New Economics Papers
on Experimental Economics
Issue of 2011‒09‒16
twenty-one papers chosen by

  1. Eliciting risk and time preferences under induced mood states By Drichoutis, Andreas; Nayga, Rodolfo
  2. Fact Finding Trips to Italy: An experimental investigation of voter incentives By Rodet, Cortney S.
  3. Overconfidence and Bubbles in Experimental Asset Markets By Julija Michailova; Ulrich Schmidt
  4. Bad News: An Experimental Study on the Informational Effects of Rewards By Andrei Bremzeny; Elena Khokhlovaz; Anton Suvorov; Jeroen van de Ven
  5. To vote or to abstain? An experimental study or first past the poste and PR elections By André Blais; Jean-Benoît Pilet; Karine Van Der Straeten; Jean-François Laslier; Maxime Heroux-Legault
  6. Search, Effort, and Locus of Control By McGee, Andrew; McGee, Peter
  7. Trust, Reciprocity and Rules By Thomas A. Rietz; Eric Schniter; Roman M. Sheremeta; Timothy W. Shields
  8. The Value of social networks in rural Paraguay By Ligon, Ethan A.; Schechter, Laura
  9. Delegating to a Powerless Intermediary: Does It Reduce Punishment? By Grossman, Zachary; Oexl, Regine
  10. Subprime Consumer Credit Demand: Evidence from a Lender?sPricing Experiment By Sule Alan; Ruxandra Dumitrescu; Gyongyi Loranth
  11. Conflict of interest as a barrier to local accountability By Abigail Barr; Andrew Zeitlin
  12. When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana By Marcel Fafchamps; David McKenzie; Simon Quinn; Christopher Woodruff
  13. Vote-Buying and Reciprocity By Frederico Finan; Laura A. Schechter
  14. Comparison Friction: Experimental Evidence from Medicare Drug Plans By Jeffrey R. Kling; Sendhil Mullainathan; Eldar Shafir; Lee Vermeulen; Marian Wrobel
  15. Coordinating cross‐border congestion management through auctions: An experimental approach to European solutions By Céline Jullien; Virginie Pignon; Stéphane Robin; Carine Staropoli
  16. An Experimental Study of Alternative Campaign Finance Systems: Donations, Elections and Policy Choices By Hanming Fang; Dmitry A. Shapiro; Arthur Zillante
  17. Preferences for Consistency By Falk, Armin; Zimmermann, Florian
  18. The Effects of Individual Judgments about Selection Procedures: Results from a Power-to-Resist Game By Vanessa Mertins; Henrik Egbert; Tanja Koenen
  19. Financial education and investment attitudes in high schools: evidence from a randomized experiment By Leonardo Becchetti; Stefano Caiazza; Decio Coviello
  20. False Consensus in Economic Agents By Proto, Eugenio; Sgroi, Daniel
  21. Political Motivations and Electoral Competition: Equilibrium Analysis and Experimental Evidence By Michalis Drouvelis; Alejandro Saporiti; Nicolaas J. Vriend

  1. By: Drichoutis, Andreas; Nayga, Rodolfo
    Abstract: We test whether induced mood states have an effect on elicited risk and time preferences in a conventional laboratory experiment. We jointly estimate risk and time preferences and use a mixture specification that allows choices to be consistent with Expected Utility theory or with probability weighting. Time preferences between subjects in the control, positive mood, and negative mood treatments are not statistically significantly different. However, for choices consistent with Expected Utility Theory, we find that subjects induced into a negative mood exhibit higher risk aversion than those in either the control treatment or the positive mood treatment. For choices that are consistent with probability weighting, we find that positive mood increases risk aversion. Results also suggest that risk preferences are affected by whether a cognitively demanding task precedes a risk preference elicitation task or whether subjects were placed in a gender-specific session rather than a mixed-gender session.
    Keywords: discount rates; risk aversion; lab experiment; mood; affect
    JEL: D81 D00 C91
    Date: 2010–12
  2. By: Rodet, Cortney S.
    Abstract: This paper addresses the interaction of voter information and seniority on electoral accountability. We test whether information leads voters to be less tolerant of moral hazard in a legislative system favoring seniority. A simple game theoretic model is used to predict outcomes in a pork-barrel experiment where subjects act as legislators and voters. Senior legislators have an advantage in providing transfers which presents the opportunity to shirk where legislators can enrich themselves at the expense of voters. Voter information about incumbent behavior is varied across experimental treatments. We find that accountability increases when voters can compare their own legislator’s behavior to the behavior of others. Despite the fact that voters succumb to the incentives of seniority, information is effective in deterring legislator shirking.
    Keywords: voting; experiments; information; principal-agent problem
    JEL: C92 D89 D72 C91 P16
    Date: 2011–09
  3. By: Julija Michailova; Ulrich Schmidt
    Abstract: This paper investigates the relationship between market overconfidence and occurrence of stock-price bubbles. Sixty participants traded stocks in ten experimental asset markets. Markets were constructed on the basis of subjects’ overconfidence, measured in pre-experimental sessions. The most overconfident subjects form “overconfident markets”, and the least overconfident subjects “rational markets”. Prices in rational markets tend to track the fundamental asset value more accurately than prices in overconfident markets and are significantly lower and less volatile. Additionally we observe significantly higher bubble measures and trading volume on overconfident markets. Altogether, our data provide evidence that overconfidence has strong effects on prices and trading behavior in experimental asset markets
    Keywords: overconfidence, price bubbles, experimental asset market
    JEL: C92 G12
    Date: 2011–09
  4. By: Andrei Bremzeny (CEFIR and New Economic School); Elena Khokhlovaz (McKinsey&Company); Anton Suvorov (CEFIR and New Economic School); Jeroen van de Ven (University of Amsterdam)
    Abstract: Both psychologists and economists have argued that rewards often have hidden costs. One possible reason is that the principal may have incentives to offer higher rewards when she knows the task to be dificult. Our experiment tests if high rewards embody such bad news and if this is perceived by their recipients. Our design allows us to decompose the overall effect of rewards on effort into a direct incentive and an informational effect. The results show that most participants correctly interpret high rewards as bad news. In accordance with theory, the negative informational effect co-exists with the direct positive effect.
    Keywords: reward, bonus, informational content, motivation, crowdingout, laboratory experiment
    JEL: D82 D83 J33
    Date: 2011–09
  5. By: André Blais (UdeM - Université de Montréal - Université de Montréal); Jean-Benoît Pilet (Université Libre de Bruxelles - Département de Science Politique); Karine Van Der Straeten (CNRS, Toulouse School of Economics - [-]); Jean-François Laslier (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Maxime Heroux-Legault (Université de Montréal - [-])
    Abstract: We examine through an experimental design how rational and non-rational considerations affect the decision to vote or to abstain in First Past the Post and PR elections. We show that in both types of elections, but particularly so under PR, a majority of subjects do not make the "right" decision, that is, they do not choose the option that is the most beneficial to them, given. We also demonstrate that a social norm such as sense of civic duty plays a bigger role, even in the lab, and particularly so in PR elections. We suggest that civic duty has a greater impact under PR because this electoral system has a more complicated formula, making it more difficult for voters to realize that their vote is unlikely to substantially affect the outcome of the election.
    Keywords: Experiments, Voting, First Past the Post, Proportional Representation, Civic Duty
    Date: 2011–08–24
  6. By: McGee, Andrew (Simon Fraser University); McGee, Peter (National University of Singapore)
    Abstract: We test the hypothesis that locus of control – one's perception of control over events in life – influences search by affecting beliefs about the efficacy of search effort in a laboratory experiment. We find that reservation offers and effort are increasing in the belief that one's efforts influence outcomes when subjects exert effort without knowing how effort influences the generation of offers but are unrelated to locus of control beliefs when subjects are informed about the relationship between effort and offers. These effects cannot be explained by locus of control's correlation with unmeasured human capital, personality traits, and the costs of search – alternative explanations for the relationships between locus of control and search behavior that cannot be ruled out using survey data – as the search task does not vary across treatments, which leads us to conclude that locus of control influences search through beliefs about the efficacy of search effort. Our findings provide evidence that locus of control measures can be used to identify job seekers at risk of becoming "discouraged" and abandoning search.
    Keywords: locus of control, reservation wages, labor market search, experiment
    JEL: J64 D83 C91
    Date: 2011–08
  7. By: Thomas A. Rietz (Henry B. Tippie College of Business, University of Iowa); Eric Schniter (Economic Science Institute, Chapman University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Timothy W. Shields (Argyros School of Business and Economics, Chapman University)
    Abstract: In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.
    Keywords: trust games, experiments, reputation, information, reciprocity
    JEL: C72 C91 D72
    Date: 2011
  8. By: Ligon, Ethan A.; Schechter, Laura
    Abstract: We conduct field experiments in rural Paraguay to measure the value of reciprocity within social networks in a set of fifteen villages. These experiments involve conducting dictator- type games; different treatments involve manipulating the information and choice that individuals have in the game. These different treatments allow us to measure and distinguish between different motives for giving in these games. The different motives we're able to measure include a general benevolence, directed altruism, fear of sanctions, and reciprocity within the social network. We're further able to draw inferences from play in the games regarding the sorts of impediments to trade which must restrict villagers' ability to share in states of the world when no researchers are present running experiments and measuring outcomes.
    Keywords: Agricultural and Resource Economics
    Date: 2011–02–01
  9. By: Grossman, Zachary; Oexl, Regine
    Abstract: Beyond the classical reasons of efficiency, commitment, the distribution of information, or incentive provision, a person may also delegate decision rights so as to avoid blame for an unpopular or immoral decision. We show that by delegating to an intermediary, a dictator facing an allocation decision can effectively shift moral responsibility onto the delegee even when doing so necessarily eliminates the possibility of a fair outcome. Dictators who choose selfishly via an intermediary are punished less and earn greater profits than those who directly choose a selfish outcome, while the intermediary is punished more.
    Keywords: intermediation, delegation, punishment, responsibility, attribution, blame shifting, experimental economics, behavioral economics, Behavioral Economics, Economic Theory
    Date: 2011–08–30
  10. By: Sule Alan; Ruxandra Dumitrescu; Gyongyi Loranth
    Abstract: We test the interest rate sensitivity of subprime credit card borrowers using a unique panel data set from a UK credit card company. What is novel about our contribution is that we were given details of a randomized interest rate experiment conducted by the lender between October 2006 and January 2007. We find that individuals who tend to utilize their credit limits fully do not reduce their demand for credit when subject to increases in interest rates as high as 3 percentage points. This finding is naturally interpreted as evidence of binding liquidity constraints. We also demonstrate the importance of truly exogenous variation in interest rates when estimating credit demand elasticities. We show that estimating a standard credit demand equation with nonexperimental variation leads to seriously biased estimates even when conditioning on a rich set of controls and individual fixed effects. In particular, this procedure results in a large and statistically significant 3-month elasticity of credit card debt with respect to interest rates even though the experimental estimate of the same elasticity is neither economically nor statistically different from zero.
    Keywords: subprime credit; randomized trials; liquidity constraints
    JEL: D11 D12 D14
    Date: 2011–02
  11. By: Abigail Barr; Andrew Zeitlin
    Abstract: Using a specially designed lab-type experiment conducted in the field, we compare the willingness of head teachers, centrally appointed public servants, and community representatives to hold Ugandan primary school teachers to account. We find no difference in the willingness of centrally appointed public servants and community representatives. However, head teachers are significantly less willing to punish teachers whose performance falls 20 to 40 percent below a generally accepted benchmark. In addition, head teachers are twice as likely to punish teachers who “over-perform”, a behaviour akin to punishing rate-busters.
    Keywords: Public service, Education, Experiments, Africa, Accountability, Methodology.
    JEL: C91 I29 O12 O17
    Date: 2011
  12. By: Marcel Fafchamps; David McKenzie; Simon Quinn; Christopher Woodruff
    Abstract: Standard models of investment predict that credit-constrained firmd should grow rapidly when given additional capital, and that how this capital is provided should not affect decisions to invest in the business or consume the capital. We randomly gave cash and in-kind grants to male- and female- owned microenterprises in urban Ghana. Our findings cast doubt on the ability of caoital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zerp fpr women with itital profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the case and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants is assoicated more with a lack of self-control than with external pressure. As a result, the manner in which funding is provided affects microenterprise growth.
    Keywords: microenterprises; ghana; Conditionality; Asset intergration
    JEL: O12 O16 C93
    Date: 2011
  13. By: Frederico Finan; Laura A. Schechter
    Abstract: While vote-buying is common, little is known about how politicians determine who to target. We argue that vote-buying can be sustained by an internalized norm of reciprocity. Receiving money engenders feelings of obligation. Combining survey data on vote-buying with an experiment-based measure of reciprocity, we show that politicians target reciprocal individuals. Overall, our findings highlight the importance of social preferences in determining political behavior.
    JEL: H23 H41 O1
    Date: 2011–09
  14. By: Jeffrey R. Kling; Sendhil Mullainathan; Eldar Shafir; Lee Vermeulen; Marian Wrobel
    Abstract: Consumers need information to compare alternatives for markets to function efficiently. Recognizing this, public policies often pair competition with easy access to comparative information. The implicit assumption is that comparison friction—the wedge between the availability of comparative information and consumers’ use of it—is inconsequential because information is readily available and consumers will access this information and make effective choices. We examine the extent of comparison friction in the market for Medicare Part D prescription drug plans in the United States. In a randomized field experiment, an intervention group received a letter with personalized cost information. That information was readily available for free and widely advertised. However, this additional step—providing the information rather than having consumers actively access it—had an impact. Plan switching was 28 percent in the intervention group, versus 17 percent in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 per year among letter recipients—roughly 5 percent of the cost in the comparison group. Our results suggest that comparison friction can be large even when the cost of acquiring information is small, and may be relevant for a wide range of public policies that incorporate consumer choice.
    JEL: D89 I11
    Date: 2011–09
  15. By: Céline Jullien (GAEL - Economie Appliquée de Grenoble - INRA : UR1215 - Université Pierre Mendès-France - Grenoble II); Virginie Pignon (EDF R&D Division - EDF Recherche et Développement); Stéphane Robin (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon); Carine Staropoli (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: Competition among producers within an integrated electricity system is impeded by any limited transmission capacity there may be at its borders. Two alternative market mechanisms have recently been designed to organize the allocation of scarce transmission capacity at cross-border level: (i) the "implicit auction", already used in some countries, and (ii) the "coordinated explicit auction", proposed by the European Transmission System Operators (ETSO) but not implemented yet. The main advantage of the explicit auction is that it allows each country to keep its own power exchange running. In the European institutional context, this is seen as a factor of success of a market reform, although the explicit auction (not coordinated) is known to be less efficient than the implicit mechanism. The addition of a coordination dimension in the explicit auction is intended to solve problems of international flows. We use an experimental methodology to identify and compare in a laboratory setting the efficiency properties of these two market mechanisms, given a market structure similar to the existing one in continental Europe, i.e. a competitive oligopoly. Our main result highlights the inefficiency of the coordinated explicit auction compared to the performance of the implicit auction, measured in terms of both energy prices and transmission capacity allocation. We suggest that the poor performance of the coordinated explicit auction in the laboratory is due to the level of individual expectations about both energy and transmission prices that the mechanism demands. One solution to resolve this problem when the mechanism is implemented in the field would be to design an additional and secondary market for "used" transmission capacity.
    Keywords: auctions; congestion management; electricity markets; experimental economics
    Date: 2011–08–25
  16. By: Hanming Fang; Dmitry A. Shapiro; Arthur Zillante
    Abstract: We experimentally study the effect of alternative campaign finance systems – as characterized by different information structure about donors – on donations, election outcomes, political candidates' policy choices, and welfare. Three alternative campaign finance systems are considered: a full anonymity (FA) system in which neither the politicians nor the voters are informed about the donors' ideal policies or levels of donations; a partial anonymity (PA) system in which only the politicians, but not the voters, are informed about the donors' ideal policies and donations; and finally a no anonymity (NA) system in which both the politicians and the voters are informed about the donors' ideal policies and donations. We find that donors contribute less in the FA system than in the PA and NA system, and candidates are less likely to deviate from their ideal policies under FA than under the PA and NA systems. The effect of donations on the candidate's policy deviations differs in FA from that in PA and NA. Specifically, in the FA system larger donations lead to smaller deviations from the candidate's ideal policy; but in the NA and PA systems, larger donations lead to larger deviations. As a result we observe that the donations lead to a centrist bias in the candidate's policy choices, i.e., donations are more likely to make extreme candidate move to the center than to make centrist candidate move to the right. This centrist bias is present more robustly in FA treatments. Finally, we find that donors greatly benefit from the possibility of donations regardless of the finance system. Voter welfare remains virtually unchanged under the PA and NA systems, especially when there is competition among the donors. Our findings provide the first experimental evidence supportive of Ayres and Ackerman's (2002) campaign finance reform proposal.
    JEL: D72
    Date: 2011–09
  17. By: Falk, Armin; Zimmermann, Florian
    Abstract: .
    Keywords: charitable giving; consistency preferences; early commitment; experiments; social influence
    JEL: C91 D64
    Date: 2011–08
  18. By: Vanessa Mertins; Henrik Egbert; Tanja Koenen (Institute for Labour Law and Industrial Relations in the EC, University of Trier)
    Abstract: We use a power-to-resist game to find out the effects of individuals‘ judgments about a proposer‘s selection procedure on the willingness to offer resistance against proposed outcomes. In the experiment, one individual is selected on the grounds of a particular procedure. This individual is allowed to propose how to allocate a pie among five group members: herself and four responders. After that each responder in the group can decide whether to offer costly resistance against the proposed allocation. Resistance is modeled as a threshold public good. If resistance is successful, the proposer receives nothing. If resistance is unsuccessful, the pie is distributed according to the proposer‘s decision. We find that resistance increases with (a) the size of the proposal, with (b) subjectively perceived unfairness of the selection procedure of the proposer‘s role, and with (c) the individual procedural preferences being unsatisfied. Surprisingly, resistance is not affected by the fact whether or not the group‘s majority vote on the selection procedure is respected. We check for robustness of our results and find that results are stable over two countries. The presented evidence suggests that procedural effects over and above outcomes are relevant in strategic interaction.
    Keywords: selection procedure, favored process effect, fair process effect, procedural fairness, legitimacy
    JEL: C91 D23 D63 D72 H41 O57
    Date: 2011–08
  19. By: Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Stefano Caiazza (Faculty of Economics, University of Rome "Tor Vergata"); Decio Coviello (HEC Montreal and University of Rome "Tor Vergata")
    Abstract: We experimentally study the effect of financial education on investment attitudes in a large sample of high school students in Italy. Students in the treated classes were taught a course in finance and interviewed before and after the study, while controls were only interviewed. Our principal result is that the difference-in-difference estimates of the effect of the course are not statistically significant. However, the course in finance reduced the virtual demand for cash, and increased the level of financial literacy and the propensity to read (and the capacity to understand) economic articles in both treated and control classes compared with pre-treatment baseline levels. A breakdown of the cognitive process, which is statistically significant for the classes treated, suggests that error and ignorance reduction was sizable, and that the progress in financial literacy was stronger in subgroups which exhibited lower ex-ante knowledge levels.
    Keywords: financial education, financial literacy, demand for money balances, randomized experiment.
    Date: 2011–09–07
  20. By: Proto, Eugenio (Department of Economics, University of Warwick); Sgroi, Daniel (Department of Economics, University of Warwick)
    Abstract: In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this "false consensus" bias in terms of happiness, political stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient. Key words: false consensus ; saliency ; biased beliefs ; happiness ; politics ; height, weight. JEL classification: D03 ; C83 ; D84
    Date: 2011
  21. By: Michalis Drouvelis; Alejandro Saporiti; Nicolaas J. Vriend
    Date: 2011

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