New Economics Papers
on Experimental Economics
Issue of 2011‒04‒30
twelve papers chosen by

  1. Can tailored communications motivate volunteers? A field experiment By Al-Ubaydli, Omar; Lee, Min
  2. An Unlucky Feeling: Persistent Overestimation of Absolute Performance with Noisy Feedback By Grossman, Zachary
  3. Tempus Fugit: Time Pressure in Risky Decisions By Kocher, Martin G.; Pahlke, Julius; Trautmann, Stefan T.
  4. Informational price cascades and non-aggregation of asymmetric information in experimental asset markets By Shachat, Jason; Srivinasan, Anand
  5. Normative Conflict & Feuds: The Limits of Self-Enforcement By Nikos Nikiforakis; Charles N. Noussair; Tom Wilkening
  6. Experimental Methods and the Welfare Evaluation of Policy Lotteries By Glenn W. Harrison
  7. Gambling for the Upper Hand - Settlement Negotiations in the Lab By Topi Miettinen; Olli Ropponen; Pekka Sääskilahti
  8. Indiscriminate Discrimination : A correspondence Test for Ethnic Homophily in the Chicago Labor Market By Nicolas Jacquemet; Constantine Yannelis
  9. Mixing the Carrots with the Sticks: Are Punishment and Reward Substitutes By Helen Mitchell; Nikos Nikiforakis
  10. Testing the Modigliani-Miller theorem directly in the lab By M. Vittoria Levati; Jianying Qiu; Prashanth Mahagaonkar
  11. Money talks? An Experimental Investigation of Cheap Talk and Burned Money By Thomas de Haan; Theo Offerman; Randolph Sloof
  12. Bidding to give in the Field: Door-to-Door Fundraisers had it right from the Start By Sander Onderstal; Arthur J.C. Schram; Adriaan R. Soetevent

  1. By: Al-Ubaydli, Omar; Lee, Min
    Abstract: Over 25% of the US population volunteers. Clary et al. (1998) devised a survey that identifies a volunteer’s primary motive for volunteering. We investigate the effect of tailoring the communications that volunteers receive from their organizations (e.g., printed newsletters, update emails) to each volunteer’s stated motive for volunteering affects volunteer performance. We find that in general, such tailoring has no effect, but that for volunteers who are motivated primarily by the pursuit of career-related benefits, such tailoring can have a substantial, positive effect on hours volunteered. We also find that the (in)effectiveness of this tailoring does not depend upon the volunteers’ knowledge of the tailoring. The tailoring of communications does not involve the explicit manipulation of material incentives. This renders it particularly attractive given the emergence of evidence on how extrinsic incentives can crowd out intrinsic incentives, especially in the domain of charitable contributions.
    Keywords: volunteering; charitable contributions; priming; stereotype
    JEL: D64 L31
    Date: 2011–04–16
  2. By: Grossman, Zachary
    Abstract: How does overconfidence arise and persist in the face of experience and feedback? We examine experimentally how individuals' beliefs about their absolute, as opposed to relative, performance on a quiz react to noisy, but unbiased, feedback. Participants believe themselves to have received `unlucky' feedback and they overestimate their own scores, but they exhibit no overconfidence in non-ego-relevant beliefs---in this case, about others' scores. Unlike previous studies of relative performance estimates, we find this to be driven by overconfident priors, as opposed to biased updating, which suggests that social comparisons contribute to biased information processing. While feedback improves performance estimates, this learning does not translate into improved estimates of subsequent performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, contributing to the persistence of overconfidence.
    Keywords: overconfidence, feedback, overestimation, absolute performance, Bayesian updating, biased updating, information processing, learning transfer, cross-game learning, quadratic scoring rule, behavioral economics, experimental economics, Behavioral Economics
    Date: 2011–04–11
  3. By: Kocher, Martin G.; Pahlke, Julius; Trautmann, Stefan T.
    Abstract: We study the effects of time pressure on risky decisions for pure gain prospects, pure loss prospects, and mixed prospects involving both gains and losses. In an experiment we find that risk aversion for gains is robust under time pressure whereas risk seeking for losses turns into risk aversion under time pressure. For mixed prospects, subjects become more loss averse and more gain seeking under time pressure, depending on the framing of the prospects. The results suggest the importance of aspiration levels under time pressure. We discuss the implications of our findings for decision making situations that involve time pressure.
    Keywords: time pressure; risky decisions; risk aversion; loss aversion; gain seeking; aspiration level
    JEL: C91 D81
    Date: 2011–04
  4. By: Shachat, Jason; Srivinasan, Anand
    Abstract: We report on experimental markets for a contingent claim asset that eight subjects traded for nine periods before the state was revealed. There is an informative binary signal that arrives after each of the first eight trading rounds. In our baseline treatment the realization of the signal is public information, and in another treatment, market participants are randomly sequenced and receive the signal as private information. In the latter case, we observe zero information aggregation and prices lock in on home grown norms, which we call informational price cascades. We test the fragility of the price cascades in two further treatments. First, we break the monopoly on each signal by revealing it to two subjects, and then we increase that number to four. It is only when we inform four participants, or one-half of the market, that cascades fail to form and information starts to aggregate in the market.
    Keywords: Information cascade; information aggregation; experiment; asset market
    JEL: G12 C92 D82
    Date: 2011–04–14
  5. By: Nikos Nikiforakis; Charles N. Noussair; Tom Wilkening
    Abstract: A normative conflict arises when there exist multiple plausible norms of behavior. In such cases, norm enforcement can lead to a sequence of mutual retaliatory sanctions, which we refer to as a feud. We investigate the hypothesis that normative conflict enhances the likelihood of a feud in a public-good experiment. We find that punishment is much more likely to trigger counter-punishment and start a feud when there is a normative conflict, than in a setting in which no conflict exists. While the possibility of a feud sustains cooperation,the cost of feuding fully offsets the efficiency gains from increased cooperation.
    Keywords: normative conflict; peer punishment; feuds; counter-punishment; social norms
    JEL: C92 D70 H41
    Date: 2011
  6. By: Glenn W. Harrison
    Abstract: Policies impose lotteries of outcomes on individuals, since we never know exactly what the effects of the policy will be. In order to evaluate alternative policies, we therefore need to make some assumptions about individual preferences, even before social welfare functions are applied. Instead of making a priori assumptions about those preferences that are likely to be wrong, there are two broad ways in which experimental methods are used to evaluate policy. One is to use experiments to estimate individual preferences, valuations and beliefs, and use those estimates as priors in the evaluation of policy. The other approach is to undertake deliberate randomization, or exploit accidental or natural randomization, to infer the effects of policy. The strengths and weaknesses of these approaches are reviewed, and their complementarities identified.
    Date: 2011–04
  7. By: Topi Miettinen (Hanken School of Economics, Dept of Economics, Helsinki; and SITE, Stockholm School of Economics); Olli Ropponen (Government Institute for Economic Research, Helsinki); Pekka Sääskilahti (Nokia Corporation)
    Abstract: We exploit a controlled frameless laboratory experiment to study settlement negotiations and the plainti' decision to raise a lawsuit in case of an impasse. We find that greater variance in court outcomes increases the litigation rate and lowers the settlement rate. This latter finding goes against the received wisdom and earlier experimental evidence (Ashenfelter et al. 1992) that greater risk in arbitration outcomes increases the settlement rate. We find that self-serving biases about the protagonist' course of action are accountable for the lower settlement rate, while an impasse payo inferior to that of the defendant induces the plaintis to excessive risk-taking in an attempt to narrow the gap.
    Keywords: bargaining, litigation, loss aversion, self-serving bias, settlement
    JEL: C72 C9 K41
    Date: 2011–04–19
  8. 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); Constantine Yannelis (Stanford University - Department of Economics - Department of Economics)
    Abstract: The extent of racial discrimination in the labor market is now clearly identified, but its nature largely remains an open question. This paper reports results from an experiment in which fabricated resumes are sent to help-wanted advertisements in Chicago newpapers. We use three groups of identical resumes : one with Anglo-Saxon names, one with African-American names and one with fictitious foreign names whose ethnic origin is unidentifiable to most Americans. We find that resumes with Anglo-Saxon names generate nearly one half more call-backs than identical resumes with African-American or Foreign names. Resumes with non-Anglo-Saxon names, whether African-American or Foreign, show no statistically significant difference in the number of callbacks they elicit. We also find that discrimination is significantly higher in the Chicago suburbs - where ethnic homogenity is high - as opposed to the city proper. We take this as evidence that discriminatory behavior is part of a larger pattern of unequal treatment of any member of non-majority groups - ethnic homophily.
    Keywords: Correspondence testing, racial discrimination.
    Date: 2011–02
  9. By: Helen Mitchell; Nikos Nikiforakis
    Abstract: This paper presents evidence that the demand for costly norm enforcement can be affected by the availability of the means for enforcing the norm. Participants in a laboratory experiment can reward or punish to enforce a distribution norm. Controlling for the extent of norm violation, we find that demand for costly punishment is lower when participants also have the opportunity to reward norm adherence. Similarly, demand for costly reward is lower when participants can punish norm violations, controlling for the extent of norm adherence. The reason is that participants use reward and punishment to signal their approval and disapproval. The availability of reward opportunities allows them to signal their disapproval by withholding reward. Similarly, the availability of punishment opportunities allows them to signal their approval by withholding punishment. This suggests that individuals consider reward and punishment to be substitutes. The resultant reduction in costly enforcement does not affect adherence to the norm, but has a significant impact on earnings in the experiment.
    Keywords: punishment; reward; social norms; norm enforcement; third party
    JEL: C91 D63 H41
    Date: 2011
  10. By: M. Vittoria Levati (Max Planck Institute of Economics, Jena - Strategic Interaction Group); Jianying Qiu (Department of Finance, University of Vienna); Prashanth Mahagaonkar (Max Planck Institute of Economics, Jena - Entrepreneurship, Growth and Public Policy Group)
    Abstract: We present an experiment designed to test the Modigliani-Miller theorem. Applying a general equilibrium approach and not allowing for arbitrage among firms with different capital structures, we find that, in accordance with the theorem, participants well recognize changes in the systematic risk of equity associated with increasing leverage and, accordingly, demand higher rate of return. Yet, this adjustment is not perfect: subjects underestimate the systematic risk of low-leveraged equity whereas they overestimate the systematic risk of high-leveraged equity, resulting in a U-shaped cost of capital. A (control) individual decision-making experiment, eliciting several points on individual demand and supply curves for shares, provides some support for the theore
    Keywords: Modigliani-Miller theorem, Experiments, Decision making under risk, General equilibrium
    JEL: G32 C91 G12 D53
    Date: 2011–04–18
  11. By: Thomas de Haan (University of Amsterdam); Theo Offerman (University of Amsterdam); Randolph Sloof (University of Amsterdam)
    Abstract: We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes. Theoretically a large number of equilibria exist side by side, in which senders either use costless messages, money, or a combination of the two. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases, cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model due to Kartik (2009) assuming that sellers bear a cost of lying fits the data best.
    Keywords: cheap talk; burning money; lying costs; experiment
    JEL: C91 D82
    Date: 2011–04–18
  12. By: Sander Onderstal (University of Amsterdam); Arthur J.C. Schram (University of Amsterdam); Adriaan R. Soetevent (University of Amsterdam)
    Abstract: In a door-to-door fundraising field experiment, we study the impact of fundraising mechanisms on charitable giving. We approached about 4500 households, each participating in either an all-pay auction, a lottery, a non-anonymous voluntary contribution mechanism (VCM), or an anonymous VCM. In contrast to the VCMs, households competed for a prize in the all-pay auction and the lottery. Although the all-pay auction is the superior fundraising mechanism both in theory and in the laboratory, it raised the lowest revenue per household in the field. Our experiment reveals two potential explanations for this anomaly. First, participation in the all-pay auction is substantially lower than in the other mechanisms while the average donation for those who contribute is only slightly higher. We explore various explanations for this lower participation and favor one that argues that competition in the all-pay mechanism crowds out intrinsic motivations to contribute. Second, the non-anonymity may have a negative effect: conditional on donating, households contribute less in the non-anonymous VCM than in the anonymous VCM. Among the non-anonymous mechanisms, the lottery raises the largest revenue per household. Notably, the method that scored best, the anonymous VCM, is the one most used by door-to-door fund raisers in the Netherlands.
    Keywords: Charitable Fundraising; Field Experiment; Auction; Lottery; Voluntary Contribution Mechanism
    JEL: C93 D44 D64 H41
    Date: 2011–04–18

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