New Economics Papers
on Experimental Economics
Issue of 2011‒05‒30
twenty-one papers chosen by

  1. The impact of the termination rule on cooperation in a prisoner's dilemma experiment By Normann, Hans-Theo; Wallace, Brian
  2. Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics By Abeler, Johannes; Altmann, Steffen; Goerg, Sebastian; Kube, Sebastian; Wibral, Matthias
  3. Funding a New Bridge in Rural Vietnam: A field experiment on conditional cooperation and default contributions By Carlsson, Fredrik; Johansson-Stenman, Olof; Pham Khanh, Nam
  4. Variety Aversion and Information Overload: An Experimental Approach By Karen Kaiser
  5. Public Good and Private Good Valuation for Waiting, Time Reduction: A Laboratory Study By Tibor Neugebauer; Stefan Traub
  6. Economic and Intrinsic Motivations for Dishonesty: An Experimental Study By Lana Friesen; Lata Gangadharan
  7. Size Matters - When it Comes to Lies By Gerald Eisenkopf; Ruslan Gurtoviy; Verena Utikal
  8. The currency of reciprocity - gift-exchange in the workplace By Kube, Sebastian; Maréchal, Michel André; Puppe, Clemens
  9. Asymmetric obligations By Riedel, Nadine; Schildberg-Hörisch, Hannah
  10. Moral Impossibility in the Petersburg Paradox : A Literature Survey and Experimental Evidence By Tibor Neugebauer
  11. Framing Effects and Expected Social Security Claiming Behavior By Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
  12. League-Table Incentives and Price Bubbles in Experimental Asset Markets By Cheung, Stephen L.; Coleman, Andrew
  13. Higher Order Risk Attitudes, Demographics, and Financial Decisions By Noussair, C.N.; Trautmann, S.T.; Kuilen, G. van de
  14. Cardiovascular Consequences of Unfair Pay By Falk, Armin; Menrath, Ingo; Verde, Pablo Emilio; Siegrist, Johannes
  15. Uncertainty and Disagreement in Forecasting Inflation: Evidence from the Laboratory By Pfajfar, D.; Zakelj, B.
  16. Classroom Games in Economics : A Quantitative Assessment of the `Beer Game' By McMahon, Michael
  17. Field Experiments with Firms By Bandiera, Oriana; Barankay, Iwan; Rasul, Imran
  18. Mechanism Experiments and Policy Evaluations By Jens Ludwig; Jeffrey R. Kling; Sendhil Mullainathan
  19. What Can I Get For It? A Theoretical and Empirical Re-Analysis of the Endowment Effect By Lunn, Pete; Lunn, Mary
  20. Theft and Deterrence By William T. Harbaugh; Naci H. Mocan; Michael S. Visser
  21. Teacher experience and the class size effect - experimental evidence By Mueller, Steffen

  1. By: Normann, Hans-Theo; Wallace, Brian
    Abstract: Cooperation in prisoner's dilemma games can usually be sustained only if the game has an infinite horizon. We analyze to what extent the theoretically crucial distinction of finite vs. infinite-horizon games is reflected in the outcomes of a prisoner's dilemma experiment. We compare three different experimental termination rules in four treatments: a known finite end, an unknown end, and two variants with a random termination rule (with a high and with a low continuation probability, where cooperation can occur in a subgame-perfect equilibrium only with the high probability). We find that the termination rules do not significantly affect average cooperation rates. Specifically, employing a random termination rule does not cause significantly more cooperation compared to a known finite horizon, and the continuation probability does not significantly affect average cooperation rates either. However, the termination rules may influence cooperation over time and end-game behavior. Further, the (expected) length of the game significantly increases cooperation rates. The results suggest that subjects may need at least some learning opportunities (like repetitions of the supergame) before significant backward induction arguments in finitely repeated game have force. --
    Keywords: Prisoner's dilemma,Repeated games,Infinite-horizon games,Experimental economics
    JEL: C72 C92 D21 D43
    Date: 2011
  2. By: Abeler, Johannes (University of Nottingham); Altmann, Steffen (IZA); Goerg, Sebastian (Max Planck Institute for Research on Collective Goods); Kube, Sebastian (University of Bonn); Wibral, Matthias (University of Bonn)
    Abstract: In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance schemes maximize efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while at the same time reaching surprisingly efficient outcomes.
    Keywords: incentives, wage setting, equity, gift exchange, reciprocity, incomplete contracts, organizational economics, laboratory experiments
    JEL: J33 D63 M52 C92 J41
    Date: 2011–05
  3. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Pham Khanh, Nam (Faculty of Development Economics, University of Ho Chi Minh City)
    Abstract: The ability to provide public goods is essential for economic and social development, yet there is very limited empirical evidence regarding contributions to a real local public good in developing countries. This paper analyzes a field experiment where 200 households in rural Vietnam could make real contributions to an archetypical public good, a bridge. In particular, we study the role of two kinds of social influence: i) conditional cooperation, i.e., that people may be more willing to cooperate if others do, and ii) the effects of the default alternative, i.e., that people are influenced by the default alternative presented to them in the choice situation. We find significant and substantial effects of both kinds of influence. For example, by either giving the subjects the additional information that one of the most common contributions by others is 100,000 dong (a relatively low contribution) or introducing a zero-contribution default alternative, the average contribution decreases by about 20% compared to the baseline case.
    Keywords: voluntary contribution; local public goods; social influence; default contribution; conditional cooperation; field experiment
    JEL: C93 Q50
    Date: 2011–05–19
  4. By: Karen Kaiser
    Abstract: This paper analyzes the effect of information overload on preference or aversion for variety. According to the model, a rational decision maker who suffers from information overload, faces a two-stage decision process, and is choosing from a set of unknown goods will find it optimal at some point to become variety averse. To test this hypothesis, an experiment is conducted, and its results, that subjects suffering from information overload use variety aversion as a strategy to deal with their cognitive limitations, are consistent with the model. Moreover, results suggest that subjects are, on the average, choosing the optimal number of goods. As the price of the goods increases, subjects become more variety averse. In addition, as they become more experienced, they prefer larger sets of goods.
    Keywords: Variety aversion, information overload, bounded rationality, decision making, laboratory experiment.
    JEL: C91 D81 D83
    Date: 2011–05
  5. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg); Stefan Traub (University of Bremen)
    Abstract: In a laboratory experiment subjects were endowed with money and waiting time. Preferences for waiting time reduction were elicited with salient rewards both as a private good and as a public good. The allocations of the public good that were theoretically predicted by the Nash equilibrium and the Lindahl equilibrium, respectively, were computed from the individual private good valuations and compared with the subjects’ actual contributions. We found a significant positive correlation between private good valuations in terms of willingness-to-pay and public good valuations in terms of voluntary contributions. Group contributions to public waiting time reduction significantly exceeded the non-cooperative prediction and were close to the socially optimal level. However, for a majority of subjects, the Lindahl equilibrium was not able to predict the observed contributions.
    Keywords: Cartel Stability, Delegation, Relative Performance Evaluation
    JEL: H41 D61 C90
    Date: 2011
  6. By: Lana Friesen (School of Economics, The University of Queensland); Lata Gangadharan
    Abstract: We study the role of economic versus intrinsic motivations for dishonesty in two different experimental tasks. In the theft task, participants have the opportunity to steal real physical money, by taking more than they have actually earned in the task. In the reporting task, we use a production task with self-reporting of accidents to study the fraudulent provision of information by individuals. Reporting was compulsory for some participants, but only voluntary for others. We find the incidence of dishonesty varies significantly across both the tasks and the type of reporting, demonstrating that intrinsic motivations can often override economic incentives.
    Date: 2011
  7. By: Gerald Eisenkopf (Department of Economics, University of Konstanz, Germany); Ruslan Gurtoviy (Department of Business Administration, University of Trier, Germany); Verena Utikal (Department of Economics, University of Erlangen-Nürnberg, Germany)
    Abstract: A small lie appears trivial but it obviously violates moral commandments. We analyze whether the preference for others’ truth telling is absolute or depends on the size of a lie. In a laboratory experiment we compare punishment for different sizes of lies controlling for the resulting economic harm. We find that people are sensitive to the size of a lie and that this behavioural pattern is driven by honest people. People who lie themselves punish softly in any context.
    Keywords: Lying, norm violation, punishment, experiment
    JEL: C91 D82
    Date: 2011–05–17
  8. By: Kube, Sebastian; Maréchal, Michel André; Puppe, Clemens
    Abstract: What determines reciprocity in employment relations? We conducted a controlled field experiment to measure the extent to which monetary and non-monetary gifts affect workers' performance. We find that nonmonetary gifts have a much stronger impact than monetary gifts of equivalent value. We also observe that when workers are offered the choice, they prefer receiving the money but reciprocate as if they received a nonmonetary gift. This result is consistent with the common saying, 'it's the thought that counts.' We underline this point by showing that also monetary gifts can effectively trigger reciprocity if the employer invests more time and effort into the gift's presentation. --
    Keywords: field experiment,reciprocity,gift exchange,non-monetary gifts,in-kind gifts
    JEL: C93 J30
    Date: 2011
  9. By: Riedel, Nadine; Schildberg-Hörisch, Hannah
    Abstract: We use a laboratory experiment to investigate the behavioral effects of obligations that are not backed by binding deterrent incentives. To implement such expressive law' we introduce different levels of very weakly incentivized, symmetric and asymmetric minimum contribution levels (obligations) in a repeated public goods experiment. The results provide evidence for a weak expressive function of law: while the initial impact of high obligations on behavior is strong, it decreases over time. Asymmetric obligations are as effective as symmetric ones. Our results are compatible with the argument that expressive law affects behavior by attaching an emotional cost of disobeying the own obligation. --
    Keywords: Non-binding Obligations,Expressive law,Public goods,Experiment
    JEL: C92 H41 K40
    Date: 2011
  10. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg)
    Abstract: The Petersburg paradox has led to much thought for three centuries. This paper describes the paradox, discusses its resolutions advanced in the literature while alluding to the historical context, and presents experimental data. In particular, Bernoulli’s search for the level of moral impossibility in the Petersburg problem is stressed; beyond this level small probabilities are considered too unlikely to be relevant for judgment and decision making. In the experiment, the level of moral impossibility is elicited through variations of the gamble-length in the Petersburg gamble. Bernoulli’s conjecture that people neglect small probability events is supported by a statistical power analysis.
    Keywords: Petersburg paradox; economic history; bounded rationality; significance level; experimental economics
    JEL: B3 C44 C9 D8 G1 N0
    Date: 2010
  11. By: Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
    Abstract: Eligible participants in the U.S. Social Security system may claim benefits anytime from age 62-70, with benefit levels actuarially adjusted based on the claiming age. This paper shows that individual intentions with regard to Social Security claiming ages are sensitive to how the early versus late claiming decision is framed. Using an experimental design, the authors find that the use of a "break-even analysis" has the very strong effect of encouraging individuals to claim early. They also show that individuals are more likely to report they will delay claiming when later claiming is framed as a gain, and when the information provides an anchoring point at older, rather than younger, ages. Moreover, females, individuals with credit card debt, and workers with lower expected benefits are more strongly influenced by framing. They conclude that some individuals may not make fully rational optimizing choices when it comes to choosing a claiming date.
    Date: 2011–04
  12. By: Cheung, Stephen L. (University of Sydney); Coleman, Andrew (University of Sydney)
    Abstract: We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant's portfolio is periodically evaluated at market value and ranked in a league table according to short-term paper returns. Those who rank highly attract a larger share of new fund inflows. Under conditions in which prices are close to intrinsic value, the effect of incentives is mild. However under conditions in which markets are prone to bubble, mispricing is greatly exacerbated by incentives. Even in experienced markets, prices climb to levels clearly indicative of speculation and do not always crash back.
    Keywords: league tables, price bubbles, managed funds markets, tournament incentives, asset market experiments
    JEL: C92 G12 M52
    Date: 2011–05
  13. By: Noussair, C.N.; Trautmann, S.T.; Kuilen, G. van de (Tilburg University, Center for Economic Research)
    Abstract: We conduct an experiment to study the prevalence of the higher order risk attitudes of prudence and temperance, in a large demographically representative sample, as well as in a sample of undergraduate students. Participants make pairwise choices between lotteries of the form proposed by Eeckhoudt and Schlesinger (2006). The choices in these lotteries isolate prudent from imprudent, and temperate from intemperate, behavior. We relate individuals’ risk aversion, prudence, and temperance levels to demographics and financial decisions. We observe that the majority of individuals’ decisions are consistent with risk aversion, prudence, and temperance, in both the student and the demographically representative sample. An individual’s level of prudence is predictive of his wealth, saving, and borrowing behavior outside of the experiment, while temperance predicts the riskiness of portfolio choices. Our findings suggest that the coefficient of relative prudence for a representative individual is approximately equal to two.
    Keywords: prudence;temperance;saving;portfolio choice;experiment
    JEL: C91 C93 D14 D81 E21
    Date: 2011
  14. By: Falk, Armin (University of Bonn); Menrath, Ingo (University of Duesseldorf); Verde, Pablo Emilio (University of Duesseldorf); Siegrist, Johannes (University of Duesseldorf)
    Abstract: This paper investigates physiological responses to perceptions of unfair pay. In a simple principal agent experiment agents produce revenue by working on a tedious task. Principals decide how this revenue is allocated between themselves and their agents. In this environment unfairness can arise if an agent's reward expectation is not met. Throughout the experiment we record agents' heart rate variability. Our findings provide evidence of a link between perceived unfairness and heart rate variability. The latter is an indicator of stress-related impaired cardiac autonomic control, which has been shown to predict coronary heart diseases in the long run. Establishing a causal link between unfair pay and heart rate variability therefore uncovers a mechanism of how perceptions of unfairness can adversely affect cardiovascular health. We further test potential adverse health effects of unfair pay using data from a large representative data set. Complementary to our experimental findings we find a strong and highly significant association between health outcomes, in particular cardiovascular health, and fairness of pay.
    Keywords: fairness, social preferences, inequality, heart rate variability, health, experiments, SOEP
    JEL: D63 C91
    Date: 2011–05
  15. By: Pfajfar, D.; Zakelj, B. (Tilburg University, Center for Economic Research)
    Abstract: We establish several stylized facts about the behavior of individual uncertainty and disagreement between individuals when forecasting inflation in the laboratory. Subjects correctly perceive the underlying inflation uncertainty in only 60% of cases, which can be interpreted as the overconfidence bias. Determinants of individual uncertainty, dis- agreement among forecasters and properties of aggregate distribution are analyzed. We find that the interquartile range of the aggregate distribution has the highest correlation with inflation variability; however the average confidence interval performs best in a forecasting exercise. Allowing subjects to insert asymmetric confidence intervals results in wider upper intervals than lower intervals on average, thus perceiving higher uncertainty with respect to inflation increases. In different treatments we study the influence of different monetary policy designs on the formation of confidence bounds. Inflation targeting produces lower uncertainty and higher accuracy of intervals than inflation forecast targeting.
    Keywords: Laboratory Experiments;Confidence Bounds;New Keynesian Model;Inflation Expectations
    JEL: C91 C92 E37 D80
    Date: 2011
  16. By: McMahon, Michael (University of Warwick)
    Abstract: Using an experiment, I compare the use of the `Beer Distribution' classroom game with the more traditional `chalk and talk' approach to teach students about inventories and the macroeconomy. My empirical results confirm and extend our understanding of the relative strengths and weaknesses of the use of classroom games : the game tends to improve interest and motivation on average, though some students dislike their use ; the game is e ective at driving home its key messages, but it may wrongly lead students to disregard other important factors ; the game is inferior where facts mastery or definitional learning is required. Rather than an endorsement or a criticism of classroom games, the conclusion is cautionary advice on how to best make use of games within an overall course. Key words: Classroom experiments and games ; motivation ; student learning outcomes JEL classification: A22 ; C90
    Date: 2011
  17. By: Bandiera, Oriana (London School of Economics); Barankay, Iwan (University of Pennsylvania); Rasul, Imran (University College London)
    Abstract: We discuss how the use of field experiments sheds light on long standing research questions relating to firm behavior. We present insights from two classes of experiments: within and across firms, and draw common lessons from both sets. Field experiments within firms generally aim to shed light on the nature of agency problems. Along these lines, we discuss how field experiments have provided new insights on shirking behavior, and the provision of monetary and non-monetary incentives. Field experiments across firms generally aim to uncover firms' binding constraints by exogenously varying the availability of key inputs such as labor, physical capital, and managerial capital. We conclude by discussing some of the practical issues researchers face when designing experiments and by highlighting areas for further research.
    Keywords: field experiments, firms, organizations
    JEL: C9 M5
    Date: 2011–05
  18. By: Jens Ludwig; Jeffrey R. Kling; Sendhil Mullainathan
    Abstract: Randomized controlled trials are increasingly used to evaluate policies. How can we make these experiments as useful as possible for policy purposes? We argue greater use should be made of experiments that identify behavioral mechanisms that are central to clearly specified policy questions, what we call “mechanism experiments.” These types of experiments can be of great policy value even if the intervention that is tested (or its setting) does not correspond exactly to any realistic policy option.
    JEL: C93
    Date: 2011–05
  19. By: Lunn, Pete; Lunn, Mary
    Abstract: We hypothesise and confirm a previously unnoticed pattern within pre-existing data on the endowment effect, collected via seven experiments employing the original design. Subjects with low valuations in binary choice relative to other subjects set a proportionally higher willingness to accept. Those with high valuations set a proportionally lower willingness to pay. The results challenge current theories, including models of reference dependent preferences. The findings imply that buyers and sellers consider not only their own preferences, but also their perceptions of potential deals. We propose a model of optimal exchange that rationalises this behaviour and accounts for the new findings.
    Keywords: data/exchange/willingness to accept/willingness to pay
    Date: 2011–04
  20. By: William T. Harbaugh; Naci H. Mocan; Michael S. Visser
    Abstract: We report results from economic experiments of decisions that are best described as petty larceny, with high school and college students who can anonymously steal real money from each other. Our design allows exogenous variation in the rewards of crime, and the penalty and probability of detection. We find that the probability of stealing is increasing in the amount of money that can be stolen, and that it is decreasing in the probability of getting caught and in the penalty for getting caught. Furthermore, the impact of the certainty of getting caught is larger when the penalty is bigger, and the impact of the penalty is bigger when the probability of getting caught is larger.
    JEL: J0 K14 K4
    Date: 2011–05
  21. By: Mueller, Steffen
    Abstract: We analyze teacher experience as a moderating factor for the effect of class size reduction on student achievement in the early grades using data from the Tennessee STAR experiment with random assignment of teachers and students to classes of different size. The analysis is motivated by the high costs of class size reductions and the need to identify the circumstances under which this investment is most rewarding. We find a class size effect only for senior teachers. The effect is most pronounced for higher and average-performing students. We further show that senior teachers outperform rookies only in small classes. The results have straightforward policy implications. Interestingly, the class size effect is most likely due to a higher quality of instruction in small classes and not due to less disruptions. --
    Keywords: class size reduction,teacher experience,student achievement
    JEL: I2 H4 J4
    Date: 2011

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