nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒09‒22
fifteen papers chosen by
Daniel Houser
George Mason University

  1. Mediocrity and Induced Reciprocity By Natalia Montinari; Antonio Nicolò; Regine Oexl
  2. Wages, Employment, and Statistical Discrimination: Evidence from the Laboratory By David L. Dickinson; Ronald L. Oaxaca
  3. Stabilizing the economy: Market design and general equilibrium By Jacob K. Goeree; Luke Lindsay
  4. Guilt causes equal or unequal division in alternating-offer bargaining By Kohler, Stefan
  5. Envy can promote more equal division in alternating-offer bargaining By Kohler, Stefan
  6. Microfinance at the Microfinance at the margin: experimental evidence from Bosnia and Herzegovina vidence from Bosnia and Herzegovina By Britta Augsburg; Ralph De Haas; Heike Harmgart; Costas Meghir
  7. Trust and Trustworthiness under the Prospect Theory: A field experiment in Vietnam By Quang Nguyen; Marie-Claire Villeval; Hui Xu
  8. Partnerships, Imperfect Monitoring and Outside Options: Theory and Experimental Evidence By Paolo Crosetto; Alexia Gaudeul; Gerhard Riener
  9. Uncertainty and Disagreement in Forecasting Inflation: Evidence from the Laboratory (Revised version of CentER DP 2011-053) By Pfajfar, D.; Zakelj, B.
  10. Interpersonal In?fluence Regarding the Decision to Vote Within Mozambican Households. By Ana Sílvia de Matos Vaz
  11. Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment By Kory Kroft; Fabian Lange; Matthew J. Notowidigdo
  12. Explicit vs. tacit collusion: The impact of communication in oligopoly experiments By Fonseca, Miguel A.; Normann, Hans-Theo
  13. Building and Rebuilding Trust with Promises and Apologies. By Eric Schniter; Roman M. Sheremeta; Daniel Sznycer
  14. Can a sense of entitlement increase stealing? By Christina Gravert
  15. External Validity and Partner Selection Bias By Hunt Allcott; Sendhil Mullainathan

  1. By: Natalia Montinari (Max Planck Institute of Economics, Jena, Germany); Antonio Nicolò (University of Padua, Italy); Regine Oexl (University of Innsbruck, Austria)
    Abstract: We report evidence from an experiment where a principal chooses an agent out of two to perform a task for a fixed compensation. The principal's payoff depends on the agent's ex-ante ability and on a non-contractible effort that the agent has to exert once employed. We find that a significant share of principals select the mediocre agent (i.e. the one with the lower ex-ante ability). When the principal is allowed to send a message, mediocre agents exert more effort than agents with the higher ability, and principals who chooses mediocre agents on average have a larger payoff than principals who select agents with higher ability. This difference in effort overcompensates the difference in ability. Mediocre agents reciprocate more than agents who have ex-ante higher ability when the principals are able to make them feeling indebted.
    Keywords: reciprocity, communication, incentives, mediocrity
    JEL: C9
    Date: 2012–09–12
  2. By: David L. Dickinson; Ronald L. Oaxaca
    Abstract: When membership in a particular group conveys valuable information about an individual’s skills, productivity, or other human capital characteristics, a non-prejudiced agent may still find it rational to statistically discriminate. We frame statistical discrimination in a labor market setting for a series of laboratory experiments. A main objective of our experiments is to examine how varying productivity risk along several dimensions impacts outcomes across worker groups. Our design expands upon existing research by generating laboratory data both on wage contracts and unemployment rates of directly competing worker groups. We find some evidence for statistical wage discrimination against workers with identical expected productivity but higher productivity variance. However, those same subjects are less likely to be unemployed, suggesting that our employers view hiring choice and wage contracts as substitutable. These laboratory results have interesting implications for labor markets where employers select from workers belonging to distinct statistical groups, and suggest that statistical discrimination based on wages alone may overestimate the true effect of such discrimination. Key Words:
    Date: 2012
  3. By: Jacob K. Goeree; Luke Lindsay
    Abstract: We employ laboratory methods to study stability of competitive equilibrium in Scarf's economy (International Economic Review, 1960). Tatonnement theory predicts that prices are globally unstable for this economy, i.e. unless prices start at the competitive equilibrium they oscillate without converging. Anderson et al. (Journal of Economic Theory, 2004) report that in laboratory double auction markets, prices in the Scarf economy do indeed oscillate with no clear sign of convergence. We replicate their experiments and confirm that tatonnement theory predicts the direction of price changes remarkably well. Prices are globally unstable with adverse effects for the economy's efficiency and the equitable distribution of the gains from trade. We also introduce a novel market mechanism where participants submit demand schedules and prices are computed using Smale's global Newtonian dynamic (American Economic Review, 1976). We show that for the Scarf economy, submitting a competitive schedule, i.e. a set of quantities that maximize utility taking prices as given, is a weakly dominant strategy. The resulting outcome corresponds to the unique competitive equilibrium of the Scarf economy. In experiments that employ the schedule market, prices do not oscillate but instead converge quickly to the competitive equilibrium. Besides stabilizing prices, the schedule market is more efficient and results in highly egalitarian outcomes.
    Keywords: Scarf economy, tatonnement, global Newtonian dynamic, instability, general equilibrium, market design
    JEL: C92 D50
    Date: 2012–09
  4. By: Kohler, Stefan
    Abstract: Parties in a bargaining situation may perceive guilt, a utility loss caused by receiving the larger share that is modeled in some social preferences. I extend Rubinstein (1982)'s solution of the open-ended alternating-offer bargaining problem for self-interested bargainers to a game with equally patient bargainers that exhibit a similar degree of guilt. The bargaining parties still reach agreement in the first period. If guilt is strong, they split the bargaining surplus equally. In contrast, if guilt is weak, the bargaining outcome is tilted away from the Rubinstein division towards a more unequal split. As both bargainers sensation of guilt diminishes, the bargaining outcome converges to the Rubinstein division.
    Keywords: alternating offers; bargaining; bargaining power; behavioral economics; equity; fairness; guilt; inequality aversion; negotiation; social preferences
    JEL: D03 C78 D63
    Date: 2012–09–10
  5. By: Kohler, Stefan
    Abstract: Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.
    Keywords: alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences
    JEL: D03 C78 D63
    Date: 2012–09–10
  6. By: Britta Augsburg (Institute for Fiscal Studies); Ralph De Haas (EBRD); Heike Harmgart (EBRD); Costas Meghir (Yale University and University College London)
    Abstract: We use a randomised controlled trial (RCT) to analyse the impact of microcredit on poverty reduction in Bosnia and Herzegovina. The study population are loan applicants that would normally have just been rejected based on regular screening. We find that access to credit allowed borrowers to start and expand small-scale businesses. Households that already had a business and where the borrower had more education, ran down their savings, presumably to complement the loan and to achieve the minimum amount necessary to expand their business. In less-educated households, however, consumption went down. A key new result is that there was a substantial increase in the labour supply of young adults (16-19 year olds). This was accompanied by a reduction in school attendance.
    Keywords: Microfinance; liquidity constraints; human capital; randomised controlled trial
    JEL: G21 D21 I32
    Date: 2012–09
  7. By: Quang Nguyen (Division of Economics - Nanyang Technological University); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Hui Xu (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: We study the influence of risk and time preferences on trust and trustworthiness by conducting a field experiment in Vietnamese villages and by estimating the parameters of the Cumulative Prospect Theory and of quasi-hyperbolic time preferences. We find that while probability sensitivity or risk aversion do not affect trust, loss aversion influences trust indirectly by lowering the expectations of return. Also, more risk averse and less present biased participants are found to be trustworthier. The experience of receiving remittances influences behavior and a longer exposure to a collectivist economy tend to reduce trust and trustworthiness.
    Keywords: Trust, trustworthiness ; risk preferences ; time preferences ; Cumulative Prospect Theory ; Vietnam ; field experiment
    Date: 2012–09–10
  8. By: Paolo Crosetto (Max Planck Institute of Economics, Jena); Alexia Gaudeul (Max Planck Institute of Economics, Jena); Gerhard Riener (Düsseldorf Institute for Competition Economics (DICE), Heinrich Heine University, Düsseldorf)
    Abstract: We study theoretically and experimentally a two-person partnership game whereby agents only see the uncertain outcome of their joint effort but not how much the other agent contributed to it. The model combines problems of free-riding present in public good production and in teams with imperfect monitoring. We analyse effort and exit behaviour conditional on subjects' beliefs over the action taken by their partners and consider the effect of the availability and profitability of outside options. Our subjects do not adapt effort as a response to changes in their beliefs about the effort of their partner. Subjects display aversion for team work by exiting the partnership even when they believe their partner exerts sufficient effort to sustain it. Higher outside options do not either motivate or discourage effort in joint work but rather result in not only inefficient but also irrational breakdown in partnerships. Overall, social welfare decreases as the incentive to exit increases.
    Keywords: Imperfect monitoring, outside options, partnerships, public good production, repeated games, teams
    JEL: D82 H41
    Date: 2012–09–11
  9. By: Pfajfar, D.; Zakelj, B. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper compares the behavior of subjects' uncertainty in different monetary policy environments when forecasting inflation in the laboratory. We find that inflation targeting produces lower uncertainty and higher accuracy of interval forecasts than inflation forecast targeting. We also establish several stylized facts about the behavior of individual uncertainty, aggregate distribution of forecasts, and disagreement between individuals. We find that the average confidence interval is the measure that performs best in forecasting inflation uncertainty. Subjects correctly perceive the underlying inflation uncertainty in only 60% of cases and tend to report asymmetric confidence intervals, perceiving higher uncertainty with respect to inflation increases.
    Keywords: Laboratory Experiments;Confidence Bounds;New Keynesian Model;Inflation Expectations.
    JEL: C91 C92 E37 D80
    Date: 2012
  10. By: Ana Sílvia de Matos Vaz
    Abstract: Voter education is crucial to promote voters’ participation. The question that remains is how voter education campaigns can reach a significant part of the population. During the 2009 Mozambican elections, a field experiment implemented three voter education interventions: the distribution of a free newspaper, the creation of a SMS hotline to report electoral problems, and a civic education campaign. Based on a sample of untreated individuals living with experimental subjects, this paper examines the diffusion of the interventions’ effects within the household. I find different spillover effects associated with different interventions and interpret that as evidence that different interventions trigger influence at different levels. I find that the delivery of the newspaper has almost no effect on the other people in the household. The hotline intervention affects the preferences and behavior of the other individuals, but not their information. Finally, the civic education campaign only affects the behavior of other people in the household. This paper shows that the transmission of voter education campaigns’ effects does not occur through information sharing, but through sharing of opinions and pressure. Furthermore, this study provides statistical evidence that social control increases voter turnout.
    Date: 2012
  11. By: Kory Kroft; Fabian Lange; Matthew J. Notowidigdo
    Abstract: This paper studies the role of employer behavior in generating "negative duration dependence" -- the adverse effect of a longer unemployment spell -- by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter. We develop a theoretical framework that shows how the sign of this interaction effect can be used to discern among leading models of duration dependence based on employer screening, employer ranking, and human capital depreciation. Our results suggest that employer screening plays an important role in generating duration dependence; employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.
    JEL: J64
    Date: 2012–09
  12. By: Fonseca, Miguel A.; Normann, Hans-Theo
    Abstract: We explore the difference between explicit and tacit collusion by investigating the impact communication has in experimental markets. For Bertrand oligopolies with various numbers of firms, we compare pricing behavior with and without the possibility to communicate among firms. We find strong evidence that talking helps to obtain higher profits for any number of firms, however, the gain from communicating is nonmonotonic in the number of firms, with medium-sized industries having the largest additional profit from talking. We also find that industries continue to collude successfully after communication is disabled. Communication supports fims in coordinating on collusive pricing schemes, and it is also used for conflict mediation. --
    Keywords: cartels,collusion,communication,experiments,repeated games
    JEL: C7 C9 L4 L41
    Date: 2012
  13. By: Eric Schniter (Economic Science Institute, Chapman University); Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Daniel Sznycer (Center for Evolutionary Psychology, University of California, Santa Barbara)
    Abstract: Using trust games, we study how promises and messages are used to build new trust where it did not previously exist and to rebuild damaged trust. In these games, trustees made non-binding promises of investment-contingent returns, then investors decided whether to invest, and finally trustees decided how much to return. After an unexpected second game was announced, but before it commenced, trustees could send a one-way message. This design allowed us to observe the endogenous emergence and natural distribution of trust-relevant behaviors and focus on naturally occurring remedial strategies used by promise-breakers and distrusted trustees, their effects on investors, and subsequent outcomes. In the first game 16.6% of trustees were distrusted and 18.8% of trusted trustees broke promises. Trustees distrusted in the first game used long messages and promises closer to equal splits to encourage trust in the second game. To restore damaged trust, promise-breakers used apologies and upgraded promises. On average, investments in each game paid off for investors and trustees, suggesting that effective use of cheap signals fosters profitable trust-based exchange in these economies.
    Keywords: promise, atonement, apology, cheap talk, cheap signals, trust game, trust building, remedial strategies, reciprocity, experiments
    Date: 2012
  14. By: Christina Gravert (Department of Economics and Business, Aarhus University, Denmark)
    Abstract: Are people more likely to steal when the payoff they deserve is determined randomly or when it depends on their performance in a difficult task? In this paper I investigate how the probability of stealing is affected by the way in which payoff is earned. After answering a short survey one group was asked to roll a die to determine their payoff, while the other group had three minutes to find matching numbers in a matrix task. Participants then paid themselves unobserved by the experimenter. I find that the participants who earned their payoff according to performance were three times more likely to take the (undeserved) maximum payoff than the participants in the random payment scheme. In contrast to previous findings in the cheating literature, stealing is an all-or-nothing decision rather than a trade-off between a slightly higher payoff and the desire to keep ones moral values intact. The results support the theory that unethical behavior is increased by a sense of entitlement, which is more pronounced when wealth depends on performance than on the roll of a die.
    Keywords: Experiments, Deception, Entitlement, Justification
    JEL: C91 M52 D63 K42
    Date: 2012–09–14
  15. By: Hunt Allcott; Sendhil Mullainathan
    Abstract: Program evaluation often involves generalizing internally-valid site-specific estimates to a different target population. While many analyses have tested the assumptions required for internal validity (e.g. LaLonde 1986), there has been little empirical assessment of external validity in any context, because identical treatments are rarely evaluated in multiple sites. This paper examines a remarkable series of 14 energy conservation field experiments run by a company called Opower, involving 550,000 households in different cities across the U.S. We first show that the site-specific treatment effect heterogeneity is both statistically and economically significant. We then show that Opower partners are selected on partner-level characteristics that are correlated with the treatment effect. This "partner selection bias" implies that replications with additional partners have not given an unbiased estimate of the distribution of treatment effects in non-partner sites. We augment these results in a different context by showing that partner microfinance institutions (MFIs) that carry out randomized experiments are selected on observable characteristics from the global pool of MFIs. Finally, we propose two simple suggestive tests of external validity that can be used in the absence of data from many sites: comparison of observable sample and target site characteristics and an F-test of heterogeneous treatment effects across "sub-sites" within a site.
    JEL: C93 D12 L94 O12 Q41
    Date: 2012–09

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