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on Experimental Economics |
| By: | Alessandra Casella (Columbia University, NBER and CEPR); Aniol Llorente-Saguer (Max Planck Institute for Research on Collective Goods, Bonn); Thomas R. Palfrey (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | We develop a competitive equilibrium theory of a market for votes. Before voting on a binary issue, individuals may buy and sell their votes with each other. We define the concept of ex ante vote-trading equilibrium, and show by construction that an equilibrium exists. The equilibriumwe characterize always results in dictatorship if there is any trade, and the market for votes generates welfare losses, relative to simple majority voting, if the committee is large enough or the distribution of values not very skewed. We test the theoretical implications by implementing a competitive vote market in the laboratory using a continuous open-book multi-unit double auction. |
| Keywords: | Experiments, voting, Markets, Vote Trading, Competitive Equilibrium |
| JEL: | C92 C72 D70 P16 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2012_03&r=exp |
| By: | Jacob K. Goeree; Jingjing Zhang |
| Abstract: | Charness and Dufwenberg (American Economic Review, June 2011, 1211-1237) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their finding and check its robustness by introducing competition between agents. We find that communication and competition act as "substitutes:" communication raises efficiency in the absence of competition but lowers efficiency with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories. |
| Keywords: | Cheap talk, adverse selection, competition, guilt aversion, lie aversion, inequality aversion, reciprocity |
| JEL: | C92 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:074&r=exp |
| By: | Jacob K. Goeree; Jingjing Zhang |
| Abstract: | Traders' values and information typically consist of both private and common-value elements. In such environments, full allocative efficiency is impossible when the private rate of information substitution differs from the social rate (Jehiel and Moldovanu, 2001). We link this impossibility result to a failure of the efficient market hypothesis, which states that prices adequately reflect all available information (Fama, 1970, 1991). The intuition is that if prices were able to reveal all information then the common value would simply shift traders' private values by a known constant and full allocative efficiency would result. In a series of laboratory experiments we study price formation in markets with private and common values. Rational expectations, which form the basis for the efficient market hypothesis, predict that the introduction of common values has no adverse consequences for allocative and informational efficiency. In contrast, a "private" expectations model in which traders' optimal behavior depends on both their private and common-value information predicts that neither full allocative nor full informational efficiency is possible. We test these competing hypotheses and find that the introduction of common values lowers allocative efficiency by 28% on average, as predicted by the private expectations model, and that market prices differ significantly and substantially from their rational expectation levels. Finally, a comparison of observed and predicted payoffs suggests that observed behavior is close to the equilibrium predicted by the private expectations model. |
| Keywords: | Efficient market hypothesis, informational and allocative efficiency, experiments |
| JEL: | C92 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:072&r=exp |
| 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). According to two different measures, we find evidence that the low load subjects behave more strategically. First, the behavior of the low load subjects converged to the Subgame Perfect Nash Equilibrium prediction at a faster rate than the high load subjects. Second, we find evidence that low load subjects were better able to condition their behavior on the outcomes of previous periods. |
| Keywords: | bounded rationality; experimental economics; experimental game theory; public goods game; strategic sophistication; rational inattention |
| JEL: | C72 C91 |
| Date: | 2012–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38825&r=exp |
| By: | Morone, Andrea; Ozdemir, Ozlem |
| Abstract: | This experimental study investigates insurance decisions in low-probability, high-loss risk situations. Results indicate that subjects consider the probability of loss (loss size) when they make buying decisions (paying decisions). Most individuals are risk averse with no specific threshold probability. |
| Keywords: | Black swan; Risk; Insurance; Low probability; High loss; Experiment |
| JEL: | D81 C91 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38842&r=exp |
| By: | Luca Corazzini, Christopher Cotton, Paola Valbonesi |
| Abstract: | We present results from a multiple public goods experiment, where each public good produces benefits only if total contributions to it reach a minimum threshold. The experiment allows us to compare subjects' behavior in a benchmark treatment with a single public good and in treatments with more public goods than can be funded. We show how the availability of additional, more-efficient public goods may not make subjects better off. This is because additional options decrease the probability of coordination and discourage contributions. Introducing additional, less-efficient options does not alter coordination and contributions relative to the benchmark. |
| Keywords: | threshold public goods, multiple public goods, salience, efficiency, laboratory experiment |
| JEL: | C91 C92 H40 H41 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:slp:islawp:islawp44&r=exp |
| By: | Christoph Helbach; Klemens Keldenich; Michael Rothgang; Guanzhong Yang |
| Abstract: | In the public promotion of R&D cluster and network formation, the following situation typically arises: An initial network structure has developed over a long time span and policy measures affect the structure of links between the actors. This new network structure influences the effectiveness of the information flow in a way that is not clear from the beginning. As analyzing the effects of a change in the network structure is difficult in the field, this paper uses a laboratory experiment to analyze how information is distributed in four different network structures. Networks are modeled as five-actor groups. Every individual represents a node and possesses some private information. The experimental results suggest that the different network structures do indeed influence the way information is exchanged. Both too many possible links (causing a coordination problem) and too few possible links (introducing bottlenecks) are harmful. The participants in all network structures learn over time and achieve a faster exchange of information in the later rounds. These results suggest that when influencing communication structures, one has to be careful to balance the positive and negative effects of adding more communication possibilities. |
| Keywords: | Network; communication; laboratory experiment; information flow |
| JEL: | C93 D70 D81 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0332&r=exp |
| By: | Robin, Stéphane (CNRS, GATE); Rusinowska, Agnieszka (Paris School of Economics); Villeval, Marie Claire (CNRS, GATE) |
| 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: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6530&r=exp |
| By: | Ellison, Brenna D.; Lusk, Jayson L.; Davis, David W. |
| Abstract: | In an effort to help Americans make healthier food choices, U.S. lawmakers recently mandated certain restaurants to add calorie labels to their menus. In this study, we implement the same numeric calorie labels in two different full service restaurants using two different experimental designs. Ultimately, both field experiments lead us to the same conclusion: the numeric calorie label (as currently proposed by the FDA) had little effect on total caloric intake. Our results do reveal, however, that the effectiveness of the numeric label could be enhanced with the addition of a traffic light symbol identifying low-, medium-, and high-calorie items. |
| Keywords: | menu labeling, numeric and symbolic calorie labels, restaurant revenue, full service restaurant, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Institutional and Behavioral Economics, Q19, I18, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123325&r=exp |
| By: | Claudia M. Buch (University of Tübingen, IAW, and CESifo); Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | Building on a theoretical model we test the hypothesis that effort choices and preferences for redistribution are simultaneously determined. Using cross-country panel data from the World Value Survey, we find that it is important to model preferences for redistribution and effort choices simultaneously. While respondents with stronger preferences for redistribution tend to have smaller incentives to engage in effort, the reverse does not hold true. Using a lab experiment, we show that redistribution choices even increase in imposed effort. Those with higher ability are willing to help the needy if earning income becomes more difficult for everybody. |
| Keywords: | Redistribution, experiment, Effort, World Value Survey, simultaneous equation models |
| JEL: | C91 C31 D31 J28 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2012_10&r=exp |
| By: | HHironori Otsubo (Faculty of Economics, Soka University, Tokyo) |
| Abstract: | This paper experimentally investigates the effect of limits on campaign spending and outcome in an electoral contest where two candidates, an incumbent and a challenger, compete for office in terms of the amount of campaign expenditure. The candidates are asymmetric only in that the incumbent wins the contest in case of a tie. Theory predicts that in the presence of such asymmetry spending limits put the challenger at a disadvantage and tightening the limits leads to further entrenchment of the incumbent. The experimental results confirmed the theoretical predictions regarding the effect of limits on campaign spending and outcome but yielded partial support to other predictions. |
| Keywords: | Contest, All-pay auction, Spending limit, Incumbency advantage, Experiment |
| JEL: | C72 C92 D72 |
| Date: | 2012–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-020&r=exp |
| By: | M. Bigoni; S. Bortolotti; M. Casari; D. Gambetta |
| Abstract: | Social life offers innumerable instances in which trust relations involve multiple agents. In an experiment, we study a new setting called Collective Trust Game where there are multiple trustees, who may have an incentive to coordinate their actions. Trustworthiness has also a strategic motivation, and the trusters' decision depends upon their beliefs about the predominant convention with regard to trustworthiness. In this respect, the Collective Trust Games offers a richer pattern of behavior than dyadic games. We report that the levels of trustworthiness are almost thirty percentage points higher when strategic motivations are present rather than not. Higher levels of trustworthiness also led to higher levels of trust. Moreover, strategic motives appear as a major drive for trustees, comparable in size to positive reciprocity, and more important than concerns for equality. |
| JEL: | C92 C72 D03 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp827&r=exp |
| By: | Rodney J. Andrews; Trevon D. Logan; Michael J. Sinkey |
| Abstract: | Laboratory experiments have established the existence of cognitive biases, but their explanatory power in real-world economic settings has been difficult to measure. We estimate the extent of a cognitive bias, confirmatory bias, among experts in a real-world environment. In the Associated Press Top 25 College Football Poll expert pollsters are tasked with assessing team quality, and their beliefs are treated week-to-week with game results that serve as signals about an individual team's quality. We exploit the variation provided by actual game results relative to market expectations to develop a novel regression-discontinuity approach to identify confirmatory bias in this real-world setting. We construct a unique personally-assembled dataset that matches more than twenty years of individual game characteristics to poll results and betting market information, and show that teams that slightly exceed and barely miss market expectations are exchangeable. The likelihood of winning the game, the average number of points scored by teams and their opponents, and even the average week of the season are no different between teams that slightly exceed and barely miss market expectations. Pollsters, however, significantly upgrade their beliefs about a team's quality when a team slightly exceeds market expectations. The effects are sizeable-- nearly half of the voters in the poll rank a team one slot higher when they slightly exceed market expectations; one-fifth of the standard deviation in poll points in a given week can be attributed to confirmatory bias. This type of updating suggests that even when informed agents make repeated decisions they may act in a manner which is consistent with confirmatory bias. |
| JEL: | D01 D03 N32 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18064&r=exp |
| By: | Xavier Giné; Jessica Goldberg; Dan Silverman; Dean Yang |
| Abstract: | The very poor in developing countries often make intertemporal choices that seem at odds with their individual self-interest. There are many possible reasons why. We investigate several of these reasons with a lab-in-the-field experiment in rural Malawi involving large stakes. We make two contributions. First, we construct a new dependent variable: revisions of prior choices regarding the allocation of future income. This allows us to directly examine intertemporal choice revision and its determinants. In particular, this dependent variable permits a novel test for the existence of self-control problems: we find that revisions of money allocations toward the present are positively associated with measures of present-bias from an earlier baseline survey, as well as the (randomly assigned) closeness in time to the first possible date of money disbursement. Second, we investigate other potential determinants of revision, aside from self-control problems. We find little evidence that revisions of money allocations toward the present are associated with spousal preferences for such revision, household shocks or the financial sophistication of respondents. |
| JEL: | D81 D91 O10 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18065&r=exp |
| By: | Uwe Dulleck (QUT); David Johnston (Monash University); Rudolf Kerschbamer (University of Innsbruck); Matthias Sutter (University of Gothenburg) |
| Abstract: | Evidence on behavior of experts in credence goods markets raises an important causality issue: Do "fair prices" induce "good behavior", or do "good experts" post "fair prices"? To answer this question we propose and test a model with three seller types: "the good" choose fair prices and behave consumer-friendly; "the bad" mimic the good types' price-setting, but cheat on quality; and "the naive" fall victim to a projection bias that all sellers behave like the bad types. OLS, sample selection and fixed effects regressions support the model’s predictions and show that causality goes from good experts to fair prices. |
| Keywords: | Credence Goods, Experts, Pricing, |
| JEL: | C91 L15 D82 D40 |
| Date: | 2012–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2012_4&r=exp |
| By: | Julie Poirier (CREST) |
| Abstract: | This paper deals with the protest bids issue in choice experiments. In the context of the Water Framework Directive, we examined local residents’ preferences for water quality improvements at a specific river basin in France. We used the choice experiment method with site-specific attributes referring to the four sites that compose our basin. We first estimated a random parameters logit model in order to take into account heterogeneity of preferences. We found positive willingness-to-pay for improvements in water quality. Moreover we observed that a significant proportion of respondents always chose the status quo scenario (which referred to the current management regime and was associated with a zero price) irrespective of the choice set she was presented. Status quo responses are considered as being zero bids and may be categorized into two types: true zero bids, where the respondent really places a zero value on the good, and protest bids, where the respondent states a zero willingness-topay even though her true value for the good is positive. We excluded protest bids from the analysis and re-estimated our random parameters logit model. Results showed that protest bids do affect the outcome. In order to take into account the existence of the two types of zero bids when estimating willingness-to-pay, we then proposed a cross-nested logit model. Implicit prices obtained from this model estimation are larger than those obtained from the random parameters logit model estimation. As a result, the cross-nested logit model allows taking into consideration the peculiarity of protest behaviors |
| Keywords: | Choice experiments; Cross-nested logit model; Protest bids; Water Framework Directive;Water quality |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2012-02&r=exp |
| By: | Hanks, Andrew S.; Just, David R.; Wansink, Brian |
| Abstract: | A key goal of the Healthy, Hungry-Free Kids Act of 2010 is to ensure that children have access to healthy foods in schools. While the new policy mandates that healthy items must be included on the lunch line—and even that children must take certain foods—there is concern both over whether children will choose to eat the healthier fare, and what the ultimate cost may be to schools that comply. We propose a series of behavioral nudges–the total lunchroom makeover–that may help lead children to make healthier choices at little cost the schools in accordance with the goals of the new legislation.. We report the results from a field experiment in which a series of nudges lead to significant increases in the consumption of fruits and vegetables—a substantive step in the right direction. |
| Keywords: | Food Consumption/Nutrition/Food Safety, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaeafe:123388&r=exp |