New Economics Papers
on Experimental Economics
Issue of 2012‒01‒25
23 papers chosen by

  1. Cognitive load in the multi-player prisoner's dilemma game By Duffy, Sean; Smith, John
  2. The Emotional Consequences of Pro-social Behavior in Markets By Toke Fosgaard
  3. Social Preferences in Private Decisions By Jona Linde; Joep Sonnemans
  4. Who Acts More Like a Game Theorist? Group and Individual Play in a Sequential Market Game and the Effect of the Time Horizon By Wieland Mueller; Fangfang Tan
  5. Strong, Bold, and Kind: Self-Control and Cooperation in Social Dilemmas By Kocher, Martin G.; Martinsson, Peter; Myrseth, Kristian Ove R.; Wollbrant, Conny
  6. Behavioral Heterogeneity in Economic Institutions: An Experimental Approach. By Tan, F.
  7. You Better Play 7: Mutual versus Common Knowledge of Advice in a Weak-link Experiment By Giovanna Devetag; Hykel Hosni; Giacomo Sillari
  8. Time Horizon and Cooperation in Continuous Time By Maria Bigoni; Marco Casari; Andrzej Skrzypaczx; Giancarlo Spagnolo
  9. Joy leads to Overconfidence – and a Simple Remedy By Koellinger, Ph.D.; Michl, T.
  10. Inducing Risk Neutral Preferences with Binary Lotteries: A Reconsideration By Glenn W. Harrison; Jimmy Martínez-Correa; J. Todd Swarthout
  11. Reducing overreaction to central banks' disclosures : theory and experiment By Romain Baeriswyl; Camille Cornand
  12. Men too sometimes shy away from competition: The case of team competition By Dargnies, Marie-Pierre
  13. The Good of the Few: Reciprocity in the Provision of a Public Bad By Sarah Jacobson; Jason Delaney
  14. The role of intuition and reasoning in driving aversion to risk and ambiguity By Jeffrey V. Butler; Luigi Guiso; Tullio Jappelli
  15. Impatience among Preschool Children and their Mothers By Kosse, Fabian; Pfeiffer, Friedhelm
  16. Social identity and competitiveness By Dargnies, Marie-Pierre
  17. Customs Compliance and the Power of Imagination By Kai A. Konrad; Tim Lohse; Salmai Qari
  18. How Unjust! An Experimental Investigation of Supervisors' Evaluation Errors and Agents' Incentives By Marchegiani, Lucia; Reggiani, Tommaso; Rizzolli, Matteo
  19. Learning in experimental 2 x 2 games By Thorsten Chmura; Sebastian Goerg; Reinhard Selten
  20. Experimental evidence on rational inattention By Anton Cheremukhin; Anna Popova; Antonella Tutino
  21. Customs compliance and the power of imagination By Lohse, Tim; Lutz, Peter F.; Qari, Salmai
  22. Those Outsiders: How Downstream Externalities Affect Public Good Provision By Sarah Jacobson; Jason Delaney
  23. Assessing Multiple Prior Models of Behaviour under Ambiguity By Anna Conte; John D. Hey

  1. By: Duffy, Sean; Smith, John
    Abstract: We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). We find that the behavior of the subjects in the low load condition converges to the Subgame Perfect Nash Equilibrium prediction at a faster rate than those in the high load treatment. However, we do not find the corresponding relationship involving outcomes in the game. Specifically, there is no evidence of a significantly different convergence of game outcomes across treatments. As an explanation of these two results, we find evidence that low load subjects are better able to condition their behavior on the outcomes of previous periods.
    Keywords: cognitive resources; experimental economics; experimental game theory; public goods game
    JEL: C72 C91
    Date: 2012–01–11
  2. By: Toke Fosgaard (Institute of Food and Resource Economics, University of Copenhagen)
    Abstract: Pro-social behavior made when buying private goods is becoming increasingly popular. Several findings from behavioral and experimental economics however emphasizes that people are less pro-social in such situations, compared to pro-social decisions in non-market contexts. This paper suggests that emotional responses are important explanations of this finding. It is first argued that the emotional response to a pro-social decision combined with private good purchase is different from the response to a similar decision in a non-market situation. Through evidence from a laboratory experiment, it is then found, that deciding on a social choice in a market exchange involves a less positive emotional reaction to others, compared to non-market situations. Moreover, subjects in market contexts are found to be less responsive to other subjects’ contribution behavior, relative to the non-market contexts.
    Keywords: Emotions; market exchange; pro-social behavior
    JEL: C92 H41 M14
    Date: 2011–12
  3. By: Jona Linde (University of Amsterdam, CREED); Joep Sonnemans (University of Amsterdam, CREED)
    Abstract: Social preference models were originally constructed to explain two things: why people spend money to affect the earnings of others and why the income of others influences reported happiness. We test these models in a novel experimental situation where participants face a risky decision that affects only their own earnings. In the social (individual) treatment participants do (not) observe the earnings of others. In the social treatment gambles therefore not only affect absolute but also relative earnings. Outcome-based social preference models therefore predict a treatment difference. We find that decisions are generally the same in both treatments, in line with rule-based social preference models, like procedural fairness.
    Keywords: fairness; social preferences; decision making under risk; experiment
    JEL: C91 D63 D81
    Date: 2012–01–09
  4. By: Wieland Mueller; Fangfang Tan
    Abstract: Previous experimental results on one-shot sequential two-player games show that group decisions are closer to the subgame-perfect Nash equilbirum than individual decisions. We extend the analysis of inter-group versus inter-individual decision making to a Stackelberg market game, by running both one-shot and repeated markets. Whereas in the one-shot markets we find no significant differences in the behavior of groups and individuals, we find that the behavior of groups is further away from the subgame-perfect equilibrium of the stage game than that of individuals. To a large extent, this result is independent of the method of eliciting choices (sequential or strategy method) and the method used to account for observed first- and second-mover behavior. We provide evidence on followers' response functions and electronic chats to offer an explanation for the differential effect that the time horizon of interaction has on the extent of individual and group players (non)conformity with subgame perfectness.
    Keywords: Stackelberg market, groups versus individuals, discontinuity effect, experiment
    JEL: C72 C92 L13
    Date: 2011–10
  5. By: Kocher, Martin G. (Dept of Economics, University of Munich, and CESifo Munich, and Dept of Economics, University of Gothenburg); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Myrseth, Kristian Ove R. (ESMT European School of Technology and Management); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We develop a model relating self-control, risk preferences and conflict identification to cooperation patterns in social dilemmas. We subject our model to data from an experimental public goods game and a risk experiment, and we measure conflict identification and self-control. As predicted, we find a robust association between self-control and higher levels of cooperation, and the association is weaker for more risk-averse individuals. Free riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place. Our model accounts for the data at least as well as do other models.<p>
    Keywords: self-control; cooperation; public good; risk; experiment
    JEL: C91 D03 H40
    Date: 2012–01–18
  6. By: Tan, F. (Tilburg University)
    Date: 2012
  7. By: Giovanna Devetag; Hykel Hosni; Giacomo Sillari
    Abstract: This paper presents the results of an experiment on mutual versus common knowl- edge of advice in a two-player weak-link game with random matching. Our experimen- tal subjects play in pairs for thirteen rounds. After a brief learning phase common to all treatments, we vary the knowledge levels associated with external advice given in the form of a suggestion to pick the strategy supporting the payoff-dominant equilib- rium. In the mutual knowledge of level 1 treatment, the suggestion appears on every subject's monitor at the beginning of every round, with no common knowledge that everybody sees the same suggestion. In the mutual knowledge of level 2 treatment, the same suggestion appears on each subject's monitor, accompanied by the request to "send" the suggestion to the partner in the round, followed by a notification that the message has been read. Finally, in the common knowledge treatment, the suggestion is read aloud by the experimenter at the end of the learning phase. Our results are somewhat surprising and can be summarized as follows: in all our treatments both the choice of the efficiency-inducing action and the percentage of efficient equilibrium play are higher with respect to the control treatment, revealing that even a condition as weak as mutual knowledge of level 1 is sufficient to significantly increase the salience of the efficient equilibrium with respect to the absence of advice. Furthermore, and contrary to our hypothesis, mutual knowledge of level 2 (as the one occurring in our "message" treatment) induces successful coordination more frequently than common knowledge.
    Keywords: Coordination games; experimental philosophy; epistemic attitudes, weak-link game; conventions
    JEL: D01 D83
    Date: 2012
  8. By: Maria Bigoni (Department of Economics, University of Bologna); Marco Casari (Department of Economics, University of Bologna); Andrzej Skrzypaczx (Graduate School of Business, Stanford University); Giancarlo Spagnolo (SITE, Tor Vergata, EIEF and CEPR)
    Abstract: Frequent interaction may dramatically increase subjects ability to cooperate. In an experiment, we study the impact of different time horizons on cooperation in (quasi) continuous time prisoner's dilemmas. We find that cooperation levels are similar or higher when the horizon is deterministic rather than stochastic. Moreover, a de- terministic duration generates different aggregate patterns and indi- vidual strategies than a stochastic one. For instance, the data reveal a higher initial cooperation and a strong end-of-period reversal to defection under a deterministic horizon. However, they suggest that subjects do not learn to apply backward induction but to postpone defection closer to the end.
    Date: 2011
  9. By: Koellinger, Ph.D.; Michl, T.
    Abstract: This study examines the influence of joy on absolute and relative overconfidence in a decision experiment with monetary incentives. We used a general knowledge task of medium difficulty to measure overconfidence. Participants’ moods were measured at the beginning of the experiment using subscales from the Positive and Negative Affect Schedule (PANAS-X). On average, participants were in a slightly joyful mood. In the experimental treatment, we made participants aware of the irrelevant source of their joyful mood by showing them a humorous film clip and subsequently asking them about their mood again. Our results show that self-reported joy increased overconfidence in the control group, whereas the participants in the treatment group had well-calibrated judgments, on average. Our results are consistent with the mood-as-information hypothesis, which suggests that affective states with a non-salient and irrelevant cause have an informative function that can lead to overconfidence. However, if the cause of the affective state is salient and obviously irrelevant (i.e., a humorous film clip), the informative function is deactivated, leading to better judgments and decisions.
    Keywords: judgment;mood;overconfidence;underconfidence;joy
    Date: 2012–01–03
  10. By: Glenn W. Harrison; Jimmy Martínez-Correa; J. Todd Swarthout
    Abstract: We evaluate the binary lottery procedure for inducing risk neutral behavior. We strip the experimental implementation down to bare bones, taking care to avoid any potentially confounding assumption about behavior having to be made. In particular, our evaluation does not rely on the assumed validity of any strategic equilibrium behavior, or even the customary independence axiom. We show that subjects sampled from our population are generally risk averse when lotteries are defined over monetary outcomes, and that the binary lottery procedure does indeed induce a statistically significant shift towards risk neutrality. This striking result generalizes to the case in which subjects make several lottery choices and one is selected for payment.
    Date: 2012–01
  11. By: Romain Baeriswyl (Swiss National Bank - Swiss National Bank); Camille Cornand (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    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
    Date: 2012–01–09
  12. By: Dargnies, Marie-Pierre
    Abstract: Recent results in experimental and personnel economics indicate that women do not like competitive environments as much as men. This article presents an experimental design giving participants the opportunity to enter a tournament as part of a team rather than alone. While a large and significant gender gap in entry in the individual tournament is found in line with the literature, no gender gap is found in entry in the team tournament. Women do not enter the tournament significantly more often when it is team-based but men enter significantly less when they are part of a team rather than alone. The main reason for men's disaffection for the team competition appears to be linked to the uncertainty on their teammate's ability. More precisely, high-performing men fear to be the victims of the free-riding behaviour of their teammate. --
    Keywords: Teams,Gender Gap,Tournament
    Date: 2011
  13. By: Sarah Jacobson (Williams College); Jason Delaney (University of Arkansas at Little Rock)
    Abstract: People have been shown to engage in favor-trading when it is efficiency-enhancing to do so. Will they also trade favors when it reduces efficiency, as in a series of wasteful public projects that each benefits an individual? We introduce the “Stakeholder Public Bad” game to study this question. In each round, contributions to a common fund increase the earnings of one person (the “Stakeholder”) but reduce the earnings of the rest of the group so much that overall efficiency is reduced. The Stakeholder position rotates through members of the group and the promise of the high reward associated with this position may enable subjects to behave reciprocally. We hypothesize that some people will help a current Stakeholder by contributing in hopes of being rewarded later with a reciprocal gift. In a lab experiment, we find evidence of such favor trading. We also find that Stakeholders in this situation seem perfectly willing to sacrifice the good of the group to reap their own personal rewards, and this is true even when their contribution decisions are public. While the revelation of information about others’ actions and roles has previously been shown to enable efficiency-increasing reciprocity, we show that it also enables efficiency-decreasing reciprocal acts. Subjects who are more risk-averse behave in a way that is more myopically self-interested as compared to less risk-averse people when information conditions preclude favor trading, and subjects who identify with the Democratic Party show more restraint when they are Stakeholder than those who do not.
    Keywords: logrolling, social preferences, reciprocity, externalities, public bad, public good
    JEL: C91 D01 D62 D64 D72 H41
    Date: 2012–01
  14. By: Jeffrey V. Butler (EIEF); Luigi Guiso (European University Institute and EIEF); Tullio Jappelli (University of Naples Federico II and CSEF)
    Abstract: Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.
    Date: 2011
  15. By: Kosse, Fabian (University of Bonn); Pfeiffer, Friedhelm (ZEW Mannheim)
    Abstract: Using experimental data of children and their mothers, this paper explores the intergenerational relationship of impatience. The child's impatience stems from a delay of gratification experiment. Mother's impatience has been assessed by a choice task where the mothers faced trade-offs between a smaller-sooner and a larger-later monetary reward with a delay of six or twelve months. The findings demonstrate an intergenerational relationship in short-run decision making. Controlling for mother's and child's characteristics the child's impatience at preschool age is significantly correlated with the six month maternal reservation interest rate.
    Keywords: time preferences, impatience, intergenerational transmission, field experiments
    JEL: C93 D03 D90
    Date: 2011–12
  16. By: Dargnies, Marie-Pierre
    Abstract: Recent experimental results indicate that women do not like competitive environments as much as men do. Another literature is interested in the effect of social identity on economic behaviors. This paper investigates in the lab the impact of social identity on men and women's willingness to compete both individually and as part of a team. To this aim, participants from the Identity sessions had to go through group identity building activities in the lab while participants from the Benchmark sessions did not. The main result is that men are only willing to enter a team competition with a teammate of unknown ability if they share a common group identity with him or her. This change of behavior seems to be caused by high-performing men who are less reluctant to be matched with a possibly less able participant when he or she belongs to his group. On the other hand, group identity does not seem to induce women to take actions more in the interest of the group they belong to. --
    Keywords: Social Identity,Gender Effects,Tournament,Teams
    Date: 2011
  17. By: Kai A. Konrad; Tim Lohse; Salmai Qari
    Abstract: This paper studies the role of beliefs about own performance or appearance for compliance at the customs. In an experiment in which underreporting has a higher expected payoff than truthful reporting we find: a large share, about 15-20 percent of the subjects, is more compliant if they have reason to imagine that their performance influences their subjective audit probability. In contrast, we do not find evidence for individuals who believe that by their personal performance they can reduce the subjective probability for an audit. Our results suggest that the power of imagination, i.e. the role of second-order beliefs in the process of customs declarations is important and may potentially be used to improve customs and tax compliance.
    Keywords: Customs, tax compliance, audit probability, second-order beliefs
    JEL: H26 H31 C91
    Date: 2011–12
  18. By: Marchegiani, Lucia (University of Rome 3); Reggiani, Tommaso (University of Bologna); Rizzolli, Matteo (Free University of Bozen/Bolzano)
    Abstract: In our simple model the supervisor: i) cannot observe the agent's effort; ii) aims at inducing the agent to exert high effort; but iii) can only offer rewards based on performance. Since performance is only stochastically related to effort, evaluation errors may occur. In particular, deserving agents that have exerted high effort may not be rewarded (Type I errors) and undeserving agents that have exerted low effort may be rewarded (Type II errors). We show that, although the model predicts both errors to be equally detrimental to performance, this prediction fails with a lab experiment. In fact, failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. We discuss our result in the light of some economic and managerial theories of behavior. Our result may have interesting implications for strategic human resource management and personnel economics and may also contribute to the debate about incentives and organizational performance.
    Keywords: agency theory, organizational justice, compensation, type I and type II errors, real effort
    JEL: C91 M50 J50
    Date: 2011–12
  19. By: Thorsten Chmura (Department of Economics, Ludwig-Maximilians-Universitat Munich); Sebastian Goerg (Max Planck Institute for Research on Collective Goods, Bonn); Reinhard Selten (cLaboratory for Experimental Economics (BonnEconLab), University of Bonn)
    Abstract: In this paper, we introduce two new learning models: impulse-matching learning and action-sampling learning. These two models together with the models of self-tuning EWA and reinforcement learning are applied to 12 different 2 x 2 games and their results are compared with the results from experimental data. We test whether the models are capable of replicating the aggregate distribution of behavior, as well as correctly predicting individuals' round-by-round behavior. Our results are two-fold: while the simulations with impulse-matching and action-sampling learning successfully replicate the experimental data on the aggregate level, individual behavior is best described by self-tuning EWA. Nevertheless, impulse-matching learning has the second highest score for the individual data. In addition, only self-tuning EWA and impulse-matching learning lead to better round-by-round predictions than the aggregate frequencies, which means they adjust their predictions correctly over time.
    Keywords: learning, 2 x 2 games, Experimental data
    JEL: C92 C72 C91
    Date: 2011–10
  20. By: Anton Cheremukhin; Anna Popova; Antonella Tutino
    Abstract: We show that rational inattention theory of Sims (2003) provides a rationalization of choice models à la Luce and gives a structural interpretation to probability curvature parameters as reflecting costs of processing information. We use data from a behavioral experiment to show that people behave according to predictions of the theory. We estimate attitudes to risk and costs of information for individual participants and document overwhelming heterogeneity in these parameters among a relatively homogeneous sample of people. We characterize, both theoretically and empirically, the aggregation biases this heterogeneity implies and find these biases to be substantial.
    Keywords: Risk management ; Econometrics
    Date: 2011
  21. By: Lohse, Tim; Lutz, Peter F.; Qari, Salmai
    Abstract: This paper studies the role of beliefs about own performance or appearance for compliance at the customs. In an experiment in which underreporting has a higher expected payoff than truthful reporting we find: a large share, about 15-20 percent of the subjects, is more compliant if they have reason to imagine that their performance influences their subjective audit probability. In contrast, we do not find evidence for individuals who believe that by their personal performance they can reduce the subjective probability for an audit. Our results suggest that the power of imagination, i.e. the role of second-order beliefs in the process of customs declarations is important and may potentially be used to improve customs and tax compliance. --
    Keywords: Customs,tax compliance,audit probability,second-order beliefs
    JEL: H26 H31 C91
    Date: 2011
  22. By: Sarah Jacobson (Williams College); Jason Delaney (University of Arkansas at Little Rock)
    Abstract: Some policy problems pit the interests of one group against those of another group. One group may, for example, determine the provision of a project (such as a power plant or a dam) that benefits group members but has downstream externalities that hurt people outside the group. We introduce a model of projects with such asymmetries. In-group members may contribute to a common fund that benefits them as a public good. In the model, benefits from the project may or may not vary within the group. Project provision has negative downstream externalities: common fund contributions hurt agents outside the in-group (“Outsiders”) rendering common fund contributions anti-social overall. Many models of social preferences predict that such externalities should reduce or eliminate project provision, although conditional cooperation or a preference for in-group members may counteract this effect. We test this model with a lab experiment. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contribution levels by nearly half. We introduce a rotating high-return position that allows subjects to trade favors. Contributions diminish only slightly with the introduction of the negative externality and reciprocal giving occurs whether or not Outsiders are present.
    Keywords: public bad, public good, social preferences, reciprocity, externalities, in-group-out-group, parochial altruism
    JEL: C91 D01 D62 D71 H41 Q50
    Date: 2012–01
  23. By: Anna Conte; John D. Hey
    Abstract: The recent spate of theoretical models of behaviour under ambiguity can be partitioned into two sets: those involving multiple priors (in which the probabilities of the various events are not known but probabilities can be attached to the various possible values for the probabilities) and those not involving multiple priors. This paper concentrates on the first set and provides an experimental investigation into recently proposed theories. Using an appropriate experimental interface, in which the probabilities on the various possibilities are explicitly stated, we examine the fitted and predictive power of the various theories. We first estimate subject-by-subject, and then we estimateand predict using a mixture model over the contending theories. The individual estimates suggest that 25% of our 149 subjects have behaviour consistent with Expected Utility, 54% with the Smooth Model (of Klibanoff et al, 2005), 12% with Rank Dependent Expected Utility and 9% with the Alpha Model (of Ghirardato et al 2004); these figures are very close to the mixing proportions obtained from the mixture estimates. However, if we classify our subjects through the posterior probabilities (given all the evidence) of each of them being of the various types: using the estimates we get 38%, 19%, 28% and 16% (for EU, Smooth, Rank Dependent and Alpha); while using the predictions 36%, 19%, 33% and 11%. Interestingly the older models (EU and RD) seem to fare relatively better, suggesting that representing ambiguity through multiple priors is perceived by subjects as risk, rather than ambiguity
    Keywords: Alpha Model, Ambiguity, Expected Utility, Mixture Models, Rank Dependent Expected Utility, Smooth Model.
    JEL: D81 C91 C2
    Date: 2012–01

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