nep-exp New Economics Papers
on Experimental Economics
Issue of 2012‒10‒06
twenty-two papers chosen by
Daniel Houser
George Mason University

  1. Opting-In: Participation Biases in the Lab By Slonim, Robert; Wang, Carmen; Garbarino, Ellen; Merrett, Danielle
  2. Self-Selection and Variations in the Laboratory Measurment of Other-Regarding Preferences Across Subject Pools: Evidence from One College Student and Two Adult Samples By D Nosenzo; Jon Anderson; Stephen V Burks; Jeffrey Carpenter; Lorenz Gotte; Karsten Maurer; Ruth Potter; Kim Rocha; Aldo Rustichini
  3. Fooling the Nice Guys: The effect of lying about contributions on public good provision and punishment By Bernd Irlenbusch; Janna Ter Meer
  4. Do people avoid opportunities to donate? A natural field experiment on recycling and charitable giving By Knutsson, Mikael; Martinsson, Peter; Wollbrant, Conny
  5. Trust and Trustworthiness under the Prospect Theory: A Field Experiment in Vietnam By Nguyen, Quang; Villeval, Marie Claire; Xu, Hui
  6. Conditional Cooperation and Disclosure in Developing Countries By Martinsson, Peter; Pham-Khanh, Nam; Villegas-Palacio, Clara
  7. An Experimental Test of a Committee Search Model By Hizen, Yoichi; Kawata, Keisuke; Sasaki, Masaru
  8. Is trust an ambiguous rather than a risky decision By Sacha Bourgeois-Gironde; Anne Corcos; François Pannequin
  9. When the stress of quitting meets the cost of playing: An Experiment on to quit or not to quit? By Schade, Christian; Snir, Avichai
  10. Mediocrity and induced reciprocity By Natalia Montinari; Antonio Nicolo; Regine Oexl
  11. Measuring risk aversion with lists: A new bias By Antoni Bosch-Domenech; Joaquim Silvestre
  12. Does Team Telecommuting Affect Productivity? An Experiment By Dutcher, E. Glenn; Saral, Krista Jabs
  13. A Survey of Experimental Research on Contests, All-Pay Auctions and Tournaments By Emmanuel Dechenaux; Dan Kovenock; Roman Sheremeta
  14. Principal-Agent Settings with Random Shocks By Jared Rubin; Roman Sheremeta
  15. Information Feedback and Contest Structure in Rent-Seeking Games By Francesco Fallucchi; Elke Renner; Martin Sefton
  16. Aversions to trust By Sacha Bourgeois-Gironde; Anne Corcos François Pannequin
  17. Evolutionary Dynamical Pattern of 'Coyness and Philandering': Evidence from Experimental Economics By Bin Xu; Zhijian Wang
  18. Willingness-to-Pay for Organic Food Products and Organic Purity: Experimental Evidence By Strzok, Jesse L.; Huffman, Wallace E.
  19. Optimal short-sighted ruless By Sacha Bourgeois-Gironde
  20. Social preferences, accountability, and wage bargaining By Kocher, Martin G.; Poulsen, Odile; Zizzo, Daniel J.
  21. Menu-Dependent Emotions and Self-Control By Joaquin Gomez-Minambres; Eric Schniter
  22. Strategic Experimentation with Private Payoffs By Heidhues, Paul; Rady, Sven; Strack, Philipp

  1. By: Slonim, Robert (University of Sydney); Wang, Carmen (University of Sydney); Garbarino, Ellen (University of Sydney); Merrett, Danielle (University of Sydney)
    Abstract: Assuming individuals rationally decide whether to participate or not to participate in lab experiments, we hypothesize several non-representative biases in the characteristics of lab participants. We test the hypotheses by first collecting survey and experimental data on a typical recruitment population and then inviting them to participate in a lab experiment. The results indicate that lab participants are not representative of the target population on almost all the hypothesized characteristics, including having lower income, working fewer hours, volunteering more often, and exhibiting behaviors correlated with interest in experiments and economics. We discuss the implications and various methods for addressing non-representative biases.
    Keywords: participation bias, laboratory experiments
    JEL: C9
    Date: 2012–09
  2. By: D Nosenzo (School of Economics, the University of Nottingham); Jon Anderson (Division of Science and Mathematics, University of Minnesota); Stephen V Burks (Division of Social Science, University of Minnesota); Jeffrey Carpenter (Department of Economics, Middlebury College); Lorenz Gotte (Faculty of Business and Economics, University of Lausanne); Karsten Maurer (Department of Statistics, Iowa State University); Ruth Potter (Division of Social Science, University of Minnesota); Kim Rocha (Division of Social Science, University of Minnesota); Aldo Rustichini (Department of Economics, University of Minnesota)
    Abstract: We measure the other-regarding behavior in samples from three related populations in the upper Midwest of the United States: college students, non-student adults from the community surrounding the college, and adult trainee truckers in a residential training program. The use of typical experimental economics recruitment procedures made the first two groups substantially self-selected. Because the context reduced the opportunity cost of participating dramatically, 91% of the adult trainees solicited participated, leaving little scope for self-selection in this sample. We find no differences in the elicited other-regarding preferences between the selfselected adults and the adult trainees, suggesting that selection is unlikely to bias inferences about the prevalence of other-regarding preferences among non-student adult subjects. Our data also reject the more specific hypothesis that approval-seeking subjects are the ones most likely to select into experiments. Finally, we observe a large difference between self-selected college students and self-selected adults: the students appear considerably less pro-social.
    Keywords: methodology; selection bias; laboratory experiment; field experiment; other regarding behavior, social preferences, prisoner's dilemma, truckload, trucker.
    Date: 2012
  3. By: Bernd Irlenbusch (University of Cologne); Janna Ter Meer (University of Cologne)
    Abstract: Our study takes an individual perspective on receiver credulity in a public good setting with deceptive messages. In a laboratory experiment, subjects play a public good game with punishment in which feedback on actual contributions is obscured. Instead, subjects can communicate what they have contributed through a post-hoc announcement mechanism. Using subject’s social value orientation, we show that those highest on the measure are too optimistic towards announcements of their fellow group members. This, in turn, influences payoff-relevant decisions: those high on social value orientation contribute more to the public good and punish their fellow group members less.
    Keywords: public goods, punishment, lying, receiver credulity
    JEL: C92 D03 H41 D02
    Date: 2012–08
  4. By: Knutsson, Mikael (Dept of Psychology, University of Gothenburg); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We use a natural field experiment to investigate the hypothesis that generosity is partly involuntary, by examining whether individuals tend to avoid opportunities to act generously. In Sweden, new recycling machines for bottles and cans with an option of donating the returned deposit to charity were gradually introduced in one of the largest store chains. We find a substantial decline in recycling the month these new machines were introduced and a further decline in the following months. These results indicate that individuals avoid opportunities to act generously and corroborate findings from both lab and field studies supporting the claim that generous behavior is partly involuntary
    Keywords: Generosity; Donations; Natural field experiment; Avoidance behavior
    JEL: C93 D01 D03 D64
    Date: 2012–09–25
  5. By: Nguyen, Quang (Nanyang Technological University, Singapore); Villeval, Marie Claire (CNRS, GATE); Xu, Hui (CNRS, GATE)
    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 O10 O53
    Date: 2012–09
  6. By: Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Pham-Khanh, Nam (Department of Economics, School of Business, Economics and Law, Göteborg University); Villegas-Palacio, Clara (Dept of Geosciences and Environment,)
    Abstract: Understanding the motivations behind people’s voluntary contributions to public goods is crucial for the broader issues of economic and social development. By using the experimental design of Fischbacher et al. (2001), we investigate the distribution of contribution types in two developing countries with very high collectivism rating – Colombia and Vietnam – and compare our findings with those previously found in developed countries. We also investigate the effect of introducing disclosure of contribution on the distribution of contribution types and on the contribution itself. Overall, our experiments show that the distribution of contribution types remains unaffected by the disclosure of contributions and, on average, is similar both in the two countries and when compared with previous findings with the exception of proportion of free-riders.<p>
    Keywords: Conditional cooperation; Disclosure; Experiment; Public Goods.
    JEL: C72 C92 H41
    Date: 2012–09–25
  7. By: Hizen, Yoichi (Hokkaido University); Kawata, Keisuke (Hiroshima University); Sasaki, Masaru (Osaka University)
    Abstract: The objective of this paper is to design a laboratory experiment for an infinite-horizon sequential committee search model in order to test some of the implications obtained by the model in Albrecht, Anderson, and Vroman (2010) (AAV). We find that, compared with single-agent search, the search duration is longer for committee search under the unanimity rule, but is shorter for committee search in which at least one vote is required to stop searching. In addition, according to estimates from round-based search decisions, subjects are more likely to vote to stop searching in committee search than in single-agent search. This confirms that agents are less picky in committee search. Overall, the experimental outcomes are consistent with the implications suggested by the AAV model. However, despite the prediction from the AAV model, we could not obtain a significant outcome in relation to the size order of the probabilities of voting to stop searching in committee search for the various plurality voting rules.
    Keywords: experiments, committee search, plurality voting rules
    JEL: C91 D83
    Date: 2012–09
  8. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); Anne Corcos (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); François Pannequin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, ENS Cachan - Ecole Normale Supérieure de Cachan - École normale supérieure de Cachan - ENS Cachan)
    Abstract: According to an early approach, the decision to trust in the one-shot anonymous trust game is intuitively tantamount to a risky decision: the willingness to bet on the reciprocation of my investment. In a seminal study, Eckel and Wilson (2004) explored the correlation between risk attitudes (as elicited through a Holt and Laury mechanism) and the behavior of investors in the trust game. They found no correlation: trust decision cannot be viewed as a risky decision. However, since the probabilities of possible returns are unknown, we argue that trust behavior may correlate more specifically with ambiguity aversion rather than with risk aversion. We therefore modified Eckel and Wilson's experimental procedure in order to investigate the question as to whether trust is an ambiguous decision. We extended Holt and Laury switching-point elicitation mechanism between risky lotteries to ambiguous lotteries as Chrakravarty and Roy (2009) did. We then ran an experimental session including a standard one shot anonymous trust game (OSG). We found significant negative correlations between aversion to ambiguity and behavior in OSG. This result is a plea in favor of a decision-theoretical analogy between choices in ambiguous lotteries and trust-games.
    Keywords: trust, risk aversion, ambiguity
    Date: 2012–08–10
  9. By: Schade, Christian; Snir, Avichai
    Abstract: Business-owners often postpone disinvestment decisions even when future profits are not expected to compensate for current losses. We use an experiment to study one possible behavioral motivation. Studies in psychology suggest that making decisions is stressful and, consequently, many people prefer to buck-pass their decisions to someone else or to postpone them to future periods. Other people, however, are vigilant subjects that are able to make efficient decisions. In our experiment, we measure subjects’ buck-passing, vigilance and risk-aversion traits and study their performance in games in which they have to make investment and disinvestment decisions. We find that the number of rounds most subjects play is greater than the number expected by real-option theory but that vigilant and risk-averse subjects tend to make decisions that are more efficient than all other subjects, that vigilant but not risk-averse subjects tend to shirk making the investment decisions and that buck-passing and not risk-averse subjects tend to postpone their disinvestment decisions even when they make losses that would have induced most other subjects to disinvest. Unternehmer sind dafür bekannt, Desinvestitionsentscheidungen zu verschieben, auch wenn die Erwartung über zukünftige Gewinne nicht ausreicht, um die derzeitigen Verluste zu kompensieren. Wir führen eine experimentelle Studie durch, um einen möglichen Treiber dieses Verhaltens besser zu verstehen. Psychologische Studien zeigen, dass das Treffen von Entscheidungen mit Stress verbunden sein kann, und dass viele Menschen daher eine Neigung haben, entweder andere ihre Entscheidungen treffen zu lassen oder diese auf zukünftige Perioden zu verschieben. Andere Personen sind dagegen wachsam und dazu in der Lage, effizient zu entscheiden. In unserem Experiment messen wir die Tendenz von Personen, ihre Entscheidungen zu verschieben bzw. wachsam zu sein sowie deren Risikobereitschaft und beobachten, wie gut diese in Spielen abschneiden, in denen sie Investitions- und Desinvestitionsentscheidungen treffen müssen. Unsere Ergebnisse zeigen, dass die meisten Personen mehr Runden spielen, als dies auf Basis der Realoptionstheorie erklärt werden kann, dass aber zugleich wachsame und risikoaverse Personen Entscheidungen treffen, die näher an eine effiziente Entscheidung herankommen als die anderer Personen. Wir zeigen weiterhin, dass wachsame, aber nicht risikoaverse Personen dazu neigen, die Investitionsentscheidung gar nicht erst zu treffen (d.h., die Teilnahme an dem Spiel zu vermeiden), und dass verschiebende und nicht risikoaverse Personen dazu neigen, ihre Desinvestitionsentscheidungen auch dann spät zu treffen, wenn sie Verluste machen, bei denen andere längst mit dem Spiel aufgehört hätten.
    Keywords: buck-passing, conflict theory of decision making, disinvestment decisions, economic experiment, optimal stopping, player types, risk aversion, vigilance, Buck-passing (Entscheidungsverschiebungsneigung), Konflikttheorie der Entscheidung, Desinvestitionsentscheidungen, ökonomisches Experiment, optimal stopping, Spielertypen, Risikoneigung, Vigilance (Wachsamkeit), Agribusiness, Agricultural and Food Policy, Farm Management, Labor and Human Capital, Risk and Uncertainty, D03, D81, L26,
    Date: 2012–09
  10. By: Natalia Montinari; Antonio Nicolo; Regine Oexl
    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 higher ability, and principals who choose 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
  11. By: Antoni Bosch-Domenech; Joaquim Silvestre (Department of Economics, University of California Davis)
    Abstract: Various experimental procedures aimed at measuring individual risk aversion involve a list of pairs of alternative prospects. We first study the widely used method by Holt and Laury (2002), for which we find that the removal of some items from the lists yields a systematic decrease in risk aversion and scrambles the ranking of individuals by risk aversion. This bias, that we call embedding bias, is quite distinct from other confounds that have been previously observed in the use of the Holt and Laury method. It may be related to empirical phenomena and theoretical developments where better prospects increase risk aversion. Nevertheless, we also find that the more recent elicitation method due to Abdellaoui et al. (2011), also based on lists but using only one and the same probability in the list, does not display any statistically significant bias when the corresponding items of the list are removed. Our results suggest that methods other than the popular Holt and Laury one may be preferable for the measurement of risk aversion.
    Keywords: Risk aversion, risk attitudes, experiments, lists, elicitation method, Holt, Laury, Abdellaoui, Driouchi, l’Haridon, independence axiom, probability weighting
    JEL: C
    Date: 2012–09–26
  12. By: Dutcher, E. Glenn; Saral, Krista Jabs
    Abstract: Telecommuting policies have been increasingly adopted by employers. The benefits of telecommuting from the employer's perspective include direct cost-saving from not having to house employees in an office and indirect cost-saving through reduced turnover associated with increased employee satisfaction. The downside is the perceived opportunity for shirking outside of the traditional workplace, a problem which is potentially exacerbated if employees are placed into telecommuting teams. Using a controlled experiment which randomly assigned subjects to participate in the laboratory (non-telecommuters) or to participate online in a location of their choice (telecommuters), we directly test whether telecommuters are more likely to free ride when in teams and whether or not the locational composition of the team influences this outcome. We find no evidence of free-riding in teams for either telecommuters or non-telecommuters. We also find that variation in output when a worker is paired in a traditional team versus a telecommuting team can be attributed to the beliefs subjects have about their teammates productivity. The last result leads directly to policy implications for managers.
    Keywords: Telecommuting; Team Production; Productivity; Virtual Teams; Economic Experiments
    JEL: C9 J21 J01 J24
    Date: 2012–09
  13. By: Emmanuel Dechenaux (Department of Economics, Kent State University); Dan Kovenock (Economic Science Institute, Chapman University); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: Many economic, political and social environments can be described as contests in which agents exert costly efforts while competing over the distribution of a scarce resource. These environments have been studied using Tullock contests, all-pay auctions and rank-order tournaments. This survey provides a review of experimental research on these three canonical contests. First, we review studies investigating the basic structure of contests, including the contest success function, number of players and prizes, spillovers and externalities, heterogeneity, and incomplete information. Second, we discuss dynamic contests and multibattle contests. Then we review research on sabotage, feedback, bias, collusion, alliances, and contests between groups, as well as real-effort and field experiments. Finally, we discuss applications of contests to the study of legal systems, political competition, war, conflict avoidance, sales, and charities, and suggest directions for future research.
    Keywords: contests, all-pay auctions, tournaments, experiments
    JEL: C7 C9 D7 H4 J4 J7 K4 L2 M5
    Date: 2012
  14. By: Jared Rubin (Argyros School of Business and Economics, Chapman University); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent’s effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, the introduction of random shocks reduces wages and effort, regardless of whether the shocks can be observed by the principal. Moreover, the introduction of shocks significantly reduces the probability of fulfilling the contract by the agent, the payoff of the principal, as well as total welfare.
    Keywords: gift exchange, principal-agent model, contract theory, reciprocity, effort, shocks, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2012
  15. By: Francesco Fallucchi (School of Economics, University of Nottingham); Elke Renner (School of Economics, University of Nottingham); Martin Sefton (School of Economics, University of Nottingham)
    Abstract: We investigate the role of information feedback in rent-seeking games with two different contest structures. In the stochastic contest a contestant wins the entire rent with probability equal to her share of rent-seeking expenditures; in the deterministic contest she receives a share of the rent equal to her share of rent-seeking expenditures. Information feedback has very different effects depending on the contest structure. We observe the highest rent dissipation in stochastic contests when players only get feedback on own choices and earnings. In these contests aggregate expenditures usually exceed the value of the rent. We find that giving additional feedback about rivals? choices and earnings moderates average expenditures. In contrast, in deterministic contests average expenditures converge to equilibrium levels when subjects only get feedback about own choices and earnings. In these contests additional feedback about rivals? choices and earnings has the opposite effect of raising average expenditures.
    Keywords: contests, rent-seeking, information, learning, imitation, experiments
    Date: 2012–12
  16. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442); Anne Corcos François Pannequin (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)
    Abstract: In this article, we focus on two types of "aversion" which we deem essential aspects of the notion of trust: betrayal aversion (social) and ambiguity aversion (a special case of aversion to uncertainty). Based on trust-games studies in experimental economics and neuroeconomics, our main goal is to assess the conceptual, behavioral and neurobiological connections between betrayal and ambiguity aversions. From a social and individual psychological point of view the bottom line of our trusting behavior could be our general aversion to ambiguous signals. We approach social trust in the terms of a phenomenon based on uncertainty aversion.Specifically, a reduction of the perceived uncertainty of a social interaction tends to build up a trusting climate conducive to trade by decreasing betrayal aversion.We hypothesize that betrayal aversion and ambiguity aversion bear such a negative correlation. Focusing on this potential negative correlation our approach clearly differs from more positive accounts of trust centred on altruism.
    Keywords: trust game - betrayal aversion - ambiguity aversion - neuroeconomics
    Date: 2012–11–25
  17. By: Bin Xu; Zhijian Wang
    Date: 2012
  18. By: Strzok, Jesse L.; Huffman, Wallace E.
    Date: 2012–09–24
  19. By: Sacha Bourgeois-Gironde (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)
    Abstract: The aim of this paper is to assess the relevance of methodological transfers from behavioral ecology to experimental economics with respect to the elicitation of intertemporal preferences. More precisely our discussion will stem from the analysis of Stephens and Anderson's (2001) seminal article. In their study with blue jays they document that foraging behavior typically implements short-sighted choice rules which are beneficial in the long run. Such long-term profitability of short-sighted behavior cannot be evidenced when using a self-control paradigm (one which contrasts in a binary way sooner smaller and later larger payoffs) but becomes apparent when ecological patch-paradigms (replicating economic situations in which the main trade-off consists in staying on a food patch or leaving for another patch) are implemented. We transfer this methodology in view of contrasting foraging strategies and self-control in human intertemporal choices.
    Keywords: behavioral ecology, intertemporal choice, myopia, patch-paradigms, self-control
    Date: 2012–09–11
  20. By: Kocher, Martin G.; Poulsen, Odile; Zizzo, Daniel J.
    Abstract: We assess the extent of preferences for employment in a collective wage bargaining situation with heterogeneous workers. We vary the size of the union and introduce a treatment mechanism transforming the voting game into an individual allocation task. Our results show that highly productive workers do not take employment of low productive workers into account when making wage proposals, regardless of whether insiders determine the wage or all workers. The level of pro-social preferences is small in the voting game, while it increases as the game is transformed into an individual allocation task. We interpret this as an accountability effect.
    Keywords: social preferences; wage bargaining; accountability; collective decision making
    JEL: C91 C92 D71 J51 J52
    Date: 2012–09
  21. By: Joaquin Gomez-Minambres (Economic Science Institute, Chapman University); Eric Schniter (Economic Science Institute, Chapman University)
    Abstract: We study a dynamic model of self-control where the history of one's decisions (understood as emotions) has influence on subsequent decision making. We propose that effort and regret are emotions produced by previous decisions to either resist or yield to temptation, respectively. When recalled, these emotions affect an individual's preferences, in turn affecting self-control decision at a particular point in time. Our model provides a unified explanation for several empirical regularities puzzling economists and cognitive scientists. We explain non-stationary consumption paths characterized by compensatory indulgence and restraint cycles, why the amplitude of consumption cycles increases with foresight and decreases with emotional memory, and, finally, we show how unavoidable options that might show up on one's menu influence choices, consequent emotions, consumption paths, and preferences for commitment.
    Date: 2012
  22. By: Heidhues, Paul; Rady, Sven; Strack, Philipp
    Abstract: We consider two players facing identical discrete-time bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing free-rider problem is so severe that the equilibrium number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. These results generalize to more than two players whenever the success probability per period is not too high. In particular, this is the case when successes occur at the jump times of a Poisson process and the period length is sufficiently small.
    Keywords: Strategic Experimentation; Bayesian Learning; Cheap Talk; Two-Armed Bandit; Information Externality.
    JEL: C73 D83
    Date: 2012–09–25

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