules of the games. In this note, we present a procedure that allows the transparent use of the QSR even in multiple-choice scenarios. For that purpose, two methodological means are applied: an alternative representation of the score and a short learning period to familiarize subjects with the payoff mechanism. The results suggest that both means were necessary and successful in facilitating subjects' understanding of the rule.
    Keywords: Quadratic scoring rule, experimental methodology, experimental design
    JEL: D84 C90
    Date: 2010–03–24
  7. By: Oxoby, Robert J. (University of Calgary); Morrison, William G. (Wilfrid Laurier University)
    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.
    Keywords: intertemporal choice, discount rates, experiments
    JEL: C91 D91
    Date: 2010–03
  8. By: Werner Güth (Max Planck Institute of Economics, Jena); Kerstin Pull (University of Tübingen); Manfred Stadler (University of Tübingen); Agnes Stribeck (University of Tübingen)
    Abstract: In two-person generosity games the proposer's agreement payoff is exogenously given whereas that of the responder is endogenously determined by the proposer's choice of the pie size. Earlier results for two-person generosity games show that participants seem to care more for efficiency than for equity. In three-person generosity games equal agreement payoffs for two of the players are either exogenously excluded or imposed. We predict that the latter crowds out - or at least weakens - efficiency seeking. Our treatments rely on a 2x3 factorial design differing in whether the responder or the third (dummy) player is the residual claimant and whether the proposer's agreement payoff is larger, equal, or smaller than the other exogenously given agreement payoff.
    Keywords: generosity game, equity, efficiency, experiment
    JEL: C7 C91 D3
    Date: 2010–03–22
  9. By: Garcia-Rosa, Alfonso; Kiss, Hubert Janos; Rodriguez-Lara, Ismael (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)
    Abstract: We develop, both theoretically and experimentally, a stereotypical environment that allows for co-ordination breakdown, leading to a bank run. Three depositors are located at the nodes of a network and have to decide whether to keep their funds deposited or to withdraw. One of the depositors has immediate liquidity needs, whereas the other two depositors do not. Depositors act sequentially and observe others’ actions only if connected by the network. Theoretically, a link connecting the first two depositors to decide is sufficient to avoid a bank run. However, our experimental evidence shows that subjects’choice is not a¤ected by the existence of the link per se. Instead, being observed and the particular action that is observed determine subjects’choice. Our results highlight the importance of initial decisions in the emergence of a bank run. In particular, Bayesian analysis reveals that subjects clearly depart from predicted behavior when observing a withdrawal.
    Keywords: bank runs, coordination failure, experimental evidence, networks
    JEL: D12 R23
    Date: 2010–01
  10. By: Daniele Nosenzo (University of Nottingham)
    Abstract: This study uses a three-person gift-exchange game experiment to examine the impact of pay comparisons on effort behavior. We compare effort choices made in a treatment where coworkers’ wages are secret with effort choices made in two ‘public wages’ treatments. The two ‘public wages’ treatments differ in whether co-workers’ wages are chosen by an employer, or are fixed exogenously by the experimenter. We find that pay comparison information has an overall detrimental impact on effort choices: employees respond less favorably to the wage offers made by the employer when they receive information about the wage paid to the co-worker as compared to the case where co-workers’ wages are secret. These effects are particularly pronounced in the treatment where the level of the co-worker’s wage is fixed exogenously.
    Keywords: social comparisons; wage comparisons; gift exchange; experiments
    JEL: C91 C92 J31
    Date: 2010–03
  11. By: Gerlinde Fellner (Department of Economics, Vienna University of Economics and Business); Rupert Sausgruber (Department of Public Economics, University of Innsbruck); Christian Traxler (Max Planck Institute for Research on Collective Goods,Bonn)
    Abstract: We run a large-scale natural field experiment to evaluate alternative strategies to enforce compliance with the law. The experiment varies the text of mailings sent to potential evaders of TV license fees. We find a strong alert effect of mailings, leading to a substantial increase in compliance. Among different mailing conditions a legal threat that stresses a high detection risk has a significant and highly robust deterrent effect. Neither appealing to morals nor imparting information about others' behavior enhances compliance. However, the information condition has a positive effect in municipalities where evasion is believed to be common. Overall, the economic model of crime performs remarkably well in explaining our data.
    Keywords: Field experiments, law enforcement, compliance, deterrence
    JEL: K42 C93
    Date: 2009–09
  12. By: Adrian Beck; Rudolf Kerschbamer; Jianying Qiu; Matthias Sutter
    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
  13. By: Niels D. Grosse (University of Jena, Graduate College "The Economics of Innovative Change"); Gerhard Riener (University of Jena, Graduate College "The Economics of Innovative Change")
    Abstract: Gender-specific patterns of self-selection into competitive and cooperative environments may have multiple reasons. One of the most prominent explanations to this point is, that there are inherent differences between men and women when it comes to preferences regarding competition. We take a different point of view and claim that gender-task stereotypes are able to explain a large part of the under-representation of women in tournament like environments. We conduct an experiment with a quantitative task which has been shown to have a strong male connotation and a verbal task which we hypothesize to be gender neutral. After controlling for differences in performance, risk attitudes, and overconfidence, we find that women self-select significantly less into competition against men only in the quantitative task. This finding suggests that remaining gender differences for entry into competition are driven by gender-task stereotypes. As a robustness check, we explore the self-selection into incentive schemes given different gender compositions of groups and self-selection into single-sex groups given different incentive schemes. Furthermore, we report the results of a framed field experiment, where we explore a further task - throwing balls into a bucket - that has as well a male connotation. These additional results further strengthen our interpretation.
    Keywords: Competition, piece rate, revenue sharing, gender-task stereotype, experiment
    JEL: C91 J16 J24 M52 D81
    Date: 2010–03–22
  14. By: Brice Corgnet; Praveen Kujal; David Porter
    Abstract: Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.
    Keywords: Experimental asset markets, Bubbles, Market communications, Bounded rationality
    JEL: C9 G12
    Date: 2010–03
  15. By: Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Hennlock, Magnus (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: Earlier research has shown that using a default option has a decisive effect on individuals’ choices. In many cases, however, the low proportion of subjects who switch from the pre-set default option might partly explained by inexperience with the goods or services offered, and high transaction costs for switching. By conducting a natural field experiment when environmental economists registered on the web to a conference, the default option to offset CO2 emissions was randomly pre-set. Either the participants had to opt-in to offset, opt-out to offset or there was no default option, i.e. an active choice had to be made with no implicit “guidance” from the default. We used experienced subjects and had low transaction costs of switching. Our findings show that the default has no significant effect on the decision to offset.<p>
    Keywords: CO2-offsetting; Default option; Field experiment; Public goods
    JEL: C93 D62 Q53
    Date: 2009–10–23
  16. By: Peter Werner
    Abstract: We investigate the dynamics of borrower behavior in a microfinance experiment in which subjects are jointly responsible for credit repayment. Although cooperation levels are generally high, moral hazard problems persist among borrowers. Moreover, the path dependency of decisions mitigates the insurance effect of joint liability. We compare two conversion mechanisms from joint to individual liability. First, an active choice of the joint liability contract does not systematically increase cooperation. Second, conversion based on repayment success tends to have a detrimental impact on cooperation among the remaining joint liability borrowers.
    Keywords: microfinance, group lending, individual lending, social preferences
    JEL: O16 G21 C92 H41
    Date: 2010–03–11
  17. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Bernd Irlenbusch (London School of Economics and Max Planck Institute for Research on Collective Goods)
    Abstract: The most famous element in Bentham’s theory of punishment, the Panopticon Prison, expresses his view of the two purposes of punishment, deterrence and special prevention. We investigate Bentham’s intuition in a public goods lab experiment by manipulating how much information on punishment experienced by others is available to would-be offenders. Compared with the tone that Jeremy Bentham set, our results are non-expected: If would-be offenders learn about contributions and punishment of others at the individual level, they contribute much less to the public project. Our results confirm the special prevention effect but show that the deterrence effect is smaller the more information on individual punishment is available.
    Keywords: Punishment, Deterrence, Special Prevention, Jeremy Bentham, Experiment, Public Good
    JEL: C91 H41 K14 K42
    Date: 2010–02
  18. By: Pablo Brañas-Garza (Universidad de Granada); Maria Paz Espinosa (Universidad del Pais Vasco)
    Abstract: This paper provides experimental evidence on how players predict end game effects in a linear public good game. Our regression analysis yields a measure of the relative importance of priors and signals on subjects\' beliefs on contributions and allow us to conclude that, firstly, the weight of the signal is relatively unimportant, while priors have a large weight and, secondly, priors are the same for all periods. Hence, subjects do not expect end game effects and there is very little updating of beliefs.
    Keywords: public good game, end game effect, beliefs
    JEL: C91 D64 C72 H41
    Date: 2010–02–19
  19. By: Nikos Nikiforakis (Department of Economics, The University of Melbourne); Hans-Theo Normann (Department of Economics, Goethe University Frankfurt); Brian Wallace (Department of Economics & ELSE, University College London)
    Abstract: We use a public-good experiment to analyze behavior in a decentralized asymmetric punishment institution. The institution is asymmetric in the sense that players differ in the effectiveness of their punishment. At the aggregate level, we observe remarkable similarities between outcomes in asymmetric and symmetric punishment institutions. Controlling for the average punishment effectiveness of the institutions, we find that asymmetric punishment institutions are as effective in fostering cooperation and as efficient as symmetric institutions. At the individual level, we find that players with higher punishment effectiveness contribute similar amounts to the public account, but have higher earnings and punish more than their weak counterparts.
    JEL: C92 D70 H41
    Date: 2009–06
  20. By: Graham Loomes (University of Warwick); José Luis Pinto-Prades (Department of Economics,Universidad Pablo de Olavide); Jose Maria Abellan-Perpinan (U. de Murcia); Eva Rodriguez-Miguez (U. de Vigo)
    Abstract: When individuals take part in decision experiments, their answers are typically subject to some degree of noise / error / imprecision. There are different ways of modelling this stochastic element in the data, and the interpretation of the data can be altered radically, depending on the assumptions made about the stochastic specification. This paper presents the results of an experiment which gathered data of a kind that has until now been in short supply. These data strongly suggest that the 'usual' (Fechnerian) assumptions about errors are inappropriate for individual decision experiments. Moreover, they provide striking evidence that core preferences display systematic departures from transitivity which cannot be attributed to any 'error' story.
    Keywords: Error Imprecision Preferences Transitivity
    JEL: C44 C91
    Date: 2010–02
  21. By: Kurtis Swope (United States Naval Academy); Pamela Schmitt (United States Naval Academy); John Cadigan (Gettysburg College); Ryan Wielgus (United States Navy)
    Abstract: We use multilateral bargaining experiments to examine how the order of bargaining (simultaneous or sequential) and the nature of contracts (contingent or non-contingent) affect the duration of bargaining, the efficiency of exchange, and the distribution of the surplus in a laboratory land-assembly game with one buyer and two sellers. While theory predicts an earnings advantage for the first seller when contracts are sequential and contingent, and for the second seller when contracts are sequential and non-contingent, we find that when a seller has an earnings advantage in the laboratory, it is the first seller to bargain in the non-contingent contract treatments. This result contradicts conventional wisdom and a common result from the land-assembly literature that it is advantageous to be the last seller to bargain, a so-called “holdout”. We also find evidence that sequential bargaining leads to more aggressive seller bargaining and greater bargaining delay than simultaneous bargaining, ceteris paribus, and that non-contingent contracts increase bargaining delay and the likelihood of failed agreements. The majority of sellers indicated a preference for being the first seller to bargain in all sequential bargaining treatments.
    Date: 2010–01
  22. By: Lukas Menkhoff; Maik Schmeling; Ulrich Schmidt
    Abstract: This paper presents an online-experiment on overconfidence in the context of financial markets. Our subject pool consists of institutional investors, investment advisors and individual investors, all of them being registered users of a large online platform for market sentiment data. Due to their registration, several socioeconomic characteristics of participants can be controlled for in our analysis. It turns out that there are stable differences in overconfidence between the three investor groups. Moreover, investment experience and age have a significant impact on the degree of overconfidence which goes surprisingly in opposite direction. We argue that these results have important implications for studies analyzing the impact of experience on behavior in (financial) markets
    Keywords: Market behavior, overconfidence, experience, professionalism
    JEL: G1 D81 F30
    Date: 2010–03
  23. By: Michael H. Birnbaum; Ulrich Schmidt; Miriam D. Schneider
    Abstract: This paper presents an experimental test of several independence conditions implied by expected utility and alternative models. We perform a repeated choice experiment and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in most previous studies) but also in split form. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. Splitting effects have a substantial influence on the tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the independence conditions we tested become either reversed, insignificant or unsystematic
    Keywords: Independence axiom, splitting effects, coalescing, errors, experiment
    JEL: C91 D81
    Date: 2010–03
  24. By: Kurtis Swope (United States Naval Academy); Pamela Schmitt (United States Naval Academy); John Cadigan (Gettysburg College); Robert Shupp (Michigan State University)
    Abstract: No abstract available
    Date: 2009–09
  25. By: Martin Beckenkamp; Christoph Engel (Max Planck Institute for Research on Collective Goods); Andreas Glöckner; Bernd Irlenbusch; Heike Hennig-Schmidt; Sebastian Kube; Michael Kurschilgen; Alexander Morell; Andreas Nicklisch; Hans-Theo Normann; Emanuel Towfigh
    Abstract: Broken Windows: the metaphor has changed New York and Los Angeles. Yet it is far from undisputed whether the broken windows policy was causal for reducing crime. In a series of lab experiments we show that first impressions are indeed causal for cooperativeness in three different institutional environments: absent targeted sanctions; with decentralised punishment; with decentralised punishment qualified by the risk of counterpunishment. In all environments, the effect of first impressions cannot be explained with, but adds to, participants’ initial level of benevolence. Mere impression management is not strong enough to stabilise cooperation though. It must be combined with some risk of sanctions.
    Keywords: Broken Windows, Impression Management, Criminal Policy, Public Good Experiment
    JEL: C91 D63 H41 K14 K42
    Date: 2009–07
  26. By: Pavlo R. Blavatskyy
    Abstract: The results of a new experimental study reveal highly systematic violations of expected utility theory. The pattern of these violations is exactly the opposite of the classical common ratio effect discovered by Allais (1953). Two recent decision theories— stochastic expected utility theory (Blavatskyy, 2007) and perceived relative argument model (Loomes, 2008)—predicted the existence of a reverse common ratio effect. However, these theories can rationalize only one part of the new experimental data reported in this paper. The other part appears to be neither predicted by existing theories nor documented in the existing empirical studies.
    Keywords: Expected utility theory, common ratio effect, Allais paradox, risk, experiment
    JEL: C91 D81
    Date: 2010–02
  27. By: Karla Hoff; Mayuresh Kshetramade; Ernst Fehr
    Abstract: Well-functioning groups enforce social norms that restrain opportunism, but the social structure of a society may encourage or inhibit norm enforcement. Here we study how the exogenous assignment to different positions in an extreme social hierarchy – the caste system – affects individuals’ willingness to punish violations of a cooperation norm. Although we control for individual wealth, education, and political participation, low caste individuals exhibit a much lower willingness to punish norm violations that hurt members of their own caste, suggesting a cultural difference across caste status in the concern for members of one’s own community. The lower willingness to punish may inhibit the low caste’s ability to sustain collective action and so may contribute to its economic vulnerability.
    Keywords: Social norms, informal sanctions, third party punishment, endogenous social preferences, social exclusion, collective action, caste
    JEL: D02 D64
    Date: 2010–02
  28. By: Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: Cartels are inherently instable. Each cartelist is best off if it breaks the cartel, while the remain-ing firms remain loyal. If firms interact only once, if products are homogenous, if firms compete in price, and if marginal cost is constant, theory even predicts that strategic interaction forces firms to set the market clearing price. For society, this would be welcome news. Without antitrust intervention, the market outcome maximises welfare. The argument becomes even stronger if the opposite market side has a chance to defend itself; if imposing harm on the opposite market side is salient; if it is clear that cartels are at variance with normative expectations prevalent in society. There is an equally long list of reasons, though, why such optimism might be unwarranted: capacity is limited; interaction is repeated, and the end is uncertain; firms might be willing to run a limited risk of being exploited by their competitors, hoping that the investment pays. This paper explores the question both theoretically and experimentally. In the interest of capitalising on a rich body of experimental findings, and on the concept of conditional cooperation in particular, the paper offers a formal model that interprets oligopoly as a linear public good.
    Keywords: Cartel, Oligopoly, Bertrand, Cournot, Public Good, Externality, Experiment
    JEL: A13 C91 D43 D62 H23 H41 K21 L13
    Date: 2009–08
  29. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: Although one may hope to achieve equality of stated profits without enforcing it, one may not trust in such voluntary equality seeking and rather try to impose rules (of bidding) guaranteeing it. Our axiomatic approach is based on envy-free net trades according to bids which, together with the equality requirement, characterize the first-prize auction and fair division game.
    Keywords: Auctions, Fair Division, Procedural fairness, Envy-Freeness
    JEL: D44 D63 C72 D74
    Date: 2010–03–05
  30. By: Mathieu Lefebvre (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège); Ferdinand Vieider (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: Compensation of executives by means of equity has long been seen as a means to tie executives' income to company performance, and thus as a solution to the principal-agent dilemma created by the separation of ownership and management in publicly owned companies. The overwhelming part of such equity compensation is currently provided in the form of stock-options. Recent events have however revived suspicions that the latter may induce excessive risk taking by executives. In an experiment, we find that subjects acting as executives do indeed take risks that are excessive from the perspective of shareholders if compensated through options. Comparing compensation mechanisms based on stock-options to long-term stock-ownership plans, we find that the latter significantly reduce the uptake of excessive risks by aligning the executives' interests with those of shareholders. Introducing an institutionalized accountability mechanism consisting in the requirement for executives to justify their choices in front of a shareholder reunion also reduces excessive risk taking, and appears to be even more effective than long-term stock-ownership plans. A combination of long-term stock-ownership plans and increased accountability thus seem a promising direction for reining in excessive risk taking by executives.
    Keywords: executive compensation ; stock-options ; incentives ; accountability ; risk taking
    Date: 2010
  31. By: Alessandro Innocenti; Alessandra Rufa; Jacopo Semmoloni
    Abstract: This paper investigates the validity of the Dual Process theory by using eye-tracking methods to trace the process of attention during a non-preference-based problem solving task, i.e. informational cascades. In this setting, gaze direction may convey evidence on how automatic detection is modified or sustained by controlled search. We provide laboratory evidence that gaze direction is driven by cognitive biases, such as overconfidence. In particular, we find a significant statistical correlation between first fixations and subjects’ actual choices. Our results suggest that attentional strategies are not necessarily consistent with efficient patterns of information collecting.
    Keywords: dual process theory, eye-tracking, cognitive biases, overconfidence, informational cascades.
    JEL: C91 D82 D83 D87
    Date: 2009–09
  32. By: Ulrich Schmidt; Stefan T. Trautmann
    Abstract: This paper presents an experimental study analyzing common consequence effects with binary choice, willingness-to-pay (WTP), and willingness-to-accept (WTA). Consistent with previous research we do not find clearcut evidence of fanning out in the absence of certainty effects. Violation rates of EU are more pronounced for WTP and WTA than for choice data. Moreover, there is a strong tendency for violations in the direction of fanning out. Our results reinforce the significance of common consequence effects and provide support for the operation of cancellation in prospect theory
    Keywords: Common consequence effects, fanning out, WTP, WTA, cancellation
    JEL: C91 D81
    Date: 2010–03
  33. By: Dorothea Kübler
    Abstract: This contribution provides a brief overview and discussion of the role of experiments in economics. It is argued that economic experiments have convinced economists and the public of the existence of phenomena that have been outside the scope of economics. The success of these experiments is partly due to the performative nature of experiments. To develop this argument, examples of experiments are provided, and two different sets of criticisms of experiments are discussed. The paper concludes with a discussion of which questions economists should address and how experiments can be used to study policy-relevant questions. <br> <br> <i>ZUSAMMENFASSUNG - (Experimentelle Praktiken in der Ökonomie: Performativität und die Erzeugung neuer Phänomene) <br>Der Beitrag beschäftigt sich mit der Rolle von Experimenten in der Ökonomie. Es wird argumentiert, dass Experimente dazu in der Lage sind, sowohl Ökonomen als auch eine breitere Öffentlichkeit davon zu überzeugen, dass bestimmte Phänomene existieren, die vorher nicht als relevant für die Ökonomie angesehen oder gar nicht wahrgenommen wurden. Diese Wirkung von Experimenten beruht zu einem wichtigen Teil auf ihrer Performativität. Um dieses Argument zu entwickeln, werden Beispiele für Experimente gegeben, verschiedene Kritikpunkte an Experimenten diskutiert sowie die Frage aufgeworfen, was die Grenzen der Ökonomie sind und wie Experimente zur Beantwortung wirtschaftspolitischer Fragen eingesetzt werden können.<i>
    Date: 2010–01
  34. By: Kurtis Swope (United States Naval Academy); Pamela Schmitt (United States Naval Academy); John Cadigan (Gettysburg College); Robert Shupp (Michigan State University)
    Abstract: Conventional wisdom as well as economic theory suggests it is more costly to reassemble fragmented land due to transactions costs and strategic bargaining costs. Both costs are expected to increase with the number of sellers. Inefficient allocation of land resources may result including property entropy (Parisi 2002), urban sprawl (Miceli and Sirmans 2007) and deteriorating inner cities. Given the difficulty of observing actual values attached by buyers and sellers to land, little empirical evidence exists to support the conventional wisdom and theoretical work. We use experimental methods to examine transactions costs and strategic bargaining costs in a land-assembly market game with one buyer, one to four sellers, and complementary exchanges. The buyer’s final earnings vary inversely with the number of sellers, ceteris paribus, indicating an incentive to purchase consolidated land. Delay costs reduce holdout, but result in lower payoffs for both buyers and sellers. Competition between sellers reduces holdout and the buyer’s total purchase price.
    Date: 2009–09
  35. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Over the last 25 years, more than a hundred dictator game experiments have been published. This meta study summarizes the evidence. Exploiting the fact that most experiments had to fix parameters they did not intend to test, the meta study explores a rich set of control variables for multivariate analysis. It shows that Tobit models (assuming that dictators would even want to take money) and hurdle models (assuming that the decision to give a positive amount is separate from the choice of amount, conditional on giving) outperform mere meta-regression and OLS.
    JEL: C91 C24
    Date: 2010–03
  36. By: Michael H. Birnbaum; Ulrich Schmidt
    Abstract: This paper tests Birnbaum’s (2004) theory that the constant consequence paradoxes of Allais are due to violations of coalescing, the assumption that when two branches lead to the same consequence, they can be combined by adding their probabilities. Rank dependent utility and cumulative prospect theory imply that the Allais paradoxes are due to violations of restricted branch independence, a weaker form of Savage’s sure thing axiom. This paper will analyze separately whether erroneous random response variation might be responsible for these two effects. When errors are factored out, violations of restricted branch independence also remain significant and opposite from the direction of Allais paradoxes, suggesting that models such as CPT that attribute Allais paradoxes to violations of restricted branch independence should be rejected
    Keywords: Independence axiom, splitting effects, coalescing, errors, experiment
    JEL: C91 D81
    Date: 2010–03
  37. By: Orazio Attanasio (Institute for Fiscal Studies and University College London); Luca Pellerano (Institute for Fiscal Studies); David Phillips (Institute for Fiscal Studies)
    Abstract: <p><p>Several decades of conflict, rebellion and unrest severely weakened civil society in parts of Colombia. Desarollo y Paz is the umbrella term used to describe the set of locally-led initiatives that aim at addressing this problem through initiatives to promote sustainable economic development and community cohesion and action. </p><p></p><p> </p><p></p><p>In this paper we analyse the findings from a series of 'public good' games that were conducted between November 2005 and February 2007 in 104 municipalities in rural and urban Colombia with mainly poor participants. The data covers municipalities both with ('treatment') and without ('control') a PRDP in place, and within the 'treatment' municipalities, both beneficiaries and non beneficiaries of the PRDP initiative. The data for 'control' municipalities was collected as part of the evaluation of Familias en Accion (FeA), Colombia's conditional cash transfer programme. </p><p></p><p> </p><p></p><p>The game is structured as a typical free-rider problem with the act of contributing to the 'public good' (a collective money pot) being always dominated by non-contribution. We interpret contribution as an act consistent with a high degree of social capital. </p><p></p><p> </p><p></p><p>Potentially endogenous selection into the programme makes identifying programme effects difficult but we find strong and suggestive evidence that exposure to PRDPs improve social capital and that this extends beyond direct beneficiaries of the programme. In particular, the duration of programme operation and the proportion of programme beneficiaries in a game session increase contribution to the public good, suggesting that in order to have a major impact the programme must be sufficiently 'intensive'.</p></p>
    JEL: C93 I38 D74 H41
    Date: 2009–10
  38. By: Dietmar Fehr, Dorothea Kübler, David Danz
    Abstract: We study beliefs and choices in a repeated normal-form game. In addition to a baseline treatment with common knowledge of the game structure, feedback about choices in the previous period and random matching, we run treatments (i) with fixed matching, (ii) without information about the opponent’s payoffs, and (iii) without feedback about previous play. Using Stahl and Wilson’s (1995) model of limited strategic reasoning, we classify behavior with regard to its strategic sophistication and consider its development over time. In the treatments with feedback and full information about the game, we observe more strategic play, more best-responses to beliefs and more accurate beliefs over time. While feedback is the main driving force of learning to play strategically and for forming beliefs that accurately predict the behavior of the opponent, both incomplete information about the opponent’s payoffs or lack of feedback lead to a stagnation of best-response rates over time. <br> <br> <i>ZUSAMMENFASSUNG - (Information und Erwartungen in einem wiederholten Normalformspiel) <br>Wir untersuchen die Entwicklung von den Erwartungen über das Verhalten des anderen Spielers und den Entscheidungen in einem wiederholten Normalformspiel. Zusätzlich zum Haupttreatment mit common knowledge über das Spiel, Feedback über das Ergebnis in der vorigen Runde und zufälliger Zuordnung der Spieler, gibt es Kontrolltreatments mit (i) festen paarweisen Zuordnungen der Spieler, (ii) ohne Information über die Auszahlungen des anderen Spielers und (iii) ohne Feedback über das Ergebnis der vorigen Runde. Mit Hilfe von Stahl und Wilsons (1995) Modell begrenzten strategischen Verhaltens klassifizieren wir das Verhalten der Teilnehmer im Hinblick auf die strategische Sophistikation. In den Treatments mit Feedback und vollständiger Information über das Spiel nehmen strategisches Verhalten, beste Antworten auf die eigenen Erwartungen und die Akkuratheit der Erwartungen über die Zeit zu. Während Feedback der Hauptgrund dafür ist, dass die Teilnehmer lernen, sich strategisch zu verhalten und korrekte Erwartungen über das Verhalten des anderen Spielers zu bilden, führen sowohl unvollständige Information über die Auszahlungen des Gegenspielers als auch fehlendes Feedback zu einer Stagnation der Rate der besten Antworten über die Zeit.<i>
    Date: 2010–03
  39. By: Roland G. Fryer, Jr
    Abstract: This paper describes a series of school-based randomized trials in over 250 urban schools designed to test the impact of financial incentives on student achievement. In stark contrast to simple economic models, our results suggest that student incentives increase achievement when the rewards are given for inputs to the educational production function, but incentives tied to output are not effective. Relative to popular education reforms of the past few decades, student incentives based on inputs produce similar gains in achievement at lower costs. Qualitative data suggest that incentives for inputs may be more effective because students do not know the educational production function, and thus have little clue how to turn their excitement about rewards into achievement. Several other models, including lack of self-control, complementary inputs in production, or the unpredictability of outputs, are also consistent with the experimental data.
    JEL: I20 J15
    Date: 2010–04

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