New Economics Papers
on Experimental Economics
Issue of 2011‒10‒09
sixteen papers chosen by

  1. Social Approval, Competition and Cooperation By Xiaofei (Sophia) Pan; Daniel Houser
  2. The Causal Effect of Market Participation on Trust: An Experimental Investigation Using Randomized Control By Omar Al-Ubaydli; Daniel Houser; John V.C. Nye; Maria Pia Paganelli; Xiaofei (Sophia) Pan
  3. Is There a 'Hidden Cost of Control' in Naturally-Occurring Markets? Evidence from a Natural Field Experiment By Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
  4. The Hidden Benefits of Control: Evidence from a Natural Field Experiment By Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
  5. Double Bubbles in Assets Markets with Multiple Generations By Cary Deck; David Porter; Vernon L. Smith
  6. (Bad) Luck or (Lack of) Effort?: Comparing Social Sharing Norms between US and Europe. By Pedro Rey-Biel; Roman M. Sheremeta; Neslihan Uler
  7. Punish and Perish? By Angelo Antoci; Luca Zarri
  8. Individual notions of distributive justice and relative economic status By Abigail Barr; Justine Burns; Luis Miller; Ingrid Shaw
  9. The New Keynesian Phillips Curve with Myopic Agents By Andreas Orland; Michael W.M. Roos
  10. Testing the Framework of Other-Regarding Preferences By M. Vittoria Levati; Aaron Nicholas; Birendra Rai
  11. Belief updating among college students: evidence from experimental variation in information By Matthew Wiswall; Basit Zafar
  12. Truth-telling and Trust in Sender-receiver Games with Intervention By Ismail Saglam; Mehmet Y. Gurdal; Ayca Ozdogan
  13. Overconfident for real? Proper scoring for confidence intervals By Michał Krawczyk
  14. Risk Aversion in the Large and in the Small By Haug, Jørgen; Hens, Thorsten; Wöhrmann, Peter
  15. Holding Fast: The Persistence and Dominance of Gender Stereotypes By Philip J. Grossman
  16. Are Claims Of Transparency All They Are Cracked Up To Be? By Philip J. Grossman; Mana Komai; Evelyne Benie

  1. By: Xiaofei (Sophia) Pan (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: HollŠnder (1990) argued that when non-monetary social approval from peers is sufficiently valuable, it works to promote cooperation. HollŠnder, however, did not define the characteristics of environments in which high valued approval is likely to occur. This paper provides evidence from a laboratory experiment indicating that people under competition value approval highly, but only when winners earn visible rewards through approval. The evidence implies that approvalÕs value is tied to signaling motives. Our findings point to new institutions that rely on reward, rather than punishment, to efficiently promote generosity in groups.
    Keywords: social approval, cooperation, signaling, competition
    JEL: D02 D64 H4
    Date: 2011–09
  2. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); John V.C. Nye (Department of Economics, George Mason University); Maria Pia Paganelli (Department of Economics, Trinity University); Xiaofei (Sophia) Pan (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: In randomized control laboratory experiments, we find that those primed to think about markets exhibit more trusting behavior. We randomly and unconsciously prime experimental participants to think about markets and trade. We then ask them to play a trust game involving an anonymous stranger. We compare the behavior of these individuals with that of a group who are not primed to think about anything in particular. Priming for market participation affects positively the beliefs about the trustworthiness of anonymous strangers, increasing trust.
    Keywords: trust, markets, institutions, belief, priming
    JEL: D02 D23 D64 D84 O12 O43 P10
    Date: 2011–09
  3. By: Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
    Abstract: Several recent laboratory experiments have shown that the use of explicit incentives—such as conditional rewards and punishment—entail considerable “hidden” costs. The costs are hidden in the sense that they escape our attention if our reasoning is based on the assumption that people are exclusively self-interested. This study represents a first attempt to explore whether, and to what extent, such considerations affect equilibrium outcomes in the field. Using data gathered from nearly 3000 households, we find little support for the negative consequences of control in naturally-occurring labor markets. In fact, even though we find evidence that workers are reciprocal, we find that worker effort is maximized when we use conditional—not unconditional—rewards to incent workers.
    JEL: C93 J3 J33
    Date: 2011–09
  4. By: Craig E. Landry; Andreas Lange; John A. List; Michael K. Price; Nicholas G. Rupp
    Abstract: An important dialogue between theorists and experimentalists over the past few decades has raised the study of the interaction of psychological and economic incentives from academic curiosity to a bona fide academic field. One recent area of study within this genre that has sparked interest and debate revolves around the “hidden costs” of conditional incentives. This study overlays randomization on a naturally-occurring environment in a series of temporally-linked field experiments to advance our understanding of the economics of charity and test if such “costs” exist in the field. This approach permits us to examine why people initially give to charities, and what factors keep them committed to the cause. Several key findings emerge. First, there are hidden benefits of conditional incentives that would have gone undetected had we maintained a static theory and an experimental design that focused on short run substitution effects rather than dynamic interactions. Second, we can reject the pure altruism model of giving. Third, we find that public good provision is maximized in both the short and long run by using conditional, rather than unconditional, incentives.
    JEL: C93 H41 Q5
    Date: 2011–09
  5. By: Cary Deck (Department of Economics, Walton College of Business, University of Arkansas); David Porter (Economic Science Institute, Chapman University); Vernon L. Smith (Economic Science Institute, Chapman University)
    Abstract: We construct an asset market in a finite horizon overlapping-generations environment. Subjects are tested for comprehension of their fundamental value exchange environment, and then reminded during each of 25 periods of its declining new value. We observe price bubbles forming when new generations enter the market with additional liquidity and bursting as old generations exit the market and withdrawing cash. The entry and exit of traders in the market creates an M shaped double bubble price path over the life of the traded asset. This finding is significant in documenting that bubbles can reoccur within one extended trading horizon and, consistent with previous cross-subject comparisons, shows how fluctuations in market liquidity influence price paths. We also find that trading experience leads to price expectations that incorporate fundamental value.
    Keywords: Asset Markets, Price Bubbles, Laboratory Experiments, Overlapping Generations
    JEL: C91 D83 G12
    Date: 2011
  6. By: Pedro Rey-Biel (Universitat Autònoma de Barcelona, Departmento de Economía e Historia Económica); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University, USA); Neslihan Uler (Research Center for Group Dynamics, Institute for Social Research, University of Michigan)
    Abstract: We compare the determinants of individual giving between two countries, Spain and the US, which differ in their redistribution policies and their beliefs over the causes of poverty. By varying the information about the determinants of income, we find that, although overall giving is similar in both countries when subjects know the actual role of luck and effort, Spanish subjects give more when they are uninformed compared to American subjects. Using elicited beliefs, we find that this is due to Spanish subjects associating poverty with bad luck and Americans believing that low performers did not work hard enough.
    Keywords: individual giving, cross-cultural, beliefs, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2011
  7. By: Angelo Antoci (DEIR, University of Sassari); Luca Zarri (Economics Department, University of Verona)
    Abstract: The evolution of large-scale cooperation among genetic strangers is a fundamental unanswered question in the social sciences. Behavioral economics has persuasively shown that so called ‘strong reciprocity’ plays a key role in accounting for the endogenous enforcement of cooperation. Insofar as strongly reciprocal players are willing to costly sanction defectors, cooperation flourishes. However, experimental evidence unambiguously indicates that not only defection and strong reciprocity, but also unconditional cooperation is a quantitatively important behavioral attitude. By referring to a prisoner’s dilemma framework where punishment (‘stick’) and rewarding (‘carrot’) options are available, here we show analytically that the presence of cooperators who don’t punish in the population makes altruistic punishment evolutionarily weak. We show that cooperation breaks down and strong reciprocity is maladaptive if costly punishment means ‘punishing defectors’ and, even more so, if it is coupled with costly rewarding of cooperators. In contrast, punishers don’t perish if cooperators, far from being rewarded, are sanctioned. These results, based on an extended notion of strong reciprocity, challenge evolutionary explanations of cooperation that overlook the ‘dark side’ of altruistic behavior.
    Keywords: Cooperation, Strong Reciprocity, Altruistic Punishment, Altruistic Rewarding, Heterogeneous Types
    JEL: C7 D7 Z1
    Date: 2011–08
  8. By: Abigail Barr (University of Nottingham); Justine Burns (University of Cape Town); Luis Miller (University of the Basque Country); Ingrid Shaw
    Abstract: We present two experiments designed to investigate whether individuals’ notions of distributive justice are associated with their relative (within-society) economic status. Each participant played a specially designed four-person dictator game under one of two treatments, under one initial endowments were earned, under the other they were randomly assigned. The first experiment was conducted in Oxford, United Kingdom, the second in Cape Town, South Africa. In both locations we found that relatively well-off individuals make allocations to others that reflect those others’ initial endowments more when those endowments were earned rather than random; among relatively poor individuals this was not the case.
    Keywords: Distributive justice, Inequality, Laboratory experiment
    JEL: D63 C91 C93
    Date: 2011–09
  9. By: Andreas Orland; Michael W.M. Roos
    Abstract: Empirical estimations of the New Keynesian Phillips curve support hybrid versions with a positive weight on lagged infl ation and a weight less than one on expected infl ation. We argue that myopic price setting of some agents explains the low weight on expected infl ation. The lagged term can be explained by trend extrapolation if information about the future is costly. In a laboratory experiment we implement the Calvo (1983) microfoundations of the Phillips curve. Both of our hypotheses are supported by the experimental data. About half of the subjects set optimal Calvo prices while about a third is myopic.
    Keywords: Hybrid Phillips curve; experimental economics; myopia; behavioral macroeconomics
    JEL: C91 D92 E52
    Date: 2011–09
  10. By: M. Vittoria Levati (Max Planck Institute of Economics, Jena, and Department of Economics, University of Verona); Aaron Nicholas (Graduate School of Business, Deakin University); Birendra Rai (Department of Economics, Monash University)
    Abstract: We assess the empirical validity of the overall theoretical framework of other-regarding preferences by focusing on those preference axioms that are common to all the prominent theories of outcome-based other-regarding preferences. This common set of preference axioms leads to a testable implication: the strict preference ranking of self over a finite number of alternatives lying on any straight line in the space of material payoffs to self and other will be single-peaked. The extent of single-peakedness varies from a high of 79% to a low of 54% across our treatments that are based on dictator and trust games. Positively and/or negatively other-regarding subjects are significantly less likely to report single-peaked rankings relative to self-regarding subjects. We delineate the potential reasons for violations of single-peakedness and discuss the implications of our findings for theoretical modeling of other-regarding preferences.
    Keywords: Other-regarding preferences, social preferences, decision making under risk, single-peaked preferences, experiments
    JEL: C70 C91 D63 D81
    Date: 2011–09–30
  11. By: Matthew Wiswall; Basit Zafar
    Abstract: We investigate how college students form and update their beliefs about future earnings using a unique “information” experiment. We provide college students true information about the population distribution of earnings and observe how this information causes respondents to update their beliefs about their own future earnings. We show that college students are substantially misinformed about population earnings and logically revise their self-beliefs in response to the information we provide, with larger revisions when the information is more specific and is good news. We classify the updating behaviors observed and find that the majority of students are non-Bayesian updaters.
    Keywords: Prediction (Psychology) ; Wages ; Universities and colleges ; Demography ; Uncertainty ; Bayesian statistical decision theory
    Date: 2011
  12. By: Ismail Saglam (TOBB University of Economics and Technology, Department of Economics); Mehmet Y. Gurdal (TOBB University of Economics and Technology, Department of Economics); Ayca Ozdogan (TOBB University of Economics and Technology, Department of Economics)
    Abstract: Recent experimental studies find excessive truth-telling in strategic information transmission games with conflictive preferences. In this paper, we show that this phenomenon is more pronounced in sender-receiver games where a truthful regulator randomly intervenes. We also establish that intervention significantly increases the excessive trust of receivers.
    Keywords: Strategic information transmission, truth-telling, trust, sender-receiver game.
    JEL: C72 C90 D83
    Date: 2011–09
  13. By: Michał Krawczyk (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Studies show that people tend to provide overly narrow confidence intervals for unknown values. Such a form of overconfidence would have an important impact on financial markets, among other domains, leading i.a. to excessive trading. The present study is one of the very few that try to incentivize reporting correct confidence intervals. To this end, a reward scheme is proposed, based on a combination of asymmetric loss functions minimized by appropriate quantiles of a probability distribution. In the experiment I find that incentivized subjects provide wider confidence intervals, obtaining a higher hit rate than the control group. The effect is stronger than that of feedback and explicit warning. These findings suggest that the overly narrow confidence intervals reported elsewhere are partly due to an insufficient mental effort that subjects exert and that they can be induced to do so by the proposed incentive scheme.
    Keywords: overconfidence, calibration, confidence intervals, proper scoring rules
    JEL: C44 C91 D84
    Date: 2011
  14. By: Haug, Jørgen (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Hens, Thorsten (Dept. of Banking and Finance, University of Zurich); Wöhrmann, Peter (Dept. of Management Science and Engineering, Stanford University)
    Abstract: Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk aversion is similar whenever similar degrees of narrow framing is assumed in either setting.
    Keywords: Risk aversion; narrow framing; background wealth; laboratory experiments; market studies; equity premium puzzle
    JEL: D81 G11 G12
    Date: 2011–06–28
  15. By: Philip J. Grossman
    Abstract: This paper investigates the persistence of gender stereotyping in the forecasting of risk attitudes. Subjects predict the gamble choice of target subjects in one of two treatments. First, based only on visual clues and then based on visual clues plus two responses by the target from a risk-preference survey. Second in reverse order: first, based only on the two responses then on the two responses plus visual clues. In isolation the gender stereotype and survey responses both inform predictions about others’ risk attitudes. In conjunction with one another, however, the stereotype persists and dominates the survey response information.
    Keywords: Experiment, Gender, Risk, Stereotype
    JEL: C91 D8 J16
    Date: 2011–09
  16. By: Philip J. Grossman; Mana Komai; Evelyne Benie
    Abstract: The current “buzzword” among leaders is “transparency.” Hardly a day goes by that a group leader (politician, manager, or administrator) doesn’t state that he values transparency and will provide full disclosure of his information and actions. This project tests experimentally whether or not leaders, when given a choice, actually reveal a preference for transparency. Our experiment is based on a theoretical model by Komai, Stegeman, and Hermalin (2007). Fifteen subjects are randomly assigned to five groups of three. Each group separately participates in an investment game with three possible return scenarios (high, average, and low) that are equally likely to happen. Investing in the low-return scenario is not profitable to either individual group members or the whole group. In the average-return scenario, group well-being is maximized if all the group members invest in the project, but full cooperation may not be achieved simply because the dominant strategy of the individuals is to free ride on others. In the high-return scenario full cooperation is also optimal for the group, but subjects may or may not coordinate on full cooperation because they may fail to coordinate their efforts with the others. We consider a leader-follower setting. Only one member of the group (the leader) observes the scenario. The leader moves before the rest of the group members and first decides whether or not to invest in the project. The leader then chooses between two information regimes: revealing his decision and the return scenario to the rest of the group or revealing his decision but not the return scenario. Absent any information provided by their leader, followers know only the possible return scenarios and their likelihoods. They do not know which scenario is assigned to their group. Given the leaders’ information choices and investment decisions, the relevant information will be conveyed to the followers. The followers then will separately and simultaneously decide whether or not to invest in the project (followers do not know anything about the different information regimes). This is realistic in many real-world circumstances because in many business or political environments the leaders have exclusive access to critical information and are in charge of deciding whether or not to reveal the details of their information and actions to their potential followers; in many circumstances it is practically difficult for the followers to verify the real information or the leaders’ actions.
    Keywords: Transparency, leading by example, free-riding, cooperation.
    Date: 2011–09

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.