nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒09‒18
twelve papers chosen by
Daniel Houser
George Mason University

  1. Group Membership, Competition, and Altruistic versus Antisocial Punishment: Evidence from Randomly Assigned Army Groups By Lorenz Goette; David Huffman; Stephan Meier; Matthias Sutter
  2. Free-riding on Communication: An Experimental Study By Andersson, Ola; Holm, Håkan J.
  3. Size Matters (in Output-Sharing Groups): Voting to End the Tragedy of the Commons By Cherry, Josh; Salant, Stephen; Uler, Neslihan
  4. Dopamine and Risk Preferences in Different Domains By Dreber, Anna; Rand, David G.; Garcia, Justin R.; Wernerfelt, Nils; Lum, J. Koji; Zeckhauser, Richard
  5. Thinking in Chinese vs. Thinking in English: Social Preference and Risk Attitudes of Multicultural Minds By Li King King
  6. When Less is More: Rationing and Rent Dissipation in Stochastic Contests By Marco Faravelli; Luca Stanca
  7. Promoting Rule Compliance in Daily-Life: Evidence from a Randomized Field Experiment in the Public Libraries of Barcelona By Jose Apesteguia; Patricia Funk; Nagore Iriberri
  8. Comparing Prediction Market Structures, With an Application to Market Making By Aseem Brahma; Sanmay Das; Malik Magdon-Ismail
  9. Influential Listeners: An Experiment on Persuasion Bias in Social Networks By Luca Corazzini; Filippo Pavesi; Beatrice Petrovich; Luca Stanca
  10. Explaining Randomized Evaluation Techniques Using Classroom Games By Subha Mani; Utteeyo Dasgupta
  11. Nature or Nurture: What Determines Investor Behavior? By Barnea, Amir; Cronqvist, Henrik; Siegel, Stephan
  12. Analysis of Country of Origin Labeling for Food Products in Taiwan using Auction Experiment By Wen S. Chern; Huei-Ching Lin

  1. By: Lorenz Goette; David Huffman; Stephan Meier; Matthias Sutter
    Abstract: We investigate how group boundaries, and the economic environment surrounding groups, affect altruistic cooperation and punishment behavior. Our study uses experiments conducted with 525 officers in the Swiss Army, and exploits random assignment to platoons. We find that, without competition between groups, individuals are more prone to cooperate altruistically in a prisoner's dilemma game with in-group as opposed to out-group members. They also use a costly punishment option to selectively harm those who defect, encouraging a norm of cooperation towards the group. Adding competition between groups causes even stronger in-group cooperation, but also a qualitative change in punishment: punishment becomes anti-social, harming cooperative and defecting out-group members alike. These findings support recent evolutionary models and have important organizational implications.
    Keywords: Cooperation, Punishment, Army, Experiment
    JEL: C72 C91
    Date: 2010–09
  2. By: Andersson, Ola (Department of Economics, Stockholm School of Economics); Holm, Håkan J. (Department of Economics, Lund University)
    Abstract: We use data from a bargaining experiment with communication to investigate free-riding behavior on communication cost in a coordination game. We find strong indications of free-riding. Firstly, the subjects tend to wait for the other to send a message when communication is costly, which does not happen when communication is costless. Secondly, the proportion of games where no communication takes place is much higher when communication is costly compared to when it is free. Thirdly, the form of communication also strongly suggest free-riding.
    Keywords: Free-riding; Communication; Coordination
    JEL: C72 C91 D43
    Date: 2010–09–01
  3. By: Cherry, Josh; Salant, Stephen; Uler, Neslihan
    Abstract: Individuals extracting common-pool resources in the field sometimes form output-sharing groups to avoid costs of crowding. In theory, if the right number of groups forms, Nash equilibrium aggregate effort should fall to the socially optimal level. Whether individuals manage to form the efficient number of groups and to invest within the chosen groups as theory predicts, however, has not been previously determined. We investigate these questions experimentally. We find that subjects do vote in most cases to divide themselves into the optimal number of output-sharing groups, and in addition do decrease the inefficiency significantly (by 50% to 71%). We did observe systematic departures from the theory when the group sizes are not predicted to induce socially optimal investment. Without exception these are in the direction of the socially optimal investment, confirming the tendency noted elsewhere in public goods experiments for subjects to be more “other-regarding” than purely selfish.
    Keywords: catch-sharing, common-pool resources, efficient private provision, free-riding, laboratory experiment, partnership solution
    Date: 2010–09–08
  4. By: Dreber, Anna (Institute for Financial Research); Rand, David G. (Harvard University); Garcia, Justin R. (Binghamton University); Wernerfelt, Nils (Toulouse School of Economics); Lum, J. Koji (Binghamton University); Zeckhauser, Richard (Harvard University)
    Abstract: Individuals differ significantly in their willingness to take risks. Such differences may stem, at least in part, from individual biological (genetic) differences. We explore how risk-taking behavior correlates with different versions of the dopamine receptor D4 gene (DRD4), which has been implicated in previous studies of risk taking. We investigate risk taking in three contexts: economic risk taking as proxied by a financial gamble, self-reported general risk taking, and self-reported behavior in risk-related activities. Our participants are serious tournament bridge players with substantial experience in risk taking. Presumably, this sample is much less varied in its environment than a random sample of the population, making genetic based differences easier to detect. A prior study (Dreber et al. 2010) looked at risk taking by these individuals in their bridge decisions. Here we examine the riskiness of decisions they take in other contexts. We find evidence that individuals with a 7-repeat allele (7R+) of DRD4 take significantly more economic risk in an investment game than individuals without this allele (7R-). Interestingly, this positive relationship is driven by the men in our study, while the women show a negative but non-significant result. Even though the number of 7R+ women in our sample is low, our results may indicate a gender difference in how the 7R+ genotype affects behavior, a possibility that merits further study. Considering other risk measures, we find no difference between 7R+ and 7R- individuals in general risk taking or any of the risk-related activities. Overall, our results indicate that the dopamine system plays an important role in explaining individual differences in economic risk taking in men, but not necessarily in other activities involving risk.
    Keywords: Risk preferences; Dopamine; Risk taking; Risk perception; DRD4
    JEL: C91 C93 D81 D87 G00
    Date: 2010–05–15
  5. By: Li King King (Strategic Interaction Group, Max Planck Institute of Economics, Jena)
    Abstract: This paper investigates whether language priming activates different cultural identities and norms associated with the language communicated; bilingual subjects are given Chinese instructions in the Chinese treatment and English instructions in the English treatment. The main findings are: (1) in social preference games involving strategic interactions, e.g., the trust game, subjects in the Chinese treatment are more trusting and trustworthy than in the English treatment. However, (2) in individual choice games about social preference, such as the dictator game, while there is no treatment difference, subjects exhibit in-group favoritism only in the Chinese treatment. Further, (3) subjects in the Chinese treatment expect others to be more risk seeking, and prefer to pick Chinese lucky numbers in a lottery game. These findings support the hypothesis that languages are associated with cultural frames and that communicating in a particular language increases the cognitive accessibility of norms associated with that language.
    Keywords: Identity, cross-cultural differences, language, bilingual, biculture, social preference, risk attitudes
    JEL: C91 D81 Z10
    Date: 2010–09–13
  6. By: Marco Faravelli; Luca Stanca
    Abstract: This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest with proportional probabilities, where all bidders value the prize equally. We show that by ¯xing the number of tickets, thus setting a limit to total expenditures, it is possible to maximize the auctioneer's revenue and obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is signi¯cantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery.
    Keywords: Stochastic Contests; Rent Seeking; Laboratory Experiments
    JEL: C91 D44
    Date: 2010–09
  7. By: Jose Apesteguia; Patricia Funk; Nagore Iriberri
    Abstract: We study how to promote compliance with rules in everyday situations. Having access to unique data on the universe of users of all public libraries in Barcelona, we test the effect of sending email messages with different contents. We find that users return their items earlier if asked to do so in a simple email. Emails reminding users of the penalties associated with late returns are more effective than emails with just a generic reminder. We find differential treatment effects by user types. The characteristics we analyze are previous compliance, gender, age, and nationality.
    Keywords: Rule Compliance, Pro-Social Behavior, Field Experiment, Public Libraries.
    JEL: C93 D01 D63 K42
    Date: 2010–08
  8. By: Aseem Brahma; Sanmay Das; Malik Magdon-Ismail
    Abstract: Ensuring sufficient liquidity is one of the key challenges for designers of prediction markets. Various market making algorithms have been proposed in the literature and deployed in practice, but there has been little effort to evaluate their benefits and disadvantages in a systematic manner. We introduce a novel experimental design for comparing market structures in live trading that ensures fair comparison between two different microstructures with the same trading population. Participants trade on outcomes related to a two-dimensional random walk that they observe on their computer screens. They can simultaneously trade in two markets, corresponding to the independent horizontal and vertical random walks. We use this experimental design to compare the popular inventory-based logarithmic market scoring rule (LMSR) market maker and a new information based Bayesian market maker (BMM). Our experiments reveal that BMM can offer significant benefits in terms of price stability and expected loss when controlling for liquidity; the caveat is that, unlike LMSR, BMM does not guarantee bounded loss. Our investigation also elucidates some general properties of market makers in prediction markets. In particular, there is an inherent tradeoff between adaptability to market shocks and convergence during market equilibrium.
    Date: 2010–09
  9. By: Luca Corazzini; Filippo Pavesi; Beatrice Petrovich; Luca Stanca
    Abstract: This paper presents an experimental investigation of persuasion bias, a form of bounded rationality whereby agents communicating through a social network are unable to account for possible repetitions in the information they receive. The results indicate that network structure plays a significant role in determining social influence. How- ever, the most influential agents are not those with more outgoing links, as predicted by the persuasion bias hypothesis, but those with more incoming links. We show that a boundedly rational updating rule that takes into account not only agents' outdegree, but also their inde- gree, provides a better explanation of the experimental data. In this framework, consensus beliefs tend to be swayed towards the opinions of influential listeners. We then present an effort-weighted updating model as a more general characterization of information aggregation in social networks.
    Date: 2010–08
  10. By: Subha Mani (Fordham University, Department of Economics); Utteeyo Dasgupta (Franklin and Marshall College, Department of Economics)
    Abstract: Over the last decade, randomized evaluations have taken the field of development economics by storm. Despite the availability of strong review pieces in the topic, there is no pedagogical paper on randomized evaluation. This paper bridges the gap by introducing three interactive classroom games to communicate the concepts of Average Treatment Effect (ATE), Intent–to-Treat Effect (ITT), Sub-group Average Treatment Effect (SATE), and Externality Effect (EE). The classroom games are easy to implement and provide students an opportunity to participate in a simple randomized trial of their own.
    Keywords: program evaluation, classroom experiment, pedagogy, economic development
    JEL: A22 C70
    Date: 2010
  11. By: Barnea, Amir (Claremont McKenna College); Cronqvist, Henrik (Claremont McKenna College); Siegel, Stephan (University of Washington)
    Abstract: Using data on identical and fraternal twins' complete financial portfolios, we decompose the crosssectional variation in investor behavior. We find that a genetic factor explains about one third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experiences. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation - the relative amount invested in equities and the portfolio volatility - to genetic variation in risk preferences.
    Keywords: Portfolio choice; Investor heterogeneity; Behavioral genetics
    JEL: D10 G11
    Date: 2010–09–15
  12. By: Wen S. Chern; Huei-Ching Lin
    Abstract: The purpose of this study is to evaluate the economic benefits of country of origin labeling (COOL) regulation by estimating the consumerfs willingness to pay (WTP) for Taiwan products vs. other imported products if clearly labeled with their countries of origin. We employ the Vickrey second-price sealed bid auction and conducted auctions in three major cities in Taiwan in 2009. Charcoal-smoked plums from Taiwan and China and oolong teas from Taiwan, China, and Vietnam are auctioned products. One important feature of our experimental design is to investigate the impacts of product tasting on bidding behavior. We estimated Tobit bid models and the OLS premium functions. The regression results show that product tasting affected the participantsf WTP positively or negatively depending on products. Specifically, tasting raised bids for Taiwan and China teas, but lowered bids for Vietnam tea. The econometric results show very high premiums for Taiwan products, ranging from 83% to 109% for tea and 55% to 66% for charcoal-smoked plum. These findings clearly show strong preference of Taiwanese consumers over food and agricultural products produced domestically. It is very important to have rigorous COOL regulation in Taiwan. If all foods and agricultural products are clearly labeled with their countries of origin, Taiwanese consumers and food producers stand to benefit greatly with COOL. The COOL would be one of the best instruments to reduce the negative impacts of agricultural trade liberalization under WTO or ECFA.
    Date: 2010–08

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