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on Experimental Economics |
| By: | Omar Al-Ubaydli; John A. List |
| Abstract: | Economists are increasingly turning to the experimental method as a means to estimate causal effects. By using randomization to identify key treatment effects, theories previously viewed as untestable are now scrutinized, efficacy of public policies are now more easily verified, and stakeholders can swiftly add empirical evidence to aid their decision-making. This study provides an overview of experimental methods in economics, with a special focus on developing an economic theory of generalizability. Given that field experiments are in their infancy, our secondary focus pertains to a discussion of the various parameters that they identify, and how they add to scientific knowledge. We conclude that until we conduct more field experiments that build a bridge between the lab and the naturally-occurring settings of interest we cannot begin to make strong conclusions empirically on the crucial question of generalizability from the lab to the field. |
| JEL: | C9 C91 C92 C93 D03 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17957&r=exp |
| By: | Karlan, Dean (Yale University and Innovations for Poverty Action); List, Jonathan A. (University of Chicago) |
| Abstract: | We develop a simple theory which formally describes how charities can resolve the information asymmetry problems faced by small donors by working with large donors to generate quality signals. To test the model, we conducted two large-scale natural field experiments. In the first experiment, a charity focusing on poverty reduction solicited donations from prior donors and either announced a matching grant from the Bill and Melinda Gates Foundation, or made no mention of a match. In the second field experiment, the same charity sent direct mail solicitations to individuals who had not previously donated to the charity, and tested whether naming the Bill and Melinda Gates Foundation as the matching donor was more effective than not identifying the name of the matching donor. The first experiment demonstrates that the matching grant condition generates more and larger donations relative to no match. The second experiment shows that providing a credible quality signal by identifying the matching donor generates even more and larger donations than not naming the matching donor. Importantly, the treatment effects persist long after the matching period, and the quality signal is quite heterogeneous--the Gates' effect is much larger for prospective donors who had a record of giving to "poverty-oriented" charities. These two pieces of evidence support our model of quality signals as a key mechanism through which matching gifts inspire donors to give. |
| JEL: | D12 D71 D82 H41 O12 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:101&r=exp |
| By: | Dean Karlan; Melanie Morten; Jonathan Zinman |
| Abstract: | We worked with two microlenders to test impacts of randomly assigned reminders for loan repayments in the “text messaging capital of the world”. We do not find strong evidence that loss versus gain framing or messaging timing matter. Messages only robustly improve repayment when they include the loan officer’s name. This effect holds for clients serviced by the loan officer previously but not for first-time borrowers. Taken together, the results highlight the potential and limits of communications technology for mitigating moral hazard, and suggest that personal obligation/reciprocity between borrowers and bank employees can be harnessed to help overcome market failures. |
| JEL: | D21 D92 G21 O16 O17 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17952&r=exp |
| By: | Timothy N. Cason (Department of Economics, Krannert School of Management, Purdue University); Anya C. Savikhin (Becker Friedman Institute for Economic Research, The University of Chicago); Roman Sheremeta (Argyros School of Business and Economics, Chapman University) |
| Abstract: | Motivated by problems of coordination failure observed in weak-link games, we experimentally investigate behavioral spillovers for minimum- and median-effort coordination games. Subjects play these coordination games simultaneously and sequentially. The results show that successful coordination on the Pareto optimal equilibrium in the median game influences behavior in the minimum game when the games are played sequentially. Moreover, this positive, Pareto-improving spillover is present even when group composition changes across games, although the effect is not as strong. We also find that the precedent for uncooperative behavior in the minimum game does not influence play in the median game. These findings suggest guidelines for increasing cooperative behavior within organizations. |
| Keywords: | coordination, order-statistic games, experiments, cooperation, minimum game, median game, behavioral spillover |
| JEL: | C72 C91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:11-20&r=exp |
| By: | Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Timothy Shields (Argyros School of Business and Economics, Chapman University) |
| Abstract: | We examine subjects' behavior in sender-receiver games where there are gains from trade and alignment of interests in one of the two states. We elicit subjects' beliefs, risk and other-regarding preferences. Our design also allows us to examine the behavior of subjects in both roles, to determine whether the behavior in one role is the best response to the subject's own behavior in the other role. The results of the experiment indicate that 60 percent of senders adopt deceptive strategies by sending favorable message when the true state of the nature is unfavorable. Nevertheless, 67 percent of receivers invest conditional upon a favorable message. The investing behavior of receivers cannot be explained by risk preferences or as a best response to subject's own behavior in the sender's role. However, it can be rationalized by accounting for elicited beliefs and other-regarding preferences. Finally, the honest behavior of some senders can be explained by other-regarding preferences. Thus we find liars do believe, and individuals who care about the payoffs of others tend to be honest. |
| Keywords: | experiment, strategic communication, beliefs, lying, deception, other-regarding preferences |
| JEL: | C72 C91 D82 D83 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-05&r=exp |
| By: | Shakun D. Mago (Department of Economics, Robins School of Business, University of Richmond); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University) |
| Abstract: | This study examines behavior of subjects in simultaneous and sequential multi-battle contests. In simultaneous contests, subjects make positive bids in each battle 80% of the time and bids fall within the predicted boundaries. However, 35% of the time subjects make positive bids in only two, instead of all three, battles and they significantly overuse moderately high bids. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contest proceeds to the third battle 38% of the time. Finally, in both simultaneous and sequential settings, subjects make higher aggregate bids than predicted resulting in negative expected payoffs. |
| Keywords: | multi-battle contest, experiments, risk aversion, overdissipation |
| JEL: | C72 C91 D72 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-06&r=exp |
| By: | Curtis R. Price (Department of Economics & Marketing, College of Business, University of Southern Indiana); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University) |
| Abstract: | In modern firms the use of contests as an incentive device is ubiquitous. Nonetheless, recent experimental research shows that in the laboratory subjects routinely make suboptimal decisions in contests even to the extent of making negative returns. The purpose of this study is to investigate if changing how agents are endowed with resources can increase the efficiency in contests. To this end, we conduct a laboratory experiment in which subjects are asked to allot costly resources (bids) in an effort to attain an award (prize). In line with other laboratory studies of contests, our results show that subjects overbid relative to theoretical predictions and incur substantial losses as a result. Making subjects earn their initial resource endowments mitigates the amount of overbidding and thus increases overall efficiency. Overbidding is also linked to gender with women bidding higher than men and having lower average earnings. Other demographic information such as religiosity and individual preferences towards winning and risk also contribute to excessive bidding. |
| Keywords: | contest, experiments, overbidding, endowment, gender, religiosity |
| JEL: | C72 C91 D61 D72 J16 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-07&r=exp |
| By: | Michał Krawczyk (University of Warsaw, Faculty of Economic Sciences); Fabrice Le Lec (Catholic University of Lille, Lille Economie & Management UMR CNRS 8179) |
| Abstract: | We propose an experimental method whose purpose is to induce selfish behavior in games for a broad class of social preferences. It provides a theoretical framework for testing game theoretical predictions by confronting subjects with a commonly known payoff matrix actually representing their preferences. The paper describes the empirical tests of this method based on the comparison of results from several popular experimental games played with and without our methodology. Apart from it being a test of validity of the method, our experiment helps answer the question of how useful social preferences could be in explaining commonly observed deviations from selfish rationality. Results suggest that our method does induce more selfish behaviors: a substantial part of the difference between predictions based on selfishness and observed behaviors seems indeed driven by such preferences. But they also indicate that a considerable share is left untouched, perhaps giving weight to alternative explanations. |
| Keywords: | social preference, experimental game theory, ultimatum game, public goods game, trust game, prisoner's dilemma, dictator game |
| JEL: | A13 C65 C72 D63 D03 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2012-06&r=exp |
| By: | Green, Kesten C.; Armstrong, J. Scott |
| Abstract: | We found no evidence that consumers benefit from government-mandated disclaimers in advertising. Experiments and common experience show that admonishments to change or avoid behaviors often have effects opposite to those intended. We found 18 experimental studies that provided evidence relevant to mandatory disclaimers. Mandated messages increased confusion in all, and were ineffective or harmful in the 15 studies that examined perceptions, attitudes, or decisions. We conducted an experiment on the effects of a government-mandated disclaimer for a Florida court case. Two advertisements for dentists offering implant dentistry were shown to 317 subjects. One advertiser had implant dentistry credentials. Subjects exposed to the disclaimer more often recommended the advertiser who lacked credentials. Women and less-educated subjects were particularly prone to this error. In addition, subjects drew false and damaging inferences about the credentialed dentist. |
| Keywords: | consumer protection; corrective advertising; decision making; government regulation; judgment |
| JEL: | H11 M37 K23 |
| Date: | 2012–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37766&r=exp |
| By: | Emmanouil Mentzakis; Jingjing Zhang |
| Abstract: | This study compares individual preferences across incentives (i.e., hypothetical vs. real incentives) and over time (i.e. elicitation at two different points in time) in a choice experiment involving charitable donating decisions. We provide evidence of hypothetical bias but little evidence of instability of individual giving. There is significant heterogeneity in individual preferences, with real incentives either dampening or pronouncing the observed donating behaviour. Neither hypothetical bias nor instability is observed when we examine the propensity of individuals to make internally consistent decisions over identical choices. |
| Keywords: | Individual preference, hypothetical bias, time inconsistency, discrete choice experiments, charitable donations |
| JEL: | C91 D11 D91 H40 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:070&r=exp |
| By: | Vera Angelova (Max Planck Institute of Economics, Jena, Germany); Giuseppe Attanasi (Toulouse School of Economics, Toulouse, France); Yolande Hiriart (Universite de Franche-Comte (CRESE), Besancon, France) |
| Abstract: | We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. Externality and asymmetric information call for public intervention to define rules aimed at increasing prevention. We determine the investment in safety under No Liability, Strict Liability and Negligence, and compare it to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damages affects the firm's behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher and liability is much less effective than predicted. |
| Keywords: | Risk Regulation, Liability Rules, Incentives, Insolvency, Experiment |
| JEL: | D82 K13 K32 Q58 |
| Date: | 2012–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-012&r=exp |
| By: | Cheung, Stephen L. |
| Abstract: | Understanding the forces that enhance or erode cooperation in social dilemmas is a fundamental question in social science. Previous experiments have shown that selfish bias is an important source of fragility in conditional cooperation, and that the possibility of punishment can strengthen cooperation, however potential efficiency gains are threatened by antisocial punishment of higher contributors. This paper introduces new experimental designs to examine how these behaviours respond to the full range of variation in the contributions of others. It is shown that selfish bias becomes significantly worse as others contribute more unequally, while punishment increases both with decreasing contributions by the target player and increasing contributions by a third player. Antisocial punishment is seldom directed specifically toward high contributors; rather, it may be motivated by pre-emptive retaliation. |
| Keywords: | strategy method; punishment; conditional cooperation; selfish bias |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2123/8089&r=exp |
| By: | Chong, Sophia; Guillen, Pablo |
| Abstract: | We compare individual with collective contracts using variations of a repeated gift- exchange game. Firms consist of one employer and three workers. In the individual variation (I) different workers can receive separate wages. In the collective variation (C) workers receive the same wage. I and C are played altering the order across sessions resulting in four treatments: 1I, 1C, 2I, 2C. The wage offered in the first period of 1C is significantly higher than the wage offered in the first period of 1I. Average wage and effort become indistinguishable in phase 1 afterwards. Individual contracts resulted on higher average effort but undistinguishable wages when comparing 2I with 2C. In spite of an experimental design favourable to individual contracts, collective contracts fared unexpectedly well . |
| Keywords: | collective contracts; gift exchange; laboratory experiments |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2123/8090&r=exp |
| By: | Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); William A. Masters (Department of Food and Nutrition Policy, Tufts University); Timothy N. Cason (Department of Economics, Krannert School of Management, Purdue University) |
| Abstract: | This study provides a unified theoretical and experimental framework in which to compare three canonical types of competition: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. We introduce random noise to reflect imperfect information, and collect independent measures of risk aversion, other-regarding preferences, and the utility of winning a contest. The main finding is that efforts are consistently higher with winner-take-all contests. The lottery contests have the same Nash equilibrium as proportional prizes, but induce contestants to choose higher efforts and receive lower, more unequal payoffs. This result may explain why contest designers who seek only to elicit effort offer lump-sum prizes, even though contestants would be better off with proportional rewards. |
| Keywords: | contests, rent-seeking, lotteries, incentives in experiments, risk aversion |
| JEL: | C72 D72 D74 J33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:12-04&r=exp |
| By: | Bryan, Gharad (London School of Economics and Innovations for Poverty Action); Karlan, Dean (Yale University and MIT); Zinman, Jonathan (Dartmouth College and MIT) |
| Abstract: | We examine a randomized trial that allows separate identification of peer screening and enforcement of credit contracts. A South African microlender offered half its clients a bonus for referring a friend who repaid a loan. For the remaining clients, the bonus was conditional on loan approval. After approval, the repayment incentive was removed from half the referrers in the first group and added for half those in the second. We find large enforcement effects, a $12 (100 Rand) incentive reduced default by 10 percentage points from a base of 20%. In contrast, we find no evidence of screening. |
| JEL: | C93 D12 D14 D82 O12 O16 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:99&r=exp |
| By: | Drichoutis, Andreas C.; Koundouri, Phoebe |
| Abstract: | In this paper the authors assess the importance of sample type in the estimation of risk preferences. The authors elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury (Risk aversion and incentive effects, 2002). The authors find evidence suggesting that under Rank Dependent Utility and an expo-power function, students exhibit similar risk attitudes to subjects drawn from the general population. However, when the authors assume an incorrect characterization of risk preferences, in particular they adopt the framework of Expected Utility theory and a Constant Relative Risk Aversion function, their estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk loving preferences. The results have implications for economic policy making under uncertainty. -- |
| Keywords: | Risk aversion,CRRA,expo-power,rank dependent utility,multiple price list |
| JEL: | C91 D01 D81 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201219&r=exp |
| By: | Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Hagen, Rune Jansen (University of Bergen); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | Many verifiable contracts are impossible or difficult to enforce. This applies to contracts among family and friends, contracts regulating market transactions, and sovereign debt contracts. Do such non-enforceable contracts matter? We use a version of the trust game with participants from Norway and Tanzania to study repayment decisions in the presence of non-enforceable loan contracts. Our main finding is that the specific content of the contract has no effect on loan repayment. Rather, the borrowers seem to be motivated by other moral motives, which contributes to explaining why they partly fulfill non-enforceable contracts. We also show that some borrowers violate the axiom of first order stochastic dominance when rejecting loan offers, which partly may reflect negative reciprocity, but also seems to reflect a fundame tal aversion against uncertainty. |
| Keywords: | Non-enforceable contracts; Lab experiment. |
| JEL: | C91 D63 D80 F34 |
| Date: | 2012–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2012_002&r=exp |
| By: | Drichoutis, Andreas; Lusk, Jayson |
| Abstract: | In this paper we show that the wildly popular Holt and Laury (2002) risk preference elicitation method confounds estimates of the curvature of the utility function, the traditional notion of risk preference, with an estimate of the extent to which an individual weights probabilities non-linearly. We show that a slight modification to their approach can remove the confound while preserving the simplicity of the method which has made it so popular. Data from a laboratory experiment shows that our new method yields significantly different levels of implied risk aversion than the Holt and Laury task even after econometrically controlling for probability weighting in the latter. Implied risk aversion from the traditional Holt and Laury task is relatively insensitive to payout amount, but our new method reveals increasing relative risk aversion and risk neutrality at low payout amounts. |
| Keywords: | expected utility theory, experiment, probability weighting, rank dependent utility, risk |
| JEL: | D81 C91 |
| Date: | 2012–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37762&r=exp |
| By: | Haucap, Justus; Müller, Hans Christian |
| Abstract: | Economic theory suggests that gasoline retail markets are prone to collusive behavior. Oligopoly market structures prevail, market interactions occur frequently, prices are highly transparent, and demand is rather inelastic. A recent sector inquiry in Germany backed suspicions of tacit collusion and suggested to adopt regulatory pricing rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. In order to increase consumer welfare these rules either restrict the number of price changes per day or they limit the mark‐up for gasoline retail prices. As theoretical predictions about the impact of these measures are mixed and empirical studies rare, we analyze the effects, using an experimental gasoline market in the lab. Our results reveal that two of the suggested rules rather decrease consumer welfare: The Austrian rule which only allows one price increase per day (while price cuts are always possible) and the Luxembourg rule which introduces a maximum markup for retailers. While no rule tends to induce lower retail prices, the Western Australian rule which allows at most one daily price change (no matter whether up or down) does at least not harm consumers. -- |
| Keywords: | Gasoline Prices,Fuel Prices,Experimental Gasoline Market,Fuel Price Regulation,Retail Price Regulation,Gas Stations |
| JEL: | L13 L71 L81 L88 K23 C90 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:47&r=exp |
| By: | Gine, Xavier; Mansuri, Ghazala; Picon, Mario |
| Abstract: | Female entrepreneurship is low in many developing economies partly because of constraints on women's time and mobility, which are often reinforced by social norms. This paper analyzes a marketing experiment designed to encourage women to adopt a new microcredit product. A brochure with the same content but two different covers was randomly distributed among male and female borrowing groups. One cover featured five businesses run by men, while the other showed identical businesses run by women. Men and women responded to psychological cues. Among men who were not business owners, had lower measured ability and whose wives were less educated, the responses to the female brochure were more negative, as did female business owners with low autonomy within the household. Women with relatively high levels of autonomy had a similar negative response to the male brochure, while there was no effect on female business owners with autonomy. Overall, these results suggest that women's response to psychological cues, such as positive role models, may be affected by their level of autonomy at home, and more intensive interventions may be required for more disadvantaged women. |
| Keywords: | Access to Finance,Debt Markets,Business in Development,Competitiveness and Competition Policy,Banks&Banking Reform |
| Date: | 2012–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6020&r=exp |
| By: | Barr, Abigail; Packard, Truman; Serra, Danila |
| Abstract: | There is general agreement that the existence of participatory institutions is a necessary condition for accountability, especially where top-down institutions are malfunctioning or missing. In education, the evidence on the effectiveness of participatory accountability is mixed. This paper argues that participation is a social dilemma and therefore depends, at least partly, on individuals'propensity to cooperate with others for the common good. This being the case, the mixed evidence could be owing to society-level heterogeneities in individuals'willingness and ability to overcome collective action problems. The authors investigate whether individuals'propensity to cooperate plays a role in parents'decisions to participate in both a school accountability system -- a"short route"to accountability -- and parliamentary elections -- a"long route"to accountability -- by combining survey data on 1,800 individuals'participation decisions with measures of their willingness to contribute to a public good in the context of a very simple, clearly defined laboratory experiment. They conduct a study in a new democracy, Albania, involving parents of children enrolled in primary schools. The findings confirm that, both across individuals within communities and across communities, the decision to hold teachers and school directors accountable directly through participation at the school level, and indirectly through political participation correlates with cooperativeness in a simple public goods game. |
| Keywords: | Parliamentary Government,Education For All,Tertiary Education,Primary Education,Governance Indicators |
| Date: | 2012–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6027&r=exp |
| By: | Salomon Israel; Ori Weisel; Richard P. Ebstein; Gary Bornstein |
| Abstract: | In today’s increasingly interconnected world, deciding with whom and at what level to cooperate becomes a matter of increasing importance as societies become more globalized and large-scale cooperation becomes a viable means of addressing global issues. This tension can play out via competition between local (e.g. within a group) and global (e.g., between groups) interests. Despite research highlighting factors influencing cooperation in such multi-layered situations, their biological basis is not well understood. In a double-blind placebo controlled study, we investigated the influence of intranasally administered oxytocin and arginine vasopressin on cooperative behavior at local and global levels. We find that oxytocin causes an increase in both the willingness to cooperate and the expectation that others will cooperate at both levels. In contrast, participants receiving vasopressin did not differ from those receiving placebo in their cooperative behavior. Our results highlight the selective role of oxytocin in intergroup cooperative behavior. |
| Keywords: | altruism, oxytocin, vasopressin, intergroup cooperation, nested social dilemma |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp598&r=exp |
| By: | Bohnet, Iris (Harvard University); van Geen, Alexandra (Harvard University); Bazerman, Max H. |
| Abstract: | We examine a new intervention to overcome gender biases in hiring, promotion, and job assignments: an "evaluation nudge," in which people are evaluated jointly rather than separately regarding their future performance. Evaluators are more likely to focus on individual performance in joint than in separate evaluation and on group stereotypes in separate than in joint evaluation, making joint evaluation the money-maximizing evaluation procedure. Our findings are compatible with a behavioral model of information processing and with the System 1/System 2 distinction in behavioral decision research where people have two distinct modes of thinking that are activated under certain conditions. |
| JEL: | C91 D03 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp12-009&r=exp |