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on Experimental Economics |
| By: | Shachat, Jason; Zhang, Zhenxuan |
| Abstract: | We report on an experiment investigating whether the Hayak Hypothesis (Smith, 1982) extends to the long run setting. We consider two environments; one with a common production technology having a U-shaped long run average cost curve and a single competitive equilibrium, and another with a common constant returns to scale technology having a constant long run average cost curve and multiple competitive equilibria. While there is convergence in both environments to the long run equilibrium, it takes longer and is less robust than usually observed in the short run setting. We show that price formation is adaptive and quickly converges to realized short run equilibrium, but long run investment decisions exhibit very limited rationality. We present and estimate an investment choice model that shows that only minimal rationality, coupled with repeated decisions, is enough to achieve high long run allocative efficiency when markets use continuous double auctions. |
| Keywords: | Experiment; Double Auction; Hayek Hypothesis; Long Run Equilibrium; Bounded Rationality |
| JEL: | C92 D41 D01 |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39579&r=exp |
| By: | James C. Cox; Vjollca Sadiraj; Ulrich Schmidt |
| Abstract: | A common methodology in experimental research is the use of random incentive mechanisms. This note investigates possible distortion induced by such mechanisms in the context of choice under risk. In the baseline (one task) treatment of our experiment we observe risk behavior in a given choice problem. We show that by integrating a second, asymmetrically dominated choice problem in a random incentive mechanism behavior can be systematically manipulated. This implies that the isolation hypothesis is violated and the random incentive mechanism does not elicit true preferences in our example. |
| Keywords: | random incentive mechanism, isolation, asymmetrically dominated alternatives |
| JEL: | C91 D81 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2012-10&r=exp |
| By: | Nikiforakis, Nikos; Oechssler, Jörg; Shah, Anwar |
| Abstract: | The power to coerce workers is important for the efficient operation of hierarchically structured organizations. However, this power can also be used by managers to exploit their subordinates for their own benefit. We examine the relationship between the power to coerce and exploitation in a laboratory experiment where a senior and a junior player interact repeatedly for a finite number of periods. We find that senior players try repeatedly to use their power to exploit junior workers. These attempts are successful only when junior workers have incomplete information about how their effort impacts on the earnings of senior players, but not when they have complete information. Evidence from an incentive-compatible questionnaire indicates that the social acceptability of exploitation depends on whether the junior worker can detect she is being exploited. We also show how a history of exploitation affects future interactions. |
| Keywords: | coercion; exploitation; disobedience; hierarchy; social norms. |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0530&r=exp |
| By: | Janet Currie; Wanchuan Lin; Juanjuan Meng |
| Abstract: | The overuse of medical services including antibiotics is often blamed on Physician Induced Demand. But since this theory is about physician motivations, it is difficult to test. We conduct an audit study in which physician financial incentives, beliefs about what patients want, and desires to reciprocate for a small gift are systematically varied. We find that all of these treatments reduce antibiotics prescriptions, suggesting that antibiotics abuse in China is not driven by patients actively demanding antibiotics, by physicians believing that patients want antibiotics, or by physicians believing that antibiotics are in the best interests of their patients, but is largely driven by financial incentives. Our results also show that physician behavior can be significantly influenced by the receipt of a token gift, such as a pen. |
| JEL: | I11 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18153&r=exp |
| By: | Eichberger, Jürgen; Oechssler, Jörg; Schnedler, Wendelin |
| Abstract: | As illustrated by the famous Ellsberg paradox, many subjects prefer to bet on events with known rather than with unknown probabilities, i.e., they are ambiguity averse. In an experiment, we examine subjects’ choices when there is an additional source of ambiguity, namely, when they do not know how much money they can win. Using a standard independence assumption, we show that ambiguity averse subjects should continue to strictly prefer the urn with known probabilities. In contrast, our results show that many subjects no longer exhibit such a strict preference. This should have important ramifications for modeling ambiguity aversion. |
| Keywords: | ambiguity aversion; uncertainty; minmax-expected utility |
| JEL: | D81 C91 |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0528&r=exp |
| 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 selfregarding 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 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1306&r=exp |
| By: | Gheyssens, Jonathan; Gunther, Isabel |
| Abstract: | The aim of this paper is to expand our knowledge on risk aversion among the poor by conducting experiments that do not only test risk aversion in small and large stakes but also in risky gains and risky losses. To our knowledge, this is the first attempt |
| Keywords: | risk aversion; loss aversion; religion |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-38&r=exp |
| By: | Duersch, Peter; Oechssler, Jörg; Schipper, Burkhard C. |
| Abstract: | We show that in symmetric two-player exact potential games, the simple decision rule "imitate-if-better" cannot be beaten by any strategy in a repeated game by more than the maximal payoff difference of the one-period game. Our results apply to many interesting games including examples like 2x2 games, Cournot duopoly, price competition, public goods games, common pool resource games, and minimum effort coordination games. |
| Keywords: | Imitate-the-best; learning; exact potential games; symmetric games; relative payoffs; zero-sum games |
| JEL: | D43 C73 C72 |
| Date: | 2012–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0529&r=exp |
| By: | Nicola Gennaioli; Andrei Shleifer; Robert W. Vishny |
| Abstract: | We present a new model of money management, in which investors delegate portfolio management to professionals based not only on performance, but also on trust. Trust in the manager reduces an investor’s perception of the riskiness of a given investment, and allows managers to charge higher fees to investors who trust them more. Money managers compete for investor funds by setting their fees, but because of trust the fees do not fall to costs. In the model, 1) managers consistently underperform the market net of fees but investors still prefer to delegate money management to taking risk on their own, 2) fees involve sharing of expected returns between managers and investors, with higher fees in riskier products, 3) managers pander to investors when investors exhibit biases in their beliefs, and do not correct misperceptions, and 4) despite long run benefits from better performance, the profits from pandering to trusting investors discourage managers from pursuing contrarian strategies relative to the case with no trust. We show how trust-mediated money management renders arbitrage less effective, and may help destabilize financial markets. |
| JEL: | G11 G23 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18174&r=exp |