nep-exp New Economics Papers
on Experimental Economics
Issue of 2011‒03‒05
fourteen papers chosen by
Daniel Houser
George Mason University

  1. Experiment on the Demand for Encompassment By Klein, Daniel; Pan, Xiaofei; Houser, Daniel; Schwarz, Gonzalo
  2. Income and Ideology: How Personality Traits, Cognitive Abilities, and Education Shape Political Attitudes By Rebecca Morton; Jean-Robert Tyran; Erik Wengström
  3. The Effect of Reliability, Content and Timing of Public Announcements on Asset Trading Behavior By Brice Corgnet; Praveen Kujal; David Porter
  4. Reaction to Public Information in Markets: How Much Does Ambiguity Matter? By Brice Corgnet; Praveen Kujal; David Porter
  5. The Development of Egalitarianism, Altruism, Spite and Parochialism in Childhood and Adolescence By Fehr, Ernst; Rützler, Daniela; Sutter, Matthias
  6. 'Hiding behind a small cake' in a newspaper dictator game By Axel Ockenfels; Peter Werner
  7. The social costs of responsibility By Steven J. Humphrey; Elke Renner
  8. An Experimental Test of a Collective Search Model By Yoichi Hizen; Keisuke Kawata; Masaru Sasaki
  9. The role of public and private information in a laboratory financial market By Simone Alfarano; Andrea Morone; Eva Camacho
  10. Individual Heterogeneity in Punishment and Reward By Leibbrandt, Andreas; López-Pérez, Raúl
  11. Myopic or Farsighted? An Experiment on Network Formation By Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
  12. On the effects of deposit insurance and observability on bank runs: an experimental study By Alfonso Rosa García; Hubert Janos Kiss; Ismael Rodríguez Lara
  13. Measuring Individual Risk Attitudes in the Lab: Task or Ask? An Empirical Comparison By Jan-Erik Lönnqvist; Markku Verkasalo; Gari Walkowitz; Philipp C. Wichardt
  14. The Winner's Curse under Behavioral Institutions By Nadine Chalß

  1. By: Klein, Daniel (George Mason University, Ratio Institute); Pan, Xiaofei (George Mason University); Houser, Daniel (George Mason University); Schwarz, Gonzalo (George Mason University)
    Abstract: The idea of political community is appealing on a gut-level. Hayek suggested that certain genes and instincts still dispose us toward the ethos and mentality of the hunter-gatherer band, and that modern forms of political collectivism have, in part, been atavistic reassertions of such tendencies. Picking up on Hayek, Klein (2005) has suggested a combination of yearnings: 1) a yearning for coordinated sentiment (like Smithian sympathy); and 2) a yearning that the sentiment encompass the whole group. This paper reports on an experiment designed to explore the demand for encompassment by having subjects sing together. In each trial, one person in the room was designated not to sing unless every one of the others in the room had made a payment sufficient so as to have that person sing. Subjects chose to sacrifice money to achieve encompassment 47.4 percent of the time, with 59.6 percent of the subjects doing so in at least one trial. An exit questionnaire showed that subjects’ chief reason for making such a sacrifice was a belief that the singing would be more enjoyable if it encompassed the whole group, and reported enjoyment is significantly higher with encompassment. We discuss the experiment as a parable for a penchant toward political collectivism.
    Keywords: Encompassment; political psychology; Hayek; the people’s romance
    JEL: A13 H89 Z10
    Date: 2011–02–28
  2. By: Rebecca Morton (Department of Politics, New York University); Jean-Robert Tyran (Department of Economics, University of Vienna); Erik Wengström (Department of Economics, University of Copenhagen)
    Abstract: We find that cognitive abilities, educational attainment, and some personality traits indirectly affect ideological preferences through changes in income. The effects of changes in personality traits on ideology directly and indirectly through income are in the same direction. However, the indirect effects of cognitive abilities and education often offset the direct effects of these variables on ideological preferences. That is, increases in cognitive abilities and education significantly increase income, which reduces the tendency of individuals to express leftist preferences. These indirect effects are in some cases sizeable relative to direct effects. The indirect effects of cognitive abilities through income overwhelm the direct effects such that increasing IQ increases rightwing preferences. For ideological preferences over economic policy the indirect effects of advanced education also overwhelm the direct effects, such that individuals with higher education are more likely to express rightwing preferences than those with lower education.
    Date: 2011–01
  3. By: Brice Corgnet (Business Department, Universidad de Navarra); Praveen Kujal (Department of Economics, Universidad Carlos III de Madrid); David Porter (Economic Science Institute, Chapman University)
    Abstract: Financial markets are overwhelmed by daily announcements. We use experimental asset markets to assess the impact of releasing public messages with different levels of reliability on asset prices. Subjects receive qualitative announcements in predetermined trading periods that are either preset by the experimenter, randomly selected, or determined by past asset market prices. We find that messages can play a significant role in bubble abatement, or rekindling. The preset message, “The price is too high,” decreases the amplitude and duration of bubbles for inexperienced subjects. Announcements that depend on the actual level of mispricing reduce bubble magnitude. Meanwhile, a preset or random message, “The price is too low,” prevents experienced subjects from abating bubbles. We account for the effect of public messages by showing that they significantly reduce inconsistent (“irrational”) trading behavior.
    Keywords: experimental asset markets, bubbles, market communications, bounded rationality
    JEL: C92 G12
    Date: 2011
  4. By: Brice Corgnet (Business Department, Universidad de Navarra); Praveen Kujal (Department of Economics, Universidad Carlos III de Madrid); David Porter (Economic Science Institute, Chapman University)
    Abstract: In real world situations the fundamental value of an asset is ambiguous. Recent theory has incorporated ambiguity in the dividend process and the information observed by investors, and studied its effect on asset prices. In this paper we experimentally study trader reaction to ambiguity when dividend information is revealed sequentially. Price changes are consistent with news revelation regarding the dividend regardless of subject experience and the degree of ambiguity. Further, there is no under or over price reactions to news. Regardless of experience, market reaction to news moves in line with fundamentals. Also, no significant differences are observed in the control versus ambiguity treatments regarding prices, price volatility and volumes for experienced subjects. Our results indicate that the role of ambiguity aversion in explaining financial anomalies is limited.
    Keywords: Ambiguity, Dividend Revelation, Price Changes, Reaction to News, Experience
    JEL: G10 G12
    Date: 2011
  5. By: Fehr, Ernst (University of Zurich); Rützler, Daniela (University of Innsbruck); Sutter, Matthias (University of Innsbruck)
    Abstract: We study how the distribution of other-regarding preferences develops with age. Based on a set of allocation choices, we can classify each of 717 subjects, aged 8 to 17 years, as either egalitarian, altruistic, or spiteful. Varying the allocation recipient as either an in-group or an out-group member, we can also study how parochialism develops with age. We find a strong decrease in spitefulness with increasing age. Egalitarianism becomes less frequent, and altruism much more prominent, with age. Women are more frequently classified as egalitarian than men, and less often as altruistic. Parochialism first becomes significant in the teenage years.
    Keywords: other-regarding preferences, egalitarianism, altruism, spite, parochialism, experiments with children and adolescents
    JEL: C91
    Date: 2011–02
  6. By: Axel Ockenfels; Peter Werner
    Abstract: We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper "Welt am Sonntag", employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', supporting the notion that some agents' beliefs directly enter the social utility function.
    Keywords: dictator game, psychological games, incomplete information, newspaper experiment
    Date: 2011–02–25
  7. By: Steven J. Humphrey (Fachbereich Wirtschaftwissenschaften, Universitaet Osnabrueck); Elke Renner (School of Economics, University of Nottingham)
    Abstract: We use an experimental lottery choice task and public goods game to examine if responsibility for the financial welfare of others affects decisionmaking behaviour in two different types of decision environments. We find no evidence that responsibility affects individual risk preferences. Responsibility does, however, crowd-out cooperation in a public goods game.
    Keywords: responsibility, risk attitudes, social preferences, public goods game
    JEL: C72 C91 D74 H41
    Date: 2011–02
  8. 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
  9. By: Simone Alfarano (Dpto. de Economía); Andrea Morone (Dipartimento di Economia); Eva Camacho (Dpt. Economia)
    Abstract: The main advantages of a laboratory financial market with respect to field data are: (i) it allows us a perfect monitoring of the available information to each subject at any moment in time, and (ii) it gives us the possibility of recording subjects' trading activity in the market. In our experimental design the information distribution is endogenous, since the subjects can buy costly private information. Inspired by the debate on the role of rating agencies in the recent financial crisis, additional to the private information we introduce an imperfect public signal. The study of the interplay between public and private information constitutes our contribution to the experimental literature on laboratory financial markets. In particular, in this paper we study the perturbation created by the introduction of a public signal on the information acquisition process and on the price efficiency in transmitting information. We conclude that the public signal might drive the market price if private information is not of good quality, leaving the financial market in “the hands" of the institution which releases the public information.
    Keywords: experiments, financial markets, private and public information, rating agencies
    JEL: C92 D82 G14
    Date: 2011–02
  10. By: Leibbrandt, Andreas (Department of Economics, University of Chicago); López-Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We design experiments to study the extent to which individuals differ in their motivations behind costly punishment and rewarding. Our findings qualify existing evidence and suggest that the largest fraction of players is motivated by a mixture of both inequity-aversion and reciprocity, while smaller fractions are primarily motivated by pure inequity-aversion and pure reciprocity. These findings provide new insights into the literature on other-regarding preferences and may help to reconcile important phenomena reported in the experimental literature on punishment and reward.
    Keywords: Heterogeneity; inequity aversion; monetary punishment/reward; reciprocity; social norms.
    JEL: C70 C91 D63 D74 Z13
    Date: 2011–01
  11. By: Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
    Abstract: Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.
    Keywords: Network fomation; Experiment; Myopic and farsighted stability
    JEL: D85 C91 C92
    Date: 2011–02
  12. By: Alfonso Rosa García (Universidad de Murcia); Hubert Janos Kiss (Universidad Autónoma de Madrid); Ismael Rodríguez Lara (Universidad de Alicante)
    Abstract: We study the effects of deposit insurance and observability of previous actions on the emergence of bank runs by means of a controlled laboratory experiment. We consider three depositors in the line of a bank, who decide between withdrawing or keeping their money deposited. We have three treatments with different levels of deposit insurance which reflect the losses a depositor may incur in the case of a bank run. We find that different levels of deposit insurance and the possibility of observing other depositors’ actions affect the likelihood of bank runs. When decisions are not observable, higher levels of deposit insurance decrease the probability of bank runs. When decisions are observable, this is not the case. These results suggest that (i) observability might be considered as a partial substitute of deposit insurance, and that (ii) the optimal deposit insurance should take into account the degree of observability.
    Keywords: deposit insurance, observability, bank runs, experimental economics
    JEL: G21 C90
    Date: 2011–02
  13. By: Jan-Erik Lönnqvist (Faculty of Behavioural Sciences, University of Helsinki, Finland); Markku Verkasalo (Faculty of Behavioural Sciences, University of Helsinki, Finland); Gari Walkowitz (Department of Management, University of Cologne, Germany); Philipp C. Wichardt (Institute of Economic Theory 3, University of Bonn, Germany)
    Abstract: This paper compares two prominent empirical measures of individual risk attitudes - the Holt and Laury (2002) lottery-choice task and the multi-item questionnaire advocated by Dohmen, Falk, Huffman, Schupp, Sunde and Wagner (forthcoming) - with respect to (a) their within-subject stability over time (one year) and (b) their correlation with actual risk-taking behaviour in the lab - here the amount sent in a trust game (Berg, Dickaut, McCabe, 1995). As it turns out, the measures themselves are uncorrelated (both times) and, most importantly, only the questionnaire measure exhibits test-re-test stability (Ï = .78), while virtually no such stability is found in the lottery-choice task. In addition, only the questionnaire measure shows the expected correlations with a Big Five personality measure and is correlated with actual risk-taking behaviour. The results suggest that the questionnaire measure is a better measure of individual risk attitudes than the lottery-choice task. Moreover, with respect to trust, the high re-test stability of trust transfers (Ï = .70) further supports the conjecture that trusting behaviour indeed has a component which itself is a stable individual characteristic (Glaeser, Laibson, Scheinkman and Soutter, 2000).
    Keywords: Risk Attitudes, Trust, Personality, Lab Experiments
    JEL: D81 C91 Z10
    Date: 2011–02–18
  14. By: Nadine Chalß (Friedrich-Schiller-University Jena, Germany)
    Abstract: Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.
    Keywords: imperfect information, common value auction, price-quality relation
    JEL: D61 D82 L13
    Date: 2011–02–25

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