New Economics Papers
on Experimental Economics
Issue of 2012‒07‒29
twenty-one papers chosen by

  1. Delegation and Rewards By Vetter, Stefan
  2. Does the direct-response method induce guilt aversion in a trust game? By Amdur, David; Schmick, Ethan
  3. Generosity across contexts By Alexander L. Davis; John H. Miller; Roberto A. Weber
  4. Security returns and tax aversion bias: Behavioral responses to tax labels By Blaufus, Kay; Möhlmann, Axel
  5. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Tonin, Mirco; Vlassopoulos, Michael
  6. Cheating in the Workplace: An Experimental Study of the Impact of Bonuses and Productivity By Gill, David; Prowse, Victoria L.; Vlassopoulos, Michael
  7. Reducing deception through subsequent transparency - An experimental investigation By Sascha Behnk; Iván Barreda-Tarrazona; Aurora García-Gallego
  8. Understanding Peer Effects in Financial Decisions: Evidence from a Field Experiment By Leonardo Bursztyn; Florian Ederer; Bruno Ferman; Noam Yuchtman
  9. Selecting public goods institutions: who likes to punish and reward? By Michalis Drouvelis; Julian C. Jamison
  10. Direct democracy and resource allocation : experimental evidence from Afghanistan By Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
  11. Incentivizing calculated risk-taking :evidence from an experiment with commercial bank loan officers By Cole, Shawn; Kanz, Martin; Klapper, Leora
  12. Social Influence in Trustors' Neighborhoods By Luigi Luini; Annamaria Nese; Patrizia Sbriglia
  13. Repeated moral hazard and contracts with memory: A laboratory experiment By Nieken, Petra; Schmitz, Patrick W.
  14. Experimental test of utility maximization By He, Yuqing
  15. More fair play in an ultimatum game after resettlement in Zimbabwe: A field experiment and a structural model By Kohler, Stefan
  16. Enhancing the Efficacy of Teacher Incentives through Loss Aversion: A Field Experiment By Roland G. Fryer, Jr; Steven D. Levitt; John List; Sally Sadoff
  17. Ethnic Diversity and Team Performance: A Field Experiment By Hoogendoorn, Sander M.; van Praag, Mirjam
  18. Do husbands and wives pool their incomes? Experimental evidence. By Miriam Beblo; Denis Beninger
  19. Expected Behavior and Strategic Sophistication in the Dictator Game By Ismael Rodriguez-Lara; Pablo Brañas-Garza
  20. Does it matter how happiness is measured? Evidence from a randomized controlled experiment By Raphael Studer
  21. Who is Willing to Sacrifice Sacred Values for Money and Social Status? Gender Differences in Reactions to Taboo Trade-offs By Kenneby, Jessica A.; Kray, Laura J.

  1. By: Vetter, Stefan
    Abstract: We study experimentally whether anti-corruption policies with a focus on bribery might be insufficient to uncover more subtle ways of gaining an unfair advantage. In particular, we investigate whether an implicit agreement to exchange favors between a decision-maker and a lobbying party serves as a legal substitute for corruption. Due to the obvious lack of field data on these activities, the laboratory provides an excellent opportunity to study this question. We find that even the pure anticipation of future rewards from a lobbying party suffices to bias a decision-maker in favor of this party, even though it creates negative externalities to others. Although future rewards are not contractible, the benefitting party voluntarily compensates decision-makers for partisan choices. In this way, both receive higher payoffs, but aggregate welfare is lower than without a rewards channel. Thus, the outcome mirrors what might have been achieved via conventional bribing, while not being illegal.
    Keywords: delegation; gift exchange; corruption; lobbying; negative externalities
    JEL: C91 D62 D63 D73 K42
    Date: 2012–03
  2. By: Amdur, David; Schmick, Ethan
    Abstract: We compare the strategy and direct-response methods in a one-shot trust game with hidden action. In our experiment, the decision elicitation method affects neither participants' behavior nor their beliefs about this behavior. We conclude that the direct-response method does not, by itself, induce guilt aversion.
    Keywords: Trust; guilt aversion; strategy method; direct-response method; behavioral economics; experimental economics
    JEL: D03 A13 C91
    Date: 2012–06
  3. By: Alexander L. Davis; John H. Miller; Roberto A. Weber
    Abstract: Extensive research in economics explores generosity in monetary allocations, while generosity in non-laboratory contexts often involves the allocation of consumption goods or non-monetary harm. Psychological evidence suggests that generosity may be higher in such contexts. We compare generosity in decisions that vary whether allocations are monetary or non-monetary, and whether they involve utility gains or losses. In two experiments, generosity is higher in nonmonetary contexts. Thus, the typical monetary laboratory Dictator game may underestimate generosity in many non-laboratory contexts. We find a weak relationship between individuals’ allocation decisions in monetary and nonmonetary contexts, but a strong relationship within monetary contexts.
    Keywords: Altruism, generosity, harm, experiment
    JEL: D03 D64 C91
    Date: 2011–11
  4. By: Blaufus, Kay; Möhlmann, Axel
    Abstract: This paper studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices. --
    Keywords: Behavioral finance,Behavioral taxation,Investor psychology,Tax aversion,Experiment
    JEL: D03 G32 H20 H3
    Date: 2012
  5. By: Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: Contributing to a social cause can be an important driver for workers in the public and non-profit sector as well as in firms that engage in Corporate Social Responsibility activities. This paper compares the effectiveness of social incentives to financial incentives using an online real effort experiment. We find that social incentives lead to a 20% rise in productivity, regardless of their form (lump sum or related to performance) or strength. When subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation, with women more likely than men. Furthermore, social incentives do not attract less productive subjects, nor subjects that respond more to exogenously imposed social incentives. Our calculations suggest that a dollar spent on social incentives is equivalent to increasing private compensation by at least half a dollar.
    Keywords: private incentives, social incentives, sorting, prosocial behavior, real effort experiment, corporate social responsibility, gender
    JEL: D64 J24 J32 L3 M14 M52
    Date: 2012–07
  6. By: Gill, David (Oxford University); Prowse, Victoria L. (Cornell University); Vlassopoulos, Michael (University of Southampton)
    Abstract: We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating. Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid. Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity. We also find that more productive workers behave more dishonestly. We explain how these results suggest that workers' cheating behavior responds to the perceived fairness of their employer's compensation scheme.
    Keywords: bonus, compensation, cheating, dishonesty, lying, employee crime, productivity, slider task, real effort, experiment
    JEL: C91 J33
    Date: 2012–07
  7. By: Sascha Behnk (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Iván Barreda-Tarrazona (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Aurora García-Gallego (LEE and Economics Department, Universitat Jaume I, Castellón, Spain)
    Abstract: Asymmetric information is a common characteristic of economic relationships and often provides incentives to deceive. Being aware of previous findings showing that ex post transparency about conflicts of interest leads to even more deception, we hypothesize that the timing of disclosing a conflict of interest plays a role in this context. Using different scenarios of a sender-receiver game, we investigate if, instead of providing ex ante information, the effect of an ex post disclosure is to reduce treacherous advice. Our results show that timing actually matters: subsequent transparency significantly reduces deception when it is announced as a threat, which creates awareness of the presence of a whistleblower. An intrinsic motivation seems to play a certain role that goes beyond lying and guilt aversion: embarrassment. Furthermore, we examine if the provision of different alternatives to deception (honest vs. payoff-equalizing messages) has an important impact on individual behavior. We find that honesty is not the most favored alternative to deception. Subsequent transparency increases honest behavior only under particular conditions but strongly increases the tendency to equalize payoffs.
    Keywords: deception, transparency, disclosure, sender-receiver game, information transmission, behavior, experiment
    JEL: D03 C91 D82
    Date: 2012
  8. By: Leonardo Bursztyn; Florian Ederer; Bruno Ferman; Noam Yuchtman
    Abstract: Using a field experiment conducted with a financial brokerage, we attempt to disentangle channels through which a person’s financial decisions affect his peers’. When someone purchases an asset, his peers may also want to purchase it because they learn from his choice (“social learning”) and because his possession of the asset directly affects others’ utility of owning the same asset (“social utility”). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing possession of the asset. Then, we randomize whether the second member of the pair: 1) receives no information about his peer, or 2) is informed of his peer’s desire to purchase the asset and the result of the randomization determining possession. We thus estimate the effects of: (a) learning plus possession, and (b) learning alone, relative to a control group. In the control group, 42% of individuals purchased the asset, increasing to 71% in the “social learning only” group, and to 93% in the “social learning and social utility” group. These results suggest that herding behavior in financial markets may result from social learning, and also from a desire to own the same assets as one’s peers.
    JEL: C93 D03 D14 D83 G0 G11 M31
    Date: 2012–07
  9. By: Michalis Drouvelis; Julian C. Jamison
    Abstract: The authors extend the standard public goods game in a variety of ways, in particular by allowing for endogenous preference over institutions and by studying the relationship between individual types, their preferences, and later behavior within the various institutional environments. They collect individual data on a variety of demographic factors, in addition to measuring levels of risk aversion and ambiguity aversion (over both gains and losses). The authors then elicit preferences in an incentive-compatible manner over voluntary contribution mechanisms with and without reward and punishment options. Finally, they randomly assign subjects to one of the four institutions and observe repeated play. They find that payoffs are significantly greater when punishment is allowed but that only a small minority of participants prefers such an environment. There is at most a weak link between individual characteristics and elicited preferences over environments. On the other hand, institutional preferences, as well as individual characteristics, are more strongly predictive of behavior in the public goods game. For instance, loss averse individuals preemptively reward more often when that option is available. This result suggests that when studying social interactions, especially if people can choose whether to participate in a sanctions-and-rewards mechanism, it is important to consider individual attitudes toward risk and uncertainty.
    Keywords: Human behavior ; Public goods ; Uncertainty ; Risk ; Reward (Psychology)
    Date: 2012
  10. By: Beath, Andrew; Christia, Fotini; Enikolopov, Ruben
    Abstract: Direct democracy is designed to better align public resource allocation decisions with citizen preferences. Using a randomized field experiment in 250 villages across Afghanistan, this paper compares outcomes of secret-ballot referenda with those of consultation meetings, which adhere to customary decision-making practices. Elites are found to exert influence over meeting outcomes, but not over referenda outcomes, which are driven primarily by citizen preferences. Referenda are also found to improve public satisfaction, whereas elite domination of allocation processes has a negative effect. The results indicate that the use of direct democracy in public resource allocation results in more legitimate outcomes than those produced by customary processes.
    Keywords: Housing&Human Habitats,Social Accountability,Rural Urban Linkages,Peri-Urban Communities,Parliamentary Government
    Date: 2012–07–01
  11. By: Cole, Shawn; Kanz, Martin; Klapper, Leora
    Abstract: This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. The paper first shows that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by loan officers. Second, the paper presents direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.
    Keywords: Debt Markets,Access to Finance,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Microfinance
    Date: 2012–07–01
  12. By: Luigi Luini; Annamaria Nese; Patrizia Sbriglia
    Abstract: The aim of this paper is to ascertain whether trust is affected by contagion and herding in small groups of trustors who can observe each other’s choices over time. We account for three important factors of trustors’preferences, namely: risk attitude, generosity and expected trustworthiness. Using our data, we test the basic hypothesis that an individual's propensity to trust recipients in the Trust Game may be affected by the observed behavior of other trustors. Our results confirm that trust is affected by contagion effects. Furthermore, we find that specific types of agents (generous or untrusting) frequently imitate the same type when placed in the same group. Finally, we find that untrusting individuals are less affected by their peers compared to generous individuals, and that they are less prone to imitation when placed in groups of agents who have the same characteristics.
    Keywords: trust game, experiments, social influence, imitation.
    JEL: C72 C91
    Date: 2012–07
  13. By: Nieken, Petra; Schmitz, Patrick W.
    Abstract: This paper reports data from a laboratory experiment on two-period moral hazard problems. The findings corroborate the contract-theoretic insight that even though the periods are technologically unrelated, due to incentive considerations principals can benefit from offering long-term contracts that exhibit memory.
    Keywords: Repeated moral hazard; Sequential hidden actions; Laboratory experiment
    JEL: D82 J33
    Date: 2012–02
  14. By: He, Yuqing
    Abstract: The study tests the cardinal utility maximization hypothesis by an experimental procedure in a framework of utility scaling approach following the psychophysical-econometric paradigm, conceived in He (Psychophysical Interpretation for Utility Measures, 2011). It reveals (i) the utility maximization can be tested and has been supported by experimental results; (ii) the utility scaling approach following the psychophysical econometric paradigm offers a new foundation to discuss the utility concept; and (iii) it is necessary to distinguish the perception utility and emotion utility to respectively describe economic choices and enjoyment choices. --
    Keywords: utility maximization,experiment,Klein-Rubin utility function,perception utility,emotion utility
    JEL: A10 D01
    Date: 2012
  15. By: Kohler, Stefan
    Abstract: Zimbabwean villagers of distinct background have resettled in government organized land reforms for more than three decades. Against this backdrop, I assess the level of social cohesion in some of the newly established communities by estimating average preferences for fairness in a structural model of bounded rationality. The estimations are based on behavioral data from an ultimatum game field experiment played by 234 randomly selected households in six traditional and 14 resettled villages almost two decades after resettlement. In two out of three distinct resettlement schemes studied, the resettled villagers exhibit significantly higher degrees of fairness ($p ≤ 0.11$) and rationality ($p ≤ 0.04$) than those who live in traditional villages. Overall, villagers are similarly rational ($p = 0.30$) but the attitude toward fairness is significantly stronger in resettled communities ($p ≤ 0.01$). These findings are consistent with the idea of a raised need for cooperation required in recommencement.
    Keywords: Africa; behavioral economics; inequality aversion; land reform; impact evaluation; social change; social development; social preferences; structural estimation; quantal response model
    JEL: D03 Q15 C93
    Date: 2012–07–24
  16. By: Roland G. Fryer, Jr; Steven D. Levitt; John List; Sally Sadoff
    Abstract: Domestic attempts to use financial incentives for teachers to increase student achievement have been ineffective. In this paper, we demonstrate that exploiting the power of loss aversion—teachers are paid in advance and asked to give back the money if their students do not improve sufficiently—increases math test scores between 0.201 (0.076) and 0.398 (0.129) standard deviations. This is equivalent to increasing teacher quality by more than one standard deviation. A second treatment arm, identical to the loss aversion treatment but implemented in the standard fashion, yields smaller and statistically insignificant results. This suggests it is loss aversion, rather than other features of the design or population sampled, that leads to the stark differences between our findings and past research.
    JEL: J24
    Date: 2012–07
  17. By: Hoogendoorn, Sander M. (University of Amsterdam); van Praag, Mirjam (University of Amsterdam)
    Abstract: One of the most salient and relevant dimensions of team heterogeneity is ethnicity. We measure the causal impact of ethnic diversity on the performance of business teams using a randomized field experiment. We follow 550 students who set up 45 real companies as part of their curriculum in an international business program in the Netherlands. We exploit the fact that companies are set up in realistic though similar circumstances and that we, as outside researchers, had the unique opportunity to exogenously vary the ethnic composition of otherwise randomly composed teams. The student population consists of 55% students with a non-Dutch ethnicity from 53 different countries of origin. We find that a moderate level of ethnic diversity has no effect on team performance in terms of business outcomes (sales, profits and profits per share). However, if at least the majority of team members is ethnically diverse, then more ethnic diversity has a positive impact on the performance of teams. In line with theoretical predictions, our data suggest that this positive effect could be related to the more diverse pool of relevant knowledge facilitating (mutual) learning within ethnically diverse teams.
    Keywords: ethnic diversity, team performance, field experiment, entrepreneurship, (mutual) learning
    JEL: J15 L25 C93 L26 M13 D83
    Date: 2012–07
  18. By: Miriam Beblo; Denis Beninger
    Abstract: In this paper, we propose a direct test of income pooling within couples, which yields new insight into intra-household bargaining behaviour. For this purpose, we performed a five-round experiment with 95 real, established couples in Germany. In each round, the couples received the same amount of money, though with differing allocations between the spouses, to make consumption choices for private goods. We observed the choices to depend strongly on the spouses’ relative resources for about half the sample and interpret this as a rejection of the income pooling hypothesis. Moreover, non-pooling was positively related with the homogeneity of the spouses’ characteristics (in terms of age, education, working hours) and negatively with their average education and income levels.
    Keywords: Intra-household allocation, Consumption choices, Couple Experiment.
    JEL: C71 C91 C92 D13
    Date: 2012
  19. By: Ismael Rodriguez-Lara (ERI-CES); Pablo Brañas-Garza (Universidad de Granada)
    Abstract: This paper provides novel results for the extensive literature on dictator games: recipients do not expect dictators to behave selfishly, but instead expect the equal split division. The predictions made by dictators are notably different: 45% predicted the zero contribution and 40% the equal split. These results suggest that dictators and recipients are heterogenous with regard to their degree of strategic sophistication and identify the dictator's decision power in a very different manner.
    Keywords: expectations, strategic sophistication, dictator game, equal, split, guessing
    JEL: C91 D63 D64
    Date: 2012–07
  20. By: Raphael Studer
    Abstract: A continuous and a discrete rating scale were implemented for a single item happiness question in a representative survey. A randomized controlled experiment enables unique analyses on data quality and distributions, which suggest superiority of the continuous scale. Results raise doubts about earlier inferences drawn on correlates of happiness. So far only self-assessed discrete happiness data have been used for research into the determinants of happiness. However, distribution distortions were found for the numerically labeled discrete scale, especially for women. Through this discretization bias, the widely reported gender happiness inequality puzzle can be explained.
    Keywords: Happiness, subjective well-being, life satisfaction, likert scale, visual analogue scale, rating scales, gender inequalities, gender gap
    JEL: C81 I31
    Date: 2011–11
  21. By: Kenneby, Jessica A.; Kray, Laura J.
    Abstract: Women select into top business degree programs at a lower rate than men and are underrepresented in high-ranking positions in business organizations. We examined taboo trade-off aversion as one possible explanation for these patterns. In Study 1, we found that women implicitly associated business with immorality more than men did. In Study 2, when reading of decisions that compromised ethical values for social status and monetary gains, women reported feeling more moral outrage and perceived less business sense in the decisions than men. In Study 3, we established a causal relationship between taboo trade-off aversion and women’s disinterest in business careers by manipulating the presence of taboo trade-offs in job descriptions. As hypothesized, an interaction between gender and taboo trade-off presence emerged. Only when jobs involved making taboo trade-offs did women report less interest in the jobs than men. Women's moral reservations mediated these effects.
    Keywords: Business, Management, Marketing, and Related Support Services, Business Administration, Management and Operations, gender, judgment and decision-making, ethics, morality
    Date: 2012–07–23

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