nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒10‒30
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Personality and the Consistency of Risk Taking Behavior: Experimental Evidence By Cary Deck; Jungmin Lee; Javier Reyes
  2. Other-regarding behaviour: Testing guilt- and reciprocity-based models By Tobias Regner; Nicole S. Harth
  3. The Minority of Three-Game: An Experimental and Theoretical Analysis By Thorsten Chmura; Werner Güth; Thomas Pitz; Anthony Ziegelmeyer
  4. Price Increasing Competition? Experimental Evidence By Cary Deck; Jingping Gu
  5. Do people invest in local public goods with long-term benefits: Experimental evidence from a shanty town in Peru By De Hoop, Thomas; Van Kempen, Luuk; Fort, Ricardo
  6. Can Markets Save Lives? An Experimental Investigation of a Market for Organ Donations By Cary Deck; Erik O. Kimbrough
  7. Biased
 Effort By Julie Rosaz
  8. Fight or Flight? Defending Against Sequential Attacks in the Game of Siege By Cary Deck; Roman Sheremeta
  9. Perfect and Imperfect Real-Time Monitoring in a Minimum-Effort Game By Cary Deck; Nikos Nikiforakis
  10. Affecting Policy by Manipulating Prediction Markets: Experimental Evidence By Cary Deck; Shengle Lin; David Porter
  11. A Dynamic Explanation of the Willingness to Pay and Willingness to Accept Disparity By Catherine L. Kling; John A. List; Jinhua Zhao
  12. Gains and Losses: A Common Neural Network for Economic Behaviour By Valeria Faralla; Francesca Benuzzi; Fausta Lui; Patrizia Baraldi; Paolo Nichelli; Nicola Dimitri
  13. The Role of Impulses in Shaping Decisions By Judith Avrahami; Yaakov Kareev
  14. Detecting Change In Partner's Preferences By Judith Avrahami; Yaakov Kareev

  1. By: Cary Deck (University of Arkansas and Economic Science Institute); Jungmin Lee (Florida International University); Javier Reyes (University of Arkansas)
    Abstract: Researchers have found that an individual’s risk attitude is not stable across elicitation methods. Results reported by Deck et al. (2009) suggest that personality may help explain the apparent inconsistency, offering support to Borghans et al.’s (2008) argument that economists should consider a multi-domain approach to measuring risk attitudes. This paper uses laboratory methods to compare risk attitudes as measured by the Holt and Laury (2002) procedure under two different frames. We find that, as in Deck et al. (2009), one’s willingness to take financial risks (as measured by Weber et al. 2002) significantly affects behavior; however the effect is significantly greater when the task is framed as a financial decision. This paper also asks whether personality can explain the well documented behavioral difference between first price and Dutch auctions. While one’s gambling attitude (as measured by Weber et al. 2002) affects bidding behavior, it does not do so differentially between auction formats.
    Keywords: Risk Attitudes, Personality, Auctions, Framing Effects, Laboratory Experiments
    JEL: C9 D4 D8
    Date: 2010
  2. By: Tobias Regner (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Nicole S. Harth (International Graduate College, Friedrich Schiller University, Jena)
    Abstract: Intentions-based models of social preferences use the framework of psychological games and incorporate higher order beliefs and actions into the utility function. We test the robustness of two types of intentions-based models (guilt aversion and reciprocity). In addition to incentivised elicitation of first- and second-order action beliefs, we assess participants' sensitivity to feel guilt, and their attitude towards acting reciprocal. The data confirm the predictions of intentions-based models. Both second-order beliefs and the weighting factor that depends on a participant's sensitivity to guilt/reciprocity are relevant for the decisions taken. Second-order beliefs appear to have an inverse U-shaped effect on the amount returned.
    Keywords: social preferences, other-regarding behaviour, experiments, trust game, guilt aversion, beliefs, psychological game theory, emotions
    JEL: C91 D84
    Date: 2010–10–20
  3. By: Thorsten Chmura (Department of Economics, University of Munich); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Thomas Pitz (Nottingham University Business School China); Anthony Ziegelmeyer (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: We report experimental and theoretical results on the minority of three-game where three players have to choose one of two alternatives independently and the most rewarding alternative is the one chosen by a single player. This coordination game has many asymmetric equilibria in pure strategies that are non strict and payoff-asymmetric, and a unique symmetric mixed strategy equilibrium in which each player's behavior is based on the toss of a fair coin. We show that such a straightforward behavior is predicted by Harsanyi and Selten's (1988) equilibrium selection theory as well as alternative solution concepts like impulse balance equilibrium and sampling equilibrium. Our results indicate that participants rely on various decision rules, and that only a quarter of them decide according to the toss of a fair coin. Reinforcement learning is the most successful decision rule as it describes best the behavior of about a third of our participants.
    Keywords: Coordination, Minority game, Mixed strategy, Learning models, Experiments
    JEL: C72 C91 D83
    Date: 2010–10–19
  4. By: Cary Deck (Department of Economics, University of Arkansas); Jingping Gu (Department of Economics, University of Arkansas)
    Abstract: Economic intuition suggests that increased competition generates lower prices. However, recent theoretical work by Chen and Riordan (2008) shows that a monopolist may set a lower price in the absence of a competitor selling a differentiated product. The direction of the predicted price change is dependent upon the joint distribution of buyer values for the two products. We explore this relationship using controlled laboratory experiments. Our results indicate that the distribution of buyer values does affect prices in a manner consistent with the theoretical predictions, although price increasing competition is rare due in part to overly intense competition regardless of the distribution of buyer values.
    Keywords: product differentiation, pricing, market structure, market experiments
    JEL: C9 D4 L1
    Date: 2010
  5. By: De Hoop, Thomas; Van Kempen, Luuk; Fort, Ricardo
    Abstract: This paper discusses voluntary contributions to health education in a shanty town in Peru, using a new experimental setup to identify voluntary contributions to local public goods. The experiment enables individuals to contribute to a health education meeting facilitated by an NGO, which they know will only be organised if the cumulative investment level exceeds a certain threshold value. In contrast to expectations of aid distributors, individuals contributed a substantial amount of money, despite the long-term nature of the health benefits from health education. High discount rates only seem to have had a detrimental effect on investment in a poorer subsample. Results from a complementary experiment, which identifies donations to a nutrition program, suggest that positive beliefs about short-term benefits from health education in the form of learning effects have played an important role in the investment decision. The results indicate that channelling decision-making power about public good provision to beneficiaries not necessarily implies a crowding out of investment in local public goods with long-term benefits. Hence, particular attention is given to the potential role of cash transfers in the financing of local public goods.
    Keywords: Health education; Field Experiment; Public Good; Peru
    JEL: H41 C93 I1
    Date: 2010–07
  6. By: Cary Deck (University of Arkansas and Economic Science Institute); Erik O. Kimbrough (Maastricht University and Economic Science Institute)
    Abstract: Many people die while waiting for organ transplants even though the number of usable organs is far larger than the number needed for transplant. Governments have devised many policies aimed at increasing available transplant organs with variable success. However, with few exceptions, policy makers are reluctant to establish markets for organs despite the potential for mutually beneficial exchanges. We ask whether organ markets could save lives. Controlled laboratory methods are ideal for this inquiry because human lives would be involved when implementing field trials. Our results suggest that markets can increase the supply of organs available for transplant, but that the specific institutional design of such markets must be carefully considered. However, the increased supply of transplantable organs derives disproportionately from the poor. We also find that exogenously reducing incentives to keep one’s organs has a similar effect to creating a market, but with equitable donation rates across income levels.
    Keywords: Organ Donations, Wealth Effects, Market Design, Experimental Economics
    JEL: C9 D6 I1 J1 L1
    Date: 2010
  7. By: Julie Rosaz (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: We study the impact of information manipulation by a principal on the agent's effort. In a context of asymmetric information at the principal's advantage, we test experimentally the principal's willingness to bias (overestimate or under-estimate) the information she gives to her agent on his ability in order to motivate him to exert more effort. We find that i) principals do bias information, ii) agents trust the cheap-talk messages they receive and adjust their effort accordingly. Therefore, biased messages improve both the agent's performance and thus the principal's profit. This, however, does not increase efficiency. We also find that over-estimation occurs much more often than under-estimation. Making the signal costly in an additional treatment reduces this effect.
    Keywords: information ; feedback ; bias ; motivation ; experiment
    Date: 2010
  8. By: Cary Deck (University of Arkansas and Economic Science Institute); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: This paper examines theory and behavior in a two-player game of siege, sequential attack and defense. The attacker’s objective is to successfully win at least one battle while the defender’s objective is to win every battle. Theoretically, the defender either folds immediately or, if his valuation is sufficiently high and the number of battles is sufficiently small, then he has a constant incentive to fight in each battle. Attackers respond to defense with diminishing assaults over time. Consistent with theoretical predictions, our experimental results indicate that the probability of successful defense increases in the defenders valuation and it decreases in the overall number of battles in the contest. However, the defender engages in the contest significantly more often than predicted and the aggregate expenditures by both parties exceed predicted levels. Moreover, both defenders and attackers actually increase the intensity of the fight as they approach the end of the contest.
    Keywords: Colonel Blotto, conflict resolution, weakest-link, game of siege, multi-period resource allocation, experiments.
    JEL: C72 C91 D72 D74
    Date: 2010
  9. By: Cary Deck (University of Arkansas and Economic Science Institute); Nikos Nikiforakis (Department of Economics, University of Melbourne)
    Abstract: This paper presents the results from a minimum-effort game in which individuals can observe the choices of others in real time. We find that under perfect monitoring almost all groups coordinate at the payoff-dominant equilibrium. However, when individuals can only observe the actions of their immediate neighbors in a circle network, monitoring improves neither coordination nor efficiency relative to a baseline treatment without real-time monitoring. We argue that the inefficiency of imperfect monitoring is due to information uncertainty, that is, uncertainty about the interpretation of the information available regarding the actions of others.
    Keywords: minimum effort game, information uncertainty, real time monitoring, circle network, cheap talk
    JEL: C72 C92 D82
    Date: 2010
  10. By: Cary Deck (University of Arkansas and Economic Science Institute); Shengle Lin (Economic Science Institute, Chapman University); David Porter (Economic Science Institute, Chapman University)
    Abstract: Documented results indicate prediction markets effectively aggregate information and form accurate predictions. This has led to a proliferation of markets predicting everything from the results of elections to a company’s sales to movie box office receipts. Recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy. However, we present evidence from the lab indicating that well funded, single minded manipulators can in fact destroy a prediction market’s ability to aggregate information. Our results clearly indicate that the usefulness of prediction markets as inputs to decision making may be limited.
    Keywords: Information Aggregation, Prediction Markets, Manipulation
    JEL: C9 D8 G1
    Date: 2010
  11. By: Catherine L. Kling; John A. List; Jinhua Zhao
    Abstract: Evidence from laboratory experiments suggests that important disparities exist between willingness to pay (WTP) and compensation demanded for the same good. This study advances, and experimentally tests, a new explanation of the WTP/WTA disparity—a dynamic theory based on the presence of commitment costs. We find that the commitment cost theory combined with a simple behavioral anomaly is able to lend insights into the causes and severity of the WTA/WTP disparity. Further, we find that market experience attenuates the behavioral anomaly, consistent with the notion that no value disparity exists for agents with sufficient market experience.
    JEL: C93 Q5 Q51
    Date: 2010–10
  12. By: Valeria Faralla; Francesca Benuzzi; Fausta Lui; Patrizia Baraldi; Paolo Nichelli; Nicola Dimitri
    Abstract: Event-related functional magnetic resonance imaging was used to investigate the neural mechanisms underlying intertemporal preference for symmetric gains and losses in certain conditions, by asking subjects to choose between two gains or two losses available at different points in time. Our data suggest that a common system is activated when an immediate reward/punishment is available, irrespectively of the impulsive /reflective behaviour performed by the individual.
    Keywords: intertemporal preferences; gains; losses; certainty; intertemporal preferences, gains, losses, certainty; sign effect; functional magnetic resonance imaging; decision-making .
    JEL: D87 D90 D91
    Date: 2010–09
  13. By: Judith Avrahami; Yaakov Kareev
    Abstract: This article explores the extent to which decision behavior is shaped by short-lived reactions to the outcome of the most recent decision. We inspected repeated decision-making behavior in two versions of each of two decision-making tasks, an individual task and a strategic one. By regressing behavior onto the outcomes of recent decisions, we found that the upcoming decision was well predicted by the most recent outcome alone, with the tendency to repeat a previous action being affected both by its actual outcome and by the outcomes of actions not taken. Because the goodness of predictions based on the most recent outcome did not diminish as participants gained experience with the task, we conclude that repeated decisions are continuously affected by impulsive reactions.
    Date: 2010–05
  14. By: Judith Avrahami; Yaakov Kareev
    Abstract: Studies of the detection of change have commonly been concerned with individuals inspecting a system or a process, whose characteristics were fully determined by the researcher. We, instead, study the detection of change in the preferences - and hence the behavior - of others with whom an individual interacts. More specifically, we study situations in which one's benefits are the result of the joint actions of one and one's partner when at times the preferred combination is the same for both and at times it is not. In other words, what we change is the payoffs associated with the different combinations of interactive choices and then look at choice behavior following such a change. We find that players are extremely quick to respond to a change in the preferences of their counterparts. This responsiveness can be explained by the players' impulsive reaction to regret - if one was due - at their most recent decision.
    Date: 2010–07

This nep-exp issue is ©2010 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.