nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒06‒05
sixteen papers chosen by
Daniel Houser
George Mason University

  1. Experimental Evidence on the Properties of the California’s Cap and Trade Price Containment Reserve. By Rachel Bodsky; Domenic Donato; Kevin James; David Porter
  2. Overdissipation and Convergence in Rent-seeking Experiments: Cost structure and prize allocation rules. By Subhasish M. Chowdhury; Roman M. Sheremeta; Theodore L. Turocy
  3. Moral Hypocrisy, Power and Social Preferences By Aldo Rustichini; Marie-Claire Villeval
  4. On the use of honesty priming task to mitigate hypothetical bias in choice By de Magistris, Tiziana; Gracia, Azucena; Nayga, Rodolfo M., Jr.
  5. The Carrot or the Stick: Water Allocation Strategies for Uzbekistan By Andrey Zaikin; Ana Espinola-Arredondo
  6. Competition in the workplace: An experimental investigation By Benndorf, Volker; Rau, Holger A.
  7. Aging and Attitudes Towards Strategic Uncertainty and Competition: An Artefactual Field Experiment in a Swiss Bank By Thierry Madiès; Marie-Claire Villeval; Malgorzata Wasmer
  8. Strategic Self-Ignorance By Thunström, Linda; Nordström, Jonas; Shogren, Jason F.; Ehmke, Mariah
  9. The Value and Cost of Restaurant Calorie Labels: Results from a Field Experiment By Ellison, Brenna D.; Lusk, Jayson L.; Davis, David W.
  10. Measuring risk aversion with lists: A new bias By Antoni Bosch-Domènech; Joaquim Silvestre
  11. Demand Reduction from Plain and Pictorial Cigarette Warning Labels: Evidence from Experimental Auctions By Rousu, Matthew C.; Thrasher, James F.
  12. Strategies of cooperation and punishment among students and clerical workers By M. Bigoni; G. Camera; M. Casari
  13. Learning for a bonus: How financial incentives interact with preferences By Uschi Backes-Gellner; Yvonne Oswald
  14. Ethnolinguistic Diversity and the Provision of Public Goods: Experimental Evidence from South Africa By Justine Burns; Malcolm Keswell
  15. Competition in Portfolio Management: Theory and Experiment By Elena Asparouhova; Peter Bossaerts; Jernej Copic; Brad Cornell; Jaksa Cvitanic; Debrah Meloso
  16. Impacts of "Right of First Refusal" on Competitiveness of Fed Cattle Markets: Results from an Economic Experiment By Koontz, Stephen R.

  1. By: Rachel Bodsky (Economic Science Institute, Chapman University); Domenic Donato (Economic Science Institute, Chapman University); Kevin James (Economic Science Institute, Chapman University); David Porter (Economic Science Institute, Chapman University)
    Abstract: We report on a series of experiments to examine the properties of California’s Reserve Sale allocation mechanism to be implemented as part of the forthcoming cap and trade program and compare it with an alternative reserve sale mechanism. The proposed reserve sale mechanism allows covered entities to purchase allowances after the primary auction sale at fixed prices. If demand for units is greater the amount supplied in the reserve sale, a Proportional Rationing rule is used to distribute allowances based on submitted request for units. This rule is contrasted with to an alternative rule, Equal Rationing in which allowances are allocated one at a time until the quantity available is exhausted or the participants’ requests are fulfilled. We find Equal Rationing outperforms Proportional Rationing allocating units with higher efficiency at a lower cost to participants. Additionally, we sorted subjects by quiz score, which yielded a significant impact on performance, suggesting that subjects with a better understanding of the environment outperformed their counterparts.
    Date: 2012
  2. By: Subhasish M. Chowdhury (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University, USA); Theodore L. Turocy (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich)
    Abstract: We study experimentally the effects of cost structure and prize allocation rules on the performance of rent-seeking contests. Most previous studies use a lottery prize rule and linear cost, and find both overdissipation relative to Nash equilibrium prediction and significant variation in individual subject efforts. In a 2 2 design, we investigate the effects of sharing the prize proportionally and of a convex cost function, while holding fixed the Nash equilibrium prediction for effort. We find that the share rule results in average effort closer to the Nash prediction, lower variation in individual efforts, and convergence of the distribution of individual efforts towards Nash over time. Combining the share rule with a convex cost function further enhances these results. Our findings indicate that a significant amount of subjects’ non-equilibrium behavior in contests can be explained by features of the experimental design. These results contribute towards design guidelines for contests based on behavioral principles that take into account contest features that may not affect the Nash equilibrium prediction. These lessons suggest design guidelines for future experiments on contests.
    Keywords: rent-seeking, contest, contest design, experiments, quantal response, over-dissipation
    JEL: C72 C91 D72
    Date: 2012
  3. By: Aldo Rustichini (Department of Economics, University of Minnesota, 1925 4th Street South, 4-101 Hanson Hall, Minneapolis, MN 55455-0462, U.S.); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We show with a laboratory experiment that individuals adjust their moral principles to the situation and to their actions, just as much as they adjust their actions to their principles. We first elicit the individuals’ principles regarding the fairness and unfairness of allocations in three different scenarios (a Dictator game, an Ultimatum game, and a Trust game). One week later, the same individuals are invited to play those same games with monetary compensation. Finally in the same session we elicit again their principles regarding the fairness and unfairness of allocations in the same three scenarios. Our results show that individuals adjust abstract norms to fit the game, their role and the choices they made. First, norms that appear abstract and universal take into account the bargaining power of the two sides. The strong side bends the norm in its favor and the weak side agrees : Stated fairness is a compromise with power. Second, in most situations, individuals adjust the range of fair shares after playing the game for real money compared with their initial statement. Third, the discrepancy between hypothetical and real behavior is larger in games where real choices have no strategic consequence (Dictator game and second mover in Trust game) than in those where they do (Ultimatum game). Finally the adjustment of principles to actions is mainly the fact of individuals who behave more selfishly and who have a stronger bargaining power. The moral hypocrisy displayed (measured by the discrepancy between statements and actions chosen followed by an adjustment of principles to actions) appears produced by the attempt, not necessarily conscious, to strike a balance between self-image and immediate convenience.
    Keywords: Moral hypocrisy, fairness, social preferences, power, self-deception
    JEL: D03 D63 C91 C7
    Date: 2012
  4. By: de Magistris, Tiziana; Gracia, Azucena; Nayga, Rodolfo M., Jr.
    Abstract: We test whether the use of an honesty priming task from the social psychology literature can help mitigate hypothetical bias in stated preference choice experiments (CE). Using a between-sample design, we conducted experiments with five treatments: (1) hypothetical CE without cognitive task, (2) hypothetical CE with cheap talk script, (3) hypothetical CE with neutral priming task, (4) hypothetical CE with honesty priming task, and (5) non-hypothetical CE. Results generally suggest that marginal willingness to pay estimates from treatment 4 where subjects are given honesty priming task before the choice experiment are not statistically different from marginal valuations from treatment 5 where subjects are in a non-hypothetical choice experiment. Values from both these treatments are significantly lower than those from other three hypothetical treatments (treatments 1-3). Using hold out tasks, our results also suggest that one could get higher percentage of correct predictions of participants’ choices in treatments 4 and 5 than in treatments 1-3 and that there is no significant difference in percentage of correct predictions between treatments 4 and 5.
    Keywords: hypothetical bias, cheap talk, priming, Willingness-to-pay, Marketing, Research Methods/ Statistical Methods, C23, D12, Q18,
    Date: 2012
  5. By: Andrey Zaikin; Ana Espinola-Arredondo (School of Economic Sciences, Washington State University)
    Abstract: Irrigation water is a constrained common-pool resource in Uzbekistan that leads to an increasing competition over its allocation among farmers. We examine how the management of the commons in this region affects individual strategic behavior. We conduct an experiment with farmers from Uzbekistan in which two policies are analyzed, a penalty and a bonus. The paper studies a non-cooperative game and identifies the efficient use of water for irrigation. We compare our theoretical results with the experimental observations. Our findings suggest that the penalty and bonus mechanisms are effective in reducing individual water appropriation compared to the benchmark case in which these mechanisms are absent. Finally, we identify two different effects that drive subjects’ opportunistic behavior.
    Keywords: Common-pool resources; Experiment; Non-Cooperative Games; Uzbekistan; Water
    JEL: Q25 C72 C93 H41
    Date: 2012–05
  6. By: Benndorf, Volker; Rau, Holger A.
    Abstract: We analyze competition between workers in a gift-exchange experiment where two workers are hired by the same employer. In the competition treatment the two employees simultaneously choose their effort whereas in the baseline treatment competition cannot occur since there is only one employee per employer. We find that in the competition treatment employers implicitly set tournament incentives by rewarding employees who choose higher effort levels than their co-workers. Here, employees' effort levels increase significantly faster, which can be explained by imitation learning. Furthermore we find that employers decrease their wage payments per unit of effort exerted over time when employing two workers. --
    Keywords: Gift Exchange,Competition,Internal Organization,Multiple Employees
    JEL: C91 J41 L22 M52
    Date: 2012
  7. By: Thierry Madiès (University of Fribourg, Bd de Pérolles 90, CH-1700 Fribourg, Switzerland); Marie-Claire Villeval (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Malgorzata Wasmer (University of Fribourg, Bd de Pérolles 90, CH-1700 Fribourg, Switzerland)
    Abstract: We study the attitudes of junior and senior employees towards strategic uncertainty and competition, by means of a market entry game inspired by Camerer and Lovallo (1999). Seniors exhibit higher entry rates compared to juniors, especially when earnings depend on relative performance. This difference persists after controlling for attitudes towards non-strategic uncertainty and for beliefs on others’ competitiveness and ability. Social image matters, as evidenced by the fact that seniors enter more when they predict others enter more and when they are matched with a majority of juniors. This contradicts the stereotype of risk averse and less competitive older employees.
    Keywords: Aging, risk, ambiguity, competitiveness, self-image, confidence, experiment
    JEL: C91 D83 J14 J24 M5
    Date: 2012
  8. By: Thunström, Linda; Nordström, Jonas; Shogren, Jason F.; Ehmke, Mariah
    Abstract: This paper analyzes if people use ignorance as an excuse to pursue immediate gratification, at the expense of future wellbeing, a behavior we label ‘strategic self-ignorance’. In a theoretical model we show that present-biased individuals benefit from choosing ignorance of the potentially negative impact of present consumption, and that ignorance leads to over consumption of harmful goods. In an experiment we empirically test for strategic self-ignorance. The experiment entails prepared meals, for which subjects may be familiar with the taste (immediate utility) but are uninformed of the calorie content (potential harm to future health). Subjects are offered costless information on the calorie content of the meal alternatives. A majority of subjects (58 percent) choose to remain ignorant of the calorie content, and ignorance leads to a significantly higher intake of calories. Our results imply that people are strategically self-ignorant and that such behavior may help explain over consumption of harmful goods.
    Keywords: strategic ignorance, harmful consumption, experiment, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Health Economics and Policy,
    Date: 2012
  9. By: Ellison, Brenna D.; Lusk, Jayson L.; Davis, David W.
    Abstract: Using field experiment data, we estimate a structural model of consumer demand to determine the value of information for restaurant menu labels. Our experimental design allows us to compare the effectiveness of calorie labels to a “fat tax” at reducing caloric intake. Results show numeric labels did not influence demand, but symbolic traffic light labels reduced the marginal utility of caloric intake. Our model projects both labels would reduce intake more than high-calorie taxes or low-calorie subsidies. Ultimately, traffic light calorie labels led to the largest reduction in caloric intake but also one of the largest reductions in restaurant net returns.
    Keywords: menu labeling, full-service restaurant, calorie taxes/subsidies, restaurant net returns, Food Consumption/Nutrition/Food Safety, I18, D04,
    Date: 2012
  10. By: Antoni Bosch-Domènech; Joaquim Silvestre (Department of Economics, University of California Davis)
    Abstract: Various experimental procedures aimed at measuring individual risk aversion involve a list of pairs of alternative prospects. We first study the widely used method by Holt and Laury (2002), for which we find that the removal of some items from the lists yields a systematic decrease in risk aversion. This bias is quite distinct from other confounds that have been previously observed in the use of the Holt and Laury method. It may be related to empirical phenomena and theoretical developments where better prospects increase risk aversion. Nevertheless, we have also found that the more recent elicitation method due to Abdellaoui et al. (2011), also based on lists, does not display any statistically significant bias when the corresponding items of the list are removed. Our results suggest that methods other than the popular Holt and Laury one may be preferable for the measurement of risk aversion.
    Keywords: Risk aversion, risk attitudes, experiments, lists, elicitation method, Holt, Laury, Abdellaoui, Driouchi, l’Haridon, independence axiom
    JEL: C
    Date: 2012–05–20
  11. By: Rousu, Matthew C.; Thrasher, James F.
    Keywords: Health Economics and Policy, Institutional and Behavioral Economics,
    Date: 2012
  12. By: M. Bigoni; G. Camera; M. Casari
    Abstract: We study individual behavior of students and workers in an experiment where they repeatedly faced with the same cooperative task. The data show that clerical workers differ from college students in overall cooperation rates, strategies adopted, and use of punishment opportunities. Students cooperate more than workers, and cooperation increases in both subject pools when a personal punishment option is available. Students are less likely than workers to adopt strategies of unconditional defection and more likely to select strategies of conditional cooperation. Finally, students are more likely than workers to sanction uncooperative behavior with decentralized punishment and also personal punishment when available.
    JEL: C90 C70 D80
    Date: 2012–05
  13. By: Uschi Backes-Gellner (Department of Business Administration, University of Zurich); Yvonne Oswald (Department of Business Administration, University of Zurich)
    Abstract: This paper investigates the effect of financial incentives on student performance and analyzes for the first time how the incentive effect in education is moderated by students’ risk and time preferences. To examine this interaction we use a natural experiment that we combine with data from surveys and economic experiments on risk and time preferences. We not only find that students who are offered financial incentives for better grades have on average better first- and second-year grade point averages, but more importantly, we find that highly impatient students respond more strongly to financial incentives than less impatient students. This finding suggests that financial incentives are most effective if they solve educational problems of myopic students.
    Keywords: Student performance; Financial incentive; Time preference; Risk preference
    JEL: I20 C91
    Date: 2012–05
  14. By: Justine Burns; Malcolm Keswell (SALDRU, School of Economics, University of Cape Town)
    Abstract: This paper utilises techniques in experimental economics to investigate the impact of racial identity on the provision of public goods. A large sample of Black and White undergraduate University students were recruited to participate in public goods games, where the racial composition of the groups was varied to include All White groups, All Black groups and mixed race groups (comprising Black and White students). The results show that contrary to predictions from social identity theory, racial homogeneity in a group does not uniformly predict higher contributions to the public pool. Rather, it would appear that observable racial identity may convey information about extensive heterogeneity as opposed to homogeneity, especially where race is highly correlated with diversity in other dimensions, such as ethnolinguistic diversity. In accordance with the established macroeconometric literature on the provision of public goods, the results presented in this study show that contributions to the public good are indeed increasing in the level of trust in a group, and declining in the extent of ethnolinguistic diversity and socio-economic need in the group. Moreover, while communication has a large and significant effect on contributions to the public pool, patterns of communication are a ected by the racial composition of the group, with Black students appearing to be more responsive to communications made by White colleagues as opposed to Black colleagues. Hence, communication is not effective at sustaining co-operation in racially homogenous Black groups, possibly because communication in these groups allows participants to verify the greater diversity on other dimensions amongst group members.
    Date: 2011
  15. By: Elena Asparouhova; Peter Bossaerts; Jernej Copic; Brad Cornell; Jaksa Cvitanic; Debrah Meloso
    Abstract: We develop a new theory of delegated investment whereby managers compete in terms of composition of the portfolios they promise to acquire. We study the resulting asset pricing in the inter-manager market. We incentivize investors so that we obtain sharp predictions. Managers are paid a fixed fraction of fund size. In equilibrium, investors choose managers who offer portfolios that mimic Arrow-Debreu (state) securities. Prices in the inter-manager market are predicted to satisfy a weak version of the CAPM: state-price probability ratios implicit in prices of traded assets decrease in aggregate wealth across states. An experiment involving about one hundred participants over six weeks broadly supports the theoretical predictions. Pricing quality declines, however, when fund concentration increases because funds flow towards managers who offer portfolios closer to Arrow-Debreu securities (as in the theory) and who had better recent performance (an observation unrelated to the theory).
    Date: 2012
  16. By: Koontz, Stephen R.
    Keywords: Right-of-First Refusal, Market Power, Fed Cattle Markets, Industrial Organization, Marketing,
    Date: 2012

This nep-exp issue is ©2012 by Daniel Houser. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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