nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒07‒08
eighteen papers chosen by
Daniel Houser
George Mason University

  1. Let's Talk: How Communication Affects Contract Design By Jordi Brandts; Gary Charness; Matthew Ellman
  2. Estimation of the House Money Effect Using Hurdle Models By Christoph Engel; Peter G. Moffat
  3. Public projects benefiting some and harming others: three experimental studies By Werner Güth; Anastasios Koukoumelis; M. Vittoria Levati; Matteo Ploner
  4. Parametric Recoverability of Preferences By Halevy, Yoram
  5. Time Consistency: Stationarity and Time Invariance By Halevy, Yoram
  6. Do monetary incentives and chained questions affect the validity of risk estimates elicited via the Exchangeability Method? An experimental investigation By Cerroni, Simone; Notaro, Sandra; Shaw, W. Douglass
  7. Honestly, why are you donating money to charity? An experimental study about self-awareness in status- seeking behavior By Mitesh Kataria; Tobias Regner
  8. Risk Attitude, Beliefs, and Information in a Corruption Game - An Experimental Analysis By Siegfried K. Berninghaus; Sven Haller; Tyll Krüger; Thomas Neumann; Stephan Schosser; Bodo Vogt
  9. Heterogeneous Reactions to Hoterogneity in Returns from Public Goods By Urs Fischbacher; Simeon Schudy; Sabrina Teyssier
  10. Comparison of the investment behavior of Kazakhstani and German farmers: An experimental approach By Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
  11. Retaliation and the Role for Punishment in the Evolution of Cooperation By Irenaeus Wolff
  12. Information Acquisition under (Im)perfect Data Privacy By Simeon Schudy; Verena Utikal
  13. Impact of Price Floors: A Real Options Based Experimental Approach By Maart, Syster Christin; Musshoff, Oliver; Maack, Moritz
  14. Stop Watching and Start Listening! The Impact of Coaching and Peer Observation in tournaments By Gerald Eisenkopf; Tim Friehe
  15. Approximate truth of perfectness: An experimental test By Berninghaus, Siegfried; Güth, Werner; Li, King King
  16. The economic potential for an origin based marketing and certification system for a meat product in South Africa: Perceptions, preferences, and experiments. By Kirsten, Johann F.; Vermeulen, Hester; Van Zyl, Karlien; Du Randt, Gerrie; Du Plessis, H.; Weissnar, Tessa
  17. Interactive and Moral Reasoning: A Comparative Study of Response Times By Pablo Branas-Garza; Debrah Meloso; Luis Miller
  18. Strategic Reasoning in Hide-and-Seek Games: A Note By Timo Heinrich; Irenaeus Wolff

  1. By: Jordi Brandts; Gary Charness; Matthew Ellman
    Abstract: We study experimentally how the ability to communicate affects the frequency and effectiveness of flexible and inflexible contracts in a bilateral trade context where sellers can adjust trade quality after observing a post-contractual cost shock and a discretionary buyer transfer. In the absence of communication, we find that rigid contracts are more frequent and lead to higher earnings for both buyer and seller. By contrast, in the presence of communication, flexible contracts are much more frequent and considerably more productive, both for buyers and sellers. Also, both buyer and seller earn considerably more from flexible with communication than rigid without communication. Our results show quite strongly that communication, a normal feature in contracting, can remove the potential cost of flexibility (disagreements caused by conflicting perceptions). We offer an explanation based on social norms.
    Keywords: Communication, contracts, perceptions and cooperation
    JEL: C91 D03 D63 J41 D86
    Date: 2012–06
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Peter G. Moffat (School of Economics, University of East Anglia, Norwich, UK)
    Abstract: Evidence from an experiment investigating the “house money effect” in the context of a public goods game is reconsidered. Analysis is performed within the framework of the panel hurdle model, in which subjects are assumed to be one of two types: free-riders, and potential contributors. The effect of house money is seen to be significant in the first hurdle: specifically, house money makes a subject more likely to be a potential contributor. Hence we find that the effect of house money is more than just an effect on behaviour; it has the effect of changing a subject from one type to another. This result is potentially important in the external validity debate.
    Keywords: Public Good Experiment, Hurdle Model, double hurdle model, Tobit, panel data
    JEL: H41 D63 D64 C91 D62 D03 C24 C23
    Date: 2012–05
  3. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Anastasios Koukoumelis (Max Planck Institute of Economics, Strategic Interaction Group, Jena); M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group, Jena, and Department of Economics, University of Verona); Matteo Ploner (DECO-CEEL, University of Trento)
    Abstract: Based on an axiomatically derived provision rule allowing community members to endogenously determine which, if any, public project should be provided, we perform experiments where (i) not all parties benefit from provision, and (ii) the projects' "costs" can be negative. In the tradition of legal mechanism design, the proposed provision rule is widely applicable. Additionally, it relies on intuitive fairness and profitability requirements. Our results indicate that the provision rule is conducive to efficiency, despite its multiplicity of equilibria and un- derbidding incentives. The only condition is that the cost of the most efficient project is positive.
    Keywords: Public project, Bidding behavior, Procedural fairness
    JEL: C72 C92 D63 H44
    Date: 2012–07–02
  4. By: Halevy, Yoram
    Abstract: We propose a procedure to recover parametric preferences from choices made from convex budget sets. The objective of the method is to minimize the inconsistency between the revealed preference information contained in the choices and the ranking information contained in the recovered preferences. For a given parametric utility function the procedure calculates, for every choice, the minimal proportional adjustment to the budget such that the two rankings are aligned. The closest element in a parametric family is found by minimizing a metric that is based on these minimal adjustments. Additionally, we show that this method can be used to recover approximate preferences even for inconsistent decision makers. The goodness of ï¬t of such approximation can be decomposed into a familiar measure of inconsistency and a natural measure of misspeciï¬cation. This decomposition provides a reasonable way to test restrictions and to select among different parametric models. We apply this method to a data set constructed in a lab experiment on choice under risk. The recovered utility structure(within the same parametric family) exhibits, on average, higher ï¬rst-order risk aversion (non-expected utility) and lower second-order risk aversion (expected utility), thanthe standard method that is based on statistical distance.
    Keywords: Revealed Preference, Recoverability of Preferences, GARP, non-expected utility, risk aversion
    Date: 2012–06–30
  5. By: Halevy, Yoram
    Abstract: A sequence of experiments documents static and dynamic "preference reversals" between sooner-smaller and later-larger rewards, when the sooner reward could be immediate. The theoretically-motivated design permits separate identification of time-consistent, stationary and time-invariant choices. Half of the subjects are time consistent, but only two-thirds of them exhibit stationary choices. About half of subjects with time inconsistent choices have stationary preferences. These results challenge the view that present-bias preferences are the main source of time inconsistent choices.
    Keywords: Discounting, dynamic consistency, present bias, stability
    JEL: D03 D81 D91 C91
    Date: 2012–06–24
  6. By: Cerroni, Simone; Notaro, Sandra; Shaw, W. Douglass
    Abstract: Using a laboratory experiment, we investigate the validity of stated risks elicited via the Exchangeability Method (EM) using an evaluation method based on de Finetti’s notion of coherence, under which probability estimates are valid if and only if they obey all axioms of probability theory. The validity of risk estimates elicited through the EM has been theoretically questioned because the chained structure of the game is thought to potentially undermine the incentive compatibility of the elicitation mechanism even when real monetary incentives are provided. We investigate this by designing and implementing four experimental treatments. Respondents are divided in two initial treatment groups: in the first, they are provided with real monetary incentives, and in the second, subjects are not. Each group is further sub-divided in two treatment groups, in the first, the chained structure of the experimental design made quite clear to the subjects, while, in the second, the chained structure is hidden by resorting the elicitation questions. The superiority of real monetary incentives is not evident when people are presented with chained experimental design.
    Keywords: Risk elicitation, Exchangeability, Validity, Pesticide residue, Apples, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, Risk and Uncertainty, C44, D81, I10,
    Date: 2012–06
  7. By: Mitesh Kataria (Max Planck Institute of Economics, Jena, Germany); Tobias Regner (Max Planck Institute of Economics, Jena, Germany)
    Abstract: This study investigates experimentally whether people in retrospective are self-aware that they engage in status-seeking behavior. Subjects participated in a real-effort task where effort translated into a donation to a charity. Within-subjects we varied the visibility of their performance (private/public feedback). On average subjects exerted more effort in the public treatment. After the real effort task subjects were asked to state their retrospective beliefs about their performance in public given feedback about their performance in private, and about the performance of other subjects in public given the average performance in private. Between-subjects we varied the compensation (low/high) for accurate estimates. Our results show a lack of self-awareness about status-seeking behavior that is robust to increased belief compensation. We also found that subjects expected others to be as status-seeking as they are themselves or even less.
    Keywords: Social status, self-image, self-awareness, self-deception, experiment, beliefs
    JEL: C91 D03 D84
    Date: 2012–07–02
  8. By: Siegfried K. Berninghaus (Karlsruhe Institute of Technology (KIT), Institute for Economic Theory and Statistics); Sven Haller (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management); Tyll Krüger (University of Bielefeld, Research Center BiBoS); Thomas Neumann (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management); Stephan Schosser (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management); Bodo Vogt (Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management)
    Abstract: For our experiment on corruption, we designed a coordination game to model the influence of risk attitudes, beliefs, and information on behavioral choices and determined the equilibria. We observed that the participants' risk attitudes failed to explain their choices between corrupt and non-corrupt behavior. Instead, beliefs appeared to be a better predictor of whether or not they would opt for the corrupt alternative. Furthermore, varying the quantity of information available to players (modeled by changing the degree of uncertainty) provided additional insight into the players' propensity to engage in corrupt behavior. The experimental results show that a higher degree of uncertainty in the informational setting reduces corruption.
    Keywords: Corruption, game theory, experiment, risk attitude, beliefs
    JEL: D73 K42 C91 C92
    Date: 2012–07–02
  9. By: Urs Fischbacher (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany); Simeon Schudy (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany); Sabrina Teyssier (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany)
    Abstract: In many cases individuals benefit differently from the provision of a public good. We study in a laboratory experiment how heterogeneity in returns and uncertainty affects unconditional and conditional contribution behavior in a linear public goods game. The elicitation of conditional contributions in combination with a within subject design allows us to investigate belief-independent and type-specific reactions to heterogeneity. We find that, on average, heterogeneity in returns decreases unconditional contributions but does not affects conditional contributions only weakly. Uncertainty in addition to heterogeneity reduces conditional contributions slightly. Individual reactions to heterogeneity differ systematically. Selfish subjects and one third of conditional cooperators do not react to heterogeneity whereas the reactions of the remaining conditional cooperators vary. A substantial part of heterogeneity in reactions can be explained by inequity aversion which accounts for different reference groups subjects compare to
    Keywords: public goods, social preferences, conditional cooperation, heterogeneity
    JEL: C91 C72 H41
    Date: 2012–03–31
  10. By: Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
    Abstract: The agricultural sectors of Kazakhstan and Germany are at different development levels. One possible explanation for this might be the different investment behavior of farmers. We experimentally analyze whether the investment behavior of farmers is consistent with the normative benchmarks of the net present value criterion or the real options approach. Furthermore, we experimentally compare the investment behavior of farmers in the two countries in an agricultural and a non-agricultural treatment. In addition, farmers were confronted with the two treatments in a different order. Our results show that both theories cannot exactly predict the investment behavior of farmers. Farmers invest later than the net present value criterion suggests and earlier than the real options approach suggests. However, German farmers invest later than Kazakhstani farmers, which mean that the investment behavior of German farmers is closer to the superior real options approach. Therefore, the different investment behavior might partly be an explanation for different development levels of the agricultural sectors of the two countries. Moreover, results are independent from the framing of an agricultural and a non-agricultural treatment. However, farmers learn from their former investment decisions and consider the value of waiting over time.
    Keywords: Experimental Economics, Investment Timing, Real Options, Kazakhstan, Germany, Agricultural Finance, Institutional and Behavioral Economics, Risk and Uncertainty, C91, D03, D81, D92,
    Date: 2012
  11. By: Irenaeus Wolff (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany)
    Abstract: Models of evolutionary game theory have shown that punishment may be an adaptive behaviour in environments characterised by a social-dilemma situation. Experimental evidence closely corresponds to this finding but questions the cooperation-enhancing effect of punishment if players are allowed to retaliate against their punishers. This study provides a theoretical explanation for the existence of retaliating behaviour in the context of repeated social dilemmas and analyses the role punishment can play in the evolution of cooperation under these conditions. We show a punishing strategy can pave the way for a partially-cooperative equilibrium of conditional cooperators and defecting types and, under positive mutation rates, foster the cooperation level in this equilibrium by prompting reluctant cooperators to cooperate. However, when rare mutations occur, it cannot sustain cooperation by itself as punishment costs favour the spread of non-punishing cooperators
    Keywords: Public goods, Prisoner's Dilemma, Strong reciprocity, Counterpunishment
    JEL: C73 C72 H41
    Date: 2012–06–29
  12. By: Simeon Schudy (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany); Verena Utikal (University of Erlangen-Nuremberg, Department of Economics, Germany)
    Abstract: We investigate the consequences of imperfect data privacy on information acquisition about personal health status. In a simplified game of persuasion players decide on whether or not to acquire information about their health status before searching for a matching partner (e.g. an insurance company). We contrast three institutional settings: automatic dissemination of certified test results, perfect data privacy and imperfect data privacy about certified test results (i.e. potentially involuntary dissemination). Assuming that the ex-ante expected payoff of a match with an unknown type is positive, we find that equilibria with complete information acquisition and complete information revelation exist only under perfect and imperfect data privacy whereas equilibria without any information acquisition exist under all institutional settings. We test our predictions in a laboratory experiment. Indeed, both imperfect and perfect data privacy yield almost perfect information acquisition. Automatic dissemination leads to incomplete information acquisition
    Keywords: data privacy, endogenous information acquisition, health, experiment
    JEL: D80 D82 I1 I12
    Date: 2012–06–29
  13. By: Maart, Syster Christin; Musshoff, Oliver; Maack, Moritz
    Abstract: In order to stimulate investments, agricultural policies frequently use price floors, which guarantee a price above a certain limit. In some cases, however, a price floor does not have the desired effects. In this study, we experimentally analyse differences in the investment behaviour with respect to the presence of a price floor and compare the actual investment behaviour to normative benchmarks of the net present value and the real options approach. Furthermore, we look at treatment order and learning effects. The results show that the price floor has no significant impact on the decision behaviour of participants, whereas the effects of treatment order were statistically significant. Regarding the analysis of policy impacts, the latter result shows that the investment reluctance arising from an abolishment of a price floor is stronger than the investment stimulation arising from the introduction of a price floor. Consequently, neither the net present value nor the real options approach is appropriate to predict the investment behaviour in general. Nevertheless, we found out that the predictions of the real options approach enable an approximation of the participants’ investment behaviour if the individuals have an adequate chance to learn from personal experience.
    Keywords: Price floors, investment decisions, real options, experimental economics, Institutional and Behavioral Economics, Political Economy, Risk and Uncertainty, C91, D81, E61,
    Date: 2012
  14. By: Gerald Eisenkopf (Thurgau Institute of Economics at University of Konstanz, Department of Economics, Germany); Tim Friehe (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper uses experimental data to analyze how competitive behavior is influenced by coaching and peer observation. We study behavior in a sequential contest, considering information about the effort level of subjects in other contests (observation of peers) and information about the payoff-maximizing effort level (coaching) as treatment variables. Presentation of peer effort has a significant impact on the effort levels of first movers but not on second movers’ effort levels. The decisions of second movers were positively influenced (in terms of payoffs) by coaching when this information was presented alone; however, when coaching was presented in combination with peer observation, the quality of second-mover decisions deteriorated.
    Keywords: tournament, peer effect, coaching, information, learning
    JEL: D03 D83 C90
    Date: 2012–06–27
  15. By: Berninghaus, Siegfried; Güth, Werner; Li, King King
    Abstract: Approximate truth refers to the principle that border cases should be analyzed by solving generic cases and solving border cases as limits of generic ones (Brennan et al., 2008). Our study experimentally explores whether this conceptual principle is also behaviorally appealing. To do so, we focus on perfectness (Selten, 1975) and use his example game with (no) multiplicity of (perfect) equilibria. Distinguishing three uniform perturbation levels, we check for monotonicity (all players react monotonically to the perturbation level) and then explore the behavioral relevance of approximate truth. --
    Keywords: experimental games,trembling hand perfectness,perturbed strategies
    JEL: C70 C72 C91
    Date: 2012
  16. By: Kirsten, Johann F.; Vermeulen, Hester; Van Zyl, Karlien; Du Randt, Gerrie; Du Plessis, H.; Weissnar, Tessa
    Abstract: The difference between hypothetical and real values when evaluating consumers’ preferences (termed ‘hypothetical bias’) has received significant attention in scientific literature, as the outcome of this bias is often an overestimation of willingness to pay (WTP) values. This is the main focus of this paper as we unpack South African consumers’ perceptions and preferences for an origin based meat product through a set of different methodologies. These different approaches (sensory analysis, perception analysis, conjoint analysis, experimental auction and an in-store experiment) are all employed to illustrate the ‘hypothetical bias’ but also to establish beyond any doubt the market potential for a specific origin based meat product and also to test the consumers’ willingness to pay a premium, and the range of the premium obtained from different methodologies. This paper presents the results of a number of studies applying different methods related to the same product but with different groups of consumers in different locations. The different results suggest that there is sufficient evidence that suggest that the regional identity of the product is important. It is further also evident that the various willingness to pay estimates presented different results. It is however clear that the stated preference methods confirm the hypothesis that consumers recognise the reputation of the product and will be willing to pay premium. This conclusion is strengthened by the positive results from the stated preference methods (the experimental auction and in-store experiment). Together these results present a strong case for the marketing potential of origin based mutton / lamb which could sell at a price premium similar or slightly higher than comparable existing luxury and niche lamb brands on the South African market.
    Keywords: Meat of Origin, willingness to pay, consumer perceptions, experimental economics, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Marketing, Agriucltural Marketing, Food Policy,
    Date: 2012
  17. By: Pablo Branas-Garza; Debrah Meloso; Luis Miller
    Abstract: We use response time (RT) and behavioral data from two different but related games to test the hypothesis that individuals use introspection when confronted with a new strategic situation. Our results confirm that the need to reflect about the possible behavior of the other player (interactive thought) has an important role in the mental processes present in strategic interactions. We also find that players with longer response times have distributions of behavior that are more dispersed than for faster players. This suggests that the longest RTs across games correspond to thought dedicated to the resolution of moral dilemmas and not to guessing the likely behavior of other players in order to maximize own payoff.
    Date: 2012
  18. By: Timo Heinrich (University of Duisburg-Essen, Department of Economics, Germany); Irenaeus Wolff (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany)
    Abstract: Aggregate behavior in two-player hide-and-seek games deviates systematically from the mixed-strategy equilibrium prediction of assigning all actions equal probabilities (Rubinstein and Tversky, 1993, Rubinstein et al., 1996, Rubinstein, 1999). As Crawford and Iriberri (2007) point out, this deviation can be explained by strategic level-k reasoning. Here we provide empirical evidence that, indeed, it is non-equilibrium beliefs that lead to the behaviour observed in the earlier studies: when a player's opponent is forced to play the equilibrium strategy, the player's choices are uniformly spread over the action space. At the same time, we find robust evidence of an unexpected framing effect.
    Keywords: Salience, level-k reasoning, cognitive hierarchy, hide-and-seek game, framing effect
    JEL: C72 C91
    Date: 2012–03–19

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