nep-exp New Economics Papers
on Experimental Economics
Issue of 2011‒02‒26
twenty-one papers chosen by
Daniel Houser
George Mason University

  1. From the lab to the field: Cooperation among fishermen By Stoop, Jan; Noussair, Charles; van Soest, Daan
  2. Keeping out Trojan Horses: Auctions and Bankruptcy in the Laboratory By Sander Onderstal; Ailko van der Veen
  3. Self-Selection and the Power of Incentive Schemes: An Experimental Study By Jana Vyrastekova; Sander Onderstal; Pierre Koning
  4. Lying and Friendship By Sugato Chakravarty; Yongjin Ma; Sandra Maximiano
  5. Decision Making with Imperfect Knowledge of the State Space By Mengel Friederike; Tsakas Elias; Vostroknutov Alexander
  6. Who Is (More) Rational? By Syngjoo Choi; Shachar Kariv; Wieland Müller; Dan Silverman
  7. Four Essays on Corruption and Cooperation By Schikora, Jan
  8. Can we measure Individual Risk Attitudes in a Survey? By Xiaohao Ding; Joop Hartog; Yuze Sun
  9. Discriminating by Tagging: Artificial Distinction, Real. By Elena Inarra; Annick Laruelle
  10. Understanding Contract Audits: An Experimental Approach By Robert M.M. Bertrand; Arthur J.H.C. Schram; Eddy H.J. Vaassen
  11. Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment By Roel van Veldhuizen; Joep Sonnemans
  12. An Experimental Test of a Collective Search Model By Yoichi Hizen; Keisuke Kawata; Masaru Sasaki
  13. Recognition-Based and Familiarity-Based Portfolio Strategies - An Experimental Study By Linan Diao
  14. Exclusion in the All-Pay Auction: An Experimental Investigation By Dietmar Fehr; Julia Schmid
  15. The Trust Game behind the Veil of Ignorance: A Note on Gender Differences By Jana Vyrastekova; Sander Onderstal
  16. Gender Peer Effects in University: Evidence from a Randomized Experiment By Hessel Oosterbeek; Reyn van Ewijk
  17. Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment By Josse Delfgaauw; Robert Dur; Arjan Non; Willem Verbeke
  18. The Emergence of Social Structure: Employer Information Networks in an Experimental Labor Market By Klarita Gerxhani; Jordi Brandts; Arthur Schram
  19. Information and Strategic Voting By Marcelo Tyszler; Arthur Schram
  20. Can Higher Bonuses Lead to Less Effort? Incentive Reversal in Teams By Klor, Esteban F.; Kube, Sebastian; Winter, Eyal; Zultan, Ro'i
  21. E-nstructions: A Tool for Electronic Instructions in Laboratory Experiments By Katrin Schmelz

  1. By: Stoop, Jan; Noussair, Charles; van Soest, Daan
    Abstract: We conduct a field experiment to measure cooperation among groups of recreational fishermen at a privately owned fishing facility. The parameters are chosen so that group earnings are greater when group members catch fewer fish, as in the Voluntary Contributions Mechanism (VCM). In a manner consistent with classical economic theory, though in contrast to prior results from laboratory experiments, we find no evidence of cooperation. We construct a series of additional treatments to identify causes of the di®erence. We rule out the subject pool and the laboratory setting as potential causes, and identify the type of activity involved as the source of the lack of cooperation in our field experiment. When cooperation requires a reduction in fishing effort, individuals are not cooperative, whether the reduction in fishing translates into more money or into more fishing opportunities for the group.
    Keywords: Public Goods Game; Field Experiment; Social Preferences
    JEL: C92 C93 C72
    Date: 2010–09–16
  2. By: Sander Onderstal (University of Amsterdam); Ailko van der Veen (University of Amsterdam)
    Abstract: If a government auctions the right to market a good, continuity is likely to be of significant importance. In a laboratory experiment, we compare the effects of bidders' limited liability in the first-price sealed-bid auction and the English auction in a common value setting. Our data strongly reject our theoretical prediction that the English auction leads to less aggressive bids and fewer bankruptcies than the first-price sealed-bid auction. <I>X</I>-cursedness gives a robust explanation of our experimental observations, in contrast to risk aversion and asymmetric equilibria.
    Keywords: Auctions; Bankruptcy; Laboratory Experiment
    JEL: C91 D44 L41
    Date: 2011–02–11
  3. By: Jana Vyrastekova (Radboud University Nijmegen); Sander Onderstal (University of Amsterdam); Pierre Koning (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We examine how self-selection of workers into firms depends on the power of the firms' incentive schemes and how it affects the performance of firms that increase the power of the incentive schemes. In a laboratory experiment, we let subjects choose between (low-powered) team incentives and (high-powered) individual incentives. We observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives. When exposed to individual incentives, workers who chose team incentives perform worse if both the unobservable interdependency between workers and their incentive to cooperate under team incentives are high.
    Keywords: Incentive scheme; Self-selection; Laboratory experiment
    JEL: C91 J33 M52
    Date: 2010–07–29
  4. By: Sugato Chakravarty (Purdue University); Yongjin Ma (Purdue University); Sandra Maximiano (Purdue University)
    Abstract: The goal of this paper is to investigate the interaction between social ties and deceptive behavior within an experimental setting. To do so, we implement a modified sender-receiver game in which a sender obtains a private signal regarding the value of a state variable and sends a message related to the value of this state variable to the receiver. The sender is allowed to be truthful or to lie about what he has seen. The innovation in our experimental design lies in the fact that, in contrast to the extant sender-receiver games, the receiver can take no action – which eliminates strategic deception. A further innovation lies in the fact that subjects (i.e., senders) are not restricted to choose between truth telling and a unique type of lie but, instead, are allowed to choose from a distinct set of allocations that embodies a multi-dimensional set of potential lies. Our experimental design is, therefore, able to overcome an existing identification problem by allowing us to disentangle lying aversion from social preferences. We implement two treatments: one in which players are anonymous to each other (strangers); and one in which players know each other from outside the experimental laboratory (friends). We find that individuals are less likely to lie to friends than to strangers; that they have different degrees of lying aversion and that they lie according to their social preferences. Pro-social individuals appear to be more lying averse. If they lie, however, they are equally likely to do so with friends and strangers. The deceptive behavior of selfish individuals mimics those of pro social types only when subjects play with friends. Overall, in addition to social preferences, friendship appears to be an important factor in improving our understanding of deceptive behavior.
    Keywords: Lying, Friendship, social ties, deceptive behavior, signal, experiment
    JEL: G21 D82 O16
    Date: 2011–02
  5. By: Mengel Friederike; Tsakas Elias; Vostroknutov Alexander (METEOR)
    Abstract: We conduct an experiment to study how imperfect knowledge of the state space affects subsequent choices under uncertainty with perfect knowledge of the state space. Participants in our experiment choose between a sure outcome and a lottery in 32 periods. All treatments are exactly identical in periods 17 to 32 but differ in periods 1 to 16. In the early periods of the “Risk Treatment” there is perfect information about the lottery; in the “Ambiguity Treatment” participants perfectly know the outcome space but not the associated probabilities; in the “Unawareness Treatment” participants have imperfect knowledge about both outcomes and probabilities. All three treatments induce strong behavioural differences in periods 17 to 32. In particular participants who have been exposed to an environment with very imperfect knowledge of the state space subsequently choose lotteries with high (low) variance less (more) often compared to other participants. Estimating individual risk attitudes from choices in periods 17 to 32 we find that the distribution of risk attitude parameters across our treatments can be ranked in terms of first order stochastic dominance. Our results show how exposure to different degrees of uncertainty can have long-lasting effects on individuals’ risk-taking behaviour.
    Keywords: microeconomics ;
    Date: 2011
  6. By: Syngjoo Choi; Shachar Kariv; Wieland Müller; Dan Silverman
    Abstract: Revealed preference theory offers a criterion for decision-making quality: if decisions are high quality then there exists a utility function that the choices maximize. We conduct a large-scale field experiment that enables us to test subjects' choices for consistency with utility maximization and to combine the experimental data with a wide range of individual socioeconomic information for the subjects. There is considerable heterogeneity in subjects' consistency scores: high-income and high-education subjects display greater levels of consistency than low-income and low-education subjects, men are more consistent than women, and young subjects are more consistent than older subjects. We also find that consistency with utility maximization is strongly related to wealth: a standard deviation increase in the consistency score is associated with 15-19 percent more wealth. This result conditions on socioeconomic variables including current income, education, and family structure, and is little changed when we add controls for past income, risk tolerance and the results of a standard personality test used by psychologists.
    JEL: C93 D01 D12 D81
    Date: 2011–02
  7. By: Schikora, Jan
    Abstract: This dissertation contains four separate studies in the fields of corruption and cooperation. The first chapter explicates the mechanism that links the fractionalization of society with its level of corruption within a theoretical model of relational contracting. The other three chapters describe experimental studies. The second and third chapters evaluate two popular anti-corruption policies, the ‘Four-Eyes-Principle’ and ‘Whistle- Blowing’, with respect to their effectiveness in decreasing the level of corruption and increasing social welfare. The last chapter considers the effect of endowment uncertainty on cooperative behaviour in a linear public goods game and explains it by specific conditional cooperation preferences. Cooperation between decision-making agents is recognized as one of the single most important mechanisms in economic research and represents one of the cornerstones of economic development. Countless economic activities have been analysed with game theoretic models of cooperation. Experimental methods may not only demonstrate the deficiencies of standard economic theory in terms of explanation and predictive power, they may also help to improve existing models. The public goods game (Isaac and Walker 1988) represents one of the most popular vehicles to experimentally analyse cooperative behaviour. It models the dilemma of the opposition between selfish preferences and social efficiency. Numerous experiments have shown that participants behave in a highly cooperative way in situations for which the standard economic theory of rational payoff maximization predicts strictly selfish behaviour. In my view, the most convincing approach to explaining the phenomenon of cooperation is the existence of conditional cooperative behaviour. This links the public goods game to games that are specifically designed to analyze trust and reciprocity, e.g. the gift exchange game (Fehr et al. 1993), the investment game (Berg et al. 1995) and the ultimatum game (Güth et al. 1982). Applications of these games even extend to criminal activities such as corruption. Administrative corruption, defined as ‘the misuse of public power for public gain’ (Klitgaard 1988) is recognized as the ‘single most important obstacle to economic development’ (The World Bank 2008). The key to effective anti-corruption policy with respect to institutional design is the understanding of the determinants, mechanisms and weaknesses of corruption. This demands the analysis of two different levels of cooperation common to most corrupt transactions. Since any corrupt relationship is by definition illegal, the corrupt partners cannot rely on legal third parties, i.e. the courts, to enforce their contracts. The transaction between a client and a corrupt official depends on trust and reciprocity which may be fostered for example by repeated interaction. This kind of cooperation is similar to the mechanism modelled in the gift exchange game. In contrast to the original gift exchange game, where cooperation is efficient with respect to social welfare (measured e.g. in the sum of payoffs to all affected individuals), corrupt reciprocity is socially undesirable due to the reasonable assumption of its strong negative externality to the public (Shleifer and Vishny 1993, Rose-Ackermann 1999). In the case of instable corruption, it would be socially optimal for all agents to stay away from reciprocity and cooperation, and adhere to their selfish rationality. The situation involving all members of a society with respect to their choices for or against corrupt reciprocity can hence be seen as a reverse public goods dilemma in a broader sense. The first chapter focuses on the role of the fractionalization of a society in determining the level of corruption. In a series of empirical cross-country studies social fractionalization, often (crudely) measured by the Ethno-Linguistic Fractionalization Index (ELF, see Appendix 1A) has been identified as an important determinant of the level of corruption measured by the Corruption Perception Index or similar indices (Alesina and Ferrara 2002, Mauro 1995, Bardhan 1997). In a cross regional analysis, providing a more controlled environment, Dincer (2008) finds an inversely U-shaped relationship between the two variables. However, none of these studies provides a model based theoretical explanation for the empirical evidence. As a basis of our analysis we use an infinitely repeated version of a standard, multi stage game of administrative corruption which captures the enforcement problem of the illegal transaction. In order to describe the main mechanism underlying the relationship between the social structure and corruption we define the structure of society in terms of its fractionalization as a vector of separated sub-networks whose members share information. Assuming that clients use simple punishment strategies as devices to maintain corrupt cooperation within relational contracting, we find that the maximum level of corruption is to be expected in societies that consist of a large but not maximal number of small (but not minimal) groups. This is due to the inversely U-shaped relationship between the relative size of a sub-network (measured in the number of group members relative to the size of society) and its members’ ability to stabilize corrupt transactions. The (relative) size of a sub-group has two countervailing effects on the corruption level. On the one hand, the (average) probability of a successful corrupt transaction (expected frequency) increases in the number of group members. This is because the incentives for opportunism decrease due to growing stakes for the official. On the other hand, an increase in the relative sub-group size increases the (personal) costs for the clients through the internalization of a larger part of the negative externality. Thus, necessary compensation of a growing number of peers decreases the profitability of corruption. This chapter provides a model-based explanation of the inversely U-shaped relationship between social fractionalization and corruption found in Dincer (2008). The results of our model are also in line with empirical observations of cross-country comparisons (Gunasekara 2008, La Porta et al. 1999 and Alesina et al. 2003). Our model can be extended to account for considerations of the influence of different types of social capital on corrupt behaviour. Using the standard model of self-interested payoff maximization to analyse the mechanisms that underlie the determinants of corruption may only be reasonable in situations in which limit values and benchmark examinations are considered, and therefore simplifying assumptions such as infinite repetitions are justified. In finitely repeated interaction (or one shot games) of corruption, neither the standard self-interested model nor models of strong reciprocity relying on social preferences such as altruism (Andreoni and Miller 2002), inequity aversion (Fehr and Schmidt 1999) or intentions (Dufwenberg and Kirchsteiger 2004) can provide a consistent explanation or predictions for corrupt behaviour based on cooperation. This and the scarcity of reliable field data complicate any analysis of corruption that aims at deriving policy implications. In order to evaluate the usefulness of proposed anti-corruption measures, or those that are in force, controlled experiments are indispensible to complement empirical studies. The findings of several studies, e.g. Armantier and Boly (2008), demonstrate the external validity of laboratory corruption experiments (Dusek et al. 2004). Following Abbink et al. (2002) with respect to experimental methodology, the second chapter describes an experimental approach to assess one of the most potent countercorruption policy tools, the ‘Four-Eyes-Principle’ (business has to be conducted by at least two individuals, hence four eyes). Although proposed in various reports and lists of recommendations for anti-corruption measures by national and international organizations, it lacks any theoretical or empirical justification (Pörting and Vahlenkamp 1998, Rieger 2005, Wiehen 2005). In our laboratory experiment we replace a single decision-maker with a small group of two officials who decide jointly in the role of the official in order to model the introduction of the ‘Four-Eyes-Principle’. We show that the introduction of the ‘Four-Eyes-Principle’ can lead to an increase rather than a decrease of the level of corruption. This result comes as a surprise when considering predictions from the standard self-interested model alone and ignoring effects stemming from the dynamics of group decision-making. Controlling for effects that are purely driven by differences in marginal incentives (i.e. effects stemming from the splitting of the benefits and costs of corruption between two officials) we find that group decision-making is dominated by the motive of individual (long term) profit maximizing, which has been identified as a main explanation for group decision-making (Kocher and Sutter 2007). Combining data of final choices (outcomes) with evidence from inside the decision-making process (i.e. the dynamics of individual choices), we show that groups follow strategies that foster reciprocity in a more sustainable way than their individual counterparts, which leads to a higher number of successful corrupt transactions. To explain the behavioural characteristics in more detail, we analyse the content of electronic chat messages exchanged during the joint decision-making process. In an average situation of disagreement between two officials, it is the official with the more corrupt agenda who dominates the decisions despite the honest official’s veto power. Since corrupt reciprocity maximizes individual payoffs for the immediate transaction partners, arguments in favour of a strategy that fosters corrupt reciprocity are most persuasive. We interpret this result as support for the Persuasive Argument Theory attributing groups a higher ability to adhere to behaviour that generates maximum individual payoffs (Pruitt 1971). Our results show that the profit maximizing motive may dominate in the group decision-making process even though there is an obvious trade-off with social efficiency. Since they ignore the negative external effects of corruption, groups produce the least desirable outcomes in terms of welfare by their reciprocal behaviour. Against existing policy recommendations, the results of our experiment cast doubt on the usefulness of the introduction of the ‘Four-Eyes-Principle’. This chapter does not only evaluate an anti-corruption measure, it also provides insights into the motivations, within groups and individuals, that underlie strategic decisions in social dilemmas in general and in the dilemma of corruption in particular. The third chapter experimentally assesses the effectiveness of another tool of anticorruption policy. The institutional enabling of whistle-blowing is seen as a powerful measure to contain corrupt activity (Drew 2003). Whistle-blowing is generally defined as ‘the act of disclosing information in the public interest’. Despite its widespread use and perceived success, experimental evidence seems to cast doubt on its usefulness (Abbink 2006, Lambsdorff and Frank 2010, forthcoming). This may be because the analysis of whistle-blowing within the standard set-up of a corrupt transaction accounts for only one aspect of its total effect on social welfare. The standard game of corruption, often used to analyse the effect of a determinant on the frequency of corruption, only considers the direct but not the indirect consequences of corruption on social efficiency. While the direct consequences may be captured by the expected negative externality to the public resulting from a successful corrupt transaction, the indirect consequences include efficiency losses caused by honest clients leaving productive markets because of their fear of being exploited by corrupt officials. Where in the standard game of corruption the official has a passive role with respect to the initiation of a corrupt transaction, we expand the standard model by allowing both sides of the transaction to activate corruption. The symmetry of corrupt engagement enables us to assess the potential effects of the introduction of the opportunity to blow the whistle on the two main negative consequences of corruption. First, whistle-blowing may reduce the negative effect of corruption hindering ‘honest’ clients to engage in productive activity by providing a tool against demanding corrupt officials. Second, whistle-blowing may affect the stability of the corrupt transaction and influence the number of successful deals and hence the amount of realized negative externalities. We find that the total effect of symmetrically punished whistle-blowing (i.e. the punishment is independent of who has blown the whistle) is ambiguous. Confirming the findings of Lambsdorff and Frank (2010) and Abbink (2006), whistle-blowing increases the stability of a corrupt transaction. However we find that it also reduces the effect of corruption deterring productive activity, offering a safeguard for an ‘honest’ client against the extortion by a corrupt official. We demonstrate that asymmetric leniency for the official can offset the negative effect of whistle-blowing. Our results can be explained using simple arguments as to subjects’ belief structures and payoff maximization. Moreover, we find that leniency is especially effective for male officials. The consideration of asymmetric punishment of illegal activities in general and leniency for whistle-blowing in particular should be considered in legislature. Our extended model of corruption provides the basis for experimental research targeting both direct and indirect effects of corruption. While the focus of the first three chapters is on the negative consequences of cooperative behaviour in corruption, the fourth chapter, which is joint work with Johannes Maier, considers socially desirable cooperation. In an experimental public goods game using the Voluntary Contribution Mechanism (Isaac and Walker 1988) we study the effect of uncertainty as to others’ endowments on contribution behaviour. In most applications of public goods provision it is more realistic to assume heterogeneity instead of homogeneity of initial endowments between cooperation partners. The own endowment can be private information, which means that endowment levels of fellow group members can be unknown. In situations of charitable giving, for example, endowments (individual wealth levels) are likely to be heterogeneous and information about them remains private, while information about actual contributions (donations) are often made publicly available. To quantify and explain the effect of endowment uncertainty on cooperative behaviour we use an adapted version of the experimental two-stage approach used by Fischbacher and Gächter (2010). In the first stage of our experiment, subjects had to state their contribution preferences conditional on their group partners’ contributions and endowments. Here we used an incentivized strategy method (Selten 1967). In the second stage, we quantify the effect of uncertainty in a repeated linear public goods game (ten periods) played in partner design with groups of three participants. While subjects knew their own endowment and the endowments of their two group partners in the certainty treatment, they only knew their own endowment, low or high, in the uncertainty treatment. However, they knew that the others were either high or low endowed. When we pool all observations of each treatment, we only find a small negative but insignificant effect of uncertainty on average contribution levels. When we separate observations according to participants’ endowments, we find that subjects with high initial endowments contribute slightly more, while participants with low endowments contribute substantially less under uncertainty. These two opposing effects of uncertainty lead to lower contribution levels in poor and higher contribution levels in rich groups. The inequality in income levels between low and high endowed subjects therefore increases through uncertainty. We explain our treatment effects by two mechanisms, the effect of deviating beliefs and the net effect of (strategic) over-contribution. We attribute both effects to conditional contribution preferences. One of our main results is that subjects are relative conditional contributors. In the context of heterogeneous endowments this means that they contribute more, the lower their group partners’ endowments holding their absolute contributions constant. This and the findings of systematically deviating beliefs explain the former of the two mechanisms. Under uncertainty, low endowed subjects believe that they are in a richer group than they actually are and therefore contribute less in the repeated public goods game than they would have done, had they known the correct endowments of their group partners. High endowed subjects, on the contrary, believe that their group members are poorer on average and hence contribute more. The preference for relative conditional cooperation also explains the treatment differences in (strategic) over-contribution that remains when we subtract the effect of deviating beliefs. The intuition for (strategic) over-contribution is that subjects contribute higher levels in repeated games than their stated preferences should allow in order to trigger positive reciprocity and thereby sustain cooperation (see e.g. Fischbacher and Gächter 2010). In contrast to groups in the certainty treatment and groups consisting of high endowed individuals in the uncertainty treatment, we do not find (strategic) over-contribution in groups of low endowed individuals under uncertainty. We attribute this to their fear of sending the wrong signals (i.e. being high endowed) by making large contributions. This fear may be due to participants’ anticipation of others’ relative conditional cooperation preferences. Overall, the combination of the two mechanisms explains a large fraction of our treatment effects. This paper not only explicates contribution behaviour under uncertainty, it also expands the knowledge of conditional cooperation preferences in general. Its results motivate future research on the theoretical foundations of conditional cooperation. All four chapters contain their own introductions and appendices so they can be read independently.
    Keywords: Experimental Economics Corruption Institutional Economics Cooperation Principal Agent Theory
    Date: 2011–01–27
  8. By: Xiaohao Ding (Peking University); Joop Hartog (University of Amsterdam); Yuze Sun (Peking University)
    Abstract: We combine a survey and an experiment with real pay-out among Peking University students to measure and validate individual risk attitudes. The experiment involves choosing between a cash payment and playing a lottery. The survey questions ask for the reservation price of a hypothetical lottery and self-assessment of risk attitude on a 0-10 scale. We confirm familiar findings: risk aversion dominates, women are more risk averse than men, risk aversion decreases with increasing parental income, risk attitudes are domain-specific. Correlations between survey measures and experimental measures, are in the right direction, but not very high. The survey measures are valid indicators of experimentally measured risk attitude, but with substantial noise remaining. Heterogeneity in levels and structure of risk attitude is large.
    Keywords: risk attitude; survey question; experimental validation
    JEL: D12
    Date: 2010–03–03
  9. By: Elena Inarra (UPV/EHU); Annick Laruelle (UPV/EHU)
    Abstract: We introduce a new variation of the hawk-dove game suggested by an experiment that studies the behavior of a group of domestic fowls when a subgroup has been marked. Speci…cally we consider a population formed by two types of individual that fail to recog- nize their own type but do recognize the other type. In this game we …nd two evolutionar- ily stable strategies. In each of them, individuals from one type are always attacked more, whatever proportion of the population they represent. Our theoretical results are consis- tent with the conclusions drawn from experimental work, where marked fowls received more pecks than their unmarked counterparts.
    JEL: C72
    Date: 2011–02–17
  10. By: Robert M.M. Bertrand (Ministry of Defense, the Netherlands, and Maastricht University); Arthur J.H.C. Schram (University of Amsterdam); Eddy H.J. Vaassen (Maastricht University, and University of Amsterdam)
    Abstract: Contract audits aimed at reducing information asymmetry and transaction costs are frequently used in imperfect markets such as defense procurement. This contradicts predictions from standard economic theory. We conduct a laboratory experiment to investigate this paradox. Our laboratory setup allows us to investigate the conditions under which individuals decide to initiate a contract audit and to carefully assess its economic value. Our theoretical approach draws upon two distinct literatures. The theory of planned behaviour explains why organizations may engage in contract auditing even when markets are imperfect. Social preference theory explains why traders may adjust prices when a contract audit indicates that the original price yields an inequitable distribution of the surplus. Our results indeed show that audits lead to an increased share of the surplus for the buyer, but this increased welfare is completely offset by the audit costs. To further investigate motivations to initiate contract audits, we measure our subjects' attitudes towards contract auditing and their level of perceived behavioral control; and we manipulate subjective norms about having contract audits done. These treatments show that a positive attitude toward contract auditing, enhanced perceived behavioral control, and pressure to perform a contract audit all lead to more contract audits.
    Keywords: contract auditing; experimental economics; value of the audit
    JEL: M40 C91
    Date: 2011–02–11
  11. By: Roel van Veldhuizen (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: This study uses the methods of experimental economics to investigate possible causes for the failure of the Hotelling rule for nonrenewable resources. We argue that as long as resource stocks are high enough, producers may choose to (partially) ignore the dynamic component of their production decision, shifting production to the present and focusing more on strategic behavior. We experimentally vary stock size in a nonrenewable resource duopoly setting and find that producers with high stocks indeed pay significantly less attention to variables related to dynamic optimization, leading to a failure of the Hotelling rule.
    Keywords: Experiments; Nonrenewable Resources; Dynamic Oligopoly
    JEL: C90 Q31 Q41 L13
    Date: 2011–01–21
  12. By: Yoichi Hizen (Hokkaido University); Keisuke Kawata (Osaka University); Masaru Sasaki (Osaka University)
    Abstract: This paper's objectives are to design laboratory experiments of finite and infinite sequen- tial collective search models and to test some implications obtained in the model of Albrecht, Anderson and Vroman (2010) (the AAV model). We find that, compared with single-agent search, the average search duration is longer in collective search with the unanimity rule, but it is shorter in the case of collective search in which at least one vote is needed to stop searching. In addition, according to estimates from round-based search decisions, subjects are more likely to vote to stop searching in collective search than in single-agent search. This confirms that agents are less picky in the case of collective search. Overall, the experimental outcomes are consistent with the implications suggested by the AAV model. However, a different outcome is obtained from the AAV model in terms of the size order of the probabilities of voting to stop searching in collective search for the various plurality voting rules.
    Keywords: experiment, collective search, voting rule.
    JEL: C91 D83
    Date: 2011–02
  13. By: Linan Diao (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Empirical evidences show that investors tend to be biased toward investing in domestic (home bias) and local (local bias) stocks. Familiarity is considered to be one of the reasons. A similar concept was proposed by Goldstein and Gigerenzer (1999, 2002), known as the recognition heuristic: "when choosing between two objects, of which only one is recognized, choose the recognized. Investors recognize or are familiar with local stocks, expect them to provide higher returns and, therefore, invest more in such stocks". We conducted an experiment in Jena, Germany to test whether subjects show local bias and use recognition-based and familiarity-based portfolio strategies. We categorized them into an experienced and an inexperienced group; in addition, we used two data periods, i.e., bull market and bear market, to see if they behave differently in the two markets. Results show that all participants invested more of their endowments in the stock market in bull rather than bear market. All participants showed greater familiarity with local stocks. However, the experienced participants only invested more in local rather than recognized and familiar stocks; on the contrary, the inexperienced participants invested more in recognized and familiar but not local stocks. Our experiment shows no evidence that familiarity is a reason for local bias.
    Keywords: Recognition Heuristic, recognition-based portfolio strategy, familiarity-based portfolio strategy, local bias
    JEL: C91 G11 D14
    Date: 2011–02–16
  14. By: Dietmar Fehr; Julia Schmid
    Abstract: Contest or auction designers who want to maximize the overall revenue are frequently con- cerned with a trade-off between contest homogeneity and inclusion of contestants with high valuations. In our experimental study, we find that it is not profitable to exclude the most able contestant in favor of greater homogeneity among the remaining contestants, even if the theoretical exclusion principle predicts otherwise. This is because the strongest contestants con- siderably overexert. A possible explanation is that these contestants are afraid they will regret a low but risky bid if they lose and thus prefer a strategy which gives them a low but secure pay-off.
    Keywords: experiments, contests, all-pay auction, heterogeneity, regret aversion
    JEL: C72 C92 D84
    Date: 2011–02
  15. By: Jana Vyrastekova (Radboud University Nijmegen); Sander Onderstal (University of Amsterdam)
    Abstract: We analyze gender differences in the trust game in a "behind the veil of ignorance" design. This method yields strategies that are consistent with actions observed in the classical trust game experiments. We observe that, on average, men and women do not differ in "trust", and that women are slightly more "trustworthy". However, men's strategies are bimodal, peaking at the subgame perfect Nash equilibrium and the Pareto efficient frontier, while women's strategies are single peaked at moderate transfers. For a given high level of pro-social preferences, men send more than women. This may be linked to men willing to bear more risk than women.
    Keywords: trust game; experiment; strategy method behind the veil of ignorance; gender differences
    JEL: C72 C91
    Date: 2010–07–05
  16. By: Hessel Oosterbeek (University of Amsterdam); Reyn van Ewijk (VU University Amsterdam)
    Abstract: Recent studies for primary and secondary education find positive effects of the share of girls in the classroom on achievement of boys and girls. This study examines whether these results can be extrapolated to post-secondary education. We conduct an experiment in which the shares of girls in workgroups for first year students in economics and business are manipulated and students are randomly assigned to these groups. Boys tend to postpone their dropout decision when surrounded by more girls, and there is also a modest reduction in early absenteeism. On the other hand, boys perform worse on courses with high math content when assigned to a group with many girls. Overall, however, we fail to find substantial gender peer effects on achievement. This in spite of the fact that students' perceptions of the behavior of themselves and their peers are influenced by the share of girls.
    Keywords: Field experiment; Peer effects; University students
    JEL: I22 I28 D83
    Date: 2010–11–11
  17. By: Josse Delfgaauw (Erasmus University Rotterdam); Robert Dur (Erasmus University Rotterdam); Arjan Non (Erasmus University Rotterdam); Willem Verbeke (Erasmus University Rotterdam)
    Abstract: We conduct a field experiment among 189 stores of a retail chain to study dynamic incentive effects of relative performance pay. Employees in the randomly selected treatment stores could win a bonus by outperforming three comparable stores from the control group over the course of four weeks. Treatment stores received weekly feedback on relative performance. Control stores were kept unaware of their involvement, so that their performance generates exogenous variation in the relative performance of the treatment stores. As predicted by theory, treatment stores that lag far behind do not respond to the incentives, while the responsiveness of treatment stores close to winning a bonus increases in relative performance. On average, the introduction of the relative performance pay scheme does not lead to higher performance.
    Keywords: Dynamic incentives; Relative performance pay; Field experiment
    JEL: C93 M52
    Date: 2010–12–09
  18. By: Klarita Gerxhani (University of Amsterdam); Jordi Brandts (Autonoma University, Barcelona); Arthur Schram (University of Amsterdam)
    Abstract: We use laboratory experiments to investigate how employers develop social structures for sharing information about the trustworthiness of job candidates, when worker opportunism is possible. The experimental data show that substantial information sharing emerges. Two types of information networks are observed. One consists of 'anonymity networks' where information is anonymously and voluntarily provided as a collective good for all employers to use. The other type is a 'reciprocity network' where information sharing is driven by the rewarding of previously given information by the requestor. In both types, the extent of information sharing depends on the costs of providing it. Moreover, information sharing enables employers to recruit trustworthy workers which creates a high quality of trading, benefiting both employer and worker.
    Keywords: Social structure; Information networks; Recruitment; Experiments
    JEL: Z13 J23
    Date: 2011–02–11
  19. By: Marcelo Tyszler (University of Amsterdam); Arthur Schram (University of Amsterdam)
    Abstract: We theoretically and experimentally study voter behavior in a setting characterized by plurality rule and mandatory voting, where voters choose from three options. We are interested in the occurrence of strategic voting in an environment where Condorcet cycles may occur. In particular, we focus on how information about the distribution of preferences affects strategic behavior. We also vary the relative importance of the second preferred option to investigate how this affects the strategic vote. Quantal response equilibrium analysis is used to analyze the game and proves to be a good predictor for the experimental data. Our results indeed show that strategic voting arises, the extent of which depends on (i) the availability of information; (ii) the relative importance of the intermediate candidate; (iii) the electorate's relative support for one's preferred candidate; and (iv) the relative position of the plurality-supported candidate in a voter's preference ordering. Our results show that information serves as a coordination device where strategic voting does not harm the plurality-preferred candidate's chances of winning.
    Keywords: Voting Behavior; Experimental Economics; Quantal Response Equilibrium
    JEL: C92 D72 D83
    Date: 2011–02–10
  20. By: Klor, Esteban F. (Hebrew University, Jerusalem); Kube, Sebastian (University of Bonn); Winter, Eyal (Hebrew University, Jerusalem); Zultan, Ro'i (Max Planck Institute for Economics)
    Abstract: Conventional wisdom suggests that an increase in monetary incentives should induce agents to exert higher effort. In this paper, however, we demonstrate that this may not hold in team settings. In the context of sequential team production with positive externalities between agents, incentive reversal might occur: an increase in monetary incentives (either because rewards increase or effort costs decrease) may lead agents to exert lower effort in the completion of a joint task – even if agents are fully rational, self-centered money maximizers. Herein we discuss this seemingly paradoxical phenomenon and report on two experiments that provide supportive evidence.
    Keywords: incentives, incentive reversal, team production, externalities, laboratory experiments, personnel economics
    JEL: C92 D23 J31 J33 J41 M12 M52
    Date: 2011–02
  21. By: Katrin Schmelz (Max Planck Institute of Economics, Jena, IMPRS "Uncertainty")
    Abstract: E-nstructions facilitates the use of electronic instructions in computerized laboratory experiments in social sciences. In this article I provide a set of guidelines for the installation and the use of E-nstructions.
    Keywords: Experiments, Experimental software, Instructions
    JEL: C91 C92
    Date: 2011–02–18

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