nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒09‒25
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Inferring Beliefs as Subjectively Uncertain Probabilities By Steffen Andersen; John Fountain; Glenn W. Harrison; Arne Risa Hole; E. Elisabet Rutström
  2. Communication and efficiency in competitive coordination games By Timothy N. Cason; Roman M. Sheremeta; Jingjing Zhang
  3. How groups reach agreement in risky choices: an experiment By Jingjing Zhang; Marco Casari
  4. Do groups fall prey to the winner’s curse? By Marco Casari; Jingjing Zhang; Christine Jackson
  5. Entrepreneurship and Team Participation: An Experimental Study By Cooper, David J.; Saral, Krista Jabs
  6. Effort provision and communication in teams competing over the commons By Neil J. Buckley; Stuart Mestelman; R. Andrew Muller; Stephan Schott; Jingjing Zhang
  7. Testing the Effect of a Short Cheap Talk Script in Choice Experiments By Jacob Ladenburg; Jens Olav Dahlgaard; Ole Bonnichsen
  8. Equality, Equity and Incentives: An Experiment By Loukas Dalafoutas; Martin G. Kocher; Louis Putterman; Matthias Sutter
  9. Do price-tags influence consumers' willingness to pay ? On external validity of using auctions for measuring value By Muller, L.; Ruffieux, B.
  10. An Analysis of Market-Based and Statutory Limited Liability in Second Price Auctions By Saral, Krista Jabs
  11. Speculation and Demand Reduction in English Clock Auctions with Resale By Saral, Krista Jabs
  12. To what extent would the poorest consumers nutritionally and socially benefit from a global food tax and subsidy reform ? A framed field experiment based on daily food intake By Lacroix, A.; Muller, L.; Ruffieux, B.
  13. Do household definitions matter in survey design? By Beaman, Lori; Dillon, Andrew
  14. The Methodological Promise of Experimental Economics By Glenn W. Harrison

  1. By: Steffen Andersen; John Fountain; Glenn W. Harrison; Arne Risa Hole; E. Elisabet Rutström
    Abstract: We propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task, and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other, and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.
    Date: 2010–09
  2. By: Timothy N. Cason; Roman M. Sheremeta; Jingjing Zhang
    Abstract: Costless pre-play communication has been found to effectively facilitate coordination and enhance efficiency in games with Pareto-ranked equilibria. We report an experiment in which two groups compete in a weakest-link contest by expending costly efforts. Allowing intra-group communication leads to more aggressive competition and greater coordination than control treatments without any communication. On the other hand, allowing inter-group communication leads to less destructive competition. As a result, intra-group communication decreases while inter-group communication increases payoffs. Our experiment thus provides evidence that communication can either reduce or increase efficiency in competitive coordination games depending on different communication boundaries. This contrasts sharply with experimental findings from public goods and other coordination games, where communication always enhances efficiency and often leads to socially optimal outcomes.
    Keywords: Contest, between-group competition, within-group competition, cooperation, coordination, free-riding, experiments
    JEL: C70 D72 H41
    Date: 2010–09
  3. By: Jingjing Zhang; Marco Casari
    Abstract: This paper studies how groups resolve disagreement in lottery choices. In an experiment, subjects submit individual proposals, exchange chat messages, and must reach unanimity. Overall, group choices are more coherent and closer to risk neutrality than individuals’. The proposal of the minority prevails in about one instance out of five. About one third of the groups do not reach immediate agreement after communication. In these groups, extrovert subjects are more likely to lead the group outcome than confused or conscientious subjects. The amount, equality and timing of chat messages help us to predict which choice prevails in the group.
    Date: 2010–09
  4. By: Marco Casari; Jingjing Zhang; Christine Jackson
    Abstract: In a company takeover experiment, groups placed better bids than individuals and substantially reduced the winner’s curse. This improvement was mostly due to peer pressure over the minority opinion and to group learning. Learning took place from interacting and negotiating consensus with others, not simply from observing their bids. When there was disagreement within a group, what prevailed was not the best proposal but the one of the majority. Groups underperformed with respect to a “truth wins” benchmark although they outperformed individuals deciding in isolation. We draw general lessons about when to employ groups instead of individuals in intellectual tasks.
    Keywords: Winner’s curse, takeover game, group decision making, communication, experiments
    JEL: C91 C92 D81
    Date: 2010–09
  5. By: Cooper, David J.; Saral, Krista Jabs
    Abstract: Entrepreneurs are surprisingly unlikely to have partners. In spite of the obvious advantages to forming partnerships, only a small minority of entrepreneurs (less than 10%, excluding family businesses) have partners. A number of possible explanations exist for this puzzling phenomenon, including an inability to locate suitable partners, fear of free-riding by partners, and a preference for not working in groups. Utilizing a diverse subject population with a high proportion of active entrepreneurs, we use a team production experiment to study whether entrepreneurs prefer to work alone or in a team. The data indicate that entrepreneurs, while no more likely to free-ride on their teammates, are substantially less interested in joining teams. This suggests that efforts to encourage partnership among entrepreneurs may run contrary to the preferences of this group.
    Keywords: Entrepreneurship; Teams; Artefactual Field Experiment
    JEL: L26 C93
    Date: 2010–02
  6. By: Neil J. Buckley; Stuart Mestelman; R. Andrew Muller; Stephan Schott; Jingjing Zhang
    Abstract: Schott et al. (2007) have shown that the “tragedy of the commons” can be overcome when individuals share their output equally in groups of optimal size and there is no communication. In this paper we investigate the impact of introducing communication groups that may or may not be linked to output sharing groups. Communication reduces shirking, increases aggregate effort and reduces aggregate rents, but only when communication groups and output-sharing groups are linked. The effect is stronger for fixed groups (partners treatment) than for randomly reassigned groups (strangers treatment). Performance is not distinguishable from the no-communication treatments when communication is permitted but subjects share output within groups different from the groups within which they communicate. Communication also tends to enhance the negative effect of the partnered group assignment on the equality of individual payoffs. We use detailed content analysis to evaluate the impact of communication messages on behavior across treatments.
    Keywords: Common pool resources, communication, coordination, cooperation, freeriding, behavior in teams, partners and strangers, experiments
    JEL: Q20 C92 C72
    Date: 2010–09
  7. By: Jacob Ladenburg (Danish Institute of Governmental Research); Jens Olav Dahlgaard (Danish Institute of Governmental Research); Ole Bonnichsen (Institute of Food and Resource Economics, University of Copenhagen)
    Abstract: The application of stated preference methods rests on the assumption that respondents act rationally and that their demand for the non-market good on the hypothetical market is equal to what their real demand would be. Previous studies have shown that this is not the case and this gap is known as hypothetical bias. The present paper attempts to frame the description of the hypothetical market so as to induce more “true market behaviour” in the respondents by including a short Cheap Talk script. The script informs respondents that in similar studies using stated preference methods, people have a tendency to overestimate how much they are willing to pay compared to their actual (true) willingness to pay. Applying a two-split sample approach to a Choice Experiment study focusing on preferences for reducing visual disamenities from offshore wind farms, the Cheap Talk script is found to be a preference mover, but does not affect preferences significantly. Significant effects are found when relating the effect of the Cheap Talk script to the cost levels of the alternatives, in that female respondents are found to choose higher cost alternatives less frequently when presented with the Cheap Talk script, while male respondents are not affected.
    Keywords: Cheap Talk, Stated Preferences, Choice Experiment, Hypothetical Bias, Gender
    JEL: C10 C51 C90
    Date: 2010–09
  8. By: Loukas Dalafoutas; Martin G. Kocher; Louis Putterman; Matthias Sutter
    Abstract: We devise a new experimental game by nesting a voluntary contributions mechanism in a broader spectrum of incentive schemes. With it, we study tensions between egalitarianism, equity concerns, self-interest, and the need for incentives. In a 2x2 design, subjects either vote on or exogenously encounter incentive settings while assigned unequal incomes that are either task-determined or random. We find subjects’ voting to be mainly self-interested but also influenced by egalitarian and equity concerns, which sometimes cut in opposite directions. Contributions, which seem mainly determined by boundedly rational responses to incentives, are influenced by egalitarian, equity and strategic considerations.
    Keywords: equality; efficiency; voluntary contribution mechanism; incentives; experiment
    Date: 2010
  9. By: Muller, L.; Ruffieux, B.
    Abstract: The paper considers the external validity of the growing set of literature that uses laboratory auctions to reveal consumers' willingness to pay for consumer goods, when the concerned goods are sold in retailing shops through posted prices procedures. Here, the quality of the parallel between the field and the lab crucially depends on whether being informed of the actual field price influences a consumer's willingness to pay for a good or not. We show that the elasticity of the WTP revision, according to the field price estimation error, is significant, positive and can be roughly approximate to one quarter of the error. We then discuss the normative implications of these results for future experiments aimed at eliciting private valuations through auctions.
    JEL: C91 D44
    Date: 2010
  10. By: Saral, Krista Jabs
    Abstract: In auctions where bidders are uncertain of their value and are fully liable for their bids, there exists the potential for losses if bids exceed realized values. Theoretically, bids will be higher if bidders are able to mitigate this downside loss through some form of limited liability. To determine the impact of differing forms of limited liability, this paper theoretically and experimentally examines a second price auction with uncertain private values in three environments: market-based limited liability, statutory limited liability, and full liability. Market-based limited liability is induced through inter-bidder resale following the auction. Statutory limited liability is created through a default penalty option in the event that a bidder would make a loss. Bids are theoretically shown to be higher under resale and the penalty default environments than under full liability. The experimental results confirm more aggressive bidding for resale and the low penalty default treatments, but not by as much as theory predicts. Notably, under the high default penalty bidders are not bidding significantly more than under full liability, despite the theoretical prediction that they should.
    Keywords: Auctions; Limited Liability; Resale; Experimental Economics
    JEL: D44 C90
    Date: 2009–10
  11. By: Saral, Krista Jabs
    Abstract: Many auctions are followed by a resale market which occurs when the winner of the auction resells the item won to one of the participants from the original auction. The existence of such transactions may initially appear counter intuitive. However, this paper will show that active inter-bidder resale results from payoff maximizing decisions in the auction that take into account the incentives of a resale opportunity. Specifically, I examine how the existence of an inter-bidder resale opportunity impacts bidder behavior in an English clock auction, and to what extent altering the bargaining power of the final buyer and reseller in the resale market determines the strategies followed in the initial auction, in an attempt to understand the existence of these inter-bidder transactions. Theoretical and behavioral analysis is used to develop hypotheses of speculation (bidding above value) and demand reduction (bidding below value) which are directly tested in a controlled experimental setting. While value bidding is a dominant strategy in a standard English clock auction without resale, when resale is allowed, this theoretical claim is weaker. Demand reduction is observed when the bargaining power is shifted to the final buyer in resale and when the bargaining power is shifted toward the reseller, speculation is observed. The revenue achieved in the initial auction depends on the behavior observed in the auction. Regardless of bargaining power, revenue is shown to decrease below what would have been earned in an English auction without resale due to demand reduction. When the reseller has the bargaining power, and speculation is observed, this loss in revenue is somewhat mitigated by increased speculation.
    Keywords: Auctions; Resale; Demand Reduction; Speculation; Experimental Economics
    JEL: D44 C90
    Date: 2010–06
  12. By: Lacroix, A.; Muller, L.; Ruffieux, B.
    Abstract: In this paper we propose a new method in experimental economics, designed to evaluate the effectiveness of public policy incentives aimed at altering consumer behaviors. We apply this method to wide-ranging policies on food prices, which use subsidies to increase the consumption of healthy products and taxes to reduce that of unhealthy ones. Our protocol allows for observation of an individual’s daily food consumption before and after the policy. We examine two separate policies: the one subsidizes fruit and vegetables, while the other one combines taxes and subsidies. We measure their nutritional and economic impacts on the choices of low-income French consumers, compared to a reference group. Both policies have a positive effect on the nutritional quality of food choices of the two groups but initial gaps widen, especially with the subsidies. In the low-income group this can be explained by an initially unfavorable pattern and by weaker price elasticities. The redistributive effects are therefore doubly regressive. Moreover, the individual price elasticities, that the experimental approach enables us to measure, show widely diverse behaviors. They are counter-effective for close to 40% of our sample of poor women.
    JEL: C93 I18
    Date: 2010
  13. By: Beaman, Lori; Dillon, Andrew
    Abstract: Household definitions used in multi-topic household surveys vary between surveys but have potentially significant implications for household composition, production, and poverty statistics. Standard definitions of the household usually include some intersection of keywords relating to residency requirements, common food consumption, and intermingling of income or production decisions. Despite best practices intending to standardize the definition of the household, it is unclear which types of definitions or which intersections of keywords in a definition result in different household compositions. This paper conducts a randomized survey experiment of four different household definitions in Mali to examine the implications for household-level statistics. This approach permits analysis of the trade-offs between alternative definition types. We find that additional keywords in definitions increase rather than decrease household size and significantly alter household composition. Definitions emphasizing common consumption or joint production increase estimates of the levels of household assets and consumption statistics, but not on per adult equivalency asset and consumption statistics, relative to open-ended definitions of the household. In contrast, definition type did not affect production statistics in levels, although we observe significant differences in per adult equivalency terms. Our findings suggest that variations in household definition have implications for measuring household welfare and production over time and across countries, as well as evaluation studies where the correct measure of spillover effects within and across households is necessary for measuring the benefits of an intervention.
    Keywords: assets, Consumption, household definition, randomized experiment,
    Date: 2010
  14. By: Glenn W. Harrison
    Abstract: null
    Date: 2010–09

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