nep-exp New Economics Papers
on Experimental Economics
Issue of 2010‒11‒13
twenty-two papers chosen by
Daniel Houser
George Mason University

  1. The Puzzle of Social Preferences By Jordi Brandts; Enrique Fatas
  2. Gender Pairings and Accountability Effect By Jordi Brandts; Orsola Garofalo
  3. THE PROBLEM OF TRADING PATENTS IN ORGANIZED MARKETS: A dynamic experimental microeconomic system model and informal price theory By Ullberg, Eskil
  4. Overconfidence, risk aversion and (economic) behavior of individual traders in experimental asset markets By Michailova, Julija
  5. A within-subject analysis of other-regarding preferences By Blanco, Mariana; Engelmann, Dirk; Normann, Hans-Theo
  6. Legitimate Punishment, Feedback, and the Enforcement of Cooperation By Marco Faillo; Daniela Grieco; Luca Zarri
  7. Inducing Strategic Bias: and its implications for Choice Modelling design By Burton, Michael
  8. Overconfidence and bubbles in experimental asset markets By Michailova, Julija
  9. Feature-based Choice and Similarity in Normal-form Games: An Experimental Study. By Giovanna Devetag; Sibilla Di Guida
  10. The Menstrual Cycle and Performance Feedback Alter Gender Differences in Competitive Choices By David Wozniak; William T. Harbaugh; Ulrich Mayr
  11. Measuring Risk Aversion Model-Independently By Maier, Johannes; Rüger, Maximilian
  12. Development of the overconfidence measurement instrument for the economic experiment By Michailova, Julija
  13. Voting in international environmental agreements: Experimental evidence from the lab By Dannenberg, Astrid
  14. Farmers’ Adaptation to Climate Change: A Framed Field Experiment By Alpízar, Francisco; Carlsson, Fredrik; Naranjo, Maria A.
  15. Never retreat, never surrender: The bargaining power of commitment in the Hawk-Dove game By Luis Alejandro Palacio García; Alexandra Cortés Aguilar
  16. Gender Differences in Competitiveness and Risk Taking: Comparing Children in Colombia and Sweden By Cárdenas, Juan-Camilo; Dreber, Anna; von Essen, Emma; Ranehill, Eva
  17. Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence By Normann, Hans-Theo
  18. Restricted versus unrestricted choice in labelled choice experiments: exploring the tradeoffs of expanding choice dimensions By Windle, Jill; Rolfe, John
  19. Risk Attitudes and Well-Being in Latin America By Cardenas, Juan Camilo; Carpenter, Jeffrey P.
  20. Analyzing Categorical Data from Split-Plot and Other Multi-Stratum Experiments By Goos P.; Gilmour S.G.
  21. A Classroom Experiment on Import Tariffs and Quotas Under Perfect and Imperfect Competition By Mulholland, Sean
  22. Testing construct validity of verbal versus numerical measures of preference uncertainty in contingent valuation By Akter, Sonia; Bennett, Jeff

  1. By: Jordi Brandts (Universitat Autònoma de Barcelona and Instituto de Análisis Económico (CSIC)); Enrique Fatas (Universidad de València)
    Abstract: We present a brief overview of the experimental economics literature on social preferences. In numerous experiments, economically incentivized subjects are willing to sacrifice part of their material earnings to compensate the kind behavior of others, or will be willing to reciprocate at a non-negligible cost, or even pay a positive price for punishing the behavior of selfish individuals. All these actions are labeled as social in economics because there is no apparent way to reconcile them with any reasonable form of pure self-interest. We focus on social dilemma games and want to communicate two main messages. First, research in experimental economics has produced abundant evidence that illustrates the social components of people’s preferences. Second, social sanctions of different types play an important role in facilitating cooperative behavior.
    Date: 2010–10–01
  2. By: Jordi Brandts; Orsola Garofalo
    Abstract: We conduct an experiment to investigate how gender pairings influence a player’s accountability in decision-making. Specifically, we address two questions: (1) How does the gender of the audience influence the accountability of the decision-taker? (2) Do the gender of a subject and the gender composition of the audience interact to shape the accountability effect? Together with measures of accountability based on decision theory, we employ a number of indicators that allow us to disentangle the separate effects of physiological stress and accountability in decision-making. Our results show that men are more sensitive to changes in the gender composition of the audience; specifically, men lower their accountability when paired with women. By contrast, women display a level of accountability that does not change with gender pairing.
    Keywords: accountability; gender differences; simple and compound events; physiological measurements.
    JEL: J16 D71
    Date: 2010–11
  3. By: Ullberg, Eskil (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: We are well familiar with the economic analysis of a patent system in terms of a temporary monopoly on products, benefitting from marginal process inventions, formulated under conditions of certain future demands. This article develops an experimental and dynamic microeconomic model useful for studying the patent system as a trade system, where patented technology is exchanged in organized competitive markets, under uncertain future demands. An economic system design is developed to study transparent prices of patents, dynamic gains from using a patent in multiple industries and the coordination of invention, intermediary and innovation activities using a linear contract on patents (fixed fee plus royalty on revenues). A trader is introduced together with inventor and innovator agents in order to multiply the value (use) of the technology. Three mechanism designs and two levels of presumption of validity of the underlying patent right are proposed. The analysis differs from previous work on patents, trade and economics in that the focus is on the competitive pricing of the rights themselves, using demand side bidding. An informal theory is outlined to price the dual values of a patent (investing and blocking). Based on this proposition tentative hypothesis are outlined for two initial experiments using the outlined economic system design.
    Keywords: patents; organized markets; trade; licensing; technology
    JEL: D02 D23 L14 L24 O32 O34
    Date: 2010–08–25
  4. By: Michailova, Julija
    Abstract: In this paper influence of behavioral factors (overconfidence and risk aversion) on financial decision making of economic subjects is analyzed. For this purpose two kinds of experiments were conducted: asset market and risk aversion experiments. In conducted asset market sessions subjects, based on their pre-experimental overconfidence scores, were assigned to two types of markets: the least overconfident ones formed five “rational” markets and the most overconfident ones formed five “overconfident” markets. Data collected from ten experimental sessions revealed that individual performance and trade activity were overconfidence dependent. Even small variations in miscalibration among players of the same “type”, comprising each of the asset markets, were sufficient to cause this effect. In the second part of experiment, post hoc assessment of risk aversion was implemented in a sample of former participants of the asset market experiment (32 persons). The presented evidence suggests that risk aversion was not among the factors that had influence on individual engagement in trade activity or performance. It was concluded that in the sample, for which risk aversion measurements were obtained, experimental market outcomes were overconfidence and not risk aversion driven.
    Keywords: overconfidence; individual behavior; experiment.
    JEL: D81 G11 C90 C91
    Date: 2010
  5. By: Blanco, Mariana; Engelmann, Dirk; Normann, Hans-Theo
    Abstract: We assess the predictive power of a model of other-regarding preferences - inequality aversion - using a within-subjects design. We run four different experiments (ultimatum game, dictator game, sequential-move prisoners' dilemma and public-good game) with the same sample of subjects. We elicit two parameters of inequality aversion to test several hypotheses across games. We find that within-subject tests can differ markedly from aggregate-level analyses. Inequality-aversion has predictive power at the aggregate level but performs less well at the individual level. The model seems to capture various behavioral motives in different games but the correlation of these motives is low within subjects. --
    Keywords: behavioral economics,experimental economics,inequality aversion,otherregarding preferences
    JEL: C72 C91
    Date: 2010
  6. By: Marco Faillo (Department of Economics, University of Trento); Daniela Grieco (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona))
    Abstract: In the framework of a finitely repeated public goods game with costly punishment options, we introduce a novel restrictive setup where a principle of legitimacy holds, in the sense that only virtuous behavior (that is, being a high contributor) allows one to gain access to sanctioning opportunities (‘entitlement’) and only wrongful behavior (that is, being a low contributor) makes one a potential target of peer punishment (‘desert’). As a consequence, acting virtuously guarantees that it will not be possible to be punished by less virtuous subjects (‘immunity’). These restrictions, by allowing for ‘legitimate punishment’ only, rule out by construction so called antisocial punishment as well as vengeful behavior. Moreover, we manipulate the amount of information over others’ contributions that subjects receive before making their punishment decisions. Our preliminary results show that restrictions lead to an increase of cooperation levels and virtuous restrictions combined with detailed feedback on peers’ contribution significantly increase contribution levels and make cooperation sustainable over time.
    Keywords: Experimental Economics, Public Good Games, Costly Punishment, Cooperation, Legitimacy, Immunity
    JEL: C72 C91 C92 D23 D72
    Date: 2010–11
  7. By: Burton, Michael
    Abstract: It has been suggested that the nature of the task within a multi-attribute multi-alternative choice experiment may be sufficiently complex to make it difficult for individuals to develop response strategies to strategically bias their answers. This experiment tested that hypothesis by setting experimental conditions that provide incentives for strategic bias. By changing design parameters one can investigate whether the strategic bias can be reduced. The answer is effectively no: under most circumstances, respondents could find a strategy that achieved significant bias in inferred preferences. The circumstances where this did not occur (involving ranking alternatives, rather than selecting a single preferred alternative) the inferred preferences reflected neither the intended bias, nor their original preferences, making the answers useless to both respondent and researcher.
    Keywords: Strategic bias, choice modeling, complexity, Resource /Energy Economics and Policy, Q51, C91,
    Date: 2010
  8. By: Michailova, Julija
    Abstract: In this paper relationship between the market overconfidence and occurrence of the stock-prices’ bubbles is investigated. Sixty participants traded in ten experimental markets of the two types: rational and overconfident. Markets are constructed on the basis of subjects’ overconfidence, measured in the administered pre-experimental psychological test sessions. The most overconfident subjects form overconfident markets, and the least overconfident – rational markets. Empirical evidence presented in the paper refines differences between market outcomes in the experimental treatments and suggests the connection between market overconfidence and market outcomes. Prices in rational markets tend to track the fundamental asset value more accurately than prices in overconfident markets, and are significantly lower and less volatile than the average overconfident prices. Strong positive correlation between market outcomes and overconfidence measures draws conclusion, that an increase in market overconfidence is associated with the increase in average price and trading activity. Large and significant correlation between bubble measures and measures of overconfidence provide additional evidence that overconfidence has significant effect on price and trading behavior in experimental asset markets.
    Keywords: overconfidence; price bubbles; experimental asset market.
    JEL: G12 C92
    Date: 2010
  9. By: Giovanna Devetag; Sibilla Di Guida
    Abstract: In this paper we test the effect of descriptive "features" on initial strategic behavior in normal form games, where "descriptive" are all those features that can be modified without altering the (Nash) equilibrium structure of a game. We observe that our experimental subjects behave according to some simple heuristics based on descriptive features, and that these heuristics are stable even across strategically different games. This suggests that a categorization of games based on features may be more accurate in predicting agents' initial behavior than the standard categorization based on Nash equilibria, as shown by the analysis of individual behavior. Analysis of choice patterns and individual response times suggests that non-equilibrium choices may be due to the use of incorrect and simplified mental representations of the game structure, rather than to beliefs in other players' irrationality. Of the four stationary concepts analyzed (Nash equilibrium, QRE, action sampling, and payoff sampling), QRE results the best in fitting the data.
    Keywords: normal form games; one-shot games; response times; dominance; similarity; categorization; focal points
    JEL: C72 C91 C92
    Date: 2010–11
  10. By: David Wozniak (Eastern Michigan University); William T. Harbaugh (University of Oregon); Ulrich Mayr (University of Oregon)
    Abstract: Economic experiments have shown that in mixed gender groups women are more reluctant than men to choose tournaments when given the choice between piece rate and winner-take-all tournament style compensation. These gender difference experiments have all relied on a framework where subjects were not informed of their abilities relative to potential competitors. We replicate these findings with math and word tasks, and then show that feedback about relative performance moves high ability females towards more competitive compensation schemes, moves low ability men towards less competitive schemes such as piece rate and group pay, and removes the average gender difference in compensation choices. We also examine between and within-subjects differences in choices for females across the menstrual cycle. We find women's relative reluctance to choose tournaments comes mostly from women in the low hormone phase of their menstrual cycle. Women in the high hormone phase are substantially more willing to compete than women in the low phase, though still somewhat less willing to compete than men. There are no significant differences between the choices of any of these groups after they receive relative performance feedback.
    Keywords: competition, tournaments, gender, hormones, menstruation, feedback
    Date: 2010–10–28
  11. By: Maier, Johannes; Rüger, Maximilian
    Abstract: We propose a new method to elicit individuals' risk preferences. Similar to Holt and Laury (2002), we use a simple multiple price-list format. However, our method is based on a general notion of increasing risk, which allows classifying individuals as more or less risk-averse without assuming a specic utility framework. In a laboratory experiment we compare both methods. Each classies individuals almost identically as risk-averse, -neutral, or -seeking. However, classications of individuals as more or less risk-averse dier substantially. Moreover, our approach yields higher measures of risk aversion, and only with our method these measures are robust toward increasing stakes.
    Keywords: Risk Aversion; Multiple Price-List; Elicitation; Laboratory Experiment; Holt and Laury Method; Mean Preserving Spreads; Non-EUT; Increasing Risk
    JEL: D81 C91
    Date: 2010–10–11
  12. By: Michailova, Julija
    Abstract: In this article results of the two experiments, aimed at the development of the instrument (test) that would enable construction of the comprehensive measure of individual overconfidence for the use in economic overconfidence experiments, are presented. Instrument was obtained in a two-stage procedure. In the first experimental phase, a pilot test, consisting of fifty general-knowledge questions of the unknown difficulty, was conducted to divide the items into three difficulty levels: hard, average-difficulty and easy questions. The second phase was aimed at verification of the replicability of results. Statistical tests supported the existence of the hard-easy effect, verified the success of categorization of questions into three levels of difficulty, and showed that gender was not associated with overconfidence in the developed instrument. The average group overconfidence measures obtained from both experimental phases did not differ from each other significantly. Instrument’s internal consistency was found to be good and acceptable for the use in social research. Compared to the tests used in the foregoing economic experiments, the obtained test is believed to result in the improvement of the overconfidence measurement quality.
    Keywords: overconfidence; instrument development; experiment.
    JEL: C43 C99 C42 C80
    Date: 2010
  13. By: Dannenberg, Astrid
    Abstract: This paper experimentally analyzes the effects if signatories to an international environmental agreement (IEA) apply different voting schemes to determine the terms of the agreement. To this end, unanimity, qualified majority voting, and simple majority voting are compared with respect to the resulting pollution abatement level and social welfare. At first sight in line with theoretical predictions, the experiment shows that the change of the voting scheme implemented in an IEA does not significantly change social welfare. However, changing the majority required to determine the terms of an IEA alters the 'depth and breadth' of cooperation. The coalitions under the unanimity rule are relatively large and implement moderate effort levels while the coalitions with majority votes implement very high effort levels but attract only few participants. --
    Keywords: international environmental agreements,cooperation, voting
    JEL: C72 C92 D71 H41
    Date: 2010
  14. By: Alpízar, Francisco; Carlsson, Fredrik; Naranjo, Maria A.
    Abstract: The risk of losing income and productive means due to adverse weather can differ significantly among farmers sharing a productive landscape and is, of course, hard to estimate or even “guesstimate” empirically. Moreover, the costs associated with investments in adaptation to climate are likely to exhibit economies of scope. We explore the implications of these characteristics on Costa Rican coffee farmers’ decisions to adapt to climate change, using a framed field experiment. Despite having a baseline of high levels of risk aversion, we still found that farmers more frequently chose the safe options when the setting is characterized by unknown risk (that is, poor or unreliable risk information). Second, we found that farmers, to a large extent, coordinated their decisions to secure a lower adaptation cost and that communication among farmers strongly facilitated coordination.
    Keywords: risk, ambiguity, technology adoption, climate change, field experiment
    JEL: C93 D81 H41 Q16 Q54
    Date: 2010–11–03
  15. By: Luis Alejandro Palacio García (Universidad Industrial de Santander (Colombia) and Universidad de Granada (Spain)); Alexandra Cortés Aguilar (Universidad Industrial de Santander (Colombia) and Universidad de Granada (Spain))
    Abstract: This paper studies experimentally the conditions that improve bargaining power using threats in a negotiation process. Following Schelling’s (1960) ideas we choose the hawk-dove game because is the simplest negotiation environment with inequity distribution in equilibrium. The analysis is focused on three essential elements of commitment: the possibility of a player to announce his own actions, the credibility of these messages and the experience acquired in the negotiation process. The empirical evidence shows that, in the first period, subjects do not realize the bargaining power of commitment. When the game is repeated and experience increases, subjects gradually understand the advantages of a threat, turning the payoffs into their favor. Credibility is also relevant for the relation, if subjects can choose their message, it is common to find strategic liars, and their rivals punish this behavior.
    Keywords: Credible threats, negotiation, experiments
    Date: 2010–10–01
  16. By: Cárdenas, Juan-Camilo (Unversidad de los Andes); Dreber, Anna (SIFR); von Essen, Emma (Dept. of Economics, Stockholm University); Ranehill, Eva (Stockholm School of Economics)
    Abstract: We explore gender differences in preferences for competition and risk among children aged 9-12 in Colombia and Sweden, two countries differing in gender equality according to macro indices. We include four types of tasks that vary in gender stereotyping when looking at competitiveness: running, skipping rope, math and word search. We find that boys and girls are equally competitive in all tasks and all measures in Colombia. Unlike the consistent results in Colombia, the results in Sweden are mixed, with some indication of girls being more competitive than boys in some tasks in terms of performance change, whereas boys are more likely to choose to compete in general. Boys in both countries are more risk taking than girls, with a smaller gender gap in Sweden.
    Keywords: Competitiveness; risk preferences; children; gender differences; experiment
    JEL: C91 J16
    Date: 2010–11–04
  17. By: Normann, Hans-Theo
    Abstract: The hypothesis that vertically integrated firms have an incentive to foreclose the input market because foreclosure raises its downstream rivals' costs is the subject of much controversy in the theoretical industrial organization literature. A powerful argument against this hypothesis is that, absent commitment, such foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this paper provide experimental evidence in favor of the hypothesis. Markets with a vertically integrated firm are signifiantly less competitive than those where firms are separate. While the experimental results violate the standard equilibrium notion, they are consistent with the quantalresponse generalization of Nash equilibrium. --
    Keywords: experimental economics,foreclosure,quantal response equilibrium,raising rival's costs,vertical integration
    JEL: C72 C90 D43
    Date: 2010
  18. By: Windle, Jill; Rolfe, John
    Abstract: The main objective of the study outlined in this paper was to examine how the inclusion of an additional labelled alternative, to provide respondents with more choice in a stated preference survey, impacted on choice complexity. The valuation context was to elicit preferences for improvements in the future condition of the Great Barrier Reef, Australia. A split sample experiment was implemented where one survey included four labelled alternatives: a status quo option and three specific policy management options (restricted choice). The other survey provided respondents with an unrestricted choice set by including a fifth alternative choice, labelled as âa combination of management optionsâ. While the additional option improved opportunities to find an attractive choice profile, adding an extra alternative increased the complexity of the survey. The tradeoff between choice flexibility and complexity is examined in terms of changes in respondentsâ choice behaviour and the performance of the different models. The results provide some evidence that adding a combination policy alternative did change the ways that respondents viewed tradeoffs, but that choice behaviour and subsequent value estimates were consistent across the two survey formats.
    Keywords: Choice complexity, choice modelling experiments, labelled alternatives, policy management options, multiple alternatives, Resource /Energy Economics and Policy,
    Date: 2010–03
  19. By: Cardenas, Juan Camilo (Universidad de los Andes); Carpenter, Jeffrey P. (Middlebury College)
    Abstract: A common premise in both the theoretical and policy literatures on development is that people remain poor because they are too impatient to save and too risk averse to take the sort of chances needed to accumulate wealth. The empirical literature, however, suggests that this assumption is far from proven. We report on field experiments designed to address many of the issues confounding previous analyses of the links between risk preferences and well-being. Our sample includes more than 3,000 participants who were drawn representatively from six Latin American cities: Bogotá, Buenos Aires, Caracas, Lima, Montevideo, San José. In addition to the experiment which reveals interesting cross-country differences, participants completed an extensive survey that provides data on a variety of well-being indicators and a number of important controls. Focusing on risk preferences, we find little evidence of robust links between risk aversion and well-being. However, when we analyze the results of three treatments designed to better reflect common choices made under uncertainty, we see that these, more subtle, instruments correlate better with well-being, even after controlling for a variety of other important factors like the accumulation of human capital and access to credit.
    Keywords: risk aversion, ambiguity aversion, loss aversion, risk pooling, well-being, Latin America
    JEL: C91 C93 D81 O12
    Date: 2010–10
  20. By: Goos P.; Gilmour S.G.
    Abstract: Many factorial experiments yield categorical response data. Moreover, the experiments are often run under a restricted randomization for logistical reasons and/or because of time and cost constraints. The combination of categorical data and restricted randomization necessitates the use of generalized linear mixed models. In this paper, we demonstrate the use of Hasse diagrams for laying out the randomization structure of a complex factorial design involving seven two-level factors, four three-level factors and a five-level factor, and three repeated observations for each experimental unit. The Hasse diagrams form the basis of the mixed model analysis of the ordered categorical data produced by the experiment. We also discuss the added value of categorical data over binary data and difficulties with the estimation of variance components and, consequently, with the statistical inference. Finally, we show how to deal with repeats in the presence of categorical data, and describe a general strategy for building a suitable generalized linear mixed model.
    Date: 2010–09
  21. By: Mulholland, Sean
    Abstract: This manuscript develops a classroom experiment on international trade that is suitable for undergraduate intermediate macroeconomics, international trade, and international finance courses. Students representing buyers, in a small home country and foreign country, and sellers, both home and foreign, participate in a double-oral-auction to determine the price and level of international trade. By imposing tariffs and quotas and altering the structure of the home market from one of perfect competition to one of imperfect competition, the students experience the importance of market structure when seeking to determine efficiency effects of import tariffs and quotas.
    Keywords: experiments; trade; quota; tariff; imperfect competition
    JEL: A22 F11 D41 F12 D42 C91
    Date: 2010–11–04
  22. By: Akter, Sonia; Bennett, Jeff
    Abstract: The numerical certainty scale (NCS) and polychotomous choice (PC) methods are two widely used techniques for measuring preference uncertainty in contingent valuation (CV) studies. The NCS follows a numerical scale and the PC is based on a verbal scale. This report presents results of two experiments that use these preference uncertainty measurement techniques. The first experiment was designed to compare and contrast the uncertainty scores obtained from the NCS and the PC method. The second experiment was conducted to test a preference uncertainty measurement scale that combines verbal expressions with numerical and graphical interpretations: a composite certainty scale (CCS). The construct validity of the certainty scores obtained from these three techniques was tested by estimating three separate ordered probit regression models. The results of the study can be summarised in three key findings. First, the PC method generates a higher proportion of âyesâ responses than the conventional dichotomous choice elicitation format. Second, the CCS method generates a significantly higher proportion of certain responses than the NCS and the PC methods. Finally, the NCS method performs poorly in terms of construct validity. Overall, the verbal measures perform better than the numerical measure. The CCS is a promising method to measure preference uncertainty in CV studies. To better understand its strengths and weaknesses however, further empirical applications are needed.
    Keywords: preference uncertainty, contingent valuation, numerical certainty scale, polychotomous choice method, composite certainty scale, climate change, Australia., Environmental Economics and Policy, Research Methods/ Statistical Methods, Q51, Q54,
    Date: 2010–01

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.