New Economics Papers
on Experimental Economics
Issue of 2012‒10‒13
twenty papers chosen by

  1. Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach By Noemi Pace; Giuseppe Attanasi; Christian Gollier; Aldo Montesano
  2. Tax Incidence: Do Institutions Matter? An Experimental Study By James C. Cox; Mark Rider; Astha Sen
  3. Exploring the Capability to Backward Induct – An Experimental Study with Children and Young Adults By Jeannette Brosig-Koch; Timo Heinrich; Christoph Helbach
  4. The impact of advice on women's and men's selection into competition By Jordi Brandts; Valeska Groener; Christina Rott
  5. To Belong or to Be Different? Evidence from a Large-Scale Field Experiment in China By Monic Sun; Xiaoquan (Michael) Zhang; Feng Zhu
  6. Does Money Burn Fat? – Evidence from a Randomized Experiment By Boris Augurzky; Thomas K. Bauer; Arndt R. Reichert; Christoph M. Schmidt; Harald Tauchmann
  7. The comparison of investment behaviors of Kazakhstani and German farmers: An experimental approach By Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
  8. "My friends: it would be an error to accept": Communication and group identity in a bargaining setting By Alexander Elbittar; Andrei Gomberg
  9. Cooperation, but no reciprocity: Individual strategies in the repeated Prisoner's Dilemma By Breitmoser, Yves
  10. Retaliation and the Role for Punishment in the Evolution of Cooperation By Irenaeus Wolff
  11. Does working with spouses make teams more productive? A field experiment in India using NREGA By Alistair Munro; Arjan Verschoor; Amaresh Dubey
  12. Discrete Clock Auctions: An Experimental Study By Peter Cramton; Emel Filiz-Ozbay; Erkut Ozbay; Pacharasut Sujarittanonta
  13. Team building and hidden costs of control By Riener, Gerhard; Wiederhold, Simon
  14. Excess capacity and pricing in Bertrand-Edgeworth markets: Experimental evidence By Fonseca, Miguel A.; Normann, Hans-Theo
  15. Service Provision on a Railway Network: An Experiment By Aurora Garcia-Gallego; Nikolaos Georgantzis; Gerardo Sabater-Grande
  16. Personality, Group Decision-Making and Leadership By Seda Ertac; Mehmet Y. Gurdal
  17. Evaluating conservation auctions with unknown bidder costs: the Scottish fishing vessel decommissioning program By Schilizzi, Steven; Latacz-Lohmann, Uwe
  18. The Determinants of Compliance on Environmental Tax: The Insights of Theoretical and Experimental Approaches Motivated by the Case of Indonesia By Iskandar, Deden Dinar; Wuenscher, Tobias; Badhuri, Anik
  19. Signaling Corporate Social Responsibility: Third-Party Certification vs. Brands By Fabrice Etilé; Sabrina Teyssier
  20. Fear of Losing in a Clock Auction By Peter Cramton; Emel Filiz-Ozbay; Erkut Ozbay; Pacharasut Sujarittanonta

  1. By: Noemi Pace (Department of Economics, University Of Venice Cà Foscari); Giuseppe Attanasi (University of Strasbourg); Christian Gollier (Toulouse School of Economics); Aldo Montesano (Bocconi University, Milan)
    Abstract: We define coherent-ambiguity aversion within the Klibanoff, Marinacci and Mukerji (2005) smooth ambiguity model (henceforth KMM) as the combination of choice-ambiguity aversion and value-ambiguity aversion. We analyze theoretically five ambiguous decision tasks, where a subject faces two-stage lotteries with binomial, uniform or unknown second-order probabilities. We check our theoretical predictions through a 10-task laboratory experiment. In (unambiguous) tasks 1-5, we elicit risk aversion both through a portfolio choice method and through a BDM mechanism. In (ambiguous) tasks 6-10, we elicit choice-ambiguity aversion through the portfolio choice method and value-ambiguity aversion through the BDM mechanism. We find that more than 75% of classified subjects behave according to the KMM model in all tasks 6-10, independent of their degree of risk aversion. Further, the percentage of coherently-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatment, with only the latter difference being significant. Finally, highly-risk-averse subjects are more prone to coherent-ambiguity.
    Keywords: coherent-ambiguity aversion, value-ambiguity aversion, choice-ambiguity aversion, smooth ambiguity model, binomial distribution, uniform distribution, unknown urn.
    JEL: D81 D83 C91
    Date: 2012
  2. By: James C. Cox; Mark Rider; Astha Sen
    Abstract: There is perhaps no more important question in public finance than who ultimately bears the burden of a tax. According to tax incidence theory, the long-run incidence of a tax in competitive markets is independent of the assignment of the liability to pay tax. Moreover, the theory is silent on the possible effects of market institutions on tax incidence. We report data from an experiment designed to address two questions: (A) Is tax incidence independent of the assignment of the liability to pay tax in experimental markets? (B) Is tax incidence independent of the market institution in experimental markets? We conduct laboratory experiments with two market institutions: double auction and posted offer markets. Based on the results of Kolmogorov-Smirnov tests of experimental market prices, we conclude that the answer to both question A and question B is "no."
    Date: 2012–10
  3. By: Jeannette Brosig-Koch; Timo Heinrich; Christoph Helbach
    Abstract: We investigate learning and the development of the capability to backward induct in children and young adults aged 6 to 23 under controlled laboratory conditions. The experimental design employs a modified version of the race game. As in the original game (see Burks et al., 2009, Dufwenberg et al., 2010, Gneezy et al., 2010, and Levitt et al., 2011), subjects need to apply backward induction in order to solve the games. We find that subjects’ capability to backward induct improves with age, but that this process systematically diff ers across gender. Our repetition of the games provides insights into differences in learning between age groups and across gender.
    Keywords: Backward induction; learning; age effects; experimental economics; children
    JEL: C72 J13 C91
    Date: 2012–07
  4. By: Jordi Brandts; Valeska Groener; Christina Rott
    Abstract: We conduct a laboratory experiment to study how advice affects the gender gap in the entry into a real-effort tournament. Our experiment is mo- tivated by the concerns raised by approaching the gender gap through affirmative action. Advice is given by subjects who have already had some experience with the participation decision. We show that advice improves the entry decision of subjects, in that forgone earnings due to wrong entry decisions go significantly down. This is mainly driven by significantly increased entry of strong performing women, who also become significantly more confident, and reduced entry of weak performing men.
    Keywords: : experiments, advice, gender gap in competitiveness
    JEL: C91 J08 J16
    Date: 2012–10–01
  5. By: Monic Sun (Department of Marketing, Stanford University); Xiaoquan (Michael) Zhang (Department of Information Systems, Business Statistics and Operations Management, Hong Kong University of Science and Technology); Feng Zhu (Department of Management and Organization, University of Southern California)
    Abstract: We examined whether people conform to or diverge from the most popular choice among their friends by conducting a large-scale field experiment on a leading social-networking site in China. Our setting allowed us to minimize confounding effects such as pre-existing taste similarities between a subject and her friends, the need to create a social identity, and the possibility of learning by observing friends’ choices. Surprisingly, we found that subjects were more likely to diverge from the popular choice among their friends as the popularity of that choice increased. The effect was more pronounced when they were reminded that their choices were visible to their friends. These results suggest that even members of a collectivist culture have a dominating need to be different.
    Keywords: uniqueness-seeking, conformity, collectivist culture, field experiment, social network
    JEL: C93 J10
    Date: 2012–06
  6. By: Boris Augurzky; Thomas K. Bauer; Arndt R. Reichert; Christoph M. Schmidt; Harald Tauchmann
    Abstract: We test whether financial incentives have an effect on weight reduction in a randomized controlled trial involving 700 obese persons assigned to three experimental groups. While two treatment groups obtain Euro150 and Euro300, respectively, for achieving an individually assigned target weight within four months, a control group receives no such premium. The results indicate that the weight losses for the treatment groups are 2.6 and 2.9 percentage points higher than that achieved by the control group, raising the average total weight loss for the incentivized groups to 5 percent of the initial weight. This percentage is typically regarded as a threshold to improve the health status of the obese. Further evidence indeed indicates some health improvements. The higher reward causes only the group of obese women to lose more weight. Overall, the results suggest that financial incentives can motivate people to lose weight significantly.
    Keywords: Randomized experiment; financial incentives for weight loss; obesity; nonrandom sample attrition; effect heterogeneity
    JEL: I10 I18 H23 C93
    Date: 2012–09
  7. By: Tubetov, Dulat; Maart, Syster Christin; Musshoff, Oliver
    Abstract: Kazakhstan and Germany have different development levels of the agricultural sector. One of the explanations for this fact might be the different investment behavior of farmers in the two countries. In this study, we experimentally compare the investment behavior of farmers in the two countries in a farmland investment treatment and a coin tossing game investment treatment. In addition, farmers were confronted with the two treatments in a different order. Results demonstrate that German farmers are more reluctant to make investment than Kazakhstani farmers. Moreover, results are independent from the framing of a farmland investment and a coin tossing game investment treatment. Furthermore, the investment behaviors of farmers were contrasted with normative benchmark of the classical investment theory and the real options theory. Our results show that both theories cannot exactly explain the investment behavior of farmers. However, farmers learn from former investment behavior and consider the value of waiting over time.
    Keywords: Experimental Economics, Investment Timing, Real Options, Kazakhstan, Germany, Agricultural Finance, C91, D03, D81, D92,
    Date: 2012–04
  8. By: Alexander Elbittar (Centro de Investigación y Docencia Económica (CIDE)); Andrei Gomberg (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: In this paper we introduce communication into intergroup ultimatum bargaining in a lab. The responder groups vote whether to accept the proposals with unanimity required either for acceptance or for rejection. In contrast with the no-communication results reported in our previous study (Elbittar, Gomberg and Sour 2011), the group decision rule does affect the individual voting behavior when subjects are allowed to exchange messages before voting. In fact, when acceptance is the default, subjects become substantially more likely to vote to reject an offer. As a result, the formal group decision-making rule turns out to have little impact on group decisions, which follow the behavior of the more confronational subjects, as predicted by the "group discontinuity hypothesis" of the psychological literature.
    Keywords: Bargaining games, group decision making, communication and experiments
    JEL: C92 D44 D82
    Date: 2012
  9. By: Breitmoser, Yves
    Abstract: A recent advance in our understanding of repeated PDs is the detection of a threshold d* at which laboratory subjects start to cooperate predictively. This threshold is substantially above the classic threshold "existence of Grim equilibrium" and has been characterized axiomatically by Blonski, Ockenfels, and Spagnolo (2011, BOS). In this paper, I derive its behavioral foundations. First, I show that the threshold is equivalent to existence of a "Semi-Grim" equilibrium s_cc>s_cd=s_dc>s_dd. It is cooperative (s_cc>0.5), non-reciprocal (s_cd=s_dc), and robust to imperfect monitoring ("belief-free"). Next, I show that the no-reciprocity condition s_cd=s_dc also follows from robustness to random-utility perturbations (logit equilibrium). Finally, I re-analyze strategies in four recent experiments and find that the majority of subjects indeed plays Semi-Grim when it is an equilibrium strategy, which explains d*'s predictive success.
    Keywords: Repeated Prisoner's Dilemma; experiment; equilibrium selection; cooperative behavior; reciprocity; belief-free equilibria; robustness
    JEL: C92 C73 C72
    Date: 2012–10–04
  10. By: Irenaeus Wolff
    Abstract: Models of evolutionary game theory have shown that punishment may be an adaptive behaviour in environments characterised by a social-dilemma situation. Experimental evidence closely corresponds to this nding but questions the cooperation-enhancing eect of punishment if players are allowed to retaliate against their punishers. This study provides a theoretical explanation for the existence of retaliating behaviour in the context of repeated social dilemmas and analyses the role punishment can play in the evolution of cooperation under these conditions. We show a punishing strategy can pave the way for a partially-cooperative equilibrium of conditional cooperators and defecting types and, under positive mutation rates, foster the cooperation level in this equilibrium by prompting reluctant cooperators to cooperate. However, when rare mutations occur, it cannot sustain cooperation by itself as punishment costs favour the spread of non-punishing cooperators.
    Keywords: Public goods, Prisoner's Dilemma, Strong reciprocity, Counterpunishment
    Date: 2012
  11. By: Alistair Munro (National Graduate Institute for Policy Studies); Arjan Verschoor (School of International Development, University of East Anglia); Amaresh Dubey (Centre for the Study of Regional Development, Jawaharlal Nehru University)
    Abstract: An important question in labour economics is whether the presence in a work environment of friends or relations lowers or raises productivity. We examine the question using evidence from a simple field experiment in Uttar Pradesh, India with married wives and husbands. Teams of four are engaged to dig soil under the NREGA programme. In one treatment husbands and wives work together; in the other treatment they work in separate teams. We find that working with spouses is associated with significantly higher productivity.
    Date: 2012–09
  12. By: Peter Cramton (Economics Department, University of Maryland); Emel Filiz-Ozbay (Economics Department, University of Maryland); Erkut Ozbay (Economics Department, University of Maryland); Pacharasut Sujarittanonta
    Abstract: We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. In theory, both the HRB and LAB auctions maximize revenues and are fully efficient in our setting. Our experimental results indicate that the LAB auction achieves higher revenues. This revenue result may explain the frequent use of LAB pricing. On the other hand, HRB is successful in eliciting true values of the bidders both theoretically and experimentally.
    Keywords: Auctions, clock auctions, spectrum auctions, behavioral economics, market design
    JEL: D44 C78 L96
    Date: 2012
  13. By: Riener, Gerhard; Wiederhold, Simon
    Abstract: This paper investigates the interaction of intrinsic and extrinsic incentives. We propose a simple principal-agent model with control that incorporates the existence of social groups resulting from common experiences in the past. Our laboratory experiment shows that agents with previous common experiences with their principals (CE agents) perform better than agents without such experiences (NCE agents). However, as soon as actual control exceeds their expectation, CE agents decrease their performance substantially, which has no equivalent for NCE agents. This pronounced decrease in effort when control is perceived as excessive represents a novel channel through which hidden costs of control materialize. Our results have important implications for firms' strategies to motivate employees. --
    Keywords: Employee motivation,Principal-agent theory,Experiments
    JEL: C92 M54 D03 J22
    Date: 2012
  14. By: Fonseca, Miguel A.; Normann, Hans-Theo
    Abstract: We conduct experiments testing the relationship between excess capacity and pricing in repeated Bertrand-Edgeworth duopolies and triopolies. We systematically vary the experimental markets between low excess capacity (suggesting monopoly) and no capacity constraints (suggesting perfect competition). Controlling for the number of firms, higher production capacity leads to lower prices. However, the decline in prices as industry capacity rises is less pronounced than predicted by Nash equilibrium, and a model of myopic price adjustments has greater predictive power. With higher capacities, Edgeworth-cycle behavior becomes less pronounced, causing lower prices. Evidence for tacit collusion is limited and restricted to low-capacity duopolies. --
    Keywords: tacit collusion,excess capacity,Edgeworth cycles
    JEL: C72 C90 D43
    Date: 2012
  15. By: Aurora Garcia-Gallego (Laboratorio de Economia Experimental and Economics Department, Universitat Jaume I); Nikolaos Georgantzis (Laboratorio de Economia Experimental, Universitat Jaume I and Economics Department, Universidad de Granada); Gerardo Sabater-Grande (Laboratorio de Economia Experimental and Economics Department, Universitat Jaume I)
    Abstract: Inspired by the ongoing debate regarding the liberalization of the Spanish railway network, we use real-world information on the features of passenger transportation demand and the existing network infrastructure to build a complex experimental setting. We test the efficiency of alternative service provision obligations imposed to railway companies. Our results show that imposing a minimum service for less profitable connections not only improves consumer and overall welfare but will not harm the companies, because it enhances connectivity and the overall demand on the network. In the absence of such service provision restrictions, the companies failing to recognize the profitability of creating a complete network leave some connections unserved, thus reducing overall demand for passenger services.
    Keywords: Transportation sector, Railway network, Experimental Economics
    JEL: C92 L33 L51 L92
    Date: 2012–09
  16. By: Seda Ertac (Department of Economics, Koç University); Mehmet Y. Gurdal (Department of Economics, TOBB-ETU)
    Abstract: This paper explores the effect of personality traits on: (1) the willingness to make risk-taking decisions on behalf of a group, (2) the nature of "choice shifts", i.e. the difference between the amount of risk taken in the group context and individually. Openness and agreeableness emerge as significant determinants of the willingness to lead: non-leader women and non-leader men score lower on openness and higher in agreeableness compared to both leader men and leader women. Neuroticism explains the within-gender variance in individual risk-taking among women, who are on average more risk-averse than men. Subjects in general behave more cautiously when they are making risky decisions on behalf of a group. Among men, a higher agreeableness score implies higher caution in group decisions, while conscientiousness leads to less caution. In contrast, among women, a higher conscientiousness score implies higher caution in the group context, suggesting that the two genders might interpret the social norms in group decision-making differently.
    Keywords: Personality, leadership, gender, group decision-making, risk, choice shifts, experiments.
    JEL: C91 C92 D81 J16
    Date: 2012–10
  17. By: Schilizzi, Steven; Latacz-Lohmann, Uwe
    Abstract: As an alternative to the more traditional fixed-price schemes, governments can run auctions to purchase environmental services from private agents. Governments have so far chosen the discriminatory price (DP) over the uniform price (UP) format. Theoretical and experimental studies have concluded that the DP usually performs better than the UP in terms of cost-effectiveness. Using field data from two fishing vessel decommissioning auctions in Scotland, we find ambiguous results regarding relative DP and UP performances. A novel approach for estimating the underlying bidder costs shows that bid shading and cost heterogeneity can each determine relative auction performance.
    Keywords: Auctions, procurement tenders, conservation, fisheries, buyback schemes, decommissioning, natural resource management, evaluation, experimental economics, Agribusiness, C92, D44, Q22, Q28,
    Date: 2012–04
  18. By: Iskandar, Deden Dinar; Wuenscher, Tobias; Badhuri, Anik
    Abstract: This study is intended to provide the clue regarding the determinants of compliance with environmental tax under imperfect monitoring and the presence of bribery, motivated by the case of Indonesia. The study is expected to contribute on environmental policy and tax compliance literatures, particularly by examining the impact of financial reward under the presence of bribery, aside of others conventional compliance instruments such as tax rate, audit, and sanction. In addition to financial reward, this study also incorporates the bribe explicitly as a determinant of compliance. The study employs theoretical and experimental approaches. While theoretical analysis find that the compliance will decrease with tax rate and increase with audit, sanction, financial reward, and the bribe rate; the experiment findings indicate that the impact of each determinant are vary according to the existence of bribery. Despite the difference, both approaches show that the bribery indeed hampers the compliance on environmental tax. The bribery encourages the polluting firms to aggressively evade the environmental tax as the tax rate increase and curbs the positive impact of financial reward in enhancing the compliance.
    Keywords: Environmental Tax, Compliance, Theoretical Approach, Laboratory Experiment, Environmental Economics and Policy,
    Date: 2012–04
  19. By: Fabrice Etilé (ALISS - Alimentation et sciences sociales - INRA : UR1303, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Sabrina Teyssier (ALISS - Alimentation et sciences sociales - INRA : UR1303)
    Abstract: For most consumers, Corporate Social Responsibility is a credence attribute of products, which can be signaled either through a label certified by a third party, or via unsubstantiated claims used as part of a brand-building strategy. These claims may, in theory, be regulated by reputation mechanisms and the awareness of NGOs and activists. We use an experimental posted-offer market with sellers and buyers to compare the impact of these signalling strategies on market efficiency. Both third-party certification and the possibility of CSRrelated brand building give rise to a separating equilibrium. However, only third-party certification clearly produces efficiency gains, by increasing CSR investments. In markets where reputation matters little, unsubstantiated claims can generate a 'halo' effect on consumers, whereby the latter are nudged into paying more for the same level of CSR investments by firms.
    Keywords: Corporate social responsibility ; Third-party certification ; Brand building ; Market experiment ; Halo effect
    Date: 2012–09
  20. By: Peter Cramton (Economics Department, University of Maryland); Emel Filiz-Ozbay (Economics Department, University of Maryland); Erkut Ozbay (Economics Department, University of Maryland); Pacharasut Sujarittanonta
    Abstract: We examine bidding behavior in a clock auction in which price is set by the lowest-accepted bid and provisional winners are reported each round (the LABpw auction). This format was used in the India 3G spectrum auction. In the standard theory, the auction performs poorly. In particular it yields lower revenues and is less efficient than the more standard clock auction with exit bids and highest-rejected-bid pricing (the HRB auction). However, the LABpw auction performs well in the lab, achieving higher revenues than the HRB auction. We show how fear of losing provides one motivation for the overbidding that causes higher revenues in the LABpw auction.
    Keywords: Auctions, clock auctions, spectrum auctions, behavioral economics, market design
    JEL: D44 C78 L96
    Date: 2012

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