New Economics Papers
on Experimental Economics
Issue of 2011‒03‒19
twelve papers chosen by

  1. Thar she bursts - Reducing confusion reduces bubbles By Michael Kirchler; Juergen Huber; Thomas Stoeckl
  2. More risk - less solidarity? An experimental investigation By Costard, Jano
  3. Intra-household efficiency; An experimental study from Ethiopia By Bereket Kebede; Marcela Tarazona; Alistair Munro; Arjan Verschoor
  4. Do Landlords Discriminate in the Rental Housing Market? Evidence from an Internet Field Experiment in U.S. Cities By Andrew Hanson; Zackary Hawley
  5. Equity judgments and context dependence: Knowledge, efficiency and incentives By Schilizzi, Steven
  6. Evaluating conservation auctions with limited information:the policy makerâs predicament By Schilizzi, Steven; Latacz-Lohmann, Uwe
  7. Near and Generous? Gift Propensity and Chosen Emotional Distance By H. Eika, Kari
  8. Does tendering conservation contracts with performance payments generate additional benefits? By Schilizzi, Steven; Breustedt, Gunnar; Latacz-Lohmann, Uwe
  9. The “more is less” phenomenon in Contingent and Inferred valuation By Stachtiaris, Spiros; Drichoutis, Andreas; Klonaris, Stathis
  10. Using Collaborative Bargaining to Develop Environmental Policy when Information is Private By Christopher Bruce; Jeremy Clark
  11. Economic Rationality, Risk Presentation, and Retirement Portfolio Choice. By Bateman, Hazel; Ebling, Christine; Geweke, John; Jordan, Louviere; Stephen, Satchell; Susan, Thorp
  12. On optimal allocation in binary response trials; is adaptive design really necessary? By David Azriel; Micha Mandel; Yosef Rinott

  1. By: Michael Kirchler; Juergen Huber; Thomas Stoeckl
    Abstract: To explore why bubbles frequently emerge in the experimental asset market model of Smith, Suchanek and Williams (1988), we vary the fundamental value process (constant or declining) and the cash-to-asset value-ratio (constant or increasing). We observe high mispricing in treatments with a declining fundamental value, while overvaluation emerges when coupled with an increasing C/A-ratio. A questionnaire reveals that the declining fundamental value process confuses subjects, as they expect the fundamental value to stay constant.Running the experiment with a different context (“stocks of a depletable gold mine” instead of “stocks”) significantly reduces mispricing and overvaluation as it reduces confusion.
    Keywords: Experimental economics, asset market, bubble, market efficiency, confusion
    JEL: C91
    Date: 2011–03
  2. By: Costard, Jano
    Abstract: A solidarity game was conducted where participants were able to choose between two lotteries with same expected values. However, in one lottery, the risky one, participants faced a higher probability to receive no endowment. The winners were then able to discriminate between subjects risk attitude when it came to voluntary transfers from winners to losers in randomly formed three person groups. The results indicated that risk takers were not fully held responsible for their self-inflicted neediness, although they received on average fewer transfers than non-risk-takers. In fact, group favoritism is observed, where non-risk-takers transferred more to loosing non-risk-takers and risk-takers transferred more to loosing risk-takers. This behavioral pattern was stable across different versions of group compounding, profession and gender. Nevertheless, a gender effect was found with regard to lottery choice and the amount of money transferred. Furthermore, similarities can be seen between the results of the experiment and certain aspects of the current financial crisis. Among them borrowing in non-recourse states in the USA, the role of rating agencies and the hiring of failed CEOs. -- Es wurde ein Solidaritätsspiel durchgeführt, in dem die Teilnehmer aus zwei Lotterien mit gleichen Erwartungswerten wählen konnten. Allerdings war die Wahrscheinlichkeit zu verlieren und keinen Gewinn zu erhalten bei der riskanten Lotterie höher. In Dreiergruppen, bestehend aus Gewinnern und Verlierern, hatten die Gewinner die Möglichkeit freiwillig etwas von ihrem Gewinn an die Verlierer abzugeben. Dabei konnten sie zwischen dem Risikoverhalten der Verlierer unterscheiden. Die Ergebnisse offenbaren, dass risikoreiche Verlierer nicht komplett für ihre selbstverschuldete "Armut" verantwortlich gemacht wurden, obwohl sie im Durchschnitt weniger Transfers erhielten als Verlierer die kein Risiko eingegangen sind. Vielmehr ist ein Favorisieren der eigenen Gruppe zu beobachten, wobei "risikolose Gewinner" mehr an "risikolose Verlierer" transferiert haben und "risikoreiche Gewinner" mehr an "risikoreiche Verlierer" transferierten. Dieses Verhaltensmuster ist stabil über verschiedene Gruppenzusammensetzungen, die fachliche Ausrichtung und das Geschlecht der Teilnehmer des Experiments. Im Gegensatz dazu wurde ein geschlechtsspezifischer Effekt bei der Wahl der Lotterie und bei der Höhe der Transfers beobachtet.
    Date: 2011
  3. By: Bereket Kebede; Marcela Tarazona; Alistair Munro; Arjan Verschoor
    Abstract: Using data from experimental games and household survey from 1, 200 married couples in three sites in Ethipoia, this paer uses different versions of a voluntary contribution mechanism to test for household efficiency. The experimental and econometric analyses provide many interesting results that have far-reaching implications for intra-houisehold models. Efficiency in contribution behaviour is decisively rejected in all treatments casting doubt on 'unitary' and 'collective' household models that assume Pareto optimality - significant amounts of potential surplus are not realised. Contribution rates by males and females are not significantly different from each other undermining models that argue females tend to contribute more to the family (for example, Sen 1990). Information on itital endowments of spouses improves contribution rates (efficiency) in some treatments while not having effect in others suggesting that the effect of information is context dependent. Actual and expected contribution rates of spouses are systematically different; husbands' expect their wives will contribute more than their actual contributions and wives expect their husbands will contribute lower than actual contribution. These systematic errors in expectations imply that the attainment if equilibrium in a game theoretic framework is unlikely. Statistical tests indicate that instead of efficiency considerations other norms are likely important. For example, in many of the treatments spouses contributed around half of their endowments implying either a norm like fairness or focal points influence decisions. Overall, most of the empirical resulst cast doubt on cooperative models and provide some support for behaviour guided either by farirness or other norms.
    Keywords: household efficiency, intra-household models, experiemental games, ethiopia
    JEL: D13 C93
    Date: 2011
  4. By: Andrew Hanson; Zackary Hawley
    Abstract: This paper tests for racial discrimination in the rental housing market using matched pair audits conducted via e-mail for rental units advertised on-line. We reveal home-seekers' race to landlords by sending e-mails from names with a high likelihood of association with either whites or African Americans. Generally, discrimination occurs against African American names; however, when the content of the e-mail messages insinuates home-seekers with high social class, discrimination is non-existent. Racial discrimination is more severe in neighborhoods that are near "tipping points" in racial composition, and for units that are part of a larger building.
    JEL: J15 C93
    Date: 2011–03
  5. By: Schilizzi, Steven
    Abstract: Distributional equity concerns are often at least as important as economic efficiency and ecological sustainability in environmental and natural resource management policies. Until recently, however, economists have shied away from tackling equity issues, primarily because equity appeared as a slippery concept, varying across people and circumstances. This study takes this context-dependence of equity judgments as a starting point and shows that such dependence, far from being random, is systematic. A series of controlled laboratory treatments with University students were designed to investigate the role on distributional equity judgments of such context factors as knowledge of oneâs position in society, how the existence of equity-efficiency tradeoffs can affect equity judgments, and the importance of material incentives compared with hypothetical situations, where âin principleâ judgments are called for. Key results include the relative discriminating power of context factors, the hierarchy of context-dependence, the dissymmetry between support and opposition to equity principles, and the impact of different wealth endowments on equity judgments. A number of common beliefs are found not to be substantiated by our experimental findings.
    Keywords: Equity, fairness, resource allocation, environmental policy, experimental economics, welfare economics, public choice, Institutional and Behavioral Economics, Public Economics, C92, D03, D63, H23, Q56, Q58,
    Date: 2011–02–23
  6. By: Schilizzi, Steven; Latacz-Lohmann, Uwe
    Abstract: Buying environmental services from private landholders using tendering mechanisms are usually subject to a budget constraint. Auction theory has mostly focused on target-constrained auctions and is less well developed for this type of auction. This paper examines a theoretical model specifically developed for budget-constrained tenders and assesses its capacity to predict tendering performance under information limitations typical of those found in field applications. But this assessment cannot be done without complementing the model with controlled laboratory experiments. Subject to their external validity, we find that the model is able to make the correct policy recommendation when comparing the tender to an equivalent fixed price scheme, even when the accuracy of its prediction is far from perfect. However, the study suggests that more than a single point estimate of biddersâ costs is needed for this to happen, indicating that it should be worthwhile for policy administrators to invest in some information acquisition before deciding to run a tender.
    Keywords: Auctions, procurement, tenders, conservation, economic experiments, model validation, Environmental Economics and Policy, Land Economics/Use, C91, C92, D44, Q24, Q28,
    Date: 2011–02–18
  7. By: H. Eika, Kari (Ministry of Health and Care Services)
    Abstract: This experimental study asks whether generosity decreases emotional distance, a question pertinent to human service quality. Highly vulnerable service recipients may not enforce quality standards. Quality can then be viewed as an act of generosity, a gift from the provider to the recipient. For a human service provider that sympathizes with the recipient, delivering poor quality is psychologically costly. To reduce this cost she may increase emotional distance. Since human service quality presupposes social interaction and involvement, quality is reduced further. The mechanism – which can account for vicious and virtuous circles in the provision of quality – is explored in a binary dictator game where the recipients pay-off is uncertain. The dictator decides whether to know the recipients pay-off and how. Subjects are more eager to inquire about their recipients pay-off when they themselves have been generous, and to do so by contacting the recipient when the recipient correctly perceives that action to be kind.
    Keywords: human services; emotional distance; cognitive dissonance; generosity; dictator game
    JEL: C90 D23 D64 I11 I21
    Date: 2010–07–10
  8. By: Schilizzi, Steven; Breustedt, Gunnar; Latacz-Lohmann, Uwe
    Abstract: Policy makers aiming to get private landholders to supply non-marketed environmental services may need to provide efficient economic incentives. Two ideas have been explored to achieve this: linking contract payments to environmental outcomes and submitting the contracts to competitive tender. This paper investigates whether there are any gains to be had by combining the potential benefits of both approaches. Landholdersâ risk aversion to only partially controlled outcomes may offset incentive effects if the fall in participation outweighs any increases in individual effort. Controlled lab experiments were designed on the basis of a theoretical model and were run in two countries, with varying rates of payments linked to environmental outcomes. Results suggest that it can be counterproductive in terms of expected environmental outcomes to combine tenders with incentive payments, especially when the target population is known to be risk-averse.
    Keywords: Conservation tenders, auctions, incentive contracts, agricultural policy, environmental policy, market-based instruments, experimental economics, Environmental Economics and Policy, Land Economics/Use, C92, D44, D82, D86, H57, Q24, Q28,
    Date: 2011–02–18
  9. By: Stachtiaris, Spiros; Drichoutis, Andreas; Klonaris, Stathis
    Abstract: We examine inconsistencies in preference orderings of the “more is less” kind (Alevy et al. 2011) using the Contingent valuation (CV) and the Inferred valuation (IV) method (Lusk and Norwood 2009a, 2009b). We find that when moving in a familiar market for consumers (i.e., the food market) we only observe weak effects of inconsistencies. In addition, we find that the IV method is no better than the CV method in generating more consistent preference orderings. Surprisingly, we also find that the IV method generates higher valuations than CV, rendering one of its advantages of mitigating social desirability bias questionable.
    Keywords: willingness-to-pay (WTP); Contingent Valuation (CV); Inferred Valuation(IV); preference reversals
    JEL: D12 C90 Q51 C93
    Date: 2011–03
  10. By: Christopher Bruce; Jeremy Clark
    Abstract: In many cases governments invite interest groups to use collaborative bargaining to resolve environmental conflicts. If the parties fail to reach agreement, the government threatens to impose a backstop policy. Bargaining models have predicted that any agreements will be influenced, variously, by self-interest, equity, or entitlement (to the status quo). Although most such models assume that the parties are well informed about one another’s utility functions, this assumption conflicts with the reality of negotiations over environmental policy. We develop a laboratory experiment to investigate the impact of private information. Subjects who bargain under this constraint are almost as likely to reach (approximately efficient) agreements as those bargaining under full information. We also find that equity plays a less important role, and entitlement a more important role, under private information than under full information. There is only limited evidence to suggest that parties are drawn to the Nash bargain.
    JEL: C92 D74 H44 Q58
    Date: 2011–03–11
  11. By: Bateman, Hazel; Ebling, Christine; Geweke, John; Jordan, Louviere; Stephen, Satchell; Susan, Thorp
    Abstract: This research studies the propensity of individuals to violate implications of expected utility maximization in allocating retirement savings within a compulsory de- …ned contribution retirement plan. The paper develops the implications and describes the construction and administration of a discrete choice experiment to almost 1200 members of Australias mandatory retirement savings scheme. The experiment …nds overall rates of violation of roughly 25%, and substantial variation in rates, depend- ing on the presentation of investment risk and the characteristics of the participants. Presentations based on frequency of returns below or above a threshold generate more violations than do presentations based on the probability of returns below or above thresholds. Individuals with low numeracy skills, assessed as part of the ex-periment, are several times more likely to violate implications of the conventional expected utility model than those with high numeracy skills. Older individuals are substantially less likely to violate these restrictions, when risk is presented in terms of event frequency, than are younger individuals. The results pose significant questions for public policy, in particular compulsory de…ned contribution retirement schemes, where the future welfare of participants in these schemes depends on quantitative decision-making skills that a signi…cant number of them do not possess.
    Keywords: discrete choice; retirement savings; investment risk; household finance; financial literacy
    JEL: G23 G28 D14
    Date: 2011–12
  12. By: David Azriel; Micha Mandel; Yosef Rinott
    Abstract: We consider the classical problem of selecting the best of two treatments in clinical trials with binary response. The target is to find the design that maximizes the power of the relevant test. Many papers use a normal approximation to the power function and claim that Neyman allocation that assigns subjects to treatment groups according to the ratio of the responses’ standard deviations, should be used. As the standard deviations are unknown, an adaptive design is often recommended. The asymptotic justification of this approach is arguable, since it uses the normal approximation in tails where the error in the approximation is larger than the estimated quantity. We consider two different approaches for optimality of designs that are related to Pitman and Bahadur definitions of relative efficiency of tests. We prove that the optimal allocation according to the Pitman criterion is the balanced allocation and that the optimal allocation according to the Bahadur approach depends on the unknown parameters. Exact calculations reveal that the optimal allocation according to Bahadur is often close to the balanced design, and the powers of both are comparable to the Neyman allocation for small sample sizes and are generally better for large experiments. Our findings have important implications to the design of experiments, as the balanced design is proved to be optimal or close to optimal and the need for the complications involved in following an adaptive design for the purpose of increasing the power of tests is therefore questionable.
    Keywords: Neyman allocation, adaptive design, asymptotic power, Normal approximation, Pitman efficiency, Bahadur efficiency, large deviations
    JEL: K13
    Date: 2011–03

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