New Economics Papers
on Experimental Economics
Issue of 2011‒04‒02
fifteen papers chosen by

  1. Emotions, Sanctions and Cooperation By Joffily, Mateus; Masclet, David; Noussair, Charles N.; Villeval, Marie Claire
  2. Emotions and Chat in a Financial Markets Experiment By Shaun P. Hargreaves Heap; Daniel John Zizzo
  3. Sanctions that Signal: an Experiment. By Roberto Galbiati; Karl Schlag; Joel van der Weele
  4. An Experimental Dynamic Public Goods Game with Carryover By Kurtis Swope; Pamela Schmitt; John Cadigan; Patrick Wayland
  5. Experiments with the Traveler's Dilemma: Welfare, Strategic Choice and Implicit Collusion By Kaushik Basu; Leonardo Becchetti; Luca Stanca
  6. Repeated moral hazard and contracts with memory: A laboratory experiment By Nieken, Petra; Schmitz, Patrick W
  7. Envy and agricultural innovation: An Experimental Case Study from Ethiopia By Bereket Kebede; Daniel John Zizzo
  8. Inequality, communication and the avoidance of disastrous climate change By Alessandro Tavoni; Astrid Dannenberg; Giorgos Kallis; Andreas Lšschel
  9. Exploiting opportunities at all cost? Entrepreneurial intent and externalities By Diemo Urbig; Utz Weitzel; Stephanie Rosenkranz; Arjen van Witteloostuijn
  10. Rental Housing Discrimination and the Persistence of Ethnic Enclaves By Bosch, Mariano; Carnero, M. Angeles; Farré, Lídia
  11. Temporal stability and psychological foundations of cooperation preferences By Volk, Stefan; Thoeni, Christian; Ruigrok, Winfried
  12. The Long Shadow of Income on Trustworthiness By Ermisch, John; Gambetta, Diego
  13. Social Mobility and Redistributive Taxation By Kai A. Konrad; Florian Morath
  14. The Relative Efficiency of Active Labour Market Policies: Evidence From a Social Experiment and Non-Parametric Methods By Vikström, Johan; Rosholm, Michael; Svarer, Michael
  15. Capturing Preferences Under Incomplete Scenarios Using Elicited Choice Probabilities. By Herriges, Joseph A.; Bhattacharjee, Subhra; Kling, Catherine L.

  1. By: Joffily, Mateus (CNRS); Masclet, David (University of Rennes); Noussair, Charles N. (Tilburg University); Villeval, Marie Claire (CNRS, GATE)
    Abstract: We use skin conductance responses and self-reports of hedonic valence to study the emotional basis of cooperation and punishment in a social dilemma. Emotional reaction to free-riding incites individuals to apply sanctions when they are available. The application of sanctions activates a "virtuous emotional circle" that accompanies cooperation. Emotionally aroused cooperators relieve negative emotions when they punish free riders. In response, the free-riders experience negative emotions when punished, and increase their subsequent level of cooperation. The outcome is an increased level of contribution that becomes the new standard or norm. For a given contribution level, individuals attain higher levels of satisfaction when sanctioning institutions are in place.
    Keywords: emotions, sanctions, cooperation, experiment, skin conductance responses
    JEL: C92 D62 D63 D64 D74
    Date: 2011–03
  2. By: Shaun P. Hargreaves Heap (University of East Anglia); Daniel John Zizzo (University of East Anglia)
    Abstract: This paper examines experimentally two common conjectures in the popular literature on financial markets: that they are swayed by emotion and that they behave like a 'crowd'. We find consistent evidence that deviations of prices from fundamental value depend on the emotion of excitement and on the presence of independently identified 'irrational' traders. Other than through 'irrational' traders, there is no evidence, however, that non-price communication ('chat') influences prices. Subjects with an economics background make better traders.
    Keywords: asset bubbles; cheap talk; emotions; noise traders; behavioral finance.
    JEL: C91 G12
    Date: 2011–03–01
  3. By: Roberto Galbiati; Karl Schlag; Joel van der Weele
    Abstract: Sanctions are a means to provide incentives towards more pro-social behavior. Yet their implementation can be a signal that past behavior was undesirable. We investigate experimentally the importance of the informational content of the choice to sanction. We place this in a context of a coordination game to focus attention on beliefs and information and less on intrinsic or pro-social motivations. We compare the eect of sanctions that are introduced exogenously by the experimenter to that of sanctions which have been actively chosen by a subject who takes the role of a fictitious policy maker with superior information about the previous eort of the other players. We nd that cooperative subjects perceive actively chosen sanctions as a negative signal which eliminates for them the incentive eect of sanctions.
    JEL: C92 D83 K42
    Date: 2011–03
  4. By: Kurtis Swope (United States Naval Academy); Pamela Schmitt (United States Naval Academy); John Cadigan (Gettysburg College); Patrick Wayland (United States Navy)
    Abstract: We examine voluntary contributions in a two-stage public good experiment with ‘carryover.’ In two treatments, each subject’s second stage endowment is determined by the return from the public good in the first stage. We manipulate payoffs across these treatments so that, relative to our no-carryover baseline, earnings from either Nash play or Pareto Optimal play are held constant. The remaining two treatments maintain a constant endowment in each stage, but vary the marginal per capita return (MPCR) to contributions in the second stage. Our results indicate that carryover increases first stage contributions. Our implementation of carryover enables us to examine the effects of changing endowments and MPCR’s with a wider variety of parameter values than in the existing literature. Consistent with these studies, we find that MPCR and endowment effects are important determinants of subject contributions to the group account. While stage 1 contributions tend to increase in the presence of carryover, efficiency levels across both stages fall relative to the baseline due to the high potential payoffs from complete contribution in the second stage (due to higher endowments or MPCR levels).
    Date: 2011–02
  5. By: Kaushik Basu (Department of Economics, Cornell University); Leonardo Becchetti (University of Rome "Tor Vergata"); Luca Stanca (University of Milan - Bicocca)
    Abstract: This paper investigates behavior in the Traveler's Dilemma game and isolates deviations from textbook predictions caused by differences in welfare perceptions and strategic miscalculations. It presents the results of an experimental analysis based on a 2x2 design where the own and the other subject's bonus-penalty parameters are changed independently. We find that the change in own bonus-penalty alone entirely explains the effect on claims of a simultaneous change in one's own and the other's bonus-penalty. An increase in the other subject's bonus-penalty has a significant negative effect on claims when the own bonus-penalty is low, whereas it does not have a significant effect when the own bonus-penalty is high. We also find that expected claims are inconsistent with actual claims in the asymmetric treatments. Focusing on reported strategies, we document substantial heterogeneity and show that changes in choices across treatments are largely explained by risk aversion.
    Date: 2011–03–23
  6. By: Nieken, Petra; Schmitz, Patrick W
    Abstract: This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals may prefer to offer contracts with memory.
    Keywords: Laboratory experiment; Repeated moral hazard; Sequential hidden actions
    JEL: D82 J33
    Date: 2011–02
  7. By: Bereket Kebede; Daniel John Zizzo
    Abstract: The underlying motivations for envy or related social preferences and their impact on agricultural innovations are examined by combining data from money burning experimental game and household survey from Ethiopia. In the first stage of the money burning experimental game, income inequality is induced by providing different endowments and playing a lottery. In the second, people are allowed to decrease (‘burn’) other players’ money at their own expense. Conditional on individual behaviour, experimentally measured envious preferences from others have a negative effect on real life agricultural innovation.
    Keywords: envy; social preferences; money burning games; agricultural innovations; Ethiopia
    JEL: C93 O12 O55
    Date: 2011
  8. By: Alessandro Tavoni (Grantham Research Institute, London School of Economics); Astrid Dannenberg (Centre for European Economic Research, Mannheim, Germany); Giorgos Kallis (ICTA, Universidad Autonoma de Barcleona); Andreas Lšschel (Centre for European Economic Research, Mannheim, Germany)
    Abstract: International efforts to provide global public goods often face the challenges of coordinating national contributions and distributing costs equitably in the face of uncertainty, inequality, and free-riding incentives. In an experimental setting, we distribute endowments unequally among a group of people who can reach a fixed target sum through successive money contributions, knowing that if they fail they will lose all their remaining money with 50% probability. We find that inequality reduces the prospects of reaching the target, but that communication increases success dramatically. Successful groups tend to eliminate inequality over the course of the game, with rich players signalling willingness to redistribute early on. Our results suggest that coordinative institutions and early redistribution from richer to poorer nations may widen our window of opportunity to avoid global climate calamity.
    JEL: Q54 C92
    Date: 2011–03
  9. By: Diemo Urbig; Utz Weitzel; Stephanie Rosenkranz; Arjen van Witteloostuijn
    Abstract: Do potential entrepreneurs exploit welfare-destroying opportunities as much as they exploit welfare-enhancing opportunities as it is assumed in several normative models? Do we need to prevent potential entrepreneurs from being destructive or are there intrinsic limits to harm others? We experimentally investigate how people with different entrepreneurial intent exploit risky investment opportunities that are associated with negative and positive externalities. We find that participants who consider entrepreneurship as a future occupation invest significantly less than others in destructive opportunities. Nevertheless, our results support prior evidence that the entrepreneurially talented invest more in destructive opportunities. The latter effect seems to be entrepreneurship-specific, because the investment behavior of the generally more talented does not differ from that of other participants. Taken together, our results suggest that people who are willing to exploit destructive opportunities do not only do this in private ventures, but also - and maybe even more so - in wage employment.
    Keywords: Social Psychology, Entrepreneurship, Externalities, Laboratory, Individual Behavior
    JEL: L26 D62 C91
    Date: 2011–03
  10. By: Bosch, Mariano (Universidad de Alicante); Carnero, M. Angeles (Universidad de Alicante); Farré, Lídia (IAE Barcelona (CSIC))
    Abstract: We conduct a field experiment to show that discrimination in the rental market represents a significant obstacle for the geographical assimilation process by immigrants. We employ the Internet platform to identify vacant rental apartments in different areas of the two largest Spanish cities, Madrid and Barcelona. We send emails showing interest in the apartments and signal the applicants' ethnicity by using native and foreign-sounding names. We find that, in line with previous studies, immigrants face a differential treatment when trying to rent an apartment. Our results also indicate that this negative treatment varies considerably with the concentration of immigrants in the area. In neighborhoods with a low presence of immigrants the response rate is 30 percentage points lower for immigrants than for natives, while this differential disappears when the immigration share reaches 50%. We conclude that discriminatory practices in the rental housing market contribute to perpetuate the ethnic spatial segregation observed in large cities.
    Keywords: immigration, discrimination, spatial segregation
    JEL: J15 J61
    Date: 2011–03
  11. By: Volk, Stefan; Thoeni, Christian; Ruigrok, Winfried
    Abstract: A core element of economic theory is the assumption of stable preferences. We test this assumption in public goods games by repeatedly eliciting cooperation preferences in a fixed subject pool over a period of five months. We find that cooperation preferences are very stable at the aggregate level, but less so at the individual level. Nevertheless, individual preferences are sufficiently stable to predict future behavior fairly accurately. Our results also provide evidence on the psychological foundations of cooperation preferences. The personality dimension 'Agreeableness' is closely related to both the type and the stability of cooperation preferences.
    Keywords: Social preferences, preference stability, conditional cooperation, free riding, personality, Big-Five.
    JEL: C91 C72 H41
    Date: 2011–01
  12. By: Ermisch, John (University of Essex); Gambetta, Diego (University of Oxford)
    Abstract: We employ a behavioural measure of trustworthiness obtained from an experiment carried out with a sample of the general British population whose individuals were extensively interviewed on earlier occasions. These previous interviews allow us to have very good income measures, and in particular to construct a measure of relative income that uses past income as a reference point. Our basic finding is that given past income, higher current income increases trustworthiness and, given current income, higher past income reduces trustworthiness. Past income determines the level of financial aspirations and whether or not these are fulfilled by the level of current income affects trustworthiness. But past income has a disproportionately large effect on trustworthiness compared to that predicted by the relative income theory, and this leads us to suspect that past income may also capture heterogeneity in relevant subjects’ dispositions, with more opportunistic subjects being less trustworthy and having higher average incomes. We suggest and estimate a two-tier model in which relative income has the same positive effect within each past income class, but people in higher past income classes have a lower fundamental levels of trustworthiness.
    Keywords: trustworthiness, relative income
    JEL: C93 D10
    Date: 2011–03
  13. By: Kai A. Konrad; Florian Morath
    Abstract: We investigate redistributive taxation in a political economy experiment and determine how different patterns of social mobility affect the choices of redistributional taxes. In the absence of social mobility, voters choose tax rates that are very well in line with the prediction derived in the standard framework by Meitzer and Richard (1981). However, past or future changes in the income hierarchy affect the choice of the tax rate in the current period. The same is true for social mobility within the period to which the tax rate choice applies and for the case where the choice of the tax rate takes place behind, the veil of ignorance. Due to our design of the experiment, these strong effects of own social mobility cannot be attributed to social or other-regarding preferences.
    Keywords: redistribution, median voter, social mobility
    JEL: D72 D78 H20
    Date: 2011–01
  14. By: Vikström, Johan (Uppsala Center for Labor Studies); Rosholm, Michael (Department of Economics and Business, Aarhus University); Svarer, Michael (Department of Economics and Business, Aarhus University)
    Abstract: We re-analyze the effects of a Danish active labour market program social experiment, that included a range of sub-treatments, including monitoring, job search assistance and training. Previous studies have shown that the overall effect of the experiment is positive. We apply newly developed non-parametric methods to determine which of the individual policies that explains the positive effect. The use of non-parametric methods to separate sub-treatment effects is important from a methodological point of view, since the alternative, namely parametric/distributional assumptions, is in conflict with the concept of experimental evidence. Our results are highly relevant in a policy perspective, as optimal labour market policy design requires knowledge on the effectiveness of specific policy measures.
    Keywords: Active labour market policy; treatment effect; non-parametric bounds
    JEL: C14 C41 C93
    Date: 2011–03–13
  15. By: Herriges, Joseph A.; Bhattacharjee, Subhra; Kling, Catherine L.
    Abstract: Manski (1999) proposed an approach for dealing with a particular form respondent uncertainty in discrete choice settings, particularly relevant in survey based research when the uncertainty stems from the incomplete description of the choice scenarios. Specifically, he suggests eliciting choice probabilities from respondents rather than their single choice of an alternative. A recent paper in IER by Blass et al. (2010) further develops the approach and presents the first empirical application. This paper extends the literature in a number of directions, examining the linkage between elicited choice probabilities and the more common discrete choice elicitation format. We also provide the first convergent validity test of the elicited choice probability format vis-\`a-vis the standard discrete choice format in a split sample experiment. Finally, we discuss the differences between welfare measures that can be derived from elicited choice probabilities versus those that can obtained from discrete choice responses.
    Keywords: discrete choice; Elicited Choice Probabilities
    JEL: C25 Q51
    Date: 2011–03–24

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