New Economics Papers
on Experimental Economics
Issue of 2012‒04‒03
nineteen papers chosen by

  1. The Multi-Dimensional Effects of Reciprocity on Worker Effort: Evidence from a Hybrid Field-Laboratory Labor Market Experiment By Kim, Min-Taec; Slonim, Robert
  2. Information and Competition Entry By Ewers, Mara
  3. Risk Aversion and Effort in an Incentive Pay Scheme with Multiplicative Noise: Theory and Experimental Evidence By Zubanov, N.V.
  4. The Role of Salience in Performance Schemes: Evidence from a Field Experiment By Englmaier, Florian; Roider, Andreas; Sunde, Uwe
  5. The Power of Sunspots: An Experimental Analysis By Dietmar Fehr; Frank Heinemann; Aniol Llorente-Saguer
  6. Do voluntary payments to advisors improve the quality of financial advice? An experimental sender-receiver game By Vera Angelova; Tobias Regner
  7. Image and Misreporting By Ewers, Mara; Zimmermann, Florian
  8. Social Identity and Inequality: The Impact of China's Hukou System By Afridi, Farzana; Li, Sherry Xin; Ren, Yufei
  9. Testing a Forgotten Aspect of Akerlof's Gift Exchange Hypothesis: Relational Contracts with Individual and Uniform Wages By Kocher, Martin G.; Luhan, Wolfgang J.; Sutter, Matthias
  10. What can the Big Five Personality Factors contribute to explain Small-Scale Economic Behavior? By Julia Muller; Christiane Schwieren
  11. A Dynamic Ellsberg Urn Experiment. By Lefort, Jean-Philippe; Dominiak, Adam; Dürsch, Peter
  12. Follow the Leader or Follow Anyone - Evidence from a Natural Field Experiment By Felix Ebeling; Christoph Feldhaus; Johannes Fendrich
  13. What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving By Gopi Shah Goda; Colleen Flaherty Manchester; Aaron Sojourner
  14. The Coevolution of Behavior and Normative Expectations. Customary Law in the Lab By Christoph Engel; Michael Kurschilgen
  15. Investment Incentives under Emission Trading: An Experimental Study By Eva Camacho-Cuena; Till Requate; Israel Waichman
  16. The Joint Benefits of Observed and Unobserved Punishment: Comment to Unobserved Punishment Supports Cooperation By Andreas Glöckner; Sebastian Kube; Andreas Nicklisch
  17. Human and financial capital for microenterprise development: Evidence from a field and lab experiment By Lars Ivar Oppedal Berge; Kjetil Bjorvatn; Bertil Tungodden
  18. What makes voters turn out: the effects of polls and beliefs By Marina Agranov; Jacob K. Goeree; Julian Romero; Leeat Yariv
  19. The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico By Mariam Bruhn; Dean Karlan; Antoinette Schoar

  1. By: Kim, Min-Taec (University of Sydney); Slonim, Robert (University of Sydney)
    Abstract: We examine the gift exchange hypothesis on both the quantity and quality of output using a hybrid field-laboratory labor market experiment. We recruited participants to enter survey data for a well-known charitable organization. Workers were paid either a high or low wage. We find that although the total number of surveys entered did not vary with the wage, high wage workers made fewer errors and entered more surveys after controlling for errors. We further find that for low costs associated with errors, offering the low wage maximizes profits, but for higher costs paying the higher "gift exchange" wage maximizes profits.
    Keywords: laboratory and field experiments, multi-tasking, reciprocity, gift exchange
    JEL: C91 C93 J33 J41 D03
    Date: 2012–03
  2. By: Ewers, Mara (University of Bonn)
    Abstract: This paper studies the influence of information on entry choices in a competition with a controlled laboratory experiment. We investigate whether information provision attracts mainly high productivity individuals and reduces competition failure, where competition failure occurs when a subject loses the competition because the opponent holds a higher productivity. Information on the opponent is a promising nudge to raise individuals' awareness towards the complexity of the decision problem and to update beliefs about success. In the experiment, subjects face the choice between a competition game and a safe outside option. We analyze subjects' entry behavior with a benchmark treatment without information and three treatments, where we exogenously manipulate the information on the opponents. Our results are, (1) information on the productivity distribution of all potential opponents reduces competition failures by more than 50%, (2) information on the distribution is sufficient, i.e. precise information on the matched opponent's type does not further diminish failure rates.
    Keywords: competition, experiment, information, overconfidence, self-assessment, self-selection, tournament
    JEL: C91 D03 D61 D81 D82 M13 M51
    Date: 2012–03
  3. By: Zubanov, N.V.
    Abstract: The application of the classical "linear" model of incentive pay to the case when the noise is multiplicative to effort generates two predictions for a given strength of incentives: 1) more risk-averse workers will put in less effort, and 2) setting a performance target will weaken the negative risk aversion--effort link. The data from a real-effort laboratory experiment involving 85 student participants support both these predictions. Implications of the model and empirical findings to the literature on, and practice of, personnel management are discussed.
    Keywords: risk aversion;incentive pay;performance targets
    Date: 2012–03–20
  4. By: Englmaier, Florian; Roider, Andreas; Sunde, Uwe
    Abstract: Incentive schemes affect performance and priorities of agents but, in reality, they can be complicated even for simple tasks. We analyze the effects of the salience of incentives in a team production setting where the principal has an interest in quantity and quality of output. We use data from a controlled field experiment that changed the communication of the incentive system without changing the incentive system. The results indicate that salience of incentives itself is statistically and economically important for performance. We find that higher salience of incentives for quantity increases quantity, reduces quality, and increases in-pocket income of team managers.
    Keywords: attention; communication; field experiments; incentives; salience
    JEL: D03 D80 J30 M52
    Date: 2012–03
  5. By: Dietmar Fehr (Social Science Research Center, Berlin (WZB)); Frank Heinemann (Technische Universität Berlin); Aniol Llorente-Saguer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We present an experiment in which extrinsic information (signals) may generate sunspot equilibria. The underlying coordination game has a unique symmetric non-sunspot equilibrium, which is also risk-dominant. Other equilibria can be ordered according to risk dominance. We introduce salient but extrinsic signals on which subjects may condition their actions. By varying the number of signals and the likelihood that different subjects receive the same signal, we measure how strong these signals affect behavior. Sunspot equilibria emerge naturally if there are salient public signals. Highly correlated private signals may also cause sunspot-driven behavior, even though this is no equilibrium. The higher the correlation of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk-dominant to risk-dominated strategies. Sunspot-driven behavior may lead to welfare losses and exert negative externalities on agents, who do not receive extrinsic signals.
    Keywords: coordination games, strategic uncertainty, sunspot equilibria, irrelevant information
    JEL: C92 C72 D84
    Date: 2011–12
  6. By: Vera Angelova (Max Planck Institute of Economics, Jena); Tobias Regner (Max Planck Institute of Economics, Jena)
    Abstract: The market for retail financial products (e.g. investment funds or insurances) is marred by information asymmetries. Clients are not well informed about the quality of these products. They have to rely on the recommendations of advisors. Incentives of advisors and clients may not be aligned, when fees are used by financial institutions to steer advice. We experimentally investigate whether voluntary contract components can reduce the conflict of interest and increase truth telling of advisors. We compare a voluntary payment upfront, an obligatory payment upfront, a voluntary bonus afterwards, and a three-stage design with a voluntary payment upfront and a bonus after. Across treatments, there is significantly more truthful advice when both clients and advisors have opportunities to reciprocate. Within treatments, the frequency of truthful advice is significantly higher when the voluntary payment is large.
    Keywords: financial advisors, asymmetric information, principal-agent, sender-receiver game, reciprocity, experiments, voluntary payment
    JEL: C91 D03 D82 G20 L15 M52
    Date: 2012–03–28
  7. By: Ewers, Mara (University of Bonn); Zimmermann, Florian (University of Bonn)
    Abstract: In this paper we ask if reports of private information about skills, abilities or achievements are affected by image concerns. We develop a simple model that illustrates how image utility can lead to misreporting of private information in contexts where truthful reports maximize monetary outcomes. In addition, we test the model's predictions in a controlled lab experiment. In the experiment, all subjects go through a series of quiz questions and subsequently report a performance measure. We vary if reports are made to an audience or not and find evidence for image effects. In the audience treatment, stated reports are significantly higher than in the private treatment. This suggests that overconfident appearance might be a consequence of social approval seeking. We also find that men state higher self-assessments than women. This gender difference seems to be driven by men responding more strongly to the presence of an audience.
    Keywords: image concerns, self-assessment, overconfidence, experiment
    JEL: C91 D03 D82
    Date: 2012–03
  8. By: Afridi, Farzana (Indian Statistical Institute); Li, Sherry Xin (University of Texas at Dallas); Ren, Yufei (Union College)
    Abstract: We conduct an experimental study to investigate the causal impact of social identity on individuals' response to economic incentives. We focus on China's household registration (hukou) system which favors urban residents and discriminates against rural residents in resource allocation. Our results indicate that making individuals' hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent, which leads to a significant leftward shift of their earnings distribution. The results demonstrate the impact of institutionally imposed social identity on individuals' intrinsic response to incentives, and consequently on widening income inequality.
    Keywords: social identity, inequality, field experiment, hukou, China
    JEL: C93 D03 O15 P36
    Date: 2012–03
  9. By: Kocher, Martin G. (University of Munich); Luhan, Wolfgang J. (Ruhr University Bochum); Sutter, Matthias (University of Innsbruck)
    Abstract: Empirical work on Akerlof's theory of gift exchange in labor markets has concentrated on the fair wage-effort hypothesis. In fact, however, the theory also contains a social component that stipulates that homogenous agents that are employed for the same wage level will exert more effort, resulting in higher rents and higher market efficiency, than agents that receive different wages. We present the first test of this component, which we call the fair uniform-wage hypothesis. In our laboratory experiment, we establish the existence of a significant efficiency premium of uniform wages. However, it is not the consequence of a stronger level of reciprocity by agents, but of the retrenchment of sanctioning options on the side of principals with uniform wages. Hence, implementing limitations to contractual freedom can have efficiency-enhancing effects.
    Keywords: gift exchange, multiple agents, uniform contracts, collective wage, experiment
    JEL: C72 C91 C92 D21 J31 J50
    Date: 2012–03
  10. By: Julia Muller (Erasmus University Rotterdam); Christiane Schwieren (University of Heidelberg)
    Abstract: Growing interest in using personality variables in economic research leads to the question whether personality as measured by psychology is useful to predict economic behavior. Is it reasonable to expect values on personality scales to be predictive of behavior in economic games? It is undoubted that personality can influence large-scale economic outcomes. Whether personality variables can also be used to understand micro-behavior in economic games is however less clear. We discuss reasons in favor and against this assumption and test in our own experiment, whether and which personality factors are useful in predicting behavior in the trust or investment game. We can also use the trust game to understand how personality measures fare relatively in predicting behavior when situational constraints vary in strength. This approach can help economists to better understand what to expect from the inclusion of personality variables in their models and experiments, and where further research might be useful and needed.
    Keywords: Personality; Big Five; Five Factor Model; Incentives; Experiment; Trust Game
    JEL: C72 C91 D03
    Date: 2012–03–26
  11. By: Lefort, Jean-Philippe; Dominiak, Adam; Dürsch, Peter
    Abstract: Two rationality arguments are used to justify the link between conditional and unconditional preferences in decision theory : dynamic consistency and consequentialism. Dynamic consistency requires that ex ante contingent choices are respected by up dated preferences. Consequentialism states that only those outcomes which are still possible can matter for up dated preferences. We test the descriptive validity of these rationality arguments with a dynamic version of Ellsberg's three color experiment and that subjects act more often in line with consequentialism than with dynamic consistency.
    Keywords: experiment; consequentialism; dynamic consistency; updating; ambiguity; Non expected utility preferences;
    JEL: D81 C91
    Date: 2012–01
  12. By: Felix Ebeling (University of Cologne); Christoph Feldhaus (University of Cologne); Johannes Fendrich (University of Cologne)
    Abstract: In a fundraising field experiment we show that individuals are not only conditionally cooperative, but that they are also more prone to donate to a homeless individual when the previous donor has a higher social status. We trailed a homeless person asking for donations within Cologne's metro trains for two weeks. Thereby we systematically varied the status of the first giver in the train. In the control treatment we did not intervene. In the low status treatment the first giver was always a (poor looking) low status person from our team and correspondingly in the high status treatment a (rich looking) high status person. In our experiment the probability to receive a donation in a train is 65% higher in the low status treatment than in the control treatment. Additionally, in comparison to the low status treatment, the probability increases by 22% in the high status treatment. To our best knowledge this is the first study providing field evidence for the particular influence of high status individuals on others' economic activities.
    Keywords: status, fundraising, field experiment
    JEL: C93 D64 H41
    Date: 2012–03–10
  13. By: Gopi Shah Goda; Colleen Flaherty Manchester; Aaron Sojourner
    Abstract: Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrollment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response.
    JEL: H3 J14
    Date: 2012–03
  14. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Customary law has been criticized from very different angles. Rational choice theorists claim that what looks like custom is nothing but self-interest. Positivists doubt that anything beyond consent assumes the force of law. In this paper, we adopt an experimental approach to test these claims. We show that the willingness to overcome a dilemma transcends self-interest. Cooperation is significantly higher in the presence of a meta-rule for the formation of customary law. Yet only if it is backed up by sanctions, law is significantly more effective than mere comity. Customary law guides behaviour into the normatively desired direction as normative expectations and behavioural patterns coevolve.
    Keywords: experiment, Public Good, Customary Law, Normativity, Crowding Outs
    JEL: H41 D63 C91 D62 K10 D03 C14
    Date: 2011–12
  15. By: Eva Camacho-Cuena (Department of Economics, Universitat Jaume I); Till Requate (Department of Economics, University of Kiel); Israel Waichman (Department of Economics, University of Heidelberg)
    Abstract: This paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading. Our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits. We consider three allocation/auction policies: auctioning off (costly) permits through an ascending clock auction, grandfathering permits with re-allocation through a single-unit double auction, and grandfathering with reallocation through an ascending clock auction. Our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering. We nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment, it affects the static efficiency from permit trading.Length: 39 pages
    Keywords: environmental policy; abatement technology; taxes; permit trading;auctions
    JEL: C92 D44 L51 Q28 Q55
    Date: 2012
  16. By: Andreas Glöckner (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kube (Max Planck Institute for Research on Collective Goods, Bonn); Andreas Nicklisch (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Laboratory experiments by Fudenberg and Pathak (2010), and Vyrastekova, Funaki and Takeuch (2008) show that punishment is able to sustain cooperation in groups even when it is observed only in the end of the interaction sequence. Our results demonstrate that the real power of unobserved punishment is unleashed when combined with observable punishment. Providing both unobserved and observed punishment strongly enhances cooperation within groups – strikingly, even with less intense sanctioning. This surprising result underlines the importance of the coexistence of observed and unobserved sanctioning mechanisms in social dilemmas.
    Keywords: Public Goods, Unobserved Punishment, Sanctioning Effectiveness
    JEL: H41 C92 H40
    Date: 2011–11
  17. By: Lars Ivar Oppedal Berge; Kjetil Bjorvatn; Bertil Tungodden
    Abstract: Which is the most binding constraint to microenterprise development, human capital or financial capital? To answer this question, we present the first field experiment that jointly investigates these two constraints for poor microentrepreneurs, by introducing separate treatments of business training and a business grant. We combine survey data and data from a lab experiment to investigate treatment effects on business results, business practices, business skills and mind-set. Our study demonstrates a strong effect of business training on male entrepreneurs, while the effect on female entrepreneurs is much more muted. There is no effect of the business grant for either males or females. The results suggest that human capital may be the more important constraint for poor microentrepreneurs, but also point to the need for more comprehensive measures to promote development among female entrepreneurs.
    Date: 2011
  18. By: Marina Agranov; Jacob K. Goeree; Julian Romero; Leeat Yariv
    Abstract: We use laboratory experiments to test for one of the foundations of the rational voter paradigm - that voters respond to probabilities of being pivotal. We exploit a setup that entails stark theoretical effects of information concerning the preference distribution (as revealed through polls) on costly participation decisions. The data reveal several insights. First, voting propensity increases systematically with subjects' predictions of their preferred alternative's advantage. Consequently, pre-election polls do not exhibit the detrimental welfare effects that extant theoretical work predicts. They lead to more participation by the expected majority and generate more landslide elections. Finally, we investigate subjects' behavior in polls and identify when Bandwagon and Underdog Effects arise.
    Keywords: Collective choice, polls, strategic voting
    JEL: C92 D02 D72
    Date: 2012–03
  19. By: Mariam Bruhn (World Bank); Dean Karlan (Economic Growth Center, Yale University); Antoinette Schoar (MIT)
    Abstract: We test whether managerial human capital has a first order effect on the performance and growth of small enterprise in emerging markets. In a randomized control trial in Puebla, Mexico, we randomly assigned 150 out of 432 small and medium size enterprises to receive subsidized consulting services, while the remaining 267 enterprises served as a control group that did not receive any subsidized training. Treatment enterprises were matched with one of nine local consulting firms and met with their consultants once a week for four hours over a one year period. Results from a follow-up survey, conducted after the intervention, show that the consulting services had a large impact on the performance of the enterprises in the treatment group: monthly sales went up by about 80 percent; similarly, profits and productivity increased by 120 percent compared to the control group. We also see a significant increase in the entrepreneurial spirit index for the treatment group, a set of questions designed to illicit the SME owners’ confidence in their ability to manage their business and deal with any future difficulties. However, we do not find any significant increase in the number of workers employed in the treatment group.
    Keywords: enterprise growth, entrepreneurship, managerial capital
    JEL: D21 D24 L20 M13 O12
    Date: 2012–02

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