nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒01‒18
eighteen papers chosen by
Daniel Houser
George Mason University

  1. Efficient Coordination in Weakest-Link Games By Riedl Arno; Rohde Ingrid M.T.; Strobel Martin
  2. Hidden information, bargaining power, and efficiency: an experiment. By Cabrales, Antonio; Charness, Gary; Villeval, Marie Claire
  3. Crossing the Point of No Return: A Public Goods Experiment By Urs Fischbacher; Werner GŸth; M. Vittoria Levati
  4. The Independence Axiom and the Bipolar Behaviorist By Glenn W. Harrison; J. Todd Swarthout
  5. Status Quo Effects in Fairness Games: Acts of Commission vs. Acts of Omission By James C. Cox; Maroš Servátka; Radovan Vadovič
  6. Restoring Damaged Trust with Promises, Atonement and Apology. By Eric Schniter; Roman M. Sheremeta; Daniel Sznycer
  7. An experimental analysis of bounded rationality: Applying insights from behavioral economics to information systems By Franziska Brecht; Oliver Günther; Werner Güth; Ksenia Koroleva
  8. Hey Look at Me: The Effect of Giving Circles on Giving By Dean Karlan; Margaret A. McConnell
  9. Self-discrimination: A field experiment on obesity. By Pablo Brañas-Garza; Antonios Proestakis
  10. A cross-country experimental comparison of preferences for redistribution By Francesco Farina; Gianluca Grimalda
  11. Students’ Perceptions of Teacher Biases: Experimental Economics in Schools By Amine Ouazad; Lionel Page
  12. Why Do Environmental Taxes Work Better in Developed Countries? By Coria, Jessica; Villegas-Palacio, Clara; Cárdenas, J.C.
  13. Reducing overreaction to central banks’ disclosures : theory and experiment By Romain Baeriswyl; Camille Cornand
  14. The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load By Ondrej Rydval
  15. Moral Cleansing and Moral Licenses: experimental evidence By Pablo Brañas-Garza; Marisa Bucheli; María Paz Espinosa; Teresa García-Muñoz
  16. Leading by example in intergroup competition: An experimental approach By Johannes Weisser
  17. Leading by Words in Privileged Groups By Johannes Weisser
  18. Full agreement and the provision of threshold public goods By Federica Alberti; Edward J. Cartwright

  1. By: Riedl Arno; Rohde Ingrid M.T.; Strobel Martin (METEOR)
    Abstract: Existing experimental research on behavior in weakest-link games shows overwhelmingly theinability of people to coordinate on the efficient equilibrium, especially in larger groups. Wehypothesize that people will be able to coordinate on efficient outcomes, provided they havesufficient freedom to choose their interaction neighborhood. We conduct experiments with mediumsized and large groups and show that neighborhood choice indeed leads to coordination on the fullyefficient equilibrium, irrespective of group size. This leads to substantial welfare effects.Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice thanwithout neighborhood choice. We identify exclusion as the simple but very effective mechanismunderlying this result. In early rounds, high performers exclude low performers who in consequence‘learn’ to become high performers.
    Keywords: microeconomics ;
    Date: 2011
  2. By: Cabrales, Antonio; Charness, Gary; Villeval, Marie Claire
    Abstract: We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents’ informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract
    Keywords: Experiment; Hidden information; Bargaining power; Competition; Efficiency;
    JEL: A13 B49 C92 D21 J41
    Date: 2011
  3. By: Urs Fischbacher; Werner GŸth; M. Vittoria Levati
    Abstract: Participants in a public goods experiment receive private or common signals regarding the so-called 'point of no return', meaning that if the groupÕs total contribution falls below this point, all payoffs are reduced. An individual faces the usual conflict between private and collective interests above the point of no return, while he incurs the risk of damaging everyone by not surpassing the point. Our data reveal that contributions are higher if the cost of not reaching the threshold is high. In particular if the signal is private, many subjects are not willing to provide the necessary contribution.
    Keywords: Public goods, provision point mechanism, experiments, reduction factor, signal
    Date: 2011
  4. By: Glenn W. Harrison; J. Todd Swarthout
    Abstract: Developments in the theory of risk require yet another evaluation of the behavioral validity of the independence axiom. This axiom plays a central role in most formal statements of expected utility theory, as well as popular alternative models of decision-making under risk, such as rank-dependent utility theory. It also plays a central role in experiments used to characterize the way in which risk preferences deviate from expected utility theory. If someone claims that individuals behave as if they "probability weight" outcomes, and hence violate the independence axiom, it is invariably on the basis of experiments that must assume the independence axiom. We refer to this as the Bipolar Behavioral Hypothesis: behavioral economists are pessimistic about the axiom when it comes to characterizing how individuals directly evaluate two lotteries in a binary choice task, but are optimistic about the axiom when it comes to characterizing how individuals evaluate multiple lotteries that make up the incentive structure for a multiple-task experiment. Building on designs that have a long tradition in experimental economics, we offer direct tests of the axiom and the evidence for probability weighting. We reject the Bipolar Behavioral Hypothesis: we find that nonparametric preferences estimated for the rank-dependent utility model are significantly affected when one elicits choices with procedures that require the independence assumption, as compared to choices with procedures that do not require that assumption. We also demonstrate this result with familiar parametric preference specifications, and draw general implications for the empirical evaluation of theories about risk.
    Date: 2012–01
  5. By: James C. Cox; Maroš Servátka (University of Canterbury); Radovan Vadovič
    Abstract: Intent to help or harm is revealed more clearly by acts of commission that overturn the status quo than by acts of omission that uphold it. Both the law and culture make a central distinction between the two types of acts. Acts of commission elicit stronger reciprocal responses than do acts of omission. In this paper we compare reciprocal responses to both types of acts and ask whether behavior of subjects in two experiments is consistent with existing theory. The design of the experiments focuses on the axioms of revealed altruism theory (Cox, Friedman, and Sadiraj, 2008) that make it observationally distinct from other theories, Axiom R (for reciprocity) and Axiom S (for status quo). We find support for this theory in both experiments.
    Date: 2012–01–01
  6. By: Eric Schniter (Economic Science Institute, Chapman University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Daniel Sznycer (Center for Evolutionary Psychology, University of California, Santa Barbara)
    Abstract: In an experiment using two consecutive trust games, we study how “cheap” signals such as promises and messages are used to restore damaged trust and encourage new trust where it did not previously exist. In these games, trustees made non-binding promises of investment-contingent returns, then investors decided whether to invest, and finally trustees decided how much to return. After an unexpected second game was announced, but before it commenced, trustees could send a one-way message. This naturalistic quasi-experimental design allowed us to observe the endogenous emergence of trust-relevant behaviors and focus on naturally occurring remedial strategies used by promise-breakers and distrusted trustees, their effects on investors, and subsequent outcomes. In the first game 16.6% of trustees were distrusted and 18.8% of trusted trustees broke promises. Trustees distrusted in the first game used promises closer to equal splits and messaging to encourage trust in the second game. To restore damaged trust, promise-breakers used larger new promises (signals of intended atonement) and messaging (usually with apology). On average, investments in each game paid off for investors and trustees, suggesting that cheap signals foster profitable trust-based exchanges in these economic games.
    Keywords: promise, atonement, apology, cheap talk, cheap signals, remedial strategies, trust game, reciprocity, experiments
    Date: 2011
  7. By: Franziska Brecht; Oliver Günther; Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Ksenia Koroleva
    Abstract: The paradigm of bounded rationality considers the limited ability of individuals to make consistent and rational choices. Due to the scarcity of research on this phenomenon in information systems, we conducted an experimental study investigating decision-making regarding risk preferences and social preferences. Moreover, we explored the stability of these preferences under different conditions and uncovered the role of information retrieval in individual decision-making. We find that although individuals are generally risk-averse and egoistic, none of these preferences is stable under the conditions tested which provides indices of boundedly rational decision-making. Although the information retrieved by participants generally allows to infer their preferences, the increasing amount and complexity of this information again often results in boundedly rational behavior.
    Keywords: bounded rationality, experimental design, information retrieval, stability of attitudes and behavior, cognitive tracing, behavioral economics, behavioral information systems
    JEL: C18 C91 D03 D81
    Date: 2012–01–06
  8. By: Dean Karlan; Margaret A. McConnell
    Abstract: Theories abound for why individuals give to charity. We conduct a field experiment with donors to a Yale University service club to test the impact of a promise of public recognition on giving. Some may claim that they respond to an offer of public recognition not to improve their social standing, but rather to motivate others to give. To tease apart these two theories, we conduct a laboratory experiment with undergraduates, and find no evidence to support the alternative, altruistic motivation. We conclude that charitable gifts increase in response to the promise of public recognition primarily because of individuals' desire to improve their social image.
    JEL: H0 J01
    Date: 2012–01
  9. By: Pablo Brañas-Garza (Universidad de Granada, Spain); Antonios Proestakis (Universidad de Granada, Spain)
    Abstract: While it is well-established in the literature that obese people are discriminated against in the working environment, little is known about their own actual behavior. Our experimental setting investigates whether these potentially discriminated people respond in a different way when faced with the opportunity of earning a positive amount of money. Significant lower money requests by people who are self-reported as obese confirm our self-discrimination hypothesis, offering an additional explanation for the wage gap; Thus, it seems that these obese people earn less not only because of discrimination against them but also because they themselves are less demanding. Interestingly, results are more robust for females, especially for those who "feel", but they are not actually, obese.
    Keywords: Discrimination, obesity, field experiment, gender, self-perception
    JEL: C93 J16
    Date: 2011
  10. By: Francesco Farina; Gianluca Grimalda
    Abstract: We examine experimentally individual preferences for redistributions in the US, Italy, and Norway. We decompose demand for redistribution due to luck vis-à-vis individual merit, and study how they are affected by individual and social characteristics. Experimental subjects made four different decisions on how much earning redistribution they wanted to implement in their group starting from a given initial distribution of earnings. The first decision measured preferences for inequality under a condition of impersonality. The second and third decisions were made behind a “veil of ignorance”, whereas the fourth decision was taken knowing one’s position in the earnings scale. Ambiguity and risk aversions were measured in an independent set of decisions. Between-country differences are sizable. Norwegian subjects were generally the most redistributive of the three, and the US subjects the least redistributive. Italian subjects seemed more willing to accept inequality differences due to individual merit than others. Conversely, Norwegian subjects demanded high levels of redistribution regardless of how inequality had been generated. Experimental redistribution is significantly higher in Norway than Italy, in spite of the two samples holding comparable views over social mobility. This calls for a re-examination of existing theories that see beliefs on mobility as the main explanation of demand for redistribution.
    Keywords: Inequality, redistribution, individual merit, cross-country experiments.
    JEL: C91 D31 D63 P52
    Date: 2011–02
  11. By: Amine Ouazad; Lionel Page
    Abstract: We put forward a new experimental economics design with monetary incentives to estimate students' perceptions of grading discrimination. We use this design in a large field experiment which involved 1,200 British students in grade 8 classrooms across 29 schools. In this design, students are given an endowment they can invest on a task where payoff depends on performance. The task is a written verbal test which is graded non anonymously by their teacher, in a random half of the classrooms, and graded anonymously by an external examiner in the other random half of the classrooms. We find significant evidence that students' choices reflect perceptions of biases in teachers' grading practices. Our results show systematic gender interaction effects: male students invest less with female teachers than with male teachers while female students invest more with male teachers than with female teachers. Interestingly, female students' perceptions are not in line with actual discrimination: Teachers tend to give better grades to students of their own gender. Results do not suggest that ethnicity and socioeconomic status play a role.
    Keywords: Teacher biases, educational achievement
    Date: 2012–01
  12. By: Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Facultad de Minas, Universidad Nacional de Colombia - Sede Medellin); Cárdenas, J.C. (Dept of Economics, Universidad de los Andes, Colombia)
    Abstract: We compare of the performance of emission taxes between Colombia and Sweden in an experimental setting where subjects are regulated through environmental taxes and had to decide on emission levels, compliance behavior, and adoption of an environmentally friendly technology. Our design allows us to analyze the role of variations in the stringency of the policy enforcement by regulatory agencies in two different cultural contexts. In line with previous literature that emphasizes the role of social norms and intrinsic motivations explaining compliance behavior, we find that actual emissions and tax underreporting are lower than predicted by traditional models that are solely based on self-interested preferences. However, we find that for an equivalent monitoring stringency, there are no statistically significant differences in emission levels and compliance behavior between Colombian and Swedish subjects. This is to say that despite the positive effect of social norms enhancing compliance, a more stringent enforcement remains as an important mechanism to induce firms to comply with the regulation.<p>
    Keywords: laboratory experiments; emission taxes; imperfect monitoring; technology adoption; developing countries; cross-country comparison; Colombia; Sweden.
    JEL: C91 L51 Q58
    Date: 2012–01–03
  13. By: Romain Baeriswyl (Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland); Camille Cornand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne, Ecully, F-69130, France)
    Abstract: Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to a fraction of market participants only (partial publicity) or by disclosing information to all participants but with ambiguity (partial transparency). We show that, in theory, both communication strategies are strictly equivalent in the sense that overreaction can be indi-erently mitigated by reducing the degree of publicity or by reducing the degree of transparency. We run a laboratory experiment to test whether theoretical predictions hold in a game played by human beings. In line with theory, the experiment does not allow the formulation of a clear preference in favor of either communication strategy. This paper, however, makes a case for partial transparency rather than partial publicity because the latter seems increasingly diffcult to implement in the present information age and is associated with discrimination as well as fairness issues.
    Keywords: heterogeneous information, public information, overreaction, transparency,coordination, experiment
    JEL: C92 D82 D84 E58
    Date: 2011
  14. By: Ondrej Rydval (Max Planck Institute of Economics, Jena, and CERGE-EI, Charles University Prague and Academy of Sciences of the Czech Republic)
    Abstract: We identify the causal effect of cognitive abilities on economic behavior in an experimental setting. Using a forecasting task with varying cognitive load, we identify the causal effect of working memory on subjects' forecasting performance, while also accounting for the effect of other cognitive, personality and demographic characteristics. Addressing the causality is important for understanding the nature of various decision-making errors, as well as for providing reliable policy implications in contexts such as student placement, personnel assignment, and public policy programs designed to augment abilities of the disadvantaged. We further argue that establishing the causality of cognitive abilities is a prerequisite for studying their interaction with financial incentives, with implications for the design of efficient incentive schemes.
    Keywords: Cognitive ability, Causality, Experiment, Financial incentives, Performance, Working memory
    JEL: C81 C91 D80 D83 J24
    Date: 2012–01–06
  15. By: Pablo Brañas-Garza (Universidad de Granada, Spain); Marisa Bucheli (Universidad de la República, Uruguay); María Paz Espinosa (Universidad del País Vasco, BRIDGE, Spain); Teresa García-Muñoz (Universidad de Granada, Spain)
    Abstract: Research on moral cleansing and moral self-licensing has introduced dynamic considerations in the theory of moral behavior. Past bad actions trigger negative feelings that make people more likely to engage in future moral behavior to offset them. Symmetrically, past good deeds favor a positive self-perception that creates licensing effects, leading people to engage in behavior that is less likely to be moral. In short, a deviation from a “normal state of being” is balanced with a subsequent action that compensates the prior behavior. We model the decision of an individual trying to reach the optimal level of moral self-worth over time and show that under certain conditions the optimal sequence of actions follows a regular pattern which combines good and bad actions. We conduct an economic experiment where subjects play a sequence of giving decisions (dictator games) to explore this phenomenon. We find that donation in the previous period affects present decisions and the sign is negative: participants’ behavior in every round is negatively correlated to what they did in the past. Hence donations over time seem to be the result of a regular pattern of self-regulation: moral licensing (being selfish after altruist) and cleansing (altruistic after selfish).
    Date: 2011
  16. By: Johannes Weisser (IMPRS Uncertainty, MPI for Economics, Jena)
    Abstract: We investigate leading by example in a public goods game in scenarios with and without intergroup competition. Leading by example is implemented via a sequential decision protocol. We examine both one-shot and repeated interaction and make use of the strategy method to characterize followers' conditional responses to the leader's contribution. The results show that only follower but not leader behavior is affected by the introduction of intergroup competition. The change in follower behavior is best described as an increase in cooperation which is not conditional on the leader's decision. When groups interact repeatedly, we do not find that leading by example is able to foster cooperation by itself. It only significantly improves contributions when it is accompanied by intergroup competition.
    Keywords: Public goods, Leading by example, Intergroup competition, Strategy method
    JEL: C72 C91 C92 D74 H41
    Date: 2012–01–06
  17. By: Johannes Weisser (IMPRS Uncertainty, MPI for Economics, Jena)
    Abstract: Koukoumelis et al. (2010, 2012) have shown that one-way communication enhances contributions to public goods. We investigate the effectiveness of one-way communication, when the benefits from the public good are asymmetric and the sender of a message is the main beneficiary of cooperation. Our results show that, in the absence of communication opportunities, contribution behavior may be inversely related to other group members' marginal benefits from the public good. The effectiveness of one-way communication, however, remains unaffected even though compliance with a sender's suggestion to cooperate generates unfavorable payoff inequalities for message receivers. The results also indicate that one-way messages have to relate to the experimental game to enhance cooperation. Merely "giving someone a voice" is not sufficient.
    Keywords: Public goods, One-way communication, Privileged groups, Asymmetric marginal benefit
    JEL: C72 C91 C92 D74 H41
    Date: 2012–01–06
  18. By: Federica Alberti (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Edward J. Cartwright (School of Economics, University of Kent, Canterbury)
    Abstract: We report threshold public good experiments in which group members not only need to be individually willing to contribute enough to provide the public good but also have to agree with each other on what every group members should contribute. We find strong support to the hypothesis that full agreement increases successful provision, although it takes a few repetitions before group members can successfully coordinate. This is consistent with our theoretical results that full agreement works because it increases criticality of each individual decision. The existence of a focal point makes it possible for the group members to successfully coordinate.
    Keywords: Public good, threshold, full agreement, focal point, experiment, coordination
    JEL: C72 H41
    Date: 2012–01–06

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