New Economics Papers
on Experimental Economics
Issue of 2011‒05‒24
29 papers chosen by

  1. Patience, Cognitive Skill and Coordination in the Repeated Stag Hunt By Omar Al-Ubaydli; Garett Jones; Jaap Weel
  2. Can Tailored Communications Motivate Volunteers? A Field Experiment By Omar Al-Ubaydli; Min Sok Lee
  3. Markets as Economizers of Information: Field Experimental Examination of the "Hayek Hypothesis" By Omar Al-Ubaydli; Peter Boettke
  4. The Role of Theory in Field Experiments By David Card; Stefano DellaVigna; Ulrike Malmendier
  5. Optimal Timing of Farmland Investment - An Experimental Study on Farmers' Decision Behavior - By Maart, Syster Christin; Musshoff, Oliver
  6. Unlocking water markets: an experimental approach By Cook, Joseph; Rabotyagovb, Sergey
  7. What Drives Taxi Drivers? A Field Experiment on Fraud in a Market for Credence Goods By Balafoutas, Loukas; Beck, Adrian; Kerschbamer, Rudolf; Sutter, Matthias
  8. Cognitive load in the multi-player prisoner's dilemma game By Duffy, Sean; Smith, John
  9. Virtual trust: Escalation Bargaining: Theoretical Analysis and Experimental Test By Swee-Hoon Chuah; Robert Hoffmann; Jeremy Larner
  10. Can we manage first impressions in cooperation problems? An experimental study on “Broken (and Fixed) Windows” By Christoph Engel; Sebastian Kube; Michael Kurschilgen
  11. Unequal Opportunities and Distributive Justice By Gerald Eisenkopf; Urs Fischbacher; Franziska Föllmi-Heusi
  12. Control and Efficiency in the Nonprofit Sector Evidence from a Randomized Policy Experiment By Bengtsson, Niklas; Engström, Per
  13. A Comparison of Auction and Choice Experiment: An Application to Consumer Willingness to Pay for Rice with Improved Storage Management By Su, Lianfan; Adam, Brian; Lusk, Jayson; Arthur, Frank
  14. New Insights into Conditional Cooperation and Punishment from a Strategy Method Experiment By Cheung, Stephen L.
  15. Efficiency, equality and reciprocity in social preferences: A comparison of students and a representative population. By Cappelen, Alexander W.; Nygaard, Knut; Sørensen, Erik Ø.; Tungodden, Bertil
  16. Thin and lumpy: an experimental investigation of water quality trading By Suter, Jordan F.; Spraggon, John; Poe, Gregory L.
  17. Oligopoly as a Socially Embedded Dilemma. An Experiment By Christoph Engel; Lilia Zhurakhovska
  18. Do Practice Rounds Bias Experimental Auction Results? By Corrigan, Jay R.; Rousu, Matthew C.
  19. Bargaining Power in Relational Contracts:An Experimental Study By Cordero Salas, Paula
  20. Costly and discrete communication: An experimental investigation By Duffy, Sean; Hartwig, Tyson; Smith, John
  21. Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment By Cruces, Guillermo; Perez Truglia, Ricardo; Tetaz, Martin
  22. Intermediaries in Corruption: An Experiment By Mikhail Drugov; John Hamman; Danila Serra
  23. Polarized Preferences In Homegrown Value Auctions By Hurley, Terrance M.; Yue, Chengyan; Anderson, Neil O.
  24. Sticking to Prices? - Behavioral Differences in Price Setting By Holm, Håkan J.; Svensson, Emma
  25. Combining Consumer Valuation Research with Sensory Science Techniques: A Laboratory Experiment By Gustafson, Christopher R.; Lybbert, Travis J.; Sumner, Daniel A.
  26. Media Advertising and Ballot Initiatives: An Experimental Analysis By Allender, William J.; Richards, Timothy J.; Fang, Di; Doyon, Maurice
  27. An Experimental Contribution to the Revision of the Guidelines on Research and Development Agreements By Christoph Engel
  28. The Effects of Personality Composition and Decision-Making Processes on Change Preferences of Self-Managing Teams By Muehlfeld K.; Van Doorn J.; Van Witteloostuijn A.
  29. Doing Well by doing good - or doing better by delegating? By Gerald Eisenkopf; Urs Fischbacher

  1. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Garett Jones (Department of Economics, George Mason University); Jaap Weel (Department of Economics, George Mason University)
    Abstract: Coordination games have become a critical tool of analysis in fields such as development and institutional economics. Understanding behavior in coordination games is an important step towards understanding the differing success of teams, firms and nations. This paper investigates the relationship between personal attributes (cognitive ability, risk-aversion, patience) and behavior and outcomes in coordination games, an issue that, to the best of our knowledge, has never been studied before. For the repeated coordination game that we consider, we find that: (1) cognitive ability has no bearing on any aspect of behavior or outcomes; (2) pairs of players who are more patient are more likely to coordinate well and earn higher payoffs; and (3) risk-aversion has no bearing on any aspect of behavior or outcomes. These results are robust to controlling for personality traits and demographic characteristics.
    Keywords: coordination, IQ, personality, discount rate, patience, risk-aversion
    JEL: D02 D23 O12 O43
    Date: 2011–05
  2. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Min Sok Lee (Kenneth and Anne Griffin Foundation)
    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 careerrelated 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
  3. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Peter Boettke (Department of Economics, George Mason University)
    Abstract: The work of Friedrich Von Hayek contains several testable predictions about the nature of market processes. Vernon Smith termed the most important one the ‘Hayek hypothesis’: equilibrium prices and the gains from trade can be achieved in the presence of diffuse, decentralized information, and in the absence of price-taking behavior and centralized market direction. Vernon Smith tested this by surveying data on laboratory experimental markets and found strong support. We repeat this exercise using field experimental market data. Using field experiments allows us to test several other predictions. Generally speaking, we find support for Hayek’s theories.
    Keywords: price dynamics, entrepreneurs, field experiment, market process
    JEL: B53 C90 D40 D51 D61 D82 L26
    Date: 2011–05
  4. By: David Card; Stefano DellaVigna; Ulrike Malmendier
    Abstract: We propose a new classification of experiments that captures the extent to which the experimental design and analysis are linked to economic theory. We then use this system to classify all published field experiments in the five top economics journals from 1975 to 2010. We find that the vast majority of field experiments (68%) are Descriptive studies that lack any explicit model; 18% are Single Model studies that test a single model-based hypothesis; 6% are Competing Models studies that test competing model-based hypotheses; and 8% are Parameter Estimation studies that estimate structural parameters in a completely specified model. Using the same system to classify laboratory experiments published over the same period, we find that economic theory has played a more central role in the laboratory than in the field. Finally, we discuss in detail three sets of field experiments, on gift exchange, on charitable giving, and on negative income tax, that illustrate both the benefits and the potential costs of a tighter link between experimental design and theoretical underpinnings.
    JEL: C9 C93
    Date: 2011–05
  5. By: Maart, Syster Christin; Musshoff, Oliver
    Abstract: Optimal timing of farmland investment represents fundamental decisions for agricultural entrepreneurs. It is known that the land price value is significantly higher than the expected present value of expected future gains. In this paper we experimentally analyze the investment behavior of real farmers and contrast the observed investment decisions with theoretical benchmarks of the classical investment theory and the Real Options Approach. Furthermore, we investigate framing effects. Our results show that the framing of the investment situation has no significant influence on the decision behavior in the experiment. Moreover, the investment behavior of farmers approximates the predictions of the Real Options Approach if they are given an equitable chance to learn from personal experience.
    Keywords: Experimental Economics, Investment, Real Options, Agribusiness, Agricultural Finance, Farm Management, Financial Economics, Institutional and Behavioral Economics, Risk and Uncertainty, C91, D81, D92,
    Date: 2011–05–03
  6. By: Cook, Joseph; Rabotyagovb, Sergey
    Keywords: water market, experiments, resource economies, Marketing, Resource /Energy Economics and Policy,
    Date: 2011
  7. By: Balafoutas, Loukas (University of Innsbruck); Beck, Adrian (University of Innsbruck); Kerschbamer, Rudolf (University of Innsbruck); Sutter, Matthias (University of Innsbruck)
    Abstract: Credence goods are characterized by informational asymmetries between sellers and consumers that invite fraudulent behavior by sellers. This paper presents the results of a natural field experiment on taxi rides in Athens, Greece, set up to measure different types of fraud and to examine the influence of passengers’ presumed information and income on the extent of fraud. Results reveal that taxi drivers cheat passengers in systematic ways: Passengers with inferior information about optimal routes are taken on longer detours while asymmetric information on the local tariff system leads to manipulated bills. Higher income seems to lead to more fraud.
    Keywords: credence goods, expert services, natural field experiment, taxi rides, fraud, asymmetric information
    JEL: C93 D82
    Date: 2011–05
  8. By: Duffy, Sean; Smith, John
    Abstract: We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). We find that the individual behavior of the subjects in the low load condition converges to the Subgame Perfect Nash Equilibrium prediction at a faster rate than those in the high load treatment. However, we do not find the corresponding relationship involving outcomes in the game. Specifically, there is no evidence of a significantly different convergence of game outcomes across treatments. As an explanation of these two results, we find evidence that low load subjects are better able to adjust their choice in response to outcomes in previous periods.
    Keywords: cognitive resources; experimental economics; experimental game theory; public goods game
    JEL: C72 C91
    Date: 2011–05–11
  9. By: Swee-Hoon Chuah (Nottingham University Business School); Robert Hoffmann (Nottingham University Business School); Jeremy Larner (Nottingham University Business School)
    Abstract: The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.
    Keywords: Escalation, Brinkmanship, Chicken game, Experiments
    JEL: C72 C78 C91
    Date: 2011–05–13
  10. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kube (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Cooperation problems are at the heart of many everyday situations. In this paper, we propose a very simple and light-handed mechanism to sustain cooperation and test its performance in a rich laboratory environment. The mechanism moderates cooperation by controlling experiences, more specifically, it "manipulates" subjects’ initial beliefs by providing them with selective information about (un)cooperative behavior in other, unrelated, groups. We observe that contributions are considerably sensitive to such selective information. First impressions participants happen to make predict subsequent behavior. Our results, however, suggest an asymmetry in the strength of the reaction – which might pose a limit on the effectiveness of the mechanism in natural settings.
    Date: 2011–03
  11. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Urs Fischbacher (Department of Economics, University of Konstanz, Germany); Franziska Föllmi-Heusi (Thurgau Institute of Economics at the University of Konstanz, Germany)
    Abstract: We provide experimental evidence on how unequal access to performance enhancing education affects demand for redistribution. People earn money in a real effort experiment and can then decide how to distribute it among themselves and another subjects. We compare situations in which randomly chosen people get access to performance enhancing education with situations in which either only luck or only performance determines outcome. We find that unequal opportunities evoke a preference for redistribution that is comparable to the situation when luck alone determines the allocation. However, people with unequal access to education are more likely to disagree about the appropriate distribution.
    Keywords: Distribution, Inequality of opportunities, Negotiation, Education, Experiment
    JEL: D31 I20
    Date: 2011–04–06
  12. By: Bengtsson, Niklas (Department of Economics); Engström, Per (Department of Economics)
    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 efficiency. 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: 2011–05–04
  13. By: Su, Lianfan; Adam, Brian; Lusk, Jayson; Arthur, Frank
    Abstract: Experimental auction and discrete choice experiment are two popular value elicitation methods. Theoretically they should yield the same results but empirical results have been mixed (e.g., Lusk and Schroeder 2004, 2006; Corrigan et al. 2010.) This study uses both methods to determine consumersâ willingness to pay (WTP) for rice with improved insect control and for rice stored using Integrated Pest Management (IPM). This study investigates two potential reasons â anchoring and information â for why some studies have found apparent inconsistencies between auction and choice experiment results. Results indicate that consumersâ WTP derived in the auction and choice experiments are significantly different. Consumersâ average bids in the auction are higher than their willingness to pay calculated from the choice experiments. Further, anchoring in the choice experiment appears to be an explanation for the discrepancy. Providing consumers with more product information help consumers behave more consistent in terms of having same preference ranking for different rice samples in the auction and the choice experiments, but their average does not substantially affect the discrepancy.
    Keywords: 2nd price auction, choice experiment, price level, information, Consumer/Household Economics, Crop Production/Industries,
    Date: 2011
  14. By: Cheung, Stephen L. (University of Sydney)
    Abstract: This paper introduces new experimental designs to enrich understanding of conditional cooperation and punishment in public good games. The key to these methods is to elicit complete contribution or punishment profiles using the strategy method. It is found that the selfish bias in conditional cooperation is made significantly worse when other players contribute more unequally. Contingent punishment strategies are found to increase with decreasing contributions by the target player and also increasing contributions by a third player. "Antisocial" punishments are not directed specifically toward high contributors, but may be motivated by pre-emptive retaliation against punishment a player expects to incur.
    Keywords: conditional cooperation, selfish bias, punishment, public good experiment, strategy method
    JEL: C72 C91 D70 H41
    Date: 2011–05
  15. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Nygaard, Knut (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: The debate between Engelmann and Strobel (2004, 2006) and Fehr, Naef, and Schmidt (2006) highlights the important question of the extent to which lab experiments on student populations can serve to identify the motivational forces present in society at large. We address this question by comparing the lab behavior of a student group and a non-student group, where the non-student group on all observable factors is almost identical to the representative adult population in Norway. All participants take part in exactly the same lab experiment. Our study shows that students may not be informative of the role of social preferences in the broader population. We nd that the representative participants differ fundamentally from students both in their level of selfishness and in the relative importance assigned to different moral motives. It is also interesting to note that while we do not find any substantial gender differences among the students, males and females in the representative group differ fundamentally in their moral motivation.
    Keywords: Representative sample; Social preferences; Laboratory experiment.
    JEL: C91 D63
    Date: 2010–11–15
  16. By: Suter, Jordan F.; Spraggon, John; Poe, Gregory L.
    Abstract: Water quality trading schemes in the United States can predominantly be character- ized by low trading volumes. In this paper we utilize laboratory economics experiments to explore the extent to which the technology through which pollution abatement is achieved influences market outcomes. Mirroring the majority of water quality trading markets, the sessions utilize small trading groups composed of six participants. To understand the extent to which abatement technology influences trading behavior, the experimental treatments vary the degree of heterogeneity in initial abatement costs and the potential for long-lived investments in cost-reducing abatement technology.
    Keywords: Environmental Economics and Policy,
    Date: 2011
  17. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Lilia Zhurakhovska (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: From the perspective of competitors, competition may be modeled as a prisoner’s dilemma. Setting the monopoly price is cooperation, undercutting is defection. Jointly, competitors are better off if both are faithful to a cartel. Individually, profit is highest if only the competitor(s) is (are) loyal to the cartel. Yet collusion inflicts harm on the opposite market side and, through the deadweight loss, on society at large. Moreover, almost all legal orders combat cartels. Through the threat with antitrust intervention, gains from cooperation are uncertain. In the field, both qualifications combine. To prevent participants from using their world knowledge about antitrust, we experimentally test them on a neutral matrix game, with either a negative externality on a third participant, uncertainty about gains from cooperation, or both. Uncertainty dampens cooperation, though only slightly. Surprisingly, externalities are immaterial. If we control for beliefs, they even foster cooperation. If we combine both qualifications and do not control for beliefs, we only find an uncertainty effect. If we add beliefs as a control variable, we only find that externalities enhance cooperation, even if gains from collusion are uncertain. Hence the fact that the dilemma of oligopolists is socially embedded matters less than one might have expected.
    Keywords: Oligopoly, Collusion, experiment, Uncertainty, negative externalities, prisoner’s dilemma
    JEL: D43 K21 L13 L41 C72 D81 K42 C91 D62 H23
    Date: 2011–01
  18. By: Corrigan, Jay R.; Rousu, Matthew C.
    Keywords: Consumer/Household Economics,
    Date: 2011
  19. By: Cordero Salas, Paula
    Abstract: This paper provides experimental evidence of the economic impact from shifting bargaining power in relational contracts. I implement an experimental design that adjusts the bargaining power of sellers (agents) and the enforceability of the contract. I find that the vast majority of contracts take the form of efficiency wage contracts instead of contingent performance contracts when enforcement is partially incomplete and sellers have more bargaining power than buyers. The total contracted and actual compensation increase with the bargaining power of the sellers. However, sellers' prots are found to increase only if a part of the total payment is third-party enforceable. In this case, observed surplus and efficiency are lower than predictions. When no part of a contract is third-party enforceable, more cooperative relationships emerge, exhibiting higher quality provision resulting in higher surplus and efficiency while rent sharing is lower. The result is explained by the stronger buyer's deviation, confirming predictions derived in Cordero Salas (2010). The results here provide insight into the economic consequences of enacting policies that improve the bargaining conditions of weaker parties in market settings relying on self-enforcement from underdeveloped legal institutions.
    Keywords: contracts, incomplete enforcement, bargaining, experiments, distribution, institutions, Industrial Organization, Institutional and Behavioral Economics, International Development, D86, K12, L14, O12, Q13,
    Date: 2011
  20. By: Duffy, Sean; Hartwig, Tyson; Smith, John
    Abstract: Language is an imperfect and coarse means of communicating information about a complex and nuanced world. We run an experimental investigation of a setting in which the messages available to the sender imperfectly describe the state of the world, however the sender can improve communication, at a cost, by increasing the complexity or elaborateness of the message. As is standard in the communication literature, the sender learns the state of the world then sends a message to the receiver. The receiver observes the message and provides a best guess about the state. The incentives of the players are aligned in the sense that both sender and receiver are paid an amount which is increasing in the accuracy of the receiver's guess. We find that the size of the language endogenously arises as a function of the costs of communication. Specifically, we find that higher communication costs are associated a smaller language. Although the equilibrium predictions do not perform well, this divergence occurs in a manner which is consistent with the experimental communication literature: overcommunication. For the receiver, there is a positive relationship between the payoffs relative to the equilibrium predictions and communication costs. This relationship is negative for the senders. We also find that the response times of both the senders and receivers are negatively, not positively, related to their payoffs.
    Keywords: information transmission; cheap talk; overcommunication; bounded rationality; experimental game theory
    JEL: D82 C91 C72
    Date: 2011–05–11
  21. By: Cruces, Guillermo (CEDLAS-UNLP); Perez Truglia, Ricardo (Harvard University); Tetaz, Martin (CEDLAS-UNLP)
    Abstract: Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals’ evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents’ biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.
    Keywords: perceptions of income distribution, limited information, preferences for redistribution, field experiment
    JEL: D31 D83 H24 H53 I30
    Date: 2011–05
  22. By: Mikhail Drugov (Department of Economics, Universidad Carlos III de Madrid); John Hamman (Department of Economics, Florida State University); Danila Serra (Department of Economics, Florida State University)
    Abstract: Intermediaries facilitate exchanges between buyers and sellers. Intermediation activities are an important part of the formal economy. Anecdotal evidence suggests that intermediaries are ubiquitous in corrupt activities; however, empirical evidence on their role as facilitators of corrupt transactions is scarce. This paper asks whether, besides eliminating uncertainty, intermediaries facilitate corruption by reducing the moral costs of possible bribers and bribees. Indeed, intermediaries might shift the responsibility for initiating the corrupt transaction away from the briber, and might institutionalize corruption. We address our research question using a specifically designed bribery lab experiment that simulates petty corruption transactions between private citizens and public officials. The experimental data confirm that intermediaries lower the moral costs of citizens and officials and, thus, increase corruption.
    Keywords: Corruption, Intermediaries, Moral cost, Experiment
    JEL: C91 D73 Z19
    Date: 2011–01
  23. By: Hurley, Terrance M.; Yue, Chengyan; Anderson, Neil O.
    Abstract: Incentive compatible auction experiments, often referred to as homegrown value auctions, have become a popular tool for exploring how controversial product attributes and knowledge of these attributes affect consumer willingness to pay. A common observation in these experiments is a prevalence of zero bids and bimodal bid distributions. One possible explanation is that individuals have polarized preferences: find all products with a particular attribute desirable (positive polarization) or undesirable (negative polarization). The purpose of this paper is to explore three questions. Do polarized preferences exist? If they do exist, can they be identified? If they can be identified, does their identification provide useful information? To answer these questions, polarized preferences are theoretically formalized. This theory is used to discuss bidding behavior and how common experimental design features can facilitate or hinder the identification of polarization. The weaknesses of common econometric models used to analyze auction bids are reviewed in the context of polarization and a new model is proposed. Finally, the new model is tested using data from a home grown value auction. The results of this analysis suggest that polarized preferences do exist and that accounting for them can improve estimates of willingness to pay and likelihood that a product is valued at all.
    Keywords: Experiment, Auctions, Polarized Preferences, Invasive Plants, Homegrown Values, Demand and Price Analysis, Environmental Economics and Policy, Research Methods/ Statistical Methods, D01, C18, C19, Q13,
    Date: 2011
  24. By: Holm, Håkan J. (Department of Economics, Lund University); Svensson, Emma (Department of Economics, Lund University)
    Abstract: This paper suggests a simple separation mechanism, based on heterogeneity among buyers and sellers, to understand price adjustments. One group is made up of "pragmatics" who are open to strategic action in a situation, and the other group comprises "fundamentalists" whose reference point is based on precedent transactions. The authors conduct a Nash bargaining experiment where subjects bargain for a product with a well-known price. The result strongly suggests that both sellers and buyers do in fact separate into different types, which has detrimental effects on the transaction volume. The experiment also provides results on the factors behind this separation.
    Keywords: bargaining; price rigidity; heterogeneity; behaviour
    JEL: C91 E30
    Date: 2011–05–02
  25. By: Gustafson, Christopher R.; Lybbert, Travis J.; Sumner, Daniel A.
    Abstract: In this research, we integrated an experimental auction with sensory science techniquesânamely, trained sensory panels used to analyze the sensory attributes of winesâto examine the effects of objective and sensory information in the market for California-produced Cabernet Sauvignons. The experiment permitted observation of consumer valuation for sensory attributes of wine, appellations, expert ratings, and wineries. Participants submitted bids each time they received new information about the wines. The balanced experimental design permits evaluation of the effects of consumer characteristics on attribute valuation. We had 236 people participate in the research, which consisted of nine rounds of bidding and one round of hedonic liking scores. Rounds 5-9 repeated the structure of information released in rounds 1-4, but added sensory information, yielding 472 observations for each type of information (e.g. appellation, expert rating, winery). We obtain a total of 8496 valuations, or bids and 944 hedonic âlikingâ ratings, as well as demographic information, wine consumption data, and a wine knowledge score for each consumer. The results of the research agree with many of the previously held notions about valuation of wine by consumers. Participants value Cabernet Sauvignons from Napa Valley and Sonoma County and their sub-appellations more than wines labeled with the California appellation. Bids for wines rated by experts such as the Wine Advocate (Robert Parker) or Wine Spectator increased as the expertsâ ratings increased. However, we also find that consumer characteristics are very important in explaining WTP for wine attributes. The contributions of prestigious appellations to the value of Cabernet Sauvignons depended on consumer characteristics. Willingness to pay was highly correlated with sensory evaluation, but even after tasting the wine, appellation and expert ratings still mattered for WTP. Overall, the research describes a significant amount of heterogeneity in the preferences for sensory characteristics of wine, and that individual characteristics systematically explain many of the differences in valuation of wine attributes.
    Keywords: Experimental Economics, Willingness to Pay, WTP, Wine, Consumer Valuation, Hedonic Pricing, Sensory Analysis, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Marketing, Research Methods/ Statistical Methods,
    Date: 2011
  26. By: Allender, William J.; Richards, Timothy J.; Fang, Di; Doyon, Maurice
    Abstract: Spending on political advertising increases with every election cycle, not only for congressional or presidential candidates, but also for state-level ballot initiatives. There is little research in marketing, however, on the effectiveness of political advertising at this level. In this study, we conduct an experimental analysis of advertisements used during the 2008 campaign to mandate new animal welfare standards in California (Proposition 2). Using subjects' willingness to pay for cage-free eggs as a proxy for their likely voting behavior, we investigate whether advertising provides real information to likely voters, and thus sharpens their existing attitudes toward the issue, or whether advertising can indeed change preferences. We find that advertising in support of Proposition 2 was more effective in raising subjects' willingness to pay for cage-free eggs than ads in opposition were in reducing it, but we also find that ads in support of the measure reduce the dispersion of preferences and thus polarize attitudes toward the initiative. More generally, political ads are found to contain considerably more "hype" than "real information" in the sense of Johnson and Myatt (2006).
    Keywords: Animal Welfare, Proposition 2, Cage Free eggs, Willingness to Pay, BDM auction, Political Advertising, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Marketing, Political Economy, Production Economics, Public Economics,
    Date: 2011
  27. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The European Commission is working on a revision of its Guidelines on Research and Development Agreements. On this occasion, this note surveys the existing experimental evidence. Experiments add a number of additional arguments to the normative assessment. R&D agreements have a much smaller effect on later competition in the product market if they serve as a substitute for incomplete (legal) protection of innovation effort. They may help firms settle the resulting fairness issue, and stay away from investment wars. Using the results from 107 published experiments on oligopoly, a meta-study shows that clearing an R&D agreement can be beneficial since it removes the additional collusion incentive resulting from fear that, through successful innovation, competitors might gain an advantage. This is the case if the opposite market side has countervailing power, and the more market conditions are stable. By contrast, the meta-data suggests that R&D agreements increase the risk of collusion in the product market if products are substitutes, if capacity cannot immediately be extended, if market participants may communicate, and if they are experienced; the latter two conditions are very likely to hold in the field.
    Keywords: Antitrust, Innovation, research and development agreements, block exemption, oligopoly experiments, meta-study
    JEL: D43 K21 L13 L41 O31 O34
    Date: 2010–12
  28. By: Muehlfeld K.; Van Doorn J.; Van Witteloostuijn A.
    Abstract: Team decision-making on organizational and strategic changes is pervasive. Yet, little is known about determinants of teams’ change preferences. We analyze how composition with respect to personality traits associated with (pro-)active behavior (locus-of-control, type-A/B behavior) influences selfmanaging teams’ preferences for the likelihood and magnitude of changes, and whether participative decision-making and team monitoring as core features of group decision-making counteract or reinforce change tendencies. Results from a business simulation with 42 teams largely support predictions. Stronger type-A orientation increases the likelihood of (drastic) changes. Teams dominated by internal locus-of-control members are highly responsive performance feedback in their change preferences. Participative decision-making encourages while team monitoring restricts tendencies towards extreme magnitudes.
    Date: 2011–04
  29. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Urs Fischbacher (Department of Economics, University of Konstanz, Germany)
    Abstract: Machiavelli advises against delegating the distribution of favors. We test this claim in an experiment, in which an investor can directly transfer money to a trustee or delegate this decision to another investor. Varying the value of the transfers of the investor and the delegate, we find that the trustee’s rewards follow a rather simple pattern. In all situations, both investors are rewarded, but the person who actually decides gets a higher reward. Delegation only pays off for the initial decision maker if the value of the delegate’s transfer is much higher than the value of the investor’s transfer.
    Keywords: Delegation, trusts, reciprocity, intentions, experiment
    JEL: C91 D63
    Date: 2011–02–14

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.