New Economics Papers
on Experimental Economics
Issue of 2012‒05‒15
nineteen papers chosen by

  1. On the Relative Efficiency of Performance Pay and Social Incentives By Uri Gneezy; Pedro Rey-Biel
  2. Experiments in culture and corruption : a review By Banuri, Sheheryar; Eckel, Catherine
  3. Testing Motives for Charitable Giving: A Revealed-Preference Methodology with Experimental Evidence By Rahul Deb; Robert S. Gazzale; Matthew J. Kotchen
  4. On the Norms of Charitable Giving in Islam: A Field Experiment By Fatima Lambarraa; Gerhard Riener
  5. The separate effects of self-estimated and actual alcohol intoxication on risk-taking: A field experiment By Cortés Aguilar Alexandra; Antonio M. Espín; Filippos Exadaktylos; Oyediran Olusegun A.; Palacio García, Luis Alejandro; Antonios Proestakis
  6. Are Self-regarding Subjects More Rational? By Benito Arruñada; Marco Casari; Francesca Pancotto
  7. Ingratiation and Favoritism : Experimental Evidence By Stéphane Robin; Agnieszka Rusinowska; Marie-Claire Villeval
  8. The Causal Effect of Cognitive Abilities on Economic Behavior: Evidence from a Forecasting Task with Varying Cognitive Load By Ondrej Rydval
  9. Let's (Not) Talk about Sex: The Effect of Information Provision on Gender Differences in Performance under Competition By Nagore Iriberri; Pedro Rey-Biel
  10. Experimental examination of land investment decisions with volatile returns A comparison between Kazakhstani and German farmers By Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
  11. Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price By Andreas H\"usler; Didier Sornette; Cars H. Hommes
  12. Local, Organic, Conventional— Asymmetric Effects of Information and Taste on Label Preferences in an Experimental Auction By Costanigro, Marco; Kroll, Stephan; Thilmany, Dawn D.
  13. Everyone Wants a Chance : Initial Positions and Fairness in Ultimatum Games By Grimalda, Gianluca; Kar, Anirban; Proto, Eugenio
  14. Probabilistic Risk Attitudes and Local Risk Aversion: a Paradox By Vjollca Sadiraj
  15. Herding in Financial Behaviour: A Behavioural and Neuroeconomic Analysis of Individual Differences By Baddeley, M.; Burke, C.; Schultz, W.; Tobler, P.
  16. Early interventions and disability insurance: experience from a field experiment By Engström, Per; Hägglund, Pathric; Johansson, Per
  17. Audit Risk and Rent Extraction: Evidence from a Randomized Evaluation in Brazil By Stephan Litschig; Yves Zamboni
  18. Following Recommendations to Avoid Coordination-Failure in 2 x 2 Games By John Bone; Michalis Drouvelis; Indrajit Ray
  19. The value of lies in an ultimatum game with imperfect information By Damien Besancenot; Delphine Dubart; Radu Vranceanu

  1. By: Uri Gneezy; Pedro Rey-Biel
    Abstract: In contrast to the simplifying assumption of selfishness, social incentives have been shown to play a role in economic interactions. Before incorporating social incentives into models and policies, however, one needs to know their efficiency relative to standard pay-for-performance incentives. We report evidence from a large field experiment comparing the effectiveness of contingent and non-contingent (social) incentives in eliciting costly effort. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters contained cash amounts ranging from $1 to $30, whereas others promised to pay upon compliance. We compare the response rates and cost effectiveness of these contingent and social incentives with each other and with a no-incentives control. In line with previous findings, we find that social incentives generated some effort: small amounts increased the response rate with respect to the control, but the size of the reward had a relatively minor effect. In contrast, the response rate for contingent incentives was low for small amounts but increased rapidly as incentives increased. Importantly, for (almost) any given response rate social incentives were more costly than contingent incentives.
    Keywords: contingent incentives; gift exchange
    JEL: C72 C91 D81
    Date: 2011–10
  2. By: Banuri, Sheheryar; Eckel, Catherine
    Abstract: Two decades of empirical evaluation have shown that corruption has a negative impact on economic growth, political stability, judicial effectiveness, democratization, educational attainment, and equality of income. However, corruption exists, persists, and varies significantly by culture. Lab studies have recently come to the forefront in identifying both the incentives and disincentives for corrupt behavior. However, lab studies on culture and corruption have led to some puzzling, contradictory results. This paper begins with a discussion of non-experimental work in this area, and evaluates the experimental findings in the context of earlier research. The authors sketch out the channels through which culture interacts with corruption (through institutions and social norms), and argue that discrepancies in experimental results may be due to differences in design (including repetition or unobserved variation in beliefs) or to differences in the response to punishment across societies. In addition to exploring design-based reasons for previous contradictory findings, avenues for future research include: behavioral responses to different types of externalities; replicating results in different countries; and utilizing the lab to formulate effective anti-corruption measures.
    Keywords: Public Sector Corruption&Anticorruption Measures,Corruption&Anticorruption Law,Cultural Policy,Crime and Society,Social Accountability
    Date: 2012–05–01
  3. By: Rahul Deb; Robert S. Gazzale; Matthew J. Kotchen
    Abstract: A large economics literature seeks to understand the reasons why individuals make charitable contributions. Fundamental features of most models of charitable giving are the inclusion of externalities induced by other agents and the Lancasterian characteristics approach to specifying utility functions. This paper develops a general, revealed-preference methodology for testing a variety of preference structures that allow for both externalities and characteristics. The tests are simple linear programs that are transparent, computationally efficient, and straightforward to implement. We show how the technique applies to standard models of privately provided public goods and novel models that account for social comparisons based on relative consumption and donations among individuals. We also conduct an original experiment that enables nonparametric tests of many models on a single data set. The results provide the first revealed-preference evidence on the importance of social comparisons when individuals make charitable contributions. Models that include preferences for either relative consumption or donations yield greater explanatory power than the standard model of impure altruism.
    JEL: C91 D01 D64 H41
    Date: 2012–05
  4. By: Fatima Lambarraa (Georg-August-University Göttingen); Gerhard Riener (University of Jena)
    Abstract: Charitable giving is one of the major obligations Islam and a strong Muslim norm endorses giving to the needy, but discourages public displays of giving. This norm is puzzling in light of previous evidence, suggesting that making donations public often increases giving. We use an experiment to assess the effects this moral prescription on actual giving levels in an anonymous and in a public setting. We conducted two field experiments with 534 and 186 subjects at Moroccan educational institutions. Subjects who participated in a paid study were given the option to donate from their payment to a local orphanage, under treatments that varied the publicity of the donation and the salience of Islamic values. In the salient Islamic treatment, anonymity of donations significantly increased donation incidence as well as average donations for religious subjects. This stands in stark contrast to most previous findings in the charitable giving literature.
    Keywords: Charitable giving; Islam; Social pressure; Priming; Religion; Norms; Field experiment
    JEL: H40 C93 D01 Z12
    Date: 2012–05–03
  5. By: Cortés Aguilar Alexandra (Escuela de Economía y Administración, Universidad Industrial de Santander); Antonio M. Espín (GLOBE and Universidad de Granada); Filippos Exadaktylos (GLOBE and Universidad de Granada); Oyediran Olusegun A. (Departamento de Análisis Económico y Finanzas, Universidad de Castilla La Mancha, Albacete, Spain.); Palacio García, Luis Alejandro (Escuela de Economía y Administración (School of Economics and Business), Universidad Industrial de Santander); Antonios Proestakis (GLOBE and Universidad de Granada)
    Abstract: Many risky actions are carried out under the influence of alcohol. However, the effect of alcoholic intoxication over the willingness to take risks is complex and still remains unclear. We conduct an economic field experiment in a natural, drinking and risk-taking environment to analyze how both actual and self-estimated blood alcohol concentration (BAC) levels influence subjects’ choices over monetary lotteries. Our results reveal a negative impact of both actual and self-estimated BAC levels on risk-taking. However, for male and young subjects, we find a positive relationship between BAC underestimation (a pattern of estimation error which mainly occurs at high BAC levels) and the willingness to choose riskier lotteries. Our findings suggest that a risk compensation mechanism is activated only when individuals’ own intoxication level is consciously self-perceived to be high. We conclude therefore that human propensity to engage in risky activities under the influence of alcohol is not due to an enhanced preference for risky choices. In addition to the suggestion in the existing literature that such propensity is due to a weakened ability to perceive risks, our results indicate that an impaired self-perception of own intoxication level may also be an important factor.
    Keywords: risk-taking, field experiment, alcohol intoxication, self-estimation
    Date: 2012–05–09
  6. By: Benito Arruñada; Marco Casari; Francesca Pancotto
    Abstract: Through an experiment, we investigate how the level of rationality relates to concerns for equality and efficiency. Subjects perform dictator games and a guessing game. More rational subjects are not more frequently of the self-regarding type. When performing a comparison within the same degree of rationality, self-regarding subjects show more strategic sophistication than other subjects.
    Keywords: steps of reasoning, other-regarding preferences
    JEL: C91 C92 D63
    Date: 2012–01
  7. By: Stéphane Robin (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Agnieszka Rusinowska (CES (Centre d'Economie de la Sorbonne), Paris School of Economics – CNRS, 106-112 Bd de l'Hôpital, 75647 Paris, France); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We provide experimental evidence of workers’ ingratiation by opinion conformity and of managers’ discrimination in favor of workers with whom they share similar opinions. In our Baseline, managers can observe both workers’ performance at a task and opinions before assigning unequal payoffs. In the Ingratiation treatment, workers can change their opinion after learning that held by the manager. In the Random treatment, workers can also change opinion but payoffs are assigned randomly, which gives a measure of non-strategic opinion conformism. We find evidence of high ingratiation indices, as overall, ingratiation is effective. Indeed, managers reward opinion conformity, and even more so when opinions cannot be manipulated. Additional treatments reveal that ingratiation is cost sensitive and that the introduction of performance pay for managers as well as a less noisy measure of performance increase the role of relative performance in the assignment of payoffs, without eliminating the reward of opinion conformity.
    Keywords: Ingratiation, opinion conformity, favoritism, discrimination, social distance,experiment
    JEL: C7 C92 D03 D86 M51
    Date: 2012
  8. By: Ondrej Rydval
    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: 2012–04
  9. By: Nagore Iriberri; Pedro Rey-Biel
    Abstract: We study how gender differences in performance under competition are affected by the provision of information regarding rivals gender and/or differences in relative ability. In a laboratory experiment, we use two tasks that differ regarding perceptions about which gender outperforms the other. We observe womens underperformance only under two conditions: 1) tasks are perceived as favoring men and 2) rivals gender is explicitly mentioned. This result can be explained by stereotype-threat being reinforced when explicitly mentioning gender in tasks in which women already consider they are inferior. Omitting information about gender is a safe alternative to avoid womens underperformance in competition.
    Keywords: gender differences, competition, feedback information, gender perception, stereotype-threat
    JEL: C72 C91 D81
    Date: 2011–09
  10. By: Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
    Abstract: Kazakhstan and Germany have different development levels of the agricultural sector. One of the explanations for this fact might be the different investment behavior of farmers in the two countries. In this study, we experimentally compare the investment behavior of farmers in the two countries in a farmland investment treatment and a coin tossing game investment treatment. In addition, farmers were confronted with the two treatments in a different order. Results demonstrate that German farmers are more reluctant to make investment than Kazakhstani farmers. Moreover, results are independent from the framing of a farmland investment and a coin tossing game investment treatment. Furthermore, the investment behaviors of farmers were contrasted with normative benchmark of the classical investment theory and the real options theory. Our results show that both theories cannot exactly explain the investment behavior of farmers. However, farmers learn from former investment behavior and consider the value of waiting over time.
    Keywords: Risk and Uncertainty,
    Date: 2012–02–24
  11. By: Andreas H\"usler; Didier Sornette; Cars H. Hommes
    Abstract: We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.
    Date: 2012–05
  12. By: Costanigro, Marco; Kroll, Stephan; Thilmany, Dawn D.
    Abstract: We endowed consumers with conventional apples and auctioned local, organic and organic-local apples to elicit consumers’ valuation and the response to two experimental treatments: scientific information and taste. For both labels, which participants valued as partial substitutes, positive WTP is conditional on distrusting the governmental food agencies. Information documenting the inconclusive scientific evidence in favor of organic and local production has little effect; while participants with positive valuation reacted to organoleptic characteristics only when the new information favored the labeled apples. The observed behavior is more consistent with polarization against conventional products, rather than in favor of local and organic.
    Keywords: Food Consumption/Nutrition/Food Safety,
    Date: 2012
  13. By: Grimalda, Gianluca (Universitat Jaume I, Castelló, Spain.); Kar, Anirban (Delhi School of Economics, University of Delhi); Proto, Eugenio (University of Warwick)
    Abstract: Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position –arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We find that : (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given offer ; consequently, offers increase ; (2) Being assigned a mere 1% chance of occupying the proposer role compared to none, significantly increases acceptance rates and decreases offers ; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness – both static and dynamic - has clear relevance for individuals.
    Date: 2012
  14. By: Vjollca Sadiraj
    Abstract: Prominent theories of decision under risk that challenge expected utility theory model risk attitudes at least partly with transformation of probabilities. This paper shows how attributing local risk aversion (partly or wholly) to attitudes towards probabilities can produce extreme probability distortions that imply paradoxical risk aversion.
    Keywords: risk aversion, probability transformation, calibration
    JEL: D81
    Date: 2012–05
  15. By: Baddeley, M.; Burke, C.; Schultz, W.; Tobler, P.
    Abstract: Experimental analyses have identified significant tendencies for individuals to follow herd decisions, a finding which has been explained using Bayesian principles. This paper outlines the results from a herding task designed to extend these analyses using evidence from a functional magnetic resonance imaging (fMRI) study. Empirically, we estimate logistic functions using panel estimation techniques to quantify the impact of herd decisions on individuals' financial decisions. We confirm that there are statistically significant propensities to herd and that social information about others' decisions has an impact on individuals' decisions. We extend these findings by identifying associations between herding propensities and individual characteristics including gender, age and various personality traits. In addition fMRI evidence shows that individual differences correlate strongly with activations in the amygdala – an area of the brain commonly associated with social decision-making. Individual differences also correlate strongly with amygdala activations during herding decisions. These findings are used to construct a two stage least squares model of financial herding which confirms that individual differences and neural responses play a role in modulating the propensity to herd.
    Keywords: herding; social influence, individual differences, neuroeconomics, fMRI, amygdala
    JEL: D03 D53 D70 D83 D87 G11
    Date: 2012–05–09
  16. By: Engström, Per (Department of Economics, Uppsala University); Hägglund, Pathric (The Swedish Social Insurance Inspectorate (ISF)); Johansson, Per (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: This paper estimates the effects of early interventions in the Swedish sickness insurance system. The aim of the interventions is to screen and, further to, rehabilitate sick listed individuals. We find that the early interventions – in contrast to what is expected – increase the inflow into disability benefits by around 20 percent. In order to explain the results, we develop a simple theoretical model based on asymmetric information of the health status. The model predicts that the treatment effect is larger for individuals with low incentives to return to work. In order to test this prediction we estimate effects for sick listed employed and unemployed separately. Consistent with the model’s prediction, we find that the effect is larger for the unemployed than for the employed.
    Keywords: Monitoring; screening; vocation rehabilitation; disbility insurance; sickness insurances; unemployment insurance; randomized experiment
    JEL: C93 H51 H55 I18 J22
    Date: 2012–04–24
  17. By: Stephan Litschig; Yves Zamboni
    Abstract: We report results from a randomized experiment designed and implemented by the Brazilian central government audit agency to test whether increased audit risk deters corruption and waste in local public procurement and improves provision of public services. We measure waste and corruption as irregularities in local public procurement and service delivery uncovered by central government auditors. Our estimates suggest that increasing audit risk by about 20 percentage points reduced the proportion of non-competitive procurement modalities adopted by local managers by about 17 percent. Higher audit risk also reduced the proportion of local procurement processes involving waste or corruption by about 20 percent. In contrast, we find no evidence that increased audit risk affected the quality of publicly provided preventive and primary health care services, measured using client satisfaction surveys. Nor did higher audit risk seem to affect local compliance with national guidelines of the conditional cash transfer program Bolsa Famlia, measured in terms of appropriate inclusion of beneficiaries into the program or their compliance with health and education conditionalities.
    Keywords: Corruption, Rents, Local Governments, Law Enforcement
    JEL: D72 D73 D78 H41 H83 K42
    Date: 2012–02
  18. By: John Bone; Michalis Drouvelis; Indrajit Ray
    Abstract: We consider 2 x 2 games like Battle of the Sexes and Chicken, to test whether or not players are able to coordinate on pure Nash equilibria following recommendations from correlation devices. We use two different correlation devices, public and private, for these games, with the same expected payoffs, in equilibrium. We find that the players overall do achieve coordination by playing the recommended strategies. However, coordination and following recommendations vary significantly among these games.
    Keywords: Coordination, Public message, Recommendation, Correlated Equilibrium
    JEL: C72 C92 D83
    Date: 2012–05
  19. By: Damien Besancenot (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234); Delphine Dubart (ESSEC Business School - ESSEC Business School); Radu Vranceanu (Economics Department - ESSEC Business School)
    Abstract: Humans often lie strategically. We study this problem in an ultimatum game involving informed proposers and uninformed responders, where the former can send an unverifiable statement about their endowment. If there are some intrinsically honest proposers, a simple message game shows that the rest of them are likely to declare a lower-than-actual endowment to the responders. In the second part of the paper, we report on an experiment testing this game. On average, 88.5% of the proposers understate the actual endowment by 20.5%. Regression analysis shows that a one-dollar gap between the actual and declared amounts prompts proposers to reduce their offer by 19 cents. However, responders appear not to take such claims seriously, and thus the frequency of rejections should increase. The consequence is a net welfare loss, that is specific to such a "free-to-lie" environment.
    Keywords: Ultimatum game; Asymmetric information; Lying costs; Strategic lies; Deception; Welfare loss
    Date: 2012–04–16

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