nep-exp New Economics Papers
on Experimental Economics
Issue of 2011‒01‒03
sixteen papers chosen by
Daniel Houser
George Mason University

  1. Markets as economizers of information: Field experimental examination of the “Hayek Hypothesis” By Al-Ubaydli, Omar; Boettke, Peter
  2. Impatience and uncertainty: Experimental decisions predict adolescents’ field behavior By Matthias Sutter; Martin G. Kocher; Daniela Rützler; Stefan T. Trautmann
  3. Individual-level loss aversion in riskless and risky choices By Simon Gaechter; Eric J. Johnson; Andreas Herrmann
  4. Self Selection Does Not Increase Other-Regarding Preferences among Adult Laboratory Subjects, but Student Subjects May Be More Self-Regarding than Adults By Anderson, Jon; Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz; Maurer, Karsten; Nosenzo, Daniele; Potter, Ruth; Rocha, Kim; Rustichini, Aldo
  6. An Experimental Study of Bidding Behavior in Subcontract Auctions By Jun Nakabayashi; Naoki Watanabe
  7. Trust, Positive Reciprocity, and Negative Reciprocity: Do These Traits Impact Entrepreneurial Dynamics? By Caliendo, Marco; Fossen, Frank M.; Kritikos, Alexander S.
  8. Experimental Practices in Economics: Performativity and the Creation of Phenomena By Dorothea Kübler
  9. Resisting Moral Wiggle Room: How Robust is Reciprocity? By van der Weele, Joël; Kulisa, Julija; Kosfeld, Michael; Friebel, Guido
  10. Updating beliefs with imperfect signals : experimental evidence By François Poinas; Julie Rosaz; Béatrice Roussillon
  11. Sanctions that Signal: an Experiment By Roberto Galbiatiy; Karl Schlagz; Joel van der Weele
  12. Information and Beliefs in a Repeated Normal-form Game By Dietmar Fehr; Dorothea Kübler; David Danz
  13. Economic Preferences and Attitudes of the Unemployed: Are Natives and Second Generation Migrants Alike? By Amelie F. Constant; Annabelle Krause; Ulf Rinne; Klaus F. Zimmermann
  14. Linking Decision and Time Utilities By Kontek, Krzysztof
  15. The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions By Martin Fochmann; Dirk Kiesewetter; Abdolkarim Sadrieh
  16. Indirect Effects of a Policy Altering Criminal Behaviour: Evidence from the Italian Prison Experiment By Francesco Drago; Roberto Galbiati

  1. By: Al-Ubaydli, Omar; Boettke, Peter
    Abstract: The work of Friedrich Von Hayek contains several testable predictions about the nature of market processes. Vernon Smith termed the most important one the ‘Hayek hypothesis’: equilibrium prices and the gains from trade can be achieved in the presence of diffuse, decentralized information, and in the absence of price-taking behavior and centralized market direction. Vernon Smith tested this by surveying data on laboratory experimental markets and found strong support. We repeat this exercise using field experimental market data. Using field experiments allows us to test several other predictions. Generally speaking, we find support for Hayek’s theories.
    Keywords: price dynamics; entrepreneurs; field experiment; market process
    JEL: C90 D61 D40 D82 L26 D51 B53
    Date: 2010–12–22
  2. By: Matthias Sutter; Martin G. Kocher; Daniela Rützler; Stefan T. Trautmann
    Abstract: We study risk attitudes, ambiguity attitudes, and time preferences of 661 children and adolescents, aged ten to eighteen years, in an incentivized experiment. We relate experimental choices to field behavior. Experimental measures of impatience are found to be significant redictors of health related field behavior and saving decisions. In particular, more impatient children and adolescents are more likely to spend money on alcohol and cigarettes, have a higher body mass index (BMI) and are less likely to save money. Experimental measures for risk and ambiguity attitudes are only weak predictors of field behavior.
    Keywords: experiments with children and adolescents; risk; ambiguity; time preferences; health status; savings; external validity; field behavior.
    Date: 2010
  3. By: Simon Gaechter (University of Nottingham); Eric J. Johnson (Columbia University); Andreas Herrmann (University of St Gallen)
    Abstract: Loss aversion can occur in riskless and risky choices. Yet, there is no evidence whether people who are loss averse in riskless choices are also loss averse in risky choices. We measure individual-level loss aversion in riskless choices in an endowment effect experiment by eliciting both WTA and WTP from each of our 360 subjects (randomly selected customers of a car manufacturer). All subjects also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in the riskless choice task and loss aversion in the risky choice task are highly significantly and strongly positively correlated. We find that in both choice tasks loss aversion increases in age, income, and wealth, and decreases in education.
    Keywords: Loss aversion, endowment effect, field experiments
    JEL: C91 C93 D81
    Date: 2010–11
  4. By: Anderson, Jon (University of Minnesota, Morris); Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Maurer, Karsten (Iowa State University); Nosenzo, Daniele (University of Nottingham); Potter, Ruth (University of Minnesota, Morris); Rocha, Kim (University of Minnesota, Morris); Rustichini, Aldo (University of Minnesota)
    Abstract: We use a sequential prisoner's dilemma game to measure the other-regarding behavior in samples from three related populations in the upper Midwest of the United States: 100 college students, 94 non-student adults from the community surrounding the college and 1,069 adult trainee truckers in a residential training program. Both of the first two groups were recruited according to procedures commonly used in experimental economics (i.e., via e-mail and bulletin-board advertisements) and therefore subjects self-selected into the experiment. Because the structure of their training program reduced the opportunity cost of participating dramatically, 91% of the solicited trainees participated in the third group, so there was little scope for self-selection in this sample. We find no differences in the elicited other-regarding preferences between the self-selected adults and the adult trainees, suggesting that selection into this type of experiment is unlikely to bias inferences with respect to non-student adult subjects. We also test (and reject) the more specific hypothesis that approval-seeking subjects are the ones most likely to select into experiments. At the same time, we find a large difference between the self-selected students and the self-selected adults from the surrounding community: the students appear considerably less pro-social. Regression results controlling for demographic factors confirm these basic findings.
    Keywords: methodology, selection bias, laboratory experiment, field experiment, other-regarding behavior, social preferences, truckload, trucker
    JEL: C90
    Date: 2010–12
  5. By: Benjamin Beranek (Department of Economics, Izmir University of Economics); Alper Duman (Department of Economics, Izmir University of Economics)
    Abstract: While the public good experiment has been used to analyze cooperation among various groups in Western Europe and North America, it has not been extensively used in other contexts such as Turkey. This project seeks to rectify that and explore how Turkish university students informally self govern. By employing the public good experiment among a cohort of students attending universities in Ýzmir, Turkey and Adýyaman, Turkey, we hope to quantitatively analyze the factors which lead to altruistic punishment, to antisocial punishment, and ultimately to enhanced cooperation in Turkish society.
    Keywords: Cooperation, Free Riding, Altruism, Punishment, Trust, Experimental Economics, Public Good Experiments
    JEL: C72 C91
    Date: 2010–10
  6. By: Jun Nakabayashi; Naoki Watanabe
    Abstract: It is commonly observed in practices that prime contractors solicit subcontract bids, prior to submitting their bids in procurement auctions: the auctioneers in subcontract auctions will become bidders in a procurement auction. This point is remarkably different from the standard theory of procurement auction. We presented a simple model of such subcontract auctions and conducted a laboratory experiment to examine the bidding behavior derived theoretically. We observed that in the subcontract auction, (1) subjects bid following the equilibrium bidding function derived theoretically, (2) the revenue equivalence between first-price and second-price mechanisms breaks down, and (3) the first-price mechanism more likely achieves ex post efficient allocations than the second-price mechanism.
    Date: 2010–12
  7. By: Caliendo, Marco (IZA); Fossen, Frank M. (DIW Berlin); Kritikos, Alexander S. (DIW Berlin)
    Abstract: Experimental evidence reveals that there is a strong willingness to trust and to act in both positively and negatively reciprocal ways. So far it is rarely analyzed whether these variables of social cognition influence everyday decision making behavior. We focus on entrepreneurs who are permanently facing exchange processes in the interplay with investors, sellers, and buyers, as well as needing to trust others and reciprocate with their network. We base our analysis on the German Socio-Economic Panel and recently introduced questions about trust, positive reciprocity, and negative reciprocity to examine the extent that these variables influence the entrepreneurial decision processes. More specifically, we analyze whether i) the willingness to trust other people influences the probability of starting a business; ii) trust, positive reciprocity, and negative reciprocity influence the exit probability of entrepreneurs; and iii) willingness to trust and to act reciprocally influences the probability of being an entrepreneur versus an employee or a manager. Our findings reveal that, in particular, trust impacts entrepreneurial development. Interestingly, entrepreneurs are more trustful than employees, but much less trustful than managers.
    Keywords: entrepreneurship, trust, reciprocity
    JEL: D81 J23 M13 L26
    Date: 2010–12
  8. By: Dorothea Kübler
    Abstract: This contribution provides a brief overview and discussion of the role of experiments in economics. It is argued that economic experiments have convinced economists and the public of the existence of phenomena that have been outside the scope of economics. The success of these experiments is partly due to the performative nature of experiments. To develop this argument, examples of experiments are provided, and two different sets of criticisms of experiments are discussed. The paper concludes with a discussion of which questions economists should address and how experiments can be used to study policy-relevant questions. <br> <br> <i>ZUSAMMENFASSUNG - (Experimentelle Praktiken in der Ökonomie: Performativität und die Erzeugung neuer Phänomene) <br>Der Beitrag beschäftigt sich mit der Rolle von Experimenten in der Ökonomie. Es wird argumentiert, dass Experimente dazu in der Lage sind, sowohl Ökonomen als auch eine breitere Öffentlichkeit davon zu überzeugen, dass bestimmte Phänomene existieren, die vorher nicht als relevant für die Ökonomie angesehen oder gar nicht wahrgenommen wurden. Diese Wirkung von Experimenten beruht zu einem wichtigen Teil auf ihrer Performativität. Um dieses Argument zu entwickeln, werden Beispiele für Experimente gegeben, verschiedene Kritikpunkte an Experimenten diskutiert sowie die Frage aufgeworfen, was die Grenzen der Ökonomie sind und wie Experimente zur Beantwortung wirtschaftspolitischer Fragen eingesetzt werden können.<i>
    Date: 2010–01
  9. By: van der Weele, Joël (Goethe University Frankfurt); Kulisa, Julija (Goethe University Frankfurt); Kosfeld, Michael (Goethe University Frankfurt); Friebel, Guido (Goethe University Frankfurt)
    Abstract: Several studies have shown that dictator-game giving declines substantially if the dictator can exploit situational "excuses" for not being generous. In this experimental study we investigate if this result extends to more natural social interactions involving reciprocal behavior. We provide the second mover in a reciprocal game with an excuse for not reciprocating, an excuse which has previously been shown to strongly reduce giving in dictator games. We do not find that the availability of the excuse has any effect at all on reciprocal behavior, and conclude that reciprocity is a more stable disposition than dictator game generosity.
    Keywords: reciprocity, moral wiggle room
    JEL: C72 C9
    Date: 2010–12
  10. By: François Poinas (Toulouse School of Economics (University Toulouse 1 - GREMAQ) - Toulouse F-31000, France); Julie Rosaz (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France); Béatrice Roussillon (Université de Lyon, Lyon, F-69003, France ; Université Jean Monnet ; CNRS, GATE Lyon St Etienne,)
    Abstract: This article analyses belief updating when agents receive a signal that restricts the number of possible states of the world. We create an experiment on individual choice under uncertainty. In this experiment, the subject observes an urn, containing yellow and blue balls, whose composition is partially revealed. The subject has to assess the composition of the urn and form an initial belief. Then, he receives a signal that restricts the set of the possible urns from which the initial observed sample is drawn. Once again, he has to estimate the composition of the urn. Our results show that, on the whole, this type of signal increases the frequency of correct assessment. However, differences appear between validating and invalidating signals (i.e. signals that either confirm or disprove the initial belief). The later significantly increase the probability to make a correct assessment whereas validating signals reduce the frequency of correct estimations. We find evidences of lack of persistence in choice under uncertainty. The literature shows that people may persist with their choice even when they are wrong. We show that they may also change even if they are right.
    Keywords: Beliefs, Imperfect Information, Experiment
    JEL: D83 C91
    Date: 2010
  11. By: Roberto Galbiatiy; Karl Schlagz; Joel van der Weele
    Date: 2010–12–14
  12. By: Dietmar Fehr; Dorothea Kübler; David Danz
    Abstract: We study beliefs and choices in a repeated normal-form game. In addition to a baseline treatment with common knowledge of the game structure, feedback about choices in the previous period and random matching, we run treatments (i) with fixed matching, (ii) without information about the opponent’s payoffs, and (iii) without feedback about previous play. Using Stahl and Wilson’s (1995) model of limited strategic reasoning, we classify behavior with regard to its strategic sophistication and consider its development over time. In the treatments with feedback and full information about the game, we observe more strategic play, more best-responses to beliefs and more accurate beliefs over time. While feedback is the main driving force of learning to play strategically and for forming beliefs that accurately predict the behavior of the opponent, both incomplete information about the opponent’s payoffs or lack of feedback lead to a stagnation of best-response rates over time. <br> <br> <i>ZUSAMMENFASSUNG - (Information und Erwartungen in einem wiederholten Normalformspiel) <br>Wir untersuchen die Entwicklung von den Erwartungen über das Verhalten des anderen Spielers und den Entscheidungen in einem wiederholten Normalformspiel. Zusätzlich zum Haupttreatment mit common knowledge über das Spiel, Feedback über das Ergebnis in der vorigen Runde und zufälliger Zuordnung der Spieler, gibt es Kontrolltreatments mit (i) festen paarweisen Zuordnungen der Spieler, (ii) ohne Information über die Auszahlungen des anderen Spielers und (iii) ohne Feedback über das Ergebnis der vorigen Runde. Mit Hilfe von Stahl und Wilsons (1995) Modell begrenzten strategischen Verhaltens klassifizieren wir das Verhalten der Teilnehmer im Hinblick auf die strategische Sophistikation. In den Treatments mit Feedback und vollständiger Information über das Spiel nehmen strategisches Verhalten, beste Antworten auf die eigenen Erwartungen und die Akkuratheit der Erwartungen über die Zeit zu. Während Feedback der Hauptgrund dafür ist, dass die Teilnehmer lernen, sich strategisch zu verhalten und korrekte Erwartungen über das Verhalten des anderen Spielers zu bilden, führen sowohl unvollständige Information über die Auszahlungen des Gegenspielers als auch fehlendes Feedback zu einer Stagnation der Rate der besten Antworten über die Zeit.<i>
    Date: 2010–03
  13. By: Amelie F. Constant; Annabelle Krause; Ulf Rinne; Klaus F. Zimmermann
    Abstract: In this paper we study the economic effects of risk attitudes, time preferences, trust and reciprocity while we compare natives and second generation migrants. We analyze an inflow sample into unemployment in Germany, and find differences between the two groups mainly in terms of risk attitudes and positive reciprocity. Second generation migrants have a significantly higher willingness to take risks and they are less likely to have a low amount of positive reciprocity when compared to natives. We also find that these differences matter in terms of economic outcomes, and more specifically in terms of the employment probability about two months after unemployment entry. We observe a significantly lower employment probability for individuals with a high willingness to take risks. Some evidence suggests that this result is channeled through reservation wages and search intensity.
    Keywords: Unemployment; Migration; Personality Traits; Risk Attitudes; Time Preferences; Trust; Reciprocity
    JEL: F22 J15 J61 J64
    Date: 2010
  14. By: Kontek, Krzysztof
    Abstract: This paper presents the functional relationship between two areas of interest in contemporary behavioral economics: one concerning choices under conditions of risk, the other concerning choices in time. The paper first presents the general formula of the relationship between decision utility, the survival function, and the discounting function, where decision utility is an alternative to Cumulative Prospect Theory in describing choices under risk (Kontek, 2010). The stretched exponential function appears to be a simple functional form of the resulting discounting function. Solutions obtained using more complex forms of decision utility and survival functions are also considered. These likewise lead to the stretched exponential discounting function. The paper shows that the relationship may also have other forms, including the hyperbolic functions typically used to describe the intertemporal experimental results. This solution has however several descriptive disadvantages, which restricts its common use in the description of lottery and intertemporal choices, and in financial asset valuations.
    Keywords: Discounted Utility; Hyperbolic Discounting; Decision Utility; Prospect Theory; Asset Valuation
    JEL: E43 G12 D81 D90 C91
    Date: 2010–12–18
  15. By: Martin Fochmann (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Dirk Kiesewetter (Faculty of Economics and Management, JUlius-Maximilians University Würzburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Income taxation may not only affect investment behavior by distorting payoffs, it may also have a more subtle, psychological effect, by biasing investors' perceptions of the financial consequences. In a laboratory experiment that allows us to vary the taxation method, while keeping the financial outcomes constant, we find clear evidence that aggregated income taxation (comparable to profit taxation) with complete loss deduction induces a sustained bias towards more risk-taking, while disaggregated income taxation (comparable to a transaction taxation with loss offset) does not. We suggest that this bias may be exploited to increase the volume of private investments by choosing aggregated income taxation, if investors are (too) risk-averse, and to decrease the volume and the risk by choosing disaggregated income taxation, if investors are (too) risk-seeking
    Keywords: tax perception, risk-taking behavior, distorting taxation
    JEL: C91 D14 H24
    Date: 2010–12
  16. By: Francesco Drago (Università di Napoli Parthenope and CSEF); Roberto Galbiati (CNRS EconomiX and Sciences Po Paris)
    Abstract: We exploit the Collective Clemency Bill passed by the Italian Parliament in July 2006 to evaluate the indirect effects of a policy that randomly commutes actual sentences to expected sentences for 40 percent of the Italian prison population. We estimate the direct and indirect impact of the residual sentence – corresponding to a month less time served in prison associated with a month of expected sentence – at the date of release on individual recidivism. Using prison, nationality and region of residence to construct reference groups of former inmates, we find large indirect effects of this policy. In particular, we find that the reduction in the individuals’ recidivism due to an increase in their peers’ residual sentence is at least as large as their response to an increase in their own residual sentence. From this result we estimate a social multiplier in crime of 2.
    Keywords: Crime, Natural Experiment, Indirect Effects of Policies, Social Interactions
    Date: 2010–12–14

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