New Economics Papers
on Experimental Economics
Issue of 2012‒09‒16
eighteen papers chosen by

  1. Time as a Medium of Reward in Three Social Preference Experiments By Noussair, C.N.; Stoop, J.T.R.
  2. Sloppy Work, Lies and Theft: A Novel Experimental Design to Study Counterproductive Behaviour By Michèle Belot; Marina Schröder
  3. Does Good Advice Come Cheap?: On the Assessment of Risk Preferences in the Lab and in the Field By Andrea Leuermann; Benjamin Roth
  4. Stereotypes and Risk Attitudes: Evidence from the Lab and the Field By Andrea Leuermann; Benjamin Roth
  5. The Weight of Personal Experience: an Experimental Measurement By Zacharias Maniadis; Joshua Miller
  6. An experimental study of mixed strategy equilibria in simultaneous price-quantity games By Daniel Cracau; Benjamin Franz
  7. The Effect of Perspective on Unethical Behavior By Amos Schurr; Ilana Ritov; Yaakov Kareev; Judith Avrahami
  8. Too smart to be selfish? Measures of cognitive ability, social preferences, and consistency By Chen, Chia-Ching; Chiu, I-Ming; Smith, John; Yamada, Tetsuji
  9. When do we lie? By Cappelen, Alexander W.; Sørensen, Erik Ø.; Tungodden, Bertil
  10. The demand for structured products: an experimental approach By Adriana Gabriela Breaban; Juan Carlos Matallín-Sáez; Iván Barreda-Tarrazona; Mª Rosario Balaguer-Franch
  11. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Mirco Tonin; Michael Vlassopoulos
  12. The impact of tax exclusive and inclusive prices on demand By Naomi E. Feldman; Bradley J. Ruffle
  13. Reversal of Risky Choice in a Good versus a Bad World By Einav Hart; Yaakov Kareev; Judith Avrahami
  14. Paternalism With Hindsight Do protégés react consequentialistically to paternalism? By Mitesh Kataria; M. Vittoria Levati; Matthias Uhl
  15. Alliances in the Shadow of Conflict By Changxia Ke; Kai A. Konrad; Florian Morath
  16. Taking the Broad Perspective: Risky Choices in Repeated Proficiency Tasks By Amos Schurr; Yaakov Kareev; Judith Avrahami; Ilana Ritov
  17. The Role of First Impression in Operant Learning By Hanan Shteingart; Tal Neiman; Yonatan Loewenstein
  18. When guessing what another person would say is better than giving your own opinion: Using perspective-taking to improve advice-taking By Ilan Yaniv; Shoham Choshen-Hillel

  1. By: Noussair, C.N.; Stoop, J.T.R. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We report results from three well-known experimental paradigms, where we use time, rather than money, as the salient component of subjects’ incentives. The three experiments, commonly employed to study social preferences, are the dictator game, the ultimatum game and the trust game. All subjects in a session earn the same participation fee, but their choices affect the time at which they are permitted to leave the laboratory, with decisions typically associated with greater own payoff translating into an earlier departure. The modal proposal in both the dictator and ultimatum games is an equal split of the waiting time. In the trust game, there is substantial trust and reciprocity. Overall, social preferences are evident in time allocation decisions. Received laboratory results from dictator, ultimatum, and trust games are robust to the change in reward medium, though there is some suggestive evidence that decisions are even more prosocial with respect to time than money.
    Keywords: dictator game;ultimatum game;trust game;time.
    JEL: C70 C91 D63 D64
    Date: 2012
  2. By: Michèle Belot (School of Management, University of Edinburgh); Marina Schröder (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: We propose a novel experimental design to study counterproductive behaviour in a principal agent setting. The design allows us to study and derive clean measures of different forms of counterproductive behaviour in a controlled but non obtrusive manner. We ask participants to complete a specific task (identify euro coins) and report their output. Participants can engage in various forms of counterproductive behaviour, none of them being offered to them explicitly. They can make mistakes in the identification task, lie in their report or even steal coins. We present an application of the design to study the effects of different pay schemes (competition, fixed pay and piece rate) on counterproductive behaviour. On average counterproductive behaviour amounts to 10 percent of the average productivity, almost all arising through mistakes and overreporting of output. We find essentially no evidence of theft. Moreover, we find that both productive and counterproductive behaviour are significantly higher under competition than under the two other pay schemes.
    Keywords: counterproductive behaviour, compensation, experiment, competition, piece rate, ?fixed pay
    JEL: C91 J24 J30 M52
    Date: 2012–08
  3. By: Andrea Leuermann; Benjamin Roth
    Abstract: Advice is important for decision making, especially in the financial sector. We investigate how individuals assess risk preferences of others given sociodemographic information or pictures. Both non-professionals and financial professionals participate in this artefactual field experiment. Subjects mainly rely on the other's self-assessment of risk preferences and on gender when forming the belief about someone else's risk preferences. On average, subjects consider themselves to be more risk-tolerant than the person they evaluate. Subjects use their own risk attitude as a reference point for predicting others' risk preferences. This false consensus effect is less pronounced for young professionals than for senior and non-professionals. Furthermore, financial professionals predict risk preferences more accurately compared to non-professionals.
    Keywords: Risk preferences, financial advice, artefactual field experiment, behavioral finance
    JEL: C91 D81
    Date: 2012
  4. By: Andrea Leuermann; Benjamin Roth
    Abstract: Recent studies have found correlations between risk attitudes and several sociodemographic characteristics. In this paper, we deploy an artefactual field experiment and study whether subjects - non-professionals and -financial professionals - are aware of these correlations. This is largely confirmed by our results for all subject groups. We show that the subjects attach informational value to sociodemographic information when assessing others' risk attitudes. This provides external validity to the correlations found between risk preferences and sociodemographics. A person's self-assessment of risk attitudes is the most helpful device for the subjects' assessments of others, although experienced professionals make use of it to a minor extent than all other subjects.
    Keywords: Risk preferences, financial advice, artefactual field experiment, behavioral finance
    JEL: C91 D81
    Date: 2012
  5. By: Zacharias Maniadis; Joshua Miller
    Abstract: We present an experiment to address the question of whether a piece of information is more influential if it comes from experience, rather than from another source. We employ a novel experimental design which controls for the value of information and other potentially important confounding factors present in related studies. Overall, our results show that an event that is personally experienced has a stronger influence on subsequent behavior than an observed event with equally valuable information content. Importantly, in early rounds when information is more valuable from a rational viewpoint, this overweighting of personal experience is not statistically significant. JEL Classification Numbers: C90; C91; Keywords: Experiments; Learning; Observation; Reinforcement Learning; Belief-Based Learning
    Date: 2012
  6. By: Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Benjamin Franz (Mathematical Institute, University of Oxford)
    Abstract: We study oligopoly games with firms competing in prices and quantities at the same time. We systematically compare our experimental results to the theoretical predictions using the mixed strategy equilibria for linear demand functions. For the duopoly game, we observe that the mixed strategy equilibrium predicts average outcomes better than Cournot and Bertrand do. Subjects' price choices are mainly between marginal cost and monopoly level but do not follow the equilibrium distribution. Although average prices and profits are above theoretical values, we do not observe a high level of collusion as expected in the literature. By comparing simulations based on the mixed strategy equilibrium to our experimental outcomes, we conclude that in this game price setting can be explained by strategic reaction to preceding round results. In contrast to the equilibrium prediction, we observe a decrease in prices and negative average profits for the triopoly game.
    Keywords: Price-Quantity Competition; Mixed Strategy Equilibria; Experimental Economics; Learning Direction Theory
    JEL: D43 L11
    Date: 2012–08
  7. By: Amos Schurr; Ilana Ritov; Yaakov Kareev; Judith Avrahami
    Abstract: In two experiments, we explored how the perspective through which individuals view their decisions influences their moral behavior. To do this we employed a computerized “Is that the answer you had in mind?” trivial-pursuit style game. The game challenges individuals’ integrity because cheating during play cannot be detected. Perspective, whether local or global, was manipulated: In Experiment 1 the choice procedure was used to evoke a local or an integrative perspective of one’s choices, whereas in Experiment 2, perspective was manipulated through priming. Across all the experiments, we observed that when given an incentive to cheat, the adoption of a local perspective increased cheating, as evidenced by overall higher reported success rates. These findings have clear implications for explaining and controlling behavior in other situations (e.g., exercising, dieting) in which the perspective one takes is a matter of choice.
    Date: 2012–08
  8. By: Chen, Chia-Ching; Chiu, I-Ming; Smith, John; Yamada, Tetsuji
    Abstract: Although there is an increasing interest in examining the relationship between cognitive ability and economic behavior, less is known about the relationship between cognitive ability and social preferences. We investigate the relationship between consequential measures of cognitive ability and measures of social preferences. We have data on a series of small-stakes dictator-type decisions, known as Social Value Orientation (SVO), in addition to choices in a larger-stakes dictator game. We also have access to the grade point averages (GPA) and SAT (formerly referred to as the Scholastic Aptitude Test) outcomes of our subjects. We find that subjects who perform better on the Math portion of the SAT are more generous in both the dictator game and the SVO measure. By contrast we find that subjects with a higher GPA are more selfish in the dictator game and more generous according to the SVO. We also find some evidence that the subjects with higher GPA and higher SAT outcomes offer more consistent responses. Our results involving GPA and social preferences complement previous work which employ measures of cognitive ability which are sensitive to the intrinsic motivation of the subject. Our results involving SAT scores are without precedent in the literature and suggest that measures of cognitive ability, which are less sensitive to the intrinsic motivation of the subject, are positively related to generosity.
    Keywords: dictator game; Social Value Orientation; altruism; intelligence
    JEL: D64 C91
    Date: 2012–09–05
  9. By: Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); 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)
    Abstract: The paper reports from an experiment studying how the aversion to lying is affected by non-economic dimensions of the choice situation. Specifically, we study whether people are more or less likely to lie when the content of the lie is personal, when they base decisions on intuition, and when they are in a market context. We also study how aversion to lying depends on personal characteristics, including age, gender, cognitive ability, personality and social preferences. Our main finding is that non-economic aspects of the choice situation are crucial in understanding aversion to lying. In particular, we find that people are less likely to lie when the content of the message is personal. We also find large effects from priming the participants to rely on intuition, but, interestingly, in this case the effect only applies to males. Finally, we find that people who are highly motivated by social preferences are more averse to lying, but there is no significant relationship between lying behavior and other personal characteristics.
    Keywords: Experiment; lying; personal characteristics
    JEL: D63
    Date: 2012–08–31
  10. By: Adriana Gabriela Breaban (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Juan Carlos Matallín-Sáez (Finance and Accounting Dept., Universitat Jaume I, Castellón, Spain); Iván Barreda-Tarrazona (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Mª Rosario Balaguer-Franch (Finance and Accounting Dept., Universitat Jaume I, Castellón, Spain)
    Abstract: Structured investment funds showed an important growth in the mutual fund industry. We analyze this type of fund’s demand using the experimental methodology which gives us perfect control over the characteristics of the funds and the information provided to the investor. Different types of structured guaranteed funds, with fixed combinations of secured and additional benefits, are sequentially offered to university students who act as investors. Subjects also have the alternative possibility to buy bonds. Our results show that information available to investors, and particularly the order in which this information is presented, generates significant biases in their decision making which can have both positive and negative consequences on their financial behavior. In fact, when the investment alternatives are made easier to compare, too good to be true investment offers get more easily spotted, whereas funds whose performance shows an apparently positive trend result overvalued in comparison to bonds.
    Keywords: investor behavior, experiment, guaranteed investment fund.
    JEL: G23 C91
    Date: 2012
  11. By: Mirco Tonin; Michael Vlassopoulos
    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.
    Date: 2012–07–20
  12. By: Naomi E. Feldman; Bradley J. Ruffle
    Abstract: We test the equivalence of tax-inclusive and tax-exclusive prices through a series of experiments that differ only in their handling of the tax. Subjects receive a cash budget and decide how much to keep and how much to spend on various attractively priced goods. Subjects spend significantly more when faced with tax-exclusive prices. This treatment effect is robust to different price levels, to initial shopping-cart purchases and persists throughout most of the ten rounds. A goods-level analysis, intra-round revisions as well as results from a third tax-deduction treatment all cast doubt on salience as the source of our findings.
    Date: 2012
  13. By: Einav Hart; Yaakov Kareev; Judith Avrahami
    Abstract: In many situations one has to choose between risky alternatives, knowing only one's past experience with those alternatives. Such decisions can be made in more – or less – benevolent settings or 'worlds'. In a 'good world', high payoffs are more frequent than low payoffs, and vice versa in a 'bad world'. In two studies, we explored whether the world influences choice behavior: Whether people behave differently in a 'good' versus a 'bad' world. Subjects made repeated, incentivized choices between two gambles, one riskier than the other, neither offering a sure amount. The gambles were held equivalent in terms of their expected value, differing only in variance. Worlds were manipulated both between- and within-subject: In Study 1, each subject experienced one world – good, bad or mediocre; in Study 2, each subject experienced both a good and a bad world. We examine the aggregate pattern of behavior (average choice frequencies), and the dynamics of behavior across time. We observed significant differences in the aggregate pattern: In a good world, subjects tended to choose the riskier alternative, and vice versa in a bad world. The pattern of the dynamics, i.e., the transitions from round to round, were best explained by a reaction to the counterfactual reward: When the unchosen alternative yielded a better payoff, the tendency to subsequently choose it was higher. We compared these two patterns to the predictions of three types of models: Reinforcement learning, regret-based and disappointment-based models. Behavior was in line only with the predictions of regret-based models.
    Date: 2012–08
  14. By: Mitesh Kataria (Max Planck Institute of Economics, Jena); M. Vittoria Levati (Max Planck Institute of Economics, Jena, and University of Verona); Matthias Uhl (Technical University of Munich)
    Abstract: We investigate experimentally whether the protégés' reaction to paternalism depends on the consequences of the paternalistic action to their well-being. We find that protégé punish a paternalist restricting their freedom of choice. Yet, this negative reaction is not based on principled grounds because, with hindsight, protégés punish the paternalist only if the restriction makes them worse off. Conversely, if the restriction makes them better off, the protégé on average do not punish and, sometimes, they even reward the paternalist. This suggests that protégés take a consequentialist stand on paternalism. Controlling for intentions ascribed to the patron does not alter our finding.
    Keywords: Paternalism, Consequentialism, Value of freedom, Experiment
    JEL: C92 D6 P16
    Date: 2012–09–10
  15. By: Changxia Ke; Kai A. Konrad; Florian Morath
    Abstract: Victorious alliances often fight about the spoils of war. We consider experimentally when members of victorious alliances accept a peaceful division of the spoils, and when they fight against each other, and how the inability to commit to a peaceful division affects their effort contributions in their fight against a common enemy. First, we find that an asymmetric split of the prize induces a higher likelihood of internal fight and, in turn, reduces the effort contributions in the fight against a joint enemy. Second, non-binding declarations on how to divide the spoils in case of victory do not help to mitigate the hold-up problem.
    Keywords: Conflict, contest, alliance, hold-up problem, experiment
    JEL: D72 D74
    Date: 2012–03
  16. By: Amos Schurr; Yaakov Kareev; Judith Avrahami; Ilana Ritov
    Abstract: In performing skill-based tasks individuals often face a choice between easier, less demanding alternatives, but ones whose expected payoffs in case of success are lower, and difficult, more demanding alternatives whose expected payoffs in case of success are higher: What piece to play in a musical competition, whether to operate a camera in a manual or automatic mode, etc. We maintain that the decision-maker’s perspective – whether narrow or broad – is one determinant of choice, and subsequent satisfaction, in such tasks. In two experiments involving dart throwing and answering general-knowledge trivia questions, perspective was manipulated through choice procedure: A sequential choice procedure, with task difficulty chosen one at a time, was used to induce a narrow perspective while an aggregate-choice procedure was used to induce a broad perspective. In two additional experiments, both involving a sequential-choice procedure perspective was manipulated through priming. As predicted, in all experiments inducement of a narrow perspective resulted in a higher probability of choosing the more difficult task; it also led to lower-than-anticipated overall satisfaction.
    Keywords: Perspective, joint vs. separate evaluation, skill based decisions
    Date: 2012–08
  17. By: Hanan Shteingart; Tal Neiman; Yonatan Loewenstein
    Abstract: We quantified the effect of first experience on behavior in operant learning and studied its underlying computational principles. To that goal, we analyzed more than 200,000 choices in a repeated-choice experiment. We found that the outcome of the first experience has a substantial and lasting effect on participants' subsequent behavior, which we term outcome primacy. We found that this outcome primacy can account for much of the underweighting of rare events, where participants apparently underestimate small probabilities. We modeled behavior in this task using a standard, model-free reinforcement learning algorithm. In this model, the values of the different actions are learned over time and are used to determine the next action according to a predefined action-selection rule. We used a novel non-parametric method to characterize this action-selection rule and showed that the substantial effect of first experience on behavior is consistent with the reinforcement learning model if we assume that the outcome of first experience resets the values of the experienced actions, but not if we assume arbitrary initial conditions. Moreover, the predictive power of our resetting model outperforms previously published models regarding the aggregate choice behavior. These findings suggest that first experience has a disproportionately large effect on subsequent actions, similar to primacy effects in other fields of cognitive psychology. The mechanism of resetting of the initial conditions which underlies outcome primacy may thus also account for other forms of primacy.
    Keywords: reinforcement learning, operant conditioning, underweighting of rare events, risk aversion, primacy
    Date: 2012–09
  18. By: Ilan Yaniv; Shoham Choshen-Hillel
    Abstract: We investigated how perspective-taking might be used to overcome bias and improve advice-based judgments. Decision makers often tend to underweight the opinions of others relative to their own, and thus fail to exploit the wisdom of others. We tested the idea that decision makers taking the perspective of another person engage a less egocentric mode of processing of advisory opinions and thereby improve their accuracy. In Studies 1-2, participants gave their initial opinions and then considered a sample of advisory opinions in two conditions. In one condition (self-perspective), they were asked to give their best advice-based estimates. In the second (other-perspective), they were asked to give advice-based estimates from the perspective of another judge. The dependent variables were the participants’ accuracy and indices that traced their judgment policy. In the self-perspective condition participants adhered to their initial opinions, whereas in the other-perspective condition they were far less egocentric, weighted the available opinions more equally and produced more accurate estimates. In Study 3, initial estimates were not elicited, yet the data patterns were consistent with these conclusions. All the studies suggest that switching perspectives allows decision makers to generate advice-based judgments that are superior to those they would otherwise have produced. We discuss the merits of perspective-taking as a procedure for correcting bias, suggesting that it is theoretically justifiable, practicable, and effective.
    Date: 2012–08

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