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on Experimental Economics |
| By: | Charness, Gary; Brandts, Jordi; Ellman, Matthew |
| Abstract: | We study experimentally how the ability to communicate affects the frequency andeffectiveness of flexible and inflexible contracts in a bilateral trade context where sellers canadjust trade quality after observing a post-contractual cost shock and a discretionary buyertransfer. In the absence of communication, we find that rigid contracts are more frequent andlead to higher earnings for both buyer and seller. By contrast, in the presence of communication,flexible contracts are much more frequent and considerably more productive, both for buyers andsellers. Also, both buyer and seller earn considerably more from flexible with communicationthan rigid without communication. Our results show quite strongly that communication, a normalfeature in contracting, can remove the potential cost of flexibility (disagreements caused byconflicting perceptions). We offer an explanation based on social norms. |
| Keywords: | Economics, General, Economics, Other, experimental, contracts, bilateral trade, cost shock, discretionary buyer transfer |
| Date: | 2012–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt6z24s6rv&r=exp |
| By: | Charness, Gary; Masclet, David; Villeval, Marie Claire |
| Abstract: | Unethical behavior within companies is not rare. We investigate experimentally therole of status-seeking behavior in sabotage and cheating activities aiming at improving one’sperformance ranking in a flat-wage environment. We find that average effort is higher whenindividuals are informed about their relative performance. However, ranking feedback alsofavors disreputable behavior. Some individuals do not hesitate to incur a cost to improve theirrank by sabotaging others’ work or by increasing artificially their own performance. Introducingsabotage opportunities has a strong detrimental effect on performance. Therefore, rankingincentives should be used with care. Inducing group identity discourages sabotage among peersbut increases in-group rivalry. |
| Keywords: | Economics, Other, Economics, General, status, ranking, feedback, sabotage, doping, competitive preferences, experiment |
| Date: | 2012–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt1vr4g446&r=exp |
| By: | Charness, Gary; Oprea, Ryan; Friedman, Dan |
| Abstract: | We investigate the nature of continuous-time strategic interactions in public-goodsgames. In one set of treatments, four subjects make contribution decisions in continuous timewhile in another they make them only at discrete points of time. The effect of continuous timeis muted in public-goods games compared to simpler social dilemmas; the data suggest thatwidespread coordination problems are to blame. With a rich communication protocol, thesecoordination problems disappear and the median subject contributes fully to the public good,with no time decay. At the median, the same communication protocol is less than half aseffective in discrete time. |
| Keywords: | Economics, General, Economics, Other, public goods, voluntary contribution mechanism, continuous-time games |
| Date: | 2012–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt5404914p&r=exp |
| By: | Charness, Gary; Schram, Arthur |
| Abstract: | Social norms involve observation by others and external sanctions for violations,while moral norms involve introspection and internal sanctions. We develop a simple model ofindividual preferences that incorporates moral and social norms. We then examine dictatorchoices, where we create a shared understanding by providing advice from peers with nofinancial payoff at stake. We vary whether advice is given, as well as whether choices are madepublic. This design allows us to explicitly separate the effects of moral and social norms. Wefind that choices are in fact affected by a combination of observability and the sharedunderstanding. |
| Keywords: | Economics, General, Economics, Other, experiment, social norms, moral norms, individual preferences, dictator choices |
| Date: | 2012–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt6rv7x0tf&r=exp |
| By: | Charness, Gary; Feri, Francesco; Meléndez-Jiménez, Miguel A.; Sutter, Matthias |
| Abstract: | We study behavior and equilibrium selection in experimental network games. We varytwo important factors: (a) actions are either strategic substitutes or strategic complements, and(b) subjects have either complete or incomplete information about the structure of a randomnetwork. Play conforms strongly to the theoretical predictions, providing an impressivebehavioral confirmation of the Galeotti, Goyal, Jackson, Vega-Redondo, and Yariv (2010)model. The degree of equilibrium play is striking, even with incomplete information. We findthat under complete information, subjects typically play the stochastically-stable (inefficient)equilibrium when the game involves strategic substitutes, but play the efficient one with strategiccomplements. Our results suggest that equilibrium multiplicity may not be a major concern.Subjects’ actions and realized outcomes under incomplete information depend strongly on boththe degree and the connectivity. When there are multiple equilibria, subjects begin by playing theefficient equilibrium, but eventually converge to the inefficient one. |
| Keywords: | Economics, General, Economics, Other, random networks, incomplete information, strategic substitutes, strategic complements, experiment |
| Date: | 2012–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt51v6w9hd&r=exp |
| By: | Charness, Gary; Viceisza, Angelino |
| Abstract: | In the past decade, it has become increasingly common to use simple laboratorygames and decision tasks as a device for measuring both the preferences and understanding ofrural populations in the developing world. In this paper, we report the results observed with threedistinct risk elicitation mechanisms, using samples drawn from the rural population in Senegal,West Africa. We test the understanding of and the level of meaningful responses to the typicalHolt-Laury task, to an adaptation of a simple binary mechanism pioneered by Gneezy andPotters in 1997, and to a non-incentivized willingness-to-risk scale. We find a low level ofunderstanding with the Holt-Laury task and an unlikely-to-be-accurate pattern with thewillingness-to-risk question. Our analysis indicates that the simple binary mechanism hassubstantially more predictive power than does the Holt-Laury mechanism. Our study is acautionary note regarding utilizing either relatively sophisticated risk-elicitation mechanisms ornon-incentivized questions in the rural developing world. |
| Keywords: | Economics, General, International Economics, Economics, Other, risk elicitation, laboratory experiments in the field, comprehension, rural Senegal |
| Date: | 2012–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt5512d150&r=exp |
| By: | Charness, Gary |
| Abstract: | The notions of one’s social identity, group membership, and homophily have recentlybecome topics for economic theory and experiments. Yet, since people are members of manygroups (e.g., race, gender, handedness) what determines which identity or identities are the mostsalient in different environments? Further, how do these factors trade off against one’s financialinterest? We conduct public-goods experiments in which we permit endogenous group-formationand vary whether there is a team-building exercise and whether some people receive anendowment twice as much as others receive. We do see evidence that team identity affectsendogenous networks when there is only one endowment type; however, when both identities arepresent, high-endowment participants are strongly attracted to linking up with each other. Oneinteresting result is that the team-building exercise greatly increases the level of contributionwithout respect to whether one is linked to people from one’s team-building exercise.Apparently the positive feeling engendered by the group exercise spills over to participants whowere in another team; however, this is not the case when one group has been in a 4-person teamand the other four participants have not. |
| Keywords: | Economics, Other, Economics, General, experiment, identity, team building, homophily |
| Date: | 2012–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt2np178xh&r=exp |
| By: | Philip J. Grossman; Catherine C. Eckel |
| Abstract: | We develop a new protocol, adapted from the Eckel and Grossman (2002, 2008) risk measure, to elicit skewness preferences. The new lottery choices have the same expected payoffs and risk (variance) as the original choices, but with increasing degrees of positive skewness. We find that our subjects are skewness-seekers. More importantly, positive skewness in the payoff structure increases the number of subjects willing to gamble as well as increasing subjects’ risk taking in lottery choices. We conclude that skewed, long-shot payoffs entice decision makers to higher levels of risk taking than they otherwise would prefer. |
| Keywords: | Risk, Skewness, Gambling, Long Shot, Lotteries |
| JEL: | C91 D03 D81 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-41&r=exp |
| By: | Glenn W. Harrison; Jimmy MartÃnez-Correa; J. Todd Swarthout |
| Abstract: | We evaluate the binary lottery procedure for inducing risk neutral behavior in a subjective belief elicitation task. Harrison, Martinez-Correa and Swarthout [2013] found that the binary lottery procedure works robustly to induce risk neutrality when subjects are given one risk task defined over objective probabilities. Drawing a sample from the same subject population, we find evidence that the binary lottery procedure induces linear utility in a subjective probability elicitation task using the Quadratic Scoring Rule. We also show that the binary lottery procedure can induce direct revelation of subjective probabilities in subjects with certain Non-Expected Utility preference representations that satisfy weak conditions that we identify. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2012-16&r=exp |
| By: | Philip J. Grossman; Mana Komai; James E. Jensen |
| Abstract: | We conduct a laboratory experiment with salient incentives, a technique used by economists to study gender differences in leadership. We strip the concept of leadership down to its most basic elements. Questions of style and evaluations of a leader based on style of leadership adopted are made irrelevant. Our leader is an average player who is distinguished merely by occupying the leadership position; his/her legitimacy is derived from superior information about the value of the project in hand. Legitimacy is conferred on the leader from the special information possessed. Followers voluntarily choose whether or not to follow the better informed leader. The effectiveness of the leader is reduced to two simple factors: is the leader willing or not to voluntarily place herself in a vulnerable position to achieve an outcome beneficial to both the leader and her followers and do followers trust their leaders to make the right choice? We provide experimental evidence that, when the leaders’ gender is revealed to their followers in mixed groups, female leaders hesitate to lead (send a costly signal) while followers’ behavior does not indicate any gender discrimination. Such behavior is not observed among the male leaders. |
| Keywords: | Leadership, Information, Gender, Free Riding, Coordination Problem. |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-42&r=exp |
| By: | Daniel John Zizzo (School of Economics, University of East Anglia) |
| Abstract: | A relevance, distinctiveness and plausibility (RDP) analysis is a conceptual framework that can be used to identify when potential confounds are a problem for interpreting experimental results. We illustrate this analysis using the creation or enhancement of natural group identity by the means of priming manipulations as employed in the experiments of five target papers. Such priming manipulations may lead to experimenter demand effects and may spuriously induce behavior change. Using a RDP analysis, we show how these potential confounds are likely to be problematic for all but one of the target papers. |
| Keywords: | Confounds, objectives, economic experiments, group identity, natural groups, priming |
| JEL: | B41 C90 D03 |
| Date: | 2012–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:12-01&r=exp |
| By: | Philip J. Grossman; Catherine C. Eckel |
| Abstract: | This paper revisits the question of "warm glow" vs. "cold prickle" and the provision of public goods. It also addresses the question, is giving in Dictator Games an expression of altruism or an artifact of experimentation? What is unique about this paper is that we employ a “real donation†lab experiment in a context-rich environment: contributions go to actual public goods (i.e., charitable organizations). Our study focuses directly on subjects' willingness to contribute to and take from a charity. We do this by allocating the initial endowment in one of three ways: either all to the subjects, all to the charity, or evenly between the two. Subjects are allowed to either contribute or take back as little or as much as they wish. We find that how the endowment is initially allocated is irrelevant when comparing the two extreme cases. On the other hand, we find evidence suggesting that, when the endowment is evenly split between the two parties, the initial even split seems to act as a powerful focal point: the final outcome is insignificantly different from the initial allocation. |
| Keywords: | Warm Glow, Cold Prickle, Charity, Altruism |
| JEL: | H4 D64 C72 C91 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-40&r=exp |
| By: | Anmol Ratan |
| Abstract: | In this paper, we relax the hard closure property of experiments that have been used to study endowment effect in laboratory. We study differences in benchmark environments (hard closure) and an environment that allows participants to reverse the decisions taken in the laboratory (soft closure). We find that “endowment effect†is not observed in the soft closure treatment. The procedures in our experiment allow us to circumvent the critique of altered expectations. Our results call for a careful interpretation of experiments that suggest “endowment effect†in laboratory conditions. Other implications pertain to external validity of experiments with hard closure. |
| Keywords: | prospect-theory, endowment effect, reference-dependence, loss aversion, lab experiments,field experiments, external validity |
| JEL: | C91 C93 D81 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-22&r=exp |
| By: | Mueller, Ulrike |
| Abstract: | India addressed the requirement for pro-poor service delivery in rural regions by introducing decentralization and affirmative action policies. In order to measure the social preferences of local decision makers, we conducted field experiments which simul |
| Keywords: | decentralization reforms, service delivery, in-group favouritism, field experiment, India |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-55&r=exp |
| By: | Iván Arribas (ERI-CES); Penélope Hernández (ERI-CES); Amparo Urbano Salvador (ERI-CES); Jose E. Vila (ERI-CES) |
| Abstract: | Purpose – The aim of this paper is to analyze the compatibility between entrepreneurial and social attitudes. Specifically, we analyze if subjects with a more developed economic entrepreneurial attitude exhibit a less social attitude. Design/methodology/approach – Our methodology integrates an economic experimental approach with a standard entrepreneurial intention questionnaire to analyze the interaction between entrepreneurial and social self-perceptions and behavior. Findings – There is empirical evidence that experimental entrepreneurial behavior (characterized by detecting an opportunity and accepting risk to take an economic advantage from it in laboratory experiments) reduces the incentive for social behavior. However, this effect does not appear if just self-perceptions instead of experimental behaviors are considered. Research limitations/implications – The social attitude of entrepreneurs may be overestimated in those empirical research studies based only on data obtained from entrepreneurs’ answers to hypothetical questions in a survey. Originality/value - To the best of our knowledge, this is the first paper presenting a laboratory experiment to represent the key features of entrepreneurial behavior instead of a case-control analysis to set differences in the experimental behavior of sub-samples of subjects defined in terms of their entrepreneurial motivation or experience. |
| Keywords: | Social entrepreneur, experimental behavioral economics, risk |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0512&r=exp |
| By: | Holmén, Martin (Department of Economics, School of Business, Economics and Law, Göteborg University); Kirchler, Michael (University of Innsbruck and University of Gothenburg); Kleinlercher, Daniel (University of Innsbruck) |
| Abstract: | One potential reason for bubbles evolving prior to the financial crisis was excessive risk taking stemming from bonus payment systems and option based compensation structures in financial institutions. Although these financial incentives are widely used, little is known about the consequences of convex incentive structures on price formation. By running laboratory asset markets, we vary the incentive structure and the riskiness of the underlying asset to identify their importance as determinants of market prices. We observe (i) the highest price levels when option-like incentives are coupled with high-risk assets. (ii) Furthermore, optionlike incentives induce subjects to take on significantly more risk than subjects with a linear incentives structure. (iii) From a individual profitmaximizing perspective, trading at inflated prices is in fact rational, since option-like incentives create a risk-shifting problem. However, overvalued assets are harmful from the market perspective since prices no longer reflect the assets’ value for a typical investor with a linear payoff structure.<p> |
| Keywords: | bubbles; incentives; market efficiency; experiment; risk-shifting |
| JEL: | C92 D84 G10 |
| Date: | 2012–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0540&r=exp |
| By: | James C. Cox; Danyang Li |
| Abstract: | It has been reported that betrayal aversion in influences the trust decision (Bohnet and Zeckhauser 2004; Bohnet et al. 2008). This paper adds to the literature by examining how concern for others' disutility from betrayal can affect the decision to repay trust. We compare trustees' behavior when betrayal is obfuscated to an identical monetary payoffs situation where betrayal is revealed. We find that more trustees choose to defect in our experiment when betrayal is obfuscated than when it is revealed. Our result suggests that concern for betrayal costs influences not only the decision to trust but also the decision to repay trust. |
| Keywords: | Experiments, Betrayal Cost, Trust, Cooperation |
| JEL: | C72 C91 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2012-14&r=exp |
| By: | Naomi E. Feldman (Research Division Federal Reserve Board Washington, D.C.); Bradley J. Ruffle (BGU) |
| 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. |
| Keywords: | experimental economics, sales tax, VAT, tax salience. |
| JEL: | C91 H20 H31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1207&r=exp |
| By: | Bradley J. Ruffle (BGU); Oscar Volij (BGU) |
| Abstract: | Kingston (1976) and Anderson (1977) show that the probability that a given contestant wins a best-of-2k+1 series of asymmetric, zero-sum, binary-outcome games is, for a large class of assignment rules, independent of which contestant is assigned the advantageous role in each component game. We design a laboratory experiment to test this hypothesis for four simple role-assignment rules. Despite the fact that play does not uniformly conform to the equilibrium, our results show that the four assignment rules are observationally equivalent at the series level: the fraction of series won by a given contestant and all other series outcomes do not differ across the four rules. |
| Keywords: | experimental economics, two-sided competitions, best-of series |
| JEL: | C90 D02 L83 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:1208&r=exp |
| By: | Quang Nguyen (Nanyang Technological University, 14 Nanyang Drive, Singapore 637332, Singapore); Marie-Claire Villeval (University of Lyon, F-69007, France; GATE, CNRS, 93, Chemin de Mouilles, F-69130, Ecully, France; IZA, Bonn, Germany); Hui Xu (University of Lyon, F-69007, France; GATE, CNRS, 93, Chemin de Mouilles, F-69130, Ecully, France) |
| 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 |
| JEL: | C91 C93 D81 D90 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1226&r=exp |
| By: | Simon Weidenholzer; Daniel Friedman; Steffen Huck; Ryan Oprea |
| Abstract: | We study long-run learning in an experimental Cournot game with no explicit information about the payo function. Subjects see only the quantities and payos of each oligopolist after every period. In line with theoretical predictions and previous experimental ndings, duopolies and triopolies both reach highly competitive levels, with price approaching marginal cost within 50 periods. Using the new ConG software, we extend the horizon to 1,200 periods, far beyond that previously investigated. Already after 100 periods we observe a qualitative change in behavior, and quantity choices start to drop. Without pausing at the Cournot-Nash level quantities continue to drop, eventually reaching almost fully collusive levels in duopolies and often reaching deep into collusive territory for triopolies. Fitted models of individual adjustment suggest that subjects switch from imitation of the most protable rival to other behavior that, intentionally or otherwise, facilitates collusion via eective punishment and forgiveness. Remarkably, subjects never learn the best-reply correspondence of the one-shot game. Our results suggest a new explanation for the emergence of cooperation. |
| Date: | 2012–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:715&r=exp |
| By: | Philipp Doerrenberg (University of Cologne); Denvil Duncan (Indiana University) |
| Abstract: | We examine the extent to which labor supply elasticities with respect to tax rates depend on access to evasion opportunities. It is observed that some types of workers have the opportunity to hide their income while others do not have such opportunities, e.g. due to being subject to third-party-reporting. We first set up a theoretical model to formally show that labor supply responses depend on access to evasion. The model is then tested in a lab experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find zero labor effort responses to tax rates in the control group and positive statistically significant adjustments in the treatment group; suggesting that both groups indeed react differently to taxes. |
| Keywords: | Tax Evasion, Labor Supply, Taxable Income, Lab Experiment, Taxes |
| JEL: | H2 J2 |
| Date: | 2012–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:03-10&r=exp |
| By: | Timothy J. Gronberg (Department of Economics, Texas A&M University); R. Andrew Luccasen (Mississippi University for Women); Theodore L. Turocy (School of Economics and CBESS, University of East Anglia); John B. Van Huyck (Department of Economics, Texas A&M University) |
| Abstract: | We report the results of a laboratory experiment on crowd-out in a voluntary contribution mechanism public goods game. In our setting, a standard argument states that a tax should not be effective in raising contributions, because agents respond by reducing voluntary contributions by the amount of the tax. Our experimental design focuses in on this intuition by abstracting away from several potential confounds. We use a specification for the payoff function in which there is a dominant strategy for own-earnings maximizing agents, located interior to and in the upper half of the strategy space. The dominant strategy ensures that changes in contributions are attributable to the tax directly, rather than second-order effects due to responses to out-of-equilibrium play by other agents. The dominant strategy is made more transparent by the use of a novel graphical decision interface. We find that individuals robustly choose at or above the own-earnings dominant strategy level. Even with the controls of the design, crowd-out is incomplete, but the degree of crowd-out is higher than in previous studies. Analysis of individual-level decisions provides evidence of different player types. Behavior of subjects not choosing the dominant or Pareto-efficient contributions is well-organized by a model of warm-glow giving with a logit decision error. |
| Keywords: | Public goods, crowd-out, warm-glow, logit choice |
| Date: | 2012–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:12-02&r=exp |
| By: | Charlotte Klempt |
| Abstract: | Cooperation via indirect reciprocity uses a partner's reputation to enable subjects to direct help to those who cooperated themselves. As a partner's reputation provides information whether the partner helped a third party in the past or not, subjects can help those partners with a good reputation. Whereas help in former studies implied a denite monetary transfer to a third party, the present study explores the implica- tions for cooperation via indirect reciprocity if a helping decision does not necessarily involve a monetary transfer. The study employs a "repeated helping game" where a chance move determines whether help actually leads to a reward for the recipient or not. Hence, a good reputation may not coincide with a positive income for the third party. The experimental results show that, rstly, if a chance move determines the outcome of helping decisions, the information about the past decision of partners has a smaller eect on cooperation rates as compared to a situation where helping decisions denitely lead to rewards. This suggests that risk substantially inuences the dynamics of indi- rect reciprocity. Secondly, subjects only reciprocate the recipient's good reputation and disregard whether a good reputation also involves a benecial outcome for the third party. Here, ndings oppose those found in studies on direct reciprocity where both the player's good intentions or good will and the actual monetary amount transferred aect reciprocal back-givings. |
| Keywords: | Indirect reciprocity; Reputation; Cooperation |
| JEL: | C91 D8 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:88&r=exp |
| By: | Larbi Alaoui; Antonio Penta |
| Abstract: | Level-k theories are agnostic over whether individuals stop the iterated reasoning because of their own cognitive constraints, or because of their beliefs over the cognitive constraints of their opponents. In practice, individual level of play may be a function both of their own constraints and their beliefs over their opponents' reasoning process. Moreover, the rounds of introspection that players perform may depend on their incentives to think more deeply. We develop a theory which explicitly models players' reasoning procedure. The rounds of introspection that individuals perform and their actual level of play both follow endogenously. This model delivers testable implications as payoffs and opponents change, and it allows for comparisons across games. It also disentangles the cognitive bound of players for a given game from their beliefs about the play of their opponents. In conjunction with the framework, we present an experiment designed to test its predictions. We modify the Arad and Rubinstein (2012) `11-20' game to serve this precise purpose, and administer different treatments which vary beliefs over payoffs and opponents. The results of this experiment are consistent with the model, and appear to lend support to our theory. This experiment also confirms the central premise that individuals change their level of play as incentives to think more and beliefs over opponents vary. |
| Keywords: | beliefs, bounded rationality, cognitive cost , higher order beliefs, incentives, level-k reasoning, value of reasoning |
| JEL: | C72 C92 D80 D83 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1332&r=exp |
| By: | Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Robert-Vincent Joule (LPS-AIX - Laboratoire de Psychologie Sociale - Université de Provence - Aix-Marseille I : EA849); Stephane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR7316); Jason Shogren (Departement of Economics and Finance, University of Wyoming - University of Wyoming) |
| Abstract: | Eliciting sincere preferences for non-market goods remain a challenge due to the discrepency between hypothetical and real behavior and false zeros. The gap arises because people either overstate hypothetical values or understate real commitments or a combination of both. Herein we examine whether the traditional real-world institution of the solemn oath can improve preference elicitation. Applying the social psychology theory on the oath as a truth-telling-commitment device, we ask our bidders to swear on their honour to give honest answers prior to participating in an incentive-compatible second-price auction. The oath is an ancillary mechanism to commit bidders to bid sincerely in a second-price auction. Results from our induced valuation testbed treatments suggest that the oath-only auctions outperform all our other auctions (real and hypothetical). In our homegrown valuation treatments eliciting preferences for dolphin protection, the oath-only design induced people to treat as binding both their experimental budget constraint (i.e., lower values on the high end of the value distribution) and participation constraint (i.e., positive values in place of the zero bids used to opt-out of auction). Based on companion treatments, we show the oath works through an increase in the willingness to tell the truth, due to a strengthening of the intrinsic motivation to do so. |
| Keywords: | Oath; Commitment; Vickrey auction; Hypothetical bias; Induced values; Homegrown values |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00731244&r=exp |
| By: | Yang, Xiaojun (Department of Economics, School of Business, Economics and Law, Göteborg University); Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | In this paper, we conduct a high stake experiment in rural China to investigate the determinants of individual and joint decisions regarding intertemporal choices, and estimate the relative influence of spouses on the joint decisions. We use the Convex Time Budget experimental method to elicit individual and joint decisions on how much money to allocate to an early and a later date. We find that the rates of return have significant effects on the decisions, yet both individual and joint decisions exhibit present-biased time preferences. We also find that both spouses have a significant influence on joint decisions. However, husbands have a stronger influence than wives. Although there are few individual and household characteristics related to the relative influence, we do find a link between relative influence in the experiment and households’ decisions on financial savings in real life. We also find that neither the order of the individual and joint decisions nor the initial control of the endowment in the joint decision affects the behavior in the experiment. |
| Keywords: | household decision-making; intertemporal choices; Convex Time Budget; relative influence |
| JEL: | C91 C92 C93 D10 |
| Date: | 2012–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0537&r=exp |
| By: | Crosetto, Paolo; Gaudeul, Alexia |
| Abstract: | Abstract Firms can exploit consumers' mistakes when facing complex purchasing decision problems but Gaudeul and Sugden (2012) argue that if at least some consumers disregard offers that are difficult to compare with others then firms will be forced into adopting common ways to present their offers and thus make choice easier. We design an original experiment to check whether consumers’ indeed favor those offers that are easy to compare with others in a menu. A sufficient number of subjects do so with sufficient intensity for offers presented in common terms to generate higher revenues than offers that are expressed in an idiosyncratic way. |
| Keywords: | Bounded Rationality; Cognitive Limitations; Standards; Consumer Choice; Experimental Economics; Heuristics; Pricing Formats; Spurious Complexity |
| JEL: | D18 D81 C91 |
| Date: | 2012–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41462&r=exp |
| By: | Foster, Gigi (University of New South Wales); Kalenkoski, Charlene M. (Ohio University) |
| Abstract: | We present a household production model that incorporates multitasking and results from a customized experiment designed to measure the individual-specific productivity parameters from this model. We observe these productivity parameters under alternative incentive scenarios, designed to mimic changes in the relative utility payoffs to the two tasks. Using information on demographic and other characteristics collected through an on-screen survey taken by our experimental participants, we examine the correlates of individuals' sole-tasking and multitasking performance. Finally, we provide the literature's first measures of the own- and cross-price elasticities of household task supply in a multitasking context. |
| Keywords: | experiment, household production, child care, time use, productivity measures |
| JEL: | D13 C91 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6763&r=exp |
| By: | Kolstad, Ivar; Wiig, Arne |
| Abstract: | A number of studies document an in-group bias in social dilemma situations. While group structure and dynamics are important in shaping in-group favouritism, less attention has been paid to individual characteristics affecting favouritism. Using data from |
| Keywords: | in-group favouritism, parochialism, field experiment, social preferences, microcredit |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2012-45&r=exp |
| By: | Stefan Boes;; Stephan Nuesch;; Steve Stillman; |
| Abstract: | We explore two unexpected changes in flight regulations to identify the causal effect of aircraft noise on health. Detailed yearly noise metrics are linked with panel data on health outcomes using exact address information. Controlling for individual and spatial heterogeneity, we find that aircraft noise significantly increases sleeping problems, weariness and headaches. Our pooled models substantially underestimate the detrimental health effects, which suggests that individuals self-select into residence based on their unobserved noise sensitivity and idiosyncratic vulnerability. Generally, we show that the combination of fixed effects and quasi-experiments is very powerful to identify causal effects in epidemiological field studies. |
| Keywords: | Health, noise pollution, selection bias, fixed effects, quasi-experimental data. |
| JEL: | I10 Q53 C23 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:12/21&r=exp |
| By: | Albrecht, Konstanze (University of Bonn, Germany); von Essen, Emma (Dept. of Economics, Stockholm University); Falk, Armin (University of Bonn, Germany); Fliessbach, Klaus (University of Bonn, Germany); Ranehill, Eva (University of Zurich, Switzerland) |
| Abstract: | This study investigates how induced relative status affects fairness perceptions measured by satisfaction from different relative payoffs. We find that participants with lower status are less dissatisfied with disadvantageous payoff inequalities than equal or higher status participants. In contrast, when receiving an advantageous payoff, status does not influence satisfaction. Our findings suggest that relative social status has important implications for the acceptance of income inequalities. |
| Keywords: | status; fairness perceptions; satisfaction |
| JEL: | A13 C91 D31 D63 |
| Date: | 2012–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2012_0010&r=exp |
| By: | Tibor Besedes (Georgia Institute of Technology); Cary Deck (University of Arkansas); Sudipta Sarangi (Louisiana State University and DIW Berlin); Mikhael Shor (University of Connecticut) |
| Abstract: | Previous studies have demonstrated that a multitude of options can lead to choice overload, reducing decision quality. Through controlled experiments, we examine sequential choice architectures that enable the choice set to remain large while potentially reducing the effect of choice overload. A specific tournament-style architecture achieves this goal. An alternate architecture in which subjects compare each subset of options to the most preferred option encountered thus far fails to improve performance due to the status quo bias. Subject preferences over different choice architectures are negatively correlated with performance, suggesting that providing choice over architectures might reduce the quality of decisions. JEL Classification: C91, D03 Key words: choice architecture, choice overload, status quo bias, self-sorting, decision making, experiments |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-24&r=exp |
| By: | Tibor Besedes (Georgia Institute of Technology); Cary Deck (University of Arkansas); Sarah Quintanar (Louisiana State University); Sudipta Sarangi (Louisiana State University and DIW Berlin); Mikhael Shor (University of Connecticut) |
| Abstract: | Individuals bring effort to a group to achieve a common objective. Group membership introduces a free-riding incentive, reducing effort, as well as a sense of social responsibility, increasing effort. We show experimentally that the free-riding effect is stronger. Group members significantly reduce their effort in non-collaborative groups. With collaboration, the negative effects of free-riding are not observed. Collaborating groups outperform both groups without collaboration and individuals. They do as well, statistically, as the best constituent member would have done on her own. Thus, groups aggregate existing knowledge rather than create new knowledge. JEL Classification: C92, D71, Z13 Key words: group behavior, decision making, free-riding, experiments |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-21&r=exp |
| By: | Rema Hanna; Sendhil Mullainathan; Joshua Schwartzstein |
| Abstract: | Existing learning models attribute failures to learn to a lack of data. We model a different barrier. Given the large number of dimensions one could focus on when using a technology, people may fail to learn because they failed to notice important features of the data they possess. We conduct a field experiment with seaweed farmers to test a model of “learning through noticing”. We find evidence of a failure to notice: On some dimensions, farmers do not even know the value of their own input. Interestingly, trials show that these dimensions are the ones that farmers fail to optimize. Furthermore, consistent with the model, we find that simply having access to the experimental data does not induce learning. Instead, farmers change behavior only when presented with summaries that highlight the overlooked dimensions. We also draw out the implications of learning through noticing for technology adoption, agricultural extension, and the meaning of human capital. |
| JEL: | D83 J24 J43 O33 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18401&r=exp |
| By: | Babcock, Philip; Bedard, Kelly; Charness, Gary; Hartman, John; Royer, Heather |
| Abstract: | This paper estimates social effects of incentivizing people in teams. In two fieldexperiments featuring exogenous team formation and opportunities for repeated socialinteractions, we find large team effects that operate through social channels. The teamcompensation system induced agents to choose effort as if they valued a marginal dollar ofcompensation for their teammate from two-thirds as much (in one study) to twice as much asthey valued a dollar of their own compensation (in the other study). We conclude that socialeffects of monetary team incentives exist and can induce effort at lower cost than through directindividual payment. |
| Keywords: | Economics, General, Economics, Other, Applied Economics, field experiment, team incentives, social effects |
| Date: | 2012–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt93n646db&r=exp |
| By: | Fabio Galeotti (School of Economics, University of East Anglia); Daniel John Zizzo (School of Economics, University of East Anglia) |
| Abstract: | We present an experiment investigating the effects of having an individual identified as a singleton group. The presence of a singleton group reduces trustworthiness. The majority group members discriminate against the singled out group member when they are not responsible of the distinct status of this person. When the singleton group member is identified based on negative characteristics, he or she returns significantly less. Overall, having singleton groups has no benefits for trust and is potentially disruptive for trustworthiness. |
| Keywords: | Justification, trust games, groups, responsibility |
| JEL: | C72 C91 Z13 |
| Date: | 2012–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:12-03&r=exp |
| By: | Zackary Hawley; Danyang Li; Kurt Schnier |
| Abstract: | The supply of deceased donor organs is a limiting factor for transplantation based therapies. This research utilizes a laboratory experiment to evaluate the effectiveness of alternative public policies targeted at increasing the rate of deceased donor organ donation. The experiment includes treatments across different default choices (opt-in versus opt-out) and organ allocation rules (without versus with priority rule) inspired by the donor registration systems applied in different countries. Furthermore, the experiment includes a controlled treatment to measure the effects of a neutral versus descriptive framing of the decision task. Our results indicate that the opt-out system with priority rule generates the largest increase in organ donation relative to an opt-in only program. However, sizeable gains are achievable using either a priority rule or opt-out program separately, with the opt-out rule generating approximately 80% of the benefits achieved under a priority rule program. |
| JEL: | C91 I10 I18 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:exc:wpaper:2012-15&r=exp |
| By: | Dean Karlan (Economics Department, Yale University); Ryan Knight (School of Management, Yale University); Christopher Udry (Economics Department, Yale University) |
| 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: | entrepreneurship; credit constraints; business training; consulting; managerial capital |
| JEL: | D21 D24 D83 D92 L20 M13 O12 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:1014&r=exp |
| By: | Masella, Paolo (University of Mannheim); Meier, Stephan (Columbia University); Zahn, Philipp (University of Mannheim) |
| Abstract: | This paper investigates in a principal-agent environment whether and how group membership influences the effectiveness of incentives and when incentives can have “hidden costs”, i.e., a detrimental effect. We show experimentally that in all interactions control mechanisms can have hidden costs for reasons specific to group membership. In within-group interactions control has detrimental effects because the agent does not expect to be controlled and reacts negatively when being controlled. In between-group interactions, agents perceive control more hostile once we condition on their beliefs about principal's behavior. Our finding contributes to the micro-foundation of psychological effects of incentives. |
| Keywords: | crowding out, motivation, incentives, social preferences, social identity, trust, experiment |
| JEL: | C91 D03 Z13 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6815&r=exp |
| By: | Michael Ewens; Bryan Tomlin; Liang Choon Wang |
| Abstract: | A model of racial discrimination provides testable implications for two features of statistical discriminators: differential treatment of signals by race and heterogeneous experience that shapes perception. We construct an experiment in the U.S. rental apartment market that distinguishes statistical discrimination from taste-based discrimination. Responses from over 14,000 rental inquiries with varying applicant quality show that landlords treat identical information from applicants with African-American and white sounding names differently. This differential treatment varies by neighborhood racial composition and signal type in a way consistent with statistical discrimination and in contrast to patterns predicted by a model of taste-based discrimination. |
| JEL: | J15 J70 J71 R3 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-23&r=exp |
| By: | Gianluca Stefani (University of Florence); Alessio Cavicchi (University of Macerata) |
| Abstract: | <div style="text-align: justify">This paper reports results of an evaluation experiment designed to provide both hedonic scores and measurements of consumer willingness to pay (WTP), on the basis of visual inspection, tasting, and presentation of information on origin, ingredients, and production processes of typical kinds of Italian salami with pig blood as their principal component. The information on the production methods and ingredients seemed to interact negatively with the sensorial perception of the product after tasting, probably because of the presence of blood and other problematic components among the ingredients.</div> |
| Keywords: | hedonic scores,experimental auctions,food marketing,consumer behavior |
| JEL: | C91 C93 D12 Q13 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mcr:wpaper:wpaper00037&r=exp |
| By: | Hubert Janos Kiss (Eötvös Loránd University, Department of Economics); Ismael Rodriguez-Lara (ERI-CES); Alfonso Rosa-Garcia (Universidad de Murcia, Dpt. Analisis Economico) |
| Abstract: | We report experimental evidence on the effect of observability of actions on bank runs. We model depositors' decision-making in a sequential framework, with three depositors located at the nodes of a network. Depositors observe the other depositors' actions only if connected by the network. A sufficient condition to prevent bank runs is that the second depositor to act is able to observe the first one's action (no matter what is observed). Experimentally, we find that observability of actions affects the likelihood of bank runs, but depositors' choice is highly influenced by the particular action that is being observed. This finding suggests a new source for the ocurrence of bank runs. Observability of actions can provoke runs that cannot be explained neither by coordination nor by fundamental problems, the two main culprits identified by the literature. |
| Keywords: | bank runs, social networks, coordination failures, experimental evidence |
| JEL: | C70 C91 D80 D85 G21 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0812&r=exp |
| By: | Philip J. Grossman; Mana Komai |
| Abstract: | We report results from a multi-period game designed to stimulate anti-social preferences and to measure the cost of to a society with members who act on these preferences. There are a number of important features of our game that, while individually not unique, in total distinguish it from previous games used to examine anti-social preferences. The unique feature of our design is that it addresses the two negative effects of anti-social preferences: the wasteful expenditure of resources in an attempt to harm others and the wasteful use of resources by the targets of antisocial actions in an attempt to protect themselves. We report evidence of anti-social preferences; those who were less well-off attack those who were better off, but the pattern of attacks is more complicated than suggested by available theory. We find within class attacks to be the most common type of attack observed. Relative standing within a type seems to be the motivation. Rich players are motivated in their attacks by a desire to move up in ranking within their type, while the poor players are motivated in their attacks by a desire to avoid moving down in ranking within their type. Finally, as wasteful as attacks are, spending on protection against attacks, while individually rational, results in even more waste. Subjects purchased insurance at twice the rate of attacks. Within our laboratory society, players acting on their anti-social preferences reduce total economic welfare by approximately 20 per cent. |
| Keywords: | anti-social preferences, insurance, envy |
| JEL: | C91 D03 D6 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2012-21&r=exp |
| By: | Cameron, Lisa A. (Monash University); Shah, Manisha (University of California, Irvine) |
| Abstract: | We study whether natural disasters affect risk-taking behavior exploiting geographic variation in exposure to natural disasters. We conduct standard risk games (using real money) with randomly selected individuals in Indonesia and find that individuals who recently suffered a flood or earthquake exhibit more risk aversion than individuals living in otherwise like villages. The impact persists for several years, particularly if the disaster was severe. Some, but not all, of this effect is due to income losses. While we cannot rule out fundamental changes in risk preferences, data on subjective beliefs of the probability of a disaster occurring and the expected severity of such a disaster suggest that changes in perceptions of background risk are driving the more risk-averse behavior we observe. We show that access to insurance can partly offset this effect. Finally, we relate the observed experimental behavior to the propensity of respondents to take risks in their daily lives and show that an increase in risk-aversion has important implications for economic development. |
| Keywords: | natural disasters, risk aversion, development |
| JEL: | Q54 O12 D81 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6756&r=exp |
| By: | Cheung, Stephen L. (University of Sydney) |
| Abstract: | Andreoni and Sprenger (in press) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of their result to the experimental design. I find that the effect disappears completely when a multiple price list is used instead of a convex time budget design. Also, the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries. The result is thus partially driven by intertemporal diversification, suggesting an explanation in terms of concavity of the intertemporal, and not only the atemporal, utility function. |
| Keywords: | intertemporal choice, risk and certainty, convex time budget, multiple price list |
| JEL: | C91 D03 D81 D90 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6762&r=exp |
| By: | Sofie Kragh Pedersen; Alexander K. Koch; Julia Nafziger (Department of Economics and Business, Aarhus University, Denmark) |
| Abstract: | Abstract Little is known about the demand side of paternalism. We investigate attitudes towards paternalism among Danish students. The main question is whether demand for paternalism is related to self-control, either because people with self-control problems seek commitment devices to overcome these problems, or because people with good self-control want those who lack it to change their behaviors. We find no evidence linking self-control to attitudes towards weak forms of paternalism (e.g. nudges or information about health consequences). But respondents with good selfcontrol are significantly more favorable towards strong paternalism (e.g. restricting choices or sin taxes) than those struggling with self-control. |
| Keywords: | Self-control, paternalism, commitment, political attitudes |
| JEL: | D03 H11 C83 D6 |
| Date: | 2012–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2012-22&r=exp |