nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒09‒03
eighteen papers chosen by
Daniel Houser
George Mason University

  1. Cycles and Instability in a Rock-Paper-Scissors Population Game: a Continuous Time Experiment By Friedman, Daniel; Cason, Timothy N; Hopkins, Ed
  2. Promises as Commitments By Ismayilov, H.; Potters, J.J.M.
  3. Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development By Karlan, Dean S.; Knight, Ryan; Udry, Christopher
  4. Give and Take in Dictator Games. By Cappelen, Alexander W.; Nielsen, Ulrik H.; Sørensen, Erik Ø.; Tungodden, Bertil; Tyran, Jean-Robert
  5. Good Samaritans and the Market: Experimental Evidence on Other-Regarding Preferences By Michele Belot; Marcel Fafchamps
  6. Beliefs and truth-telling: A laboratory experiment By Ronald Peeters; Marc Vorsatz; Markus Walzl
  7. Evaluating the potentials of a marketable permits system in the field: An application to forest conservation in Shaktikhore, Nepal By Timilsina Raja Rajendra; Koji Kotani
  8. The Dark Side of the Vote: Biased Voters, Social Information, and Information Aggregation Through Majority Voting By Morton, Rebecca; Piovesan, Marco; Tyran, Jean-Robert
  9. Competition, Cooperation, and Collective Choice By Markussen, Thomas; Reuben, Ernesto; Tyran, Jean-Robert
  10. "Payment Mechanisms in the Healthcare Industry: An Experimental Study of Physician Incentives in a Multiple Principal Agent Setting" By Ellen P. Green
  11. Subjective performance evaluations and reciprocity in principal-agent relations By Alexander Sebald; Markus Walzl
  12. Cooperation Is Relative: Income and Framing Effects with Public Goods By Brekke, Kjell Arne; Konow , James; Nyborg, Karine
  13. Three steps ahead By Heller, Yuval
  14. On fundamental performance of a marketable permits system in a trader setting: Double auction vs. uniform price auction By Koji Kotani; Kenta Tanaka; Shunsuke Managi
  15. Knowledge is (Less) Power: Experimental Evidence from Residential Energy Use By Katrina Jessoe; David Rapson
  16. Optimal contracts based on subjective evaluations and reciprocity By Alexander Sebald; Markus Walzl
  17. Football to Improve Math and Reading Performance By Van Klaveren, C.; De Witte, K.
  18. A Theory of Reciprocity with Incomplete Information By Vostroknutov Alexander

  1. By: Friedman, Daniel; Cason, Timothy N; Hopkins, Ed
    Keywords: Economics, experiments, learning, mixed equilibrium, continuous time
    Date: 2012–07–19
  2. By: Ismayilov, H.; Potters, J.J.M. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We implement a trust game in which the trustee can write a free-form pre-play message for the trustor. The main twist in our design is that there is a 50% probability that the message is delivered to the trustor and a 50% probability that the message is replaced by an empty sheet. We find that even when messages are not delivered trustees who make a promise are significantly more likely to act trustworthy than those who do not make a promise. This suggests that a promise has a commitment value which is independent of its impact on the trustor. Interestingly, we also find that both trustees who make a promise and those who do not make a promise are more likely to be trustworthy if their message is delivered to the trustor. This means that communication increases trustworthiness irrespective of the content of messages.
    Keywords: Promises;communication;trust;beliefs;experimental economics.
    JEL: C91 D03 D82 L15
    Date: 2012
  3. By: Karlan, Dean S.; Knight, Ryan; Udry, Christopher
    Abstract: Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one’s own type, but willingness to experiment to learn one’s type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.
    Keywords: business training;; consulting; credit constraints; entrepreneurship; managerial capital
    JEL: D21 D24 D83 D92 L20 M13
    Date: 2012–08
  4. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Nielsen, Ulrik H. (University of Copenhagen); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration); Tyran, Jean-Robert (University of Vienna)
    Abstract: It has been shown that participants in the dictator game are less willing to give money to the other participant when their choice set also includes the option to take money. We examine whether this effect is due to the choice set providing a signal about entitlements in a setting where entitlements initially may be considered unclear. We find that the share of positive transfers depends on the choice set even when there is no uncertainty about entitlements, and that this choice-set effect is robust across a heterogenous group of participants recruited from the general adult population in Denmark. The findings are consistent with dictator giving partly being motivated by a desire to signal that one is not entirely selfish or by a desire to follow a social norm that is choice-set dependent.
    Keywords: Dictator game; motivation; choice
    JEL: C91 D63
    Date: 2012–07–06
  5. By: Michele Belot (University of Oxford); Marcel Fafchamps (University of Oxford)
    Abstract: Some evidence suggests that people behave more pro-socially in small groups than in market-like situations. We construct an experiment in which people choose between allocations that affect their payoff and that of others. The choices of some participants are randomly selected to determine payoffs. We test whether people exhibit different other-regarding preferences depending on how the choice is framed. To mimic a market-like environment, we ask subjects to select a type of partner, either high or low. Selecting a partner of a given type effectively removes this pairing from other players. We compare this treatment to two alternatives where people are first assigned to groups of two high and two low participants. In one treatment, they are then asked to choose between a high and low partner. In the other, they are asked to choose between two payoff allocations for the four individuals. These two treatments make the implication of one's choice on others more salient. We find that most subjects pursue their self-interest, but high payoff participants behave more altruistically in small groups while low payoff participants display more invidious choices in the market-like environment. The implication is that while some efficiency can be achieved in small groups thanks to altruism, a market-like environment reduces good samaritan tendencies, possibly because the negative effect of one's choice on others is less salient.
    Keywords: Behavioral experiment, Social preferences, Partnership formation
    JEL: C90 D63 D64 Z13
    Date: 2012–08
  6. By: Ronald Peeters; Marc Vorsatz; Markus Walzl
    Abstract: We conduct a laboratory experiment with a constant-sum sender-receiver game to investigate the impact of individuals' first- and second-order beliefs on truth-telling. While senders are more likely to lie if they expect the receiver to trust their message, they are more likely to tell the truth if they belief the receiver expects them to tell the truth. Our results therefore indicate that second-order beliefs are an important component of the motives for individuals in strategic information transmission.
    Keywords: Experiment, Sender-receiver games, Strategic information transmission, Guilt-from-blame, let-down aversion
    JEL: C70 C91 D03
    Date: 2012–08
  7. By: Timilsina Raja Rajendra (ISFnet Inc.); Koji Kotani (International University of University)
    Abstract: A new paradigm in natural resource management has moved towards more decentralized mechanisms to reverse the degradation. One of such mechanisms is a marketable permits system (MPS). Although the properties of MPS have been studied and identified to be effective in controlled laboratory experiments, little is known about how MPS works in the real field setup. To fill the gap, this paper seeks to evaluate the effectiveness and potentials of MPS in the real forest conservation by implementing a framed field experiment. Shaktikhore, Nepal has been chosen for the experimental site, since farmers' livelihood there depends on forests and they are able to report their valuation of forestry from economic and environmental points of view. This experiment elicits economic valuation of local farmers for each unit of forestland, derives aggregate demand and supply of the permits, and with a uniform price auction (UPA), MPS field experiments were carried out to see equilibrium prices and efficiencies of the market. The results suggest that MPS is effective with high efficiency of 80% in the real field. For this success, UPA institution is identified to be the key element because (i) farmers with elementary education could understand and follow the rules of trading and (ii) they are induced to reveal their valuations of forestland through bids to buy and offers to sell. To our knowledge, this study is the first that designs and employs UPA institution under trader settings, showing the successful performance of such a MPS scheme in the real field of developing nations. Overall, our research suggests that MPS could be the effective policy option for "real" practice of natural resources management even with less administrative expertise, limited education and fewer resources to implement.
    Keywords: Uniform price auction, Marketable permits system, Framed eld experiment, Forest management
    Date: 2012–08
  8. By: Morton, Rebecca; Piovesan, Marco; Tyran, Jean-Robert
    Abstract: We experimentally investigate information aggregation through majority voting when some voters are biased. In such situations, majority voting can have a “dark side”, i.e. result in groups making choices inferior to those made by individuals acting alone. We develop a model to predict how two types of social information shape efficiency in the presence of biased voters and we test these predictions using a novel experimental design. In line with predictions, we find that information on the popularity of policy choices is beneficial when a minority of voters is biased, but harmful when a majority is biased. In theory, information on the success of policy choices elsewhere de-biases voters and alleviates the inefficiency. In the experiment, providing social information on success is ineffective. While voters with higher cognitive abilities are more likely to be de-biased by such information, most voters do not seem to interpret such information rationally.
    Keywords: biased voters; information aggregation; majority voting
    JEL: C92 D02 D03 D7
    Date: 2012–08
  9. By: Markussen, Thomas; Reuben, Ernesto; Tyran, Jean-Robert
    Abstract: The ability of groups to implement efficiency-enhancing institutions is emerging as a central theme of research in economics. This paper explores voting on a scheme of intergroup competition which facilitates cooperation in a social dilemma situation. Experimental results show that the competitive scheme fosters cooperation. Competition is popular but the electoral outcome depends strongly on specific voting rules of institutional choice. If the majority decides, competition is almost always adopted. If likely losers from competition have veto power, it is often not, and substantial gains in efficiency are foregone.
    Keywords: public goods; competition; tournament; cooperation; voting
    JEL: D72 H41 J33
    Date: 2012–08
  10. By: Ellen P. Green (Department of Economics, University of Delaware)
    Abstract: Current failures in the healthcare industry emphasize the need for a more fundamental understanding of how these contracts incentivize doctors. To aid this understanding, we treat the established physician-client-employer relationship as a multiple principal agent problem. We use a laboratory experiment, with a real-effort task, to test the relative performance of common payment mechanisms employed in this dual-principal agent relationship (Piece Rate, Flat Rate, Salary, Bonus, and Socialization). This study suggests, contrary to standard contract theory, that relying on extrinsic incentives to motivate physicians may be detrimental and costly for the healthcare industry.
    Keywords: Multiple principal agent theory, intrinsic motivation, other-regarding behavior, Fee-For-Service, Capitation, Salary
    JEL: I10 I12 I18 J01 J3 L2
    Date: 2012
  11. By: Alexander Sebald; Markus Walzl
    Abstract: We conduct a laboratory experiment with agents working on and principals benefitting from a real effort task in which the agents' performance can only be evaluated subjectively. Principals give subjective performance feedback to agents and agents have an opportunity to sanction principals. In contrast to existing models of reciprocity we find that agents tend to sanction whenever the feedback of principals is below their subjective self-evaluations even if agents' payoffs are independent of it. In turn, principals provide more positive feedback (relative to their actual performance assessment of the agent) if this does not affect their payoffs.
    Keywords: Contracts, Subjective Performance Evaluations, Reciprocity
    JEL: D01 D02 D82 D86 J41
    Date: 2012–08
  12. By: Brekke, Kjell Arne (Dept. of Economics, University of Oslo); Konow , James (Department of Economics, Loyola Marymount University,); Nyborg, Karine (Dept. of Economics, University of Oslo)
    Abstract: In social dilemmas, there is tension between cooperation that promotes the common good and the pursuit of individual interests. International climate change negotiations provide one example: although abatement costs are borne by individual countries, the benefits are shared globally. We study a multi-period, threshold public goods game with unequally endowed participants and communication in which the decision variable is framed in three seemingly inconsequential ways: as absolute contributions, contributions relative to endowments and in terms of the effects of contributions on final payoffs. We find considerable agreement that “rich” (or high endowed) persons contribute more than “poor” (or low endowed) individuals at levels that are invariant across frames. Frames do, however, significantly affect both preferred and actual contributions for the poor: they contribute significantly less when the decision variable makes the effects on final payoffs salient than when it is framed in terms of absolute contributions. Contributions are explained mostly by self-interest, justice preferences, and experiencing failed negotiations, but we find no effects of reciprocity toward individuals or of the suggestions of others about what one should contribute.
    Keywords: Public good game; threshold; communication; fairness; endowment heterogeneity
    JEL: D63 D64 H41
    Date: 2012–05–21
  13. By: Heller, Yuval
    Abstract: Experimental evidence suggest that people only use 1-3 iterations of strategic reasoning, and that some people systematically use less iterations than others. In this paper, we present a novel evolutionary foundation for these stylized facts. In our model, agents interact in finitely repeated Prisoner's Dilemma, and each agent is characterized by the number of steps he thinks ahead. When two agents interact, each of them has an independent probability to observe the opponent's type. We show that if this probability is not too close to 0 or 1, then the evolutionary process admits a unique stable outcome, in which the population includes a mixture of “naive” agents who think 1 step ahead, and “sophisticated” agents who think 2-3 steps ahead.
    Keywords: Indirect evolution, cognitive hierarchy, bounded forward-looking, Prisoner's Dilemma, Cooperation
    JEL: D03 C73
    Date: 2012–06–13
  14. By: Koji Kotani (International University of University); Kenta Tanaka (Tohoku University); Shunsuke Managi (Tohoku University)
    Abstract: The marketable permits systems have been widely suggested as a potential solution for environmental problems. A critical feature in the market is that an agent can be both sellers and buyers of permits, so-called "trader settings." Although properties 10 of the marketable permits in non-trader settings are well-documented, little is known in a trader setting, particularly about how different auction mechanisms perform and how much each of them achieves effiency. To answer the questions, we have designed and implemented two different auction mechanisms of trader settings for marketable permits in controlled laboratory experiments: (i) Double auction (DA), and (ii) Uniform price auction (UPA). To the best of our knowledge, this research is the first which designs and implements UPA for marketable permits in a trader setting, and makes a direct comparison with the performance of DA on the same ground. We obtain the following novel results: (1) UPA is more effcient than DA in a trader setting, which is in sharp contrast with the established result in non-trader settings, (2) UPA generates more stable price dynamics and (3) UPA induces subjects to reveal more truthfully about abatement costs for emissions through their trading behaviors. With these results, we conclude that UPA is more likely to work better than DA in a trader setting.
    Keywords: Marketable permits, Economic experiments, Double auction, Uniform price auction, Trader settings
    Date: 2012–08
  15. By: Katrina Jessoe; David Rapson
    Abstract: This paper presents experimental evidence that information feedback dramatically increases the price elasticity of demand in a setting where signals about quantity consumed are traditionally coarse and infrequent. In a randomized controlled trial, residential electricity customers are exposed to price increases, with some households also receiving displays that transmit high-frequency information about usage and prices. This substantially lowers information acquisition costs and allows us to identify the marginal information effect. Households only experiencing price increases reduce demand by 0 to 7 percent whereas those also exposed to information feedback exhibit a usage reduction of 8 to 22 percent, depending on the amount of advance notice. The differential response across treatments is significant and robust to the awareness of price changes. Conservation extends beyond the treatment window, providing evidence of habit formation, spillovers, and greenhouse gas abatement. Results suggest that information about the quantity consumed facilitates learning, which likely drives the treatment differential.
    JEL: L94
    Date: 2012–08
  16. By: Alexander Sebald; Markus Walzl
    Abstract: As we have demonstrated in a recent laboratory experiment [see Sebald and Walzl (2012)], individuals tend to sanction others who subjectively evaluate their performance whenever this assessment falls short of the individual's self-evaluation even if their earnings are unaffected by the assessment. Hence, performance assessments which fall short of the agents' self-evaluation can be interpreted as an unkind act that triggers a negatively reciprocal response not only if the assessment determines an agent's earnings but also if it lacks monetary consequences. We propose a principal-agent model that accommodates this kind of payoff independent reciprocity and identify conditions for a positive welfare effect of increasing costs of conflict or increasing psychological sensitivity, and a negative welfare effect of a more informative information technology. As a consequence, principals may choose imperfect information technologies in equilibrium even if the signal quality is costless.
    Keywords: Contracts, Subjective Evaluations, Self-Esteem, Ego-Threats, Reciprocity
    JEL: D01 D02 D82 D86 J41
    Date: 2012–08
  17. By: Van Klaveren, C.; De Witte, K.
    Abstract: Schools frequently increase instructional time to improve students' numeric and reading performance, but there is little evidence on the effectiveness of such an increase. This study evaluates 'Playing for Success', an extended day program for underachieving pupils that uses the football environment as a motivating force. Primary school pupils with low motivation and self-esteem are offered practical and sports related teaching content for 30 additional hours. The program is evaluated using a randomized controlled field experiment. The results indicate that Playing for Success does not signicantly improve math and reading performance of primary school students.
    Keywords: Achievement; Child Development; Evaluation; Motivation; Extended School Day.
    Date: 2012
  18. By: Vostroknutov Alexander (METEOR)
    Abstract: A model of belief dependent preferences in finite multi-stage games with observable actions isproposed. It combines two dissimilar approaches: incomplete information (Levine, 1998) andintentionality (Dufwenberg and Kirchsteiger, 2004; Falk and Fischbacher, 2006). Incompleteinformation is important because social preferences are not directly observable; intentions arefound to be indispensable in explaining behavior in games (Falk, Fehr, and Fischbacher, 2008). Inthe model it is assumed that the players have social attitudes that define their socialpreferences. In addition, players care differently about the payoffs of other players depending ontheir beliefs about their social attitude and possibly on the beliefs of higher orders. As thegame unfolds players update their beliefs about the types of other players. An action of a playershows intention when she chooses it anticipating future belief updating by others. A reasoningprocedure is proposed that allows players to understand how to update beliefs by constructing asequence of logical implications.
    Keywords: microeconomics ;
    Date: 2012

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