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on Experimental Economics |
| By: | John Dickhaut (Economic Science Institute, CHapman University); Shengle Lin (Economic Science Institute, CHapman University); David Porter (Economic Science Institute, CHapman University); Vernon L. Smith (Economic Science Institute, Chapman University) |
| Abstract: | Key differential structural characteristics of environments studied in previous market experiments have documented large divergences in their observed performance, particularly discrepancies in their convergence to expected equilibrium outcomes. We investigate why this should be so. The type of competitive equilibrium where a market clears at a particular price as initiated by Arrow and Debreu (1954) has long been studied in the laboratory. We refer to these experiments as Supply and Demand (SD) experiments. SD experiments are highly reduced in form: items are not re-tradable, buyers and sellers are specialized in these roles, and no second commodity, cash, is used as a medium of exchange, although cash enters as a numeraire qua reward incentive for subjects. Markets with these features that are repeated over time converge rapidly to the predicted equilibrium under a regime of strict private dispersed information on individual values that define the equilibrium predictions. In contrast, consider asset markets, in which shares can be freely re-traded against cash within and across periods, shares have well-defined common values based on common public information on expected cash “dividend” yields, and individuals are not specialized as buyers or sellers. These markets produce price bubbles that converge only with experience across repeat sessions. The prospect of re-trade, and perhaps the lack of buyer/seller specialization, results in market behavior that contrasts sharply with the perishable goods that characterize the SD experiments. Building on this background analysis we report new experiments that combine features of both environments and initiate an investigation of how commodity durability that constrains re-trading characteristics affect the observed variation in market performance. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:10-01&r=exp |
| By: | Jack Douglas Stecher (Carnegie Mellon University); Timothy Shields (Argyros School of Business & Economics, Chapman University); John Dickhaut (Economic Science Institute, Chapman University) |
| Abstract: | This article develops a method for drawing samples from which it is impossible to infer any quantile or moment of the underlying distribution. The method provides researchers with a way to give subjects the experience of ambiguity. In any experiment, learning the distribution from experience is impossible for the subjects, essentially because it is impossible for the experimenter. We describe our method mathematically, illustrate it in simulations, and then test it in a laboratory experiment. Our technique does not withhold sampling information, does not assume that the subject is incapable of making statistical inferences, is replicable across experiments, and requires no special apparatus. We compare our method to the techniques used in related experiments that attempt to produce an ambiguous experience for the subjects. |
| Keywords: | ambiguity; Ellsberg; Knightian uncertainty; laboratory experiments; ignorance; vagueness JEL Classications: C90; C91; C92; D80; D81 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:08-10&r=exp |
| By: | Charness, Gary (University of California, Santa Barbara); Kuhn, Peter J. (University of California, Santa Barbara) |
| Abstract: | This paper surveys the contributions of laboratory experiments to labor economics. We begin with a discussion of methodological issues: why (and when) is a lab experiment the best approach; how do laboratory experiments compare to field experiments; and what are the main design issues? We then summarize the substantive contributions of laboratory experiments to our understanding of principal-agent interactions, social preferences, union-firm bargaining, arbitration, gender differentials, discrimination, job search, and labor markets more generally. |
| Keywords: | labor economics, laboratory experiments, principal-agent theory, personnel economics |
| JEL: | C9 J0 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4941&r=exp |
| By: | Simon Gaechter (University of Nottingham); Benedikt Herrmann (University of Nottingham) |
| Abstract: | We report evidence from public goods experiments with and without punishment which we conducted in Russia with 566 urban and rural participants of young and mature age cohorts. Russia is interesting for studying voluntary cooperation because of its long history of collectivism, and a huge urban-rural gap. In contrast to previous experiments we find no cooperation-enhancing effect of punishment. An important reason is that there is punishment of contributors in all four subject pools. Thus, punishment can also undermine the scope for self-governance in the sense of high levels of voluntary cooperation that are sustained by sanctioning free riders only. |
| Keywords: | social norms, free riding, misdirected punishment, experiments |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2010-05&r=exp |
| By: | Blais, Andre; Laslier, Jean-François; Sauger, Nicolas; Van Der Straeten, Karine |
| Abstract: | We report on laboratory experiments on voting. In a setting where subjects have single-peaked preferences we find that the rational choice theory provides very good predictions of actual individual behavior in one-round and approval voting elections, but fares poorly in explaining vote choice under two-round elections. We conclude that voters behave strategically as far as strategic computations are not too demanding, in which case they rely on simple heuristics (in two-round elections) or they just vote sincerely (in single transferable vote elections). |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:21952&r=exp |
| By: | Sergio Sousa (School of Economics, University of Nottingham) |
| Abstract: | This paper investigates the efficacy of a punishment mechanism in promoting cooperative behaviour in a public goods game when enforcement of punishment is uncertain. Experimental studies have found that a sanctioning system can induce individuals to adopt behaviour deemed as socially acceptable. Yet, our experiment shows that a sanctioning system cannot promote cooperative behaviour if enforcement is a low-probability event and free-riding behaviour is not often punished. This supports the view that punishment needs to be exercised to be feared, otherwise the simple threat of it cannot be effective in promoting cooperation. |
| Keywords: | uncertain enforcement; public good game; altruistic punishment; decisionmaking under uncertainty; cooperation |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2010-06&r=exp |
| By: | Ambec, Stefan; Garapin, Alexis; Muller, Laurent; Reynaud, Arnaud; Sebi, Carine |
| Abstract: | We test in a laboratory experiment three regulations imposed on a common-pool resource game: an access fee and subsidy scheme, transferable quotas and non-transferable quotas. Theory predicts that they all reduce resource use from free access to the same target level without hurting users. We find that all regulations perform equally in reducing resources, although with more variance under the fee scheme. All fail to make all the users better off. The fee scheme performs better than transferable quotas in sorting out the most efficient users but at the cost of hurting them more often. |
| Keywords: | common-pool resources, regulation, quota |
| JEL: | C91 Q28 Q38 |
| Date: | 2009–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22203&r=exp |
| By: | Arnaud Reynaud; Stephane Couture |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:10.10.316&r=exp |
| By: | Cochard, François; Couprie, Hélène; Hopfensitz, Astrid |
| Abstract: | Models of household economics require an understanding of economic interactions in families. Social ties, repetition and reduced strategic uncertainty make social dilemmas in couples a very special case that needs to be empirically studied. In this paper we present results from a large economic experiment with 100 maritally living couples. Participants made decisions in a social dilemma with their partner and with a stranger. We predict behavior in this task with individual and couples' socio-demographic variables, efficiency preferences and couples' marital satisfaction. As opposed to models explaining behavior amongst strangers, the regressions on couples’ decisions highlight clear patterns concerning cooperation behavior which could inspire future household decision-making models. |
| Keywords: | noncooperative games, laboratory, individual behavior |
| JEL: | C72 C91 D13 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22255&r=exp |
| By: | Hopfensitz, Astrid; Krawczyk, Michal; Van Winden, Frans |
| Abstract: | This experimental study is concerned with the impact of the timing of the resolution of risk on investment behavior, with a special focus on the role of affect. In a between-subjects design we observe the impact of a substantial delay of risk resolution (2 days) on investment choices. Besides the resolution timing all other factors, including the timing of payout, are held constant across treatments. In addition, state-of-the-art experimental techniques from experimental economics and psychology are used for eliciting preferences and to explicitly measure emotions and personality traits. Participants put their own money at stake. Our main finding is that the timing of the resolution of risk matters for investment, modulated by the probability of investment success. Emotions are found to play a significant role in this respect and explain our main finding. Our results support recent models of decision making under risk trying to incorporate anticipatory emotions but also uncover some important shortcomings related to the dynamics of emotions. |
| Keywords: | investment decision, delayed resolution of risk, emotions |
| JEL: | C91 D91 G11 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22246&r=exp |
| By: | Moinas, Sophie; Pouget, Sébastien |
| Abstract: | This paper proposes a theory of rational bubbles in an economy with finite trading opportunities. Bubbles arise because agents are never sure to be last in the market sequence. This theory is used to design an experimental setting in which bubbles can be made rational or irrational by varying one parameter. This complements the experimental literature on irrational bubbles initiated by Smith, Suchanek and Williams (1988). Our experimental results suggest that it is pretty difficult to coordinate on rational bubbles even in an environment where irrational bubbles flourish. Maximum likelihood estimations show that these results can be reconciled within the context of Camerer, Ho, and Chong (2004)'s cognitive hierarchy model, and Mc Kelvey and Palfrey (1995)'s quantal response equilibrium. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:21929&r=exp |
| By: | Jaromir Kovarik (University of the Basque Country); Friederike Mengel (Maastricht University); José Gabriel Romero (University of Santiago de Chile) |
| Abstract: | We study (anti-) coordination problems in networks in a laboratory experiment. Partici- pants interact with their neighbours in a fixed network to play a bilateral (anti-) coordination game. Our main treatment variable is the extent to which players are heterogeneous in the number of connections (neighbors) they have. Other network characteristics are held constant across treatments. We find the following results. Heterogeneity in the number of connections dramatically improves the rate of successful coordination. In addition, even though there is a multiplicity of Nash equilibria theoretically, a very sharp selection is observed empirically: the most connected player can impose her preferred Nash equilibrium almost always and observed Nash equilibria are such that all links are coordinated. As a second treatment variation we let agents decide endogenously on the amount of information they would like to have and find that local (endogenous) information is equally efficient in ensuring successful coordination as full information. We provide an intuitive explanation of these facts which is supported by our data. |
| Keywords: | Game Theory, Networks, Coordination Problems, Experiments |
| JEL: | C72 C90 C91 D85 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.49&r=exp |
| By: | Windle, Jill; Rolfe, John |
| Abstract: | Comparing responses from web and paper-based collection modes in a choice modelling experiment |
| Keywords: | web-based surveys, internet surveys, paper-based surveys, stated preference, collection mode, choice experiments, Environmental Economics and Policy, |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare10:59261&r=exp |
| By: | Hopfensitz, Astrid; Wranik, Tanja |
| Abstract: | Investment behavior is traditionally investigated with the assumption that it is on average advantageous to invest. However, this may not always be the case. In this paper, we experimentally studied investment choices made by students and financial professionals facing alternately an advantageous and disadvantageous environment in a multi-round investment game. Expected returns from investment in the advantageous environment were higher than a safe alternative, while expected returns were lower in the disadvantageous environment. We investigate how experience and personality are related to choices. Investment behavior does not differ dependent on expected returns and professionals do not significantly differ from students. Personality predicts behavior and in particular we observe that openness to experience was an asset in unfavorable markets, leading to reduced risk taking. |
| JEL: | D14 D81 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22245&r=exp |
| By: | Donkers, B. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University); Diepen, M. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University); Franses, Ph.H.B.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | Charitable organizations send out large volumes of direct mailings, soliciting for money in support of many good causes. Without any request, donations are rarely made, and it is well known that each request for money by a charity likely generates at least some revenues. Whether a single request from a charity increases the total amount donated by an individual is however unknown. Indeed, a response to one request can hurt responses to others. The net effect is therefore not easily observable, certainly not when multiple charities address the same individuals. In this paper we alleviate these observational difficulties by carrying out a field experiment in which five large charities cooperate. With the unique data that we collect, we study the impact of sending more requests on total donations. The results indicate that there is a negative competitive effect on requests from other charities, but this effect dies out rapidly. Soon after the mailing has been sent, it is only a strong cannibalization of the charity’s own revenues that prevails. This empirical finding suggests the important conclusion that not much coordination across charities is needed to increase revenues. We also demonstrate that charities need sophisticated evaluation tools that do not ignore the effects of cannibalization. |
| Keywords: | fundraising;competition;direct mailing;field experiment |
| Date: | 2010–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765019423&r=exp |
| By: | Attanasi, Giuseppe; Corazzini, Luca; Georgantzis, Nikolaos; Passarelli, Francesco |
| Abstract: | We study, both theoretically and experimentally, the relation between preferred majority thresholds and behavioral traits such as the degree of risk aversion and the subjective confidence on others preferences over the alternative to vote. The main theoretical findings are supported by experimental data. The majority threshold chosen by a subject is positively and significantly correlated with her degree of risk aversion while it is negatively and significantly associated to her con dence on othersvotes. Moreover, in a treatment in which each subject can privately observe the distribution of preferences over a sub-group of participants, we find that the quality of information crowds-out subject's confidence. |
| Keywords: | majority threshold, risk aversion, (over-)confidence |
| JEL: | D91 D72 D81 H11 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22195&r=exp |
| By: | Dallas Burtraw (Resources for the Future); Jacob K. Goeree (California Institute of Technology); Charles A. Holt (University of Virginia); Erica Myers (University of California, Berkeley); Karen Palmer (Resources for the Future); William Shobe (University of Virginia) |
| Abstract: | Auctions are increasingly being used to allocate emissions allowances (“permits”) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions. This paper reports a laboratory experiment in which half of the bidders experienced unannounced increases in their willingness to pay for permits. The focus is on the extent to which the predicted price increase due to the demand shift is reflected in sales prices under alternative auction formats. Price tracking is comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for “pay as bid” (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will during a pre-specified time window, in part because “sniping” in the final moments blocked the full effect of the demand shock. |
| Keywords: | auction, greenhouse gases, price discovery, cap and trade, emission allowances, laboratory experiment |
| JEL: | C92 D44 Q54 Q58 |
| Date: | 2010–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:vac:wpaper:wp10-01&r=exp |
| By: | Hopfensitz, Astrid |
| Abstract: | When investment is repeated, previous outcomes (winning/losing) as well as the current budget level (gain/loss domain) influence decisions. The first is related to the so-called "gamblers fallacy". The second to value function relative to some reference point. Both effects have been extensively studied, however not their interaction. We present a meta-study of five experiments initially conducted to investigate myopic-lossaversion. We observe that investment is related to the number of previous winning rounds as well as to the current budget position relative to a reference point. These effects persist when the analysis is extended to settings with restricted flexibility concerning investment. |
| Keywords: | reference point, gamblers fallacy, meta study |
| JEL: | C91 D81 G11 |
| Date: | 2009–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:22194&r=exp |
| By: | Balmann, Alfons; Kellermann, Konrad; Larsen, Karin; Sandri, Serena; Schade, Christian |
| Abstract: | Economies of scale and scope are often not exploited in Western agriculture. A general reason is probably that various types of transaction costs limit coordination among farmers. A more specific explanation is that coordination on land markets or machinery cooperation is difficult to achieve when farmers are heterogeneous as some kind of price differentiation is necessary for a Pareto-superior solution. This paper investigates experimentally such a coordination game with heterogeneous agents using an example inspired by agricultural land markets. The experimental findings suggest that a Pareto-optimal solution may not be found when agents are heterogeneous. The findings provide evidence for market failures and cooperation deficits as reasons for unexploited economies of scale in agriculture. Our findings are consistent with coordination failures that appear to be driven by behavioural factors such as anchoring-and-adjustment, inequity aversion, and a reverse form of winnerâs curse. |
| Keywords: | Land Markets, Coordination and Allocation, Experimental Economics, Agricultural and Food Policy, Farm Management, Land Economics/Use, |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaa114:61093&r=exp |
| By: | Moreno Sanchez, Rocio del Pilar; Maldonado, Jorge Higinio |
| Abstract: | Complexities associated with the management of common pool resources (CPR) threaten governance at some marine protected areas (MPA). In this paper, using economic experimental games (EEG), we investigate the effects of both external regulation and the complementarities between internal regulation and non-coercive authority interventionâwhat we call co-managementâon fishermenâs extraction decisions. We perform EEG with fishermen inhabiting the influence zone of an MPA in the Colombian Caribbean. The results show that co- management exhibits the best results, both in terms of resource sustainability and reduction in extraction, highlighting the importance of strategies that recognize communities as key actors in the decision-making process for the sustainable use and conservation of CPR in protected areas. |
| Keywords: | Common-pool resources, governance, co-management, experimental economic games, fisheries, Latin America., Environmental Economics and Policy, C93, C72, D02, D70, Q01, Q22, Q28, C23, C25, |
| Date: | 2009–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ulaedd:60731&r=exp |