New Economics Papers
on Experimental Economics
Issue of 2011‒04‒23
fifteen papers chosen by

  1. Honest Lies By Li Hao; Daniel Houser
  2. Comment on Promises and Partnership By Cary Deck; Maroš Servátka; Steven Tucker
  3. Taxpayer Information Assistance Services and Tax Compliance Behavior By James Alm; Todd Cherry; Michael Jones; Michael McKee
  4. Testing Behavioral Public Economics Theories in the Laboratory By James Alm
  5. Can Personality Explain what is Underlying Women's Unwillingness to Compete? By Müller, Julia; Schwieren, Christiane
  6. Social vs. risk preferences under the veil of ignorance By Nicola Frignani; Giovanni Ponti
  7. Control and Efficiency in the Nonprofit Sector: Evidence from a Randomized Policy Experiment By Bengtsson, Niklas; Engström, Per
  8. Words Speak Louder Than Money By Maroš Servátka; Steven Tucker; Radovan Vadovič
  9. Risk Taking of Executives under Different Incentive Contracts: Experimental Evidence By Lefebvre, Mathieu; Vieider, Ferdinand M.
  10. How performance based payoffs influence estimates of complex information? An experimental study on quality and precision in estimation tasks By Kroll, Eike B.; Rieger, Jörg; Vogt, Bodo
  11. Tax Evasion, Welfare Fraud, and the « Broken Windows » Effect : An Experiment in Belgium, France and the Netherlands By Mathieu Lefebvre; Pierre Pestieau; Arno Riedl; Marie-Claire Villeval
  12. Discrimination in second hand consumer markets: evidence from a field experiment By M. Belén Cobacho; Mariano Bosch
  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. Rental housing discrimination and the persistence of ethnic enclaves By M. Angeles Carnero Fernández; Lídia Farré Olalla; Mariano Bosch
  15. Social psychology and environmental economics: a new look at ex ante corrections of biased preference evaluation By Nicolas Jacquemet; Alexander James; Stephane Luchini; Jason Shogren

  1. By: Li Hao (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We report data from a two-stage prediction game, where the accuracy of predictions (in the first stage) regarding die roll outcomes (in the second stage) is rewarded using a proper scoring rule. Thus, given the opportunity to self-report the die roll outcomes, participants have an incentive to bias their predictions to maximize elicitation payoffs. However, we find participants to be surprisingly unresponsive to this incentive, despite clear evidence that they cheated when self-reporting die roll outcomes. These data lend support to Akerlof's (1983) suggestion that people may prefer to appear honest without actually being honest. In particular, the vast majority (95%) of our subjects were willing to incur a cost to preserve an honest appearance. At the same time, only 44% exhibited intrinsic preference for honesty. Moreover, we found that after establishing an honest appearance people cheat to the greatest possible extent. These results suggest that “incomplete cheating” behavior frequently reported in the literature can be attributed more to a preference for maintaining appearances than an intrinsic aversion to maximum cheating.
    Keywords: cheating, honest appearance, partial cheating, experimental design
    JEL: C91
    Date: 2011–03
  2. By: Cary Deck; Maroš Servátka; Steven Tucker (University of Canterbury)
    Abstract: Charness and Dufwenberg (2006) find that promises increase cooperation and suggest that the behavior of subjects in their experiment is driven by guilt aversion. By modifying the procedures to include a double blind social distance protocol we test an alternative explanation that promise keeping was due to external influence and reputational concerns. Our data are statistically indistinguishable from those of Charness and Dufwenberg and therefore provide strong evidence that their observed effects regarding the impact of communication are due to internal factors and not due to an outside bystander.
    Keywords: Experiment; promises; partnership; guilt aversion; psychological game theory; trust; lies; social distance; behavioral economics; hidden action
    JEL: C70 C91
    Date: 2011–04–11
  3. By: James Alm (Department of Economics, Tulane University); Todd Cherry (Department of Economics, Walker College of Business, Appalachian State University); Michael Jones (Department of Economics, Bridgewater State College); Michael McKee (Department of Economics, Walker College of Business, Appalachian State University)
    Abstract: The traditional "enforcement" paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised "service" paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. This research utilizes laboratory experiments to test the effectiveness of such taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we "complicate" these compliance decisions of subjects, and then provide "services" from the "tax administration" that allow subjects to compute more easily their tax liabilities. Our results indicate that uncertainty reduces both the filing and the reporting compliance of an individual. However, we also find that agency-provided information has a positive and significant impact on the tendency of an individual to file a tax return, and also on reporting for individuals who choose to file a return.
    Keywords: tax evasion, tax compliance, behavioral economics, experimental economics
    JEL: H26 C91
    Date: 2011–04
  4. By: James Alm (Department of Economics, Tulane University)
    Abstract: "Behavioral economics", or the application of methods and evidence from other social sciences to economics, has increased greatly in significance in the last two decades. An important method by which many of its predictions have been tested has been via laboratory experiments. In this paper I survey and assess experimental tests of various applications of behavioral economics to the specific area of public economics, or "behavioral public economics". I discuss the basic elements of behavioral economics, the methodology of experimental economics, applications of experimental methods to behavioral public economics, and topics in which future applications should prove useful.
    Keywords: experimental methods, behavioral economics
    JEL: C9 H0 H3
    Date: 2011–04
  5. By: Müller, Julia; Schwieren, Christiane
    Abstract: There is ample evidence that women do not react to competition as men do and are less willing to enter a competition than men (e.g., Gneezy et al.(2003), Niederle and Vesterlund (2007)). In this paper, we use personality variables to understand the underlying motives of women (and men) to enter a competition or avoid it. We use the Big Five personality factors (Goldberg (1981), McCrae and Costa JR (2003)), where especially neuroticism has been related to performance in achievement settings. We first test whether scores on the Big Five are related to performance in our experiment, and second how this is related to incentives. We can show that the sex difference in the willingness to enter a competition is mediated by neuroticism and further that neuroticism is negatively related to performance in competiton. This raises the possibility that those women who do not choose competitive incentives "know" that they should not.
    Keywords: Gender; Personality; Big Five; Five-factor Model; Competition; Experiment
    JEL: C91 J16 L00
    Date: 2011–04–11
  6. By: Nicola Frignani (Università di Ferrara); Giovanni Ponti (Universidad de Alicante)
    Abstract: This paper reports experimental evidence from a Dictator Game experiment in which subjects choose repeatedly one out of four options involving a pair of fixed monetary prizes, one for them, one for another anonymously matched subject. In some sessions, player position (i.e. the identity of the best paid agent, constant across all options) is known in advance before subjects have to make their decision; in other sessions subjects choose “under the veil of ignorance”, not knowing to which player position they will be eventually assigned. We also collect evidence from additional sessions in which the same options correspond to binary lotteries, in which subjects may win the high or the low prize, but their decisions do not affect other participants. We frame subjects’ decisions within the realm of a simple mean-variance utility maximization problem, where the parameter associated to the variance is interpreted, depending on the treatment conditions, as a measure of pure risk aversion, pure inequality aversion, or some combination of the two. We also condition our estimates to subjects’ individual socio-demographic characteristics.
    Keywords: Keywords: dictator games, social preferences, risk preferences, functional identification.
    JEL: D86
    Date: 2011–03
  7. By: Bengtsson, Niklas (Uppsala Center for Labor Studies); Engström, Per (Uppsala Center for Labor Studies)
    Abstract: Results in behavioral economics suggest that material incentives can crowd out effort, if agents are mission-oriented rather than self-interested. We test this prediction on a sample of nonprofit organizations in Sweden. Swedish nonprofit organizations receive tax funds annually to promote global development issues through information campaigns. Traditionally, the contract with the main principal (the Swedish foreign aid agency) has been based on trust and self-regulation. We designed an experimental policy intervention, effectively replacing the trust-based contract with an increased level of monitoring from the principal, along with a threat to cut future funds if irregularities were detected. Our findings are inconsistent with (strong) motivational crowd-out. Overall, using both self-reported and observed measures of outreach, we find that the intervention improved effciency. Graphical analysis shows that non-monitored organizations exhibit a distinct tendency to maximize expenditure; in contrast, organizations in the treatment group are more likely to return unused grants to Sida. Additionally, we find no crowding out of private contributions and no evidence of a \discouraged NGO"-syndrome.
    Keywords: Bureaucrats; NGO; Economics of psychology; Foreign aid; Randomized experiments; Hawthorne effect; Laboratory vs. field evidence; Treatment externalities; Spillover effects; Reference group contamination
    JEL: H83 L31 O19
    Date: 2011–04–18
  8. By: Maroš Servátka; Steven Tucker; Radovan Vadovič (University of Canterbury)
    Abstract: Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive
    Keywords: Communication; content analysis; experimental economics; gift giving; investment game; message; trust; trustworthiness
    JEL: C70 C91
    Date: 2011–04–12
  9. By: Lefebvre, Mathieu; Vieider, Ferdinand M.
    Abstract: Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if compensated through options. Compensation through restricted company stock reduces the uptake of excessive risks. Even under stock-ownership, however, experimental executives continue to take excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive hypotheses on what may be driving excessive risk taking in the experiment. Testing those hypotheses, we find that most of them are indeed borne out by the data. We thus conclude that a prospect-theory-based model is more apt at explaining risk attitudes under different compensation regimes than traditional principal-agent models grounded in expected utility theory.
    Keywords: prospect theory; expected utility theory; risk attitude; executive compensation; reference dependence; experimental finance
    JEL: G28 G32 J33 L22
    Date: 2011–04
  10. By: Kroll, Eike B.; Rieger, Jörg; Vogt, Bodo
    Abstract: This paper investigates the processing of repeated complex information. The focus of this study is, whether additional information and the introduction of performance-based payoffs have an influence on judgement. Therefore, an experiment is designed to investigate the degree of precision and quality of interval estimates. The data shows that providing additional information decreases the precision of stated estimates, while it improves its quality. The same result is obtained, when performance-based payoffs are introduced to an otherwise hypothetical decision environment. That means, while the variation in the treatment variables increase the quality of the estimate, the precision as a reflection of the decision makers confidence is reduced. --
    Keywords: interval estimates,uncertainty,judgmental estimation,repeated information,hypothetical versus payoffs,experiment
    JEL: C90 C91 C92 D81
    Date: 2011
  11. By: Mathieu Lefebvre (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium); Pierre Pestieau (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium ; CORE, University of Louvain, CEPR and PSE); Arno Riedl (School of Economics and Business, Maastricht University, P.O. Box 616, NL-6200 Maastricht, The Netherlands; CESifo Munich, Germany; IZA, Bonn, Germany); Marie-Claire Villeval (Université de Lyon, Lyon, F-69003, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a "registered" income, the realization of which will be known to the tax authority for sure, and an "unregistered" income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on wether reporting their income or not, knowing the risk od detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment ; (ii) many subjects choose and option that allows for tax evasion or welfare fraud but report their income honestly anyway ; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence ; (iv) tax evasion is more frequent in France and the Netherlands ; Wallons evade taxes less than Flemish. There is no cross-country difference in welfare dodging.
    Keywords: tax evasion, social fraud, social comparisons,cross-country comparisons, experiments
    JEL: H26 H31 I38 C91
    Date: 2011
  12. By: M. Belén Cobacho (Dpto. Métodos Cuantitativos e Informáticos); Mariano Bosch (Universidad de Alicante)
    Abstract: This paper studies discrimination against immigrants in the consumer market in Spain. We send emails of fictitious buyers to a popular Spanish second hand market webpage similar to ebay. Sellers are approached randomly by buyers with Spanish native or foreign sounding names to signal their ethnic origin. We find that those buyers with a foreign sounding name are contacted around 7.8 percentage points less than those with a Spanish sounding name. We then turn to explore how the price of the advertised good influences the degree of discrimination against foreign sounding names. We find that differential treatment across names occurs with more intensity for cheaper goods.
    Keywords: discrimination, second hand consumer market, field experiment.
    JEL: J15 R23 C93
    Date: 2011–03
  13. By: Jan-Erik Lönnqvist; Markku Verkasalo; Gari Walkowitz; Philipp C. Wichardt
    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 ( · =.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 is the more adequate measure of individual risk attitudes for the analysis of behaviour in economic (lab) experiments. Moreover, with respect to trust, the high re-test stability of trust transfers ( ·= .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
  14. By: M. Angeles Carnero Fernández (Universidad de Alicante); Lídia Farré Olalla (Universidad de Alicante); Mariano Bosch (Universidad de Alicante)
    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 neighbourhoods 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
  15. By: Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Alexander James (Departement of Economics and Finance, University of Wyoming - University of Wyoming); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Jason Shogren (Departement of Economics and Finance, University of Wyoming - University of Wyoming)
    Abstract: The field of social psychology explores how a person behaves within the context of other people. The social context can play a substantive role in non-market allocation decisions given peoples choices and values extend beyond the classic market-based exchange institution. Herein we explore how social psychology has affected one aspect of environmental economics: preference elicitation through survey work. We discuss social representation, social isolation, framing through cheap talk, and commitment theory through an oath.
    Keywords: Social psychology, Commitment, Persuasive communication, Preference elicitation
    Date: 2011

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